Filed Pursuant to Rule 424(b)(1) & (2)
File No. 333-27221
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 22, 1997)
6,000,000 SHARES
[UNITED DOMINION LOGO]
8.60% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
(NO PAR VALUE)
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------
Dividends on the 8.60% Series B Cumulative Redeemable Preferred Stock, no
par value (the "Preferred Stock"), of the Company will be cumulative from the
date of original issue and will be payable quarterly on or about the last day of
February, May, August and November of each year, commencing August 31, 1997, at
the rate of 8.60% of the liquidation preference per annum. See "Description of
Preferred Stock -- Dividends."
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, which may
include shares of other series of preferred stock. The Preferred Stock has no
stated maturity and will not be subject to any sinking fund or mandatory
redemption and will not be convertible into any other securities of the Company.
See "Description of Preferred Stock -- Redemption." However, the Company may
redeem shares of Preferred Stock at any time in order to preserve its status as
a real estate investment trust ("REIT") for federal income tax purposes. See
"Description of Capital Stock -- Redemption and Restrictions on Transfer" in the
accompanying Prospectus.
Application will be made to list the Preferred Stock on The New York Stock
Exchange (the "NYSE"). If so approved, trading of the Preferred Stock on the
NYSE is expected to commence within a 30 day period after the initial delivery
of the Preferred Stock. See "Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (3)
Per Share......................... $25.00 $.7875 $24.2125
Total (4)......................... $150,000,000 $4,725,000 $145,275,000
(1) Plus accrued dividends, if any, from the date of original issue.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $325,000.
(4) The Company has granted the several Underwriters an option to purchase up to
an additional 900,000 shares to cover over-allotments. If all such shares
are purchased, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $172,500,000, $5,433,750 and $167,066,250, respectively.
See "Underwriting."
------------------------
The shares of Preferred Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them,
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that delivery of the shares
will be made in New York, New York on or about May 29, 1997.
------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY & CO.
INCORPORATED
SCOTT & STRINGFELLOW, INC.
------------------------
The date of this Prospectus Supplement is May 23, 1997.
<PAGE>
[MAP INFORMATION GOES HERE]
[REGIONAL MAP OF UNITED STATES]
[GRAPH]
APARTMENT HOMES OWNED AT DECEMBER 31
<TABLE>
<CAPTION>
87 88 89 90 91 92 93 94 95 96 5/20/97
<S> <C>
5,461 6,296 7,732 8,672 10,924 13,832 17,914 29,282 34,224 58,319 60,217
</TABLE>
[GRAPH]
APARTMENT HOMES OWNED BY STATE
Texas 22.4%
North Carolina 21.0%
Florida 15.2%
Virginia 12.9%
South Carolina 9.6%
Georgia 4.6%
Maryland 4.3%
Tennessee 5.2%
Arizona 1.2%
Others 3.6%
Others:
Arkansas 0.9%
Nevada 0.7%
Alabama 0.6%
Delaware 0.6%
Oklahoma 0.5%
New Mexico 0.3%
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF
PREFERRED STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF
PREFERRED STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
THE COMPANY
United Dominion Realty Trust, Inc. (the "Company" or "United Dominion") is
a self-administered equity REIT, formed in 1972, whose business is devoted to
one industry segment, the ownership and operation of apartment communities. As a
result of its acquisition of South West Property Trust Inc. ("South West") on
December 31, 1996 in a statutory merger (the "Merger"), the Company, which owns
60,217 apartment homes (including 1,196 under development), is, in terms of
number of apartment homes owned, the largest apartment REIT operating in the Sun
Belt states from Florida to Arizona and the second largest apartment REIT
nationwide.
The Company is a fully-integrated real estate company with acquisition,
development and asset and property management capabilities. The Company
acquires, upgrades, develops and operates its properties with the goals of
growing its funds from operations and quarterly distributions to shareholders,
while building equity primarily through real estate appreciation.
Including the Merger, the Company completed a record number of apartment
community acquisitions in 1996, adding a total of 22,032 completed apartment
homes and 675 apartment homes under development at a total cost of approximately
$881 million. Of this total, the Merger added 44 apartment communities
aggregating 14,995 apartment homes (including 675 under development) for a
purchase price of approximately $560 million. In addition, the Company completed
construction of a 60 apartment home addition to an existing property during the
third quarter of 1996.
In 1995, the Company organized United Dominion Realty, L.P. (the "Operating
Partnership") to assist the Company in competing for acquisition of properties
that meet the Company's investment strategies from seller partnerships, some or
all of whose partners may wish to defer taxation of gain realized on sale
through an exchange of partnership interests. As of May 20, 1997, the Company
had acquired three apartment communities and land to develop an additional
apartment community using the Operating Partnership and had transferred seven of
its Tennessee properties into the Operating Partnership. The Operating
Partnership is currently 98% owned by the Company.
The Company, a Virginia corporation, has its principal office at 10 South
6th Street, Richmond, Virginia 23219-3802. Its telephone number is (804)
780-2691 and its E-mail address is [email protected]. Unless the context otherwise
indicates, references to the Company herein include the Company and its
subsidiaries.
RECENT DEVELOPMENTS
MERGER
On December 31, 1996, the Company completed its merger with South West. As
a result of the Merger, the Company established itself as the largest apartment
REIT operating in the Sun Belt states from Florida to Arizona in terms of number
of apartment homes owned. Through the Merger, the Company acquired 41 apartment
communities aggregating 14,099 apartment homes in Southwestern markets in Texas,
Arizona, Arkansas, Nevada, New Mexico and Oklahoma, and three apartment
communities aggregating 896 apartment homes in Charlotte and Raleigh, North
Carolina, where the Company already had a presence. The Merger was accounted for
by the Company as a purchase of South West with the value of the real estate
acquired being approximately $560 million. The Company believes that as well as
being immediately accretive to its operating results and strengthening both the
Company's Board of Directors and its management team, the Merger provided the
Company with several operational and financial benefits, including, but not
limited to:
(Bullet) INCREASED DIVERSIFICATION. The Merger provided United Dominion
with the opportunity to achieve a significant increase in size,
scope and diversification through geographic expansion into
markets throughout the Southwest. The portfolio increased from
41,344 completed apartment homes located primarily in the
Southeast to 55,664 completed apartment homes located in markets
throughout the Southeastern and Southwestern United States.
(Bullet) ENHANCED COMPETITIVE POSITION. Management believes that the Merger
has improved the Company's ability to become a market leader in
its target markets. The Merger also added development capabilities
to complement the Company's acquisition program.
(Bullet) ECONOMIES OF SCALE. The Merger also affords the opportunity to
realize certain economies of scale. Duplicative costs, primarily
in the general and administrative area, have been eliminated. The
Company's increased size enhances its purchasing power in local
markets for supplies and services.
(Bullet) LOWER COST OF CAPITAL. Lastly, the Merger provided the Company the
opportunity for an exchange of stock that can result in a lower
cost of capital.
S-3
<PAGE>
ACQUISITIONS
Since January 1, 1997, the Company has acquired 10 apartment communities
aggregating 3,356 apartment homes at a total cost of $145.8 million, including
closing costs. In addition, the Company has under contract three apartment
communities located in Dallas and Houston, Texas and Tampa, Florida, containing
a total of 850 apartment homes, at an aggregate purchase price of $30.1 million,
excluding closing costs.
There can be no assurance that these proposed acquisitions will be
consummated.
DEVELOPMENT ACTIVITY
At May 20, 1997, United Dominion had two new apartment communities (780
apartment homes) under development and five additions (720 apartment homes) to
existing apartment communities under construction. The new communities and
additions included at that date a total of 304 completed apartment homes.
The new communities are located in Charlotte, North Carolina (420 apartment
homes) and Nashville, Tennessee (360 apartment homes). The five additions are
located in Fredericksburg, Virginia (168 apartment homes), Fort Myers, Florida
(96 apartment homes), Greensboro, North Carolina (176 apartment homes), Phoenix,
Arizona (20 apartment homes) and Dallas, Texas (260 apartment homes).
At May 20, 1997, the Company also had under contract three separate parcels
of developable land at an aggregate purchase price of $4 million.
There can be no assurance that these proposed developments and additions
will be completed as planned.
DISPOSITIONS
Since January 1, 1997, the Company has disposed of two apartment
communities at an aggregate sales price and gain, for financial reporting
purposes, of $6.1 million and $1.3 million, respectively. At May 20, 1997, the
Company had 11 apartment communities totaling 2,556 apartment homes, three
shopping centers, one parcel of land, one industrial property and two office
buildings classified as "Real estate held for disposition." Two of the shopping
centers and one apartment community are under separate contracts for sale with
unrelated purchasers for a total consideration of $21.9 million.
There can be no assurance that these proposed dispositions will be
consummated.
FINANCINGS
Since January 1, 1997, the Company issued 4,000,000 shares of Common Stock
raising net proceeds of $59.4 million. The proceeds of this financing were used
for repayment of secured and unsecured bank and credit facilities and the
acquisition of properties. Since January 1, 1997, the Company has also completed
the sale of $125 million of 10-year Notes. The proceeds of this financing were
used to reduce the balance on the Company's unsecured line of credit and to fund
the development and acquisition of additional apartment properties.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 6,000,000 shares of
Preferred Stock offered hereby are estimated at $144.95 million ($166.7 million
if the Underwriters' over-allotment option is exercised in full). The Company
presently intends to use the net proceeds to repay demand notes payable
representing borrowings under the Company's bank lines of credit, of which
$141.5 million, having a current weighted average interest rate of 6.19%, was
outstanding at May 23, 1997. The remaining net proceeds of $3.45 million will be
used to reduce secured notes payable. Pending such use, the Company will invest
the net proceeds in short-term money market instruments bearing interest at
market rates.
S-4
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997, and as adjusted to give effect to (i) additional bank borrowings of
$34.5 million since March 31, 1997 and (ii) the issuance of 6,000,000 shares of
Preferred Stock offered hereby and the application of the net proceeds thereof.
The table should be read in conjunction with the Company's consolidated
financial statements incorporated by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C>
(IN THOUSANDS)
Debt:
Notes payable -- secured........................................ $ 397,501 $ 394,051
7.25% Notes due April 1, 1999................................... 75,000 75,000
7.25% Notes due January 15, 2007................................ 125,000 125,000
8.50% Debentures due September 15, 2024......................... 150,000 150,000
7.95% Medium-Term Notes due July 12, 2006....................... 125,000 125,000
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
Notes payable -- unsecured...................................... 162,962 55,962
---------- -----------
Total debt................................................... 1,110,463 1,000,013
Shareholders' equity:
Preferred Stock, no par value; 25,000,000 shares authorized:
9 1/4% Series A Cumulative Redeemable Preferred Stock
(liquidation preference $25 per share), 4,200,000 shares
issued and outstanding....................................... 105,000 105,000
8.60% Series B Cumulative Redeemable Preferred Stock
(liquidation preference $25 per share), no shares issued and
outstanding (6,000,000 as adjusted).......................... -- 150,000
Common Stock, $1 par value; 150,000,000 shares authorized,
86,466,539 shares issued and outstanding..................... 86,467 86,467
Additional paid-in capital...................................... 877,070 872,020
Notes receivable from officer shareholders...................... (6,160) (6,160)
Distributions in excess of net income........................... (154,643) (154,643)
---------- -----------
Total shareholders' equity................................... 907,734 1,052,684
---------- -----------
Total capitalization....................................... $2,018,197 $ 2,052,697
---------- -----------
---------- -----------
</TABLE>
S-5
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth financial and operating information for the
Company on an historical basis. The financial information is derived from the
Company's consolidated financial statements, which are incorporated by reference
in the accompanying Prospectus, and should be read in conjunction with such
financial statements and "Management's Discussion and Analysis of Financial
Condition and Operations" herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- ---------- ---------- ---------- ------- --------
<S> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND
STATISTICAL DATA OPERATING DATA:
Rental income..................................... $ 63,202 $ 89,084 $ 139,972 $ 195,240 $ 242,112 $ 55,189 $90,235
Income before gains (losses) on sales of
investments, minority interest of unitholders in
operating partnership and extraordinary items... 6,577 11,286 19,118 28,037 33,726 8,594 15,024
Gains (losses) on sales of investments............ -- (89) 108 5,090 4,346 965 2,120
Minority interest of unitholders in operating
partnership..................................... -- -- -- -- (23) -- (31)
Extraordinary item -- early extinguishment of
debt............................................ (242) -- (89) -- -- -- --
Net income........................................ 6,335 11,197 19,137 33,127 37,991 9,559 17,113
Dividends to preferred shareholders............... -- -- -- 6,637 9,713 2,428 2,428
Net income available to common shareholders....... 6,335 11,197 19,137 26,490 28,278 7,131 14,685
Common distributions declared..................... 23,271 27,988 37,539 48,610 55,493 13,562 21,799
Weighted average number of common shares
outstanding (1)................................. 34,604 38,202 46,182 52,781 57,482 54,467 85,046
Per share:(1)
Net income per common share..................... $ .18 $ .29 $ .41 $ .50 $ .49 $ .13 $ .17
Common distributions declared................... .66 .70 .78 .90 .96 .24 .2525
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
-------- -------- ---------- ---------- ---------- ----------
<S> <C>
BALANCE SHEET DATA:
Real estate held for investment and under
development....................................... $454,115 $582,213 $1,007,599 $1,131,098 $2,045,467 $2,143,390
Real estate held for disposition.................... -- -- -- 51,015 39,556 73,417
Accumulated depreciation............................ 71,806 91,444 120,341 129,454 173,291 175,810
Total assets........................................ 390,365 505,840 911,913 1,080,616 1,966,904 2,092,040
Notes payable -- secured............................ 76,516 72,862 158,449 180,481 376,560 397,501
Notes payable -- unsecured.......................... 104,605 156,558 368,215 349,858 668,275 712,962
Shareholders' equity................................ 197,677 259,963 356,968 516,389 850,379 907,734
Number of common shares
outstanding (1)................................... 35,285 41,653 50,356 56,375 81,983 86,467
OTHER DATA:
Funds from operations (2)........................... 23,698 30,802 48,297 62,434 71,713 28,758
Cash flow provided by (used in):
Operating activities.............................. 24,608 33,939 54,544 66,428 90,064 27,014
Investing activities.............................. (81,373) (130,064) (359,631) (183,930) (161,572) (107,080)
Financing activities.............................. 56,777 100,793 306,575 113,145 82,056 85,231
EBITDA (3).......................................... 35,870 48,584 77,059 108,725 133,278 50,786
Ratio of earnings to fixed charges.................. 1.54x 1.64x 1.69x 1.81x 1.73x 1.84x
Ratio of earnings to combined fixed charges and
Preferred Stock dividends......................... 1.54x 1.64x 1.69x 1.56x 1.45x 1.64x
Average economic occupancy.......................... 90.7% 91.5% 93.7% 94.1% 92.9% 91.5%
Number of apartment communities owned............... 57 74 120 141 210 217
Number of apartment homes owned at period end....... 13,832 17,914 29,282 34,224 55,664 58,473
Weighted average number of apartment homes owned
during the period................................. 11,387 15,445 23,160 31,242 37,481 56,288
</TABLE>
- ---------------
(1) All share and per share information has been adjusted to give effect to a
2-for-1 stock split in May 1993.
