UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends its Current Report on Form 8-K dated
March 27, 1998, which was filed with the Securities and Exchange Commission on
April 13, 1998, to include the Consolidated Financial Statements of Businesses
Acquired, the Consolidated Pro Forma Financial Statements and Notes thereto, and
Exhibits as set forth on the pages attached hereto.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired
(b) Pro Forma Financial Information
(c) Exhibits
(23) Consent of Experts
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this Amendment to be signed on its behalf
by the undersigned, thereto duly authorized.
UNITED DOMINION REALTY TRUST, INC.
(Registrant)
/s/ James Dolphin
-------------------------------------
James Dolphin
Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
Date: June 12, 1998
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
Description Location
----------- --------
(a) Financial Statements of Businesses Acquired 3 through 19
(b) Pro Forma Financial Information 20 through 29
(c) Exhibits
(23) Consent of Independent Public Accountants 30
Incorporation of Certain Other Information By Reference
The following documents (File No. 1-9646) filed by ASR Investment Corporation
("ASR") with the Securities and Exchange Commission under the Exchange Act are
hereby incorporated by reference into this Form 8-K: (i) ASR's consolidated
financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the Securities and Exchange Commission on
April 15, 1998 and (ii) ASR's pro forma financial statements included in ASR's
Current Report on Form 8-K/A No. 1 dated October 27, 1997 filed with the
Securities and Exchange Commission on January 6, 1998, as filed under the
Exchange Act including any amendments or reports filed for the purpose of
updating such description.
<PAGE>
ASR INVESTMENTS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995 ....................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 ....................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995 ....................................................................... F-6
Notes to Consolidated Financial Statements ........................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of ASR Investments Corporation.
We have audited the accompanying consolidated balance sheets of ASR
Investments Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1997 and 1996, and the results of its operations and cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Tucson, Arizona
February 27, 1998
(March 27, 1998 as to Note 12)
F-2
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets
Real estate investments:
Land ........................................................... $ 50,855 $ 15,514
Buildings and improvements ..................................... 225,624 58,476
Construction in progress ....................................... 14,694
Land held for development ...................................... 925 925
Investments in joint ventures .................................. 2,811
Other real estate .............................................. 771 1,022
---------- ----------
Total real estate investments ............................... 278,175 93,442
Accumulated depreciation ....................................... (13,843) (7,504)
---------- ----------
Real estate investments, net of depreciation ................ 264,332 85,938
Cash and cash equivalents ........................................ 2,987 2,403
Mortgage assets .................................................. 5,039
Restricted cash .................................................. 8,825 2,930
Deferred loan fees ............................................... 1,461 1,090
Goodwill ......................................................... 1,356
Other assets ..................................................... 1,782 396
---------- ----------
Total assets ................................................ $ 280,743 $ 97,796
========== ==========
Liabilities
Real estate notes payable ........................................ $ 173,153 $ 48,855
Construction loan payable ........................................ 255
Short-term borrowings ............................................ 2,014
Construction costs payable ....................................... 1,581
Security deposits and deferred rental income ..................... 2,271 644
Other liabilities ................................................ 8,330 4,345
---------- ----------
Total liabilities ........................................... 183,754 57,694
---------- ----------
Commitments and Contingencies (Notes 2, 3 and 4)
Minority Interest of Unitholders in Operating Partnership ......... 18,454
----------
Stockholders' Equity
Common Stock, par value $.01 per share, 40,000,000 shares
authorized; 5,174,799 and 3,307,892 shares issued .............. 51 33
Additional paid in capital ....................................... 193,415 155,964
Deficit .......................................................... (111,636) (112,964)
Stock note receivable ............................................ (267) (385)
Treasury stock -- 184,742 and 160,742 shares ..................... (3,028) (2,546)
---------- ----------
Total stockholders' equity .................................. 78,535 40,102
---------- ----------
