UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-10524
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0857512
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
10 South Sixth Street, Richmond, Virginia 23219-3802
(Address of principal executive offices - zip code)
(804) 780-2691
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of exchange on which registered
- - ------------------- ------------------------------------
<S> <C>
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
9.25% Series A Cumulative Redeemable Preferred Stock New York Stock Exchange
8.60% Series B Cumulative Redeemable Preferred Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to filing requirements
for at least the past 90 days.
Yes X No
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K. (X)
The aggregate market value of the shares of common stock held by non-affiliates
(based upon the closing sales price on the New York Stock Exchange) on March 13,
1998 was approximately $1.3 billion.* As of March 13, 1998, there were
91,886,256 shares of common stock, $1 par value, outstanding.
Part III incorporates certain information be reference from the definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders on May
12, 1998.
*In determining this figure, the Company has assumed that all of its officers &
directors, and persons known to the Company to be beneficial owners of more than
5% of the Company's shares, are affiliates. Such assumptions should not be
deemed conclusive for any other purpose.
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1
UNITED DOMINION REALTY TRUST, INC.
TABLE OF CONTENTS
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PAGE
PART I.
<S> <C>
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II.
Item 5. Market for Registrant's Common Equity and Related 17
Stockholder Matters
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial 21
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants on 37
Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and 38
Management
Item 13. Certain Relationships and Related Transactions 38
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on 39
Form 8-K
</TABLE>
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2
Part I
Item 1. BUSINESS
The Company
General
United Dominion Realty Trust, Inc., a Virginia corporation,
(collectively with its subsidiaries, the "Company"), is a self-administered
equity real estate investment trust ("REIT"), engaged in the ownership,
acquisition and development of apartment communities primarily across the
Sunbelt region of the United States.
Formed in 1972, the Company is headquartered in Richmond, Virginia with
regional offices in Richmond, Dallas, Atlanta, Orlando and Houston, and area
offices in the previously mentioned cities plus Columbia, Raleigh, Charlotte,
Tampa, Nashville, San Antonio and Phoenix. The regional offices are responsible
for the operation, acquisition, construction and asset management activities in
their respective geographic regions. The Company had approximately 2,100
employees as of March 13, 1998.
The Company manages its properties directly, rather than through
outside property management firms. During 1997, the cost of internal property
management of the Company's apartment communities totaled approximately 3.2% of
rental revenue. In determining its cost of self management, the Company
considers all direct and indirect costs associated with the internal property
management function.
The Company operates as a real estate investment trust 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 its assets consist primarily of real estate, its income be
derived primarily from real estate and 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.
Apartments and Markets
At December 31 1997, the Company's apartment portfolio included 225
apartment communities having a total of 62,789 completed apartment homes and
1,064 apartment homes under development (See Item 2, "Properties."). The
apartment community is the Company's basic business unit and is staffed with
well trained property management personnel. The communities have a community
director, leasing assistants and a maintenance staff who oversee the daily
operation of the communities. Other than Dallas, Texas where 14% of the
Company's apartment homes are located, no other market has more than 6% of the
Company's communities. The Company's apartment communities consist primarily of
upper middle to moderate income garden and townhouse communities which make up
the broadest segment of the apartment market. Most of the communities are
considered to be "B" grade quality although the Company does own class A
properties that compete at or near the top of their respective markets. "B"
grade communities are generally either of 1980's construction, located in good
neighborhoods or 1970's construction in good neighborhoods where the apartments
have been, or can be, significantly upgraded and repositioned. Management
believes that these well located apartments offer the Company a good combination
of current income and longer-term income growth.
The Company's apartment operations are divided into four geographic
regions, each of which constitutes a core operating unit . The Northern Region
includes Delaware, Maryland, Virginia and northern North Carolina. The Southern
Region includes Charlotte, North Carolina, South Carolina, Georgia, Tennessee
and Alabama. The Florida Region consists of the entire state of Florida, while
the Western Region includes Texas, Arkansas, Oklahoma, Nevada, New Mexico and
Arizona.
<TABLE>
<CAPTION>
Northern Southern Florida Western
<S> <C>
Number of apartment homes 20,589 13,892 10,452 17,856
Percent of rental revenues $132,983 $ 88,855 $ 65,819 $ 96,548
</TABLE>
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In 1997, the Company designated 23 markets throughout the Sunbelt in
which it wanted to own and operate a significant number of apartment
communities. Geographic market diversification is important as it balances the
portfolio performance and makes the Company less susceptible to cyclical real
estate cycles and economies in a specific market. In a given year, the Company
will have some markets that are strong, many that are balanced and some that are
oversupplied. However, with its market diversification, the Company's aggregate
results of operations are anticipated to be balanced year to year. By the end of
1998, the Company plans to be an owner and operator in 30 major markets.
Although there is no known move toward rent control in any of the
markets in which the Company currently owns apartments, the Company's ability to
raise rents to cover increases in operating expenses might be impaired should
rent control legislation be enacted. As the Company has expanded, attempts have
been made to avoid markets where the exposure to reduced defense spending is
believed to be high. Size and geographical diversification can smooth the
overall performance of the Company during natural real estate cycles.
In the beginning of 1996, most of the southeast apartment markets were
in equilibrium with supply and demand balanced, however, occupancy began to fall
during the second half of the year which was primarily due to a combination of
factors which included: (i) slower job growth, (ii) an increase in the home
ownership rate and (iii) an increase in the supply of new apartments. Physical
occupancy at the Company's apartment communities averaged 91.9% for December
1996 and bottomed out in January 1997 at 91.6%. Occupancy grew steadily
throughout 1997 as these markets began to recover, and by December 1997,
physical occupancy had increased to 92.6%, one full basis point above the
beginning of the year. In 1997, the increased supply led to softness in certain
of the Company's southeastern markets, however, supply and demand in the
Company's markets are generally in equilibrium.
Business and Operating Strategies
The Company seeks to increase shareholder value by (i) generating
growth in the operating results of its existing apartment communities, (ii)
acquiring apartment communities that will provide a good long-term investment,
(iii) developing communities in its existing markets which provide above market
yields, (iii) selling communities that no longer meet the its investment
criteria and (iv) financing its activities at the lowest possible cost of
capital.
The Company's current strategy includes three major elements designed
to position the Company for the future which includes the following: (i) to
establish the Company as a national owner of apartment communities by entering
new markets, (ii) to achieve sufficient size in designated major markets by
continuing to grow in existing markets and (iii) to upgrade the portfolio by
selling 20% of the Company's apartment portfolio, in terms of asset quality and
location, in order to upgrade the overall quality of the portfolio to "B" grade.
The Company believes that being a dominant owner in a market has the following
advantages:
o Being a local market leader.
o Improving operating margins as operating costs are driven down through
economies of scale and efficiencies in operations.
o Efficiently market services to residents.
o Benefit from utility deregulation by purchasing utilities in bulk and
remarketing them to residents.
o Building stronger local and regional teams of associates.
o Increase acquisition and development opportunities.
o Spread the risk of economic downturns by operating in numerous markets.
o Create name recognition and loyalty.
To fully execute this strategy, the Company will focus some of its
acquisition efforts on new markets in different parts of the country,
concentrating on opportunities that will create value for the Company. However,
because of the increase in prices for acquisition properties, the Company is
placing additional emphasis on development, as it provides added flexibility to
grow in its existing markets.
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Acquisitions
The Company seeks to acquire apartment communities that can provide
returns on investment in excess of the Company's cost of capital and that are
projected to provide first year weighted average returns on investment of at
least 9-9 1/2%. While the Company seeks positive spreads on its nominal cost of
capital, the ability to add value by repositioning the community, adding
features that provide higher returns on incremental investment and growing
non-rental income, can be more important than the current yield. The Company's
goal is to achieve a 10 1/2% rate of return by the third year of ownership.
During 1997, the Company acquired 28 apartment communities containing 8,524
apartment homes, net of one resold, at a total cost (including closing costs) of
approximately $342 million. Of the 28 apartment communities purchased, 27 were
located in the Company's major markets. All of the communities acquired offered
an opportunity for the Company to add features that would be revenue enhancing
and, therefore, add value. The Company expects to acquire approximately 8,000 to
10,000 apartment homes for an aggregate purchase price ranging from $350 million
to $450 million during 1998, excluding the merger with ASR Investment
Corporation. The 1998 acquisition activity will be focused primarily in Florida,
the Southwest and Northwest.
The following table summarizes the Company's growth during the last five years
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ----- ----
<S> <C>
Homes Acquired 8,628 22,032(a) 5,142 11,368 4,082
Homes owned at December 31, 62,789 55,664 34,224 29,282 17,914
Total real estate owned, at cost $ 2,472,537 $ 2,085,023 $ 1,182,113 $ 1,007,599 $ 582,213
Total rental income $ 386,672 $ 241,260 $ 194,511 $ 139,380 $ 88,664
</TABLE>
(a) Includes 14,320 completed apartment homes and 675 homes under
development acquired in connection with the South West Property Trust Inc.
merger on December 31, 1996.
Mergers
Prior to 1990, the Company was the only major publicly held
REIT focusing predominantly on apartment investments. Since then, a number of
new multifamily REITs have been formed. Some of these REITs may
seek to be acquired by larger, more strongly capitalized REITs that have
superior access to the capital markets. The Company has been a major participant
in this real estate consolidation process, having acquired apartment portfolios
in each of the last three years. The Company completed the South
West Property Trust Inc. Merger ("South West Merger") on December 31, 1996 which
contained 14,320 apartment homes located throughout the Sunbelt. The South West
Merger provided the Company with significant diversification beyond its
traditional Southeast and Mid-Atlantic markets, expanding the Company into
Southwestern markets. The Company intends to participate in the real estate
consolidation process by acquiring private and public real estate companies in
strategic mergers and portfolio transactions that meet the Company's objective
to increase size in existing markets or to expand geographically.
Effective at the close of business on March 27, 1998, ASR Investment
Corporation ("ASR") was merged with and into a wholly owned subsidiary of the
Company. ASR owns approximately 7,500 apartment homes in the Southwest and
Northwest which satisfies the Company's objective of obtaining greater size in
its Southwest markets and gaining entry into new markets. The merger was treated
as a purchase for accounting purposes and had an aggregate purchase price
estimated at approximately $330 million, including closing costs.
Real estate under development
Development activity is focused in certain of the Company's major
markets. With acquisition costs approaching replacement cost and the spreads
over the Company's cost of capital narrowing, building in selected markets
enables the Company to increase its return on investment. During 1997, the
Company increased its level of development activity, completing the development
of 1,067 apartment homes in five additional phases to existing communities and
one new apartment community. During 1997, the Company invested $52.2 million in
eleven properties under development, which includes four new apartment
communities and seven additional phases to existing
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apartment communities. The Company plans to invest approximately $100 million on
the development of new apartment communities and additional phases to existing
apartment communities during 1998 which are anticipated to provide stabilized
returns on investment in the 10% to 10 1/2% range. At December 31, 1997, the
Company had three new apartment communities and two additional phases to
existing communities under development containing a total of 1,276 apartment
homes (212 of which were completed).
Existing Communities
The Company's net income is primarily generated from the operations of
its apartment communities. During 1997, the Company's mature apartment
communities (those communities acquired, developed and stabilized prior to
January 1, 1996 and held throughout the annual reporting period) consisted of
127 apartment communities containing 31,519 apartment homes. These mature
communities provided strong rental growth of 3.8% which was coupled with only a
2.2% increase in rental expenses. Average economic occupancy and rental rates at
the Company's mature apartment communities (those acquired, developed and
stabilized prior to January 1, 1996) during the comparable periods are set forth
below:
1997 1996 1995
---- ---- ----
Economic occupancy 92.6% 92.8% 94.8%
Average monthly rental rates $572 $540 $516
The Company's strategic objectives include upgrading the apartment
portfolio through the addition of features and initiatives to the communities
that are appropriate for the market and which will support higher rents.
Value enhancing improvements plus improvements that substantially extend the
useful life of an existing asset are capitalized. A significant portion of the
Company's capital expenditures relates to an upgrade program that began in 1996
to modernize certain older apartment communities. This program, which primarily
involves updating kitchens and bathrooms, contributed to the rent growth at the
mature apartment communities during 1997 and will continue to give these
communities a competitive advantage in their respective markets. In addition,
several initiatives which are considered revenue enhancing are under way that
either allow the Company to increase rents by more than the inflationary rate or
allow the Company to pass expenses to residents including: (i) sub-metering of
water and sewer to residents where local and state regulations allow, (ii)
gating and fencing of apartment communities, (iii) installing monitoring devices
such as intrusion alarms or controlled access devices, (iv) enlarging fitness
centers, (v) adding business centers and (vi) constructing carports, garages and
self storage units.
Sales
The Company continually undertakes portfolio review analysis with the
objective of identifying communities that do not meet long-term investment
objectives due to size, location, age, quality and/or performance. In 1997, the
Company implemented a plan to sell 20% of its apartment portfolio which did not
meet the Company's long-term investment objectives. During 1997, the Company
sold twelve apartment communities and one shopping center for an aggregate sales
price of $68.4 million and received net proceeds of approximately $64.0 million.
The average age of communities sold was 24 years, which was 13 years older than
the average age of the Company's 1997 acquisitions. At December 31, 1997, the
Company had 25 apartment communities containing 6,907 apartment homes included
in real estate held for disposition.
Management has determined that by grouping communities and offering
them for sale as a portfolio is more efficient and provides greater
opportunities for disposition. As a result, the Company plans to sell
approximately $75 million of assets each quarter in 1998 and expects to complete
the disposition program by the end of 1998.
In January 1998, the company sold a 2,406 home portfolio of five Texas
communities for approximately $65.6 million and has a second portfolio under
contract for sale. The proceeds from the property sales will be used to acquire
apartment communities and fund the development program.
Financing Strategies
As a qualified REIT, the Company distributes a substantial portion of
its cash flow to its shareholders in the form of distributions. The Company
seeks to retain sufficient cash to cover normal operating needs, including
routine
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replacements and to help fund additional acquisitions and development
activity. The Company utilizes a variety of primarily external financing sources
to fund portfolio growth, major capital improvement programs and balloon debt
payments. Bank lines of credit generally have been used to temporarily finance
these expenditures, and subsequently this short-term bank debt has been replaced
with longer-term debt or equity. The Company may also fund its capital
requirements through (i) the assumption of mortgage indebtedness, (ii) property
sales, (iii) common shares sold through the Company's Dividend Reinvestment and
Stock Purchase Plan, (iv) retained operating cash flow, (v) the issuance of
operating partnership units and (vi) the use of unused credit facilities. At
December 31, 1997, the Company had the following credit facilities outstanding:
(i) $200 million three year unsecured revolving credit facility (which includes
a $100 million competitive bid option which allows the Company to solicit bids
from participating banks at rates below the contractual rate), (ii) a $50
million one year unsecured line of credit and (iii) a $15 million uncommitted
line of credit with a major U.S. financial institution. At December 31, 1997,
the Company had $135.6 million of borrowings outstanding under these credit
facilities.
During 1997, the Company completed the following financing activities:
(i) issued 4 million shares of common stock at $15.75 per share, netting
proceeds of $59.4 million, (ii) issued $125 million of 7.25% Notes, (iii) sold 6
million shares of 8.60% Series B Redeemable Preferred Stock at $25 per share,
for net proceeds of $145.1 million, (iv) raised $39.7 million under the Dividend
Reinvestment and Stock Purchase Plan, (v) assumed debt of $60 million in
connection with the acquisition of apartment communities and (vi) issued 849,000
Operating Partnership Units valued at $13 million.
Depending on the volume and timing of acquisition activity, the Company
anticipates raising additional debt and equity capital during the next twelve
months to finance capital requirements while striving to minimize the overall
cost of capital, however, the 1998 acquisition and development activity is
expected to be funded primarily with the proceeds from the planned sales of
communities.
Competition
In most of the Company's markets, the competition for residents among
communities is extremely intense as some competing communities offer features
that Company's properties do not have. Also, some competing communities are
larger and/or newer than the Company's communities. The competitive situation of
each community varies and intensifies as additional properties are constructed.
When in the market for new acquisitions, the Company competes with
numerous other investors, including other REITs, individuals, partnerships,
corporations, pension funds, insurance companies, foreign investors and other
real estate entities. Although the Company has certain advantages because of its
substantial presence in its markets and its access to capital, some competing
investors are larger than and may have a competitive advantage over the Company
in terms of assets and other investment resources. During 1997, the competition
for both single property and portfolio acquisitions intensified which resulted
in lower acquisition capitalization rates. Management believes that the Company,
in general, is well positioned in terms of economic and other resources to
compete effectively and intends to maintain its pricing discipline while
continuing to pursue acquisitions that meet the Company's long-term investment
objectives.
Environmental Regulations
To date, compliance with federal, state, and local environmental
protection regulations has not had a material effect on the capital
expenditures, earnings or competitive position of the Company. However, over the
past few years, concerns have been raised regarding the presence of asbestos and
other hazardous materials in existing real estate properties. In response to
this, on March 1, 1991, the Company adopted a property management plan for
hazardous materials. As part of the plan, Phase I environmental site
investigation and reports have been completed for each property owned by the
Company and not previously inspected. In addition, all proposed acquisitions are
inspected prior to acquisition. The inspections are conducted by qualified
environmental consultants, and the report issued is reviewed by the Company
prior to the purchase or development of any property. Nevertheless, it is
possible that the Company's environmental assessments will not reveal all
environmental liabilities, or that some material environmental liabilities exist
in which the Company is unaware. In some cases, the Company has abandoned
otherwise economically attractive acquisitions because the costs of removal or
control have been prohibitive and/or the Company has been unwilling to accept
the potential risks involved. The Company does not believe it will be required
to remediate any asbestos
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materials at any of its properties as asbestos is managed in place in accordance
with current environmental laws and regulations. Management believes that
through professional environmental inspections and testing for asbestos and
other hazardous materials, coupled with a conservative posture toward accepting
known risk, the Company can minimize its exposure to potential liability
associated with environmental hazards.
The Company is unaware of any environmental hazards at any of its
properties which individually or in the aggregate may have a material adverse
impact on its operations or financial position. The Company has not been
notified by any governmental authority, and is not otherwise aware, of any
material non-compliance, liability or claim relating to environmental
liabilities in connection with any of its properties. The Company does not
believe that the cost of continued compliance with applicable environmental laws
and regulations will have a material adverse effect on the Company or its
financial condition or results of operations. There can be no assurance,
however, that future environmental laws, regulations or ordinances will not
require additional remediation of existing conditions that are not currently
actionable. Also, if more stringent requirements are imposed on the Company in
the future, the costs of compliance could have a material adverse effect on the
Company or its financial condition. To the best of its knowledge, the Company is
in compliance with all applicable environmental rules and regulations.
Operating Partnership - United Dominion Realty Trust, L.P.
On October 23, 1995, the Company organized United Dominion Realty, L.P.
(the "Partnership") under the Virginia Revised Uniform Limited Partnership Act,
as amended (the "Partnership Act"). The Company is the sole General Partner of
the Partnership and currently holds an 89.4% interest. The Partnership is
intended to assist the Company in competing for the acquisition of properties
that meet the Company's investment strategies from seller partnerships, some or
all of whose partners may wish to defer taxation of gain realized on sale
through an exchange of partnership interests.
The Partnership was organized under a First Amended and Restated
Agreement of Limited Partnership dated as of December 31, 1995 which was
subsequently amended in the Second Amended and Restated Agreement of Limited
Partnership dated as of August 30, 1997 (the "Partnership Agreement"). A summary
of certain provisions of the Partnership Agreement is set forth below. The
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to applicable provisions of the Partnership Act and the
complete Partnership Agreement. The Partnership Agreement is filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
Admission of Limited Partners; Investment Agreements
The Company presently intends to limit admission to the Partnership to
Limited Partners who are "accredited investors," as defined in Rule 501(a) under
the Securities Act of 1933, as amended (the "Securities Act"). Limited Partners
will be admitted upon executing and delivering to the Company an Investment
Agreement (the "Investment Agreement") and delivering to the Partnership the
consideration prescribed therein. In the Investment Agreement, the prospective
Limited Partner makes both representations as to his status as an accredited
investor and other representations and agreements regarding the Units (defined
below) to be issued to him, thus, assuring compliance with the Securities Act.
Any rights to Securities Act registration of the Common Stock of the Company
issued to such Limited Partner upon redemption of his Units (see "Redemption
Rights" below), will also be set forth in the Investment Agreement or a separate
registration rights agreement.
Units
The interests in the Partnership of the Partnership's limited partners
(the "Limited Partners") are represented by units of limited partnership
interest (the "Units"). All holders of Units are entitled to share in the cash
distributions from, and in the profits and losses of, the Partnership.
Distributions by the Partnership are made equally for each Unit outstanding.
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As the Partnership's sole General Partner, the Company intends to make
distributions per Unit in the same amount as the cash dividends paid by the
Company on each share of Common Stock. However, because Partnership properties,
which are the primary source of cash available for distribution to Unit holders,
are significantly fewer than properties held directly by the Company and may not
perform as well, there can be no assurance that distributions per Unit will
always equal Common Stock dividends per share. A distribution made to the
Company that enables it to maintain its REIT status (see "Management and
Operations" below) may deplete cash otherwise available to Unit holders. The
Partnership may borrow from the Company for the purpose of equalizing per Unit
and per Common share distributions, but neither the Partnership nor the Company
is under any obligation regarding Partnership borrowings for this or any other
purpose.
The Limited Partners have the rights to which limited partners are
entitled under the Partnership Act. The Units are illiquid, they are not
registered for secondary sale under any securities are laws, state or federal,
and they cannot be transferred by a holder except as provided in the Partnership
Agreement and unless they are registered as such or an exemption from such
registration is available. Except as provided in any Investment Agreement or
other agreement with a partner, neither the Partnership nor the Company is under
any obligation to effect any such registration or to establish any such
exemption. The Partnership Agreement imposes additional restrictions on the
transfer of Units, as described below under "Transferability of Interests."
Management and Operations
The Company, as the sole General Partner of the Partnership, has full,
exclusive and complete responsibility and discretion in the management and
control of the Partnership. The Limited Partners have no authority to transact
business for, or participate in the management activities or decisions of the
Partnership.
The Partnership Agreement requires that the Partnership be operated in
a manner that will enable the Company to both satisfy the requirements for being
classified as a REIT and avoid any federal income tax liability. The General
Partner is expressly directed, notwithstanding anything to the contrary in the
Partnership Agreement, to cause the Partnership to distribute amounts (including
proceeds of Partnership borrowings) that sufficiently enable the Company to pay
distributions to its shareholders that are required in order to maintain REIT
status and to avoid income tax or excise tax liability.
Ability to Engage in Other Businesses; Conflicts of Interest
The Company and other persons (including officers, directors,
employees, agents and other affiliates of the Company) are not prohibited under
the Partnership Agreement from engaging in other business activities, including
business activities substantially similar or identical to those of the
Partnership. The Company will not be required to present any business
opportunities to the Partnership or to any Limited Partner.
Borrowing by the Partnership
The General Partner is authorized under the Partnership Agreement to
cause the Partnership to borrow money and to issue and guarantee debt as it
deems necessary for the conduct of the activities of the Partnership. Such debt
may be secured by mortgages, deeds of Company, pledges or other liens on the
assets of the Partnership.
Reimbursement of General Partner; Transactions with the General Partner and its
Affiliates
The General Partner will receive no compensation for its services as
General Partner of the Partnership. However, as a partner in the Partnership,
the General Partner has the same right to allocations of profit and loss and
distributions as other partners of the Partnership. In addition, the Partnership
will reimburse the General Partner for all expenses it incurs relating to the
ownership and operation of, or for the benefit of, the Partnership and any
offering of Units or other partnership interests, and for the pro rata share of
the expenses of any offering of securities of the Company some or all of the
proceeds of which are contributed to the Partnership.
Liability of General Partner and Limited Partners
The General Partner is liable for all general obligations of the
Partnership to the extent not paid by the
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Partnership. The General Partner is not liable for the non-recourse obligations
of the Partnership.
The Limited Partners are not required to make further capital
contributions to the Partnership after their respective initial contributions
are fully paid. Assuming that a Limited Partner acts in conformity with the
provisions of the Partnership Agreement, the liability of the Limited Partner
for obligations of the Partnership under the Partnership Agreement and
Partnership Act will be limited to, subject to certain possible exceptions, the
loss of the Limited Partner's investment in the Partnership.
The Partnership is qualified to conduct business in each state in which
it owns property and may qualify to conduct business in other jurisdictions.
Maintenance of limited liability may require compliance with certain legal
requirements of those jurisdictions and certain other jurisdictions. Limitations
on the liability of a limited partner for the obligations of a limited
partnership have not clearly been established in many states. Accordingly, if it
were determined that the right, or exercise of the right by the Limited
Partners, to make certain amendments to the Partnership Agreement or to take
other action pursuant to the Partnership Agreement constituted "control" of the
Partnership's business for the purposes of the statutes of any relevant state,
the Limited Partners might be held personally liable for the Partnership's
obligations. The Partnership will operate in a manner the General Partner deems
reasonable, necessary and appropriate to preserve the limited liability of the
Limited Partners.
Exculpation and Indemnification of the General Partner
If acting in good faith, the Partnership Agreement provides that the
General Partner 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. In addition, the General
Partner is not responsible for any misconduct or negligence on the part of its
agents, provided the General Partner appointed such agents in good faith.
The Partnership Agreement also provides for indemnification of the
General Partner, the directors, officers and employees of the General Partner,
and such other persons as the General Partner 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, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
that relate to the operations of the Partnership in which any such indemnitee
may be involved, or is threatened to be involved, unless it is established that
(i) the act or omission of such indemnitee 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) such indemnitee actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, such indemnitee had reasonable cause to believe that
the act or omission was unlawful.
Sale of Assets; Merger
Under the Partnership Agreement, the General Partner generally has the
exclusive authority to determine whether, when and on what terms the assets of
the Partnership will be sold or on which the Partnership will merge or
consolidate with another entity.
Removal of the General Partner; Transfer of General Partner's Interest
The Partnership Agreement does not authorize the Limited Partners to
remove the General Partner and the Limited Partners have no right to remove the
General Partner under the Partnership Act. The General Partner may not transfer
any of its interest as General Partner and withdraw as General Partner, except
(a) to a wholly-owned subsidiary of the General Partner or the owner of all the
ownership interests in the General Partner, (b) in connection with a merger or
sale of all or substantially all of the assets of the General Partner or (c) as
a result of the bankruptcy of the General Partner. A substitute or additional
General Partner may be admitted upon compliance with the applicable provisions
of the Partnership Agreement, including delivery by counsel for the Partnership
of an opinion that admission of such General Partner will not cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes or (ii) the loss of any Limited Partner's limited liability. The
General Partner may not sell all or substantially all of its assets, or enter
into a merger, unless the sale or merger includes the sale of all or
substantially all of the assets of, or the merger of, the Partnership and the
Limited Partners receive for each Unit substantially the same consideration as
the holder of one share of Common Stock.
