As filed with the Securities and Exchange Commission on December 4, 1998
Registration No. 333-64281
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Pre-Effective Amendment No. 2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0857512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 South 6th Street
Richmond, Virginia 23219-3802
(804)780-2691
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
KATHERYN E. SURFACE
Senior Vice President and General Counsel
United Dominion Realty Trust, Inc.
10 South 6th Street
Richmond, Virginia 23219-3802
(804) 780-2691
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JAMES W. FEATHERSTONE, III
RANDALL S. PARKS
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
(804) 788-8267
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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SUBJECT TO COMPLETION, DATED DECEMBER __, 1998
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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849,498 Shares
UNITED DOMINION REALTY TRUST, INC.
Common Stock
This Prospectus relates to the possible issuance of up to 849,498
shares of Common Stock (the "Redemption Shares") to certain individuals and
entities (the "Unitholders") who sold 1,800 multi-family apartment homes to the
Company on September 26, 1997, October 31, 1997 and November 20, 1997. As
partial consideration for their properties, the Unitholders received 849,498
units of limited partnership interest in United Dominion Realty, L.P. The
Company will issue the shares of Common Stock to the Unitholders if
(1) the Unitholders choose to redeem their units, and
(2) the Company, as the Partnership's general partner, elects to
purchase the units for shares of Common Stock.
The Unitholders will receive one share of Common Stock for each unit
they sell to the Company. The Unitholders will not pay, and the Company will not
receive, any cash for the shares of Common Stock.
The Common Stock is traded on the New York Stock Exchange under the
symbol "UDR."
So that the Company may qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended, the Company's
Amended Articles of Incorporation permit the Company's Board of Directors
(1) to limit the number of shares of Common Stock that may be
owned by any single person or affiliated group and
(2) to restrict the transfer of shares of Common Stock if the
transfer would prevent the Company from qualifying as a REIT.
See "Restrictions on Transfer of Capital Stock."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is December__, 1998.
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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, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center, New York,
New York 10048, and can also be inspected and copied at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees or from the Commission's site on the World Wide Web at http://www.sec.gov.
This Prospectus is part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, 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
of 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 filed by the Company with the Commission
(Commission File No. 1-10524) 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, 1997; (ii) the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, filed on May 15, 1998; (iii) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
filed on August 14, 1998; (iv) the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, filed on November 16, 1998; (v) the
Company's current report on Form 8-K dated January 27, 1998, filed on February
4, 1998; (vi) the Company's current report on Form 8-K dated February13, 1998,
filed on February 13, 1998; (vii) the Company's current report on Form 8-K dated
February 17, 1998, filed on February 17, 1998; (viii) the Company's current
report on Form 8-K dated March 27, 1998, filed on April 13, 1998, as amended by
Amendment No. 1 on Form 8-K/A dated and filed on June 12,1998; (ix) the
Company's current report on Form 8-K dated June 9, 1998, filed on June 24, 1998,
as amended by Amendment No. 1 on Form 8-K/A dated and filed on August 13, 1998;
(x) the Company's current report on Form 8-K dated May 28, 1998, filed on
October 19, 1998; (xi) the Company's current report on Form 8-K dated September
11, 1998, filed on October 23, 1998; (xii) the Company's current report on Form
8-K dated and filed on October 28, 1998; (xiii) the Company's current report on
Form 8-K dated November 2, 1998, filed on November 6, 1998; (xiv) the Company's
current report on Form 8-K dated November 10, 1998, filed on November 12, 1998;
and (xv) the description of the Company's Common Stock and Preferred Stock
contained in the Company's registration statements on Form 8-A dated April 19,
1990, May 1, 1995, June 10, 1997 and February 4, 1998, 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 Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of all of the Redemption Shares 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 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.
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).
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THE COMPANY
United Dominion Realty Trust, Inc. (the "Company"), a Virginia
corporation headquartered in Richmond, Virginia, is a self-administered equity
real estate investment trust ("REIT"), whose business is the ownership and
operation of apartment communities located throughout the United States. The
Company is a fully integrated real estate company with acquisition, development
and property management capabilities. At September 30, 1998, the Company's
portfolio consisted of 270 apartment communities containing 72,394 apartment
homes. The Company's apartment portfolio also included seven communities
containing 2,042 apartment homes under development (of which 198 were completed)
and two additions to existing communities containing 276 apartment homes (of
which 151 were completed). The Company had approximately 2,600 employees as of
September 30, 1998.
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.
RECENT DEVELOPMENTS
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 market 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 interest 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. 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
the fourth quarter of 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 7,055 apartment homes at a total cost (including
closing costs) of $318.6 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.
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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.
In order to reduce the interest rate risk associated with the
anticipated issuance of unsecured notes during 1998, the Company entered into a
$100 million (notional amount) fixed pay forward starting swap agreement
(interest rate risk management agreement) with a major Wall Street investment
banking firm in July 1997. The transaction allowed the Company to lock-in a ten
year Treasury rate of 6.511% on or before November 9, 1998. This interest rate
risk management agreement had an unfavorable position to the Company of $16.8
million at September 30, 1998. The Company settled the interest rate risk
management agreement on November 9, 1998, by paying $15.6 million to the
counterparty. The Company was unable to issue the unsecured notes contemplated
by the interest rate risk management agreement, and accordingly, the cost
associated with the settlement of this agreement will be expensed during the
fourth quarter of 1998.
Debt Offerings. On November 10, 1998, the Company sold an aggregate
$212.5 million of senior unsecured notes payable in two simultaneous public
offerings which consist of the following: (i) $150 million of 8.125% Notes due
November 15, 2000 and (ii) $62.5 million (including the over-allotment option)
of 8.5% Monthly Income Notes due November 15, 2008. Net proceeds from the two
offerings (net of underwriting discounts, commissions and offering expenses) of
approximately $209.9 million were received by the Company on or before November
18, 1998 and were used to repay bank debt outstanding under the Company's
various credit facilities. On November 30, 1998, the Company repaid promissory
notes in the aggregate amount of $75 million with the proceeds from advances on
its credit facilities as described below.
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.
On November 9, 1998, the Company received verbal assurance from one of
its major lending banks of revised terms of certain credit facilities, including
the extension, at the Company's discretion, of the maturity of a credit facility
through which the Company may borrow an amount not to exceed $25 million for a
term to and including November 30, 1998. In addition, the bank also provided
verbal assurance that, if the AAC Merger is consummated, AAC's secured lines of
credit totaling $100 million would be extended, at the Company's discretion, for
12 months. The foregoing changes will not be effective until the Company and its
lending bank enter into definitive agreements and, accordingly, there can be no
assurance that these revised and additional credit facilities will become
effective (which could adversely affect the Company's liquidity) or, if they
become effective, that their terms will not differ from those set forth above.
If these revised and additional credit facilities do not become effective, the
Company may be required to seek additional sources of external capital.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 150,000,000 shares of Common Stock,
$1.00 par value, and 25,000,000 shares of Preferred Stock, no par value (the
"Preferred Stock"). At September 8, 1998, there were outstanding 103,196,547
shares of Common Stock and 10,200,000 shares of Preferred Stock, consisting of
4,200,000 shares of the Company's 9 1/4% Series A Cumulative Redeemable
Preferred Stock (the "Series A Preferred"), 6,000,000 shares of the Company's
8.60 % Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred")
and 0 shares of the Company's Series C Junior Participating Cumulative
Redeemable Preferred Stock (the "Series C Preferred). The following statements
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with respect to the capital stock of the Company are subject to the detailed
provisions of the Company's Restated Articles of Incorporation, as amended (the
"Articles"), and bylaws (the "Bylaws") as currently in effect. These statements
do not purport to be complete, or to give full effect to the terms of the
provisions of statutory or common law, and are subject to, and are qualified in
their entirety by reference to, the terms of the Articles and Bylaws, which are
filed as exhibits to the Registration Statement.
Common Stock
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors after payment of, or provision for, full
cumulative dividends on and any required redemptions of shares of Preferred
Stock then outstanding. Holders of Common Stock have one vote per share and
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting can elect all of the directors if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
directors. In the event of any voluntary or involuntary liquidation or
dissolution of the Company, holders of Common Stock are entitled to share
ratably in the distributable assets of the Company remaining after satisfaction
of the prior preferential rights of the Preferred Stock and the satisfaction of
all debts and liabilities of the Company. Holders of Common Stock do not have
preemptive rights. The dividend and liquidation rights of holders of the Common
Stock are specifically limited by the terms of the Series A Preferred, the
Series B Preferred and the Series C Preferred as described in the description of
the Company's Preferred Stock contained in the Company's registration statements
on Form 8-A, as amended, filed pursuant to Section 12 of the Exchange Act on May
1, 1995, June 11, 1997 and February 4, 1998. The transfer agent for the Common
Stock is Chase Mellon Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
Preferred Stock
The Preferred Stock is described in the Company's registration
statements on Form 8-A, as amended, filed pursuant to Section 12 of the Exchange
Act on May 1, 1995, June 11, 1997 and February 4, 1998.