Total liabilities and stockholders' equity ..................... $ 280,743 $ 97,796
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Operations
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Real Estate Operations
Rental and other income ............................................ $ 33,034 $ 14,581 $ 14,034
-------- -------- --------
Operating and maintenance expenses ................................. 11,629 5,404 5,259
Real estate taxes and insurance .................................... 3,448 1,451 1,460
Interest expense on real estate mortgages .......................... 10,054 4,348 4,387
Depreciation and amortization ...................................... 6,335 2,819 2,692
-------- -------- --------
Total operating expenses ...................................... 31,466 14,022 13,798
-------- -------- --------
Income from real estate ............................................ 1,568 559 236
-------- -------- --------
Gain on sale of real estate ........................................ 474
--------
Mortgage Assets
Prospective yield income ........................................... 588 2,630 3,884
Income from redemptions and sales .................................. 16,650 9,461 5,302
Interest expense ................................................... (25) {181) (347)
-------- -------- --------
Income from mortgage assets ........................................ 17,213 11,910 8,839
-------- -------- --------
Income Before Administrative Expenses, Acquisition Related
Expenses, Other Income (Expense) And Minority Interests Of
Unitholders In Operating Partnership ............................... 19,255 12,469 9,075
Administrative expenses ............................................ (3,114) (3,203) (2,983)
Acquisition related expenses ....................................... (6,684) (381)
Other income (expense), net ........................................ 732 (44) 462
-------- -------- --------
Income Before Minority Interests Of Unitholders In Operating
Partnership ........................................................ $ 10,189 $ 8,841 6,554
Minority interests of unitholders in operating partnership ......... (355)
-------- -------- --------
Net Income .......................................................... $ 9,834 $ 8,841 $ 6,554
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................... $ 9,834 $ 8,841 $ 6,554
Principal noncash charges
Depreciation and amortization ............................... 6,905 3,271 3,028
Minority interests of unitholders in operating partnership .. 355
Acquisition related expenses ................................ 5,250
Gain on sale of real estate ................................. (474)
Reversal of yield maintenance accrual ....................... (2,420)
Increase in deferred compensation ........................... 1,439
Increase in stock appreciation rights ....................... 642 856 705
(Increase) decrease in other assets ......................... (1,386) 27 234
Increase (decrease) in other liabilities .................... 4,299 1,066 (589)
--------- --------- --------
Cash Provided By Operations .................................. 26,864 14,061 7,512
--------- --------- --------
INVESTING ACTIVITIES
Investment in apartments ..................................... (37,034) (1,263) (8,505)
Construction expenditures .................................... (6,209) (11,753)
Proceeds from sale of real estate ............................ 2,830
Investment in joint ventures ................................. 358 (65) (1,895)
Purchase of land for development ............................. (3,928)
Other real estate assets ..................................... 251 179 3,985
Restricted cash .............................................. (5,895) (808) 861
Reduction in mortgage assets ................................. 5,039 6,838 7,088
--------- --------- --------
Cash Used In Investing Activities ............................ (40,660) (6,872) (2,394)
--------- --------- --------
FINANCING ACTIVITIES
Issuance of real estate notes payable ........................ 13,540 6,895
Payment of loan costs ........................................ (793) (71)
Proceeds from construction loan .............................. 12,595 255
Repayment of notes payable
Real estate notes ........................................... (2,860) (357) (7,955)
Notes secured by mortgage assets ............................ (4,002)
Short-term borrowing ......................................... (2,014) (2,481) 4,495
Construction costs payable ................................... (1,581) 1,581
Stock issuance ............................................... 5,033 85 45
Payment of dividends ......................................... (8,506) (6,308) (6,304)
Distributions to Minority Interests .......................... (1,428)
Other ........................................................ 394 89
--------- --------- --------
Cash Provided By (Used In) Financing Activities .............. 14,380 (7,207) (6,826)
--------- --------- --------
CASH AND CASH EQUIVALENTS
Increase (decrease) during the period ....................... 584 (18) (1,708)
Balance -- beginning of period .............................. 2,403 2,421 4,129
--------- --------- --------
Balance -- end of period .................................... $ 2,987 $ 2,403 $ 2,421
========= ========= ========
Supplemental Disclosure of Cash Flow Information