10
<PAGE>
Transferability of Interests
A Limited Partner generally may not transfer his interest in the
Partnership without the consent of the General Partner which may be withheld in
its absolute discretion. The General Partner may require, as a condition of any
transfer, that the transferring Limited Partner assume all costs incurred by the
Partnership in connection with such a transfer.
Redemption Rights
Each Limited Partner has the right (the "Redemption Right"), subject to
the purchase right of the General Partner described below, to cause the
redemption of such Limited Partner's Units for cash in an amount per Unit equal
to the average of the closing sale prices of the Common Stock of the Company on
the New York Stock Exchange (the "NYSE") for the ten trading days immediately
preceding the date of receipt by the General Partner of notice of such Limited
Partner's exercise of the Redemption Right. Subject to certain restrictions
intended to prevent undesirable tax consequences and assure compliance with the
Securities Act, a Limited Partner may exercise the Redemption Right at any time
but not more than twice within the same calendar year and not with respect to
less than 1,000 Units (or all Units owned by such Limited Partner, if less than
1,000). A Limited Partner that exercises the Redemption Right shall be deemed to
have offered to sell the Units to be redeemed to the General Partner, and the
General Partner may elect to purchase such Units by paying to such Limited
Partner either the redemption price in cash or by delivering to such Limited
Partner a number of shares of Common Stock of the Company equal to the product
of the number of such Units, multiplied by the "Conversion Factor," which is
1.0, subject to customary antidilution provisions in the event of stock
dividends on or subdivisions or combinations of the Common Stock subsequent to
issuance of such Units. Any Common Stock issued to the redeeming Limited Partner
will be listed on the NYSE and, if to the extent provided in such Redeeming
Partner's Investment Agreement or other agreement, registered under the
Securities Act and/or entitled to rights to Securities Act registration.
No Withdrawal of Capital by Limited Partners
No Limited Partner has the right to withdraw any part of his capital
contribution to the Partnership or interest thereon or to receive any
distribution, except as provided in the Partnership Agreement.
Issuance of Additional Limited Partnership Interests and Other Partnership
Securities
The General Partner is authorized, without the consent of the Limited
Partners, to cause the Partnership to issue additional Units or other
Partnership securities to the partners or to other persons on such terms and
conditions and for such consideration, including cash or any property or other
assets permitted by the Partnership Act, as the General Partner deems
appropriate.
Meetings
The Partnership Agreement does not provide for annual meetings of the
Limited Partners, and the General Partner does not anticipate calling such
meetings.
Amendment of Partnership Agreement
Amendments to the Partnership Agreement may, with four exceptions, be
made by the General Partner without the consent of the Limited Partners. Any
amendment to the Partnership Agreement which would (i) affect the Conversion
Factor or the Redemption Rights of the Limited Partners, (ii) adversely affect
the rights of the Limited Partners to receive distributions payable to them
under the Partnership Agreement, or (iii) alter the Partnership's profit and
loss allocations shall require the consent of Limited Partners owning more than
50% of the percentage interests in the Partnership. Any amendment that would
impose any obligation upon the Limited Partners to make additional capital
contributions to the Partnership shall require the consent of each Limited
Partners owning more than 50% of the percentage interests in the Partnership.
11
<PAGE>
Books and Reports
The General Partner is required to keep at the specified office of the
Partnership the Partnership's books and records, including copies of the
Partnership's federal, state and local tax returns, a list of the partners and
their last known business addresses, the Partnership Agreement, the Partnership
certificate and all amendments thereto and any other documents and information
required under Partnership Act. Any partner or his duly authorized
representative, upon paying duplicating, collection and mailing costs, is
entitled to inspect or copy such records during ordinary business hours.
The General Partner will furnish to each Limited Partner, as soon as
practicable after the close of each fiscal year, an annual report containing
financial statements of the Partnership (or the Company, if consolidated
financial statements including the Partnership are prepared) for such fiscal
year. The financial statements will be audited by accountants selected by the
General Partner. In addition, as soon as practicable after the close of each
fiscal quarter (other than the last quarter of the fiscal year), the General
Partner will furnish to each Limited Partner a quarterly report containing
unaudited financial statements of the Partnership (or the Company and the
Partnership, consolidated).
The General Partner will furnish to each Limited Partner, within 75
days after the close of each fiscal year of the Partnership, the tax
information necessary to file such Limited Partner's individual tax returns.
Loans to Partnership
The Partnership Agreement provides that the General Partner may borrow
additional Partnership funds for any Partnership purpose from the General
Partner or a subsidiary or subsidiaries of the General Partner or otherwise.
Adjustments of Capital Accounts and Percentage Interests
A separate capital account will be established and maintained for each
Partner. The General Partner shall revalue the property of the Partnership to
its fair market value (as determined by the General Partner, in its sole
discretion) in accordance with applicable federal income tax regulations if: (i)
a new or existing general or limited partner of the Partnership (a "Partner" or
collectively "Partners") acquires an additional interest in the Partnership in
exchange for more than a de minimis capital contribution, (ii) the Partnership
distributes to a Partner more than a de minimis amount of Partnership property
as consideration for a Partnership interest or (iii) the Partnership is
liquidated for federal income tax purposes. When the Partnership's property is
revalued by the General Partner, the capital accounts of the partners shall be
adjusted in accordance with such regulations, which generally requires such
capital accounts to be adjusted to reflect the manner in which the unrealized
gain or loss inherent in such property (that has not been reflected in the
capital accounts previously) would be allocated among the Partners pursuant to
the Partnership Agreement if there were a taxable disposition of such property
for its fair market value on the date of the revaluation.
If the number of outstanding Units increases or decreases during a
taxable year, each Partner's percentage interest in the Partnership shall be
adjusted by the General Partner as of the effective date of each such increase
or decrease to a percentage equal to the number of Units held by such Partner
divided by the aggregate number of Units outstanding, after giving effect to
such increase or decrease, and profits and losses for the year will be allocated
among the Partners in a manner selected by the General Partner to give
appropriate effect to such adjustments.
Registration Rights
Limited Partners have no rights to Securities Act registration of any
Common Stock of the Company received in connection with redemption of Units
except as provided in their respective Investment Agreements or other agreements
with the Company.
Tax Matters; Profit and Loss Allocations
Pursuant to the Partnership Agreement, the General Partner is the "tax
matters" partner of the Partnership and, as such, has the authority to handle
tax audits and to make tax elections under the Code on behalf of the
Partnership.
12
<PAGE>
Profit and loss of the Partnership generally will be allocated among
the Partners in accordance with their respective interests in the Partnership
based on the number of Units held by the Partners.
Distributions
The Partnership Agreement provides that the General Partner shall
distribute cash quarterly, in amounts determined by the General Partner in its
sole discretion, to the partners in accordance with their respective percentage
interests in the Partnership, except that the amount of cash distributable to a
Limited Partner who has not been a Limited Partner for the full quarter for
which the distribution is paid is subject to pro rata reduction. Upon
liquidation of the Partnership, after payment of, or adequate provision for,
debts and obligations of the Partnership, including any Partner loans, any
remaining assets of the Partnership will be distributed to all Partners with
positive capital accounts in accordance with their respective positive capital
account balances. If the General Partner has a negative balance in its capital
account following a liquidation of the Partnership, it will be obligated to
contribute cash to the Partnership equal to the negative balance in its capital
account.
Term
The Partnership will continue until December 31, 2051, or until sooner
dissolved upon (i) the bankruptcy, dissolution, death or withdrawal of a General
Partner (unless the Limited Partners elect to continue the Partnership by
electing by unanimous consent a substitute General Partner within 90 days of
such occurrence), (ii) the passage of 90 days after the sale or other
disposition of all or substantially all the assets of the Partnership, (iii) the
redemption of all Limited Partners' interests in the Partnership or (iv)
election by the General Partner. Upon dissolution of the Partnership, the
General Partner will proceed to liquidate the assets of the Partnership and
distribute the proceeds remaining after payment or adequate provision for
payment of all debts and obligations of the Partnership as provided in the
Partnership Agreement.
13
<PAGE>
Item 2. Properties
Real Estate Owned
The table below sets forth a summary by major geographic market of the Company's
portfolio of apartment rental properties held for investment and held for
disposition (excludes real estate under development) at December 31, 1997.
See also Notes 1 and 2 to the Consolidated Financial Statements and Schedule
III-Summary of Real Estate Owned.
<TABLE>
<CAPTION>
Number of Number of Percentage of
Apartment Apartment Apartment Real Estate Cost
Major Geographic Markets Communities Homes Homes at Cost Encumbrances per Unit
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Dallas, TX 23 8,506 14% $316,259,164 (a) $37,181
Orlando, FL 12 3,584 6% 154,301,985 $27,510,000 43,053
Raleigh, NC 12 3,484 6% 150,575,315 16,250,483(b) 43,219
Charlotte, NC 13 3,009 5% 131,649,418 23,026,070(b) 43,752
Richmond, VA 11 3,518 6% 120,360,556 10,761,086 34,213
Houston, TX 9 3,522 6% 107,810,553 32,668,527(a) 30,611
Columbia, SC 12 3,534 6% 115,049,587 29,010,615 32,555
Tampa, FL 11 3,105 5% 111,223,505 7,985,342 35,821
Greensboro, NC 10 2,638 4% 113,692,199 4,212,712(b) 43,098
Eastern NC 10 2,530 4% 95,230,505 10,524,886 37,641
San Antonio, TX 5 1,983 3% 87,811,727 (a) 44,282
Nashville, TN 8 2,116 3% 83,561,148 5,134,432 39,490
Baltimore, MD 8 1,746 3% 78,079,807 29,975,000 44,719
Atlanta, GA 6 1,462 2% 64,210,202 11,324,140 43,919
Miami/Ft Lauderdale, FL 4 960 2% 61,896,366 -- 64,475
Washington DC 6 1,483 2% 66,132,105 11,272,182 44,593
Hampton Roads, VA 8 1,830 3% 62,186,342 3,900,000 33,982
Jacksonville, FL 3 1,157 2% 54,885,651 22,279,993 47,438
Greenville, SC 8 1,718 3% 60,453,380 3,265,000(b) 35,188
Phoenix, AZ 3 732 1% 39,685,164 (a) 54,215
Eastern Shore MD 4 784 1% 33,731,745 -- 43,025
Fayetteville, NC 3 884 1% 40,143,590 18,785,679 45,411
Memphis, TN 4 935 1% 33,118,371 5,715,000 35,421
Austin, TX 3 867 1% 30,421,137 (a) 35,088
Albuquerque, NM 1 210 -- 8,010,521 (a) 38,145
Other Florida 7 1,646 3% 65,529,564 4,813,491 39,811
Other Virginia 6 1,156 2% 45,248,401 2,875,000 39,142
Other Georgia 2 468 1% 21,730,895 6,261,564 46,434
Little Rock, AK 2 512 1% 20,934,709 -- 40,888
Las Vegas, NV 1 384 1% 20,286,438 -- 52,829
Delaware 2 368 -- 17,412,914 -- 47,318
Other Texas 3 824 1% 24,090,501 (a) 29,236
Alabama 1 242 -- 10,952,652 -- 45,259
Oklahoma 1 316 -- 9,546,944 (a) 30,212
Other North Carolina 1 168 -- 7,378,945 (b) 43,922
Other South Carolina 2 408 1% 12,913,228 2,200,000 31,650
------------------------------------------------------------------------------------------
Subtotal 225 62,789 100% $2,476,505,234 $417,324,815 $39,442
------------------------------------------------------------------------------------------
<CAPTION>
Econimic Average Monthly Rental Average
Occupancy Rates for the Year Ended Unit Size
Major Geographic Markets Full Year 1997 December 31, 1997* (Square Feet)
- - --------------------------------------------------------------------------------------
<S> <C>
Dallas, TX 93.5% $547 786
Orlando, FL 95.4% 575 933
Raleigh, NC 95.0% 633 925
Charlotte, NC 87.6% 576 970
Richmond, VA 91.8% 556 949
Houston, TX 91.1% 468 800
Columbia, SC 91.9% 501 860
Tampa, FL 93.4% 575 964
Greensboro, NC 83.4% 507 930
Eastern NC 94.5% 557 924
San Antonio, TX 91.7% 616 847
Nashville, TN 91.7% 586 952
Baltimore, MD 92.3% 653 865
Atlanta, GA 90.4% 592 901
Miami/Ft Lauderdale, FL 93.8% 789 1,092
Washington DC 87.6% 684 830
Hampton Roads, VA 91.0% 541 980
Jacksonville, FL 87.0% 597 872
Greenville, SC 87.7% 517 882
Phoenix, AZ 89.9% 645 888
Eastern Shore MD 97.4% 628 931
Fayetteville, NC 89.3% 557 909
Memphis, TN 90.4% 516 784
Austin, TX 89.4% 532 755
Albuquerque, NM 87.8% 562 729
Other Florida 95.7% 550 842
Other Virginia 92.1% 555 848
Other Georgia 84.0% 638 1,148
Little Rock, AK 93.1% 571 821
Las Vegas, NV 90.2% 636 837
Delaware 96.0% 603 893
Other Texas 89.8% 509 738
Alabama 88.3% 512 1,097
Oklahoma 91.6% 452 756
Other North Carolina 91.4% 574 836
Other South Carolina 91.9% 411 1,095
------------------------------------------------------------
Subtotal 91.7% $573 886
------------------------------------------------------------
</TABLE>
Included in the table above are 25 apartment properties held for disposition in
the amount of $154,162,187, net of accumulated depreciation in the amount of
$40,904,918. At December 31, 1997, the Company also has 1 shopping center and 3
other commercial properties in the consolidated balance sheet classified as real
estate held for disposition in the amount of $12,338,629, net of accumlated
depreciation in the amount of $3,955,900, which are not included in the above
schedule.
* Average Monthly Rental Rates for the Year Ended December 31, 1997, represents
potential rent collections (gross potential rents less market adjustments),
which approximates net effective rents.
These amounts exclude the 1997 acquisitions.
(a) In connection with the South West Merger, the Company assumed $88,573,613 of
REMIC financing encumbering 25 apartments communities.
(b) Represents a $39,000,000 secured note payable which encumbers 6 apartment
communities.
14
<PAGE>
Item 3. LEGAL PROCEEDINGS
Neither the Company nor any of its apartment communities is presently
subject to any material litigation nor, to the Company's knowledge, is any
litigation threatened against the Company or any of the communities, other than
routine actions arising in the ordinary course of business. Some of these
routine actions are expected to be covered by liability insurance, and none are
expected to have a material adverse effect on the business or financial
condition or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Executive Officers of the Registrant
The executive officers of the Company, listed below, serve in their
respective capacities for approximate one year terms.
<TABLE>
<CAPTION>
Name Age Office Since
<S> <C>
John P. McCann 53 Chairman of the Board, 1974
President and Chief
Executive Officer
James Dolphin 48 Executive Vice President 1979
and Chief Financial Officer
John S. Schneider 59 Vice-Chairman of the Board, 1996
Chief Operations Officer
and Executive Vice President
Richard A. Giannotti 42 Senior Vice President and Director 1985
of Acquisitions and Development/
Eastern Division
Robert F. Sherman 55 Senior Vice President and Director 1996
of Apartment Operations/Western
Division
David L. Johnston 53 Senior Vice President and Director 1996
of Acquisitions and Development/
Western Division
Katheryn E. Surface 39 Senior Vice President, Corporate 1992
Secretary and General Counsel
Curt W. Carter 41 Senior Vice President and Director 1985
of Apartment Operations-Northern
Region
Robert L. Landis 39 Senior Vice President and Director 1996
of Apartment Operations-Florida
Region
Walter J. Lamperski 40 Senior Vice President and Director 1996
of Apartment Operations-Southern
Region
</TABLE>
15
<PAGE>
Mr. McCann has been the Company's managing Chief Executive Officer
since 1974. Mr. McCann was elected Chairman of the Board in 1996.
Mr. Schneider is the former Chief Executive Officer and Chairman of the
Board of South West Property Trust Inc. (South West). Mr. Schneider was
employed with the investment banking firm of Donaldson, Lufkin and Jenrette
until from 1967 until 1973, when he co-founded a predecessor firm to South West.
Mr. Schneider was elected Vice Chairman of the Board and Executive Vice
President in 1996 in connection with the merger with South West.
Mr. Dolphin was first employed by the Company in 1979 as Controller. He
was elected Vice President of Finance in 1985 and has served as the Company's
Chief Financial Officer since that time. He was elected Senior Vice President in
1987 and Executive Vice President in 1996.
Mr. Giannotti joined the Company as Director of Development and
Construction in September 1985. He was elected Assistant Vice President in 1988,
Vice President in 1989 and Senior Vice President in 1996.
Mr. Sherman is the former President and Chief Operating Officer of
South West. Mr. Sherman was in charge of South West's management division from
1973 until 1996. Mr. Sherman was elected Senior Vice President in 1996 in
connection with the merger with South West. Effective December 31, 1997, Mr.
Sherman was no longer employed by the Company.
Mr. Johnston is the former Executive Vice President-Real Estate
Investments of South West, a position he held since joining South West in 1992.
From 1989 until 1992, Mr. Johnston was Senior Vice President of Property Company
of America. Mr. Johnston was elected Senior Vice President in 1996 in
connection with the merger with South West.
Ms. Surface joined the Company in 1992 as Assistant Vice President and
Legal Counsel, elected General Counsel, Corporate Secretary and Vice President
in 1994 and elected to Senior Vice President in 1997.
Mr. Carter joined the Company in 1991 as an Assistant Vice President of
Apartment Operations. In 1992, he was promoted to Vice President of Apartment
Operations. In 1995, he was elected Regional Vice President- Northern Region,
and in 1997 was promoted to Senior Vice President and Director of Apartment
Operations- Northern Region.
Mr. Landis joined the Company in 1996 as Regional Vice
President-Florida Region and was promoted in 1997 to Senior Vice President and
Director of Apartment Operations-Florida Region. Prior to joining the Company,
he was Vice President of Asset Management and Property Management for
CRI/CAPREIT, Inc.
Mr. Lamperski joined the Company joined the Company in 1996 as the
Regional Vice President-Southern Region and was promoted in 1997 to Senior Vice
President and Director of Apartment Operations-Southern Region. From February
1990 to August 1996, he was Vice President and Director of Property Management
for Steven D. Bell, a property management company located in Greensboro, North
Carolina.
16
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "UDR". The following tables set forth the quarterly
high and low closing sale prices per common share reported on the NYSE for each
quarter of the last two years. Distribution information for Common Stock
reflects distributions declared per share for each calendar quarter and paid at
the end of the following month.
COMMON STOCK
Distributions
High Low Declared
1996
1st Quarter $ 15 5/8 $ 14 1/8 $ .24
2nd Quarter 15 1/4 14 1/8 .24
3rd Quarter 14 1/2 13 1/8 .24
4th Quarter 15 3/4 13 5/8 .24
1997
1st Quarter $ 16 $ 14 5/8 $ .2525
2nd Quarter 15 1/8 13 3/8 .2525
3rd Quarter 15 3/8 13 7/8 .2525
4th Quarter 15 1/8 13 5/8 .2525
The Company determined that, for federal income tax purposes, approximately
72.7% of the distributions for each of the four quarters of 1997 represented
ordinary income to its shareholders, 24.9% represented return of capital to its
shareholders and 2.1% represented capital gains to its shareholders.
On March 13, 1998, the closing sale price of the Common Stock was $13.9375 per
share on the NYSE, and there were 7,897 holders of record of the 91,886,256
shares of Common Stock.
The Company pays regular quarterly distributions to holders of shares of Common
Stock. Future distributions by the Company will be at the discretion of its
Board of Directors after considering the Company's actual funds from operations,
financial condition and capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code and other
factors. The annual distribution payment for calendar year 1997 necessary for
the Company to maintain its status as a REIT was approximately $.71 per share.
The Company paid total distributions of $.9975 per share for 1997.
SERIES A PREFERRED STOCK
The Company's Series A Preferred Stock ("Series A Preferred") and
Series B Preferred Stock ("Series B Preferred") is traded on the New York Stock
Exchange ("NYSE") under the symbol "UDRa" and "UDRb", respectively. The
following tables set forth the quarterly high and low closing sale prices per
share reported on the NYSE for each quarter of the last two years for the Series
A Preferred and Series B Preferred. Distribution information for the Series A
Preferred and Series B Preferred reflects distributions declared per share for
each calendar quarter and paid at the end of the following month.
17
<PAGE>
Distributions
High Low Declared
1996
1st Quarter $ 27 $ 25 3/4 $ .578
2nd Quarter 26 7/8 25 1/8 .578
3rd Quarter 26 3/8 25 1/4 .578
4th Quarter 26 7/8 26 1/8 .578
1997
1st Quarter $ 26 7/8 $ 25 3/4 $ .578
2nd Quarter 26 5/8 25 5/8 .578
3rd Quarter 27 1/8 25 7/8 .578
4th Quarter 26 7/8 25 1/8 .578
On or after April 24, 2000, the Series A Preferred Stock may be redeemed for
cash at a redemption price of $25 per share, plus accrued and unpaid dividends
from the proceeds from the sale of additional capital stock (common or
preferred).
SERIES B PREFERRED STOCK
Distributions
High Low Declared
1997
1st Quarter -- -- --
2nd Quarter $ 25 1/2 $ 25 $ .--
3rd Quarter 26 7/8 25 1/4 .5554
4th Quarter 26 5/8 25 7/8 .5375
On May 29, 1997, the Company sold 6,000,000 shares of 8.60% Series B Cumulative
Redeemable Preferred Stock (Series B Preferred Stock). The Series B Preferred
Stock may be redeemed beginning May 29, 2007 at the sole option of the Company
at a redemption price of $25 per share, plus accrued and unpaid dividends from
the proceeds from the sale of additional capital stock (common or preferred).
The Company has a Dividend Reinvestment and Stock Purchase Plan under which
holders of Common and Preferred Stock may elect to automatically reinvest their
distributions and make additional cash payments to acquire additional shares of
the Company's Common Stock at a discount.
18
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and
other information for the Company as of and for each of the years in the five
year period ended December 31, 1997. The table should be read in conjunction
with the Consolidated Financial Statements of United Dominion Realty Trust, Inc.
and the Notes thereto included elsewhere herein.
19
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
In thousands, except per share data and apartments homes owned
<S> <C>
OPERATING DATA
Rental income $386,672 $241,260
Income before gains (losses) on sales of investments, minority interest of
unitholders in operating partnership and extraordinary item 57,813 33,726
Gains (losses) on sales of investments 12,664 4,346
Extraordinary item - early extinguishment of debt (50) (23)
Net income 70,149 37,991
Dividends to preferred shareholders 17,345 9,713
Net income available to common shareholders 52,804 28,278
Common distributions declared 88,587 55,493
Weighted average number of common shares outstanding-basic (a) 87,145 57,482
Weighted average number of common shares outstanding-diluted (a) 87,339 57,655
Per share:(a)
Basic earnings per share $.61 $.49
Diluted earnings per share .60 .49
Common distributions declared 1.01 .96
- - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Real estate held for investment $2,281,438 $2,007,612
Real estate under development 24,598 37,855
Real estate held for disposition 166,501 39,556
Total real estate owned 2,472,537 2,085,023
Accumulated depreciation 200,506 173,291
Total assets 2,313,725 1,966,904
Notes payable-secured 417,325 376,560
Notes payable-unsecured 738,901 668,275
Total debt 1,156,226 1,044,835
Shareholders' equity 1,058,357 850,379
Number of common shares outstanding 89,168 81,983
- - ----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Cash Flow Data
Cash provided by operating activities $137,903 $90,064
Cash used in investing activities (345,666) (161,572)
Cash provided by financing activities 194,784 82,056
Funds from Operations (b)
Income before gains (losses) on sales of investments, minority interest of
unitholders in operating partnership and extraordinary item $57,813 $33,726
Adjustments:
Real estate depreciation 76,688 47,410
Non-recurring items:
Impairment loss on real estate owned 1,400 290
Prior years' employment and other taxes -- --
Adoption of SFAS No. 112 "Employers' Accounting
for Postemployment Benefits" -- --
Dividends to preferred shareholders (17,345) (9,713)
---------------------------------------------
Funds from operations $118,556 $71,713
=============================================
- - ----------------------------------------------------------------------------------------------------------------------------------
Apartments Homes Owned
Total apartment homes owned at December 31 62,789 55,664
Weighted average number of apartment homes owned during the year 58,038 37,481
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------------
In thousands, except per share data and apartments homes owned
<S> <C>
OPERATING DATA
Rental income $194,511 $139,380 $88,664
Income before gains (losses) on sales of investments, minority interest of
unitholders in operating partnership and extraordinary item 28,037 19,118 11,286
Gains (losses) on sales of investments 5,090 108 (89)
Extraordinary item - early extinguishment of debt -- (89) --
Net income 33,127 19,137 11,197
Dividends to preferred shareholders 6,637 -- --
Net income available to common shareholders 26,490 19,137 11,197
Common distributions declared 48,610 37,539 27,988
Weighted average number of common shares outstanding-basic (a) 52,781 46,182 38,202
Weighted average number of common shares outstanding-diluted (a) 52,972 46,391 38,462
Per share:(a)
Basic earnings per share $.50 $.41 $.29
Diluted earnings per share .50 .41 .29
Common distributions declared .90 .78 .70
- - -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Real estate held for investment $1,131,098 $1,007,599 $582,213
Real estate under development -- -- --
Real estate held for disposition 51,015 -- --
Total real estate owned 1,182,113 1,007,599 582,213
Accumulated depreciation 129,454 120,341 91,444
Total assets 1,080,616 911,913 505,840
Notes payable-secured 180,481 158,449 72,862
Notes payable-unsecured 349,858 368,215 156,558
Total debt 530,339 526,664 229,420
Shareholders' equity 516,389 356,968 259,963
Number of common shares outstanding 56,375 50,356 41,653
- - -------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Cash Flow Data
Cash provided by operating activities $66,428 $54,544 $33,939
Cash used in investing activities (183,930) (359,631) (130,064)
Cash provided by financing activities 113,145 306,575 100,793
Funds from Operations (b)
Income before gains (losses) on sales of investments, minority interest of
unitholders in operating partnership and extraordinary item $28,037 $19,118 $11,286
Adjustments:
Real estate depreciation 38,939 28,729 19,516
Non-recurring items:
Impairment loss on real estate owned 1,700 -- --
Prior years' employment and other taxes 395 -- --
Adoption of SFAS No. 112 "Employers' Accounting
for Postemployment Benefits" -- 450 --
Dividends to preferred shareholders (6,637) -- --
------------------------------------------
Funds from operations $62,434 $48,297 $30,802
==========================================
- - -------------------------------------------------------------------------------------------------------------------------------
Apartments Homes Owned
Total apartment homes owned at December 31 34,224 29,282 17,914
Weighted average number of apartment homes owned during the year 31,242 23,160 15,445
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, "Earning per Share". For further discussion of earnings per
share and the impact of Statement No. 128, see the notes to the
consolidated financial statements.