(2) 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 ("GAAP") and is
not necessarily indicative of cash available to fund cash needs.
(3) The Company has included information with respect to Earnings before
interest, taxes, depreciation and amortization expense ("EBITDA") because it
understands that such information is used by certain investors as one
measure of operating performance. EBITDA is not determined in accordance
with GAAP, is not indicative of cash provided by operating activities and
should not be considered in isolation or as a substitute for measures of
performance determined in accordance with GAAP.
S-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATIONS
(AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997)
LIQUIDITY AND CAPITAL RESOURCES
As a qualified REIT, the Company distributes a substantial portion of its
cash flow to its shareholders in the form of quarterly distributions. The
Company seeks to retain sufficient cash to cover normal operating needs,
including routine replacements and to help fund additional acquisitions and
development activity. For the three months ended March 31, 1997, the Company's
cash flow from operating activities exceeded cash distributions paid to
preferred and common shareholders by approximately $4.9 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. 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 quarters ended March 31,
1997 and 1996.
At March 31, 1997, the Company's outstanding indebtedness totaled
approximately $1.1 billion with a weighted average interest rate of 7.38%. This
amount includes (i) mortgage notes payable aggregating $275.2 million with a
weighted average interest rate of 7.68%, (ii) tax-exempt bond indebtedness
aggregating $122.3 million with a weighted average interest rate of 6.85%, (iii)
senior unsecured notes payable aggregating $606.0 million with a weighted
average interest rate of 7.53% and (iv) bank line borrowings aggregating $107
million with a weighted average interest rate of 6.35%. At March 31, 1997, total
senior debt equaled 44.5% of the Company's total market capitalization.
At the beginning of 1997, the Company had approximately $13.5 million of
cash and cash equivalents and $103.3 million of available and unused bank lines
of credit.
For the three months ended March 31, 1997, the Company's cash flow from
operating activities increased approximately $5.7 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 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.
During the three months ended March 31, 1997, net cash used for investing
activities was approximately $107.1 million, including $9.9 million of net cash
proceeds received from the sale of preferred stock of First Washington Realty
Trust, Inc. The Company acquired seven apartment communities containing 2,592
apartment homes at a total cost of $116.3 million.The Company also invested
approximately $8.3 million in eight properties currently under development,
which includes two apartment communities and six additional phases to existing
apartment communities. In addition, the Company funded $22.1 million of capital
improvements to its properties during the same period.
Net cash provided by financing activities during the first three months of
1997 was approximately $85.2 million, reflecting (i) net proceeds from the
issuance of Common Stock in the amount of $66.5 million and (ii) net proceeds
from the issuance of notes payable of approximately $124 million. These cash
inflows were partially offset by (i) $22.1 million of cash distributions paid to
common and preferred shareholders funded with cash flows from operating
activities, (ii) scheduled mortgage principal payments of $1.1 million, (iii)
payments on unsecured notes including net repayments of bank borrowings totaling
$81.7 million and (iv) payment of financing costs aggregating $1.4 million.
During the first three months of 1997, the Company completed several
significant financings. On January 28, 1997, the Company issued 4,000,000 shares
of Common Stock at $15.75 per share. Net proceeds of approximately $59.4 million
were used to repay an unsecured credit facility assumed in connection with the
Merger. The Company also received approximately $6.9 million under its Dividend
Reinvestment and Stock Purchase Plan (the "Plan") during the first quarter of
1997 which included approximately $6.0 million in optional cash investments and
$.9 million of reinvested dividends.
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. The Notes were priced to yield 7.31% which
was 79 basis points over the 10-year Treasury rate at the time of issuance. The
Treasury rate lock 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
S-7
<PAGE>
approximately 7.14%. Net proceeds of approximately $124 million were used to
curtail bank debt and purchase apartment communities.
During the first quarter of 1997, the Company had six interest rate swap
agreements (the "swaps") with three commercial lenders for an aggregate notional
value of approximately $127 million. Under the swaps, the Company pays a fixed
rate of interest and receives a variable rate of interest on the notional
amounts. The swaps effectively changed the Company's interest rate exposure on
$127 million of its variable rate debt from a variable rate to a weighted
average fixed rate of 6.9% during the first quarter of 1997. The swaps did not
have a material impact on results of operations during the three months ended
March 31, 1997 or 1996.
During the first quarter of 1997, the Company used primarily bank debt to
fund its acquisitions program. The Company plans to increase its current bank
lines of credit by the end of the second quarter of 1997 by implementing a
syndicated senior revolving credit facility in the amount of $250 million led by
one of its commercial banks.
The Company may from time to time sell apartment communities that no longer
meet the long-term investment objectives the Company has set for its apartment
portfolio. Also, the Company hopes to dispose of its remaining commercial
properties over time as suitable opportunities arise. Included in the
consolidated balance sheet at March 31, 1997 as "Real estate held for
disposition" are 20 properties in the aggregate amount of $73.4 million, net of
accumulated depreciation and impairment loss valuation allowance. Real estate
held for disposition contributed net rental income (total rental income, less
rental expenses, less depreciation expense) of approximately $2.4 million for
the quarter ended March 31, 1997. The 20 properties consist of the following:
(i) 13 apartment communities aggregating $54.8 million, (ii) three shopping
centers aggregating $14.6 million, (iii) three other commercial properties in
the amount of $2.4 million and (iv) one parcel of land for $1.6 million.
FUNDS FROM OPERATIONS
Funds from operations 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 NAREIT. The Company
considers FFO in evaluating property acquisitions and its operating performance,
and believes that FFO should be considered along with, but not as an alternative
to, net income and cash flows as a measure of the Company's operating
performance and liquidity. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs.
For the three months ended March 31, 1997, FFO increased 71.9% to $28.8
million, compared with $16.7 million for the same period last year. The increase
in FFO was principally due to the increased net rental income from the Company's
25,154 non-mature apartment homes in 81 apartment communities (those acquired,
developed and sold subsequent to January 1, 1996).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996 % CHANGE
------- ------- --------
<S> <C>
(IN THOUSANDS)
Calculation of funds from operations:
Income before gains (losses) on sales of
investments minority interest of unitholders in
operating partnership and extraordinary item..... $15,024 $ 8,594 74.8%
Adjustments:
Real estate depreciation......................... 16,162 10,560 53.0%
Dividends to preferred shareholders.............. (2,428) (2,428) --
------- ------- --------
Funds from operations.............................. $28,758 $16,726 71.9%
======= ======= ========
</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 the first quarter
of 1997 and 1996 and (ii) non-mature -- those communities acquired, developed
and sold subsequent to January 1, 1996.
S-8
<PAGE>
For the three months ended March 31, 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. Net income available to common shareholders
increased $7.6 million, with a corresponding increase of $.04 per common share
compared to the same period last year. Since the beginning of 1996, the Company
acquired and developed a total of 25,154 apartment homes in 81 apartment
communities (including 14,320 completed apartment homes in 44 apartment
communities acquired in the Merger), representing a 70.9% 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 217 apartment communities
containing 58,473 completed apartment homes for the three months ended March 31,
1997 and 145 apartment communities containing 35,036 apartment homes for the
three months ended March 31, 1996, respectively, is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996 % CHANGE
------- -------- --------
(IN THOUSANDS)
<S> <C>
Rental income...................................... $89,236 $ 53,280 67.5%
Rental expenses.................................... (37,399) (23,223) 61.0%
Real estate depreciation........................... (16,162) (10,466) 54.4%
------- -------- --------
Net rental income (1).............................. $35,675 $ 19,591 82.1%
======= ======== ========
Weighted average number of apartment homes......... 56,288 34,460 63.3%
Economic occupancy (2)............................. 91.5% 93.1% (1.6%)
Average monthly rents.............................. $ 562 $ 529 6.2%
</TABLE>
- ---------------
(1) Net rental income for apartment community is defined as total rental income,
less rental expenses, less depreciation expense.
(2) Economic occupancy is defined as rental income (gross potential rent less
vacancy loss, management units, move-in concessions and credit loss) divided
by potential collections (gross potential rent less management units and
move-in concessions) for the period, expressed as a percentage.
Due to the acquisition and development of 25,154 apartment homes since
January 1, 1996, the weighted average number of apartment homes increased 63.3%
to 56,288 for the three months ended March 31, 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 months ended March 31, 1997.
MATURE APARTMENT COMMUNITIES
The operating performance for the Company's 136 mature apartment
communities containing 33,319 apartment homes for the three months ended March
31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996 % CHANGE
------- -------- --------
(IN THOUSANDS)
<S> <C>
Rental income...................................... $53,284 $ 51,385 3.7%
Rental expenses.................................... (23,070) (22,349) 3.2%
Real estate depreciation........................... (9,554) (10,134) (5.7%)
------- -------- --------
$20,660 $ 18,902 9.3%
======= ======== ========
Economic occupancy................................. 91.8% 93.0% (1.2%)
Average monthly rental rates....................... $ 562 $ 539 4.2%
</TABLE>
For the three months ended March 31, 1997, the Company's mature communities
provided approximately 60% of the Company's apartment rental income and net
rental income. During the first quarter 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 3.7%, or
$1.9 million, reflecting an increase in average monthly rents of 4.2% to $562
per month, or an increase of $2.3 million. In addition, other income, primarily
fee income, increased $429,000 or 26.5%. The rental rate increase was offset by
a 1.2% decline in economic occupancy to 91.8%, which resulted from a decrease in
physical occupancy of 1.4% and an improvement in credit loss of .2%. The
economic occupancy declined due to
S-9
<PAGE>
the weakening of certain major markets during the last half of 1996 including
Columbia, South Carolina, Greenville, South Carolina, Washington, DC,
Jacksonville, Florida, Richmond, Atlanta and Hampton Roads. Overall, economic
occupancy bottomed out in January 1997 and has since been trending upward,
reaching 92.3% in April 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. The Company expects
to maintain rent growth in the 4% range and economic occupancy in the 92% range
during 1997.
For the three months ended March 31, 1997, rental expenses at these
communities increased 3.2%, or $721,000, resulting in a decrease in the
operating expense ratio (the ratio of rental expenses to rental income) of .2%
to 43.3%. The 3.2% increase in operating expenses is attributable to higher real
estate taxes, insurance, marketing and advertising and incentive compensation
earned by apartment site associates. Real estate taxes increased approximately
$101,000 over the same period last year as the Company has experienced
continuing pressure on this expense item over the past year. Casualty insurance
expense has increased approximately $107,000 over the same period last year.
Over the past several years, the Company experienced several large casualty
insurance claims relating to hurricane and storm damage which resulted in a
significant increase in insurance rates beginning with its July 1, 1996 policy
year. Marketing and advertising costs increased approximately $290,000 over the
same period last year as a direct result of softening in certain major markets.
Incentive compensation earned by the site associates increased approximately
$200,000 due to the better performance achieved by these communities compared to
the same period last year. The Company expects the rate of growth in rental
expenses to range in the 3% to 4% range during 1997, in part, due to the high
base of 1996 expenses. In first quarter of 1996, the Company incurred
approximately $400,000 of weather related expenses, which included high levels
of gas, snow removal and repair labor expenses. Weather related expenses did not
have a significant impact on results for the 1997 quarter.
