Filed Pursuant to Rule 424(b)(5)
Registration No. 333-27221
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES IN ANY STATE AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT ISSUED NOVEMBER 2, 1998 (SUBJECT TO COMPLETION)
(TO PROSPECTUS DATED MAY 22, 1997)
$
UNITED DOMINION REALTY TRUST, INC.
$ % NOTES DUE
$ % NOTES DUE
---------------
INTEREST PAYABLE ON MAY 1 AND NOVEMBER 1
---------------
THE NOTES DUE WILL MATURE ON NOVEMBER 1, AND ARE NOT REDEEMABLE
BEFORE MATURITY. THE NOTES DUE WILL MATURE ON NOVEMBER 1, AND ARE
NOT REDEEMABLE BEFORE MATURITY.
CONCURRENTLY WITH THE OFFERING OF THE NOTES DUE AND THE NOTES DUE ,
THE COMPANY IS OFFERING $ AGGREGATE PRINCIPAL AMOUNT OF ITS % MONTHLY
INCOME NOTES DUE 2008 IN A PUBLIC OFFERING. THE OFFERING OF THE NOTES DUE
AND THE NOTES DUE IS NOT CONTINGENT UPON THE CONCURRENT CONSUMMATION OF THE
MONTHLY INCOME NOTES OFFERING.
---------------
NOTES DUE -- PRICE % AND ACCRUED INTEREST, IF ANY
NOTES DUE -- PRICE % AND ACCRUED INTEREST, IF ANY
---------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
---------- --------------- ------------
<S> <C> <C> <C>
PER NOTE DUE ......... % % %
TOTAL ................... $ $ $
PER NOTE DUE ......... % % %
TOTAL ................... $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE UNDERWRITERS EXPECT TO DELIVER THE NOTES DUE AND THE NOTES DUE TO
PURCHASERS ON NOVEMBER , 1998.
---------------
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
FIRST UNION CAPITAL MARKETS
NOVEMBER , 1998
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Forward-Looking Statements ............................................. S-2
The Company ............................................................ S-3
Recent Developments .................................................... S-3
Use of Proceeds ........................................................ S-5
Capitalization ......................................................... S-6
Selected Historical and Unaudited Pro Forma Consolidated Financial Data S-7
Description of the Offered Securities .................................. S-9
Underwriters ........................................................... S-11
Experts ................................................................ S-12
Legal Matters .......................................................... S-12
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
</TABLE>
---------------
Prospective investors may rely only on the information contained or
incorporated by reference in this prospectus supplement or the accompanying
prospectus. Neither the Company nor any Underwriter has authorized anyone to
provide prospective investors with information different from that contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Neither this prospectus supplement nor the accompanying prospectus
is an offer to sell or seeks an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. Neither delivery of this
prospectus supplement and the accompanying prospectus nor any sale of these
securities implies that the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus is correct as of
any time other than the date of this prospectus supplement, the accompanying
prospectus or the date of the document in which it was first presented, if
different.
---------------
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents
incorporated or deemed to be incorporated by reference herein and therein
include "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements regarding the expected financial position, results of operations,
business and financing plans of the Company are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Important factors that could cause
actual results to differ materially from such expectations ("cautionary
statements") are disclosed in this prospectus supplement, the accompanying
prospectus and the documents incorporated or deemed to be incorporated herein
and therein by reference. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements.
S-2
<PAGE>
THE COMPANY
United Dominion Realty Trust, Inc., a Virginia corporation (collectively
with its subsidiaries, the "Company"), is a self-administered equity real
estate investment trust ("REIT") formed in 1972 whose business is devoted to
one industry segment, the ownership and operation of apartment communities
throughout the United States.
The Company is a fully integrated real estate company with acquisition,
development and asset and property management capabilities. The Company
acquires, repositions, develops, manages and selectively sells apartment homes
for its own portfolio throughout United States with the goals of growing funds
from operations and quarterly distributions to shareholders, while building
equity primarily through real estate appreciation. The Company's strategy is to
position the Company as a national low cost provider of "B" and "A" quality
apartment homes in 40 or more markets nationwide.
On October 23, 1995, the Company organized United Dominion Realty, L.P.
(the "Partnership") under the Virginia Revised Uniform Limited Partnership Act,
as amended. The Company is the sole General Partner of the Partnership and
currently with its wholly owned subsidiaries holds an 84.2% interest therein.
The remaining 15.8% interest in the Partnership is held by outside parties. The
Partnership is intended to assist the Company in competing for the acquisition
of properties that meet the Company's investment strategies from seller
partnerships, some or all of whose partners may wish to defer taxation of gain
realized on sale through an exchange of partnership interests.
The Company operates as a REIT under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the Company
must meet certain tests which, among other things, require that (i) its assets
consist primarily of real estate, (ii) its income be derived primarily from
real estate and (iii) at least 95% of its taxable income be distributed to its
common shareholders. Because the Company qualifies as a REIT, it is generally
not subject to federal income taxes.
The Company, a Virginia corporation, has its principal office at 10 South
6th Street, Richmond, Virginia, 23219, and its telephone number is (804)
780-2691.