Interest paid ................................................ $ 10,847 $ 4,525 $ 5,033
Interest capitalized ......................................... 575 99
Stock issued for contract termination ........................ 5,250
Non-cash transactions associated with acquisitions:
Issuance of common stock .................................... 26,909
Issuance of convertible LP Units ............................ 19,527
Notes payable assumed ....................................... 100,092
</TABLE>
F-5
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
Common
Additional Stock in
Number of Par Paid-In Notes Treasury --
Shares Value Capital Deficit Receivable at Cost Total
------ ----- ------- ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .......... 3,249 $32 $ 155,126 $ (115,747) $ (2,311) $ 37,100
Net income .......................... 6,554 6,554
Dividends ........................... (6,304) (6,304)
Stock issuance (repurchase) ......... 54 1 696 $ (652) 45
----- --- --------- ---------- ------ -------- --------
Balance, December 31, 1995 .......... 3,303 33 155,822 (115,497) (652) (2,311) 37,395
Net income .......................... 8,841 8,841
Dividends ........................... (6,308) (6,308)
Stock issuance (repurchase) ......... 5 53 267 (235) 85
Other ............................... 89 89
----- --- --------- ---------- ------ -------- --------
Balance, December 31, 1996 .......... 3,308 33 155,964 (112,964) (385) (2,546) 40,102
Net income .......................... 9,834 9,834
Dividends ........................... (8,506) (8,506)
Stock issuance (repurchase)
(Notes 2 & 10) ..................... 1,867 18 37,451 118 (482) 37,105
----- --- --------- ---------- ------ -------- --------
Balance, December 31, 1997 .......... 5,175 $51 $ 193,415 $ (111,636) $ (267) $ (3,028) $ 78,535
===== === ========= ========== ====== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- ASR Investments Corporation (the Company) is a real estate
investment trust engaged in the acquisition and operation of apartment
communities in the Southwestern United States. At December 31, 1997, the
Company owned 41 apartment communities and one office building located in
Arizona, Texas, New Mexico and Washington. Prior to 1994, the Company invested
in mortgage assets. In early 1993, the Company determined to shift its focus to
the acquisition, development and operation of apartment communities.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. Investments in joint ventures are accounted for on the equity
method as the Company does not own a controlling interest. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
Common Stock -- On July 7, 1995, the Company effected a reverse stock
split under which one new share of common stock was issued in exchange for five
shares of outstanding stock. Accordingly, the consolidated financial statements
reflect the reverse stock split and the number of common stock issued and the
per share amounts have been adjusted for the reverse stock split for all years.
Real Estate Investments and Depreciation -- Real estate is recorded at
cost. Depreciation is computed on a declining balance basis over the estimated
remaining useful lives of the assets, which are 27 1/2 years for buildings and
improvements and 7 years for furniture, fixture and equipment. Expenditures for
ordinary maintenance and repairs are charged to operations as incurred and
significant renovations and improvements that improve or extend the useful life
of the asset are capitalized.
Revenue Recognition -- Rental income is recorded when due from tenants and
is recognized monthly as it is earned, which is generally on a straight line
basis.
Deferred Loan Costs -- Deferred loan costs are amortized using the
interest method over the terms of the related debt.
Mortgage Assets -- The Company's mortgage interests entitled it to receive
the excess of the cash flows on pools of mortgage instruments over the required
payments on a series of structured financings which were secured. The Company
also had the right to cause the early redemption of the structured financings
under specified limited conditions; in such event, the mortgage instruments
were sold and the net proceeds after the redemption of the structured financing
were remitted to the Company. Redemption transactions occurred from time to
time as specified conditions were met rather than on a monthly or quarterly
basis; therefore, the amount of net proceeds and the income from the redemption
transactions fluctuated significantly between periods.
Presentation and Income Recognition. Mortgage assets are stated at their
net investment amounts. Income was recognized using the prospective yield
method. Under this method, an effective yield is calculated at the beginning of
an accounting period using the then net carrying value of the asset and the
estimated future net cash flow assuming no early redemption. The estimated
future net cash flow is calculated using variable interest rates and current
projected mortgage prepayment rates for the underlying mortgages. The
calculated yield is used to accrue income for the accounting period. Actual
cash flow received is first applied to the accrued income and any remaining
amount is used to reduce the carrying value of the asset. Income from early
redemption was recognized when the transaction was completed.