On the date of closing of the AAC Merger, the Company will issue shares
of the Company's Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred"). The terms of the Series D Preferred are attached as an exhibit to
this registration statement.
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), shares of capital stock must be held by a minimum
of 100 persons for at least 335 days in each taxable year following its 1994
taxable year or during a proportionate part of a shorter taxable year. In
addition, at all times during the second half of each taxable year following its
1994 taxable year, no more than 50% in value of the shares of capital stock of
the Company may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals (the "5/50 Rule").
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Articles permit the Board of Directors to
prevent an individual or individuals from directly or indirectly owning shares
to the extent that such ownership would disqualify the Company as a REIT.
If the Board of Directors, in its good faith, determines that an
individual's or individuals' ownership of stock may disqualify the Company as a
REIT, the Board of Directors may call for a redemption (by lot or other
equitable means) to redeem a number of shares sufficient to maintain the
Company's REIT status. The redemption price per share shall be the closing sale
price on the NYSE as of the business day preceding the day on which notice of
redemption is given. In addition, the Company may stop any acquisition or
transfer of shares that would jeopardize the Company's REIT status.
REDEMPTION OF UNITS
Redemption Rights for Limited Partnership Units
Pursuant to the Seconded Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"), the limited
partners of the Partnership (the "Limited Partners") generally have the right to
cause the redemption (the "Redemption Rights") of their interests in the
Partnership. Each Limited Partner may, subject to certain limitations, require
that the Partnership redeem all or a portion of his Units at any time after one
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year from the date the Units were acquired by delivering a notice of exercise of
redemption right to the Partnership and the Company. The form of notice is an
exhibit to the Partnership Agreement. A Limited Partner must request the
redemption of at least 1,000 Units (or all of the Units held by such holder, if
less than 1,000 are so held).
Upon redemption, each Limited Partner will receive from the Partnership
cash in an amount equal to the cash value of Units being redeemed. The cash
value of each Unit will be assumed to be equal to the market value of one share
of Common Stock. The market value of the Common Stock for this purpose will be
equal to the average of the closing trading prices of the Common Stock (or
substitute information, if no such closing prices are available) for the ten
consecutive trading days before the day on which the redemption notice was
received by the Company.
Instead of the Partnership redeeming the Units, the Company, in its
sole discretion, may elect to purchase the Units directly by paying to the
Limited Partner either (i) a number of shares of Common Stock equal to the
number of Units being redeemed ("Redemption Shares"), or (ii) cash in an amount
equal to the cash value of the Units, as determined pursuant to the preceding
paragraph. If the Company exercises its right to purchase the Units, then the
Partnership has no obligation to redeem the Units.
The Company anticipates that it generally will elect to purchase Units
through the issuance of the Redemption Shares pursuant to this Prospectus. Such
an acquisition will be treated as a sale of the Units to the Company for federal
income tax purposes. See "-- Tax Consequences of Redemption." Upon redemption, a
Limited Partner's right to receive distributions with respect to the Units
redeemed will cease.
A Limited Partner may not redeem his Units if receipt of Common Stock
in exchange for those Units would (i) result in such partner or any other person
owning, directly or indirectly, more than 9.8% of the outstanding Common Stock,
(ii) result in Common Stock being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (iii) result in the Company
being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code of 1986, as amended (the "Code"), (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common Stock
by such partner to be "integrated" with any other distribution of Common Stock
for purposes of complying with the registration provisions of the Securities Act
of 1933, as amended. The Company, in its sole discretion, may waive this
restriction and permit a Limited Partner to exercise its Redemption Rights, but
only if the Limited Partner receives cash in exchange for the Units.
The Company may also restrict the Limited Partners' Redemption Rights
if such restrictions are necessary to ensure that the Partnership does not
constitute a "publicly traded partnership" under Section 7704 of the Code.
Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Limited Partner who exercises his right
to require the redemption of his Units.
Tax Treatment of Redemption of Units. Instead of the Partnership
redeeming Units from a Limited Partner, the Company may elect to purchase the
Units. See "--- Redemption Rights for Limited Partnership Units." In that event,
such sale will be fully taxable to the redeeming Limited Partner and such
redeeming Limited Partner will be treated as realizing for tax purposes an
amount equal to the sum of the cash or the value of the Common Stock received in
connection with the purchase plus the amount of any Partnership liabilities
allocable to the redeemed Units at the time of the redemption. If the Company
does not elect to purchase a Limited Partner's Units and the Partnership redeems
such Units for cash that the Company contributes to the Partnership to effect
such redemption, the redemption likely would be treated for tax purposes as a
sale of such Units in a fully taxable transaction, although the matter is not
free from doubt. In that event, the redeeming Limited Partner would be treated
as realizing an amount equal to the sum of the cash received in connection with
the redemption plus the amount of any Partnership liabilities allocable to the
redeemed Units at the time of the redemption. The determination of the amount of
gain or loss in the event of sale treatment is discussed more fully below.
If the Partnership chooses to redeem a Limited Partner's Units for cash
that is not contributed by the Company to effect the redemption, the tax
consequences would be the same as described in the previous paragraph, except
that if the Partnership redeems less than all of the Units held by a Limited
Partner, the Limited Partner would not be permitted to recognize any loss
occurring on the transaction and would recognize taxable gain only to the extent
that the cash, plus the amount of any Partnership liabilities allocable to the
redeemed Units, exceeded the Limited Partner's adjusted basis in all of such
Limited Partner's Units immediately before the redemption.
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Tax Treatment of Disposition of Units by Limited Partner Generally. If
a Unit is redeemed in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit (other than in a transaction that
is treated as a redemption for tax purposes), the determination of gain or loss
from such sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"-- Basis of Units." Upon the sale of a Unit, the "amount realized" will be
measured by the sum of the cash and fair market value of other property (e.g.,
Redemption Shares) received plus the amount of any Partnership liabilities
allocable to the Unit sold. To the extent that the amount realized exceeds the
Limited Partner's basis in the Unit disposed of, such Limited Partner will
recognize gain. It is possible that the amount of gain recognized or even the
tax liability resulting from such gain could exceed the amount of cash and the
value of any other property (e.g., Redemption Shares) received upon such
disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit that is attributable to a Limited Partner's share of
"unrealized receivables" of the Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Partnership income, any rights to payment for services
rendered or to be rendered. Unrealized receivables also include amounts that
would be subject to recapture as ordinary income if the Partnership had sold its
assets at their fair market value at the time of the transfer of a Unit.
Basis of Units. In general, a Limited Partner who was deemed at the
time of the transactions resulting in the issuance of the Units to have received
his Units upon liquidation of a partnership will have an initial tax basis in
his Units ("Initial Basis") equal to his basis in his partnership interest at
the time of such liquidation. Similarly, in general, a Limited Partner who at
the time of the transactions resulting in the issuance of the Units contributed
a partnership interest or other property to the Partnership in exchange for
Units will have an Initial Basis in the Units equal to his basis in the
contributed partnership interest or other property. A Limited Partner's Initial
Basis in his Units generally is increased by (i) such Limited Partner's share of
Partnership taxable income and (ii) increases in his share of liabilities of the
Partnership (including any increase in his share of liabilities occurring in
connection with the transactions resulting in the issuance of the Units).
Generally, such Limited Partner's basis in his Units is decreased (but not below
zero) by (A) his share of Partnership distributions, (B) decreases in his share
of liabilities of the Partnership (including any decrease in his share of
liabilities of the Partnership occurring in connection with the transactions
resulting in the issuance of the Units), (C) his share of losses of the
Partnership and (D) his share of nondeductible expenditures of the Partnership
that are not chargeable to capital.
Potential Application of Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption of Units may cause the original
transfer of property to the Partnership in exchange for Units to be treated as a
"disguised sale" of property. The Code and the Treasury Regulations thereunder
(the "Disguised Sale Regulations") generally provide that, unless one of the
prescribed exceptions is applicable, a partner's contribution of property to a
partnership and a simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability)
from the partnership to the partner will be presumed to be a sale, in whole or
in part, of such property by the partner to the partnership. Further, the
Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will be, when viewed together,
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that if two years have passed between
the transfer of money or other consideration from a partnership to a partner and
the contribution of property, the transactions will be presumed not to be a sale
unless the facts and circumstances clearly establish that the transfers
constitute a sale.
Accordingly, if a Unit is redeemed by the Partnership, the Internal
Revenue Service (the "Service") could contend that the Disguised Sale
Regulations apply because the redeeming Limited Partner will receive cash or
shares of Common Stock subsequent to his previous contribution of property to
the Partnership. If the Service were to make successfully such an assertion, the
transactions in connection with the issuance of the Units themselves could be
taxable as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment reporting under Section 453
of the Code, subject to certain limitations.