RECENT DEVELOPMENTS
MERGERS
ASR MERGER. Effective as of the close of business on March 27, 1998, the
Company completed the merger (the "ASR Merger") of ASR Investments Corporation
("ASR"), a publicly traded, Tucson-based, multifamily REIT that owned and
operated 39 communities with 7,550 apartment homes. Pursuant to the ASR Merger
agreement, each share of ASR's common stock was exchanged for 1.575 shares of
the Company's Common Stock. The ASR Merger was structured as a tax-free
transaction and was treated as a purchase for accounting purposes. In
connection with the ASR Merger, the Company acquired real estate assets
totaling $313.7 million and non-real estate assets totaling $9.1 million.
Consideration given by the Company included 7,742,839 shares of Common Stock
valued at $14 per share for an aggregate equity value of $108.4 million, plus
the assumption of 1,529,990 operating partnership units valued at $21.4
million. In addition, the Company assumed, at fair value, mortgage debt
totaling $179.4 million and other liabilities of $13.6 million.
AAC MERGER. On September 11, 1998, the Company announced an agreement to
acquire American Apartment Communities II, Inc. ("AAC"), a San Francisco-based
private REIT, from a fund managed by Lazard Freres Real Estate Investors LLC
and other investors (the "AAC Merger"). The proposed AAC Merger will include 54
properties with 14,141 apartment homes, and, if consummated, will allow the
Company to enter growing markets in California, improve economies of scale by
increasing the number of its apartment homes in the Seattle, Columbus, Tampa
and South Florida markets, and position itself in Oregon, Colorado, Michigan
and Indiana. The proposed AAC Merger has been structured as a tax-free merger
and exchange of partnership units and will be treated as a purchase for
accounting purposes. In connection with the proposed AAC Merger, the Company
will acquire primarily real estate assets. The aggregate purchase price will
consist of the following: (i) 8,000,000 shares of the Company's 7.5% Series D
Convertible Preferred Stock ($25 liquidation preference value) which is
convertible into the Company's Common Stock at $16.25 per share with a fair
market value of $175 million, (ii) the issuance of 5,614,035 units of limited
partnership in the Partnership with an aggregate fair market value of $67.4
million, (iii) the assumption of $466.2 million of secured notes payable at
fair market value, (iv) the assumption of other liabilities aggregating $24.7
million and (v) $56.5 million of cash. The aggregate purchase price in the
proposed AAC Merger is estimated at approximately $806.0 million, including
transaction costs. With the acquisition, the Company will own approximately
86,000 completed apartments and operate nationally in 35 major U.S. markets.
S-3
<PAGE>
All due diligence has been completed, and AAC's and the Company's Boards
of Directors and other interested parties have approved the transaction.
Company shareholder approval is not required. The transaction is expected to
close in November 1998, there is some risk, however, that the proposed AAC
Merger will not be consummated.
OTHER ACQUISITIONS. In addition to the ASR Merger, the Company has
acquired 24 communities with 6,959 apartment homes at a total cost (including
closing costs) of $314.8 million, or $45,200 per home, since January 1, 1998.
REAL ESTATE UNDER DEVELOPMENT
At September 30, 1998, the Company had seven communities (2,042 apartment
homes) under development and two additions (276 apartment homes) to existing
communities under development, of which 349 apartment homes were completed.
DISPOSITION OF INVESTMENTS
Since January 1, 1998, the Company has sold 17 apartment communities
containing 4,948 apartment homes and one shopping center at an aggregate sales
price of $144.7 million.
FINANCING ACTIVITIES
During the first quarter of 1998, the Company entered into two separate
transactions to sell its Common Stock to unit investment trusts ("UITs"). In
February 1998, the Company issued 1.7 million shares of its Common Stock at a
gross sales price of $14.31 per share to a UIT. In March 1998, the Company
issued 1.1 million shares of its Common Stock at a gross sales price of $14.19
per share to a second UIT. The net proceeds from the two UIT transactions
aggregated $38.0 million and were primarily used to repay bank debt.
Since January 1, 1998, the Company has issued 2,455,558 shares of its
Common Stock and received $32.8 million under its Dividend Reinvestment and
Stock Purchase Plan, which included $23.2 million in optional cash investments
and $9.6 million of reinvested distributions.
On October 15, 1998, the Company settled on a $100 million (notional
amount) fixed pay forward starting swap agreement (the "Interest Rate Risk
Management Agreement") by agreeing to pay $15.6 million to the counterparty.
The Company entered into the Interest Rate Risk Management Agreement in order
to reduce the interest rate risk associated with the anticipated issuance of
unsecured notes during 1998. The extent to which the cost associated with the
termination of the Interest Rate Risk Management Agreement will be (i)
reflected in the 1998 statement of operations; or (ii) treated as a hedge of an
anticipated transaction and amortized over the term of the Offered Securities
(as defined below).