Income Taxes -- The Company has elected to be taxed as a real estate
investment trust (REIT) under the Internal Revenue Code of 1986, as amended. As
a REIT, the Company must distribute to its stockholders at least 95% of the
higher of (i) its annual taxable income after the use of net operating loss
carryforward or (ii) its annual excess inclusion income. Accordingly, no
provision has been made for income taxes in the accompanying consolidated
financial statements.
F-7
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
Minority Interests -- Net income is allocated to Minority Interests based
on their respective ownership percentages in Heritage Communities L.P. LP units
held by non-affiliates are considered common stock equivalents in the
determination of earnings per share. See Note 4 for additional description of
the Partnership.
Gain on Sale of Real Estate -- Gains on sales of properties are recognized
by the Company when the recognition criteria set forth by generally accounting
principles have been met.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect some of the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Stock Compensation -- In October 1995, the Financial Accounting Standards
Board issued FASB No. 123, "Accounting for Stock-Based Compensation." This
statement encourages, but does not require, companies to adopt a new accounting
method for stock-based compensation awards. Companies that do not adopt the new
accounting method are required to provide the disclosures required by the
Statement for any awards made in 1995 and after. After December 15, 1994, the
Company has not made any awards that would have been treated differently in the
determination of net income under FASB No. 123 and accordingly, pro forma
presentation is not required.
Accounting for the Impairment of Long-Lived Assets -- Long-lived assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If the
sum of the expected future cash flows (undiscounted and without interest
charges) from an asset to be held and used is less than the carrying amount of
the asset, an impairment loss must be recorded for the difference between the
carrying amount of the asset and the fair value.
Earnings Per Share -- No earnings per share information has been presented
as the Company was acquired by United Dominion Realty (see Note 3).
Reclassification -- Certain reclassifications have been made to conform
the prior years with the current year presentation.
F-8
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
2. REAL ESTATE ACQUISITIONS AND DEVELOPMENT
At December 31, 1996, the Company owned directly 18 apartment communities
(2,683 units) in operation and one community (Finisterra Apartments) under
construction. These communities are located in Arizona, Texas, and New Mexico.
The Company completed the construction of the Finisterra Apartments (356 units)
in June 1997. The Company made the following acquisitions during 1997 (dollars
in thousands):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Number of communities acquired ......... 1 17 4 1 23
Number of units acquired ............... 266 3,042 1,102 276 4,686
Total purchase price ................... $4,450 $118,782 $39,996 $13,249 $176,477
Total mortgage loans ................... $3,700 $ 75,696 $26,411 $ 7,825 $113,632
</TABLE>
Winton Acquisition. On April 30, 1997, the Company completed the
acquisition of 13 apartment communities containing 2,260 units located in
Houston and Dallas, Texas and Pullman, Washington, and one office building
located in Seattle, Washington (the "Winton Properties"). The acquisitions were
made pursuant to a Master Combination and Contribution Agreement dated November
8, 1996. The sellers were 15 separate limited partnerships. The total purchase
price of the properties was approximately $83,223,000. The Company (i) assumed
or refinanced first mortgage loans totalling $49,396,000, (ii) issued 682,098
shares of common stock, (iii) issued limited partnership units ("LP Units")
convertible to 943,701 shares of common stock of the Company after April 30,
1998; and (iv) paid the sellers $1,250,000 for transaction costs. As a part of
the acquisition, the Company issued 70,284 shares of common stock to acquire
the entire interests in Winton & Associates, the property management company
for the Winton Properties.
The acquisitions of the Winton Properties and Winton & Associates have
been accounted for under the purchase method. The common stock and the LP Units
are recorded at $20.038 per share, the average closing price of the Company's
common stock for the ten days preceding the announcement of the acquisitions on
November 19, 1996. The excess of the cost of the purchase price of Winton &
Associates over the net tangible assets acquired is recorded as goodwill and is
being amortized over 20 years.
Merit Acquisition On September 18, 1997, the Company acquired a portfolio
of three apartment communities (totaling 900 units) in Dallas, Texas, for
approximately $29,346,000. The Company (i) obtained or assumed mortgage loans
of approximately $18,511,000 with an average fixed interest rate of 7.57%, (ii)
issued 374,581 shares of common stock and 27,721 of convertible LP Units, and
(iii) paid $2,400,000 in cash to the sellers. The Company plans to spend
$1,900,000 on numerous substantive improvements to the communities.