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Comparison of Ownership of Units and Shares of Common Stock
The information below highlights a number of the significant
differences between the Partnership and the Company and compares certain legal
rights associated with the ownership of Units and Common Stock, respectively.
These comparisons are intended to assist Limited Partners of the Partnership in
understanding how their investment will be changed if their Units are redeemed
for Common Stock. This discussion is summary in nature and does not constitute a
complete discussion of these matters. Holders of Units should carefully review
the balance of this Prospectus and the registration statement of which this
Prospectus is a part for additional important information about the Company.
Form of Organization and Assets Owned. The Partnership is organized as
a Virginia limited partnership. The Company is a Virginia corporation. The
Company elected to be taxed as a REIT under the Code effective for its taxable
year ended December 31, 1972 and intends to maintain its qualification as a
REIT.
Length of Investment. The Partnership has a stated termination date of
December 31, 2051, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Additional Equity. The Partnership is authorized to issue Units and
other partnership interests to the partners or to other persons for such
consideration and on such terms and conditions as the Company, in its sole
discretion, may deem appropriate. In addition, the Company may cause the
Partnership to issue additional Units, or other partnership interests in one or
more different series or classes which may be senior to the Units, to the
Company. Consideration for additional partnership interests may be cash or other
property or other assets permitted by Virginia law.
Under the Articles, the total number of shares of all classes of stock
that the Company has the authority to issue is 150,000,000 shares of Common
Stock and 25,000,000 shares of Preferred Stock. As of the date of this
Prospectus, 10,200,000 shares of Preferred Stock are outstanding.
Management and Control. All management and control over the business of
the Partnership are vested in the Company, as general partner of the
Partnership, and no Limited Partner of the Partnership has any right to
participate in or exercise management or control over the business of the
Partnership. Upon the occurrence of an event of bankruptcy or the dissolution of
the Company, the Company shall be deemed to be removed automatically; otherwise,
the Company may not be removed by the Limited Partners with or without cause.
The Board of Directors has exclusive control over the Company's
business and affairs subject to the restrictions in the Articles and Bylaws. The
Board of Directors has adopted certain policies with respect to acquisition,
development, investing, financing and conflict of interest, but these policies
may be altered or eliminated without a vote of the shareholders. Accordingly,
except for their vote in the elections of directors, shareholders have no
control over the ordinary business policies of the Company.
Fiduciary Duties. Under Virginia law, the Company is accountable to the
Partnership as a fiduciary and, consequently, is required to exercise good faith
in all of its dealings with respect to partnership affairs. However, under the
Partnership Agreement, the Company is under no obligation to take into account
the tax consequences to any Limited Partner of any action taken by it, and the
Company will have no liability to a Limited Partner as a result of any
liabilities or damages incurred or suffered by or benefits not derived by a
Limited Partner as a result of an action or inaction of the Company so long as
the Company acted in good faith.
Under Virginia law, the Company's directors must perform their duties
in good faith, in a manner that they believe to be in the best interests of the
Company and with the care an ordinarily prudent person in a like situation would
exercise under similar circumstances. Directors of the Company who act in such a
manner generally will not be liable to the Company for monetary damages arising
from their activities.
Management Limitation of Liability and Indemnification. The Partnership
Agreement generally provides that the Company will incur no liability for
monetary damages to the Partnership or any Limited Partner for losses sustained
or liabilities incurred as a result of errors in judgment or of any act or
omission if the Company acted in good faith. In addition, the Company is not
responsible for any misconduct or negligence on the part of its agents provided
the Company appointed such agents in good faith. The Partnership Agreement also
provides for indemnification of the Company, the directors and officers of the
Company, and such other persons as the Company may from time to time designate,
against any and all losses, claims, damages, liabilities (joint or several),
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
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actions, suits or proceedings, whether civil, criminal, administrative or
investigative, that relate to the operations of the Partnership in which such
person may be involved, or is threatened to be involved, provided that the
Partnership shall not indemnify any such person (i) for an act or omission of
such person that was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) if such person actually received an improper benefit in money,
property or services or (iii) in the case of any criminal proceeding, if such
person had reasonable cause to believe that the act or omission was unlawful.
Any indemnification will be made only out of assets of the Partnership.
The Company's Articles obligate it to indemnify and advance expenses to
present and former directors and officers to the maximum extent permitted by
Virginia law. The Virginia Stock Corporation Act ("VSCA") permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, settlements, penalties, fines or reasonable expenses incurred
with respect to a proceeding to which they may be made a party by reason of
their service in those or other capacities if (i) such persons conducted
themselves in good faith, (ii) they reasonably believed, in the case of conduct
in their official capacities with the corporation, that their conduct was in its
best interests and, in all other cases, that their conduct was at least not
opposed to its best interests, and (iii) in the case of any criminal proceeding,
they had no reasonable cause to believe that their conduct was unlawful. Any
indemnification by the Company pursuant to the provisions of the Articles
described above will be paid out of the assets of the Company and will not be
recoverable from the shareholders.
The VSCA permits the charter of a Virginia corporation to include a
provision eliminating or limiting the personal liability of its directors to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except that such provision cannot eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
or (iii) for unlawful distributions that exceed what could have been distributed
without violating the VSCA or the corporation's charter. The Company's Articles
contain a provision eliminating the personal liability of its directors or
officers to the Company or its shareholders for money damages to the maximum
extent permitted by Virginia law from time to time.
Anti-Takeover Provisions. Except in limited circumstances, the Company
has exclusive management power over the business and affairs of the Partnership.
The Company may not be removed by the Limited Partners with or without cause.
Under the Partnership Agreement, the Company may, in its sole discretion,
prevent a Limited Partner from transferring his interest or any rights as a
Limited Partner . The Company may exercise this right of approval to deter,
delay or hamper attempts by persons to acquire a controlling interest in the
Partnership.
As described above under "Restrictions on Transfer of Capital Stock,"
the Company's Board of Directors may restrict the acquisition of shares of
Common Stock.
In addition, Virginia has enacted several statutory provisions to deter
takeovers of Virginia corporations. The VSCA generally requires that any merger,
share exchange or sale of substantially all of the assets of a corporation not
in the ordinary course of business be approved by at least two-thirds of the
votes entitled to be cast by each voting group entitled to vote, unless the
articles of incorporation provide for a greater or lesser vote (but in no event
less than a majority of votes cast by each such voting group at a meeting at
which a quorum of the voting group exists). The Company's Articles and Bylaws do
not provide for a greater or lesser vote for the approval of extraordinary
transactions.
The VSCA also contains provisions governing "Affiliated Transactions."
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. Affiliated Transactions subject to this approval requirement include
mergers, share exchanges, material dispositions of corporate assets not in the
ordinary course of business, any dissolution of the corporation proposed by or
on behalf of an Interested Shareholder, or any reclassification, including
reverse stock splits, recapitalization or merger of the corporation with its
subsidiaries which increases the percentage of voting shares owned beneficially
by an Interested Shareholder by more than five percent.
For three years following the time that an Interested Shareholder
becomes an owner of 10% of the outstanding voting shares, a Virginia corporation
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." A Disinterested Director means, with respect to a
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particular Interested Shareholder, a member of the board of directors who was
(a) a member on the date on which an Interested Shareholder became an Interested
Shareholder and (b) recommended for election by, or was elected to fill a
vacancy and received the affirmative vote of, a majority of the Disinterested
Directors then on the board. 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.
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 statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Shareholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder (a) whose acquisition of
shares making such person an Interested Shareholder was approved by a majority
of the Virginia corporation's Disinterested Directors or (b) who was an
Interested Shareholder on the date the corporation became subject to these
provisions by virtue of its having 300 shareholders of record.
In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. The Company has not "opted out" of the
Affiliated Transactions provisions.
The VSCA also contains provisions regulating certain "control share
acquisitions," which are transactions causing the voting strength of any person
acquiring beneficial ownership of shares of a public corporation in Virginia to
meet or exceed certain threshold percentages (20%, 33 1/3% or 50%) of the total
votes entitled to be cast for the election of directors. Shares acquired in a
control share acquisition have no voting rights unless (a) the voting rights are
granted by a majority vote of all outstanding shares other than those held by
the acquiring person or any officer or employee director of the corporation, or
(b) the articles of incorporation or bylaws of the corporation provide that
these Virginia law provisions do not apply to acquisitions of its shares. The
acquiring person may require that a special meeting of the shareholders be held
to consider the grant of voting rights to the shares acquired in the control
share acquisition. The Company has not adopted an amendment to its Articles or
Bylaws making these provisions inapplicable to acquisition of its shares.