CONCURRENT OFFERING
Concurrently with the offering of the % Notes due (the "Notes due
") and the % Notes due (the "Notes due " and, together with the Notes
due , the "Offered Securities"), the Company is publicly offering $
million aggregate principal amount of its % Monthly Income Notes due 2008
(the "Monthly Income Notes"). The offering of the Offered Securities is not
contingent upon the concurrent consummation of the offering of the Monthly
Income Notes. There can be no assurance, however, that the offering of the
Monthly Income Notes will be consummated, in which case the Company may be
required to seek additional sources of financing or extensions in the terms of
existing financing.
LIQUIDITY
The Company has a $200 million three-year unsecured revolving credit
facility which matures August 4, 2000 and a $50 million one-year revolving line
of credit facility which matures August 4, 1999. In addition to these credit
facilities, a $15 million uncommited unsecured line of credit is available to
the Company until June 30, 1999. As of October 29, 1998 the Company's aggregate
borrowings under these three credit facilities (the "Credit Facilities") were
$235 million at a weighted average interest rate of 5.73%.
The Company also has outstanding $75 million aggregate principal amount of
promissory notes (the "Promissory Notes") payable to certain banks. The
Promissory Notes are dated September 30, 1998 and mature November 30, 1998. The
Promissory Notes have a weighted average interest rate of 5.91% as of
October 29, 1998.
The Company relies on the Credit Facilities to supplement its operating
cash flows in order to fund its ongoing capital requirements. The Company
intends to use a portion of the net proceeds from the offering of the Offered
Securities and, if consummated, the offering of the Monthly Income Notes to
repay in full the $75 million aggregate principal amount of
S-4
<PAGE>
Promissory Notes and to reduce its borrowings under the Credit Facilities. See
"Use of Proceeds." Subsequent to the issuance of the Offered Securities and the
Monthly Income Notes, on a pro forma basis, the Company will have approximately
$ million of capacity available under the Credit Facilities. The Company
believes its liquidity will be adequate to satisfy its operating cash
requirements. Subsequent to the issuance of the Offered Securities, the Company
believes that it will have the resources necessary to satisfy its debt service
requirements, including the repayment of $75 million Promissory Notes due in
April 1999 as included in the schedule of debt maturities listed herein.
USE OF PROCEEDS
The net proceeds to the Company from the offering of the Notes due
and the Notes due are estimated to be approximately $
million, after deducting underwriting discounts and commissions and other
estimated expenses payable by the Company. The net proceeds to the Company from
the concurrent offering of the Monthly Income Notes are estimated to be
approximately $ million after deducting underwriting discounts and
commissions and other estimated expenses payable by the Company. However, the
offering of the Notes due and the Notes due is not contingent upon
the consummation of the offering of the Monthly Income Notes, as there can be
no assurance that the Company will issue any such Monthly Income Notes. The
Company intends to use the net proceeds from the offering of the Notes due
and the Notes due and, if consummated, the offering of the Monthly Income
Notes to fund the cash payable in connection with the proposed AAC Merger, to
repay $75 million aggregate principal amount of Promissory Notes payable to
NationsBank, N.A. and First Union National Bank (which Promissory Notes are
dated September 30, 1998 and mature November 30, 1998), to repay a portion of
the borrowings outstanding under its Credit Facilities (see "Recent
Developments -- Liquidity") and, subsequent to the proposed AAC Merger, to
repay various obligations of AAC to its secured lenders, as follows:
<TABLE>
<S> <C>
SOURCES:
Net proceeds of Offered Securities .....................
Net proceeds of Monthly Income Notes ...................
-----------
Total Sources .........................................
===========
USES:
Fund AAC Merger .......................................
Estimated cash consideration ......................... 56,500,000
Estimated closing costs .............................. 8,500,000
Repay AAC NationsBank secured line of credit ......... 100,000,000
Prepay certain mortgage debt ......................... 15,000,000
Repay Promissory Notes due November 30, 1998 .......... 75,000,000
Repay debt under Credit Facilities ....................
-----------
Total Uses ..........................................
===========
</TABLE>
Pending application for the foregoing purposes, the Company may invest the
net proceeds in short-term investments.
S-5
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical consolidated
capitalization of the Company at June 30, 1998, (ii) the pro forma consolidated
capitalization of the Company at such date after giving pro forma effect to the
proposed AAC Merger as if such transaction had been consummated as of June 30,
1998, and (iii) on such pro forma basis and as further adjusted to give effect
to the issuance of the Offered Securities, the concurrent issuance of the
Monthly Income Notes and the application of the estimated net proceeds
therefrom as described above under "Use of Proceeds". Pro forma as adjusted
distributions in excess of net income, total shareholders' equity and total
capitalization may decrease to the extent that the termination of the Interest
Rate Risk Management Agreement does not qualify as a hedge of an anticipated
transaction for accounting purposes. See "Recent Developments -- Financing
Activities." The table should be read in conjunction with, and is qualified in
its entirety by reference to, the historical and pro forma consolidated
financial statements incorporated by reference in the accompanying prospectus.