(b) Funds from operations ("FFO") is defined as income before gains
(losses) on sales of investments, minority interest of unitholders in
operating partnership and extraordinary item (computed in accordance
with generally accepted accounting principles) plus real estate
depreciation, less preferred dividends and after adjustment for
significant non-recurring items, if any. This definition conforms to
the recommendations set forth in a White Paper adopted by the National
Association of Real Estate Investment Trusts ("NAREIT") in early 1995.
FFO for years prior to 1995 have been adjusted to conform to the
NAREIT definition. The Company considers FFO in evaluating property
acquisitions and its operating performance and believes that FFO
should be considered along with, but not as an alternative to, net
income and cash flows as a measure of the Company's operating
performance and liquidity. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund
cash needs.
20
<PAGE>
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of United Dominion Realty Trust, Inc.
(the "Company") appearing elsewhere in this report. This annual report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements include, without limitation,
statements concerning property acquisitions, development activity and capital
expenditures, capital raising activities, rent growth, occupancy and rental
expense growth expected in 1998. Such statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievement of the Company to be materially different from the
results of operations or plans expressed or implied by such forward-looking
statements. Such factors include, among other things, unanticipated adverse
business developments affecting the Company, and/or its properties, adverse
changes in the real estate markets and general and local economies and business
conditions. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore there can be no assurance that
such statements included in this report will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as
representation by the Company or any other person that the results or conditions
described in such statements or the objectives and plans of the Company will be
achieved.
The Company is engaged in the ownership, acquisition, development and management
of apartment communities across the Sunbelt. The Company's investment strategy
has focused on acquiring apartment communities in 23 targeted major markets,
however, the Company intends to expand geographically into other regions of the
United States and enter into several new markets during 1998, as appropriate
opportunities arise. The Company seeks to be a market leader by operating a
sufficiently sized portfolio of apartments within each market, and as such,
plans to significantly increase the number of apartment homes owned in most of
its major markets. The Company believes this market diversification increases
investment opportunity and decreases the risk associated with cyclical local
real estate markets and economies. At December 31, 1997, the Company owned 225
apartment communities containing 62,789 apartment homes throughout the Sunbelt,
including 25 apartment communities containing 6,907 completed apartment homes
included in real estate held for disposition. The following table summarizes the
Company's apartment information by market:
21
<PAGE>
<TABLE>
<CAPTION>
Year Ended Quarter Ended
As of December 31, 1997 December 31, 1997 December 31, 1997
------------------------------------------------ -------------------------- ---------------------------
Average Average
Number of Number of % of Carrying Monthly Monthly
Apartment Apartment Apartment Value Economic Rental Economic Rental
Market Communities Homes Homes (in 000's) Occupancy** Rates* Occupancy** Rates*
- - -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C>
Dallas, TX 23 8,506 14% $ 316,259 93.5% $ 547 93.5% $ 558
Orlando, FL 12 3,584 6% 154,302 95.4% 575 95.1% 588
Raleigh, NC 12 3,484 6% 150,574 95.0% 633 93.8% 644
Charlotte, NC 13 3,009 5% 131,649 87.6% 576 89.2% 586
Richmond, VA 11 3,518 6% 120,361 91.8% 556 92.7% 569
Columbia, SC 12 3,534 6% 115,050 91.9% 501 93.6% 505
Greensboro, NC 10 2,638 4% 113,692 83.4% 507 82.2% 558
Tampa, FL 11 3,105 5% 111,224 93.4% 575 93.5% 586
Houston, TX 9 3,522 6% 107,811 91.1% 468 90.6% 473
Eastern NC 10 2,530 4% 95,231 94.5% 557 92.9% 566
San Antonio, TX 5 1,983 3% 87,812 91.7% 616 90.4% 618
Nashville, TN 8 2,116 3% 83,561 91.7% 586 92.2% 592
Baltimore, MD 8 1,746 3% 78,079 92.3% 653 92.1% 663
Washington DC 6 1,483 2% 66,132 87.6% 684 89.1% 690
Atlanta, GA 6 1,462 2% 64,210 90.4% 592 91.3% 605
Hampton Roads, VA 8 1,830 3% 62,186 91.0% 541 92.2% 546
Miami/Ft. Lauderdale, FL 4 960 2% 61,896 93.8% 789 93.3% 799
Greenville, SC 8 1,718 3% 60,453 87.7% 517 90.3% 520
Jacksonville, FL 3 1,157 2% 54,886 87.0% 597 89.4% 600
Fayetteville, NC 3 884 1% 40,144 89.3% 557 92.4% 561
Phoenix, AZ 3 732 1% 39,685 89.9% 645 87.8% 650
Eastern Shore MD 4 784 1% 33,732 97.4% 628 98.2% 639
Memphis, TN 4 935 1% 33,118 90.4% 516 91.6% 523
Austin, TX 3 867 1% 30,421 89.4% 532 89.9% 533
Little Rock, AK 2 512 1% 20,935 93.1% 571 92.4% 576
Other Florida 7 1,646 3% 65,530 95.7% 550 95.2% 558
Other Virginia 6 1,156 2% 45,248 92.1% 555 87.0% 567
Other Texas 3 824 1% 24,091 89.8% 509 93.6% 507
Other Georgia 2 468 1% 21,731 84.0% 638 87.9% 639
Other South Carolina 2 408 1% 12,913 91.9% 411 92.7% 417
Las Vegas, Nevada 1 384 1% 20,286 90.2% 636 87.6% 641
Delaware 2 368 -- 17,413 96.0% 603 95.7% 612
Oklahoma 1 316 -- 9,547 91.6% 452 89.9% 454
Alabama 1 242 -- 10,953 88.3% 512 94.5% 514
Albuquerque, New Mexico 1 210 -- 8,011 87.8% 562 93.4% 548
Other North Carolina 1 168 -- 7,379 91.4% 574 96.3% 577
-------- ------ --- ---------- ----- ---- ---- -----
Total 225 62,789 100% $2,476,505 91.7% $573 91.9% $ 581
======== ====== === ========== ===== ==== ==== =====
</TABLE>
* Average monthly rental rates represent potential rent collections
(gross potential rents less market adjustments), which approximate net
effective rents. These figures exclude 1997 acquisitions.
** Economic occupancy is defined as rental income (potential rental
collections less vacancy loss, management units, units held out of
service, move-in concessions and credit loss) divided by potential
collections (gross potential rent less management units, units held out
of service and move-in concessions) for the period, expressed as a
percentage.
Liquidity and Capital Resources
As a qualified real estate investment trust ("REIT"), the Company distributes a
substantial portion of its cash flow to its shareholders in the form of
quarterly distributions. The Company seeks to retain sufficient cash to cover
normal operating needs, including routine replacements and to help fund
additional acquisitions and development activity. For the year ended December
31, 1997, the Company's cash flow from operating activities exceeded cash
distributions paid to preferred and common shareholders and operating
partnership unitholders by $35.7 million. The Company utilizes a variety of
primarily external financing sources to fund portfolio growth, major capital
improvement programs and balloon debt payments. The Company's bank lines of
credit generally have been used to
22
<PAGE>
temporarily finance these expenditures, and subsequently this short-term bank
debt has been replaced with longer-term debt or equity.
Operating Activities
For the year ended December 31, 1997, the Company's cash flow from operating
activities increased $47.8 million over the same period last year. This increase
was primarily a result of the significant expansion of the Company's portfolio
of apartment communities as discussed below and under "Results of Operations".
The Company considers its cash provided by operating activities adequate to meet
its operating requirements and payments of distributions to both common and
preferred shareholders and unitholders in the operating partnership.
Investing Activities
For the year ended December 31, 1997, net cash used for investing activities was
$345.7 million compared to $161.6 million for 1996, an increase of $184.1
million. The level of investing activities primarily reflects the levels of the
Company's acquisition activities and, to a lesser extent, capital expenditure
and development programs. During 1997, the Company significantly increased both
its development activity and upgrade program, which was implemented at its older
communities. For the year ended December 31, 1997, in connection with the
acquisition of real estate owned (excluding land purchased for development)
aggregating $344.4 million, the Company assumed debt and issued both common
stock and operating partnership units aggregating $72.6 million, compared to the
acquisition of $880.6 million of real estate owned shown net of debt assumed and
common stock and operating partnership units issued aggregating $734.8 million
in 1996.
Acquisitions
The Company seeks to acquire apartment communities that can provide returns on
investment in excess of the Company's cost of capital. These acquisitions are
typically projected to provide first year weighted average returns on investment
of 9-9 1/2% with the prospect for future cash flow growth and appreciation. The
Company calculates its investment as the purchase price plus average first year
capital improvements. The return on this investment is calculated by dividing
the investment by the sum of the rental income less rental expenses during the
first year of ownership.
During 1997, the Company acquired 29 apartment communities containing 8,628
apartment homes at a total cost (including closing costs) of $344.4 million or
$39,900 per home. The 1997 acquisitions included 16 apartment communities
acquired in separate and unrelated transactions and 13 apartment communities
acquired in three smaller portfolio transactions. Of the 29 apartment
communities acquired, 27 were located in the Company's major markets. The
apartment communities acquired by market were as follows:
23
<PAGE>
<TABLE>
<CAPTION>
Purchase
Purchase No. Apt. Year Price Cost
Date Name/Location Homes Built thousands) per Home
------ ------------- ------- ----- ---------- --------
<S> <C>
Houston, Texas
05/09/97 Green Oaks I 440 1985 $ 15,260 $ 34,700
05/09/97 Skyhawk 224 1984 9,456 42,200
06/25/97 Green Oaks II 272 1985 9,680 35,600
09/26/97 Greenhouse Patio (a) (b) 580 1985 18,814 32,400
09/26/97 Braesridge (a) (b) 545 1982 14,010 25,700
09/26/97 Breakers 272 1985 6,825 25,100
10/30/97 Bammelwood (a) (b) 226 1980 4,260 18,800
11/20/97 Camino Village (a) (b) 449 1979 15,197 33,800
Orlando, Florida
07/01/97 Lotus Landing 260 1985 10,725 41,300
10/21/97 Seville on the Green 170 1986 7,781 45,800
12/31/97 Arbors at Lee Vista 338 1991 20,896 61,800
Dallas, Texas
03/27/97 Oak Ridge 486 1983 17,290 35,600
06/18/97 Kelly Crossing 304 1984 11,653 38,300
10/30/97 Parc Plaza 201 1986 6,963 34,600
Nashville, Tennessee
02/19/97 Club at Hickory Hollow 406 1987 17,371 42,800
03/27/97 Breckenridge 190 1986 8,480 44,600
Charlotte, North Carolina
02/28/97 Stoney Pointe (a) 400 1991 17,355 43,400
Eastern North Carolina
02/28/97 Crosswinds 380 1990 19,326 50,900
Raleigh, North Carolina
02/28/97 Dominion Trinity Park (a) 380 1994 22,155 58,300
Austin, Texas
03/25/97 Anderson Mill 350 1984 14,305 40,900
Greensboro, North Carolina
04/22/97 Northwinds II 100 1997 4,765 47,700
10/01/97 Deep River Pointe 240 1997 12,811 53,400
Tampa, Florida
06/06/97 Cambridge Woods 274 1985 8,957 32,700
07/01/97 Orange Oaks 192 1986 7,832 40,800
07/01/97 Forest Creek (c) 104 1984 2,582 24,800
Richmond, Virginia
09/29/97 Waterside at Ironbridge (a) 265 1987 15,082 56,900
Hampton Roads, Virginia
12/23/97 York Pointe 202 1987 9,671 47,900
Other
07/01/97 Lakeside/Daytona Beach, FL 210 1985 8,744 41,600
07/01/97 Mallards of Brandywine/Deland, FL 168 1985 6,117 36,400
---------------------------------------------------------------
1997 Total/Weighted Average 8,628 1986 $344,363 $ 39,900
===============================================================
</TABLE>
(a) In connection with the acquisition of seven apartment
communities, the Company assumed six mortgage notes payable
and one tax-exempt note payable aggregating $60.1 million with
a weighted average interest rate of approximately 8.4%.
(b) In connection with the acquisition of four apartment
communities, the Company issued approximately 849,000 units in
the Operating Partnership with an aggregate value of $12.5
million.
(c) Community was sold in October 1997.
24
<PAGE>
During 1998, the Company seeks to acquire 8,000-10,000 apartment homes in
individual and portfolio transactions at an aggregate cost ranging from $350
million to $450 million. These acquisitions are expected to occur in the
Company's existing markets and designated new markets. In addition, the Company
plans to participate in the real estate consolidation process by acquiring
private and public apartment companies in strategic mergers or portfolio
acquisitions that meet the Company's objectives to increase its penetration in
its existing markets or to expand geographically.
On December 19, 1997, the Company executed a definitive merger agreement (the
"Merger Agreement") pursuant to which ASR Investment Corporation ("ASR") would
be merged with and into a wholly-owned subsidiary of the Company. At December
31, 1997, ASR owned and operated 41 apartment communities containing
approximately 7,500 apartment homes in the Southwest and Northwest. Pursuant to
the Merger Agreement, each share of the ASR's common stock was exchanged for
1.575 shares of the Company's common stock. The merger has been structured as a
tax-free transaction and will be treated as a purchase for accounting purposes.
The aggregate purchase price is estimated at approximately $330 million,
including closing costs. The merger closed on March 27, 1998.
Real estate under development
Consistent with the Company's acquisition strategy, development activity is
focused in certain of its major markets. During 1997, the Company increased its
level of development activity, completing the development of 1,067 apartment
homes in six additional phases to existing communities and one new apartment
community. During 1997, the Company invested $52.2 million in 11 properties
under development, which includes four new apartment communities and seven
additional phases to existing apartment communities.
At December 31, 1997, the Company had 1,064 apartment homes under development as
outlined below (dollars in thousands, except cost per home):
<TABLE>
<CAPTION>
Development Estimated Estimated Expected
No. Apt. Completed Costs Development Cost Completion
Property Location Homes Apt. Homes to Date Cost Per Home Date
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
New Apartment Communities
Dominion Franklin Nashville, TN 360 -- $ 6,669 $ 23,334 $ 64,800 4Q98
Ashlar I Ft. Myers, FL 260 -- 2,857 18,566 71,400 4Q98
Dominion at Ranchstone Houston, TX 216 -- 850 11,118 51,500 2Q99
-----------------------------------------------------------------
836 -- 10,376 53,018 63,400
Additional Phases
Oak Forest II Dallas, TX 260 212 11,506 13,375 51,400 2Q98
Mill Creek II Wilmington, NC 180 -- 2,716 12,081 67,100 3Q98
-----------------------------------------------------------------
440 212 14,222 25,456 57,900
-----------------------------------------------------------------
1,276 212 $ 24,598 $ 78,474 $ 61,500
=================================================================
</TABLE>
During 1997, the Company completed the following development projects:
<TABLE>
<CAPTION>
Development Estimated Estimated
No. Apt. Costs Development Cost Date of % Leased
Property Location Homes to Date Cost Per Home Completion at 12/31/97
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
New Apartment Communities
Providence Court Charlotte, NC 420 $ 30,627 $ 30,324 $ 72,200 3Q97 67%
Additional Phases
Paradise Falls II Phoenix, AZ 20 1,112 1,282 64,100 4Q97 100%
England Run II Fredericksburg, VA 168 10,692 10,980 65,400 4Q97 44%
Steeplechase II Greensboro, NC 176 11,067 11,793 67,000 4Q97 29%
Brantley Pines II Ft. Myers, FL 96 6,801 6,755 70,400 2Q97 100%
Oak Park II Dallas, TX 80 4,377 4,581 57,300 1Q97 100%
-------------------------------------------------------------------
540 34,049 35,391 65,500
-------------------------------------------------------------------
960 $64,676 $65,715 $ 68,500
===================================================================
</TABLE>
25
<PAGE>
During 1997, full lease-up at Brantley Pines, Oak Park and Paradise Falls was
achieved. In late 1997, construction on Providence Court was completed, and it
is currently in the lease-up process. These additions did not have a material
impact on the Company's financial results for the year ended December 31, 1997.
During 1998, the Company plans to fund approximately $100 million on the
development of new apartment communities and additional phases to existing
apartment communities which are anticipated to provide stabilized returns on
investment in the 10% to 10 1/2% range. The Company currently has three new
apartment communities and two additional phases under development and plans to
begin development on two new apartment communities in Phoenix, Arizona during
1998.
Capital Expenditures
For 1997, capitalized expenditures averaged $1,166 per home for all apartment
homes acquired prior to 1995. As it generally takes up to two years to complete
the improvement and enhancement process at acquisitions communities, the 1995,
1996 and 1997 acquisitions are excluded from these averages. The Company's
capital expenditures include the following: various exterior improvements
including roofing, siding, balconies, porches, garages, carports and storage
units ($289/home), various interior improvements including the upgrade program
and the addition of business and fitness centers ($222/home), carpet and vinyl
replacements ($201/home), various land improvements including parking lots,
carports and site lighting ($134/home), security alarms, gating and fencing
($133/home), appliances ($78/home), HVAC equipment ($46/home), sub-metering for
water and sewer ($34/home) and other improvements ($29/home).
During 1997, the Company invested $99.2 million on capital improvements to its
apartment portfolio. The Company capitalizes value enhancing improvements plus
improvements that substantially extend the useful life of an existing asset. In
addition to the Company's capital expenditures on new acquisitions, a
significant portion of capital expenditures relate to an upgrade program that
began in 1996 to modernize certain of the Company's older apartment communities.
These upgrades primarily involve updating kitchens and bathrooms. In addition,
several initiatives which are considered revenue enhancing are underway that
either allow the Company to increase rents by more than the inflationary rate or
allow the Company to pass expenses to residents including: (i) sub-metering of
water and sewer to residents where local and state regulations allow, (ii)
gating and fencing apartment communities, (iii) installing monitoring devices
such as intrusion alarms or controlled access devices, (iv) enlarging fitness
centers, (v) adding business centers and (vi) constructing carports and self
storage units. As a result of the continued upgrade program and initiatives
discussed above, capital expenditures increased approximately $46.1 million over
1996 when the average capital expenditure per mature apartment home was $832.
The Company expects 1998 capital expenditures to be at levels similar to 1997.
Disposition of investments
Real estate held for disposition
The Company continually undertakes portfolio review analyses with the objective
of identifying communities that do not meet the Company's long-term investment
objectives due to size, location, age, quality and/or performance. The Company
intends to sell 20% of its apartment portfolio, although specific properties
have not been identified as sales candidates. Generally, this will result in the
disposition of many of the Company's older apartment communities. These sales
will allow the Company to reduce the age of its existing portfolio, which should
result in lower operating expense and capital expenditure growth associated with
the older communities. Management has determined that packaging communities in
portfolios is more efficient and provides the greatest opportunities for
disposition, and as such, the Company intends to sell approximately $75 million
of communities each quarter through fiscal 1998 for a total of 7,000 to 8,000
apartment homes. The net proceeds from these sales will be primarily used to
acquire and develop newer apartment communities that will provide higher long
term returns on investment than the communities that are being sold.
During 1997, the Company sold 12 apartment communities containing 2,570
apartment homes and one shopping center for an aggregate sales price of $68.4
million and received net cash proceeds of approximately $64.0 million. For
financial reporting purposes, the Company recognized an aggregate $10.6 million
gain on the sales. Nine of these dispositions were structured to qualify as
like-kind exchanges under Section 1031 of the Internal Revenue
26
<PAGE>
Code, so the related capital gains totaling $14.2 million will be deferred for
federal income tax purposes. The 12 apartment community sales included the
August 1997 sale of a portfolio of six apartment communities containing 1,204
apartment homes, which had a weighted average age of 26 years for an aggregate
sales price of $34.7 million.
On January 20, 1998, the Company sold a portfolio of five apartment communities
containing 2,406 apartment homes, which had a weighted average age of 21 years
for an aggregate sales price of $65.6 million. The transaction was structured to
qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code,
so the related capital gain will be deferred for federal income tax purposes.
These five communities, all located in Texas, were acquired on December 31, 1996
in connection with the South West Property Trust Inc. Merger ("South West
Merger"), and accordingly, no significant gain or loss was recorded for
financial reporting purposes.
<TABLE>
<CAPTION>
Financing Activities
Financial Structure
The following table outlines the Company's financial structure at December 31, 1997 (dollars in thousands):
Weighted Average Capitalization
In thousands Balance Interest Rate Percentage
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed rate secured debt $ 395,899 7.6% 14.8%
Fixed rate unsecured debt 603,301 7.5% 22.5%
---------------- -----
999,200 7.5% 37.3%
Variable rate secured debt 21,426 6.7% 0.8%
Variable rate unsecured debt 135,600 6.4% 5.1%
---------------- ------
157,026 6.5% 5.9%
---------------- ------
Total Debt 1,156,226 7.4% 43.2%
Minority interest at market 13,739 0.5%
Preferred stock at market 268,987 10.0%
Common stock at market 1,242,785 46.3%
-------------- ------
Equity capitalization at market 1,511,772 56.3%
-------------- ------
Total market capitalization (debt & equity) $ 2,681,737 100.0%
============== ======
</TABLE>
Net cash provided by financing activities during 1997 was $194.8 million
compared to $82.1 million for 1996. In connection with its 1997 acquisitions of
real estate owned, the Company assumed debt and issued operating partnership
units aggregating approximately $72.6 million compared to the assumption of
$387.9 million of debt and the issuance of common stock and operating
partnership units aggregating approximately $346.9 million last year.
Cash provided by financing activities
On January 28, 1997, the Company issued 4,000,000 shares of its common stock at
$15.75 per share for an aggregate value of approximately $63 million. Net
proceeds of $59.4 million were used to repay an unsecured credit facility
assumed in connection with the South West Merger.
The Company raised $39.7 million of new equity capital through its Dividend
Reinvestment and Stock Purchase Plan (the "Plan") during 1997 which included
$29.6 million in optional cash investments and $10.1 million of reinvested
dividends.
In anticipation of the issuance of unsecured debt in early 1997, the Company
entered into a $100 million (notional amount) Treasury rate lock agreement in
November 1996. On January 27, 1997, the Company issued $125 million of 7.25%
Notes due January 15, 2007. The Notes were priced to yield 7.31% which was 79
basis points over the 10 year Treasury rate at the time of issuance. The
interest rate protection agreement was terminated simultaneously with the $125
million Note issuance, and the Company received $1.5 million in cash. This had
the economic effect of lowering the interest rate on the Notes to approximately
7.14%. Net proceeds of approximately $124 million were used to curtail bank debt
and purchase apartment communities.
27
<PAGE>
On May 29, 1997, the Company sold 6,000,000 shares of 8.60% Series B Redeemable
Preferred Stock at $25 per share. Net proceeds of $145.1 million were primarily
used to repay short-term bank debt.
Derivative Instruments
The Company, from time to time, uses derivative instruments to synthetically
alter on-balance sheet liabilities or to hedge anticipated financing
transactions. Derivative contracts did not have a material impact on the results
of operations during the twelve months ended December 31, 1997 and 1996.
On May 1, 1997, an interest rate swap agreement with a notional amount of $83
million expired. This interest rate swap agreement effectively changed the
Company's interest exposure from a variable rate to a weighted average fixed
rate of 6.45% on borrowings outstanding under the Company's credit facilities.
No gain or loss was recognized on the expiration of this agreement.
At December 31, 1997, the Company had five interest rate swap agreements
outstanding with an aggregate notional amount of $45 million. These five
interest rate swap agreements effectively fix $45 million of the Company's
variable-rate secured notes payable to a weighted average fixed rate of 7.29%.
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 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 6.486% on or before September 9, 1998.
The Company anticipates replacing balances currently outstanding under its bank
line borrowings with permanent debt during 1998.
Credit facilities
On August 4, 1997, the Company closed on a new $200 million three year unsecured
revolving credit facility (the "Credit Facility"), a $50 million one year
unsecured line of credit (the "Line of Credit") and a $15 million uncommitted
line of credit with a major U.S. financial institution. Under the new Credit
Facility, pricing is based upon the higher of the Company's senior unsecured
debt ratings from S&P and Moody's which are currently BBB+ and Baa1,
respectively. At these rating levels, contractual interest under the new Credit
Facility is LIBOR plus 42.5 basis points. The Credit Facility also includes a
$100 million competitive bid option which allows the Company to solicit bids
from participating banks at rates below the contractual rate. The Credit
Facility and Line of Credit are subject to customary financial covenants and
limitations.
At and for the year ended December 31, 1997, the Company had the following
credit facilities (dollars in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1997 At December 31, 1997
-------------------------------------- --------------------------------
Weighted Average
Amount of Amount Weighted Average Amount Weighted Average
Credit Facility Facility Outstanding Interest Rate Outstanding Interest Rate
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Revolving credit-3 Yr. $ 200,000 $ 28,786 6.2% $ 135,000 6.4%
Line of credit 50,000 -- -- -- --
Uncommitted line 15,000 1,789 6.2% 600 7.4%
Revolving credit** N/A 44,048 6.3% -- --
---------- ---------------------------------- --------------------------------
$ 265,000 $ 74,623 6.3% $ 135,600 6.4%
========== ================================== ================================
</TABLE>
** Represents the Company's unsecured revolving credit facilities with
four commercial banks which were terminated on August 4, 1997 upon the
execution of the $200 million three year unsecured revolving credit
facility, therefore, there was no balance outstanding at December 31,
1997.