Voting Rights. Under the Partnership Agreement, the Limited Partners
have voting rights only as to the continuation of the Partnership in certain
circumstances and certain amendments of the Partnership Agreement, as described
more fully below. Otherwise, all decisions relating to the operation and
management of the Partnership are made by the Company. At September 15, 1998,
the Company held approximately 84.2% of the outstanding interests in the
Partnership. As Units held by Limited Partners are redeemed, the Company's
percentage ownership of the Partnership will increase. If additional Units are
issued to third parties, the Company's percentage ownership of the Partnership
will decrease.
Shareholders of the Company have the right to vote on, among other
things, a merger or sale of substantially all of the assets of the Company,
certain amendments to the Articles and dissolution of the Company. All shares of
Common Stock have one vote, and the Articles permit the Board of Directors to
classify and issue Preferred Stock in one or more series having voting power
which may differ from that of the Common Stock. See "Description of Capital
Stock."
Amendment of the Partnership Agreement or the Articles. The Partnership
Agreement may be amended by the Company without the consent of the Limited
Partners in any respect, except that certain amendments affecting the
fundamental rights of a Limited Partner must be approved by consent of Limited
Partners (other than the Company or any subsidiary of the Company) holding more
than 50% of the Units. Such consent is required for any amendment that would (i)
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affect the Redemption Rights, (ii) adversely affect the rights of Limited
Partners to receive distributions payable to them under the Partnership
Agreement, (iii) alter the Partnership's profit and loss allocations, (iv) alter
the provisions relating to the amendment of the Partnership Agreement, or (v)
impose any obligation upon the Limited Partners to make additional capital
contributions to the Partnership.
The Articles may be amended by the affirmative vote of the holders of a
majority of the shares of each voting group entitled to vote on the amendment.
The Company's Bylaws may be amended by the Board of Directors or by vote of the
holders of a majority of the outstanding shares.
Vote Required to Dissolve the Partnership or the Company. At any time
prior to December 31, 2051 (upon which date the Partnership shall terminate),
the Company may elect to dissolve the Partnership in its sole discretion. Such
dissolution shall also occur upon (i) the bankruptcy, dissolution or withdrawal
of the Company (unless the Limited Partners unanimously elect to continue the
Partnership), (ii) the passage of 90 days after the sale or other disposition of
all or substantially all the assets of the Partnership or (iii) the redemption
of all of the outstanding Units (other than those held by the Company or any
subsidiary of the Company, if any).
Under Virginia law, the Board of Directors generally must recommend and
the holders of a majority of the outstanding Common Stock entitled to vote must
approve any proposal in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
the sale, exchange, transfer or other disposition of all or substantially all of
the Partnership's assets or merger or consolidation of the Partnership requires
only the consent of the Company. Under Virginia law, any merger or share
exchange of the Company requires the separate approval of the Board of Directors
and each group of shareholders entitled to vote on such matter by a majority of
all votes entitled to be cast by such group. Under Virginia law, the sale of all
or substantially all of the assets of the Company otherwise than in the normal
course of business requires the approval of the Board of Directors and holders
of a majority of the outstanding shares of Common Stock. No approval of the
shareholders is required for the sale of the Company's assets in the usual and
regular course of business.
Compensation, Fees and Distributions. The Company does not receive any
compensation for its services as general partner of the Partnership. As a
partner in the Partnership, however, the Company has the same right to
allocations and distributions as other partners of the Partnership. In addition,
the Partnership will reimburse the Company for all expenses incurred relating to
the ongoing operation of the Partnership and any offering of partnership
interests in the Partnership or capital stock of the Company.
Liability of Investors. Under the Partnership Agreement and applicable
state law, the liability of the Limited Partners for the Partnership's debts and
obligations is generally limited to the amount of their investment in the
Partnership and Limited Partners are generally not liable for any debts,
liabilities, contracts or obligations of the Partnership.
Under Virginia law, the Company's shareholders are not personally
liable for the debts or obligations of the Company.
Nature of Investments. The Units constitute equity interests entitling
each Limited Partner to his pro rata share of cash distributions made to the
Limited Partners of the Partnership. The Partnership generally intends to retain
and reinvest in its business proceeds of the sale of property or excess
refinancing proceeds.
The shares of Common Stock constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Partnership with respect to the Units, and each shareholder will be entitled
to his pro rata share of any dividends or distributions paid with respect to the
Common Stock. The dividends payable to the shareholders are not fixed in amount
and are only paid if, when and as declared by the Board of Directors. In order
to qualify as a REIT, the Company must distribute at least 95% of its annual
taxable income (excluding capital gains), and any taxable income (including
capital gains) not distributed will be subject to corporate income tax.
Potential Dilution of Rights. The Company is authorized, in its sole
discretion and without the consent of the Limited Partners, to cause the
Partnership to issue additional limited partnership interests and other equity
securities for any partnership purpose at any time to the Limited Partners or to
other persons on terms and conditions established by the Company.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and a variety of other equity securities of
the Company with such powers, preferences and rights as the Board of Directors
may designate. The issuance of additional shares of either Common Stock or other
similar or senior equity securities may result in the dilution of the interests
of the shareholders.
Liquidity. Subject to certain exceptions, a Limited Partner may not
transfer all or any portion of his Units without (i) obtaining the prior written
consent of the Company, which consent may be withheld in the sole and absolute
discretion of the Company, and (ii) meeting certain other requirements set forth
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in the Partnership Agreement. Limited Partners should expect to hold their Units
until they redeem them for cash or shares of Common Stock, or until the
Partnership terminates. The right of a transferee to become a substituted
Limited Partner also is subject to the consent of the Company, which consent may
be withheld in its sole and absolute discretion. If the Company does not consent
to the admission of a transferee, the transferee will succeed to all economic
rights and benefits attributable to such Units but will not become a Limited
Partner or possess any other rights of Limited Partners (including the right to
vote on or consent to actions of the Partnership). The Company has the right to
redeem any Units held by a transferee who does not become a substituted Limited
Partner within 20 business days of the transfer. The Company may require, as a
condition of any transfer, that the transferring Limited Partner assume all
costs incurred by the Partnership in connection with such transfer.
Federal Income Taxation. The Partnership is not subject to federal
income taxes. Instead, each holder of an interest in the Partnership takes into
account its allocable share of the Partnership's taxable income or loss in
determining its federal income tax liability. As of September 1, 1998, the
maximum federal income tax rate for individuals was 39.6%. Income and loss from
the Partnership generally is subject to the "passive activity" limitations.
Under the "passive activity" rules, income and loss from the Partnership that is
considered "passive" income or loss generally can be offset against income and
loss (including passive loss carry-forwards from prior years) from other
investments that constitute "passive activities" (unless the Partnership is
considered a "publicly traded partnership," in which case income and loss from
the Partnership can only be offset against other income and loss from the
Partnership). Income of the Partnership, however, that is attributable to
dividends or interest does not qualify as passive income and cannot be offset
with losses and deductions from a "passive activity." Cash distributions from
the Partnership are not taxable to a holder of Units except to the extent they
exceed such holder's basis in its Units (which will include such holder's
allocable share of the Partnership's debt). Each year, holders of Units will
receive a Schedule K-1 tax form containing detailed tax information for
inclusion in preparing their federal income tax returns. Holders of Units are
required in some cases to file state income tax returns and/or pay state income
taxes in the states in which the Partnership owns property, even if they are not
residents of those states, and in some such states the Partnership is required
to remit a withholding tax with respect to distributions to such nonresidents.
The Company elected to be taxed as a REIT effective for its taxable
year ended December 31, 1972. So long as it qualifies as a REIT, the Company
generally will be permitted to deduct distributions paid to its shareholders,
which effectively will reduce (or eliminate) the "double taxation" that
typically results when a corporation earns income and distributes that income to
its shareholders in the form of dividends. A REIT, however, is subject to
federal income tax on income that is not distributed and also may be subject to
federal income and excise taxes in certain circumstances. The maximum federal
income tax rate for corporations currently is 35% and for individuals is 39.6%.
Dividends paid by the Company will be treated as "portfolio" income and cannot
be offset with losses from "passive activities." Distributions made by the
Company to its taxable domestic shareholders out of current or accumulated
earnings and profits will be taken into account by them as ordinary income.
Distributions that are designated as capital gain dividends generally will be
taxed as long-term capital gain, subject to certain limitations. Distributions
in excess of current and accumulated earnings and profits will be treated as a
non-taxable return of capital to the extent of a shareholder's adjusted basis in
its Common Stock, and the excess over a shareholder's adjusted basis will be
taxed as capital gain. Each year, shareholders of the Company (other than
certain types of institutional investors) will receive IRS Form 1099, which is
used by corporations to report dividends paid to their shareholders.