The pro forma information is subject to a number of estimates, assumptions and
other uncertainties and does not purport to be indicative of the actual
capitalization that would have existed had the proposed AAC Merger in fact
occurred on June 30, 1998, or to be indicative of the Company's capitalization
as of any future date.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
-------------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
DEBT:
Notes payable - secured ................................ $ 623,248 $1,089,401 $
% Notes due .................................... -- --
% Notes due .................................... -- --
% Monthly Income Notes due 2008 .................... -- --
7.25% Notes due April 1999 ............................. 75,000 75,000 75,000
7.25% Notes due January 2007 ........................... 125,000 125,000 125,000
8.50% Debentures due September 2025 .................... 150,000 150,000 150,000
7.95% Medium Term Notes due July 2006 .................. 125,000 125,000 125,000
7.07% Medium Term Notes due November 2006 .............. 25,000 25,000 25,000
7.02% Medium Term Notes due November 2005 .............. 50,000 50,000 50,000
Notes payable - unsecured .............................. 277,881 350,637
---------- ---------- ----------
Total debt ........................................... 1,451,129 1,990,038
---------- ---------- ----------
MINORITY INTEREST ....................................... 51,675 124,797 124,797
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; $25 liquidation
preference, 25,000,000 shares authorized:
4,200,000 shares 9.25% Series A Cumulative
Redeemable ......................................... 105,000 105,000 105,000
6,000,000 shares 8.60% Series B Cumulative
Redeemable ......................................... 150,000 150,000 150,000
8,000,000 shares 7.50% Series D Convertible ......... -- 200,000 200,000
Common stock, $1 par value; 150,000,000 shares
authorized, 101,988,375 shares issued and
outstanding .......................................... 101,988 101,988 101,988
Additional paid-in capital ............................. 1,070,440 1,045,440 1,045,440
Notes receivable from officer shareholders ............. (8,333) (8,333) (8,333)
Distributions in excess of net income .................. (195,651) (195,651) (195,651)
---------- ---------- ----------
Total shareholders' equity ........................... 1,223,444 1,398,444 1,398,444
---------- ---------- ----------
Total capitalization ................................ $2,726,248 $3,513,279 $
========== ========== ==========
</TABLE>
S-6
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data for the Company and unaudited pro forma consolidated financial data for
the Company and AAC as a combined entity, giving effect to the proposed AAC
Merger and certain other transactions described below as if such transactions
had all occurred on January 1, 1997. The unaudited pro forma consolidated
operating and other data and fixed charge ratios are presented as if the
proposed AAC Merger had been consummated on January 1, 1997 and as if the
following acquisitions by the Company had occurred on January 1, 1997: (i) 39
apartment communities with 7,550 apartment homes owned by ASR, which merged
with a wholly-owned subsidiary of the Company on March 27, 1998, (ii) the 1998
acquisitions of 13 communities containing 4,318 apartment homes for an
aggregate purchase price of approximately $144.0 million, including closing
costs and (iii) the 1997 acquisition of 17 communities containing 5,394
apartment homes for an aggregate purchase price of approximately $218.5
million, including closing costs. The unaudited pro forma consolidated balance
sheet and apartment homes owned data assumes the proposed ACC Merger and all
such other transactions had been consummated as of the end of the respective
periods. In the opinion of management, all adjustments necessary to reflect the
effects of these transactions have been made. The proposed AAC Merger has been
accounted for under the purchase method of accounting in accordance with
Accounting Standards Board Opinion No. 16, and the pro forma data assumes that
the combined entity qualified as a REIT, distributing at least 95% of its
taxable income, and therefore, incurring no federal income tax liability for
the periods presented. The unaudited pro forma financial information should be
read in conjunction with, and is qualified in its entirety by, the historical
and pro forma and unaudited pro forma financial statements and notes thereto
incorporated by reference into the accompanying prospectus. The pro forma
information is subject to a number of estimates, assumptions and other
uncertainties and does not purport to be indicative of the actual results of
operations or financial position that would have been achieved or existed had
these transactions in fact occurred on the dates indicated above, or to be
indicative of the Company's results of operations or financial position as of
any future date.
The following selected historical financial data as of and for the five
years ended December 31, 1997 is derived from the Company's audited financial
statements. The following selected historical financial data as of and for the
six months ended June 30, 1997 and June 30, 1998 is unaudited but, in the
opinion of management, contains all adjustments necessary for a fair
presentation of such information. Historical financial data as of and for the
six months ended June 30, 1998 does not purport to be indicative of results of
operations or financial position to be expected as of and for the year ending
December 31, 1998.