Individual Acquisitions In March 1997, the Company acquired a 266-unit
apartment community in northwest Houston, Texas for $4,450,000. The Company
plans to spend $700,000 on numerous substantive improvements to the community.
The Company obtained a first mortgage loan of $3,700,000 with a fixed rate of
8.39%. The Company issued 86,500 shares of common stock for net proceeds of
$1,622,000 to provide for the cash used in the acquisition.
In April 1997, the Company acquired a 257-unit community in Houston,
Texas, for $6,000,000 and obtained a first mortgage loan for $4,400,000 with a
fixed interest rate of 8.57%. The Company plans to spend $600,000 on numerous
substantive improvements to the community. On May 9, 1997, the Company acquired
a 175-unit apartment community in Seattle, Washington, for $4,059,000 and
obtained a first mortgage loan of $2,900,000 with a fixed interest rate of
8.67%. The Company plans to spend $400,000 on numerous substantive improvements
to the community. The Company issued 187,847 shares of common stock for total
net proceeds of $3,394,000 to pay for the two purchases.
On September 30, 1997, the Company acquired a 202-unit apartment community
located in Kennewick, Washington, for $10,650,000. The Company (i) assumed
mortgage debt of $7,900,000 with an
F-9
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
interest rate of 7.87%, (ii) issued 91,678 shares of the Company's common stock
and (iii) paid $650,000 in cash to the seller. As the community is relatively
new, the Company does not plan to incur major capital improvement expenditures.
On October 27, 1997, the Company acquired a 276-unit apartment community
in Kitsap County, Washington, for $13,249,000. The Company (i) obtained or
assumed mortgage loans of approximately $7,825,000 with an average fixed
interest rate of 8.47%, (ii) issued 86,184 shares of common stock and (iii)
paid $3,100,000 in cash to the seller. As the community is relatively new, the
Company does not plan to incur major capital improvement expenditures.
Development/Construction In Progress In March 1996, the Company began
construction of a 356-unit apartment community, Finisterra Apartments, in
Tempe, Arizona. At December 31, 1996, the Company had invested $14,694,000 of
its own cash and began the lease up phase in December 1996. In June 1997, the
construction was substantially completed at a total cost of approximately
$21,000,000. The Company obtained a $15,350,000 construction loan of which
$255,000 was outstanding at December 31, 1996. The construction loan was
converted to a mini-perm loan that bears interest at 2.5% over the one-month
LIBOR. The loan becomes due on March 26, 1998 at which time the Company may
renew the loan.
Joint Ventures Prior to May 1997, the Company owned six apartment
communities (1,441 units) through joint ventures in which the Company was a 15%
equity partner and the managing partner. On May 1, 1997, the Company acquired
the remaining interest in one joint venture, La Privada Apartments L.L.C., for
$8,233,000 and sold to its partner the Company's entire interests in the other
five joint ventures for total net proceeds of $2,062,000. The Company recorded
a gain of $474,000 on the sale. The La Privada Apartments is a 350-unit
community in Scottsdale, Arizona. The Company obtained a $3,000,000 loan to pay
for the acquisition. The loan bears interest at 3% over LIBOR. The purchase
increased the Company's investment in apartments by approximately $25,500,000
and real estate notes payable by $19,000,000.
With the above transactions, the Company, at December 31, 1997, owned 41
apartment communities containing 7,725 units and an office building.
Proforma Data The following selected unaudited pro forma results of
operations data for the years ended December 31, 1997 and 1996 have been
prepared as if the above transactions (excluding the sale described below) had
occurred at January 1, 1996. The proforma data are provided for information
purposes only and are not indicative of the results that would have occurred or
which may occur in the future (in thousands).