For the three months ended March 31, 1997, depreciation expense decreased
$580,000 or 5.7%, primarily as a result of the transfer of properties from real
estate held for investment to real estate held for disposition since the first
quarter of 1996. Depreciation ceases when properties are transferred from real
estate held for investment to real estate held for disposition in accordance
with the Company's accounting policy.
NON-MATURE COMMUNITIES
The operating performance for the three months ended March 31, 1997 for the
Company's 81 non-mature apartment communities which includes: (i) the 30
apartment communities containing 7,712 apartment homes acquired during 1996 and
a 253 unit 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 Merger (excluding 105
newly developed apartment homes), (iii) the seven apartment communities
containing 2,592 apartment homes acquired since January 1, 1997, (iv) the four
apartment communities containing 652 apartment homes sold since January 1, 1996
and (v) the 382 apartment homes developed since January 1, 1996 is summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997
ACQUISITIONS
& DEVELOPMENT
1996 AND
ACQUISITIONS 1996 SALES TOTAL NON-MATURE
THREE MONTHS SOUTH WEST THREE MONTHS COMMUNITIES
ENDED THREE MONTHS ENDED ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1997 1996 1997 1996
------- ---- ------- ------- ------ ---- ------- ------
<S> <C>
Rental income............ $12,620 $958 $21,785 $ -- $1,547 $937 $35,952 $1,895
Rental expenses.......... (5,041) (446) (8,810) -- (478) (428) (14,329) (874)
Real estate
depreciation........... (2,310) (332) (4,119) -- (179) -- (6,608) (332)
------- ---- ------- ------- ------ ---- ------- ------
Net rental income........ $ 5,269 $180 $ 8,856 $ -- $ 890 $509 $15,015 $ 689
======= ==== ======= ======= ====== ==== ======= ======
</TABLE>
For the three months ended March 31, 1997, the Company's non-mature
apartment communities provided approximately 40% of the Company's apartment
rental income and 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 number of apartment homes acquired during 1996 and 1997. For the
25,154 apartments homes in the 81 non-mature communities acquired and developed
since January 1, 1996, average economic occupancy was 91.0% and the operating
expense ratio was 39.1% during the first quarter of 1997.
1996 ACQUISITIONS
The 30 apartment communities containing 7,712 apartment homes that were
acquired during 1996 (excluding the Merger) provided a significant increase in
rental income, rental expenses and depreciation expense for the Company's
apartment portfolio. For the first quarter of 1997, these apartment communities
had economic occupancy of 88.3% and an operating expense ratio of 39.1%. The
first year return on investment for these communities was projected at 9.5%,
however, the
S-10
<PAGE>
actual first quarter return on investment, on an average investment of
approximately $329 million, was 8.9%. The shortfall in the performance of the
1996 acquisitions 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 85.1% for the first quarter of 1997.
SOUTH WEST
The 44 apartment communities containing 14,320 completed apartment homes
acquired in the 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 first quarter of 1997, these apartment
communities had economic occupancy of 91.9% and an operating expense ratio of
39.6%. The first year return on investment for the South West portfolio was
projected to be 9.5%, which approximates the 9.7% return on investment posted
during the first quarter of 1997. Included in the South West communities are
12,361 stabilized apartment communities (those acquired, developed and
stabilized prior to January 1, 1996) which experienced rent growth of 4.7% over
the amounts reported last year by South West, an average economic occupancy of
91.7% and an operating expense ratio of 43.3%.
1997 ACQUISITIONS & DEVELOPMENT AND 1996 SALES
Included in this category are the seven apartment communities containing
2,592 apartment homes acquired by the Company during the first quarter of 1997
which are projected to have a first year return on investment of approximately
9.8% and the 530 apartment homes developed since January 1, 1997 (the 1996
figures include results of operations of four apartment communities containing
652 apartment sold during 1996). These communities did not have a material
impact on the first quarter 1997 results of operations.
COMMERCIAL PROPERTIES
Rental income, rental expenses and real estate depreciation from commercial
properties decreased $810,000, $279,000 and $94,000, respectively, during the
three months ended March 31, 1997, compared to the same period last year. These
decreases were directly attributable to the sale of four shopping centers and
one industrial park since the beginning of 1996.
OTHER INCOME AND EXPENSE
For the three months ended March 31, 1997, interest expense increased $8.5
million or $.03 per common share over the same period last year. The weighted
average amount of debt employed during 1997 was higher than it was in 1996 ($1.0
billion in 1997 versus $554 million in 1996). The weighted average interest rate
on this debt was slightly lower in 1997 decreasing from 7.6% in 1996 to 7.3%.
The lower average interest rate during 1997 reflected the increased reliance on
lower rate short-term bank borrowings in 1997 compared to 1996 ($72.3 million
weighted average outstanding in 1997 versus $42.5 million in 1996).
During the first quarter of 1997, general and administrative expenses
increased by $450,000 over the same period 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, however,
general and administrative expense as a percentage of rental revenues decreased
.5% from 2.5% during the 1996 period to 2.0% in 1997 due to economies of scale.
GAINS ON SALES OF INVESTMENTS
During the first quarter of 1997, the Company recognized a gain for
financial reporting purposes of $2.1 million on the sale of its investment in
the preferred stock of First Washington Realty Trust, Inc. The Company sold four
shopping centers to First Washington Realty Trust, Inc. on June 30, 1995 and in
connection with the sales, received cash and 358,000 shares of First
Washington's 9.75% Series A Cumulative Participating Convertible Preferred Stock
having a fair value of $7.7 million on the date of sale.
During the first quarter of 1996, the Company sold one shopping center and
recognized a $965,000 gain for financial reporting purposes.
INFLATION
The Company believes that the direct effects of inflation on the Company's
operations have been inconsequential.
S-11
<PAGE>
The following chart shows the geographic distribution as of May 20, 1997 of
the Company's apartment properties.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENTAGE OF
APARTMENT COMPLETED APARTMENT
PROPERTIES HOMES HOMES
--------- --------- -------------
<S> <C>
Dallas/Fort Worth, Texas..................... 21 7,789 13%
Richmond, Virginia........................... 12 3,541 6%
Columbia, South Carolina..................... 12 3,534 6%
Raleigh, North Carolina...................... 12 3,484 6%
Charlotte, North Carolina.................... 15 3,132 5%
Orlando, Florida............................. 10 2,981 5%
Tampa/Clearwater, Florida.................... 9 2,639 4%
Eastern North Carolina....................... 10 2,530 4%
Atlanta, Georgia............................. 8 2,226 4%
Greensboro, North Carolina................... 9 2,222 4%
Nashville, Tennessee......................... 8 2,116 4%
San Antonio, Texas........................... 5 1,983 3%
Baltimore, Maryland.......................... 8 1,746 3%
Houston, Texas............................... 5 1,722 3%
Greenville/Spartanburg, South Carolina....... 8 1,718 3%
Hampton Roads, Virginia (1).................. 7 1,628 3%
Washington, D.C. ............................ 6 1,483 2%
Jacksonville, Florida........................ 3 1,157 2%
Miami/Ft. Lauderdale, Florida................ 4 960 2%
Memphis, Tennessee........................... 4 935 2%
Fayetteville, North Carolina................. 3 884 1%
Austin, Texas................................ 3 867 1%
Eastern Shore, Maryland...................... 4 784 1%
Phoenix, Arizona............................. 3 712 1%
Little Rock, Arkansas........................ 2 512 1%
Las Vegas, Nevada............................ 1 384 1%
Dover, Delaware.............................. 2 368 1%
Oklahoma City, Oklahoma...................... 1 316 1%
Albuquerque, New Mexico...................... 1 210 --
Other Florida................................ 5 1,220 2%
Other Virginia............................... 6 988 2%
Other Texas.................................. 3 824 1%
Other Georgia................................ 2 468 1%
Other South Carolina......................... 2 408 1%
Alabama...................................... 2 382 1%
Other North Carolina......................... 1 168 --
--- --------- -------------
Total...................................... 217 59,021 100%
=== ========= =============
</TABLE>
- ---------------
(1) Includes Newport News/Hampton/Virginia Beach Areas.
S-12
<PAGE>
MANAGEMENT
The directors and officers of the Company are:
NAME AGE OFFICE
- ---- --- ------
John P. McCann 52 Chairman of the Board, President and
Chief Executive Officer; Director
John S. Schneider 58 Vice Chairman of the Board and
Executive Vice President; Director
James Dolphin 47 Executive Vice President and Chief
Financial Officer; Director
Richard A. Giannotti 41 Senior Vice President and Director of
Acquisitions and Development --
Eastern Division
David L. Johnston 52 Senior Vice President and Director of
Acquisitions and Development --
Western Division
Robert F. Sherman 54 Senior Vice President and Director of
Apartment Operations -- Western
Division
Barry M. Kornblau 47 Senior Vice President; Director
Jerry A. Davis 34 Vice President and Corporate Controller
Katheryn E. Surface 39 Vice President, Secretary and General
Counsel
Jeff C. Bane 67 Director; President, Blake & Bane Inc.,
real estate brokers, Richmond,
Virginia
R. Toms Dalton, Jr. 64 Director; partner, Allen & Carwile,
attorneys, Waynesboro, Virginia
John C. Lanford 66 Director; President, Adams Construction
Co., general contractors, Roanoke,
Virginia
H. Franklin Minor 64 Director; attorney-at-law and real
estate broker, Richmond, Virginia
Lynne B. Sagalyn 49 Director; Professor, Columbia
University Graduate School of
Business
Mark J. Sandler 54 Director; private investor
Robert W. Scharar 48 Director; President, FCA Corporation,
investment advisors, Houston, Texas
C. Harmon Williams, Jr. 65 Director; real estate broker,
Charlottesville, Virginia
S-13
<PAGE>
DESCRIPTION OF PREFERRED STOCK
This description of the particular terms of the Preferred Stock
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Preferred Stock set forth in the
accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Company is authorized to issue up to 25,000,000 shares of preferred
stock, no par value ("preferred stock"), in one or more series, with such
designations, powers, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereon, including, but not
limited to, the fixing of the dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices and the liquidation
preferences, in each case, if any, as the Board of Directors of the Company may
determine by adoption of an amendment of the Company's Restated Articles of
Incorporation, as amended (the "Articles"), without any further vote or action
by the shareholders. See "Description of Capital Stock -- Preferred Stock" in
the accompanying Prospectus. The Preferred Stock is a series of the Company's
preferred stock. At May 20, 1997, there were outstanding 4,200,000 shares of
9 1/4% Series A Cumulative Redeemable Preferred Stock (liquidation preference
$25 per share), another series of the Company's preferred stock, the rights of
the holders of which, except for dividend rate and payment dates and
commencement date of redeemability, are substantially identical to the rights of
the holders of the Preferred Stock offered hereby.
The Board of Directors of the Company has approved Articles of Amendment
(the "Articles of Amendment") amending the Articles to create a series of
preferred stock consisting of up to 6,900,000 shares, designated 8.60% Series B
Cumulative Redeemable Preferred Stock. The following summary of the terms and
provisions of the Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to the pertinent sections of the Articles
and the Articles of Amendment designating the Preferred Stock, each of which is
available from the Company.
The transfer agent, registrar and dividend disbursing agent for the
Preferred Stock will be ChaseMellon Shareholder Services, L.L.C., Ridgefield
Park, New Jersey.
DIVIDENDS
Holders of shares of the Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of funds legally available for
the payment of dividends, cumulative preferential cash dividends at the rate of
8.60% of the liquidation preference per annum (equivalent to $2.15 per share).
Such dividends shall be cumulative from the date of original issue and shall be
payable quarterly in arrears on the last day of each February, May, August and
November or, if not a business day, the next succeeding business day (each, a
"Dividend Payment Date"). The first dividend, which is scheduled to be paid on
August 31, 1997, will be for more than a full quarter. Such dividend and any
dividend payable on the Preferred Stock for any partial dividend period will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Dividends will be payable to holders of record as they appear in the stock
records of the Company at the close of business on the applicable record date,
which shall be the fifteenth day of the calendar month in which the applicable
Dividend Payment Date falls or such other date designated by the Board of
Directors of the Company for the payment of dividends that is not more than 30
nor less than 10 days prior to such Dividend Payment Date (each, a "Dividend
Record Date").
No dividends on shares of Preferred Stock shall be declared by the Board of
Directors of the Company or paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
Covenants in its term and revolving credit agreements provide generally that the
Company may not pay dividends in excess of the sum of (i) current "cash flow,"
(ii) varying additional amounts and (iii) the proceeds of capital stock
offerings subsequent to varying dates, all as defined in the particular
agreement, but such covenants permit the Company to pay dividends in an amount
necessary to maintain its qualification as a REIT.
Notwithstanding the foregoing, dividends on the Preferred Stock will accrue
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. Accrued but unpaid dividends on the Preferred Stock will not bear
interest. Holders of the Preferred Stock will not
S-14
<PAGE>
be entitled to any dividends in excess of full cumulative dividends as described
above. See "Description of Capital Stock -- Preferred Stock -- DIVIDEND RIGHTS"
in the accompanying Prospectus.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Internal Revenue Code of 1986, as
amended (the "Code")) any portion (the "Capital Gains Amount") of the dividends
(as determined for federal income tax purposes) paid or made available for the
year to holders of all classes of stock (the "Total Dividends"), then the
portion of the Capital Gains Amount that shall be allocable to the holders of
Preferred Stock shall be the amount that the total dividends (as determined for
federal income tax purposes) paid or made available to the holders of the
Preferred Stock for the year bears to the Total Dividends.