Shareholders who are individuals generally should not be required to file state
income tax returns and/or pay state income taxes outside of their state of
residence with respect to the Company's operations and distributions. The
Company may be required to pay state income and/or franchise taxes in certain
states.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
that may be relevant to a prospective holder of the Common Stock is based on
current law, is for general information only, and is not tax advice. The
discussion contained herein 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 (except as described
below), financial institutions or broker-dealers, and, except as described
below, foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of
the Code, existing, temporary, and currently proposed Treasury regulations
promulgated under the Code (the "Treasury Regulations"), the legislative history
of the Code, existing administrative rulings and practices of the Service, and
judicial decisions. No assurance can be given that future legislative, judicial,
or administrative actions or decisions, which may be retroactive in effect, will
not affect the accuracy of any statements in this Prospectus with respect to the
transactions entered into or contemplated prior to the effective date of such
changes. Unless otherwise provided in this discussion, the term "Partnership"
includes all of the Company's subsidiary partnerships.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
The Company made an election to be taxed as a REIT under sections 856
through 860 of the Code, effective for its taxable year ended December 31, 1972.
The Company believes that, commencing with such taxable year, it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner,
but no assurance can be given that the Company will operate in a manner so as to
qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations, and
administrative and judicial interpretations thereof, all of which are subject to
change prospectively or retrospectively.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder levels)
that generally results from investment in a corporation. However, the Company
will be subject to federal income tax in the following circumstances. First, the
Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its undistributed items of tax preference. Third, if the Company has (i) net
income from the sale or other disposition of "foreclosure property" that is held
primarily for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amounts by which the Company fails the 75%
and 95% gross income tests, multiplied by a fraction intended to reflect the
Company's profitability. Sixth, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, if the Company acquires any asset from a
C corporation (i.e., a corporation generally subject to full corporate-level
tax) in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of the C corporation and the Company recognizes gain on the disposition of
such asset during the 10-year period beginning on the date on which such asset
was acquired by the Company, then to the extent of such asset's "built-in gain"
(i.e., the excess of the fair market value of such asset at the time of
acquisition by the Company over the adjusted basis in such asset at such time),
the Company will be subject to tax at the highest regular corporate rate
applicable (as provided in Treasury Regulations that have not yet been
promulgated). The results described above with respect to the recognition of
"built-in gain" assume that the Company would make an election pursuant to IRS
Notice 88-19 if it were to make any such acquisition.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i) that
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
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certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and to maintain REIT status; (viii) that uses a calendar year for
federal income tax purposes and complies with the recordkeeping requirements of
the Code and Treasury Regulations; and (ix) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. The Company believes that it has issued sufficient shares
of Common Stock with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, the Company's Articles provide for
restrictions regarding ownership and transfer of the Common Stock that are
intended to assist the Company in continuing to satisfy the stock ownership
requirements described in (v) and (vi) above. Such transfer restrictions are
described above under "Restrictions on Transfer of Capital Stock."
For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and the beneficiaries of such trust are treated as holding shares of
a REIT in proportion to their actuarial interests in the trust for purposes of
the 5/50 Rule.
The Company currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. Code section 856(i)
provides that a corporation that is a "qualified REIT subsidiary" will not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a qualified REIT subsidiary will be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is held by the REIT. Thus, in applying the requirements described herein, any
qualified REIT subsidiaries of the Company are ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries are
treated as assets, liabilities, and items of income, deduction, and credit of
the Company. The Company's corporate subsidiaries are qualified REIT
subsidiaries. Such subsidiaries, therefore, are not subject to federal corporate
income taxation, although they may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, the Company's proportionate
share of the assets, liabilities, and items of income of the Partnership and of
any other partnership in which the Company has acquired or will acquire an
interest, directly or indirectly (a "Subsidiary Partnership"), are treated as
assets and gross income of the Company for purposes of applying the requirements
described herein.
Income Tests
In order for the Company to maintain its qualification as a REIT, there
are two requirements relating to the Company's gross income that must be
satisfied annually. First, at least 75% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
Rent received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
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qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the Company generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" who is adequately compensated and from
whom the Company derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services provided by the Company are
customarily furnished or rendered in connection with the rental of real property
for occupancy only and are not otherwise considered "rendered to the occupant."
In addition, the Company may provide noncustomary services other than through an
"independent contractor" if the value of such services does not exceed 1% of the
Company's gross income from the property where such services are provided. For
that purpose, such services may not be valued at less than 150% of the Company's
direct cost of providing the services.
The Company does not receive any rent that is based on the income or
profits of any person. In addition, the Company does not own, directly or
indirectly, 10% or more of any tenant. Furthermore, the Company believes that
any personal property leased in connection with a lease of its real property is
well within the 15% restriction. Finally, the Company does not provide services
(other than within the 1% de minimis exception described above) to its tenants
that are not customarily furnished or rendered in connection with the rental of
space for occupancy only, other than through an independent contractor.
If any portion of the rent does not qualify as "rents from real
property" because the rent attributable to personal property leased in
connection with any lease of real property exceeds 15% of the total rent
received under the lease for a taxable year, the portion of the rent that is
attributable to personal property will not be qualifying income for purposes of
either the 75% or 95% gross income test. Thus, if the rent attributable to
personal property, plus any other income received by the Company during a
taxable year that is not qualifying income for purposes of the 95% gross income
test, exceeds 5% of its gross income during such year, the Company likely would
lose its REIT status. If, however, any portion of the rent received under a
lease does not qualify as "rents from real property" because either (i) the rent
is considered based on the income or profits of any person or (ii) the tenant is
a Related Party Tenant, none of the rent received by the Company under such
lease would qualify as "rents from real property." In that case, if the rent
received by the Company under such lease, plus any other income received by it
during the taxable year that is not qualifying income for purposes of the 95%
gross income test, exceeds 5% of its gross income for such year, the Company
likely would lose its REIT status. Finally, if any portion of the rent does not
qualify as "rents from real property" because the Company furnishes (other than
within the 1% de minimis rule described above) noncustomary services with
respect to a property other than through a qualifying independent contractor,
none of the rent received by it with respect to the such property would qualify
as "rents from real property." In that case, if the rent received by the Company
with respect to such property, plus any other income received by it during the
taxable year that is not qualifying income for purposes of the 95% gross income
test, exceeds 5% of its gross income for such year, the Company would lose its
REIT status.
From time to time, the Company has entered into hedging transactions
with respect to one or more of its assets or liabilities. Such hedging
transactions include or may include interest rate swap contracts, interest rate
cap or floor contracts, futures or forward contracts, and options. To the extent
that the Company or the Partnership enters into an interest rate swap or cap
contract , option, futures contract, forward rate agreement, or similar
financial instrument to hedge the interest rate risk with respect to
indebtedness incurred or to be incurred to acquire or carry real estate assets,
any periodic income or gain from the disposition of such contract should be
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. To the extent that the Company or the Partnership hedges with
other types of financial instruments or in other situations, it may not be
entirely clear how the income from those transactions will be treated for
purposes of the various income tests that apply to REITs under the Code. The
Company intends to structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
Those relief provisions generally will be available if (i) the Company's failure
to meet such tests is due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its return,
and (iii) any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of those relief
provisions. As discussed above in "Federal Income Tax Considerations-Taxation of
the Company," even if those relief provisions apply, a 100% tax would be imposed
with respect to the gross income attributable to the greater of the amounts by
which the Company fails the 75% and 95% income tests, multiplied by a fraction
intended to reflect the Company's profitability.
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Asset Tests
The Company, at the close of each quarter of each taxable year, also
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, or "real estate
assets," including, in cases where the Company raises new capital through stock
or long-term (at least five-year) debt offerings, stock or debt instruments
attributable to the temporary investment of such new capital during the one-year
period following the Company's receipt of such capital. The term "real estate
assets" also includes real property (including interests in real property and
interests in mortgages on real property) and shares of other REITs. For purposes
of the 75% asset test, the term "interest in real property" includes an interest
in land or improvements thereon, such as buildings or other inherently permanent
structures (including items that are structural components of such buildings or
structures), a leasehold in land or improvements thereon, and an option to
acquire land or improvements thereon (or a leasehold in land or improvements
thereon). Second, of the investments not included in the 75% asset class, the
value of any one issuer's securities owned by the Company (other than its
ownership interest in the Partnership and any qualified REIT subsidiary) may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities (except for
its ownership interest in the Partnership and any qualified REIT subsidiary).
For purposes of the asset tests, the Company is deemed to own its
proportionate share of the assets of the Partnership, rather than its interest
in the Partnership. The Company has operated and will continue to operate so
that it has not acquired or disposed, and in the future will not acquire or
dispose, of assets in a way that would cause it to violate either asset test.