S-7
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996
------------- -------------- -------------- --------------
IN THOUSANDS, EXCEPT PER SHARE DATA, FIXED
CHARGE RATIOS AND APARTMENT HOMES OWNED
<S> <C> <C> <C> <C>
OPERATING DATA
Rental income $ 88,664 $ 139,380 $ 194,511 $ 241,260
Income before gains (losses) on sales of
investments, minority interest of unitholders
in operating partnership and extraordinary
item 11,286 19,118 28,037 33,726
Gains (losses) on sales of investments (89) 108 5,090 4,346
Extraordinary item - early extinguishment of
debt -- (89) -- (23)
Net income 11,197 19,137 33,127 37,991
Dividends to preferred shareholders -- -- 6,637 9,713
Net income available to common shareholders 11,197 19,137 26,490 28,278
Common distributions declared 27,988 37,539 48,610 55,493
Weighted average number of common shares
outstanding - basic (a) 38,202 46,182 52,781 57,482
Weighted average number of common shares
outstanding - diluted (a) 38,462 46,391 52,972 57,655
Per share: (a)
Basic earnings per share $ .29 $ .41 $ .50 $ .49
Diluted earnings per share .29 .41 .50 .49
Common distributions declared .70 .78 .90 .96
BALANCE SHEET DATA (END OF PERIOD)
Real estate held for investment $ 582,213 $1,007,599 $1,131,098 $2,007,612
Real estate under development -- -- -- 37,855
Real estate held for disposition -- -- 51,015 39,556
Total real estate owned 582,213 1,007,599 1,182,113 2,085,023
Accumulated depreciation 91,444 120,341 129,454 173,291
Total assets 505,840 911,913 1,080,616 1,966,904
Notes payable - secured 72,862 158,449 180,481 376,560
Notes payable - unsecured 156,558 368,215 349,858 668,275
Total debt 229,420 526,664 530,339 1,044,835
Shareholders' equity 259,963 356,968 516,389 850,379
Number of common shares outstanding 41,653 50,356 56,375 81,983
OTHER DATA
CASH FLOW DATA
Cash provided by operating activities $ 33,939 $ 54,544 $ 66,428 $ 90,064
Cash used in investing activities (130,064) (359,631) (183,930) (161,572)
Cash provided by financing activities 100,793 306,575 113,145 82,056
FUNDS FROM OPERATIONS (B)
Income before gains (losses) on sales of
investments, minority interest of
unitholders in operating partnership and
extraordinary item $ 11,286 $ 19,118 $ 28,037 $ 33,726
Adjustments:
Real estate depreciation 19,516 28,729 38,939 47,410
Non-recurring items:
Impairment loss on real estate owned -- -- 1,700 290
Prior years' employment and other taxes -- -- 395 --
Adoption of SFAS No. 112 "Employers'
Accounting for Postemployment
Benefits" -- 450 -- --
Dividends to preferred shareholders -- -- (6,637) (9,713)
----------- ---------- ---------- ----------
Funds from operations $ 30,802 $ 48,297 $ 62,434 $ 71,713
=========== ========== ========== ==========
FIXED CHARGE RATIOS (D)
Ratio of earnings to fixed charges 1.64 x 1.69 x 1.81 x 1.73 x
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.64 x 1.69 x 1.56 x 1.45 x
APARTMENT HOMES OWNED (END OF PERIOD)
Total apartment homes owned 17,914 29,282 34,224 55,664
Weighted average number of apartment
homes owned 15,445 23,160 31,242 37,481
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- --------------------------------------
PRO FORMA PRO FORMA
1997 1997 (C) 1997 1998 1998
-------------- ------------- -------------- -------------- ------------------
IN THOUSANDS, EXCEPT PER SHARE DATA, FIXED
CHARGE RATIOS AND APARTMENT HOMES OWNED
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Rental income $ 386,672 $ 567,185 $ 185,312 $ 222,275 $ 291,883
Income before gains (losses) on sales of
investments, minority interest of unitholders
in operating partnership and extraordinary
item 57,813 59,812 28,475 32,966 36,169
Gains (losses) on sales of investments 12,664 13,138 3,374 20,461 20,461
Extraordinary item - early extinguishment of
debt (50) (50) (116) (116)
Net income 70,149 69,561 31,790 52,189 53,328
Dividends to preferred shareholders 17,345 32,345 6,039 11,303 18,803
Net income available to common shareholders 52,804 37,216 25,751 40,886 34,525
Common distributions declared 88,587 88,397 43,818 53,225 53,347
Weighted average number of common shares
outstanding - basic (a) 87,145 95,485 85,967 96,244 100,205
Weighted average number of common shares
outstanding - diluted (a) 87,339 103,977 86,157 98,666 109,593
Per share: (a)
Basic earnings per share $ .61 $ .39 $ .30 $ .42 $ .34
Diluted earnings per share .60 .39 .30 .42 .34
Common distributions declared 1.01 1.01 .51 .53 .53
BALANCE SHEET DATA (END OF PERIOD)
Real estate held for investment $2,281,438 $2,135,654 $2,813,957 $ 3,592,012
Real estate under development 24,598 62,716 43,811 43,811
Real estate held for disposition 166,501 85,431 104,864 104,864
Total real estate owned 2,472,537 2,283,801 2,962,632 3,470,687
Accumulated depreciation 200,506 181,662 242,803 242,803
Total assets 2,313,725 2,143,655 2,829,200 3,635,222
Notes payable - secured 417,325 389,106 623,248 1,089,401
Notes payable - unsecured 738,901 626,242 827,881 900,637
Total debt 1,156,226 1,015,348 1,451,129 1,990,038(e)
Shareholders' equity 1,058,357 1,049,738 1,223,444 1,398,444
Number of common shares outstanding 89,168 87,275 101,988 101,988
OTHER DATA
CASH FLOW DATA
Cash provided by operating activities $ 137,903 $ 165,004 $ 63,320 $ 79,830 $ 70,836
Cash used in investing activities (345,666) (505,534) (190,673) (119,998) (124,434)