No full dividends shall be declared or paid or set apart for payment on the
preferred stock of the Company of any other series ranking, as to dividends, on
a parity with or junior to the Preferred Stock for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such payment
on the Preferred Stock for all past dividend periods and the then current
dividend period. When dividends are not paid in full (or a sum sufficient for
such full payment is not so set apart) upon the shares of Preferred Stock and
the shares of any other series of preferred stock ranking on a parity as to
dividends with the Preferred Stock, all dividends declared upon shares of
Preferred Stock and any other series of preferred stock ranking on a parity as
to dividends with the Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share on the Preferred Stock and such other
series of preferred stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the shares of Preferred Stock and such other
series of preferred stock bear to each other.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock as to dividends and upon liquidation) shall be
declared or paid or set aside for payment or other distribution shall be
declared or made upon the Common Stock or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock as to dividends or
upon liquidation, nor shall any Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock as to dividends and upon liquidation).
Any dividend payment made on shares of the Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
such shares which remains payable.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company,
the holders of shares of Preferred Stock are entitled to be paid out of the
assets of the Company legally available for distribution to its shareholders a
liquidation preference of $25.00 per share, plus an amount equal to any accrued
and unpaid dividends to the date of payment, before any distribution of assets
is made to holders of Common Stock or any other capital stock that ranks junior
to the Preferred Stock as to liquidation rights. After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Preferred Stock will have no right or claim to any of the remaining assets of
the Company. The consolidation or merger of the Company with or into any other
corporation or of any other corporation with or into the Company, or the sale,
lease, transfer or conveyance of all or substantially all of the property or
business of the Company, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Company. For further information regarding the
rights of the holders of the Preferred Stock upon the liquidation, dissolution
or winding up of the Company, see "Description of Capital Stock -- Preferred
Stock -- RIGHTS UPON LIQUIDATION" in the accompanying Prospectus.
REDEMPTION
The Preferred Stock is not redeemable prior to May 29, 2007. On and after
May 29, 2007, the Company, at its option upon not less than 30 nor more than 60
days' written notice, may redeem shares of the Preferred Stock, in whole or in
part, at any time or from time to time, for cash at a redemption price of $25.00
per share, plus all accrued and unpaid dividends thereon to the date fixed for
redemption (except as provided below), without interest. The redemption price of
the Preferred Stock (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, which may include other series of preferred stock, and
from no other source. Holders of
S-15
<PAGE>
Preferred Stock to be redeemed shall surrender such Preferred Stock at the place
designated in such notice and shall be entitled to the redemption price and any
accrued and unpaid dividends payable upon such redemption following such
surrender. If notice of redemption of any shares of Preferred Stock has been
given and if the funds necessary for such redemption have been set aside by the
Company in trust for the benefit of the holders of any shares of Preferred Stock
so called for redemption, then from and after the redemption date dividends will
cease to accrue on such shares of Preferred Stock, such shares of Preferred
Stock shall no longer be deemed outstanding and all rights of the holders of
such shares will terminate, except the right to receive the redemption price. If
less than all the outstanding Preferred Stock is to be redeemed, the Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional shares) or by any other equitable method determined
by the Company.
Unless full cumulative dividends on all shares of Preferred Stock shall
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of Preferred Stock shall
be redeemed unless all outstanding shares of Preferred Stock are simultaneously
redeemed; PROVIDED, HOWEVER, that the foregoing shall not prevent the redemption
of shares of Preferred Stock to preserve the Company's status as a REIT, as
described under "Description of Capital Stock -- Redemption and Restrictions on
Transfer" in the accompanying Prospectus, or the purchase or acquisition of
shares of Preferred Stock pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Preferred Stock. Unless full
cumulative dividends on all outstanding shares of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock (except by exchange for
capital stock of the Company ranking junior to the Preferred Stock as to
dividends and upon liquidation).
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Preferred Stock to be
redeemed at their respective address as they appear on the stock transfer
records of the Company. No failure to give such notice or any defect thereto or
in the mailing thereof shall affect the validity of the proceedings for the
redemption of any shares of Preferred Stock except as to the holder to whom
notice was defective or not given. Each notice shall state: (i) the redemption
date; (ii) the redemption price; (iii) the number of shares of Preferred Stock
to be redeemed; (iv) the place or places where the Preferred Stock is to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date. If less than
all the Preferred Stock held by any holder is to be redeemed, the notice mailed
to such holder shall also specify the number of shares of Preferred Stock held
by such holder to be redeemed.
The holders of Preferred Stock at the close of business on a Dividend
Record Date will be entitled to receive the dividend payable with respect to
such Preferred Stock on the corresponding Dividend Payment Date notwithstanding
the redemption thereof between such Dividend Record Date and the corresponding
Dividend Payment Date or the Company's default in the payment of the dividend
due. Except as provided above, the Company will make no payment or allowance for
unpaid dividends, whether or not in arrears, on called Preferred Stock.
The Preferred Stock has no stated maturity and will not be subject to any
sinking fund or mandatory redemption. However, in order to preserve the
Company's status as a REIT as defined in the Code, the Preferred Stock may be
subject to redemption as described in "Description of Capital
Stock -- Redemption and Restrictions on Transfer" in the accompanying
Prospectus. Any such redemption would apply only to shares held, directly or
indirectly, by those shareholders with concentrated share ownership that would
violate the REIT requirements of the Code. In addition, the number of shares
subject to such a redemption would be limited to that number of concentrated
shares sufficient in the opinion of the Board of Directors of the Company to
maintain or bring the ownership of shares into conformity with the requirements
of the Code.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least 10% of
the Preferred Stock or the holders of
S-16
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any other series of preferred stock so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the shareholders) or at the next annual meeting of shareholders, and
at each subsequent annual meeting until all dividends accumulated on such shares
of Preferred Stock for the past dividend periods and the then current dividend
period shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. In such case, the entire Board of
Directors of the Company will be increased by two directors.
So long as any shares of Preferred Stock remain outstanding, the Company
shall not, without the affirmative vote of the holders of at least a majority of
the shares of the Preferred Stock outstanding at the time, (i) authorize or
create, or increase the authorized or issued amount of, any class or series of
capital stock ranking prior to the Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up or reclassify any authorized capital stock of the Company into any such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares; or (ii) amend, alter
or repeal the provisions of the Articles, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Preferred Stock or the holders thereof;
PROVIDED, HOWEVER, that any increase in the amount of the authorized preferred
stock or the creation or issuance of any other series of preferred stock, or any
increase in the amount of authorized shares of such series, in each case ranking
on a parity with or junior to the Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock shall have been redeemed
or called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Virginia law, notwithstanding anything to the contrary set forth
above, if shareholder voting is otherwise required by law, holders of the
Preferred Stock will be entitled to vote as a class upon a proposed amendment to
the Articles, whether or not entitled to vote thereon by the Articles, if the
amendment would increase or decrease the aggregate number of authorized shares
of Preferred Stock; effect an exchange or reclassification, or create a right of
exchange, of the Preferred Stock for or into shares of another class or of
shares of another class into Preferred Stock; change the designation,
preferences, rights or limitations of all or part of the Preferred Stock; change
shares of Preferred Stock into a different number of shares of Preferred Stock;
create a new class, or change a subordinate class into a class, having dividend
or liquidation rights superior or equal to those of the Preferred Stock or
increase the rights, preferences or number of authorized shares of a class
having such dividend or liquidation rights; divide the Preferred Stock into
series, designate such series and determine its terms; or cancel or otherwise
affect rights to accumulated but undeclared dividends on the Preferred Stock.
So long as the Preferred Stock is listed on the NYSE, approval by the
holders of two-thirds of the outstanding shares of the Preferred Stock will be
required for adoption of any amendment of the Articles that would materially
affect the existing terms of the Preferred Stock.
CONVERSION
The Preferred Stock is not convertible into or exchangeable for any other
property or securities of the Company.
RESTRICTIONS ON OWNERSHIP
For information regarding restrictions on ownership of the Preferred Stock,
see "Description of Capital Stock -- Redemption and Restrictions on Transfer" in
the accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is based
on current law, is for general information only and is not tax advice. This
discussion does not purport to deal with all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax exempt organizations, financial institutions or broker dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws.
This Prospectus Supplement does not address the taxation of the Company or
the impact on the Company of its election to be taxed as a REIT. The discussion
set forth below assumes that the Company qualifies as a REIT under the Code. If
in any taxable year the Company were to fail to qualify as a REIT, the Company
would not be allowed a deduction for distributions to shareholders in computing
taxable income and would be subject to federal income tax on its taxable income
at regular corporate rates. As a result, the funds available for distribution to
the Company's shareholders would be reduced.
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TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
DIVIDENDS AND OTHER DISTRIBUTIONS. As long as the Company qualifies as a
REIT, distributions made to the Company's taxable domestic shareholders
(including holders of Preferred Stock) out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. For purposes of determining whether
distributions on the Preferred Stock are out of current or accumulated earnings
and profits, the earnings and profits of the Company will be allocated first to
the Company's preferred stock, and then allocated to the Company's common stock.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held his Preferred Stock. However, corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted tax basis of the shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed the
adjusted basis of a shareholder's shares they will be included in income as
long-term capital gain (or short-term capital gain if the shares have been held
for one year or less) assuming the shares are a capital asset in the hands of
the shareholder. In addition, any dividend declared by the Company in October,
November or December of any year and payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Shareholders may not include in their income tax returns any net
operating losses or capital losses of the Company.
SALE OR REDEMPTION OF PREFERRED STOCK. On the sale of shares of Preferred
Stock, gain or loss will be recognized by the shareholder in an amount equal to
the difference between (i) the amount of cash and fair market value of any
property received on such sale, and (ii) the shareholder's adjusted basis in the
shares of Preferred Stock. Such gain or loss will be capital gain or loss if the
shares of Preferred Stock are held as capital assets, and will be long-term gain
or loss if such shares are held for more than one year. In general, any loss
upon a sale or exchange of shares by a shareholder who has held such shares for
six months or less (after applying certain holding period rules) will be treated
as a long-term capital loss to the extent of distributions from the Company
required to be treated by such shareholder as long-term capital gain.
A redemption of Preferred Stock will be treated under Section 302 of the
Code as a distribution that is taxable at ordinary income tax rates as a
dividend (to the extent of the Company's current and accumulated earnings and
profits), unless the redemption satisfies certain tests set forth in Section
302(b) of the Code enabling the redemption to be treated as a sale of the
Preferred Stock. A redemption will satisfy such tests if it (i) is
"substantially disproportionate" with respect to the shareholder (which will not
be the case if only Preferred Stock is redeemed, since it generally does not
have voting rights), (ii) results in a "complete termination" of the
shareholder's stock interest in the Company or (iii) is "not essentially
equivalent to a dividend" with respect to the shareholder, all within the
meaning of Section 302(b) of the Code. In determining whether any of these tests
have been met, shares of stock of the Company considered to be owned by the
shareholder by reason of certain constructive ownership rules set forth in the
Code, as well as shares actually owned, must generally be taken into account.
Because the determination as to whether any of the alternative tests of Section
302(b) of the Code will be satisfied with respect to any particular holder of
Preferred Stock depends upon the facts and circumstances at the time that the
determination must be made, prospective investors are advised to consult their
own tax advisors to determine such tax treatment.
If a redemption of the Preferred Stock is treated as a distribution that is
taxable as a dividend to a shareholder, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the shareholder. The shareholder's adjusted tax basis in such
redeemed Preferred Stock will be transferred to the shareholder's remaining
stockholdings in the Company. If, however, the shareholder has no remaining
stockholdings in the Company, such basis could be transferred to a related
person or it may be lost.
BACKUP WITHHOLDING
The Company will report to its domestic shareholders and the Internal
Revenue Service ("IRS") the amount of dividends paid during each calendar year,
and the amount of tax withheld, if any. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid and redemptions unless such shareholder (a) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a taxpayer identification number, certifies that the
shareholder is not subject to backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that does
not provide the Company with his correct taxpayer identification number may also
be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
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<PAGE>
TAXATION OF CERTAIN TAX-EXEMPT SHAREHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a Section 401(k)
plan, and that holds the Preferred Stock as an investment will not be subject to
tax on dividends paid by the Company. However, if such tax-exempt investor is
treated as having purchased its Preferred Stock with borrowed funds, some or all
of its dividends from the Preferred Stock will be subject to tax. In addition,
under some circumstances certain pension plans (including Section 401(k) plans
but not, for example, IRAs) that own more than 10% (by value) of the Company's
outstanding stock, including Common Stock, could be subject to tax on a portion
of their Preferred Stock dividends even if their Preferred Stock is held for
investment and is not treated as acquired with borrowed funds.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they own
property, transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, including those for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G. Edwards & Sons, Inc.,
Morgan Stanley & Co. Incorporated and Scott & Stringfellow, Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company, the number of shares of Preferred Stock set forth below opposite
their respective names. The Underwriters are committed to purchase all of the
shares of Preferred Stock if any are purchased.