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset test requirements arose from changes in the market values of its
assets and was not wholly or partly caused by an acquisition of one or more
nonqualifying assets. If the condition described in clause (ii) of the preceding
sentence were not satisfied, the Company still could avoid disqualification by
eliminating any discrepancy within 30 days after the close of the quarter in
which it arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends and retained capital gain) to its
shareholders in an amount at least equal to (i) the sum of (A) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and its
net capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
date after such declaration. To the extent that the Company does not distribute
all of its net capital gain or distributes at least 95%, but less than 100%, of
its REIT taxable income, as adjusted, it will be subject to tax thereon at
regular ordinary and capital gains corporate tax rates. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital
gain income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% nondeductible excise tax on the
excess of such required distribution over the amounts actually distributed. The
Company may elect to retain and pay income tax on its net long-term capital
gains. Any such retained amounts would be treated as having been distributed by
the Company for purposes of the 4% excise tax. The Company has made, and will
continue to make, timely distributions sufficient to satisfy all annual
distribution requirements.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to its shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Although the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends, it will be required to pay to the Service interest based upon the
amount of any deduction taken for deficiency dividends.
Recordkeeping Requirement
Pursuant to applicable Treasury Regulations, the Company must maintain
certain records and request on an annual basis certain information from its
shareholders designed to disclose the actual ownership of its outstanding stock.
The Company has complied, and will continue to comply, with such requirements.
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Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable
year and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the shareholders in any year in which
the Company fails to qualify will not be deductible by the Company nor will they
be required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company also will be
disqualified from taxation as a REIT for the four taxable years following the
year during which the Company ceased to qualify as a REIT. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
Taxation of Taxable U.S. Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. Shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained capital gains)
will be taken into account by such U.S. Shareholders as ordinary income and will
not be eligible for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. Shareholder" means a holder of
Common Stock that for U.S. federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate whose income from sources without
the United States is subject to U.S. federal income taxation regardless of its
connection with the conduct of a trade or business within the United States, or
(iv) a trust with respect to which (A) a U.S. court is able to exercise primary
supervision over the administration of the trust and (B) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
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 U.S. Shareholder has held his Common Stock. However, corporate U.S.
Shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. The Company may elect to retain and pay income tax
on its net long-term capital gains. In that case, the Company's U.S.
Shareholders would include in income their proportionate share of the Company's
undistributed long-term capital gain. In addition, the U.S. Shareholders would
be deemed to have paid their proportionate share of the tax paid by the Company,
which would be credited or refunded to the U.S. Shareholders. Each U.S.
Shareholder's basis in his shares would be increased by the amount of the
undistributed long-term capital gain included in the U.S. Shareholder's income,
less the U.S. Shareholder's share of the tax paid by the Company.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the U.S. Shareholder's Common Stock, but rather will
reduce the adjusted basis of such stock. To the extent that distributions in
excess of current and accumulated earnings and profits exceed the adjusted basis
of a U.S. Shareholder's Common Stock, such distributions will be included in
income as long-term capital gain (or short-term capital gain if the Common Stock
has been held for one year or less) assuming the Common Stock is a capital asset
in the hands of the U.S. Shareholder. In addition, any distribution declared by
the Company in October, November, or December of any year and payable to a U.S.
Shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the U.S. Shareholder on December 31 of
such year, provided that the distribution is actually paid by the Company during
January of the following calendar year.
U.S. Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company. Instead, such
losses would be carried over by the Company for potential offset against its
future income (subject to certain limitations). Taxable distributions from the
Company and gain from the disposition of the Common Stock will not be treated as
passive activity income and, therefore, U.S. Shareholders generally will not be
able to apply any "passive activity losses" (such as losses from certain types
of limited partnerships in which the U.S. Shareholder is a limited partner)
against such income. In addition, taxable distributions from the Company
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gains from the disposition of the Common Stock,
however, will be treated as investment income only if the U.S. Shareholder so
elects, in which case such capital gains will be taxed at ordinary income rates.
The Company will notify U.S. Shareholders after the close of the Company's
taxable year as to the portions of the distributions attributable to that year
that constitute ordinary income, return of capital, and capital gain.
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Taxation of Shareholders on the Disposition of the Common Stock
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. Shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Common Stock has been held for
more than one year and otherwise as short-term capital gain or loss. However,
any loss upon a sale or exchange of Common Stock by a U.S. Shareholder who has
held such stock 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 U.S. Shareholder
as long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of the Common Stock may be disallowed if other Common Stock is
purchased within 30 days before or after the disposition.
Capital Gains and Losses
A capital asset generally must be held for more than one year in order
for gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%.
The maximum tax rate on net capital gains applicable to noncorporate taxpayers
is 20% for sales and exchanges of assets held for more than one year. The
maximum tax rate on long-term capital gain from the sale or exchange of "section
1250 property" (i.e., depreciable real property) is 25% to the extent that such
gain would have been treated as ordinary income if the property were "section
1245 property." With respect to distributions designated by the Company as
capital gain dividends and any retained capital gains that the Company is deemed
to distribute, the Company may designate (subject to certain limits) whether
such a dividend or distribution is taxable to its noncorporate stockholders at a
20% or 25% rate. Thus, the tax rate differential between capital gain and
ordinary income for noncorporate taxpayers may be significant. In addition, the
characterization of income as capital or ordinary may affect the deductibility
of capital losses. Capital losses not offset by capital gains may be deducted
against an individual's ordinary income only up to a maximum annual amount of
$3,000. Unused capital losses may be carried forward. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A corporate
taxpayer can deduct capital losses only to the extent of capital gains, with
unused losses being carried back three years and forward five years.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. Shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a U.S. Shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. Shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the U.S. Shareholder's income tax liability. In addition, the Company
may be required to withhold a portion of capital gain distributions to any U.S.
Shareholders who fail to certify their nonforeign status to the Company. The
Service has issued final regulations regarding the backup withholding rules as
applied to Non-U.S. Shareholders (as hereinafter defined). Those regulations
alter the technical requirements relating to backup withholding compliance and
are effective for distributions made after December 31, 1999. See "Federal
Income Tax Considerations - Taxation of Non-U.S. Shareholders."
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Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of the Common Stock with debt, a portion of its income
from the Company will constitute UBTI pursuant to the "debt-financed property"
rules. Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9), (17), and (20),
respectively, of Code section 501(c) are subject to different UBTI rules, which
generally will require them to characterize distributions from the Company as
UBTI. In addition, in certain circumstances a pension trust that owns more than
10% of the Company's stock is required to treat a percentage of the dividends
from the Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the
gross income derived from an unrelated trade or business (determined as if the
Company were a pension trust) divided by the gross income of the Company for the
year in which the dividends are paid. The UBTI rule applies to a pension trust
holding more than 10% of the Company's stock only if (i) the UBTI Percentage is
at least 5%, (ii) the Company qualifies as a REIT by reason of the modification
of the 5/50 Rule that allows the beneficiaries of the pension trust to be
treated as holding stock of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns more
than 25% of the value of the Company's stock or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's stock
collectively owns more than 50% of the value of the Company's stock.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by the Company of U.S. real property interests and
are not designated by the Company as capital gains dividends or retained capital
gains will be treated as dividends of ordinary income to the extent that they
are made out of current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Common Stock
is treated as effectively connected with the Non-U.S. Shareholder's conduct of a
U.S. trade or business, the Non-U.S. Shareholder generally will be subject to
federal income tax at graduated rates, in the same manner as U.S. Shareholders
are taxed with respect to such distributions (and also may be subject to the 30%
branch profits tax in the case of a Non-U.S. Shareholder that is a foreign
corporation). The Company expects to withhold U.S. income tax at the rate of 30%
on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected income. The Service has issued final
regulations that modify the manner in which the Company complies with the
withholding requirements. Those regulations are effective for distributions made
after December 31, 1999.
Distributions in excess of current and accumulated earnings and profits
of the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Shareholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding. However, amounts so
withheld are refundable to the extent it is determined subsequently that such
distribution was, in fact, in excess of the current and accumulated earnings and
profits of the Company.
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The Company is required to withhold 10% of any distribution in excess
of the Company's current and accumulated earnings and profits. Consequently,
although the Company intends to withhold at a rate of 30% on the entire amount
of any distribution, to the extent that the Company does not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of U.S.
real property interests are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with a U.S. business. Non-U.S. Shareholders thus would be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty relief or exemption. The Company is required
by currently applicable Treasury Regulations to withhold 35% of any distribution
that could be designated by the Company as a capital gains dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common
Stock generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT" and, therefore, the sale of the Common Stock will
not be subject to taxation under FIRPTA. However, because the Common Stock is
publicly traded, no assurance can be given that the Company is or will continue
to be a "domestically controlled REIT." Nevertheless, a Non-U.S. Shareholder
that owned, actually or constructively, 5% or less of the Common Stock at all
times during a specified testing period will not be subject to taxation under
FIRPTA if the Common Stock is regularly traded on an established securities
market. Notwithstanding the foregoing, gain from the sale or exchange of the
Common Stock that is not otherwise subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if (i) investment in the Common Stock is effectively
connected with the Non-U.S. Shareholder's U.S. trade or business, in which case
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of the Common Stock were to
be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject
to the same treatment as U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals, and the possible application of the 30%
branch profits tax in the case of Non-U.S. corporations).