The Company's liquidity and capital resources are believed to be more than
adequate to meet its cash requirements for the next several years. The Company
expects to meet its short and long-term capital requirements, such as balloon
debt maturities, property acquisitions, development activity and significant
capital improvements, primarily through the public and private sale of capital
stock and the issuance of medium and long-term unsecured notes payable. The
Company may also fund its capital requirements through (i) the assumption of
mortgage indebtedness, (ii) property sales, (iii) common shares sold through the
Company's Dividend Reinvestment and Stock Purchase
28
<PAGE>
Plan, (iv) retained operating cash flow, (v) the issuance of operating
partnership units and (vi) the use of unused credit facilities. As a result of
its investment grade debt ratings, the Company expects to use unsecured debt as
its primary debt funding source.
Depending upon the volume and timing of acquisition and sales activity, the
Company anticipates raising additional debt and equity capital during the next
twelve months to finance capital requirements, while striving to minimize the
overall cost of capital. During the second quarter of 1997, the Company filed a
shelf registration statement for approximately $675 million of debt and
preferred and common equity securities of which $486.7 million was unused at
December 31, 1997.
In February 1998, the Company issued 1.7 million shares of its common stock at a
gross sales price of $14.3125 per share to a Unit Investment Trust ("UIT"). Net
proceeds of $23.8 million were primarily used to curtail bank debt.
Year 2000 Conversion
The Company has recognized the need to ensure that its systems, equipment and
operations will not be adversely affected by the change to calendar year 2000.
As such, the Company has taken steps to identify potential areas of risk and has
begun addressing these in its planning, purchasing and daily operations. The
total cost of converting all internal information systems, equipment and
operations for the year 2000 has not been fully quantified, but it is not
expected to be a material cost to the Company. Much of the Company's internal
software programs have been purchased from third parties. However, no such
estimates can be made as to the potential adverse impact resulting from the
failure of third party service providers and vendors to prepare for the year
2000. The Company is attempting to identify those risks as well as to receive
compliance certificates from all third parties that have a material impact on
the Company's operations.
Funds from operations
Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in operating partnership
and extraordinary items (computed in accordance with generally accepted
accounting principles) plus real estate depreciation, less preferred dividends
and after adjustment for significant non-recurring items, if any. The Company
computes FFO in accordance with the recommendations set forth by the National
Association of Real Estate Investment Trusts ("NAREIT"). The Company considers
FFO in evaluating property acquisitions and its operating performance, and
believes that FFO should be considered along with, but not as an alternative to,
net income and cash flows as a measure of the Company's operating performance
and liquidity. FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs.
For 1997, FFO increased 65.3 % to $118.6 million, compared with $71.7 million
last year. The increase in FFO was principally due to the increased net rental
income from the Company's 31,270 non-mature apartment homes in 98 apartment
communities that were acquired and developed subsequent to January 1, 1996. For
1996, FFO increased 14.9 % to $71.7 million, compared with $62.4 million for
1995, principally due to the increased net rental income from the Company's then
12,914 non-mature apartment homes in 52 apartment communities.
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands 1997 1996 1995
-------------------------------------------------
<S> <C>
Calculation of funds from operations:
Income before gains on sales of investments and
minority interest of unitholders in operating partnership $ 57,813 $ 33,726 $ 28,037
Adjustments:
Real estate depreciation 76,688 47,410 38,939
Dividends to preferred shareholders (17,345) (9,713) (6,637)
Prior years' payroll tax liability 395
Impairment loss on real estate owned 1,400 290 1,700
------------------------------------------------
Funds from operations $ 118,556 $ 71,713 $ 62,434
================================================
</TABLE>
29
<PAGE>
Results of Operations
The Company's net income is primarily generated from the operations of its
apartment communities. For purposes of evaluating its comparative operating
performance, the Company categorizes its apartment communities into two
categories mature and non-mature. For the 1997 versus 1996 comparison, these
communities are as follows: (i) mature--those communities acquired, developed
and stabilized prior to January 1, 1996 and held throughout both 1997 and 1996
and (ii) non-mature--those communities acquired, developed or sold subsequent
January 1, 1996. For the 1996 versus 1995 comparison, these communities are as
follows: (i) mature--those communities acquired prior to January 1, 1995 and
held throughout the annual reporting period and (ii) non-mature--those
communities acquired and developed subsequent to December 31, 1995 plus four
apartment communities sold during this same period. The Company's apartment
operations are divided into four geographic regions, each of which constitutes a
core operating unit. Based on the total number apartment homes, the Northern
Region constitutes 33% of the Company's apartment portfolio and includes
Delaware, Maryland, Virginia and northern North Carolina. The Southern Region
constitutes 22% of the Company's apartment portfolio and includes Charlotte,
North Carolina, South Carolina, Georgia, Tennessee and Alabama. The Florida
Region includes the entire state of Florida or 17% of the Company's apartment
portfolio, while the Western Region constitutes 28% of the Company's apartment
portfolio and includes Texas, Arkansas, Oklahoma, Nevada, New Mexico and
Arizona.
All per share amounts refer to basic earnings per share unless otherwise
indicated.
1997-vs-1996
For 1997, the Company reported increases over last year in rental income, income
before gains on sales of investments and minority interest of unitholders in
operating partnership, net income and net income available to common
shareholders. For 1997, net income available to common shareholders increased
$24.5 million, with a corresponding increase of $.12 and $.11 for basic and
diluted earnings per share, respectively, compared to 1996. The large per share
increases over last year are primarily attributed to gains recognized on the
sales of investments. Net income available to common shareholders for the year
ended December 31, 1997 includes aggregate gains on the sales of investments of
$12.7 million ($.15 per share). In addition, since the beginning of 1996, the
Company acquired and developed a total of 31,270 apartment homes in 98 apartment
communities (including 14,320 completed apartment homes in 44 apartment
communities acquired in the South West Merger) and sold 16 apartment communities
containing 3,222 apartment homes, representing a net 82% expansion in the number
of apartment homes owned during that period. These non-mature apartment homes
provided a substantial portion of the aggregate reported increases. However,
these increases were moderated in part due to the Company's financing activities
during 1997. During 1997, the Company financed its acquisition and development
programs primarily with common and preferred equity and the proceeds from
property sales rather than debt which was used to finance much of the 1996
acquisition and development programs.
1996-vs-1995
For 1996, the Company reported increases in rental income and income before
gains on sales of investments and minority interest of unitholders in operating
partnership and net income over 1995. Net income available to common
shareholders increased $1.8 million, with a decrease of $.01 per share compared
to 1995. Since the beginning of 1995, the Company acquired and developed a total
of 12,914 apartment homes in 52 communities (excluding those acquired in the
South West Merger) representing a 44.1% expansion in the number of apartment
homes owned during that period. These non-mature apartment homes provided a
substantial portion of the aggregate reported increases.
30
<PAGE>
Total Apartment Communities
The operating performance of the Company's total apartment portfolio is
summarized in the chart below:
<TABLE>
<caption
Year Ended Year Ended
December 31, December 31,
(In thousands) (In thousands)
1997 1996 % Change 1996 1995 % Change
------------------------------------------- --------------------------------------
<S> <C>
Rental income $ 384,205 $ 236,690 62.3% $ 236,690 $ 187,292 26.4%
Rental expenses (162,977) (102,499) 59.0% (102,499) (79,545) 28.9%
Real estate depreciation (76,688) (47,316) 62.1% (47,316) (36,929) 28.1%
---------------------------------------- --------------------------------------
Net rental income (1) $ 144,540 $ 86,875 66.4% $ 86,875 $ 70,818 22.7%
======================================== ======================================
Weighted average number
of apartment homes 58,038 37,481 54.8% 37,481 31,242 20.0%
Economic occupancy (2) 91.7% 92.9% (1.2%) 92.9% 94.1% (1.2%)
</TABLE>
(1) Net rental income for an apartment community is defined as total rental
income, less rental expenses, less real estate depreciation.
(2) Economic occupancy is defined as rental income (potential rental
collections less vacancy loss, management units, units held out of
service, move-in concessions and credit loss) divided by potential
collections (gross potential rent less management units, units held out
of service and move-in concessions) for the period, expressed as a
percentage.
1997-vs -1996
Due to the acquisition and development of 31,270 apartment homes since January
1, 1996, the weighted average number of apartment homes increased 54.8% to
58,038 for 1997. This includes 14,320 completed apartment homes acquired in the
South West Merger on December 31, 1996. As a result of the increase in the
number of apartment homes acquired since January 1, 1996, the Company
experienced significant increases in rental income, rental expenses and real
estate depreciation for 1997.
1996-vs-1995
Due to the acquisition and development of 12,914 apartment homes since January
1, 1995, the weighted average number of apartment homes increased 20% to 37,481
for the year ended December 31, 1996. As a result of the increase in the number
of apartment homes acquired since January 1, 1995, the Company experienced
significant increases in rental income, rental expenses and real estate
depreciation for 1996.
Mature Apartment Communities
The operating performance of the Company's mature apartment communities is
summarized below. For the 1997 vs. 1996 analysis, there were 127 communities
with 31,519 homes that were classified as mature. For the 1996 vs. 1995
analysis, 114 communities with 28,430 homes were classified as mature.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
(In thousands) (In thousands)
---------------------------------------- -----------------------------------------
1997 1996 % Change 1996 1995 % Change
------------------------------------------ -----------------------------------------
<S> <C>
Rental income $ 207,040 $ 199,432 3.8% $ 176,372 $ 169,309 4.2%
Rental expenses (88,394) (86,529) 2.2% (78,270) (72,255) 8.3%
Real estate depreciation (43,003) (39,986) 7.5% (35,996) (33,796) 6.5%
----------------------------------------- ------------------------------------------
Net rental income $ 75,643 $ 72,917 3.7% $ 62,106 $ 63,258 (1.8)%
=========================================== ==========================================
Economic occupancy 92.6 % 93.0% (0.4%) 92.8% 94.1% (1.3%)
Average monthly rents $ 572 $ 551 3.9% $ 540 $ 516 4.6%
</TABLE>
1997-vs-1996
Mature apartment communities were all located in the Northern, Southern and
Florida Regions in 1997. The Company did not own any properties in the Western
Region until December 31, 1996. For 1997, the Company's mature communities
provided approximately 54% of the Company's apartment rental income and 52% of
its net rental income. During 1997, the Company's mature apartment communities
continued to generate rent growth greater than the pace of inflation and double
digit growth of other income. Compared to the same period last year, total
rental income from these apartment homes grew 3.8%, or approximately $7.6
million, reflecting an increase in
31
<PAGE>
average monthly rents of 3.9% to $572 per month. Growth in rental income was
slightly offset by a .04% decrease in economic occupancy. In addition, other
income, primarily fee income, increased approximately $1.2 million or 17.6%.
Overall, economic occupancy bottomed out in January 1997 at 90.8% and grew
steadily through August before declining slightly to 92.3% for December 1997, an
improvement of 1.9% during the year. The economic occupancy declined due to the
weakening of certain major southeastern markets during the last half of 1996,
however, these markets are recovering. The Company expects to maintain rent
growth in the 4% range and economic occupancy in the 92% to 93% range during
1998.
For 1997, rental expenses at these communities increased 2.2%, or $1.9 million,
resulting in an improvement in the operating margin of 0.8% to 57.3%. The 2.2%
increase in operating expenses was attributable to higher personnel costs,
marketing and advertising costs and the Company's cost of self-management.
Personnel costs increased approximately $1.8 million, primarily due to
understaffing at some of its properties during much of 1996. Marketing and
advertising costs increased 33.9% or approximately $845,000 over the same period
last year as a direct result of softening in certain major markets as discussed
above. The cost of self-management increased $1.7 million as the Company
invested heavily in its personnel and technological infrastructure during 1997
in response to growth. Management believes that these additions will allow the
Company to compete more effectively and expand the number of properties owned in
major markets during 1998 and beyond. However, these expense increases were
offset by decreases in repairs and maintenance expense and utility expense.
Repairs and maintenance expense decreased 13.1% or approximately $2.0 million
primarily as a result of less exterior painting, extraordinary repairs,
mechanical repairs and the effect of the upgrade program. In addition, the
Company has taken advantage of some economies of scale due to its increased size
and some centralized purchasing during the 1997 period. Utility expense
decreased primarily as a result of sub-metering water and sewer where local and
state regulations allow. The Company's objective is to maintain rental expense
growth below 2% during 1998.
The operating performance for the Company's mature apartment communities for
1997 and 1996, summarized by geographic region is outlined below:
<TABLE>
<CAPTION>
North South Florida Total
--------------------- ----------------- -------------------- ----------------------
1997 1996 1997 1996 1997 1996 1997 1996
--------------------- ----------------- -------------------- ----------------------
<S> <C>
Rental income $94,005 $90,607 $64,628 $63,552 $48,407 $45,273 $207,040 $199,432
Rental expenses 37,065 37,067 29,445 27,891 21,884 21,571 88,394 86,529
Economic occupancy 93.0% 94.0% 91.1% 92.3% 94.0% 92.0% 92.6% 93.0%
Average monthly rents $ 585 $ 561 $ 538 $ 520 $ 598 $ 578 $ 572 $ 551
</TABLE>
For the year ended December 31, 1997, depreciation expense increased partly as a
result of the upgrade, improvement and initiative programs in place at the
Company's mature apartment communities discussed under "Capital Expenditures" in
Liquidity and Capital Resources.
1996-vs-1995
For 1996, the Company's mature communities provided approximately 75% of the
Company's apartment rental income and 71% of its net rental income. Compared to
1995, total rental income from these apartment homes grew 4.2%, or $7.1 million,
reflecting an increase in average monthly rents of 4.6% to $540 per month. In
addition, other income, primarily fee income, increased $1.6 million or 33%. The
rental rate increases were offset by a 1.3% decline in economic occupancy to
92.8%, which resulted from a decrease in physical occupancy of 1.0% and an
increase in credit loss of .3%. The economic occupancy declined due to the
weakening of certain major markets during the last half of 1996 including
Richmond, Columbia, Greenville, Washington DC and Hampton Roads. The Company
attributed the market softness primarily to increased home buying.
For 1996, rental expenses at these communities increased 8.3%, or $6.0 million,
resulting in a decrease in the operating margin of 1.7% to 55.6%. The increase
in rental expenses is partly attributable to the severe winter of 1996 compared
to the relatively mild winter of 1995. Of the $6.0 million increase, $400,000
was weather related which included increases in gas, snow removal and repair
labor expenses. During 1996, the Company's mature apartments experienced
increases in most of its operating expense categories compared to 1995. Payroll
and
32
<PAGE>
payroll-related expenses increased approximately $1.1 million or 7% due to
several factors: (i) increased salaries and wages in 1996 as several positions
were re-priced, (ii) tightening in the labor markets and (iii) overtime
attributable to the upgrade process discussed below. Exterior painting and other
exterior improvements, such as striping and sealcoating parking lots, accounted
for almost $1.1 million of the increase. In addition, real estate taxes,
security and water and sewer expenses increased $232,000, $427,000 and $416,000,
respectively, over 1995. For 1996, casualty insurance expense increased
approximately $406,000 over 1995 as the Company experienced several large
casualty insurance claims relating to hurricane and storm damage. This resulted
in a significant increase in insurance rates beginning with its July 1, 1996
policy year.
In 1996, the Company began the process of upgrading certain of its older
apartment communities in order to enhance rent growth over the long term. The
upgrades relate primarily to the modernization of the kitchens and bathrooms
with new appliances, cabinets, light fixtures, ceiling fans, shelving,
countertops, doors and floor coverings. Although certain of these costs were
capitalized, a portion were expensed. The process of upgrading contributed to
higher turnover costs and increased repair labor costs.
For the year ended December 31, 1996, depreciation expense increased $2.2
million or 6.5%, primarily as a result of capital expenditures. During 1996, the
Company had significant capital expenditures on several apartment communities
acquired during 1994.
Non-Mature Communities
For the 1997 vs. 1996 analysis, the Company's non-mature apartment communities
include: (i) 7,590 apartment homes acquired during 1996, net of one resold, and
a community acquired in 1995 and not stabilized due to significant
rehabilitation, (ii) 13,671 apartment homes acquired on December 31, 1996 in
connection with the South West Merger, net of one resold and one under
development, (iii) 8,524 apartment homes acquired since January 1, 1997, net of
one resold, (iv) 3,222 apartment homes sold since January 1, 1996 and (v) the
1,232 apartment homes developed since January 1, 1996 which is summarized in the
chart below (dollars in thousands):
Year Ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 Acquisitions and
Former 1997 and 1996
1996 Acquisitions South West Development & Sales Total Non-Mature
1997 1996 1997 1996 1997 1996 1997 1996
------ ------ ----- ---- ----- ---- ------ ------
<S> <C>
Rental income $ 50,977 $ 23,336 $ 86,884 $ -- $ 39,304 $ 13,922 $ 177,165 $ 37,258
Rental expenses (20,690) (8,958) (36,923) -- (16,970) (7,012) (74,583) (15,970)
Real estate depreciation (12,100) (5,286) (14,468) -- (7,117) (2,044) (33,685) (7,330)
----------------------- ----------------- ---------------------- -----------------------
Net rental income $ 18,187 $ 9,092 $ 35,493 $ -- $ 15,217 $ 4,866 $ 68,897 $ 13,958
======================= ================= ====================== =======================
</TABLE>
Year Ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 Acquisitions 1995 Acquisitions Sales Total Non-Mature
1996 1995 1996 1995 1996 1995 1996 1995
------------------ --------------------- ---------------------- ----------------------
<S> <C>
Rental income $ 27,069 $ -- $ 30,152 $ 14,439 $ 3,097 $ 3,544 $ 60,318 $ 17,983
Rental expenses (10,642) -- (12,141) (5,666) (1,446) (1,624) (24,229) (7,290)
Real estate depreciation (4,796) -- (6,493) (2,251) (31) (882) (11,320) (3,133)
------------------ --------------------- --------------------- -----------------------
Net rental income $ 11,631 $ -- $ 11,518 $ 6,522 $ 1,620 $ 1,038 $ 24,769 $ 7,560
================== ===================== ===================== =======================
</TABLE>
1997-vs-1996
For 1997, the Company's non-mature apartment communities provided approximately
46% of the Company's apartment rental income and 48% of its net rental income.
Rental income, rental expenses and real estate depreciation increased from 1996
to 1997 directly as a result of the increase in the weighted average number of
apartment homes owned during 1997. For the year ended December 31, 1997, average
economic occupancy was 90.7%, and the operating margin was 57.9% for the
non-mature apartment communities.
1996 Acquisitions (excluding the South West Merger)
The 29 apartment communities containing 7,590 apartment homes that were acquired
during 1996 (net of one apartment community containing 122 apartment homes
resold and a community acquired in 1995 and not stabilized
33
<PAGE>
due to significant rehabilitation) provided a significant increase in rental
income, rental expenses and depreciation expense for the Company's apartment
portfolio for 1997. For 1997, these apartment communities had economic occupancy
of 89.8% and an operating margin of 59.4%. The first year return on investment
for these communities in 1997, on an average investment of $319 million, was
9.0% (excluding one community under renovation). This reflects the
under-performance of nine apartment communities in the Greensboro/Winston-Salem,
North Carolina market that were acquired in August 1996 as part of a portfolio
transaction. Occupancy in this region peaked in August 1996 when the Company
acquired these properties and subsequently fell, reflecting an oversupply of
apartment product in this market. However, the Company believes Greensboro is a
good long-term market.
South West Property Trust Inc. (South West)
The acquisition of the 43 apartment communities containing 13,671 apartment
homes included in the South West Merger on December 31, 1996, net of one
apartment community resold and one under development, provided the largest
increases in rental income, rental expenses and depreciation expense for the
Company's entire apartment portfolio for the year ended December 31, 1997. The
return on investment for the South West properties was 9.4% during 1997. For the
year ended December 31, 1997, these apartment communities had economic occupancy
of 92.7% and an operating margin of 57.5%.
1997 Acquisitions, Development and Sales
Included in this category are the following: (i) the 28 apartment communities
containing 8,524 apartment homes acquired by the Company during 1997 (net of one
resold) which are projected to have a first year return on investment of
approximately 9.5%, (ii) the 1,232 apartment homes developed since January 1,
1996 and (iii) the 16 apartment communities containing 3,222 apartment homes
sold since January 1, 1996. The return on investment for 1997 acquisitions on an
average investment of $345 million was 9.3%.
1996 -vs-1995
For 1996, the Company's non-mature apartment communities provided approximately
25% of the Company's rental income and 29% of its net rental income. Rental
income, rental expenses and real estate depreciation increased from 1995 to 1996
directly as a result of the increase in the number of apartment homes acquired
during those years. For the 12,914 apartments in the 52 communities acquired and
developed since January 1, 1995, average economic occupancy for 1996 was 93.1%,
and the operating margin was 59.8%. During 1996, these communities provided
increases of $42.3 million, $16.9 million and $17.2 million, respectively, in
rental income, rental expenses and net rental income. For 1996, the 30 apartment
communities containing 7,712 apartment homes which were acquired during 1996,
provided rental income, rental expenses and net rental income of $27.1 million,
$10.6 million and $11.6 million, respectively, and the 1995 acquisitions which
consisted of 42 apartment communities containing 5,142 apartment homes provided
rental income, rental expenses and net rental income of $30.2 million, $12.1
million and $11.5 million, respectively.
Interest Expense
During 1997, interest expense increased $28.2 million or $.02 per common share
over 1996. The weighted average amount of debt employed during 1997 was higher
than it was in 1996 ($1 billion in 1997 versus $647 million in 1996) which
accounted for the majority of the increase in interest expense. The weighted
average interest rate on this debt was slightly lower than it was last year,
decreasing from 7.6% in 1996 to 7.5% in 1997. This slightly lower interest rate
during 1997 reflected the fact that the weighted average interest rate on
short-term bank borrowings decreased compared to last year and the Company's
reliance on these short-term bank borrowings increased in 1997 compared to 1996
($74.6 million weighted average outstanding in 1997 versus $49.9 million in
1996). For 1997 and 1996, total interest capitalized was $2.6 million and $.5
million, respectively. The increase reflects increased development activity
during 1997.
For 1996, interest expense increased $10.2 million or $.10 per common share over
1995. The weighted average amount of debt employed during 1996 was higher than
it was in 1995 ($647 million in 1996 versus $512 million in 1995). The weighted
average interest rate on this debt was slightly lower in 1996, decreasing from
7.9% in 1995 to 7.6%. The lower interest rate during 1996 reflected the fact
that the weighted average interest rate on short-term bank borrowings decreased
compared to 1995 and the Company's reliance on these lower rate short-term bank
borrowings increased in 1996 compared to 1995 ($49.9 million weighted average
outstanding in 1996 versus $8.2
34
<PAGE>
million in 1995). The Company funded its 1996 acquisitions and development
activity primarily with debt compared to 1995 when a combination of debt and
equity was used.
General and Administrative
During 1997, general and administrative expenses increased by $1.7 million over
1996. In 1997, the Company incurred increases in most of its general and
administrative expense categories which are directly attributable to the
increased size of the Company. The largest increases occurred in payroll and
payroll-related expenses and investor relations expense. General and
administrative expense as a percentage of rental revenues decreased .4% from
2.2% during 1996 to 1.8% during 1997 primarily due to economies of scale. During
1997, general and administrative expenses grew approximately 31% while rental
income grew by 60% over the same period last year.
During 1996, general and administrative expenses increased by $553,000 over the
same period in the prior year. In 1996, the Company incurred increases in most
of its general and administrative expense categories. The largest increases
occurred in payroll expenses, investor relations expenses and office rent which
are directly related to the higher administrative costs associated with
increasing the size of the Company. However, general and administrative expense,
as a percentage of rental revenues, remained relatively flat compared to 1995.
Impairment Loss
The Company's long-lived assets held and used are periodically evaluated for
impairment and provisions for possible losses are recorded if required. In
connection with the Company's evaluation of its apartment portfolio, during the
third quarter of 1997, the Company recorded an impairment loss of $1.4 million
relating to two apartment communities included in the Company's real estate held
for investment. These apartment communities were subsequently moved to real
estate held for disposition based upon management's decision to dispose of these
properties.
During 1995, the Company recognized a $1.7 million impairment loss associated
with management's decision to sell a shopping center at a discount as part of a
portfolio transaction.
Gains on Sales of Investments
During the year ended December 31, 1997, the Company recognized gains on the
sales of investments aggregating $12.7 million as a result of the following
transactions: (i) the first quarter sale of the Company's investment in the
preferred stock of First Washington Realty Trust, Inc. obtained as partial
consideration in the 1995 sale of four commercial properties on which the
Company recognized a gain for financial reporting purposes of $2.1 million and
(ii) the sale of 12 apartment communities containing 2,570 apartment homes and
one shopping center for an aggregate sales price of $68.4 million on which the
Company recognized aggregate gains for financial reporting purposes of $10.6
million.
During 1996, the Company recognized gains for financial reporting purposes
aggregating $4.3 million on the sale of four apartment communities, four
shopping centers, one industrial park and two parcels of undeveloped land. Seven
of the sales were structured to qualify as tax deferred exchanges which enabled
the Company to defer approximately $7.8 million of capital gains for income tax
purposes.
Dividends to Preferred Shareholders
Dividends to preferred shareholders totaled $17.3 million for 1997 compared to
$9.7 million for 1996. The increase in dividends to preferred shareholders is a
result of the issuance of six million shares of Series B 8.60% Cumulative
Redeemable Preferred Stock in May 1997.
Dividends to preferred shareholders totaled $9.7 million for 1996 compared to
$6.6 million for 1995. The increase in dividends to preferred shareholders was a
result of a full year of dividends on the Company's 4.2 million shares of Series
A 9.25% Cumulative Redeemable Preferred Stock in 1996 compared to a partial year
of dividends in 1995.
35
<PAGE>
Inflation
The Company believes that the direct effects of inflation on the Company's
operations have been inconsequential.
36
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedule on page 44
of this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
37
<PAGE>
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with respect to its Annual Meeting of Shareholders to be
held on May 12, 1998.
Information required by this item regarding the executive officers of
the Company is included in Part I of this Annual Report on Form 10-K in the
section entitled "Executive Officers of the Registrant".
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with respect to its Annual Meeting of Shareholders to be
held on May 12, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with respect to its Annual Meeting of Shareholders to be
held on May 12, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with respect to its Annual Meeting of Shareholders to be
held on May 12, 1998.
38
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1&2) See Index to Consolidated Financial Statements and
Schedule on page 44 of this Annual Report on Form 10-K.
(3) Exhibits
The exhibits listed below are filed as part of this annual report.