NUMBER OF
UNDERWRITER SHARES
------------ ---------
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
---------
Total 6,000,000
=========
The Representatives of the Underwriters have advised the Company that they
propose initially to offer the shares of Preferred Stock to the public at the
public offering price set forth on the cover page of this Prospectus Supplement,
and to certain dealers at such price less a concession not in excess of $.50 per
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $.35 per share to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to 900,000 additional shares of Preferred Stock at the price to the public set
forth on the cover page of this Prospectus Supplement, less the underwriting
discount, to cover over-allotments. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares to be purchased by it shown in the foregoing table bears to the
6,000,000 shares offered hereby.
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<PAGE>
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In connection with the offering, the rules of the Securities and Exchange
Commission permit the Representatives to engage in certain transactions that
stabilize the price of the Preferred Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Preferred Stock.
If the Underwriters create a short position in the Preferred Stock in
connection with the offering, i.e., if they sell more shares of Preferred Stock
than are set forth on the cover page of this Prospectus Supplement, the
Representatives may reduce that short position by purchasing Preferred Stock in
the open market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Preferred Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Preferred Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Preferred Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Application will be made to list the Preferred Stock on the NYSE. If so
approved, trading of the Preferred Stock on the NYSE is expected to commence
within a 30 day period after the initial delivery of the Preferred Stock. The
Representatives have advised the Company that they intend to make a market in
the Preferred Stock prior to the commencement of trading on the NYSE. The
Representatives will have no obligation to make a market in the Preferred Stock,
however, and may cease market making activities, if commenced, at any time.
LEGAL MATTERS
The legality of the Preferred Stock offered hereby will be passed upon for
the Company by Hunton & Williams, Richmond, Virginia, and the Underwriters by
Brown & Wood LLP, New York, New York.
S-20
<PAGE>
PROSPECTUS
$674,842,500
[LOGO]
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
------------------------
United Dominion Realty Trust, Inc. (the "Company") intends to issue from
time to time its (i) unsecured senior or subordinated debt securities (the "Debt
Securities"), (ii) shares of Preferred Stock, no par value ("Preferred Stock"),
and (iii) shares of Common Stock, $1 par value ("Common Stock"), having an
aggregate initial public offering price not to exceed $674,842,500 or the
equivalent thereof in one or more foreign currencies or composite currencies,
including European Currency Units, on terms to be determined at the time of
sale. The Debt Securities, the Preferred Stock and the Common Stock offered
hereby (collectively, the "Offered Securities") may be offered, separately or as
units with other Offered Securities, in separate series in amounts, at prices
and on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Securities will be subordinated to all existing and future Senior
Debt of the Company, as defined. See "Description of Debt Securities."
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, currency,
denominations, maturity, priority, interest rate, time of payment of interest,
terms of redemption at the option of the Company or repayment at the option of
the holder or for sinking fund payments, terms for conversion into or exchange
for other Offered Securities and the initial public offering price; (ii) in the
case of Preferred Stock, the series designation and number of shares and the
dividend, liquidation, redemption, conversion, voting and other rights and the
initial public offering price; (iii) in the case of Common Stock, the initial
public offering price; and (iv) in the case of all Offered Securities, whether
such Offered Securities will be offered separately or as a unit with other
Offered Securities. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a qualified real estate investment trust ("REIT") under the Internal
Revenue Code of 1986, as amended (the "Code").
The applicable Prospectus Supplement will also contain information, where
applicable, concerning certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered thereby.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or to or through underwriters or dealers. If
any designated agents or any underwriters are involved in the sale of Offered
Securities, they will be identified and their compensation will be described in
the applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing such Offered Securities and the method and terms of the offering
thereof.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------------
THE DATE OF THIS PROSPECTUS IS MAY 22, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices at Suite 1400, 500 West Madison Street, Chicago, Illinois
60661 and Suite 1300, 7 World Trade Center, New York, New York 10048, and can
also be inspected and copied at the offices of The New York Stock Exchange (the
"NYSE"), 20 Broad Street, New York, New York 10005. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the prescribed fees. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding the Company and other registrants
that file electronically with the Commission. The address of such site is
http://www.sec.gov.
This Prospectus is part of a registration statement on Form S-3 (together
with all amendments and exhibits, the "Registration Statement") filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules of the Commission. For further information, reference
is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (File No. 1-10524) filed by the Company with the
Commission under the Exchange Act are hereby incorporated by reference in this
Prospectus: (i) the Company's annual report on Form 10-K for the year ended
December 31, 1996, filed on March 31, 1997; (ii) the Company's quarterly report
on Form 10-Q for the quarter ended March 31, 1997, filed on May 15, 1997; (iii)
the Company's current report on Form 8-K dated August 15, 1996, filed on August
30, 1996; (iv) the Company's current report on Form 8-K dated October 31, 1996,
filed on November 15, 1996; (v) the Company's current report on Form 8-K dated
December 31, 1996, filed on January 15, 1997, including the Company's Form 8K/A
No. 1 filed on March 17, 1997; (vi) the Company's current report on Form 8-K
dated January 21, 1997, filed on January 21, 1997; and (vii) the descriptions of
the Common Stock and the Preferred Stock contained in the Company's registration
statements on Form 8-A dated April 19, 1990 and April 24, 1995, respectively,
filed under the Exchange Act, including any amendment or reports filed for the
purpose of updating such descriptions. All documents filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering of all of the Offered Securities shall be deemed to
be incorporated by reference herein.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
in any accompanying Prospectus Supplement relating to a specific offering of
Offered Securities or in any other subsequently filed document, as the case may
be, which also is or is deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement.
The Company will provide on request and without charge to each person to
whom this Prospectus is delivered a copy (without exhibits) of any or all
documents incorporated by reference into this Prospectus. Requests for such
copies should be directed to United Dominion Realty Trust, Inc., 10 South 6th
Street, Richmond, Virginia 23219-3802, Attention: Investor Relations (telephone
804/780-2691).
THE COMPANY
United Dominion Realty Trust, Inc. is a self-administered equity REIT
formed in 1972 which acquires, repositions, develops, manages and selectively
sells apartment homes for its own portfolio in the Sunbelt region of the United
States.
The Company is an owner and operator of primarily middle income apartment
communities across the Sunbelt region, which it believes will enjoy population
and job growth above the national average. The Company operates 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 opportunities and decreases the risks
associated with concentration in cyclical local markets. At May 9,
2
<PAGE>
1997, the Company's largest apartment market was Dallas, Texas, where it owned
13% of its apartment homes. Excluding Dallas, Texas, the Company did not own
more than 6% of its apartment homes in any one market. At May 9, 1997, the
Company owned 217 apartment communities containing 59,021 completed apartment
homes (including 11 apartment communities containing 2,556 apartment homes
classified as real estate held for disposition) and 1,196 apartment homes under
development.
The Company has experienced significant growth during the past several
years, increasing the number of apartment homes owned by 327% since 1992. During
1996, the Company completed a record number of apartment acquisitions, adding a
total of 22,032 apartment homes at a total cost of approximately $881 million.
The 1996 acquisitions included the statutory merger with South West Property
Trust Inc. (the "South West Merger"), which added 44 apartment communities
containing 14,320 completed apartment homes and 675 under development, at an
aggregate cost of approximately $560 million. Another acquisition added a
portfolio of 18 apartment communities containing 4,508 apartment homes, at an
aggregate cost of approximately $182 million.
The Company's current objective is to be a major apartment owner in the
larger Sunbelt markets by focusing on the following strategies:
ACQUISITIONS. The Company's investment strategy hinges on acquiring
apartment communities where it can add value. The Company focuses on
acquiring two types of apartment communities: (i) Class B+ to near Class A
properties built since 1980 where the investment (purchase price plus
planned improvements) represents a significant discount to replacement
cost; and (ii) well located, pre-1980s communities that can be upgraded and
repositioned for the longer term.
PORTFOLIO ACQUISITIONS AND MERGERS. The Company has been a major
participant in consolidation within the apartment industry, having acquired
apartment portfolios in each of the last three years and completed the
South West Merger on December 31, 1996. The Company expects to continue to
participate in the consolidation process as an acquirer of other apartment
portfolios and/or apartment REITs when such transactions are accretive to
earnings and can enhance dividend growth and shareholder value.
DEVELOPMENT. Consistent with the Company's acquisition strategy,
apartment home development activity will be primarily focused in its major
markets through investments in site locations favorable for new development
and additions to existing apartment communities. The capability to develop
is another resource for growth in the Company's major markets.
EXISTING COMMUNITIES. The Company seeks to achieve income growth from
its portfolio of mature apartment communities by increasing rental revenues
while maintaining occupancy and controlling operating expenses. The Company
also has a program to upgrade its older apartment communities. These
upgrades are designed to enhance rent growth and add value to the apartment
communities.
SALES. The Company continually assesses its real estate portfolio in
order to make hold, upgrade or sell decisions on each of its apartment
communities. The Company's strategy is to selectively sell certain
apartment communities that no longer meet the long term investment
objectives that have been established for its apartment portfolio due to
size, location, age or projected earnings potential.
FINANCINGS. The Company intends to maintain what management believes
is a conservative capital structure. Prior to 1996, the Company generally
managed its debt at levels at or below 40% of total market capitalization
(debt and equity). However, in 1996, management decided to increase the
proportion of debt in its capital structure to approximately 45% in order
to take advantage of long term borrowing rates which were at historical
lows.
In 1995, the Company organized United Dominion Realty, L.P. (the "Operating
Partnership") to assist the Company in competing for acquisitions of properties
that meet the Company's investment strategies from seller partnerships, some or
all of whose partners may wish to defer taxation of gain realized on sale
through an exchange of partnership interests. As of May 15. 1997, the Company
had acquired three apartment communities and land to develop an additional
apartment community using the Operating Partnership and had transferred seven of
its Tennessee properties into the Operating Partnership, and the Operating
Partnership was 98% owned by the Company.
The Company has an Eastern Division and a Western Division to divide
apartment operations, acquisitions and development geographically. Because the
company operated only in the Southeast and Mid-Atlantic prior to the South West
Merger, its Eastern Division today represents approximately 75% of its revenues
and apartment homes. The Eastern Division is divided into three regions,
Northern, Southern and Florida, respectively headquartered in Richmond, Atlanta
and Orlando.
3
<PAGE>
Management believes that a region can operate approximately 30,000 apartment
homes. The largest region today, the Northern Region, operates approximately
18,000 apartment homes. The management team in each region includes a director
of apartment operations, a manager of property improvements, an asset manager
and a senior acquisitions analyst. Regional teams were first organized in 1995
to move decision making closer to the community and customer level. The Company
believes that the regional concept can allow the Company to effectively operate
200,000 apartment homes or more. As the Western Division grows, it will also be
divided into regions.
The Company seeks to provide its shareholders with regularly increasing
distributions and stock price appreciation. The Company has paid quarterly
distributions to its shareholders continuously since 1973 and has increased
common stock distributions each year for the past 21 years. The declared common
stock distribution was last increased in March 1997, and the current indicated
annual distribution is $1.01 per share. In past years, a portion of the
Company's distribution to its shareholders has been designated a non-taxable
return of capital for income tax purposes. During the past 15 years, the Company
provided its shareholders with an average annual return of 20%.
The Company, a Virginia corporation, has its principal office at 10 South
6th Street, Richmond, Virginia 23219-3802. Its telephone number is (804)
780-2691 and its E-mail address is [email protected]. Unless the context indicates
otherwise, the term "Company," as used herein, includes the Company and its
subsidiaries.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for general
corporate purposes, which may include repayment of indebtedness, making
improvements to properties and the acquisition and development of additional
properties.
CERTAIN RATIOS
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges and earnings to combined fixed charges and Preferred
Stock dividends for the periods shown and for the year ended December 31, 1996
supplemental pro forma.
<TABLE>
<CAPTION>
SUPPLEMENTAL
YEAR ENDED DECEMBER 31, PRO FORMA(1)
---------------------------------------- ------------ THREE MONTHS ENDED
1992 1993 1994 1995 1996 1996 MARCH 31, 1997
---- ---- ---- ---- ---- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.......... 1.54x 1.64x 1.69x 1.81x 1.73x 1.67x 1.84x
Ratio of earnings to combined fixed charges
and Preferred Stock dividends............. 1.54 1.64 1.69 1.56 1.45 1.48 1.64
</TABLE>
- ---------------
(1) Assumes (i) the consummation of the South West Merger and (ii) the
acquisition of 20 apartment communities containing 5,157 apartment homes, as
if the transactions had occurred on January 1, 1996.
The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and Preferred
Stock dividends was computed by dividing earnings by the total of fixed charges
and Preferred Stock dividends. For purposes of computing these ratios, earnings
consist of income before extraordinary items plus fixed charges other than
capitalized interest, and fixed charges consist of interest on borrowed funds
(including capitalized interest) and amortization of debt discount and expense.