Other Tax Consequences
State and Local Taxes
The Company, the Partnership, a Subsidiary Partnership, or the
Company's 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. In addition, the Company, the Partnership, or a Subsidiary
Partnership may be subject to certain state and local taxes imposed on owners of
property, such as ad valorem property taxes, transfer taxes, and rent taxes.
CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN THE
COMPANY.
PLAN OF DISTRIBUTION
This Prospectus relates to the possible issuance by the Company of the
Redemption Shares if, and to the extent that, the Unitholders tender such Units
for redemption and the Company elects to purchase the Units for shares of Common
Stock. The Company is registering the issuance of the Redemption Shares to make
it possible to provide the Unit holders with freely tradeable securities upon
redemption of their Units. However, registration of such shares does not
necessarily mean that any of such shares will be issued by the Company or
offered or sold by such Unitholder.
19
<PAGE>
The Company may from time to time issue Redemption Shares upon purchase
of Units tendered for redemption. The Company will acquire Units in exchange for
any Redemption Shares that the Company issues in connection with these
acquisitions. Consequently, with each such redemption, the Company's interest in
the Partnership will increase.
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, 1997 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 and
schedule 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 and related financial statement
schedule of ASR Investments Corporation incorporated in this prospectus by
reference from the annual report on Form 10-K of ASR Investments Corporation for
the year ended December 31, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority 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.
The statement of rental operations of Dogwood Creek Apartments and the
combined statement of rental operations of Trails at Mount Moriah Apartments,
Trails at Kirby Parkway Apartments, and Cinnamon Trails Apartments, and the
combined statement of rental operations of Audubon Apartments, Carmel
Apartments, Cimarron City Apartments, Grand Cypress Apartments, Kenton
Apartments, Peppermill Apartments, The Crest Apartments, and Villages of
Thousand Oaks Apartments, included in the Company's current report on Form 8-K
dated June 9, 1998, filed on June 24, 1998, as amended by Amendment No. 1 on
Form 8-K/A dated and filed on August 13, 1998, 1998, incorporated by reference
herein, has been incorporated herein in reliance upon the reports dated May 1,
1998, May 8, 1998 and June 29, 1998 of L. P. Martin & Company, P.C., independent
auditors, also incorporated by reference herein, and upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
pursuant to this Prospectus will be passed upon for the Company by Hunton &
Williams.
20
<PAGE>
<TABLE>
<S> <C>
=============================================================== ==============================================================
Prospective investors may rely on the information contained in
this Prospectus. The Company has not authorized anyone to
provide prospective investors with information different from
that contained in this Prospectus. This Prospectus is not an UNITED DOMINION REALTY TRUST, INC.
offer to sell nor is it seeking an offer to buy these
securities in any state where the offer or sale is not
permitted. The information contained in this Prospectus is
correct only as of the date of this Prospectus, regardless of 849,498 Shares
the time of the delivery of this Prospectus or any sale of
these securities.
Common Stock
---------------------
TABLE OF CONTENTS
---------------------
Page
AVAILABLE INFORMATION...................................... 2 --------------
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE............................................... 2
PROSPECTUS
THE COMPANY................................................ 3
RECENT DEVELOPMENTS........................................ 3 --------------
DESCRIPTION OF CAPITAL STOCK............................... 4
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK.................. 5
REDEMPTION OF UNITS........................................ 5
FEDERAL INCOME TAX CONSIDERATIONS.......................... 12
December , 1998
PLAN OF DISTRIBUTION....................................... 21
EXPERTS.................................................... 21
LEGAL MATTERS.............................................. 22
----------------
=============================================================== ==============================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission registration fee ..... $2715.35
Accounting fees and expenses............................. 5,000.00
Legal fees and expenses ................................. 2,500.00
Printing and postage expenses............................ 500.00
Miscellaneous............................................ 0.00
TOTAL .......................................... $10,715.35
Item 15. Indemnification of Officers and Directors
Directors and officers of the Company may be indemnified against
liabilities, fines, penalties, and claims imposed upon or asserted against them
as provided in the Virginia Stock Corporation Act and the Articles. Such
indemnification covers all costs and expenses reasonably incurred by a Director
or officer. The Board of Directors, by a majority vote of a quorum of
disinterested Directors or, under certain circumstances, independent counsel
appointed by the Board of Directors, must determine that the Director or officer
seeking indemnification was not guilty of willful misconduct or a knowing
violation of the criminal law. In addition, the Virginia Stock Corporation Act
and the Company's Articles may under certain circumstances eliminate the
liability of Directors and officers in a shareholder or derivative proceeding.
If the person involved is not a Director or officer of the Company, the
Board of Directors may cause the Company to indemnify to the same extent allowed
for Directors and officers of the Company such person who was or is a party to a
proceeding, by reason of the fact that he is or was an employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise.
Item 16. Exhibits
2(a) -- Agreement and Plan of Merger dated as of December 19, 1997,
between the Company, ASR Investments Corporation and ASR
Acquisition Sub, Inc. (filed as Exhibit 2(a) to the Company's
Form S-4 Registration Statement, filed with the Commission on
January 30, 1998 (File No. 333-45305), and incorporated by
reference herein)
2(b) -- Agreement and Plan of Merger dated as of October 1, 1996,
between the Company, United Sub, Inc. and South West Property
Trust Inc. (filed as Exhibit 2(a) to the Company's Form S-4
Registration Statement, filed with the Commission on October
9, 1996 (File No. 333-13745), and incorporated by reference
herein)
2(c) -- Agreement and Plan of Merger dated as of September 10, 1998,
between the Company and American Apartment Communities II,
Inc. including as exhibits thereto the proposed terms of the
Series D Preferred Stock and the proposed form of Investment
Agreement between the Company, United Dominion Realty, L.P.,
American Apartment Communities II, Inc., American Apartment
Communities II, L.P., American Apartment Communities Operating
Partnership, L.P., Schnitzer Investment Corp., AAC Management
LLC and LF Strategic Realty Investors, L.P. (previously filed)
2(d) -- Partnership Interest Purchase and Exchange Agreement dated as
of September 10, 1998, between the Company, United Dominion
Realty, L.P., American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment
Corp, Fox Point Ltd. and James D. Klingbeil including as an
exhibit thereto the proposed form of the Third Amended and
Restated Limited Partnership Agreement of United Dominion
Realty, L.P. (previously filed)
II-1
<PAGE>
4(a) -- Restated Articles of Incorporation of the Company (filed as
Exhibit 4(b) to the Company's Form S-3 Registration Statement,
filed with the Commission on January 16, 1998 (File No.
333-44463), and incorporated by reference herein)
4(a)(i) -- Amendment of Articles of Incorporation of the Company (filed
as Exhibit 3 to the Company's Form 8-A Registration Statement
dated February 4, 1998 (File No. 1-10524), and incorporated by
reference herein)
4(b) -- Restated Bylaws of the Company (filed as Exhibit 3(b) to the
Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 1-10524), and incorporated by
reference herein)
4(c) -- Specimen United Dominion Common Stock certificate (filed as
Exhibit 4(i) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-10524), and
incorporated by reference herein)
4(d)(i) -- Loan Agreement dated as of November 7, 1993, between the
Company and Aid Association for Lutherans (filed as Exhibit
6(c)(1) to the Company's Form 8-A Registration Statement dated
April 19, 1990 (File No. 10524), and incorporated by reference
herein)
4(d)(ii)-- Note Purchase Agreement dated as of January 15, 1993, between
the Company and CIGNA Property and Casualty Insurance Company,
Connecticut General Life Insurance Company, Connecticut
General Life Insurance Company on behalf of one or more
separate accounts, Insurance Company of North America,
Principal Mutual Life Insurance Company, and Aid Association
for Lutherans (filed as Exhibit 6(c)(5) to the Company's Form
8-A Registration Statement dated April 19, 1990 (File No.
1-10524), and incorporated by reference herein)
4(e) -- Rights Agreement dated as of January 27, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-A
Registration Statement dated February 4, 1998 (File No.
1-10524) and incorporated by reference herein)
4(f) -- Form of Rights Certificate (included in Exhibit 4(e))
5 -- Opinion of Hunton & Williams (previously filed)
23(a) -- Consent of Ernst & Young LLP
23(b) -- Consent of L.P. Martin & Company, P.C.