References under the caption "Location" to exhibits, forms, or other filings
indicate that the form or other filing has been filed, that the indexed exhibit
and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit Description Location
- - ------- ----------- --------
<S> <C>
2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4
as of December 19, 1997, between the Registration Statement (Registration
Company, ASR Investment Corporation No. 333-45305) filed with the
and ASR Acquisition Sub, Inc. Commission on January 30, 1998.
2(b) Definitive Agreement and Plan of Exhibit 2(b) to the Company's Form S-4 Registration
Merger dated as of October 1, 1996, Statement (Registration No. 333-13745) filed with
the between the Company, United Sub, Commission on October 9, 1996.
Inc. and South West Property Trust Inc.
3(a) Restated Articles of Incorporation Exhibit 4(b) to the Company's Form S-3
Registration Statement (Registration No. 333-44463)
filed with the Commission on January 16, 1998.
3(a)(i) Amendment of Articles of Exhibit 3 to the Company's Form 8-A
Incorporation Registration Statements dated February 4, 1998.
3(b) Restated By-Laws
Exhibit 3(b) to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997.
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual
Report Certificate on Form 10-K for the year ended December
31, 1993.
4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995.
Redeemable Preferred Stock
4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 8.60% Series B Cumulative Registration Statement dated June 11, 1997.
Redeemable Preferred Stock
4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A
January 27, 1998, between the Company Registration Statement dated February 4, 1998.
and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A
Registration Statement dated February 4, 1998.
4(ii)(a) Loan Agreement dated as of Exhibit 6(c)(i) to the Company's Form 8-A
November 7, 1991, between the Registration Statement dated April 19, 1990.
Company and Aid Association for
Lutherans
39
<PAGE>
4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A
as of February 15, 1993, between Registration Statement dated April 19, 1990.
the Company and CIGNA Property
and Casualty Insurance Company,
Connecticut General Life Insurance
Company, Connecticut General Life
Insurance Company, on behalf of
one or more separate accounts,
Insurance Company of North
America, Principal Mutual Life
Insurance Company and Aid
Association for Lutherans
4(ii)(g) Three Year Credit Agreement dated Exhibit 4(ii)(g) to the Company's Quarterly
As of August 4, 1997, between the Report on Form 10-Q for the quarter ended
Company, United Dominion Realty, L.P., September 30, 1997.
And other subsidiaries and affiliates
of the Company, the Lenders named
Therein and NationsBank, N.A., as
Administrative Agent
4(ii)(h) 364 day Credit Agreement dated Exhibit 4(ii)(h) to the Company's
as of August 4, 1997, between the Quarterly Report on Form 10-Q for the
Company, United Dominion Realty, L.P., quarter ended September 30, 1997.
And other subsidiaries and affiliates
of the Company, the Lenders named
Therein and NationsBank, N.A., as
Administrative Agent
</TABLE>
The Company agrees to furnish to the Commission on request a copy of
any instrument with respect to long-term debt of the Company or its subsidiaries
the total amount of securities authorized under which does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
<TABLE>
<S> <C>
10(i) Employment Agreement between Exhibit 10(v)(i) to the Company's Annual Report on
the Company and John P. McCann Form 10-K for the year ended December 31, 1982.
dated October 29, 1982
10(ii) Employment Agreement between Exhibit 10(v)(ii) to the Company's Annual Report on
the Company and James Dolphin Form 10-K for the year ended December 31, 1982.
dated October 29, 1982.
10(iv) Employment Agreement between Exhibit 10(iv) to the Company's Annual
the Company and John S. Schneider Report on Form 10-K for the year ended
dated December 14, 1996. December 31, 1996.
10(v) Employment Agreement between Exhibit 10(v) to the Company's Annual
the Company and Robert F. Sherman Report on Form 10-K for the year ended
dated December 19, 1996. December 31, 1996.
40
<PAGE>
10(vi) Employment Agreement between Exhibit 10(vi) to the Company's Annual
the Company and David L. Johnston Report on Form 10-K for the year ended
dated December 19, 1996. December 31, 1996.
10(vii) 1985 Stock Option Plan, Exhibit 10(vii) to the Company's Quarterly
as amended. Report on Form 10-Q for the quarter ended
March 31, 1997.
10(viii) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report
Plan. on Form 10-Q for the quarter ended March 31, 1997.
10(ix) Second Amended and Restated Exhibit 10(ix) to the Company's Quarterly Report on
Agreement of Limited Partnership of Form 10-Q for the quarter ended September 30,1997.
United Dominion Realty, L.P.
Dated as of August 30, 1997.
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges
21 The Company has the following subsidiaries, all of which but
United Dominion Realty, L.P. are wholly owned. The Company
owns general and limited partnership interests in United
Dominion Realty, L.P., constituting 89.4% of the aggregate
partnership interest.
The Commons of Columbia, a Virginia corporation
UDRT of North Carolina, L.L.C., a North Carolina limited
liability company UDRT of Alabama, Inc., an Alabama
corporation UDR of Marble Hill, L.L.C., a Virginia limited
liability company United Dominion Realty, L.P., a Virginia
limited partnership United Dominion Residential, Inc., a
Virginia corporation UDRT of Virginia, Inc., a Virginia
corporation UDR Western Residential, Inc., a Virginia
corporation UDR South Carolina Trust, a Maryland business
trust Cleary Court Property Owner's Association, Inc., a
Florida non-profit corporation SWP Properties, Inc., a Texas
corporation SWP Properties I, L.P., a Delaware limited
partnership SWP Woodscape Properties, Inc., a Texas
corporation SWP Woodscape Properties I, L.P., a Delaware
limited partnership SWP Creeks Properties, Inc., a Texas
corporation SWP Creeks Properties, I, L.P., a Delaware limited
partnership SWP REMIC Properties II, Inc., a Texas corporation
SWP REMIC properties II-A, L.P., a Delaware limited
partnership South West Properties, L.P., a Delaware limited
partnership SWP Arkansas Properties, Inc., an Arkansas
corporation SWP Depositor, Inc., a Texas corporation SWP
Developers, Inc., a Texas corporation SRL Amarillo Investors,
Inc., a Texas corporation SWPT II Arizona Properties, Inc., an
Arizona corporation South West REIT Holding, Inc., a Texas
corporation UDR Pecan Grove, L.P., a Delaware limited
partnership UDR Camino Village, L.P., a Delaware limited
partnership
41
<PAGE>
23 Consent of Independent Filed herewith.
Auditors
27 Financial Data Schedule Filed electronically with the Securities
and Exchange Commission.
</TABLE>
Exhibits 10(i) through 10(viii) inclusive, are management contracts or
compensatory plans or arrangements required to be filed as an exhibit to this
Form 10-K pursuant to Item 14(c) of this report.
(b)Reports on Form 8-K
<TABLE>
<S> <C>
(i) A Form 8-K dated October 21, 1997, was filed
with the Securities and Exchange Commission
on November 5, 1997. The filing reported the
acquisition by the Company of properties, of
which, the aggregate number of properties
acquired exceeded the majority of properties
which were audited. The filing was
subsequently amended on Form 8-K/A No. 1
filed with the Commission on December 31,
1997. The filing included (i) the financial
statements of real estate properties
acquired which included Bammelwood
Apartments, Braesridge Apartments, Camino
Village Apartments, Pecan Grove Apartments
and Waterside at Ironbridge Apartments, (ii)
the Consolidated Pro Forma financial
statements of the company and notes thereto
and (iii) Exhibits
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Trust, Inc.
(registrant)
By /s/ James Dolphin
- - ---------------------------------------------------
James Dolphin
Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
March , 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March , 1998 by the following persons on behalf of
the registrant and in the capacities indicated.
/s/ John P. McCann /s/ Jeff C. Bane
- - ------------------------------- ---------------------------
John P. McCann Jeff C. Bane
Chairman of the Board, President and Chief Director
Executive Officer
/s/ James Dolphin /s/ R. Toms Dalton, Jr.
- - ------------------------------- ---------------------------
James Dolphin R. Toms Dalton, Jr.
Director, Executive Vice President, Director
Chief Financial Officer and
Chief Accounting Officer
/s/ John C. Lanford /s/ H. Franklin Minor
- - ------------------------------- ---------------------------
John C. Lanford H. Franklin Minor
Director Director
/s/ Lynne Sagalyn /s/ Mark J. Sandler
- - ------------------------------- ---------------------------
Lynne Sagalyn Mark J. Sandler
Director Director
/s/ John S. Schneider /s/ Robert W. Scharar
- - ------------------------------- ---------------------------
John S. Schneider Robert W. Scharar
Director, Vice Chairman of the Board and Director
Chief Operating Officer
/s/ C. Harmon Williams, Jr.
- - -------------------------------
C. Harmon Williams, Jr.
Director
<PAGE>
43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
UNITED DOMINION REALTY TRUST, INC.
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT Page
Report of Ernst & Young LLP, Independent Auditors 45
Consolidated Balance Sheets at December 31, 1997
and 1996 46
Consolidated Statements of Operations for each of 47
the three years in the period ended December 31, 1997
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31, 1997 48
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended
December 31, 1997 49
Notes to Consolidated Financial Statements 50
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III - Summary of Real Estate Owned 67
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements and
notes thereto.
<PAGE>
44
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
United Dominion Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of United
Dominion Realty Trust, Inc. (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
United Dominion Realty Trust, Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in
1995 the Company changed its method of accounting for impairment of long-lived
assets and long-lived assets held for disposition.
/s/ Ernst & Young LLP
Richmond, Virginia
January 28, 1998
<PAGE>
45
UNITED DOMINION, REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
December 31, 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
Assets
Real estate owned:
Real estate held for investment (Notes 2 and 3) $ 2,281,438 $ 2,007,612
Less: accumulated depreciation 200,506 173,291
------------------ ------------------
2,080,932 1,834,321
Real estate under development 24,598 37,855
Real estate held for disposition (Note 2) 166,501 39,556
Cash and cash equivalents 473 13,452
Other assets 41,221 41,720
------------------ ------------------
Total assets $ 2,313,725 $ 1,966,904
================== ==================
Liabilities and Shareholders' Equity
Notes payable-secured (Note 4) $ 417,325 $ 376,560
Notes payable-unsecured (Note 5) 738,901 668,275
Real estate taxes payable 21,744 13,209
Accrued interest payable 14,912 11,025
Security deposits and prepaid rent 12,105 10,097
Distributions payable to common and preferred shareholders 25,607 21,722
Accounts payable, accrued expenses and other liabilities 10,081 13,608
------------------ ------------------
Total liabilities 1,240,675 1,114,496
Minority interest of unitholders in operating partnership 14,693 2,029
Shareholders' equity: (Notes 8 and 9)
Preferred stock, no par value; $25 liquidation preference,
25,000,000 shares authorized;
4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000
6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 --
Common stock, $1 par value; 150,000,000 shares authorized
89,168,442 shares issued and outstanding (81,982,551 in 1996) 89,168 81,983
Additional paid-in capital 906,307 814,795
Notes receivable from officer-shareholders (8,806) (5,926)
Distributions in excess of net income (183,312) (147,529)
Unrealized gain on securities available-for-sale 2,056
------------------ ------------------
Total shareholders' equity 1,058,357 850,379
================== ==================
Total liabilities and shareholders' equity $ 2,313,725 $ 1,966,904
================== ==================
</TABLE>
See accompanying notes.
46
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenues
Rental income $386,672 $241,260 $194,511
Interest, dividend and other non-property income 1,123 1,707 1,692
-------------- --------------- --------------
387,795 242,967 196,203
Expenses
Rental expenses:
Utilities 24,861 17,735 14,464
Repairs and maintenance 54,607 40,665 30,374
Real estate taxes 30,961 17,348 14,058
Property management 12,203 5,575 5,300
Other operating expenses 41,099 22,658 16,717
Depreciation of real estate owned 76,688 47,410 38,939
Interest 79,004 50,843 40,646
General and administrative 7,075 5,418 4,865
Other depreciation and amortization 2,084 1,299 1,103
Impairment loss on real estate owned 1,400 290 1,700
-------------- --------------- --------------
329,982 209,241 168,166
-------------- --------------- --------------
Income before gains on sales of investments, minority interest
of unitholders in operating partnership and extraordinary item 57,813 33,726 28,037
Gains on sales of investments 12,664 4,346 5,090
-------------- --------------- --------------
Income before minority interest of unitholders in operating
partnership and extraordinary item 70,477 38,072 33,127
Minority interest of unitholders in operating partnership (278) (58) --
-------------- --------------- --------------
Income before extraordinary item 70,199 38,014 33,127
Extraordinary item-early extinguishment of debt (50) (23) --
-------------- --------------- --------------
Net income 70,149 37,991 33,127
Dividends to preferred shareholders (17,345) (9,713) (6,637)
-------------- --------------- --------------
Net income available to common shareholders $52,804 $28,278 $26,490
============== =============== ==============
Earnings per common share: (Note 1)
Basic earnings per common share $.61 $.49 $.50
============== =============== ==============
Diluted earnings per common share $.60 $.49 $.50
============== =============== ==============
Weighted average number of common shares outstanding 87,145 57,482 52,781
Weighted average number of common shares outstanding
plus dilutive potential common shares 87,339 57,655 52,972
See accompanying notes.
</TABLE>
<PAGE>
47
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
Operating Activities
Net income $ 70,149 $ 37,991 $ 33,127
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 78,772 48,709 40,042
Minority interest of unitholders in operating partnership 278 58 --
Extraordinary item-early extinguishment of debt 50 23 --
Impairment loss on real estate owned 1,400 290 1,700
Gains on sales of investments (12,664) (4,346) (5,090)
Amortization of deferred financing costs 1,706 1,319 1,078
Changes in operating assets and liabilities:
Increase in operating liabilities 8,830 8,899 763
Increase in operating assets (10,618) (2,879) (5,192)
-------- -------- ---------
Net cash provided by operating activities 137,903 90,064 66,428
Investing Activities
Acquisition of real estate, net of liabilities assumed (271,836) (137,236) (173,937)
Capital expenditures (99,158) (53,087) (35,613)
Development of real estate assets (52,217) (9,229) --
Net proceeds from sales of investments 73,864 33,823 23,464
Proceeds from interest rate hedge transaction 1,538 3,025 --
Net cash acquired in acquisition of South West Property Trust Inc. -- 1,129 --
Other 2,143 3 2,156
-------- -------- ---------
Net cash used in investing activities (345,666) (161,572) (183,930)
Financing Activities
Net proceeds from the issuance of common stock 61,009 1,824 79,615
Net proceeds from the issuance of preferred stock 145,068 -- 101,478
Net proceeds from the issuance of common stock through the
dividend reinvestment and stock purchase plan 39,742 13,188 --
Gross proceeds from the issuance of unsecured notes payable 125,000 200,111 10,000
Net proceeds from the issuance of secured notes payable -- 5,925 21,927
Net borrowings of short-term bank debt 10,350 37,800 4,250
Distributions paid to preferred shareholders (16,270) (9,713) (4,613)
Distributions paid to common shareholders (85,777) (53,979) (45,737)
Distributions paid to minority interest unitholders (144) -- --
Scheduled principal payments on secured notes payable (6,547) (2,729) (1,932)
Mortgage financing proceeds released from construction funds -- 3,627 2,457
Payments on unsecured notes payable (65,414) (72,064) (32,259)
Non-scheduled payments on secured notes payable (9,397) (40,628) (21,463)
Payment of financing costs (2,836) (1,306) (578)
-------- -------- ---------
Net cash provided by financing activities 194,784 82,056 113,145
Net increase (decrease) in cash and cash equivalents (12,979) 10,548 (4,357)
Cash and cash equivalents, beginning of year 13,452 2,904 7,261
-------- -------- ---------
Cash and cash equivalents, end of year $ 473 $ 13,452 $ 2,904
======== ======== =========
Supplemental Information:
Interest paid during the period $ 76,669 $ 48,500 $ 39,568
Non-cash transactions associated with the acquisition
of properties:
Secured debt assumed through the acquisition of properties 60,052 137,988 24,137
Issuance of common stock in connection with acquisitions -- 22,769 --
Issuance of unsecured notes payable in connection
with acquisition -- 25,000 --
Issuance of operating partnership units 12,530 2,006 --
Non-cash transactions associated with the Merger of
South West Property Trust Inc.:
Real estate assets acquired -- 559,591 --
Issuance of common stock -- 322,110 --
Secured debt assumed -- 99,921 --
Unsecured debt assumed -- 125,035 --
Operating liabilities assumed -- 23,805 --
</TABLE>
See accompanying notes.
48
<PAGE>
United Dominion Realty Trust, Inc.
Consolidated Statements of Shareholders' Equity
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Preferred Stock
Balance, beginning of year $ 105,000 $ 105,000 --
Issuance 9.25% Series A Cumulative Redeemable -- -- $ 105,000
Issuance 8.60% Series B Cumulative Redeemable 150,000 -- --
---------------------------------------------------
Balance, end of year $ 255,000 $ 105,000 $ 105,000
===================================================
Common Stock, $1 Par Value
Balance, beginning of year $ 81,983 $ 56,375 $ 50,356
Issuance of common shares in public offering 4,000 -- 4,550
Issuance of common shares in South West Property Trust Inc. Merger -- 22,804
Issuance of common shares in private placement -- 1,680 1,360
Issuance of common shares to officer-shareholders 232 15 10
Repurchase of common shares from officer-shareholders (15) (15) --
Issuance of common shares through dividend reinvestment
and stock purchase plan 2,852 972 --
Issuance of common shares through employee stock purchase plan 1 4 1
Issuance of common shares through exercise of stock options 115 148 98
---------------------------------------------------
Balance, end of year $ 89,168 $ 81,983 $ 56,375
===================================================
Additional Paid-in Capital
Balance, beginning of year $814,796 $ 480,971 $ 410,797
Issuance of common shares in public offering
net of issuance costs 55,386 -- 56,376
Issuance of common shares in South West Property Trust Inc. Merger -- 299,109 --
Issuance of common shares in private placement
net of issuance costs -- 21,059 16,452
Offering costs associated with the issuance of preferred share (4,934) -- (3,522)
Issuance of common shares to officers, net of repayments 3,244 201 136
Repurchase of common shares from officers (266) (201)
Issuance of common shares through dividend reinvestment --
and stock purchase plan 36,890 12,216 --
Issuance of common shares through employee stock purchase plan 8 58 15
Issuance of common shares through exercise of stock options 1,184 1,382 717
----------------------------------------------------
Balance, end of year $ 906,308 $ 814,795 $ 480,971
====================================================
Notes Receivable from Officer-Shareholders
Balance, beginning of year $ (5,926) $ (6,091) $ (5,991)
Notes received for issuance of common shares (3,515) (216) (100)
Notes repaid 216 298 --
Principal repayments 419 83 --
----------------------------------------------------
Balance, end of year $ (8,806) $ (5,926) $ (6,091)
====================================================
Distributions in Excess of Net Income
Balance, beginning of year $ (147,529) $ (120,314) $ (98,194)
Net income 70,149 37,991 33,127
Common stock distributions declared ($1.01 per share for 1997, $.96 per
share for 1996 and $.90 per share for 1995) (88,587) (55,493) (48,610)
Preferred stock distributions declared-Series A ($2.31 per share for 1997
and 1996 and $1.58 per share for 1995) (9,713) (9,713) (6,637)
Preferred stock distributions declared-Series B ($1.27 per share for 1997) (7,632) -- --
-----------------------------------------------
Balance, end of year $ (183,312) $ (147,529) $ (120,314)
===============================================
Unrealized Gain on Securities Avalaible-for-Sale
Balance, beginning of year $ 2,056 $ 448 --
Realized gain on the sale of securities available-for-sale (2,056)
Unrealized gain on securities available-for-sale -- 1,608 $448
----------------------------------------------
Balance, end of year $ -- $ 2,056 $ 448
==============================================
</TABLE>
49
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization United Dominion Realty Trust, Inc., a Virginia corporation, was
formed in 1972. The Company is a fully integrated real estate company which
owns, operates and develops apartment communities for its own portfolio. At
December 31, 1997, the Company owned 225 apartment communities containing 62,789
completed apartment homes located primarily throughout the Sunbelt states.
Basis of presentation The accompanying consolidated financial statements include
the accounts of the Company and its subsidiaries, including United Dominion
Realty, L.P., its Operating Partnership, (collectively, the "Company"). As of
December 31, 1997, United Dominion Realty Trust, Inc. and its wholly-owned
subsidiaries had a 89.4% interest in the Operating Partnership. The financial
statements of the Company include the minority interest of the unitholders in
the operating partnership. All significant inter-company accounts and
transactions have been eliminated in consolidation. Certain previously reported
amounts have been reclassified to conform with the current financial statement
presentation.
Use of estimates The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Federal income taxes The Company is operated as and elects to be taxed as a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, a real estate investment trust which complies with the
provisions of the Code and distributes at least 95% of its taxable income to its
shareholders, does not pay federal income taxes on its distributed income.
Accordingly, no provision has been made for federal income taxes.
Cash and cash equivalents All highly liquid investments with maturities of three
months or less, when purchased, are considered to be cash equivalents.
Real estate assets and depreciation On October 1, 1995, the Company adopted the
provisions of SFAS No. 121 AAccounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of@. The statement requires impairment
losses to be recognized for long-lived assets used in operations when indicators
of impairment are present and the undiscounted future cash flows are not
sufficient to recover the asset's carrying value. If such indicators are
present, an impairment loss is recognized based on the excess of the carrying
amount of the impaired asset over its fair value.
For long-lived assets to be disposed of, impairment losses are recognized when
the fair value of the asset less estimated cost to sell is less than the
carrying value of the asset. Real estate is classified as real estate held for
disposition when management has committed to sell and is actively marketing the
property. Real estate held for disposition is carried at the lower of cost, net
of accumulated depreciation or fair value less cost to dispose, determined on an
asset by asset basis. Depreciation is not recorded on real estate held for
disposition and gains (losses) from initial and subsequent adjustments to the
carrying value of the assets, if any, are recorded as a separate component of
income from continuing operations.
Ordinary repairs and maintenance costs are expensed as incurred. Significant
improvements, renovations and replacements related to the acquisition and
improvement of real estate assets are capitalized at cost and depreciated over
their estimated useful lives.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which is 35 years for buildings, 10 to 35 years for
major improvements, and 5 to 20 years for fixtures, equipment and other assets.
All development projects and related carrying costs, principally interest and
real estate taxes, are capitalized and reported on the balance sheet as "real
estate under development" until such time as the development project is
completed. Upon completion, the total cost of the building and associated land
is transferred to real estate held for investment and the assets
50
<PAGE>
are depreciated over their estimated useful lives. The cost of development
projects includes interest, property taxes, insurance and allocated development
overhead during the construction period.
Interest and real estate taxes incurred during the construction period are
capitalized as part of the projects under development to the extent that such
charges do not cause the carrying value of the asset to exceed its net
realizable value. During 1997, 1996 and 1995, total interest capitalized was
$2,634,000, $541,000 and $40,000, respectively.
Revenue recognition The Company's apartment homes are leased under operating
leases with terms generally of one year or less. Rental income is recognized as
it is earned, which is not materially different than on a straight-line basis.
Deferred financing costs Deferred financing costs include fees and other costs
incurred to obtain long-term debt obligations and are generally amortized over a
period not to exceed the term of the related debt.
Interest rate swap agreements The Company enters into interest rate swap
agreements to alter the interest rate characteristics of outstanding debt
instruments. Each interest rate swap agreement is designated with all or a
portion of the principal balance and term of a specific debt obligation. The
interest rate swaps involve the periodic exchange of payments over the life of
the related agreements. Amounts received or paid on the interest rate swaps are
recorded on an accrual basis as an adjustment to the related interest expense of
the outstanding debt based on the accrual method of accounting. The related
amounts payable to and receivable from counterparties are included in other
liabilities and other assets, respectively. The fair value of and changes in the
fair value as a result of changes in market interest rates for the interest rate
swap agreements are not reflected in the financial statements.
Gains and losses on terminations of interest rate swap agreements are deferred
as an adjustment to the carrying amount of the outstanding debt and amortized
into interest expense over the remaining term of the original contract life of
the terminated swap agreement. In the event of early extinguishment of a
designated debt obligation, any realized or unrealized gain or loss from the
swap would be recognized in income coincident with the extinguishment gain or
loss. There were no gains or losses on terminations of interest rate swap
agreements recognized by the Company for the periods presented.
Any interest rate swap agreements that are not designated with outstanding debt
or notional amounts of interest rate swap agreements in excess of the original
amounts of the underlying debt obligations are recorded as an asset or liability
at fair value, with the changes in the fair value recorded in other income or
expense (fair value method).
Interest rate risk management agreements The Company enters into interest rate
futures contracts to hedge interest rate risk associated with anticipated debt
transactions. The Company follows SFAS No.80 "Accounting for Futures Contracts"
which permits hedge accounting for anticipatory transactions meeting certain
criteria. Gains and losses, if any, on these transactions are deferred as an
adjustment to the carrying amount of the outstanding debt and amortized over the
terms of the related debt as an adjustment to interest expense. The fair values
of interest rate risk management agreements are not recognized in the financial
statements. At the time the anticipated transaction is no longer likely to
occur, the Company would mark the derivative instrument to market and would
recognize any adjustment in the consolidated statement of operations.
Earnings per share In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" (Statement 128). Statement 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to fully diluted earnings per
share. All earnings per share amounts for all periods presented, and where
appropriate, are restated to conform to the Statement 128 requirements. The
early extinguishment of debt does not have an effect on the earnings per share
calculation for the periods presented. The affect of the conversion of the
operating partnership units is antidilutive and is therefore not included in the
following calculations. The weighted average effect of the conversion of the
oerating partnership units for the years ended
51
<PAGE>
December 31, 1997, 1996 and 1995 was 317,120, 68,502 and 0, respectively. The
following table sets forth the computation of basic and diluted earning per
share (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ------
<S> <C>
Numerator for basic and diluted
earnings per share-net income
available to common shareholders $ 52,804 $ 28,278 $ 26,490
Denominator:
Denominator for basic earnings per share-
weighted average shares 87,145 57,482 52,781
Effect of dilutive securities:
Employee stock options 194 173 191
---------- --------- -----------
Dilutive potential common shares
Denominator for dilutive earnings per
share-adjusted weighted average shares
and assumed conversions 87,339 57,655 52,972
========== ========= ==========
Basic earnings per share $ .61 $ .49 $ .50
========== ========= ==========
Diluted earnings per share $ .60 $ .49 $ .50
========== ========= ==========
</TABLE>
Investment in marketable equity securities In connection with a shopping center
sale in 1995, the Company received marketable preferred stock with a fair value
of $7.7 million on the date of receipt. In January 1997, the Company sold the
preferred stock and received $9.9 million in cash and recognized a $2.1 million
gain on the sale of investment for financial reporting purposes.