Cash provided by financing activities 194,784 370,116 122,197 51,270 109,241
FUNDS FROM OPERATIONS (B)
Income before gains (losses) on sales of
investments, minority interest of
unitholders in operating partnership and
extraordinary item $ 57,813 $ 59,812 $ 28,475 $ 32,966 $ 36,169
Adjustments:
Real estate depreciation 76,688 113,094 35,289 46,476 61,504
Non-recurring items:
Impairment loss on real estate owned 1,400 1,400 -- -- --
Prior years' employment and other taxes -- -- -- -- --
Adoption of SFAS No. 112 "Employers'
Accounting for Postemployment
Benefits" -- -- -- -- --
Dividends to preferred shareholders (17,345) (32,345) (6,039) (11,303) (18,803)
---------- ----------- ---------- ---------- -------------
Funds from operations $ 118,556 $ 141,961 $ 57,725 $ 68,139 $ 78,870
========== =========== ========== ========== =============
FIXED CHARGE RATIOS (D)
Ratio of earnings to fixed charges 1.82 x 1.46 x 1.76 x 2.02 x 1.83 x
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.51 x 1.19 x 1.53 x 1.65 x 1.41 x
APARTMENT HOMES OWNED (END OF PERIOD)
Total apartment homes owned 62,789 88,798 59,437 71,164 85,305
Weighted average number of apartment
homes owned 58,038 87,864 57,545 63,341 83,050
</TABLE>
Footnotes appear on the following page.
S-8
<PAGE>
(a) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earning per Share". For further discussion of earnings per share and the
impact of Statement No. 128, see the notes to the consolidated financial
statements incorporated by reference in the accompanying prospectus.
(b) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in operating
partnership and extraordinary item (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. This definition conforms to the recommendations set forth
in a White Paper adopted by the National Association of Real Estate
Investment Trusts ("NAREIT") in early 1995. FFO for years prior to 1995
have been adjusted to conform to the NAREIT definition. The Company
considers FFO in evaluating property acquisitions.
(c) The pro forma 1997 operating and other data reflects $6.7 million of
non-recurring acquisition related expenses of ASR Investments Corporation.
(d) These ratios have been computed as indicated in the following table. The
pro forma ratios do not give effect to the issuance of the Offered
Securities and the Monthly Income Notes or the application of the net
proceeds thereof. Pro Forma Earnings and the Fixed Charges ratios will be
adversely effected to the extent that the termination of the Interest Rate
Risk Management Agreement does not qualify as a hedge of an anticipated
transaction for accounting purposes. See "Recent Developments -- Financing
Activities.":
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income before extraordinary item $11,197 $19,226 $33,127 $38,014 $ 70,199 $ 69,611
Add:
Portion of rents representative of the interest
factor 143 177 201 257 412 591
Interest on indebtedness 17,237 28,521 40,646 50,843 79,004 139,603
Adoption of SFAS No. 112 "Employers'
Accounting for Post-employment Benefits" -- 450 -- -- -- --
------- ------- ------- ------- -------- --------
Earnings $28,577 $48,374 $73,974 $89,114 $149,615 $209,805
======= ======= ======= ======= ======== ========
Fixed charges and preferred stock dividend:
Interest on indebtedness $17,237 $28,521 $40,646 $50,843 $ 79,004 $139,603
Capitalized interest -- -- 40 541 2,634 3,209
Portion of rents representative of the interest
factor 143 177 201 257 412 591
------- ------- ------- ------- -------- --------
Fixed charges 17,380 28,698 40,887 51,641 82,050 143,403
------- ------- ------- ------- -------- --------
Add:
Preferred stock dividend -- -- 6,637 9,713 17,345 32,345
------- ------- ------- ------- -------- --------
Combined fixed charges and preferred stock
dividend $17,380 $28,698 $47,524 $61,354 $ 99,395 $175,748
======= ======= ======= ======= ======== ========
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
PRO FORMA
1997 1998 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income before extraordinary item $31,790 $ 52,305 $ 53,444
Add:
Portion of rents representative of the interest
factor 194 246 303
Interest on indebtedness 38,919 48,561 61,504
Adoption of SFAS No. 112 "Employers'
Accounting for Post-employment Benefits" -- -- --
------- -------- --------
Earnings $70,903 $101,112 $115,251
======= ======== ========
Fixed charges and preferred stock dividend:
Interest on indebtedness $38,919 $ 48,561 $ 61,504
Capitalized interest 1,230 1,312 1,312
Portion of rents representative of the interest
factor 194 246 303
------- -------- --------
Fixed charges 40,343 50,119 63,119
------- -------- --------
Add:
Preferred stock dividend 6,039 11,303 18,803
------- -------- --------
Combined fixed charges and preferred stock
dividend $46,382 $ 61,422 $ 81,922
======= ======== ========
</TABLE>
(e) Scheduled maturities of the Company's pro forma debt as of the date of this
prospectus supplement after giving effect to the proposed AAC merger and
prior to the offering of the Offered Securities are as follows:
<TABLE>
<S> <C>
1999 $192,854,777
2000 $107,259,984
2001 $ 98,478,339
2002 $ 73,410,139
2003 $ 99,027,989
2004 $121,582,340
2005 $ 81,508,437
2006 $181,322,884
2007 $137,328,417
2008 $ 7,112,838
</TABLE>
Note: does not include the Credit Facilities.