The Company did not issue any shares of Preferred Stock until April 1995;
therefore, only the ratios of earnings to combined fixed charges and Preferred
Stock dividends for the years ended December 31, 1995 and 1996, the year ended
December 31, 1996 supplemental pro forma and the three months ended March 31,
1996 and 1997 include Preferred Stock dividends.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities are to be issued under an indenture dated as of
November 1, 1995, as supplemented from time to time (the "Senior Indenture"),
between the Company and First Union National Bank of Virginia (the "Senior
Indenture Trustee"), and the Subordinated Securities are to be issued under an
indenture dated as of August 1, 1994, as supplemented from time to time (the
"Subordinated Indenture"), between the Company and Crestar Bank (the
"Subordinated Indenture Trustee"). The term "Trustee," as used herein, shall
refer to the Senior Indenture Trustee or the Subordinated Indenture
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Trustee, as appropriate. The forms of the Senior Indenture and the Subordinated
Indenture (being sometimes referred to herein collectively as the "Indentures"
and individually as an "Indenture") are filed as exhibits to the Registration
Statement and will be respectively available for inspection at the Corporate
Trust Office (as such term is defined in the Indentures) of the Senior Indenture
Trustee and the Subordinated Indenture Trustee, or as described under "Available
Information." The Indentures are subject to, and governed by, the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder
relating to the Indentures and the Debt Securities are summaries of certain
provisions thereof, do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indentures
and the Debt Securities. All section references appearing herein are to sections
of the Indentures, and capitalized terms used but not defined herein have the
respective meanings set forth in the Indentures and the Debt Securities.
TERMS
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The indebtedness
represented by the Subordinated Securities will be subordinated in right of
payment to the prior payment in full of the Senior Debt of the Company, as
described under "Subordination."
Each Indenture provides that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company or as established in one or
more indentures supplemental to such Indenture. Debt Securities may be issued
with terms different from those of Debt Securities previously issued. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the Holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series (Section 301 of each Indenture).
Each Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
either Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608 of each Indenture). In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee
(Sections 101 and 609 of each Indenture), and, except as otherwise indicated
herein, any action described herein to be taken by the Company may be taken by
each such Trustee with respect to, and only with respect to, the one or more
series of Debt Securities for which it is Trustee under the applicable
Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities that is convertible into Capital
Stock of the Company, or the method by which any such portion will be
determined;
(4) if convertible, in connection with the preservation of the
Company's status as a REIT, any applicable limitations on the ownership or
transferability of the Capital Stock of the Company into which such Debt
Securities are convertible;
(5) the date or dates, or the method by which such date or dates will
be determined, on which the principal of such Debt Securities will be
payable and the amount of principal payable thereon;
(6) the rate or rates (which may be fixed or variable) at which such
Debt Securities will bear interest, if any, or the method by which such
rate or rates will be determined, the date or dates from which such
interest will accrue or the method by which such date or dates will be
determined, the Interest Payment Dates on which any such interest will be
payable and the Regular Record Dates for such Interest Payment Dates or the
method by which such Dates will be determined, and the basis upon which
interest will be calculated if other than that of a 360-day year consisting
of twelve 30-day months;
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<PAGE>
(7) the place or places where the principal of (and premium or
Make-Whole Amount (as defined in each Indenture), if any), interest, if
any, on, and Additional Amounts, if any, payable in respect of, such Debt
Securities will be payable, where such Debt Securities may be surrendered
for registration of transfer or exchange and where notices or demands to or
upon the Company in respect of such Debt Securities and the applicable
Indenture may be served;
(8) the period or periods within which, the price or prices (including
premium or Make-Whole Amount, if any) at which, the currency or currencies,
currency unit or units or composite currency or currencies in which and
other terms and conditions upon which such Debt Securities may be redeemed
in whole or in part, at the option of the Company, if the Company is to
have the option;
(9) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date or dates on which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and other terms and conditions upon which such Debt
Securities will be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation;
(10) whether such Debt Securities will be in registered or bearer form
and terms and conditions relating thereto, and, if other than $1,000 and
any integral multiple thereof, the denominations in which any registered
Debt Securities will be issuable and, if other than $5,000, the
denomination or denominations in which any bearer Debt Securities will be
issuable;
(11) if other than United States dollars, the currency or currencies
in which such Debt Securities will be denominated and payable, which may be
a foreign currency or units of two or more foreign currencies or a
composite currency or currencies;
(12) whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest, if any, on such Debt Securities may
be determined with reference to an index, formula or other method (which
index, formula or method may be based, without limitation, on one or more
currencies, currency units, composite currencies, commodities, equity
indices or other indices), and the manner in which such amounts will be
determined;
(13) whether the principal of (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts, if any, on such Debt Securities are
to be payable, at the election of the Company or a Holder thereof, in a
currency or currencies, currency unit or units or composite currency or
currencies other than that in which such Debt Securities are denominated or
stated to be payable, the period or periods within which, and the terms and
conditions upon which, such election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are denominated or stated to be payable and the currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are to be so payable;
(14) provisions, if any, granting special rights to the Holders of
such Debt Securities upon the occurrence of such events as may be
specified;
(15) any deletions from, modifications of or additions to the Events
of Default or covenants of the Company with respect to such Debt
Securities, whether or not such Events of Default or covenants are
consistent with the Events of Default or covenants set forth in the
applicable Indenture;
(16) whether such Debt Securities will be issued in certificated or
book-entry form;
(17) the applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;
(18) whether and under what circumstances the Company will pay
Additional Amounts as contemplated in the applicable Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and, if
so, whether the Company will have the option to redeem such Debt Securities
rather than pay such Additional Amounts (and the terms of any such option);
and
(19) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301 of each Indenture).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities") (Section 502 of each Indenture). Special
United
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<PAGE>
States federal income tax, accounting and other considerations applicable to
Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Senior Securities will be payable at the corporate trust office of the
Senior Indenture Trustee located at 230 South Tryon Street, Charlotte, North
Carolina 28288 and the principal of (and premium or Make-Whole Amount, if any)
and interest on any series of Subordinated Securities will be payable at the
corporate trust office of the Subordinated Indenture Trustee located at 919 East
Main Street, Richmond, Virginia 23219; provided that at the option of the
Company payment of interest on any series of Debt Securities may be made by
check mailed to the address of the Person entitled thereto as it appears in the
Security Register for such series or by wire transfer of funds to such Person at
an account maintained within the United States (Sections 301, 305, 306, 307 and
1002 of each Indenture).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the applicable
Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer thereof at the corporate
trust office of the applicable Trustee referred to above. Every Debt Security
surrendered for conversion, registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration or transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith (Section 305 of
each Indenture). If the applicable Prospectus Supplement refers to any transfer
agent (in addition to the applicable Trustee) initially designated by the
Company with respect to any series of Debt Securities, the Company may at any
time rescind the designation of any such transfer agent or approve a change in
the location through which such transfer agent acts, except that the Company
will be required to maintain a transfer agent in each Place of Payment for such
series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002 of each Indenture).
Neither the Company nor either Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305 of each
Indenture).
MERGER, CONSOLIDATION OR SALE
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that (a) either the Company shall be the continuing entity, or the
successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets is a Person organized and existing under the laws of the United States or
any State thereof and shall expressly assume payment of the principal of (and
premium or Make-Whole Amount, if any) and interest on all of the Debt Securities
and the due and punctual performance and observance of all of the covenants and
conditions contained in each Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness which becomes an obligation of
the Company or
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<PAGE>
any Subsidiary as a result thereof as having been incurred by the Company or
such Subsidiary at the time of such transaction, no Event of Default under an
Indenture, and no event which, after notice or the lapse of time, or both, would
become such an Event of Default, shall have occurred and be continuing; and (c)
an Officers' Certificate and legal opinion covering such conditions shall be
delivered to the Company (Sections 801 and 803 of each Indenture).
CERTAIN COVENANTS
SENIOR INDENTURE LIMITATIONS ON INCURRENCE OF DEBT. The Senior Indenture
provides that the Company will not, and will not permit any Subsidiary to, incur
any Debt (as defined below) if, immediately after giving effect to the
incurrence of such Debt and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles is greater than 60% of the sum of (without
duplication) (i) the Company's Total Assets as of the end of the calendar
quarter covered in the Company's Annual Report on Form 10-K or Quarterly Report
on Form 10-Q, as the case may be, most recently filed with the Commission (or,
if such filing is not permitted under the Exchange Act, with the Company) prior
to the incurrence of such additional Debt and (ii) the purchase price of any
real estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent such proceeds were not used
to acquire real estate assets or mortgages receivable or used to reduce Debt),
by the Company or any Subsidiary since the end of such calendar quarter,
including those proceeds obtained in connection with the incurrence of such
additional Debt (Section 1004 of the Senior Indenture). The Subordinated
Indenture does not limit the incurrence of Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Senior Indenture provides that the Company will not, and will not permit any
Subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge,
encumbrance or security interest of any kind upon any of the property of the
Company or any Subsidiary if, immediately after giving effect to the incurrence
of such Debt and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries on
a consolidated basis which is secured by any mortgage, lien, charge, pledge,
encumbrance or security interest on property of the Company or any Subsidiary is
greater than 40% of the Company's Total Assets (Section 1004 of the Senior
Indenture).
In addition to the foregoing limitations on the incurrence of Debt, the
Senior Indenture provides that the Company will not, and will not permit any
Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for
Debt Service (as defined below) to the Annual Service Charge (as defined below)
for the four consecutive fiscal quarters most recently ended prior to the date
on which such additional Debt is to be incurred shall have been less than 1.5,
on a pro forma basis after giving effect thereto and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Company and its Subsidiaries since the first day of
such four-quarter period and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of such period;
(ii) the repayment or retirement of any other Debt by the Company and its
Subsidiaries since the first day of such four-quarter period had been incurred,
repaid or retired at the beginning of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility shall be
computed based upon the average daily balance of such Debt during such period);
(iii) in the case of Acquired Debt (as defined below) or Debt incurred in
connection with any acquisition since the first day of such four-quarter period,
the related acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition by
the Company or its Subsidiaries of any asset or group of assets since the first
day of such four-quarter period, whether by merger, stock purchase or sale, or
asset purchase or sale, such acquisition or disposition or any related repayment
of Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation (Section 1004 of the Senior Indenture).
As used herein,
"ACQUIRED DEBT" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"ANNUAL SERVICE CHARGE" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
the Company and its Subsidiaries and the amount of dividends which are payable
in respect of any Disqualified Stock (as defined below).
8
<PAGE>
"CAPITAL STOCK" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means Funds
from Operations (as defined below) of the Company and its Subsidiaries plus
amounts which have been deducted for interest on Debt of the Company and its
Subsidiaries.
"DEBT" of the Company or any Subsidiary means any indebtedness of the
Company, or any Subsidiary, whether or not contingent, in respect of (without
duplication) (i) borrowed money or evidenced by bonds, notes, debentures or
similar instruments, (ii) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on property owned by the
Company or any Subsidiary, (iii) the reimbursement obligations, contingent or
otherwise, in connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase price of any
property or services, except any such balance that constitutes an accrued
expense or trade payable, or all conditional sale obligations or obligations
under any title retention agreement, (iv) the principal amount of all
obligations of the Company or any Subsidiary with respect to redemption,
repayment or other repurchase of any Disqualified Stock or (v) any lease of
property by the Company or any Subsidiary as lessee which is reflected on the
Company's consolidated balance sheet as a capitalized lease in accordance with
generally accepted accounting principles to the extent, in the case of items of
indebtedness under (i) through (iii) above, that any such items (other than
letters of credit) would appear as a liability on the Company's consolidated
balance sheet in accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any obligation of the
Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), Debt of another Person (other than the Company or any Subsidiary) (it
being understood that Debt shall be deemed to be incurred by the Company or any
Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof).
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii)
is convertible into or exchangeable or exercisable for Debt or Disqualified
Stock or (iii) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the Stated Maturity of the series of Debt
Securities.
"FUNDS FROM OPERATIONS" for any period means income before gains (losses)
on investments and extraordinary items plus amounts which have been deducted,
and minus amounts which have been added, for the following items (without
duplication): (a) provision for Preferred Stock dividends, (b) provision for
property depreciation and amortization and (c) the effect of any adjustments for
significant non-recurring items, including any noncash charge resulting from a
change in accounting principles in determining income before gains (losses) on
investments and extraordinary items for such period, as reflected in the
financial statements of the Company and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"TOTAL ASSETS" as of any date means the sum of (i) the Company's
Undepreciated Real Estate Assets and (ii) all other assets of the Company
determined in accordance with generally accepted accounting principles (but
excluding intangibles).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with generally accepted accounting principles.
Except as described above, the Indentures do not contain any provisions
that would limit the ability of the Company to incur indebtedness or that would
afford Holders of the Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. However, the Articles of Incorporation of the Company include
provisions for mandatory redemption and stopping transfer of its Common Stock
designed to preserve the Company's status as a REIT. The Code provides that
concentration of more than 50% in value of direct or indirect ownership of
Common Stock in five or fewer individual shareholders during the last six months
of any year will result in disqualification of the Company as a REIT.
Enforcement of the provisions of the Company's Articles of Incorporation would
prevent such concentration and, therefore, prevent or hinder a change of
control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or
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<PAGE>
covenants of the Company that are described herein, including any addition of a
covenant or other provision providing event risk or similar protection.