Minority interest Capital contributions, distributions and profits and losses
are allocated to minority interests in accordance with the terms of the
individual partnership agreements. Operating Partnership Units can be exchanged
for cash or shares of the Company's common stock on a one-for-one basis, at the
option of the Company.
Stock based compensation In October, 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" (Statement
123) which provides an alternative to APB Opinion No.25 in accounting for
stock-based compensation plans and is effective for fiscal years beginning after
December 31, 1995. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation cost has been recognized.
Pending accounting pronouncements In February 1997, the Financial Accounting
Standards Board issued SFAS No. 129, "Disclosure of Information about Capital
Structure" (Statement 129), which establishes standards for disclosing
information about an entity's capital structure. Statement 129 is effective for
periods ending after December 15, 1997. The adoption of Statement 129 did not
impact the Company's capital structure disclosures as the Company was already in
compliance with Statement 129.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" (Statement 130) and SFAS No. 131 "Disclosure
about Segments of an Enterprise and Related Information " (Statement 131) which
are effective for fiscal years beginning after December 15, 1997. The Company
will adopt Statement 130 and
52
<PAGE>
Statement 131 with the fiscal year beginning January 1, 1998. Statement 130 and
Statement 131 do not have a material impact on the financial results or
financial condition of the Company, but will result in certain changes in
required disclosures. Management is evaluating the additional disclosure
requirements for the Company upon the implementation of Statement 130 and
Statement 131.
2. Real Estate Owned
The Company operates primarily in 23 separate markets dispersed throughout a 15
state area. At December 31, 1997, the Company's largest apartment market was
Dallas, where it owned 14% of its apartment homes. Excluding Dallas, the Company
did not own more than 6% of its apartment homes in any one market.
The following table summarizes real estate held for investment at December 31,
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------------------
<S> <C>
Land and land improvements $ 393,505 $ 353,092
Buildings and improvements 1,783,565 1,537,387
Furniture, fixtures and equipment 100,380 115,308
Construction in progress 3,988 1,825
------------- -----------
Real estate held for investment 2,281,438 2,007,612
Accumulated depreciation (200,506) (173,291)
------------- -----------
Real estate held for investment, net $ 2,080,932 $ 1,834,321
============= ===========
</TABLE>
53
<PAGE>
The following is a summary of real estate owned by market at December 31, 1997
(dollars in thousands):
Real Estate Held for Investment by Market
(Excluding real estate under development)
<TABLE>
<CAPTION>
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
---------- ------------ -------- ------------ ------------
<S> <C>
Apartments
Dallas, TX 20 $255,982 $266,815 $ 7,134 (A)
Orlando, FL 12 135,380 154,302 11,211 $27,510
Raleigh, NC 10 123,071 133,719 14,279 9,250 (A)
Charlotte, NC 11 98,367 117,127 12,490 23,026 (A)
Richmond, VA 9 87,214 109,670 24,233 8,622
Houston, TX 9 105,752 107,811 1,537 32,669 (A)
Columbia, SC 10 89,168 100,705 13,382 22,011
Tampa. FL 9 87,592 98,913 9,840 7,985
Greensboro, NC 8 85,362 98,418 4,311 4,213 (A)
Eastern NC 10 79,309 95,231 15,707 10,525
San Antonio, TX 5 86,550 87,812 2,609 (A)
Nashville, TN 8 73,473 83,561 7,084 5,134
Baltimore. MD 7 64,761 73,469 9,550 26,310
Atlanta, GA 6 55,010 64,210 5,503 11,324
Miami/Ft.
Lauderdale, FL 4 57,553 61,896 5,334 --
Washington DC 5 51,099 56,653 4,567 5,960
Hampton, VA 7 46,743 57,181 13,250 --
Jacksonville, FL 3 44,787 54,886 3,765 22,280
Greenville, SC 5 41,703 48,529 5,389 (A)
Phoenix, AZ 3 36,994 39,685 1,087 (A)
Eastern Shore MD 4 31,403 33,732 2,785 --
Fayetteville, NC 3 39,004 40,144 1,831 18,786
Memphis, TN 3 22,835 26,648 2,986 5,715
Austin, TX 2 21,005 21,864 626 (A)
Albuquerque, NM 1 7,900 8,011 260 (A)
Other FL 7 54,048 65,530 5,038 4,813
Other VA 6 30,052 45,248 6,012 2,875
Other GA 2 19,049 21,731 2,820 6,262
Little Rock, AK 2 20,500 20,935 603 --
Las Vegas, NV 1 20,000 20,286 554 --
Delaware 2 14,732 17,413 1,647 --
Other TX 2 15,575 15,819 474 (A)
Alabama 1 7,947 10,953 1,253 --
Oklahoma 1 9,375 9,547 298 (A)
Other NC 1 6,770 7,379 361 (A)
Other SC 1 4,558 5,605 696 --
--- ------------ ------------ ----------- ---------
200 $2,030,623 $2,281,438 $ 200,506 $ 382,844
=== ============= ============ =========== =========
</TABLE>
54
<PAGE>
UNITED DOMINION REALTY TRUST, INC..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real Estate Held for Disposition (B)
<TABLE>
<CAPTION>
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
<S> <C>
Apartments 25 $ 143,471 $ 195,067 $ 40,905 $ 34,481 (A)
Commercial 4 11,252 16,295 3,956 --
-------------- ----------- ----------- ---------- ------------
29 $ 154,723 $ 211,362 $ 44,861 $ 34,481
============= =========== =========== ========== ============
Total Real Estate
Owned 229 $ 2,185,346 $ 2,492,800 $ 245,367 $ 417,325
============= =========== =========== ========== ============
</TABLE>
(A) There are 31 apartment communities encumbered by two REMIC
financings and one note payable-secured aggregating $127.6
million.
(B) Real estate held for disposition contributed net rental income
(rental income less rental expenses and depreciation expense) in
the aggregate amount of approximately $19.5 million for the year
ended December 31, 1997. The Company expects to dispose of these
properties within the next twelve months.
In connection with the Company's periodic evaluation of its apartment portfolio,
during the third quarter of 1997, the Company recorded an impairment loss of
$1.4 million relating to two apartment communities included in the Company's
real estate held for investment. These apartment communities were subsequently
moved to real estate held for disposition based upon management's decision to
dispose of these properties.
The following is a reconciliation of the carrying amount of real estate held for
investment (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ------------------ ----------
<S> <C>
Balance at January 1 $ 2,007,612 $ 1,131,098 $ 1,007,599
Real estate acquired 344,363 843,277 198,136
Capital expenditures 96,102 49,434 35,682
Transferred from development 65,475 -- --
Real estate sold -- (230) (34,031)
Impairment loss (1,400) -- --
Transferred to real estate
held for disposition (230,714) (15,967) (76,288)
-------------- ---------------- -------------
Balance at December 31 $ 2,281,438 $ 2,007,612 $ 1,131,098
============ ============= ==============
</TABLE>
The following is a reconciliation of accumulated depreciation for real estate
held for investment (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- --------
<S> <C>
Balance at January 1 $ 173,291 $ 129,454 $ 120,341
Depreciation expense
for the year* 77,440 48,039 39,442
Transferred to real estate
held for disposition (50,225) (4,202) (23,572)
Real estate sold -- -- (6,757)
---------- --------- -----------
Balance at December 31 $ 200,506 $ 173,291 $ 129,454
========== ========= ===========
</TABLE>
* Includes $752,000, $629,000 and $503,000 for 1997, 1996 and 1995,
respectively, classified as "Other depreciation and amortization" in the
Consolidated Statements of Operations.
55
<PAGE>
3. Acquisitions
During 1997, the Company acquired 29 apartment communities containing 8,628
apartment homes for a total cost of $344 million, including closing costs and
three parcels of land for development at an aggregate cost of $4 million. In
connection with these acquisitions the Company assumed mortgage debt of $60
million and issued 849,000 Operating Partnership Units valued at $13 million. On
December 31, 1996, the Company acquired South West Property Trust Inc. in a
statutory merger (the "South West Merger"). South West Property Trust Inc.
consisted primarily of real estate assets valued at $560 million which included
14,320 completed apartment homes and 675 apartment homes under development. In
connection with the South West Merger, the Company issued 22.8 million shares of
its common stock valued at $14.125 per share for total market equity of $322
million, assumed debt and other liabilities of $246 million and incurred
transaction costs of $4 million for total consideration of approximately $572
million. No goodwill was recorded in connection with this transaction. In
addition to the South West Merger, during 1996 the Company acquired 30 apartment
communities containing 7,172 apartment homes in separate transactions at a total
cost of approximately $321 million, including closing costs. In connection with
these acquisitions, the Company assumed $138 million of secured debt, issued 1.7
million shares of the Company's common stock valued at $24 million, assumed
unsecured debt of $25 million and issued 136,000 Operating Partnership Units
valued at $2 million.
Information concerning unaudited pro forma results of operations for the years
ended December 31, 1997 and 1996 are set forth below. For 1997, such pro forma
information assumes the acquisition of 17 apartment communities containing 5,659
homes at a total cost of $219 million, as if the transactions had occurred on
January 1, 1996. For 1996, such pro forma information assumes the following
transactions occurred on January 1, 1996: (i) the South West Merger, (ii) the
acquisition during 1996 of 20 apartment communities containing 5,157 apartment
homes at a total cost of approximately $213 million and (iii) the acquisition of
17 apartment communities containing 5,659 apartment homes at a total cost of
approximately $219 million.
<TABLE>
<CAPTION>
Pro Forma
Year Ended
December 31,
---------------------------------------
In thousands, except per share amounts 1997 1996
- - --------------------------------------- ----------------- ------------
<S> <C>
(Unaudited)
Rental income $ 403,733 $ 377,580
Net income available to common shareholders
before extraordinary item 52,883 42,704
Net income per common share before
extraordinary item-basic $ .61 $ .52
Net income per common share before
extraordinary item-diluted .60 .52
</TABLE>
The unaudited information is not necessarily indicative of what the Company's
consolidated results of operations would have been if the acquisitions had
occurred at the beginning of each period presented. Additionally, the pro forma
information does not purport to be indicative of the Company's results of
operations for future periods.
56
<PAGE>
4. Notes Payable-Secured
Notes payable-secured, which encumber $849.3 million or 34% of the Company's
real estate owned, ($1.7 billion or 66% of the Company's real estate owned is
unencumbered) consist of the following at December 31, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
Weighted Weighted
Average Average No. of
Interest Years to Communities
Principal Outstanding Rate Maturity Encumbered
- - ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1997 1997
--------------------------------------------------------------------------
<S> <C>
Fixed Rate Debt
Mortgage notes payable $ 134,888 $ 101,221 8.45% 3.4 22
Tax-Exempt secured notes payable 127,437 116,797 7.00% 18.6 18
REMIC financings 88,574 94,868 7.41% 2.7 25
Secured notes payable 45,000 45,000 7.29% 1.5 6
--------------------------------------------------------------------------
Total Fixed-Rate Secured Notes Payable 395,899 357,886 7.55% 8.0 71
Variable Rate Debt
Secured notes payable 19,226 13,124 6.83% 1.2 3
Tax-Exempt secured notes payable 2,200 5,550 5.43% 4.7 1
--------------------------------------------------------------------------
Total Variable-Rate Secured Notes Payable 21,426 18,674 6.68% 1.5 4
--------------------------------------------------------------------------
Total Notes Payable-Secured $ 417,325 $ 376,560 7.51% 7.6 75
==========================================================================
</TABLE>
Fixed-Rate
Mortgage Notes Payable Fixed-rate mortgage notes payable are generally due in
monthly installments of principal and interest and mature at various dates from
June 1998 through November 2008. These notes payable carry interest rates
ranging from 7.00% to 9.63%. During 1997, the Company assumed six fixed-rate
mortgage notes payable aggregating $48.5 million with a weighted average
interest rate of 8.51% in connection with the acquisition of apartment
communities.
Tax-Exempt Secured Notes Payable Fixed-rate mortgage notes which secure related
tax-exempt housing bond issues mature at various dates through December 2025.
Interest on these notes is generally payable in semi-annual installments. During
1997, the Company assumed one tax exempt note payable in the amount of $11.5
million bearing interest of 8.10%.
REMIC Financings In connection with the South West Merger, the Company assumed
two fixed-rate REMIC Financings which bear interest of 7.01% and 8.50% and
mature on December 10, 2000 and February 10, 2001, respectively. The Company
makes monthly installments of principal and interest over the term of the REMIC
Financings. Principal balances at maturity are expected to be $36.5 million and
$41.7 million, respectively.
Secured Notes Payable Secured notes payable consist of a $39 million
variable-rate secured senior credit facility and a $6 million variable-rate
construction note payable, both of which mature in August 1999. The
variable-rate secured notes payable bear interest at LIBOR + 1% or 6.63% at
December 31, 1997. The Company has five interest rate swap agreements
aggregating $45 million under which the Company pays a fixed-rate of interest
and receives a variable-rate on the notional amounts. The interest rate swap
agreements effectively change the Company's interest rate exposure on the $45
million secured notes payable from a variable-rate to a weighted average
fixed-rate of 7.29%.
Variable-Rate
Secured Notes Payable Two of the variable rate secured notes payable consist of
construction notes payable, both of which mature in August 1999 and bear
interest at LIBOR + 1% or 6.63% at December 31, 1997. The third variable rate
secured
57
<PAGE>
note payable is a mortgage note payable which matures in March 2001 and
bears interest of 7.15% at December 31, 1997.
Tax-Exempt-Secured Notes Payable At December 31, 1997, the Company had one
variable-rate tax-exempt mortgage note outstanding which matures in December
2002 and carries interest of 5.43%.
The aggregate maturities of secured notes payable for the five years subsequent
to December 31, 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fixed Rate Variable Rate
-------------------------------------------------------------- --------------------------
Mortgage Tax Exempt REMIC Secured Secured Tax Exempt
Notes Bonds Financings Notes Notes Notes Total
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 22,046 $ 1,290 $ 3,165 $ 1,000 $ 719 -- $ 28,220
1999 21,435 1,825 3,396 44,000 11,787 -- 82,443
2000 30,762 1,470 40,141 -- 361 -- 72,734
2001 16,405 1,720 41,872 -- 6,359 -- 66,356
2002 19,478 1,930 -- -- -- $2,200 23,608
Thereafter 24,762 119,202 -- -- -- -- 143,964
--------------------------------------------------------------------------------------------------------------
$ 134,888 $ 127,437 $88,574 $ 45,000 $19,226 $2,200 $ 417,325
==============================================================================================================
</TABLE>
58
<PAGE>
5. Notes Payable-Unsecured
A summary of notes payable-unsecured at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Dollars in thousands 1997 1996
--------- ------
<S> <C>
Commercial Banks
Borrowings outstanding under
credit facilities $ 135,600 $ 125,250
Insurance Companies-Senior Unsecured Notes
7.98% due March 1998-2003 (a) 44,571 52,000
8.72% due November 1998 (b) 2,000 4,000
--------- --------
46,571 56,000
Other (c) 6,730 6,040
Senior Unsecured Notes - Other
7.25% Notes due April 1999 75,000 75,000
8.50% Debentures due September 2024 (d) 150,000 150,000
7.95% Medium-term notes due July 2006 125,000 125,000
7.07% Medium-term notes due November 2006 25,000 25,000
7.02% Medium-term notes due November 2005 50,000 50,000
7.25% Notes due January 2007 125,000 --
7.00% Unsecured note due January 1997 -- 55,985
------- --------
550,000 480,985
------- -------
Total Notes Payable-Unsecured $ 738,901 $ 668,275
======= =======
</TABLE>
(a) Payable in six equal principal installments of $7.4 million.
(b) Payable in annual principal installments of $2 million, of which,
the final installment is due November 1998.
(c) Includes $6.2 million and $5.6 million at December 31, 1997 and
1996, respectively, of deferred gain from the termination of
interest rate hedge transactions.
(d) Debentures include an investor put feature which grants the
debentureholder a one time option to redeem debentures at the end
of 10 years.
In November 1996, the Company entered into an interest rate protection agreement
for a notional amount of $100 million in anticipation of issuance of debt early
in 1997. The interest rate protection agreement was terminated simultaneously
with the issuance of $125 million of 7.25% Notes in January 1997. The Company
received $1.5 million in cash on the settlement which had the economic effect of
lowering the interest rate on the Notes to approximately 7.14% over their ten
year term.
59
<PAGE>
Information concerning short-term bank borrowings is summarized in the table
that follows:
<TABLE>
<CAPTION>
In thousands 1997 1996 1995
- - -------------------------------------------------------------------------------------------------
<S> <C>
Total revolving credit facilities
and lines of credit at December 31 $265,000 $228,500 $103,500
Borrowings outstanding at December 31 135,600 125,250 18,400
Weighted average daily borrowings
during the year 74,623 49,941 8,198
Maximum daily borrowings during the year 135,600 125,250 35,300
Weighted average daily interest rate
during the year 6.3% 6.0% 6.8%
Weighted average daily interest rate at December 31 6.4% 6.3% 6.5%
</TABLE>
The underlying loan agreements contain certain covenants which, among other
things, require the Company to maintain minimum consolidated tangible net worth,
as defined, and maintain certain financial ratios.
At December 31, 1997, the Company had in place a syndicated three year $200
million unsecured revolving credit facility (the "Credit Facility") of which
$136 million was outstanding at December 31,1997. The Credit Facility will
expire on August 4, 2000. Borrowings under the Credit Facility generally bear
interest at LIBOR plus 42.5 basis points. The Company is also required to pay a
fee of .175% of the committed amount. This fee and the interest rate are both
subject to change as the Company's credit ratings change.
At December 31, 1997, the Company had a $50 million interim syndicated 364 day
credit agreement (the "Credit Agreement') expiring on August 3, 1998. There were
no borrowings outstanding under this Credit Agreement at December 31, 1997.
Borrowings generally bear interest at the LIBOR plus 47.5 basis points. The
Company is required to pay a fee of .125% of the committed amount. This fee and
the interest rate are both subject to change as the Company's credit ratings
change.
At December 31, 1997, the Company had a $15 million unsecured line of credit
with a commercial bank, of which $.6 million was outstanding at December 31,
1997. Currently expiring on June 30, 1998, this credit facility is renewable
annually by mutual agreement between the Company and the bank. The line is
subject to periodic bank review and requires the Company to maintain a
depository relationship with the bank, however, there are no formal compensating
balance arrangements. Borrowings bear interest generally at negotiated rates in
line with borrowings under the Company's revolving credit facility.
The Credit Facility and Credit Agreement are subject to customary financial
covenants and limitations.
60
<PAGE>
6. Financial Instruments
Fair Value of Financial Instruments
The following disclosures of estimated fair value of financial instruments were
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts and estimated fair value of the
Company's financial instruments at December 31, 1997 and 1996, both on and
off-balance sheet, are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------ -------------------------
In thousands Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ---------
<S> <C>
Investment in equity securities -- -- $ 9,771 $ 9,771
Notes payable-secured $ 417,325 $ 444,925 376,560 381,007
Notes payable-unsecured 738,901 780,051 668,275 684,332
Interest rate swap agreements -- (547) -- (589)
Interest rate risk management agreements -- (5,620) -- 934
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair values set forth above.
Cash and cash equivalents The carrying amount of cash and cash equivalents
approximates fair value.
Investment in equity securities At December 31, 1996, securities
available-for-sale were carried at fair value based upon market quotations.
Notes payable Estimated fair value is based on mortgage rates and tax-exempt
bond rates believed to be available to the Company for issuance of debt with
similar terms and remaining lives. The carrying amount of the Company's
variable-rate notes payable-secured approximate fair value at December 31, 1997
and 1996. The carrying amounts of the Company's borrowings under short-term
revolving credit agreements and lines of credit reasonably approximate their
fair values.
Interest rate swap agreements Fair value is based on external market quotations
from investment banks.
Interest rate risk management agreements Fair value is based on external market
quotations from investment banks.
Derivative Instruments
Interest rate swap agreements At December 31, 1997, the Company had five
interest rate swap agreements outstanding with an aggregate notional amount of
$45 million. These agreements effectively fix the interest rate on certain
variable-rate secured notes payable to a weighted average fixed rate of 7.29%.
These contracts have a weighted average maturity of 3.6 years and mature at
various times from May 2000 to July 2004. On May 1, 1997, an interest rate swap
agreement with a commercial lender expired with a notional value of $83 million
which effectively changed the Company's interest exposure from a variable rate
to a weighted average fixed rate of 6.45% during the first four months of 1997.
The Company's credit exposure on swaps is limited to the value of interest rate
swaps that are favorable to the Company at December 31, 1997. At December 31,
1997, the market value of interest rate swaps in an unfavorable value position
to the Company was $547,000.
At December 31, 1996 the Company had six interest rate swap agreements with an
aggregate notional amount of $122.2 million outstanding and had a net fair value
which was unfavorable to the Company of $589,000.
For all periods presented, the Company had no deferred gains or losses relating
to terminated swap contracts.
61
<PAGE>
Interest rate risk management agreements The Company deferred gains of $3.0
million in 1996 related to the termination of interest rate risk management
agreements used to hedge $200 million of medium-term notes issued in 1996. These
agreements had the economic impact of reducing the interest rate from 7.95% to
7.61% over the ten year term of the Notes.
The Company deferred gains of $1.5 million in 1997 related to the termination of
an interest rate risk management agreement used to hedge the issuance of $125
million of Notes issued in 1997. This agreement had the economic impact of
reducing the interest rate from 7.31% to 7.14% over the ten year term of the
Notes.
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 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 6.486% on or before September 9, 1998.
This interest rate risk management agreement had an unfavorable position to the
Company of $5.6 million at December 31, 1997.
The Company has not obtained collateral or other security to support financial
instruments. In the event of nonperformance by the counterparty, the Company's
credit loss on its derivative instruments is limited to the value of the
derivative instruments that are favorable to the Company at December 31, 1997.
However, such nonperformance is not anticipated as the counterparties are highly
rated, credit quality U.S. financial institutions.
7. Income Taxes
The differences between net income available to common shareholders for
financial reporting purposes and taxable income before dividend deductions
relate primarily to temporary differences, principally real estate depreciation
and the tax deferral of certain gains on property sales. The temporary
differences in depreciation result from differences in the book and tax basis of
certain real estate assets and the differences in the methods of depreciation
and lives of the real estate assets.
All realized gains (losses) on sales of investments are distributed to
shareholders if and when recognized for income tax purposes. Since 1980, gains
aggregating approximately $30.0 million have been deferred for income tax
purposes and are undistributed at December 31, 1997.
For income tax purposes, distributions paid to common shareholders consist of
ordinary income, capital gains, return of capital or a combination thereof. For
the three years ended December 31, 1997, distributions paid per common share
were taxable as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- ------
<S> <C>
Ordinary income $.727 $.638 $ .715
28% Long term capital gain .021 --- .003
Return of capital .249 .307 .152
------ ------ ------
$.997 $.945 $ .870
===== ===== ======
</TABLE>
8. Employee Benefit Plans
Profit Sharing Plan
The "United Dominion Realty Trust, Inc. Profit Sharing Plan" (the Plan) is a
defined contribution plan covering all eligible full-time employees. Under the
Plan, the Company makes discretionary profit sharing and matching contributions
to the Plan as determined by the Compensation Committee of the Board of
Directors. Aggregate contributions, both matching and discretionary, which are
included in the Company's consolidated statements of operations for the three
years ended December 31, 1997, 1996 and 1995 were $646,000, $600,000 and
$536,000, respectively.
62
<PAGE>
Stock Option Plan
The Company's 1985 Share Option Plan, (the "Plan"), authorizes the grant of
options, at the discretion of the Board, to certain officers, directors and key
employees of the Company, for up to 4,200,000 shares of the Company's common
stock. The Plan generally provides, among other things, that options be granted
at exercise prices not lower than the market value of the shares on the date of
grant. Shares under options which subsequently expire or are canceled are
available for subsequent grant. For options granted prior to December 12, 1995,
the optionee has up to five years from the date on which the options first
become exercisable during which to exercise the options. For all options granted
subsequent to December 12, 1995, the options have 10 year terms and typically
vest on December 31 of the year subsequent to grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of accounting as defined in
Statement 123. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Risk free interest rate 5.7% 5.6% 5.5%
Dividend yields 6.2% 6.2% 6.2%
Volatility factor .170 .170 .195
Weighted average expected life (years) 9 9 9
</TABLE>
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Statement 123
is applicable only to options granted subsequent to December 31, 1994,
consequently, the pro forma effect is not fully reflected until 1997. The
Company's pro forma information is as follows: (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Net income available
to common shareholders
As reported $52,804 $ 28,278 $ 26,490
Pro forma 51,864 27,659 26,460
Earnings per common share-diluted
As reported $ .60 $ .49 $ .50
Pro forma .59 .48 .50
</TABLE>
63
<PAGE>
A summary of the Company's stock option activity during the three years ended
December 31, 1997 is provided in the following table (in thousand of dollars,
except per share amounts).
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------------------------
Shares Available Weighted Average Range of
For Future Grant Options Exercise Price Exercise Prices
---------------- -------- -------------------- ----------------
<S> <C>
Outstanding, December 31, 1994 960,140 1,231,872 $11.42 $ 7.44-$13.63
Granted (372,000) 372,000 14.63 14.63
Exercised -- (98,536) 8.27 7.44-13.63
Expired 14,700 (14,700) 12.86 11.56-13.63
---------- ------------ ------ -------------
Balance, December 31, 1995 602,840 1,490,636 12.41 7.44-14.63
Granted (472,000) 472,000 15.21 13.88-15.25
Exercised -- (148,220) 10.33 7.44-13.63
Expired 39,200 (39,200) 14.17 13.13-14.63
Additional shares authorized 1,800,000 -- -- --
---------- ----------- ------ -------------
Balance, December 31, 1996 1,970,040 1,775,216 13.29 7.44-15.25
Granted (1,841,000) 1,841,000 14.34 13.50-15.38
Exercised -- (116,495) 11.18 7.44-14.63
Expired 51,000 (51,000) 15.09 13.13-15.38
---------- ---------- ------ -------------
Balance, December 31, 1997 180,040 3,448,721 $ 13.89 $ 7.44-$15.38
========== ========= ====== =============
Exercisable at December 31,
1995 785,156 11.46 7.44-14.63
1996 713,791 11.94 7.44-15.25
1997 916,981 12.67 7.44-15.38
</TABLE>
The weighted average remaining contractual life on all options outstanding is
7.9 years. Approximately 2,586,500 of share options had exercise prices between
$14.25 and $15.38, and approximately 812,100 had exercise prices between $11.56
and $13.63.