DESCRIPTION OF THE OFFERED SECURITIES
The Notes due and the Notes due are each a series of "Debt
Securities" as defined in the accompanying prospectus. The following
description of the particular terms and provisions applicable to the Offered
Securities offered hereby supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of Debt
Securities set forth in the prospectus, to which description reference is
hereby made. The statements relating to the Offered Securities and the Senior
Indenture are summaries of certain provisions contained therein and do not
purport to be complete. Such statements are qualified by reference to the
provisions of the Offered Securities and the Senior Indenture, including the
definitions therein of certain terms. The Senior Indenture and the form of
certificate evidencing the Offered Securities have been or will be filed or
incorporated by reference as exhibits to the registration statement of which
the accompanying prospectus is a part. Unless otherwise expressly stated or the
context otherwise requires, all references to the "Company" under this caption
"Description of the Offered Securities" and under the caption "Description of
Debt Securities" in the accompanying prospectus mean United Dominion Realty
Trust, Inc. excluding its subsidiaries. Capitalized terms used but undefined
herein shall have the meanings given such terms in the prospectus.
S-9
<PAGE>
GENERAL
The Offered Securities will each constitute a separate series of Debt
Securities under the Senior Indenture, initally limited, in the case of the
Notes due , to $ million aggregate principal amount and, in the case of
the Notes due , to $ million aggregate principal amount. The Offered
Securities will be issued only in fully registered form without coupons, in
denominations of $1,000 and in integral multiples thereof. The Notes due
and the Notes due will each be represented by one or more permanent Global
Securities in book-entry form, except under the limited circumstance described
in the accompanying prospectus under "Description of Debt Securities --
Book-Entry System." The Global Securities will be registered in the name of a
nominee of The Depository Trust Company, as Depository for the Offered
Securities. See "Description of Debt Securities -- Book-Entry System" in the
accompanying prospectus.
The Offered Securities will not be entitled to the benefit of any sinking
fund and will not be subject to repurchase by the Company at the option of the
holders or to redemption at the option of the Company.
The Offered Securities will be subject to defeasance and covenant
defeasance as described under "Description of Debt Securities -- Discharge,
Defeasance and Covenant Defeasance" in the accompanying prospectus.
Notices and demands to or upon the Company in respect of the Offered
Securities and the Indenture may be served and, in the event that the Offered
Securities are issued in definitive certificated form, the Offered Securities
may be surrendered for payment, registration of transfer or exchange, at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City of New York (which will initially be the office of the
Trustee which on the date hereof is located at 40 Broad Street, Suite 55, New
York, New York 10004) and in Charlotte, North Carolina (which will initially be
the Corporate Trust Operations Office of the Trustee which on the date hereof
is located at 1525 West W.T. Harris Boulevard 3C3, Charlotte, North Carolina
28262-1153).
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder.
RANKING; HOLDING COMPANY STRUCTURE
The Offered Securities will be unsecured and unsubordinated obligations of
the Company and will rank on a parity in priority of payment with all other
unsecured and unsubordinated indebtedness of the Company. The Offered
Securities will be effectively subordinated to any secured and unsubordinated
indebtedness of the Company to the extent of the collateral pledged as security
therefor.
The Offered Securities will be obligations exclusively of the Company.
Although a significant portion of the Company's consolidated assets is held by
the Company directly, substantially more than a majority of the Company's
consolidated assets is held by its subsidiaries and the proportion of the
Company's consolidated assets held by its subsidiaries will increase
substantially if the proposed AAC Merger is consummated. See "Recent
Developments." Accordingly, the cash flow of the Company and the consequent
ability to service its debt, including the Offered Securities, is in large part
dependent upon the results of operations of its subsidiaries and upon the
ability of its subsidiaries to provide cash (whether in the form of dividends,
loans or otherwise) to pay amounts due in respect of the Company's obligations,
including the Offered Securities. The Company's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due on the Offered Securities or to make any funds available
therefor. In addition, dividends, loans and other distributions from its
subsidiaries to the Company are subject to contractual and other restrictions,
are contingent upon results of operations of such subsidiaries and are subject
to various business considerations.
The Offered Securities will be effectively subordinated to all existing
and future liabilities (including indebtedness, guarantees, trade payables,
lease obligations and letter of credit obligations) of the Company's
subsidiaries. Therefore, the Company's rights and the rights of its creditors,
including the holders of the Offered Securities, to participate in the assets
of any subsidiary upon the latter's liquidation or reorganization will be
subject to the prior claims of such subsidiary's creditors, except to the
extent that the Company may itself be a creditor with recognized claims against
such subsidiary, in which case the claims of the Company would still be
effectively subordinated to any security interest in, or mortgages or other
liens on, the assets of such subsidiary and would be subordinated to any
indebtedness of such subsidiary senior to that held by the Company.