EXISTENCE. Except as described above under " -- Merger, Consolidation or
Sale," the Company will do or cause to be done all things necessary to preserve
and keep in full force and effect the existence, rights (charter and statutory)
and franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Debt Securities of any series (Section 1005 of each Indenture).
MAINTENANCE OF PROPERTIES. The Company will cause all of its properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Company and its Subsidiaries shall not be prevented
from selling or otherwise disposing of for value their properties in the
ordinary course of business (Section 1006 of each Indenture).
INSURANCE. The Company will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage in an amount
at least equal to their then full insurable value with financially sound and
reputable insurance companies (Section 1007 of each Indenture).
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or
cause to be paid or discharged, before the same become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1008 of each Indenture).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 and 15(d) if the Company
were so subject, such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register, without cost to such Holders, copies
of the annual reports and quarterly reports which the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections and (ii) file with the
Company copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request and payment
of the reasonable cost of duplication and delivery, supply copies of such
documents to any prospective Holder (Section 1009 of each Indenture).
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest or Additional Amounts
payable on any Debt Security of such series; (b) default in the payment of the
principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of
such series at its Maturity; (c) default in making any sinking fund payment as
required for any Debt Security of such series; (d) default in the performance of
any other covenant of the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the Indenture; (e) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor) having an aggregate principal amount outstanding
of at least $10,000,000, whether such indebtedness now exists or shall hereafter
be created, which default shall
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have resulted in such indebtedness being declared due and payable prior to the
date on which it would otherwise have become due and payable, without such
acceleration having been rescinded or annulled within 10 days after written
notice as provided in the Indenture; (f) the entry by a court of competent
jurisdiction of one or more judgments, orders or decrees against the Company or
any Subsidiary in an aggregate amount (excluding amounts fully covered by
insurance) in excess of $10,000,000 and such judgments, orders or decrees remain
undischarged, unstayed and unsatisfied in an aggregate amount (excluding amounts
fully covered by insurance) in excess of $10,000,000 for a period of 30
consecutive days; (g) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or any Significant Subsidiary or for all or substantially all of either
of its property; and (h) any other Event of Default provided with respect to
such series of Debt Securities (Section 501 of each Indenture). The term
"Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Company.
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the Company or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of, and premium or Make-Whole Amount,
if any, on, all of the Debt Securities of that series to be due and payable
immediately by written notice thereof to the Company (and to the Company if
given by the Holders). However, at any time after such declaration of
acceleration with respect to Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be)
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Company, the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of such series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Company shall have deposited with the Company all required payments of the
principal of (and premium or Make-Whole Amount, if any) and interest, and any
Additional Amounts, on the Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be),
plus certain fees, expenses, disbursements and advances of the Company and (b)
all Events of Default, other than the nonpayment of accelerated principal (or
specified portion thereof and the premium or Make-Whole Amount, if any) or
interest, with respect to the Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in the Indenture (Section 502 of each
Indenture). Each Indenture also provides that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium or Make-Whole Amount, if any) or interest or Additional Amounts payable
on any Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513 of each Indenture).
Each Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the applicable Indenture; provided, however,
that such Trustee may withhold notice to the Holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest or Additional Amounts payable on any Debt Security of such series or in
the payment of any sinking fund installment in respect of any Debt Security of
such series) if the Responsible Officers of such Trustee consider such
withholding to be in the interest of such Holders (Section 601 of each
Indenture).
Each Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
Company, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of reasonable indemnity (Section 507 of each
Indenture). This provision will not prevent, however, any Holder of Debt
Securities from instituting suit for the enforcement of payment of the principal
of (and premium or Make-Whole Amount, if any), interest on and Additional
Amounts payable with respect to, such Debt Securities at the respective due
dates thereof (Section 508 of each Indenture).
MODIFICATION OF THE INDENTURES
Modifications and amendments of either Indenture may be made with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities issued under such Indenture that are affected by
such modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of
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each such Debt Security affected thereby, (a) change the Stated Maturity of the
principal of (or premium or Make-Whole Amount, if any), or any installment of
principal of or interest or Additional Amounts payable on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium or Make-Whole Amount payable on redemption of, or any
Additional Amounts payable with respect to, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security or Make-Whole
Amount, if any, that would be due and payable upon declaration of acceleration
of the maturity thereof or would be provable in bankruptcy, or adversely affect
any right of repayment of the Holder of any such Debt Security; (c) change the
Place of Payment, or the coin or currency, for payment of principal of (and
premium or Make-Whole Amount, if any), or interest on, or any Additional Amounts
payable with respect to, any such Debt Security; (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any such
Debt Security; (e) reduce the percentage of Outstanding Debt Securities of any
series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Debt Security (Section 902 of each Indenture).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities issued under either Indenture have the right to waive compliance
by the Company with certain covenants in such Indenture (Section 1012 of each
Indenture).
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
the Subordinated Securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal and interest on the
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest may be made on the
Subordinated Securities at any time if a default on Senior Debt exists that
permits the holders of such Senior Debt to accelerate its maturity and the
default is the subject of judicial proceedings or the Company receives notice of
the default (Section 1603 of the Subordinated Indenture). After all Senior Debt
is paid in full and until the Subordinated Securities are paid in full, holders
will be subrogated to the rights of holders of Senior Debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Debt (Section 1607 of the Subordinated Indenture). By reason of such
subordination, in the event of a distribution of assets upon insolvency, certain
general creditors of the Company may recover more, ratably, than holders of the
Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (b) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other instrument, (c) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (d) indebtedness of
partnerships and joint ventures that is included in the consolidated financial
statements of the Company, (e) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (f) any binding
commitment of the Company to fund any real estate investment or to fund any
investment in any entity making such real estate investment, in each case other
than (1) any such indebtedness, obligation or liability referred to in clauses
(a) through (f) above as to which, in the instrument creating or evidencing the
same pursuant to which the same is outstanding, it is provided that such
indebtedness, obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks pari passu with the Subordinated Securities,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated and (3) the
Subordinated Securities (Section 101 of the Subordinated Indenture). At March
31, 1997, Senior Debt aggregated approximately $1.1 billion. There are no
restrictions in the Subordinated Indenture upon the creation of additional
Senior Debt. However, the Senior Indenture contains limitations on incurrence of
indebtedness by the Company. See " -- Certain Covenants -- Senior Indenture
Limitations on Incurrence of Debt."
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, the Company may discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not already
been delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium or Make-Whole Amount, if any)
and interest and any Additional Amounts payable to the date of such deposit (if
such Debt Securities have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be (Section 401 of each Indenture).
Each Indenture provides that, if the provisions of Article Fourteen thereof
are made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402 of each Indenture) or (b) to be released from its
obligations with respect to such Debt Securities under provisions of each
Indenture described under " -- Certain Covenants," or, if provided pursuant to
Section 301 of each Indenture, its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event or Default with respect to such Debt Securities ("covenant
defeasance") (Section 1403 of each Indenture), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or currency units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium or Make-Whole Amount, if
any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the applicable Trustee an Opinion of Counsel (as specified in
each Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable United States federal income tax laws occurring after the date of
such Indenture (Section 1404 of each Indenture).
"GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of either Indenture or the terms of such Debt Security
to receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal
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of (and premium or Make-Whole Amount, if any) and interest on such Debt Security
as they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market exchange
rate (Section 1405 of each Indenture). "Conversion Event" means the cessation of
use of (i) a currency, currency unit or composite currency (other than the ECU
or other currency unit) both by the government of the country that issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium or
Make-Whole Amount, if any) and interest on any Debt Security that is payable in
a Foreign Currency that ceases to be used by its government of issuance shall be
made in United States dollars (Section 101 of each Indenture).
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under " -- Events of Default, Notice and Waiver" with respect to
Sections 1004 to 1009, inclusive, of either Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (g) under
"Events of Default, Notice and Waiver" with respect to a covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the Company, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Capital Stock of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Capital Stock of the Company,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the Holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
are expected be deposited with The Depository Trust Company, as Depository.
Global Securities may be issued in fully registered form and may be issued in
either temporary or permanent form. Unless and until it is exchanged in whole or
in part for the individual Debt Securities represented thereby, a Global
Security may not be transferred except as a whole by the Depository for such
Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any nominee of such Depository to a successor Depository or any
nominee of such successor.
The specific terms of the depository arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement the following provisions will apply to
depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by the
Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Security
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will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depository for such Global Security or its
nominee (with respect to beneficial interests of Participants) and records of
Participants (with respect to beneficial interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to own, pledge or transfer beneficial
interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement, owners of beneficial interest in a Global Security will not be
entitled to have any of the individual Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities in definitive form and
will not be considered the owners or holders thereof under the applicable
Indenture.
Payments of principal of, any premium or Make-Whole Amount and any interest
on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner of the Global Security. None of the
Company, the Trustee, any Paying Agent or the Security Registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depository for any Debt Securities or its
nominee, upon receipt of any payment of principal, premium, Make-Whole Amount,
interest or Additional Amounts in respect of the Global Security representing
such Debt Securities will immediately credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depository or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Security held
through such Participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in street name. Such payments will be the
responsibility of such Participants.
If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, determine not to have any of such Debt Securities represented by one
or more Global Securities and in such event will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiples thereof.
TRUSTEES
First Union National Bank of Virginia is the Trustee under the Senior
Indenture. Crestar Bank is the Trustee under the Subordinated Indenture. Both
First Union National Bank of Virginia and Crestar Bank have lending
relationships with the Company.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 150,000,000 shares of Common Stock, $1
par value, and 25,000,000 shares of Preferred Stock, no par value. At May 9,
1997, there were outstanding 86,484,586 shares of Common Stock and 4,200,000
shares of Preferred Stock, consisting exclusively of the Company's 9 1/4% Series
A Cumulative Redeemable Preferred Stock (the "Series A Preferred").
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's Restated Articles of
Incorporation, as amended (the "Articles"), and bylaws (the "Bylaws") as
currently in effect. These statements do not purport to be complete, or to give
full effect to the terms of the provisions of statutory or common
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law, and are subject to, and are qualified in their entirety by reference to,
the terms of the Articles and Bylaws, which are filed as exhibits to the
Registration Statement.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors after payment of, or provision for, full
cumulative dividends on and any required redemptions of shares of Preferred
Stock then outstanding. Holders of Common Stock have one vote per share and
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting can elect all of the directors if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
directors. In the event of any voluntary or involuntary liquidation or
dissolution of the Company, holders of Common Stock are entitled to share
ratably in the distributable assets of the Company remaining after satisfaction
of the prior preferential rights of the Preferred Stock and the satisfaction of
all debts and liabilities of the Company. Holders of Common Stock do not have
preemptive rights.
The dividend and liquidation rights of holders of the Common Stock are
specifically limited by the terms of the Series A Preferred as described below
in " -- Series A Preferred."
The transfer agent for the Common Stock is ChaseMellon Shareholder
Services, L.L.C., Ridgefield Park, New Jersey. The Common Stock is traded on the
NYSE under the symbol "UDR."
PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in that Prospectus
Supplement. The description set forth below is subject to and qualified in its
entirety by reference to the Articles of Amendment to the Articles fixing the
preferences, limitations and relative rights of a particular series of Preferred
Stock.
GENERAL. Under the Articles, the Board of Directors of the Company is
authorized, without further shareholder action, to provide for the issuance of
up to 25,000,000 shares of Preferred Stock, in one or more series, with such
voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions, as the Board of Directors shall approve.
The Preferred Stock will have the dividend, liquidation, redemption,
conversion and voting rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the particular series
of Preferred Stock offered thereby for specific terms, including: (i) the title
and liquidation preference per share of such Preferred Stock and the number of
shares offered; (ii) the price at which such series will be issued; (iii) the
dividend rate (or method of calculation), the dates on which dividends shall be
payable and the dates from which dividends shall commence to accumulate; (iv)
any redemption or sinking fund provisions of such series; (v) any conversion
provisions of such series; and (vi) any additional dividend, liquidation,
redemption, sinking fund and other rights, preferences, privileges, limitations
and restrictions of such series.
The Preferred Stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the Prospectus Supplement relating to a particular
series of Preferred Stock, each series will rank on a parity as to dividends and
distributions in the event of a liquidation with each other series of Preferred
Stock and, in all cases, will be senior to the Common Stock.
DIVIDEND RIGHTS. Holders of Preferred Stock of each series will be entitled
to receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available therefor, cash dividends at such rates and on such
dates as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock. Such rate may be fixed or variable or both and may be
cumulative, noncumulative or partially cumulative.
If the applicable Prospectus Supplement so provides, as long as any shares
of Preferred Stock are outstanding, no dividends will be declared or paid or any
distributions be made on the Common Stock, other than a dividend payable in
Common Stock, unless the accrued dividends on each series of Preferred Stock
have been fully paid or declared and set apart for payment and the Company shall
have set apart all amounts, if any, required to be set apart for all sinking
funds, if any, for each series of Preferred Stock.
If the applicable Prospectus Supplement so provides, when dividends are not
paid in full upon any series of Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends with such series of
Preferred Stock, all
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dividends declared upon such series of Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends will be declared pro rata so
that the amount of dividends declared per share on such series of Preferred
Stock and such other series will in all cases bear to each other the same ratio
that accrued dividends per share on such series of Preferred Stock and such
other series bear to each other.