23(c) -- Consent of Deloitte & Touch LLP
23(d) -- Consent of Arthur Andersen
23(e) -- Consent of Hunton & Williams (included in Exhibit 5)
24 -- Power of Attorney (previously filed)
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the Registration Statement;
II-2
<PAGE>
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any
material change to such information in the
Registration Statement;
Provided, however, that paragraphs (a)(1)(i)
and (a)(1)(ii) do not apply if the information
required to be included in a post-effective
amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions of the Virginia Code, the Articles
of Incorporation or By-laws of the registrant or resolutions of the Board of
Directors of the registrant adopted pursuant thereto, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
<TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this pre-effective amendment #2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Richmond, Commonwealth of Virginia on the 2nd day of December, 1998.
UNITED DOMINION REALTY TRUST, INC.
By /s/ John P. McCann
----------------------------
John P. McCann
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
pre-effective amendment #2 to the registration statement has been signed by the
following persons in the capacities indicated on December 2, 1998.
<CAPTION>
Signature Title & Capacity
--------- ----------------
<S> <C>
/s/ John P.McCann President, Chairman, Chief Executive Officer (Principal
- ----------------------------------------- Executive Officer) and Director
John P. McCann
Executive Vice President, Chief Financial Officer
/s/ James Dolphin* (Principal Financial Officer) and Director
- -----------------------------------------
James Dolphin Principal Accounting Officer
/s/ Robin R. Flanagan* Director
- -----------------------------------------
Robin R. Flanagan
/s/ Jeff C. Bane* Director
- -----------------------------------------
Jeff C. Bane
/s/ R. Toms Dalton* Director
- -----------------------------------------
R. Toms Dalton, Jr.
Director
- -----------------------------------------
Jon A. Grove
/s/ Barry M. Kornblau* Director
- -----------------------------------------
Barry M. Kornblau
/s/ H. Franklin Minor* Director
- -----------------------------------------
H. Franklin Minor
Director
- -----------------------------------------
Lynne B. Sagalyn
/s/ Mark J. Sandler* Director
- -----------------------------------------
Mark J. Sandler
II-4
<PAGE>
/s/ Robert W. Scharar* Director
- -----------------------------------------
Robert W. Scharar
/s/ John S. Schneider* Director
- -----------------------------------------
John S. Schneider
/s/ C. Harmon Williams, Jr.* Director
- -----------------------------------------
C. Harmon Williams, Jr.
</TABLE>
*By: /s/ Katheryn E. Surface
- -----------------------------------------
Katheryn E. Surface
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Document
- ------- --------
2(a) -- Agreement and Plan of Merger dated as of December 19, 1997,
between the Company, ASR Investments Corporation and ASR
Acquisition Sub, Inc. (filed as Exhibit 2(a) to the Company's
Form S-4 Registration Statement, filed with the Commission on
January 30, 1998 (File No. 333-45305), and incorporated by
reference herein)
2(b) -- Agreement and Plan of Merger dated as of October 1, 1996,
between the Company, United Sub, Inc. and South West Property
Trust Inc. (filed as Exhibit 2(a) to the Company's Form S-4
Registration Statement, filed with the Commission on October
9, 1996 (File No. 333-13745), and incorporated by reference
herein)
2(c) -- Agreement and Plan of Merger dated as of September 10, 1998,
between the Company and American Apartment Communities II,
Inc. including as exhibits thereto the proposed terms of the
Series D Preferred Stock and the proposed form of Investment
Agreement between the Company, United Dominion Realty, L.P.,
American Apartment Communities II, Inc., American Apartment
Communities II, L.P., American Apartment Communities Operating
Partnership, L.P., Schnitzer Investment Corp., AAC Management
LLC and LF Strategic Realty Investors, L.P. (previously filed)
2(d) -- Partnership Interest Purchase and Exchange Agreement dated as
of September 10, 1998, between the Company, United Dominion
Realty, L.P., American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment
Corp, Fox Point Ltd. and James D. Klingbeil including as an
exhibit thereto the proposed form of the Third Amended and
Restated Limited Partnership Agreement of United Dominion
Realty, L.P. (previously filed)
4(a) -- Restated Articles of Incorporation of the Company (filed as
Exhibit 4(b) to the Company's Form S-3 Registration Statement,
filed with the Commission on January 16, 1998 (File No.
333-44463), and incorporated by reference herein)
4(a)(i) -- Amendment of Articles of Incorporation of the Company (filed
as Exhibit 3 to the Company's Form 8-A Registration Statement
dated February 4, 1998 (File No. 1-10524), and incorporated by
reference herein)
4(b) -- Restated Bylaws of the Company (filed as Exhibit 3(b) to the
Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 1-10524), and incorporated by
reference herein)
4(c) -- Specimen United Dominion Common Stock certificate (filed as
Exhibit 4(i) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-10524), and
incorporated by reference herein)
4(d)(i) -- Loan Agreement dated as of November 7, 1993, between the
Company and Aid Association for Lutherans (filed as Exhibit
6(c)(1) to the Company's Form 8-A Registration Statement dated
April 19, 1990 (File No. 10524), and incorporated by reference
herein)
4(d)(ii)-- Note Purchase Agreement dated as of January 15, 1993, between
the Company and CIGNA Property and Casualty Insurance Company,
Connecticut General Life Insurance Company, Connecticut
General Life Insurance Company on behalf of one or more
separate accounts, Insurance Company of North America,
Principal Mutual Life Insurance Company, and Aid Association
for Lutherans (filed as Exhibit 6(c)(5) to the Company's Form
8-A Registration Statement dated April 19, 1990 (File No.
1-10524), and incorporated by reference herein)
4(e) -- Rights Agreement dated as of January 27, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-A
Registration Statement dated February 4, 1998 (File No.
1-10524) and incorporated by reference herein)
4(f) -- Form of Rights Certificate (included in Exhibit 4(e))
5 -- Opinion of Hunton & Williams (previously filed)
23(a) -- Consent of Ernst & Young LLP
23(b) -- Consent of L.P. Martin & Company, P.C.
23(c) -- Consent of Deloitte & Touch LLP
23(d) -- Consent of Arthur Andersen
23(e) -- Consent of Hunton & Williams (included in Exhibit 5)
24 -- Power of Attorney (previously filed)
Exhibit 23(a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Pre-Effective Amendment No. 2 to the Registration Statement (Form S-3 No.
333-64281) and related Prospectus of United Dominion Realty Trust, Inc. for the
registration of 849,498 shares of its common stock and rights to purchase series
C junior participating redeemable preferred stock and to the incorporation by
reference therein of our report dated January 28, 1998, with respect to the
consolidated financial statements and schedule of United Dominion Realty Trust,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1997, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Richmond, Virginia
December 3, 1998
Exhibit 23(b)
Letterhead of L.P. Martin & Company
CONSENT OF L.P. MARTIN & COMPANY, P.C., INDEPENDENT AUDITORS
We consent to the reference to our firm under "Experts" in the Pre-Effective
Amendment No. 2 to the Registration Statement (Form S-3) of United Dominion
Realty Trust, Inc. for the registration of 849,498 shares of its Common Stock
and to the incorporation by reference therein of (a) our report dated May 1,
1998, with respect to the statement of rental operations of Dogwood Creek
Apartments for the year ended December 31, 1997, included in the Current Report
of United Dominion Realty Trust, Inc. on Form 8-K, dated June 9, 1998, filed
with the Securities and Exchange Commission, (b) our report dated May 8, 1998,
with respect to the combined statement of rental operations of Trails at Mount
Moriah Apartments, Trails at Kirby Parkway Apartments, and Cinnamon Trails
Apartments for the year ended December 31, 1997, included in the Current Report
of United Dominion Realty Trust, Inc. on Form 8-K, dated June 9, 1998, filed
with the Securities and Exchange Commission, (c) and our report dated June 29,
1998, with respect to the combined statement of rental operations of Audubon
Apartments, Carmel Apartments, Cimarron City Apartments, Grand Cypress
Apartments, Kenton Apartments, Peppermill Apartments, The Crest Apartments, and
Village of Thousand Oaks Apartments for the year ended December 31, 1997,
included in the Current Report of United Dominion Realty Trust, Inc. on Form
8-K, dated June 9, 1998, filed the Securities and Exchange Commission.
/s/ L.P. Martin & Company, P.C.
L.P. Martin & Company, P.C.
Certified Public Accountants
Richmond, Virginia
December 2, 1998
Exhibit 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
United Dominion Realty Trust, Inc. on Form S-3 of our report dated February 27,
1998 (March 27, 1998 as to Note 12) appearing in the Annual Report on Form 10-K
of ASR Investment, Inc. for the year ended December 1, 1997 and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
December 4, 1998
Exhibit 23(d)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report on American Apartment
Communities II, Inc., dated February 27, 1998, and our report on American
Apartment Communities II, L.P. dated February 12, 1998, included in the
Company's Current Report on Form 8-K, filed with the SEC on October 23, 1998,
and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
December 2, 1998