Subsidiaries of the Company owning directly or indirectly a significant portion
of the Company's consolidated assets have guaranteed borrowings outstanding
under the Company's $200 million and $50 million Credit Facilities. See "Recent
Developments -- Liquidity." As of October 29, 1998, borrowings of $235 million
were outstanding under such Credit Facilities. In addition, under certain
circumstances, all of the Company's subsidiaries may be required to guarantee
borrowings under such Credit Facilities. Although the Senior Indenture and
certain instruments and agreements to which the
S-10
<PAGE>
Company and its subsidiaries are parties or by which they are bound impose
limitations on the incurrence of additional indebtedness, both the Company and
its subsidiaries retain the ability to incur substantial indebtedness and other
liabilities.
INTEREST RATE, INTEREST PAYMENT DATES AND MATURITY
The Notes due will mature on November 1, and the Notes due
will mature on November 1, . The Notes due will bear interest at the
rate of % per annum and the Notes due will bear interest at the rate of
% per annum. Interest on the Offered Securities will accrue from and
including November , 1998 or from the most recent date to which interest has
been paid or duly provided for. Interest on the Offered Securities will be
payable semiannually in arrears on May 1 and Novemeber 1 (each, an "Interest
Payment Date") of each year, commencing May 1, 1999, to the persons in whose
names such Offered Securities are registered at the close of business on April
15 and October 15 (each, a "Regular Record Date"), as the case may be, next
preceding such Interest Payment Date. Interest on the Offered Securities will
be computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or maturity date for the Offered Securities
is not a Business Day, then payment of principal and interest need not be made
on such date but may be made on the next succeeding Business Day, and no
interest will accrue on the amounts so payable for the period from and after
such Interest Payment Date or maturity date.
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of Offered Securities set forth opposite their
respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
NAME NOTES DUE NOTES DUE
- --------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated .................... $ $
NationsBanc Montgomery Securities LLC ................
First Union Capital Markets, a division of Wheat First
Securities, Inc. ....................................
--------------- --------------
Total ......................................... $ $
=============== ==============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Offered Securities are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to take and pay for
all of the Offered Securities if any are taken.
The Underwriters initially propose to offer part of the Offered Securities
directly to the public at the respective public offering prices set forth on
the cover page of this prospectus supplement and part to certain dealers at a
price that represents a concession not in excess of % of the principal amount
in the case of the Notes due and % of the principal amount in the case of
the Notes due . Any Underwriter may allow, and any such dealer may reallow, a
discount not in excess of % of the principal amount in the case of the Notes
due and % of the principal amount in the case of the Notes due to
certain other dealers. After the initial offering of the Offered Securities,
the offering price and other selling terms may from time to time be changed by
the Underwriters.
The Company does not intend to apply for listing of any of the Offered
Securities on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Offered
Securities, as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in the Offered Securities and any
such market making may be discontinued at any time at the sole discretion of
the Underwriters. Accordingly, no assurance can be given as to the liquidity
of, or trading markets for, the Offered Securities.
In order to facilitate the offering of the Offered Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Offered Securities. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
Offered Securities for their own account. In addition, to cover overallotments
or to stabilize the price of the Offered Securities, the Underwriters may bid
for, and purchase, the Offered Securities in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Offered Securities in the
offering, if the Underwriters repurchase previously distributed Offered
Securities in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market prices of the Offered Securities above independent market levels.
The Underwriters are not required to engage in these activities, and may end
any of these activities at any time.
S-11
<PAGE>
The Company has agreed to indemnify the several Underwriters against
certain civil liabilities, including liabilities under the Securities Act.
As described under "Use of Proceeds," the Company intends to use a portion
of the net proceeds from the offering of the Offered Securities and the
proceeds from the concurrent offering of the Monthly Income Notes to repay bank
debt. A portion of the bank debt that will be repaid is held by affiliates of
NationsBanc Montgomery Securities LLC and First Union Capital Markets, two of
the Underwriters. These affiliates may receive more than 10% of the net
proceeds from the offering of the Offered Securities in the form of repayment
of Company borrowings. Accordingly, the offering of the Offered Securities is
being made pursuant to Rule 2710(c)(8) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
EXPERTS
The consolidated financial statements and schedules of the Company
appearing in the Annual Report (Form 10-K) of United Dominion Realty Trust,
Inc. for the year ended December 31, 1997 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated in the accompanying prospectus by reference. Such
consolidated financial statements are incorporated by reference herein reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of American Apartment Communities
II, Inc. and American Apartment Communities II, L.P., for the year ended
December 31, 1997, included in the Company's current report on Form 8-K filed
with the Securities and Exchange Commission on October 23, 1998, incorporated
herein by reference, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
LEGAL MATTERS
The validity of the Offered Securities offered hereby will be passed upon
for the Company by Hunton & Williams, Richmond, Virginia. Brown & Wood LLP, San
Francisco, California, will act as counsel to the Underwriters. Brown & Wood
LLP will rely on Hunton & Williams as to all matters of Virginia law.
S-12