The weighted-average fair value of options granted during 1997, 1996 and 1995
was $1.35, $1.43 and $1.58, respectively.
9. Shareholders' Equity
Preferred Stock Both Series A and B Preferred Stock have no stated par value,
with a liquidation preference of $25 per share. With no voting rights and no
stated maturity, the preferred stock in both series is not subject to any
sinking fund or mandatory redemption and is not convertible into any other
securities of the Company. All dividends due and payable on the Preferred Stock
have been accrued or paid as of the end of each fiscal year.
Officers' Stock Purchase and Loan Plan Under the Officer Stock Purchase and Loan
Plan, certain officers have purchased common stock at the then current market
price with financing provided by the Company at 7.5% interest only. The
underlying notes mature beginning in November 1998. A total of 582,500 shares
are available for future issuance under this Plan.
Dividend Reinvestment and Stock Purchase Plan The Company's Dividend
Reinvestment and Stock Purchase Plan (the "Plan") allows common and preferred
shareholders the opportunity to purchase, through reinvestment of cash
dividends, additional shares of the Company's common stock at a discount. As of
December 31, 1997, 3,915,493 shares of common stock had been issued under the
Company's Dividend Reinvestment and Stock Purchase Plan. Shares in the amount of
84,507 were reserved for further issuance under this plan at December 31, 1997,
and 10,000,000 additional shares of common stock were registered for sale on
January 16, 1998. During 1997, 2,852,231 shares were issued under the Plan for a
total market equity value of approximately $39.7 million.
64
<PAGE>
Purchase Rights On January 27, 1998, the Board of Directors authorized a
Shareholders Rights Plan (the "Rights Plan") which will become exercisable only
if a person or group (the "Acquiring Person") acquires or announces a tender
offer for more than 15% of the outstanding common stock of the Company. Upon
exercise, the Company may issue one share of common stock in exchange for each
Right. Each Right will entitle the holder to purchase for $45 one thousandth of
a share of Series C Preferred stock or, at the option of the company, the
Company's common stock having a value of $90.
10. Unaudited Summarized Consolidated Quarterly Financial Data
Summarized consolidated quarterly financial data for the year ended December 31,
1997 is as follows (In thousands, except per share information):
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
March 31 June 30 September 30 December 31
--------- ------------ -------------- -----------
<S> <C>
Rental income $ 89,984 $ 95,382 $ 98,816 $ 102,490
Income before gains (losses) on sales
of investments, minority interest
of unitholders in operating
partnership and extraordinary item 15,024 13,451 14,053 15,285
Gains (losses) on the sales of investments 2,120 1,254 9,309 (19)
Net income 17,113 14,677 23,309 15,050
Preferred dividends 2,428 3,611 5,653 5,653
Net income available to
common shareholders 14,685 11,066 17,656 9,397
Per share:
Basic earnings per common share $ .17 $ .13 $ .20 $ .11
Diluted earnings per common share $ .17 $ .13 $ .20 $ .11
Weighted average number of
common shares outstanding 85,046 86,877 87,853 88,756
Weighted average number of
common shares outstanding plus
dilutive potential common shares 85,273 87,036 88,007 88,906
</TABLE>
65
<PAGE>
Summarized consolidated quarterly financial data for the year ended December 31,
1996 is as follows (In thousands, except per share information):
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- -------------- ------------ -------------
<S> <C>
Rental income $ 54,656 $ 56,972 $ 62,870 $ 66,762
Income before gains (losses) on sales
of investments, minority interest
of unitholders in operating
partnership and extraordinary item 8,594 8,296 8,504 8,332
Gains (losses) on the sales of investments 965 (129) 1,339 2,171
Net income 9,559 8,166 9,818 10,448
Preferred dividends 2,428 2,428 2,428 2,429
Net income available to
common shareholders 7,131 5,738 7,390 8,019
Per share:
Basic earnings per common share $ .13 $ .10 $ .13 $ .14
Diluted earnings per common share $ .13 $ .10 $ .13 $ .14
Weighted average number of common
shares outstanding 54,467 56,666 57,793 58,983
Weighted average number of common
shares outstanding plus
dilutive potential common shares 54,730 56,888 57,962 59,156
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
11. Subsequent Events
On December 19, 1997, the Company executed a definitive merger agreement (the
"Merger Agreement") pursuant to which ASR Investment Corporation ("ASR") would
be merged with and into a wholly-owned subsidiary of the Company which would
continue the geographic expansion of the Company into the Western region of the
United States. At December 31, 1997, ASR owned and operated 41 apartment
communities containing approximately 7,500 apartment homes in the Southwest and
Northwest. Pursuant the Merger Agreement, each share of the ASR's common stock
will be exchanged for 1.575 shares of the Company's common stock. The merger has
been structured as a tax-free transaction and will be treated as a purchase for
accounting purposes. The aggregate purchase price is estimated at approximately
$330 million, including closing costs. The merger, expected to close on or about
March 27, 1998, is subject to ASR's shareholder approval and customary
regulatory and other conditions. There can be no assurances that the transaction
will be consummated.
66
<PAGE>
SCHEDULE III.
Summary of Real Estate Owned
<TABLE>
<CAPTION>
Cost of
Initial Costs Improvements
--------------------------------- Capitalized
Land and Buildings Subsequent
Land and to Acquisition
Encumbrances Improvements Improvements (Net of Disposals)
<S> <C> --------------- ----------------- ---------------------- --------------------
Apartments:
Real estate held for investment
Dallas, Texas
Citiscape b $ 2,092,387 $ 7,532,613 $ 146,019
Preston Oaks b 1,783,626 6,416,374 146,510
Preston Trace 2,195,500 8,304,500 157,292
Rock Creek c 4,076,680 15,823,320 903,888
Windridge b 3,414,311 14,027,310 1,010,669
Autumnwood c 2,412,180 8,687,820 200,845
Cobblestone c 2,925,372 10,527,738 145,171
Pavillion b 4,428,258 18,692,922 196,306
Oak Park 3,966,129 17,848,850 2,694,488
Catalina b 1,543,321 5,631,679 156,996
Wimbledon Court c 2,464,600 10,930,306 936,115
Southern Oaks 1,565,000 5,335,000 302,944
Hunters Ridge 1,613,000 5,837,000 372,993
Lakeridge c 1,631,350 5,668,650 273,938
Summergate c 1,171,300 3,928,700 171,942
Dove Park 2,309,195 9,699,046 402,169
Oak Forest 5,630,740 19,961,055 1,054,093
Post Oak Ridge 3,726,795 13,563,181 1,332,246
Kelly Crossing 2,496,701 9,156,355 208,982
Parc Plaza 1,683,531 5,279,123 22,121
Orlando, Florida
Fisherman's Village 2,387,368 7,458,897 2,434,382
Seabrook 1,845,853 4,155,275 2,359,569
Dover Village 2,894,702 6,456,100 2,470,943
Lakeside North 12,440,000 1,532,700 11,076,062 2,750,689
Regatta Shores 757,008 6,607,367 1,892,557
Alafaya Woods 1,653,000 9,042,256 1,399,295
Vinyards 9,210,000 1,840,230 11,571,625 1,743,615
Andover Place 5,860,000 3,692,187 7,756,919 2,161,104
Los Altos 2,803,805 12,348,464 1,535,399
Lotus Landing 2,184,723 8,638,664 126,321
Seville on the Green 1,282,616 6,498,062 46,702
Arbors at Lee Vista 3,975,679 16,920,454 1,390
Raleigh, North Carolina
Dominion on Spring Forest 1,257,500 8,586,255 2,352,792
Dominion Park Green 500,000 4,321,872 1,006,545
Dominion on Lake Lynn 1,723,363 5,303,760 831,612
Dominion Courtney Place 1,114,600 5,119,259 1,578,570
Dominion Walnut Ridge 1,791,215 11,968,852 1,583,150
Dominion Walnut Creek 3,170,290 21,717,407 1,851,983
Dominion Ramsgate d 907,605 6,819,154 359,885
Harbour Pointe 1,898,740 7,101,260 130,806
Copper Mill 1,548,280 16,066,720 713,094
Trinity Park 9,250,483 4,579,648 17,575,712 238,605
Charlotte, North Carolina
The Highlands 321,400 2,830,346 2,269,003
Emerald Bay 626,070 4,722,862 2,419,205
Dominion Peppertree 1,546,267 7,699,221 887,772
Dominion Crown Point 1,115,261 8,648,865 694,509
Dominion Harris Pond 886,788 6,728,097 784,609
Dominion Mallard Creek (A) $ 5,395,687 329,300 2,772,449 222,576
Dominion Mallard Creek (M) 5,026,849 698,860 6,488,061 381,989
Chateau Village 1,046,610 6,979,555 1,302,742
Dominion at Sharon d 667,368 4,856,103 678,853
Providence Court 0 22,047,803 8,579,256
Stoney Pointe 12,603,534 1,499,650 15,855,610 540,062
Richmond, Virginia
Dominion Olde West 1,965,097 12,203,965 2,289,741
Dominion Laurel Springs 464,480 3,119,716 804,819
Dominion English Hills 1,979,174 11,524,313 4,297,713
Dominion Gayton Crossing 3,124,720 825,760 5,147,968 5,333,643
Dominion West End 2,059,252 15,049,088 1,697,196
Courthouse Green 732,050 4,702,353 2,543,734
Meadowdale Lakes 384,203 1,581,671 6,717,237 3,689,023
Meadow Run 636,059 3,423,884 1,781,719
Waterside at Ironbridge 5,112,934 1,843,819 13,238,590 18,343
Houston, Texas
Woodtrail b 1,543,000 5,457,000 627,151
Park Trails b 1,144,750 4,105,250 125,279
Green Oaks 5,313,920 19,626,181 525,007
Seahawk 2,297,741 7,157,965 393,587
Greenhouse Patio 11,470,150 4,058,090 14,755,809 224,725
Breakers 1,527,467 5,297,930 17,877
Braesridge 9,642,489 3,048,212 10,961,749 130,549
Bammelwood 2,913,164 929,601 3,330,352 4,906
Camino Village 8,642,724 3,604,483 11,592,432 9,542
Columbia, South Carolina
Gable Hill 824,847 5,307,194 933,248
Colonial Villa 1,014,181 5,100,269 1,545,556
St. Andrews Commons 1,428,826 9,371,378 907,437
Forestbrook $ 5,000,000 395,516 2,902,040 1,492,999
Crossroads 2,074,800 13,760,014 2,278,209
The Park 1,004,072 5,558,436 1,722,950
St. Andrews 976,192 6,884,502 508,799
Waterford 957,980 6,947,939 917,515
Hampton Greene 7,369,807 1,363,046 10,118,453 607,970
Rivergate 9,640,808 1,122,500 12,055,625 622,296
Tampa, Florida
Bay Cove 2,928,847 6,578,257 1,737,789
Summit West 2,176,500 4,709,970 1,655,114
Pinebrook 1,780,375 2,458,172 2,382,567
Village at Old Tampa Bay 1,750,320 10,756,337 1,488,644
Lakewood Place 1,395,051 10,647,377 773,759
Hunters Ridge 2,461,548 10,942,434 1,017,549
Bay Meadow 7,985,342 2,892,526 9,253,525 1,934,581
Cambridge 1,790,804 7,166,329 217,312
Orange Oaks 1,361,553 6,541,980 113,563
Greensboro, North Carolina
Beechwood 1,409,377 6,086,677 623,891
Steeplechase 3,208,108 11,513,978 10,135,642
Northwinds d 1,557,654 11,735,787 485,357
Deerwood Crossing 1,539,901 7,989,043 812,490
Dutch Village 1,197,593 4,826,266 452,191
Lake Brandt 1,546,950 13,489,466 257,870
Park Forest 4,212,712 679,671 5,770,413 265,650
Deep River Pointe 1,670,648 11,140,329 22,853
Eastern North Carolina
Colony Village 346,330 3,036,956 1,616,901
Brynn Marr 432,974 3,821,508 1,889,155
Liberty Crossing 1,085,444 840,000 3,873,139 2,000,993
Bramblewood 401,538 3,150,912 1,199,392
Cape Harbor 9,439,442 1,891,671 18,113,109 228,168
Mill Creek 597,248 4,489,398 1,324,704
The Creek 417,500 2,506,206 1,140,738
Forest Hills 1,028,000 5,420,478 1,343,299
Clear Run 874,830 8,740,602 4,792,443
Crosswinds 1,096,196 18,230,236 385,879
San Antonio, Texas
Promontory Pointe 7,548,219 28,051,781 251,904
Bluffs b 1,901,146 6,898,854 476,786
Westlake Villas b 2,371,865 8,278,135 293,147
Ashley Oaks c 4,590,782 16,809,218 70,593
Sunflower 2,209,000 7,891,000 169,297
Nashville, Tennessee
2131 Apartments 869,860 9,155,185 3,196,373
The Lakes 1,285,657 5,980,197 872,448
Harbour Town 572,567 3,522,092 634,968
Legacy Hill $ 5,134,432 1,147,660 5,867,567 2,307,495
Hickory Run 1,468,727 11,583,786 984,137
Brookridge 707,508 5,461,251 746,834
Club at Hickory Hollow 2,139,774 15,231,201 948,003
Breckenridge 766,428 7,713,862 397,568
Baltimore, Maryland
Gatewater Landing 2,078,422 6,084,526 951,742
Dominion Kings Place 4,795,000 1,564,942 7,006,574 503,140
Dominion at Eden Brook 8,185,000 2,361,167 9,384,171 742,626
Dominion Great Oaks 2,919,481 9,099,691 1,834,702
Holly Tree Park 1,576,366 5,106,716 1,144,595
Woodside 13,330,000 3,112,881 8,893,721 3,068,402
Dominion Constant Friendship 903,122 4,668,956 462,655
Atlanta, Georgia
Stanford Village 884,500 2,807,839 886,441
Griffin Crossing 1,509,633 7,544,018 806,371
Gwinnett Square 1,924,325 7,376,454 1,008,767
Dunwoody Pointe 5,872,435 2,763,324 6,902,996 3,484,219
Riverwood 5,451,705 2,985,599 11,087,903 2,285,876
Lake of the Woods 835,352 8,388,258 728,327
Miami/Fort Lauderdale, Florida
Copperfield 4,424,128 20,428,969 1,251,658
Mediterranean Village 2,064,788 11,939,113 1,063,157
Cleary Court 2,399,848 7,913,450 1,133,843
University Club 1,390,220 6,992,620 894,572
Washington D.C.
Dominion Middle Ridge/Woodbridge 3,311,468 13,283,047 475,744
Dominion Lake Ridge/Woodbridge 2,366,061 8,386,439 525,505
Knolls at Newgate/Fairfax 1,725,725 3,530,134 1,239,594
Parkwood Court/Alexandria 5,960,000 2,482,633 3,813,116 1,971,923
Hampton Court/Alexandria 7,388,420 4,811,937 1,341,605
Hampton Roads, Virginia
Forest Lakes at Oyster Point 780,117 8,861,878 1,370,198
Woodscape 798,700 7,209,525 2,566,567
Eastwind 155,000 5,316,738 1,808,710
Kings Arms 1,823,983 4,106,710 650,353
Bayberry Commons 516,800 3,485,645 1,390,795
Heather Lake 616,800 3,400,672 2,650,102
York Pointe 1,088,887 8,581,771 1,390
Jacksonville, Florida
Greentree Place $ 12,455,000 1,634,330 11,226,990 2,832,632
Westland Park 1,834,535 14,864,742 2,966,844
The Antlers 9,824,993 4,034,039 11,192,842 4,298,697
Greenville, South Carolina
Key Pines 601,693 3,773,304 1,482,848
Riverwind 802,484 6,386,212 639,301
The Landing 685,000 5,640,176 1,333,711
Overlook 824,600 5,098,194 2,655,891
Stonesthrow d 1,557,015 16,334,483 714,037
Phoenix, Arizona
Greenway Park c 1,622,700 6,170,800 2,392,571
Vista Point b 1,587,400 5,612,600 228,524
Sierra Palms 4,638,950 17,361,050 70,569
Eastern Shore Maryland
Brittingham Square 650,143 4,962,246 410,568
Greens at Schumaker Pond 709,559 6,117,582 568,596
Greens at Cross Court 1,182,414 4,544,012 580,858
Greens at Hilton Run 2,754,447 10,482,579 768,743
Fayetteville, North Carolina
Cumberland Trace 632,281 7,895,674 361,396
Village At Cliffdale 10,368,685 941,284 15,498,216 542,645
Morganton Place 8,416,994 819,090 13,217,086 235,918
Memphis, Tennessee
Briar Club 1,214,400 6,928,959 1,539,508
Hunters Trace 5,715,000 888,440 6,676,552 1,093,442
Hickory Pointe 1,074,424 6,052,020 1,180,374
Austin, Texas
Pecan Grove b 1,406,750 5,293,250 84,592
Anderson Mill 3,134,669 11,170,376 774,825
Albuquerque, New Mexico
Alvarado b 1,930,229 5,969,771 110,521
Other Florida
Brantley Pines/Ft. Myers 1,892,888 8,247,621 5,524,724
Santa Barbara Landing/Naples $ 4,813,491 1,134,120 8,019,814 1,377,078
Mallards of Wedgewood/Lakeland 959,284 6,864,666 1,454,359
The Groves/Daytona Beach 789,953 4,767,055 1,436,812
Lakeside/Daytona Beach 2,404,305 6,420,160 122,352
Mallards of Brandywine/Deland 765,949 5,407,683 191,505
Lake Washington Downs/Melbourne 1,434,450 4,940,166 1,374,620
Other Virginia
Greens at Falls Run/Fredericksburg 2,730,722 5,300,203 564,449
Manor at England Run/Fredericksburg 1,710,477 7,006,464 11,390,002
Laurel Ridge/Roanoke 2,875,000 445,400 2,531,357 1,308,950
Greens at Hollymead/Charlottesville 965,114 5,250,374 453,037
Craig Manor/Salem 282,200 2,419,570 755,588
Northview/Salem 171,600 1,238,501 724,393
Other Georgia
Royal Oaks/Savannah 6,261,564 533,100 9,926,017 1,366,907
River Place/Macon 1,097,280 7,492,385 1,315,205
Arkansas
Turtle Creek/Little Rock 1,913,177 7,086,823 175,591
Shadow Lake/Little Rock 2,523,670 8,976,330 259,119
Las Vegas, Nevada
Sunset Pointe 4,295,050 15,704,950 286,438
Delaware
Dover Country Club/Dover 2,007,878 6,365,053 2,148,803
Greens at Cedar Chase/Dover 1,528,667 4,830,738 531,775
Other Texas
Chandler's Mill/Corpus Christi b 1,930,120 6,844,880 142,799
Ryan's Mill/El Paso c 1,522,900 5,277,100 101,676
Alabama
Three Fountains/Montgomery 1,075,009 6,872,302 3,005,341
Oklahoma
Bluff Creek/Oklahoma City c 2,172,063 7,202,937 171,944
Other North Carolina
Woodberry/Asheville d 388,699 6,380,899 609,347
Other South Carolina
Somerset/Charleston 485,160 4,072,780 1,046,591
-------------------------------------------------------------------------------------
$ 382,843,404 $ 353,850,957 $ 1,676,771,686 $ 250,815,487
=====================================================================================
Real estate held for disposition
Apartments
Rollingwood/Richmond, VA $2,139,229 $777,971 $5,058,707 $2,384,181
Twin Rivers/Richmond, VA 149,200 885,671 1,434,417
Heritage Trace/Hampton Roads, VA 3,900,000 880,000 2,312,285 1,812,717
The Melrose/Dumfries, VA 5,312,182 662,000 3,705,404 5,111,350
Twin Coves/Baltimore, MD 3,665,000 912,771 2,904,304 794,134
Cedar Point/Raleigh, NC 75,400 4,514,435 3,227,875
Cinnamon Ridge/Raleigh, NC 7,000,000 967,230 3,337,197 4,734,642
The Ledges/Greensboro, NC 492,283 1,261,947 4,869,040
Westwinds/Greensboro, NC d 1,328,214 6,999,442 323,470
Windsor Harbor/Charlotte, NC 475,000 3,928,113 2,498,974
Grand Oaks/Charlotte, NC 446,075 4,463,344 2,710,789
Plum Chase/Columbia, SC 7,000,000 802,750 3,149,607 5,380,699
Country Walk/Columbia, SC 422,113 3,133,622 1,456,007
Heatherwood/Greenville, SC 354,566 3,234,105 853,574
Hampton Forest/Greenville, SC 454,140 2,588,388 743,012
Hunting Ridge/Greenville, SC 3,265,000 449,500 2,246,908 1,000,238
Patriot Place/Florence, SC 2,200,000 212,500 1,600,757 5,495,440
Foxcroft/Tampa, FL 749,400 3,927,644 956,738
Palm Grove/Tampa, FL 616,121 5,268,814 792,006
Covington Crossing/Memphis, TN 1,296,240 2,692,590 2,481,422
Foxfire/Dallas, TX 1,968,520 6,210,144 333,190
High Ridge/Dallas, TX 2,370,206 7,921,553 272,364
Timbercreek/Dallas, TX 6,860,979 22,536,512 968,455
The Creeks/Austin, TX c 1,758,065 6,197,546 601,064
Foxfire/Amarillo, TX b 2,240,530 5,670,358 360,138
Commercial
The Village/Durham, NC 1,355,000 3,814,496 3,620,018
Hanover Village-Land/Richmond, VA 1,623,910 0 0
Gloucester Exchange/Gloucester, VA 403,688 2,278,553 46,975
Tri-County Buildings/Bristol, TN 275,580 900,281 1,280,670
Meadowdale Office/Richmond, VA 240,563 359,913 94,882
-------------------------------------------------------------------------------------
$34,481,411 $31,620,515 $123,102,640 $56,638,481
=====================================================================================
Gross amount at Which Carried at Close of Period
Land and Buildings
Land and Total Accumulated Date of Date
Improvements Improvements (e) (a) Depreciation Construction Acquired
------------------------------ -------------- ------------------ -------------- -----------
Citiscape $ 2,114,507 $ 7,656,512 $ 9,771,019 $ 279,869 1973 12/31/96
Preston Oaks 1,788,156 6,558,354 8,346,510 237,313 1980 12/31/96
Preston Trace 2,230,113 8,427,179 10,657,292 294,834 1984 12/31/96
Rock Creek 4,306,883 16,497,005 20,803,888 573,874 1979 12/31/96
Windridge 3,830,686 14,621,604 18,452,290 498,897 1980 12/31/96
Autumnwood 2,435,920 8,864,925 11,300,845 330,845 1984 12/31/96
Cobblestone 2,930,475 10,667,806 13,598,281 389,083 1984 12/31/96
Pavillion 4,494,963 18,822,523 23,317,486 579,973 1979 12/31/96
Oak Park 4,688,385 19,821,082 24,509,467 704,912 1982 12/31/96
Catalina 1,569,406 5,762,590 7,331,996 215,767 1982 12/31/96
Wimbledon Court 2,489,756 11,841,265 14,331,021 340,337 1983 12/31/96
Southern Oaks 1,582,737 5,620,207 7,202,944 222,743 1982 12/31/96
Hunters Ridge 1,771,416 6,051,577 7,822,993 237,282 1992 12/31/96
Lakeridge 1,678,285 5,895,653 7,573,938 233,280 1984 12/31/96
Summergate 1,247,926 4,024,016 5,271,942 148,469 1984 12/31/96
Dove Park 2,470,663 9,939,747 12,410,410 322,332 1984 12/31/96
Oak Forest 5,657,290 20,988,598 26,645,888 830,482 1996 12/31/96
Post Oak Ridge 3,950,864 14,671,358 18,622,222 446,029 1983 03/27/97
Kelly Crossing 2,585,253 9,276,785 11,862,038 195,798 1984 06/18/97
Parc Plaza 1,684,321 5,300,454 6,984,775 52,196 1986 10/30/97
Orlando, Florida
Fisherman's Village 3,001,683 9,278,964 12,280,647 806,785 1984 12/29/95
Seabrook 2,212,809 6,147,888 8,360,697 571,978 1984 02/20/96
Dover Village 3,249,660 8,572,085 11,821,745 1,845,304 1981 3/31/93
Lakeside North 2,109,538 13,249,913 15,359,451 1,909,052 1984 04/14/94
Regatta Shores 1,448,798 7,808,134 9,256,932 1,294,925 1988 06/30/94
Alafaya Woods 1,992,289 10,102,262 12,094,551 1,363,975 1988/90 10/21/94
Vinyards 2,277,354 12,878,116 15,155,470 1,720,745 1984/86 10/31/94
Andover Place 4,364,105 9,246,105 13,610,210 819,114 1988 09/29/95&09/30/96
Los Altos 3,168,133 13,519,535 16,687,668 616,428 1990 10/31/96
Lotus Landing 2,212,449 8,737,259 10,949,708 158,432 1985 07/01/97
Seville on the Green 1,283,261 6,544,119 7,827,380 57,000 1986 10/21/97
Arbors at Lee Vista 3,975,679 16,921,844 20,897,523 47,276 1991 12/31/97
Raleigh, North Carolina
Dominion on Spring Forest 1,471,253 10,725,294 12,196,547 3,200,396 1978/81 05/21/91
Dominion Park Green 588,961 5,239,456 5,828,417 1,484,950 1987 09/27/91
Dominion on Lake Lynn 1,884,887 5,973,848 7,858,735 1,495,581 1986 12/01/92
Dominion Courtney Place 1,323,141 6,489,288 7,812,429 1,173,716 1979/81 07/08/93
Dominion Walnut Ridge 2,066,490 13,276,727 15,343,217 1,915,141 1982/84 03/04/94
Dominion Walnut Creek 3,546,905 23,192,775 26,739,680 3,209,088 1985/86 05/17/94
Dominion Ramsgate 965,802 7,120,842 8,086,644 355,277 1988 08/15/96
Harbour Pointe 1,908,796 7,222,010 9,130,806 255,599 1984 12/31/96
Copper Mill 1,724,637 16,603,457 18,328,094 592,147 1997 12/31/96