Each series of Preferred Stock will be entitled to dividends as described
in the Prospectus Supplement relating to such series, which may be based upon
one or more methods of determination. Different series of Preferred Stock may be
entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable Prospectus
Supplement, no series of Preferred Stock will be entitled to participate in the
earnings or assets of the Company.
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Stock will be entitled to receive out of the assets of the
Company available for distribution to shareholders the amount stated or
determined on the basis set forth in the Prospectus Supplement relating to such
series, which may include accrued dividends, if such liquidation, dissolution or
winding up is involuntary or may equal the current redemption price per share
(otherwise than for the sinking fund, if any, provided for such series) provided
for such series set forth in such Prospectus Supplement, if such liquidation,
dissolution or winding up is voluntary, and on such preferential basis as is set
forth in such Prospectus Supplement. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the amounts payable with
respect to Preferred Stock of any series and any other shares of stock of the
Company ranking as to any such distribution on a parity with such series of
Preferred Stock are not paid in full, the holders of Preferred Stock of such
series and of such other shares will share ratably in any such distribution of
assets of the Company in proportion to the full respective preferential amounts
to which they are entitled or on such other basis as is set forth in the
applicable Prospectus Supplement. The rights, if any, of the holders of any
series of Preferred Stock to participate in the assets of the Company remaining
after the holders of other series of Preferred Stock have been paid their
respective specified liquidation preferences upon any liquidation, dissolution
or winding up of the Company will be described in the Prospectus Supplement
relating to such series.
REDEMPTION. A series of Preferred Stock may be redeemable, in whole or in
part, at the option of the Company, and may be subject to mandatory redemption
pursuant to a sinking fund, in each case upon terms, at the times, the
redemption prices and for the types of consideration set forth in the Prospectus
Supplement relating to such series. The Prospectus Supplement relating to a
series of Preferred Stock which is subject to mandatory redemption shall specify
the number of shares of such series that shall be redeemed by the Company in
each year commencing after a date to be specified, at a redemption price per
share to be specified, together with an amount equal to any accrued and unpaid
dividends thereon to the date of redemption.
If, after giving notice of redemption to the holders of a series of
Preferred Stock, the Company deposits with a designated bank funds sufficient to
redeem such Preferred Stock, then from and after such deposit, all shares called
for redemption will no longer be outstanding for any purpose, other than the
right to receive the redemption price and the right to convert such shares into
other classes of capital stock of the Company. The redemption price will be
stated in the Prospectus Supplement relating to a particular series of Preferred
Stock.
Except as indicated in the applicable Prospectus Supplement, the Preferred
Stock is not subject to any mandatory redemption at the option of the holder.
SINKING FUND. The Prospectus Supplement for any series of Preferred Stock
will state the terms, if any, of a sinking fund for the purchase or redemption
of that series.
CONVERSION RIGHTS. The Prospectus Supplement for any series of Preferred
Stock will state the terms, if any, on which shares of that series are
convertible into shares of Common Stock or another series of Preferred Stock.
The Preferred Stock will have no preemptive rights.
VOTING RIGHTS. Except as indicated in the Prospectus Supplement relating to
a particular series of Preferred Stock, or except as expressly required by
Virginia law, a holder of Preferred Stock will not be entitled to vote. Except
as indicated in the Prospectus Supplement relating to a particular series of
Preferred Stock, in the event the Company issues full shares of any series of
Preferred Stock, each such share will be entitled to one vote on matters on
which holders of such series of Preferred Stock are entitled to vote.
Under Virginia law, the affirmative vote of the holders of a majority of
the outstanding shares of all series of Preferred Stock, voting as a separate
voting group, will be required for (i) the authorization of any class of stock
ranking prior to or on parity with Preferred Stock or the increase in the number
of authorized shares of any such stock, (ii) any increase in the
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number of authorized shares of Preferred Stock and (iii) certain amendments to
the Articles that may be adverse to the rights of Preferred Stock outstanding.
TRANSFER AGENT AND REGISTRAR. The transfer agent, registrar and dividend
disbursement agent for a series of Preferred Stock will be selected by the
Company and be described in the applicable Prospectus Supplement. The registrar
for shares of Preferred Stock will send notices to shareholders of any meetings
at which holders of Preferred Stock have the right to vote on any matter.
SERIES A PREFERRED
The Board of Directors has designated 4,200,000 shares of Preferred Stock
as the "9 1/4% Series A Cumulative Redeemable Preferred Stock," all of which
were outstanding at March 31, 1997. The Board of Directors may redesignate any
unissued shares of Series A Preferred as all or a part of a different series of
Preferred Stock. Holders of shares of Series A Preferred are entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available for the payment of dividends, cumulative preferential cash dividends
at the rate of 9 1/4% of the liquidation preference per annum (equivalent to
$2.3125 per share). In the event of any liquidation, dissolution or winding up
of the Company, the holders of shares of Series A Preferred are entitled to be
paid out of the assets of the Company legally available for distribution to its
stockholders a liquidation preference of $25.00 per share, plus an amount equal
to any accrued and unpaid dividends to the date of payment, before any
distribution of assets is made to holders of Common Stock or any other capital
stock that ranks junior to the Series A Preferred as to liquidation rights. The
Series A Preferred is not redeemable prior to April 24, 2000. On and after April
24, 2000, the Company, at its option upon not less than 30 nor more than 60
days' written notice, may redeem shares of the Series A Preferred, in whole or
in part, at any time or from time to time, for cash at a redemption price of
$25.00 per share, plus accrued dividends. The Series A Preferred has no stated
maturity and will not be subject to any sinking fund or mandatory redemption
(except as provided under "Description of Capital Stock -- Redemption and
Restrictions on Transfer").
The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred is ChaseMellon Shareholder Services, L.L.C., Ridgefield Park, New
Jersey. The Series A Preferred is traded on the NYSE under the symbol "UDRpfA."
DIVIDEND RESTRICTIONS
Covenants in its loan agreements with certain lenders restrict the payment
of distributions in excess of the sum of (i) current "cash flow," (ii) varying
additional amounts and (iii) the proceeds of capital stock offerings subsequent
to various dates, all as defined in the particular loan agreement. The covenants
do not prohibit the Company from paying distributions in order to continue its
qualification as a REIT under the Code.
AFFILIATED TRANSACTIONS
The Virginia Stock Corporation Act contains provisions governing
"Affiliated Transactions" designed to deter uninvited takeovers of Virginia
corporations. These provisions, with several exceptions discussed below, require
approval of material acquisition transactions between a Virginia corporation and
any holder of more than 10% of any class of its outstanding voting shares (an
"Interested Shareholder") by the holders of at least two-thirds of the remaining
voting shares. For three years following the time that the Interested
Shareholder becomes an owner of 10% of the outstanding voting shares, Virginia
corporations cannot engage in an Affiliated Transaction with such Interested
Shareholder without approval of two-thirds of the voting shares other than those
shares beneficially owned by the Interested Shareholder, and majority approval
of the "Disinterested Directors." At the expiration of the three year period,
the statute requires approval of Affiliated Transactions by two-thirds of the
voting shares other than those beneficially owned by the Interested Shareholder
absent an exception. The principal exceptions to the special voting requirement
apply to transactions proposed after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy the
fair-price requirements of the law.
The Virginia Stock Corporation Act also provides that shares acquired in a
transaction that would cause the acquiring person's voting strength to cross any
of three thresholds (20%, 33% or 50%) have no voting rights unless granted by a
majority vote of shares not owned by the acquiring person or any officer or
employee-director of the Company. An acquiring person may require the Company to
hold a special meeting of shareholders to consider the matter within 50 days of
its request.
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REDEMPTION AND RESTRICTIONS ON TRANSFER
In order to preserve the Company's status as a REIT as defined in the Code,
the Company can redeem or stop the transfer of its shares. The Articles provide
that the Company is organized to qualify as a REIT. Because the Code provides
that the concentration of more than 50% in value of the direct or indirect
ownership of its shares in five or fewer individual shareholders during the last
six months of any year would result in the disqualification of the Company as a
REIT, the Articles provide that the Company shall have the power (i) to redeem
that number of concentrated shares sufficient in the opinion of the Board of
Directors of the Company to maintain or bring the direct or indirect ownership
of shares into conformity with the requirements of the Code, and (ii) to stop
the transfer of shares to any person whose acquisition thereof would, in the
opinion of the Company's Board of Directors, result in such disqualification.
The per share redemption price of any shares redeemed by the Company pursuant to
this provision shall be the last reported sale price for the shares as of the
business day preceding the day on which notice of redemption is given. The Board
of Directors of the Company can require shareholders to disclose in writing to
the Company such information with respect to ownership of its shares as it deems
necessary to comply with the REIT provisions of the Code.
REIT QUALIFICATION
The Company operates in a manner intended to qualify for treatment as a
REIT under the Code. In general, a REIT which distributes to its shareholders at
least 95% of its taxable income (other than net capital gain) for a taxable year
and which meets certain other conditions will not be subject to federal income
taxation on income (including net capital gain) distributed for that year. If
the Company fails to qualify in any taxable year, it will be taxed for federal
income tax purposes as a corporation for that year and distributions to
shareholders will not be deductible by the Company in computing its taxable
income. Under such circumstances, the Company also will be disqualified from
being treated as a REIT under the Code for the ensuing four fiscal years.
Failure to qualify could result in the Company's incurring indebtedness and
perhaps liquidating investments in order to pay the resultant taxes.
PLAN OF DISTRIBUTION
The Company may sell Offered Securities to or through underwriters or may
sell Offered Securities to investors directly or through designated agents. Any
such underwriter or agent involved in the offer and sale of the Offered
Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may, from time to time, authorize
underwriters acting as agents to offer and sell the Offered Securities upon the
terms and conditions set forth in any Prospectus Supplement. In connection with
the sale of Offered Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions (which may be changed from
time to time) from the underwriters and/or from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers will
be set forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Offered Securities may be deemed
to be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Offered Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the principal amount of Offered Securities sold
pursuant to Contracts shall not be less nor more than, the respective amounts
stated in such Prospectus Supplement. Institutions with which Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any
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conditions except (i) the purchase by an institution of the Offered Securities
covered by its Contract shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject and (ii) the Company shall have sold to such underwriters the total
principal amount of the Offered Securities less the principal amount thereof
covered by Contracts. A commission indicated in the Prospectus Supplement will
be paid to agents and underwriters soliciting purchases of Offered Securities
pursuant to Contracts accepted by the Company. Agents and underwriters shall
have no responsibility in respect of the delivery or performance of Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company in the ordinary
course of business.
LEGAL OPINIONS
The validity of the Offered Securities will be passed upon for the Company
by Hunton & Williams, Richmond, Virginia. Brown & Wood LLP, New York, New York,
will act as counsel to any underwriters, dealers or agents.
EXPERTS
The consolidated financial statements and schedule of the Company appearing
in the annual report (Form 10-K) of United Dominion Realty Trust, Inc. for the
year ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of South West Property Trust Inc. at
December 31, 1996 and 1995, and for each of the three years ended in the period
ended December 31, 1996, appearing in the Company's current report on Form 8-K
dated December 31, 1996, incorporated herein by reference, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The statements of rental operations of Steeplechase Apartments and Westland
Park Apartments, included in the Company's current report on Form 8-K, dated
October 31, 1996, incorporated herein by reference, have been incorporated
herein in reliance upon the reports respectively dated June 20, 1996 and June
18, 1996 of L. P. Martin & Company, P.C., independent auditors, also
incorporated herein by reference, and upon the authority of such firm as experts
in accounting and auditing.
The combined statement of rental operations of the Properties, included in
the Company's Current Report on Form 8-K, dated August 15, 1996, incorporated
herein by reference, has been incorporated herein in reliance upon the report
dated May 16, 1996, of Dixon, Odom & Co., L.L.P., independent public
accountants, also incorporated herein by reference, and upon the authority of
such firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE SHARES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
The Company.............................................. S-3
Recent Developments...................................... S-3
Use of Proceeds.......................................... S-4
Capitalization........................................... S-5
Selected Financial Data.................................. S-6
Management's Discussion and Analysis of Financial
Condition and Operations............................... S-7
Management............................................... S-13
Description of Preferred Stock........................... S-14
Certain Federal Income Tax Considerations................ S-17
Underwriting............................................. S-19
Legal Matters............................................ S-20
PROSPECTUS
Available Information.................................... 2
Incorporation of Certain Documents by
Reference.............................................. 2
The Company.............................................. 2
Use of Proceeds.......................................... 4
Certain Ratios........................................... 4
Description of Debt Securities........................... 4
Description of Capital Stock............................. 15
Plan of Distribution..................................... 19
Legal Opinions........................................... 20
Experts.................................................. 20
6,000,000 SHARES
[UNITED DOMINION LOGO]
8.60% SERIES B CUMULATIVE
REDEEMABLE PREFERRED STOCK
(NO PAR VALUE)
(LIQUIDATION PREFERENCE
$25.00 PER SHARE)
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY & CO.
INCORPORATED
SCOTT & STRINGFELLOW, INC.
MAY 23, 1997