Trinity Park 4,638,674 17,755,291 22,393,965 597,114 1987 02/28/97
Charlotte, North Carolina
The Highlands 615,199 4,805,550 5,420,749 2,724,705 1970 01/17/84
Emerald Bay 1,169,926 6,598,211 7,768,137 2,732,949 1972 02/06/90
Dominion Peppertree 1,700,065 8,433,195 10,133,260 1,475,740 1987 12/14/93
Dominion Crown Point 1,227,178 9,231,457 10,458,635 1,297,253 1987 07/01/94
Dominion Harris Pond 1,162,631 7,236,863 8,399,494 920,846 1987 07/01/94
Dominion Mallard Creek (A) 457,934 2,866,391 3,324,325 380,155 1985 07/01/94
Dominion Mallard Creek (M) 791,565 6,777,345 7,568,910 865,220 1989 08/16/94
Chateau Village 1,380,884 7,948,023 9,328,907 466,569 1974 08/15/96
Dominion at Sharon 898,291 5,304,033 6,202,324 282,379 1984 08/15/96
Providence Court 39,741 30,587,318 30,627,059 787,876 1997 09/30/97
Stoney Pointe 1,637,339 16,257,983 17,895,322 556,308 1991 02/28/97
Richmond, Virginia
Dominion Olde West 2,333,044 14,125,759 16,458,803 5,782,280 1978/82/85/87 12/31/84&08/27/91
Dominion Laurel Springs 604,210 3,784,805 4,389,015 1,145,813 1972 09/06/91
Dominion English Hills 2,501,907 15,299,293 17,801,200 4,251,525 1969/76 12/06/91
Dominion Gayton Crossing 1,084,845 10,222,526 11,307,371 861,288 1973 09/28/95
Dominion West End 2,290,975 16,514,561 18,805,536 1,213,828 1989 12/28/95
Courthouse Green 1,014,902 6,963,235 7,978,137 3,052,201 1974/78 12/31/84
Meadowdale Lakes 2,223,537 9,764,394 11,987,931 5,263,784 1967/71 12/31/84
Meadow Run 875,228 4,966,434 5,841,662 2,512,695 1973/74 12/31/84
Waterside at Ironbridge 1,846,369 13,254,383 15,100,752 149,236 1987 09/30/97
Houston, Texas
Woodtrail 1,545,323 6,081,828 7,627,151 247,923 1978 12/31/96
Park Trails 1,145,388 4,229,891 5,375,279 175,752 1983 12/31/96
Green Oaks 5,324,439 20,140,669 25,465,108 466,514 1985 06/25/97
Seahawk 2,314,142 7,535,151 9,849,293 183,777 1984 05/08/97
Greenhouse Patio 4,058,090 14,980,534 19,038,624 137,503 1985 09/26/97
Breakers 1,527,647 5,315,627 6,843,274 70,778 1985 09/26/97
Braesridge 3,048,212 11,092,298 14,140,510 143,629 1982 09/26/97
Bammelwood 929,601 3,335,258 4,264,859 36,242 1980 10/30/97
Camino Village 3,604,483 11,601,974 15,206,457 74,807 1979 11/20/97
Columbia, South Carolina
Gable Hill 1,076,105 5,989,184 7,065,289 1,906,075 1985 12/04/89
Colonial Villa 1,425,590 6,234,416 7,660,006 1,400,978 1974 09/16/92
St. Andrews Commons 1,688,403 10,019,238 11,707,641 2,000,396 1986 05/20/93
Forestbrook 595,396 4,195,159 4,790,555 983,381 1974 07/01/93
Crossroads 2,426,254 15,686,769 18,113,023 2,083,113 1977/84 07/01/94
The Park 1,380,881 6,904,577 8,285,458 948,615 1975/77 07/01/94
St. Andrews 1,131,654 7,237,839 8,369,493 980,891 1972 07/01/94
Waterford 1,203,387 7,620,048 8,823,435 1,100,862 1985 07/01/94
Hampton Greene 1,586,208 10,503,261 12,089,469 1,341,224 1990 08/19/94
Rivergate 1,346,060 12,454,361 13,800,421 636,462 1989 08/15/96
Tampa, Florida
Bay Cove 3,124,479 8,120,414 11,244,893 1,845,320 1972 12/16/92
Summit West 2,426,958 6,114,626 8,541,584 1,402,009 1972 12/16/92
Pinebrook 1,953,141 4,667,973 6,621,114 1,092,058 1977 09/28/93
Village at Old Tampa Bay 2,046,681 11,948,620 13,995,301 2,012,412 1986 12/08/93
Lakewood Place 1,532,290 11,283,897 12,816,187 1,630,733 1986 03/10/94
Hunters Ridge 2,889,406 11,532,125 14,421,531 1,165,976 1992 06/30/95
Bay Meadow 3,410,068 10,670,564 14,080,632 414,650 1985 12/09/96
Cambridge 1,829,400 7,345,045 9,174,445 156,431 1985 06/06/97
Orange Oaks 1,374,008 6,643,088 8,017,096 119,987 1986 07/01/97
Greensboro, North Carolina
Beechwood 1,567,888 6,552,057 8,119,945 1,087,101 1985 12/22/93
Steeplechase 3,249,628 21,608,100 24,857,728 793,402 1990/97 03/07/96
Northwinds 1,679,896 12,098,902 13,778,798 575,094 1989/97 08/15/96
Deerwood Crossing 1,649,937 8,691,497 10,341,434 465,479 1973 08/15/96
Dutch Village 1,267,580 5,208,470 6,476,050 295,030 1970 08/15/96
Lake Brandt 1,655,896 13,638,390 15,294,286 700,695 1995 08/15/96
Park Forest 769,187 5,946,547 6,715,734 289,768 1987 09/26/96
Deep River Pointe 1,676,648 11,157,182 12,833,830 104,035 1997 10/01/97
Eastern North Carolina
Colony Village 528,318 4,471,869 5,000,187 2,146,941 1972/74 12/31/84
Brynn Marr 589,998 5,553,639 6,143,637 2,480,027 1973/77 12/31/84
Liberty Crossing 1,218,846 5,495,286 6,714,132 2,152,381 1972/74 11/30/90
Bramblewood 547,559 4,204,283 4,751,842 2,097,678 1980/82 12/31/84
Cape Harbor 1,932,858 18,300,090 20,232,948 954,576 1996 08/15/96
Mill Creek 809,264 5,602,086 6,411,350 1,415,446 1986 09/30/91
The Creek 464,172 3,600,272 4,064,444 972,333 1973 06/30/92
Forest Hills 1,165,162 6,626,615 7,791,777 1,422,139 1964/69 06/30/92
Clear Run 1,217,815 13,190,060 14,407,875 1,446,714 1987/89 07/22/94
Crosswinds 1,119,808 18,592,503 19,712,311 619,048 1990 02/28/97
San Antonio, Texas
Promontory Pointe 7,658,166 28,193,738 35,851,904 1,085,326 1997 12/31/96
Bluffs 1,915,544 7,361,242 9,276,786 291,469 1978 12/31/96
Westlake Villas 2,424,202 8,518,945 10,943,147 341,689 1985 12/31/96
Ashley Oaks 4,598,411 16,872,182 21,470,593 589,040 1993 12/31/96
Sunflower 2,223,537 8,045,760 10,269,297 301,273 1980 12/31/96
Nashville, Tennessee
2131 Apartments 1,166,777 12,054,641 13,221,418 2,168,848 1972 12/16/92
The Lakes 1,423,305 6,714,997 8,138,302 1,305,739 1986 09/15/93
Harbour Town 703,367 4,026,260 4,729,627 715,777 1974 12/10/93
Legacy Hill 1,383,746 7,938,976 9,322,722 660,564 1977 11/06/95
Hickory Run 1,633,653 12,402,997 14,036,650 934,295 1989 12/29/95
Brookridge 898,099 6,017,494 6,915,593 465,107 1986 03/28/96
Club at Hickory Hollow 2,535,677 15,783,301 18,318,978 557,300 1987 02/21/97
Breckenridge 903,803 7,974,055 8,877,858 276,415 1986 03/27/97
Baltimore, Maryland
Gatewater Landing 2,137,771 6,976,919 9,114,690 1,475,512 1970 12/16/92
Dominion Kings Place 1,645,273 7,429,383 9,074,656 1,402,219 1983 12/29/92
Dominion at Eden Brook 2,465,146 10,022,818 12,487,964 1,932,558 1984 12/29/92
Dominion Great Oaks 3,238,688 10,615,186 13,853,874 1,627,969 1974 07/01/94
Holly Tree Park 1,749,287 6,078,390 7,827,677 851,206 1973 07/01/94
Woodside 3,432,444 11,642,560 15,075,004 1,758,547 1966 08/16/94
Dominion Constant Friendship 1,033,414 5,001,319 6,034,733 501,549 1990 05/04/95
Atlanta, Georgia
Stanford Village 1,140,032 3,438,748 4,578,780 1,371,412 1985 09/26/89
Griffin Crossing 1,640,186 8,219,836 9,860,022 1,193,513 1987/89 06/08/94
Gwinnett Square 2,084,036 8,225,510 10,309,546 832,800 1985 03/29/95
Dunwoody Pointe 3,150,829 9,999,710 13,150,539 826,161 1980 10/24/95
Riverwood 3,301,806 13,057,572 16,359,378 808,429 1980 06/26/96
Lake of the Woods 1,070,873 8,881,064 9,951,937 470,926 1989 08/15/96
Miami/Fort Lauderdale, Florida
Copperfield 4,890,938 21,213,817 26,104,755 2,251,883 1991 09/21/94
Mediterranean Village 2,247,401 12,819,657 15,067,058 1,470,602 1989 09/30/94
Cleary Court 2,547,964 8,899,177 11,447,141 972,585 1984/85 11/30/94
University Club 1,636,811 7,640,601 9,277,412 638,960 1988 09/26/95
Washington D.C.
Dominion Middle Ridge/Woodbridge 3,390,615 13,679,644 17,070,259 767,610 1990 06/25/96
Dominion Lake Ridge/Woodbridge 2,472,355 8,805,650 11,278,005 648,307 1987 02/23/96
Knolls at Newgate/Fairfax 1,823,738 4,671,715 6,495,453 733,755 1972 07/01/94
Parkwood Court/Alexandria 2,722,114 5,545,558 8,267,672 1,139,343 1964 06/30/93
Hampton Court/Alexandria 7,593,059 5,948,903 13,541,962 1,277,673 1967 02/19/93
Hampton Roads, Virginia
Forest Lakes at Oyster Point $ 1,152,200 $ 9,859,993 $ 11,012,193 $ 940,203 1986 08/15/95
Woodscape 1,070,056 9,504,736 10,574,792 3,612,968 1974/76 12/29/87
Eastwind 364,413 6,916,035 7,280,448 2,707,952 1970 04/04/88
Kings Arms 1,919,622 4,661,424 6,581,046 267,235 1966 08/15/96
Bayberry Commons 746,165 4,647,075 5,393,240 1,954,567 1973/74 04/07/88
Heather Lake 943,041 5,724,533 6,667,574 3,742,931 1972/74 03/01/80
York Pointe 1,088,887 8,583,161 9,672,048 24,521 1987 12/23/97
Jacksonville, Florida
Greentree Place 2,182,519 13,511,433 15,693,952 1,735,468 1986 07/22/94
Westland Park 2,560,307 17,105,814 19,666,121 1,048,768 1990 05/09/96
The Antlers 4,665,725 14,859,853 19,525,578 981,099 1985 05/28/96
Greenville, South Carolina
Key Pines 708,961 5,148,884 5,857,845 1,344,626 1974 09/25/92
Riverwind 896,651 6,931,346 7,827,997 1,171,807 1987 12/31/93
The Landing 962,080 6,696,807 7,658,887 924,838 1976 07/01/94
Overlook 1,324,304 7,254,381 8,578,685 1,083,576 1976 07/01/94
Stonesthrow 1,688,290 16,917,245 18,605,535 864,591 1993 08/15/96
Phoenix, Arizona
Greenway Park 1,653,849 8,532,222 10,186,071 231,474 1986 12/31/96
Vista Point 1,609,845 5,818,679 7,428,524 217,942 1986 12/31/96
Sierra Palms 4,658,907 17,411,662 22,070,569 637,341 1996 12/31/96
Eastern Shore Maryland
Brittingham Square 761,716 5,261,241 6,022,957 520,024 1991 05/04/95
Greens at Schumaker Pond 842,177 6,553,560 7,395,737 642,426 1988 05/04/95
Greens at Cross Court 1,319,182 4,988,102 6,307,284 537,832 1987 05/04/95
Greens at Hilton Run 3,024,334 10,981,435 14,005,769 1,084,595 1988 05/04/95
Fayetteville, North Carolina
Cumberland Trace 658,948 8,230,403 8,889,351 425,685 1973 08/15/96
Village At Cliffdale 1,088,925 15,893,220 16,982,145 764,687 1992 08/15/96
Morganton Place 846,401 13,425,693 14,272,094 640,558 1994 08/15/96
Memphis, Tennessee
Briar Club 1,476,198 8,206,669 9,682,867 1,148,355 1987 10/14/94
Hunters Trace 1,097,121 7,561,313 8,658,434 993,749 1986 10/14/94
Hickory Pointe 1,487,988 6,818,830 8,306,818 843,521 1985 02/10/95
Austin, Texas
Pecan Grove 1,431,356 5,353,236 6,784,592 193,800 1984 12/31/96
Anderson Mill 3,322,677 11,757,193 15,079,870 431,821 1984 03/27/97
Albuquerque, New Mexico
Alvarado 1,957,088 6,053,433 8,010,521 259,673 1984 12/31/96
Other Florida
Brantley Pines/Ft. Myers 2,409,672 13,255,561 15,665,233 1,106,312 1986 08/11/94
Santa Barbara Landing/Naples 1,595,901 8,935,111 10,531,012 1,218,160 1987 09/01/94
Mallards of Wedgewood/Lakeland 1,189,781 8,088,528 9,278,309 808,456 1985 07/27/95
The Groves/Daytona Beach 1,362,424 5,631,396 6,993,820 508,693 1989 12/13/95
Lakeside/Daytona Beach 2,420,885 6,525,932 8,946,817 117,745 1985 07/01/97
Mallards of Brandywine/Deland 779,231 5,585,906 6,365,137 99,865 1985 07/01/97
Lake Washington Downs/Melbourne 1,664,881 6,084,355 7,749,236 1,178,501 1984 09/24/93
Other Virginia
Greens at Falls Run/Fredericksburg 2,839,939 5,755,435 8,595,374 570,300 1989 05/04/95
Manor at England Run/Fredericksburg 3,143,941 16,963,002 20,106,943 702,809 1990 05/04/95
Laurel Ridge/Roanoke 663,457 3,622,250 4,285,707 1,697,550 1970/72 05/17/88
Greens at Hollymead/Charlottesville 1,047,838 5,620,687 6,668,525 535,884 1990 05/04/95
Craig Manor/Salem 369,506 3,087,852 3,457,358 1,270,552 1975 11/06/87
Northview/Salem 232,994 1,901,500 2,134,494 1,235,112 1969 09/29/78
Other Georgia
Royal Oaks/Savannah 906,518 10,919,506 11,826,024 1,420,836 1980 07/01/94
River Place/Macon 1,660,716 8,244,154 9,904,870 1,401,563 1988 04/08/94
Arkansas
Turtle Creek/Little Rock 1,954,526 7,221,065 9,175,591 261,933 1985 12/31/96
Shadow Lake/Little Rock 2,532,555 9,226,564 11,759,119 340,867 1984 12/31/96
Las Vegas, Nevada
Sunset Pointe 4,339,816 15,946,622 20,286,438 554,219 1990 12/31/96
Delaware
Dover Country Club/Dover 2,372,795 8,148,939 10,521,734 1,114,056 1970 07/01/94
Greens at Cedar Chase/Dover 1,675,400 5,215,780 6,891,180 532,618 1988 05/04/95
Other Texas
Chandler's Mill/Corpus Christi 1,955,346 6,962,453 8,917,799 261,430 1984 12/31/96
Ryan's Mill/El Paso 1,540,546 5,361,130 6,901,676 212,958 1985 35430
Alabama
Three Fountains/Montgomery 1,228,303 9,724,349 10,952,652 1,253,066 1973 07/01/94
Oklahoma
Bluff Creek/Oklahoma City 2,202,805 7,344,139 9,546,944 298,463 1984 12/31/96
Other North Carolina
Woodberry/Asheville 500,326 6,878,619 7,378,945 360,611 1987 08/15/96
Other South Carolina
Somerset/Charleston 688,492 4,916,039 5,604,531 695,821 1979 07/01/94
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393,504,827 $ 1,887,933,303 2,281,438,130 $200,506,747
===========================================================================
Real estate held for disposition
Apartments
Rollingwood/Richmond, VA $1,058,716 $7,162,143 $8,220,859 $3,801,762 1974/78 12/31/84
Twin Rivers/Richmond, VA 377,952 2,091,336 2,469,288 1,465,624 1972 01/06/82
Heritage Trace/Hampton Roads, VA 1,200,782 3,804,220 5,005,002 1,604,779 1973 06/30/89
The Melrose/Dumfries, VA 1,363,276 8,115,478 9,478,754 3,771,727 1951 12/11/85
Twin Coves/Baltimore, MD 1,020,290 3,590,919 4,611,209 377,544 1974 08/16/94
Cedar Point/Raleigh, NC 236,422 7,581,288 7,817,710 3,432,650 1972 12/18/85
Cinnamon Ridge/Raleigh, NC 1,272,295 7,766,774 9,039,069 3,313,607 1968/70 12/01/89
The Ledges/Greensboro, NC 1,229,708 5,393,562 6,623,270(f) 3,763,004 1959 08/13/86
Westwinds/Greensboro, NC 1,392,712 7,258,414 8,651,126 398,006 1986 08/15/96
Windsor Harbor/Charlotte, NC 907,497 5,994,590 6,902,087 2,358,157 1971 01/13/89
Grand Oaks/Charlotte, NC 884,191 6,736,017 7,620,208 3,743,933 1966/67 05/01/84
Plum Chase/Columbia, SC 1,105,893 8,227,163 9,333,056 2,759,641 1974 01/04/91
Country Walk/Columbia, SC 695,079 4,316,663 5,011,742 1,508,427 1974 12/19/91
Heatherwood/Greenville, SC 440,495 4,001,750 4,442,245 821,460 1978 09/30/93
Hampton Forest/Greenville, SC 635,620 3,149,920 3,785,540 522,375 1968 08/16/94
Hunting Ridge/Greenville, SC 607,350 3,089,296 3,696,646 369,157 1972 11/01/94
Patriot Place/Florence, SC 1,400,187 5,908,510 7,308,697(f) 2,671,376 1974 10/23/85
Foxcroft/Tampa, FL 925,884 4,707,898 5,633,782 1,060,750 1972 01/28/93
Palm Grove/Tampa, FL 790,741 5,886,200 6,676,941 981,752 1969/71 04/15/94
Covington Crossing/Memphis, TN 1,845,915 4,624,337 6,470,252(f) 954,077 1974 10/14/94
Foxfire/Dallas, TX 2,064,284 6,447,570 8,511,854 159,340 1978 12/31/96
High Ridge/Dallas, TX 2,388,844 8,175,279 10,564,123 186,912 1979 12/31/96
Timbercreek/Dallas, TX 7,123,921 23,242,025 30,365,946 531,032 1977 12/31/96
The Creeks/Austin, TX 1,774,039 6,782,636 8,556,675 166,482 1975 12/31/96
Foxfire/Amarillo, TX 2,256,991 6,014,035 8,271,026 181,344 1978 12/31/96
Commercial
The Village/Durham, NC 2,179,259 6,610,255 8,789,514 2,154,559 1965
Hanover Village-Land/Richmond, VA 1,103,600 520,310 1,623,910 10,180 --
Gloucester Exchange/Gloucester, VA 531,881 2,197,335 2,729,216(f) 757,307 1974
Tri-County Buildings/Bristol, TN 364,123 2,092,408 2,456,531 733,820 1976/79
Meadowdale Office/Richmond, VA 259,684 435,674 695,358(f) 300,034 1976/82
----------------------------------------------------------
$39,437,631 $171,924,005 $211,361,636 $44,860,818
==========================================================
Cost of Gross amount at Which
Initial Costs Improvements Carried at Close of Period
------------------------------- Capitalized -------------------------------
Land and Buildings Subsequent Land and Buildings
Land and to Acquisition Land and
Encumbrances Improvements Improvements (Net of Disposals) Improvements Improvements(e)
-------------- -------------- -------------- ------------------ -------------------------------
Real estate under development
New apartment communities
Ashlar I/Fort Myers, Fl $ 2,853,178 $ -- $ 3,990 $ 2,853,178 $ 3,990
Dominion Franklin/Nashville, TN 2,104,394 462,829 4,101,920 2,105,275 4,563,868
Dominion Ranchstone/Houston, TX 849,515 -- 849,515 --
Additions to existing communities
Oak Forest II/Dallas, TX -- 3,332,867 8,173,569 28,741 11,477,695
Mill Creek II/Wilmington, NC 807,250 -- 1,908,586 1,383,250 1,332,586
-----------------------------------------------------------------------------------------------------
$0 $ 6,614,337 $ 3,795,696 $14,188,065 $ 7,219,959 $17,378,139
=====================================================================================================
-----------------------------------------------------------------------------------------------------
Total real estate owned $417,324,815 $392,085,809 $1,803,670,022 $321,642,033 $440,162,417 $2,077,235,447
=====================================================================================================
Total Accumulated Date of Date
(a) Depreciation Construction Acquired
----------- ----------------- ----------------- -------------
Real estate under development
New apartment communities
Ashlar I/Fort Myers, Fl $2,857,168 $ --
Dominion Franklin/Nashville, 6,669,143 --
Dominion Ranchstone/Houston, TX 849,515 --
Additions to existing communities
Oak Forest II/Dallas, TX 11,506,436 --
Mill Creek II/Wilmington, NC 2,715,836 --
------------ ---------------
$24,598,098 $0
============ ===============
------------ ---------------
Total real estate owned $2,517,397,864 $245,367,565
============ ===============
</TABLE>
(a) The aggregate cost for federal income tax purposes was approximately $2.3
billion and $1.9 billion at December 31, 1997 and 1996, respectively.
(b) Represents a $41,494,601 REMIC financing encumbering 12 apartment
communities.
(c) Represents a $47,079,012 REMIC financing encumbering 13 apartment
communities.
(d) represents a $39,000,000 notes payable-secured which encumbers six apartment
communities.
(e) The depreciable life for all buildings is 35 years.
(f) The Company's long-lived assets are periodically evaluated for impairment
and provisions for possible investment losses are recorded if required. The
following properties have a provision for possible investment loss recorded
as follows: (i) The Ledges - $300,000, (ii) Patriot Place - $257,000 (iii)
Covington Crossing - $1,100,000, (iv) Gloucester Exchange - $775,000 and (v)
Meadowdale Office Park - $300,000.
EXHIBIT 12
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
<TABLE>
<CAPTION>
Years ended December 31, 1993 1994 1995 1996 1997
-------------------------------------------------------------------------
<S> <C>
Net income before extraordinary item $11,197 $19,226 $33,127 $38,014 $70,199
Add:
Portion of rents representative
of the interest factor 143 177 201 257 412
Interest on indebtedness 17,237 28,521 40,646 50,843 79,004
Adoption of SFAS No. 112 "Employers' Accounting
for Postemployment Benefits" -- 450 -- -- --
-------------------------------------------------------------------------
Earnings $28,577 $48,374 $73,974 $89,114 $149,615
=========================================================================
Fixed charges and preferred stock dividend:
Interest on indebtedness $17,237 $28,521 $40,646 $50,843 $79,004
Capitalized interest -- -- 40 541 2,634
Portion of rents representative
of the interest factor 143 177 201 257 412
-------------------------------------------------------------------------
Fixed charges 17,380 28,698 40,887 51,641 82,050
-------------------------------------------------------------------------
Add:
Preferred stock dividend -- -- 6,637 9,713 17,345
-------------------------------------------------------------------------
Combined fixed charges and preferred stock dividend $17,380 $28,698 $47,524 $61,354 $99,395
=========================================================================
Ratio of earnings to fixed charges 1.64x 1.69x 1.81x 1.73x 1.82x
Ratio of earnings to combined fixed charges
and preferred stock dividend 1.64 1.69 1.56 1.45 1.51
</TABLE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of United Dominion Realty Trust, Inc. and in the related Prospectuses
of our report dated January 28, 1998, with respect to the consolidated financial
statements and schedule of United Dominion Realty Trust, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 1997:
Registration Statement Number Description
- - ----------------------------- -------------
33-40433 Form S-3, pertaining to the private placement
900,000 shares of the Company's common
stock in May, 1991.
33-47296 Form S-8, pertaining to the Company's Stock
Purchase and Loan Plan.
33-48000 Form S-8, pertaining to the Company's Stock
Option Plan.
33-58201 Form S-8, pertaining to the Employee's Stock
Purchase Plan.
33-64275 Form S-3, Shelf Registration Statement,
pertaining to the registration of $462.3
million of Common Stock, Preferred Stock
and Debt Securities.
333-11207 Form S-3, Shelf Registration Statement,
pertaining to the private placement of
1,679,840 shares of the Company's Common
Stock in August, 1996.
333-15133 Form S-3, pertaining to the Company's
Dividend Reinvestment and Stock Purchase
Plan.
333-27221 Form S-3, Shelf Registration Statement,
pertaining to the registration of $600
million of Common Stock, Preferred Stock
and Debt Securities.
333-32829 Form S-8, pertaining to the Company's Stock
Purchase and Loan Plan.
333-44463 Form S-3, pertaining to the Company's
Dividend Reinvestment and Stock Purchase
Plan.
333-42691 Form S-8, pertaining to the Company's Stock
Option Plan.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
Richmond, Virginia
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 473
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,221
<PP&E> 2,472,537
<DEPRECIATION> 200,506
<TOTAL-ASSETS> 2,313,725
<CURRENT-LIABILITIES> 84,449
<BONDS> 1,156,226
0
255,000
<COMMON> 89,168
<OTHER-SE> 714,189
<TOTAL-LIABILITY-AND-EQUITY> 2,313,725
<SALES> 386,672
<TOTAL-REVENUES> 387,795
<CGS> 0
<TOTAL-COSTS> 163,731
<OTHER-EXPENSES> 85,847
<LOSS-PROVISION> 1,400
<INTEREST-EXPENSE> 79,004
<INCOME-PRETAX> 70,199
<INCOME-TAX> 0
<INCOME-CONTINUING> 70,199
<DISCONTINUED> 0
<EXTRAORDINARY> (50)
<CHANGES> 0
<NET-INCOME> 70,149
<EPS-PRIMARY> .61
<EPS-DILUTED> .60
</TABLE>