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real and other income ..................... $ 46,822 $ 44,759
Real estate operating expenses:
Operating .............................. (21,306) (20,642)
Depreciation and amortization .......... (9,634) (9,839)
Interest expense or
real estate mortgages ................ (13,694) (13,429)
--------- ---------
Income from real estate ................... 2,188 849
Gain on sale of real estate ............... 474 --
Income from mortgage assets ............... 17,265 12,103
Acquisition related expenses .............. (6,685) (381)
Administrative expenses ................... (3,059) (2,777)
Other income (expenses), net .............. 340 (438)
--------- ---------
Proforma Net Income ....................... $ 10,523 $ 9,356
========= =========
</TABLE>
F-10
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
Sale of Property
On February, 20, 1998, the Company sold the 175-unit apartment community
that it had acquired in May of 1997, for a sale price of $4,450,000. The
Company received 73,858 shares of its Common Stock (valued at $1,616,000) from
the buyer who also assumed the first mortgage loan. The Company did not realize
a material gain or loss from the sale.
Operating income from apartments is affected primarily by rental rates,
occupancy rates and operating expenses. Rental rates and occupancy rates are
affected by the strength of the local economy, the local housing market and the
supply of and demand for new apartment communities.
3. UNITED DOMINION REALTY MERGER
In December 1997, the Company announced the execution of a definitive
agreement to which ASR will merge with and into a wholly-owned subsidiary of
United Dominion Realty Trust ("UDR"). The merger has been structured as a
tax-free transaction for ASR's shareholders and is expected to be effective
March 27, 1998 pending shareholder approval at a special meeting of
stockholders to be held on March 25, 1998. The merger provides that each share
of common stock of ASR will be converted into the right to receive 1.575 shares
of UDR's common stock and cash in lieu of the issuance of any fractional
shares. The merger also provides that ASR will pay a closing dividend in an
amount that will vary depending on the effective date of the merger. Assuming
consummation of the merger on March 27, 1998, the closing dividend will be $.15
per share.
4. HERITAGE COMMUNITIES L.P.
The Company formed Heritage Communities L.P. ("Heritage LP"), an operating
partnership, in 1997 for the purpose of acquiring the Winton Properties and
other apartment communities. Heritage is a Delaware limited partnership in
which the Company and a wholly owned subsidiary of the Company, Heritage SGP,
are the sole general partners. To the extent that Heritage LP has sufficient
operating cash flows, holders of limited partnership units ("LP Units") will
receive quarterly distributions per unit equal to the per share dividend on the
Company's common stock. To the extent that Heritage LP has insufficient cash to
pay the distributions, the holders of LP units will be credited for the unpaid
distribution and interest on the unpaid distribution; such unpaid balances will
be given priority for future distributions.
Heritage LP's items of income, gain, loss and deduction are allocated
among its partners, subject to certain special allocations, in a similar manner
for purposes of both book gain or loss and tax gain or loss. Net income is
allocated (i) first, to each limited partner to the extent that, on a
cumulative basis, net losses previously allocated to the limited partners
exceed net income previously allocated to limited partners, (ii) second, to
each limited partner to the extent that such limited partner has been allocated
on a cumulative basis, net income equal to the sum of the distributions paid to
such limited partner and the unreturned balances in the accrual accounts and
the unpaid distribution accounts maintained with respect to the LP Units held
by such limited partner, and (iii) the general partners on a pro rata basis.
Notwithstanding the allocations in (i) and (ii) above, at least one percent of
each item of gain, loss, income and deduction for each year is allocated to the
general partners.
Net losses are allocated to the partners in accordance with their
respective percentage interests in Heritage LP, except that net losses are not
allocated to any limited partner to the extent that such allocation would cause
the limited partner to have an adjusted capital account deficit at the end of
the taxable year. All net losses in excess of such limitations will be
allocated to the general partners on a pro rata basis
The LP Units are convertible to one share of the Company's Common Stock
after one year from the date of issuance. If an LP Unit is converted prior to
April 30, 2007, the holder will also be paid any unpaid balances in the
holder's distribution account. An LP Unit holder who exercises the conversion
after April
F-11
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
30, 2007 will not be paid any unpaid balance in the holder's distribution
account if the market value of the Company's common stock is equal to at least
110% of the sum of the initial contribution and the unpaid balance.
Holders of LP Units do not have the right to take part in the management
or control of the business or affairs of Heritage L.P. Amendment of the
partnership agreement would require the consent of the general partners and
more than 50% of the LP Units. Heritage L.P. will be dissolved upon the
occurrence of certain specified and limited events or December 31, 2086.
Heritage LP issued 943,701 LP Units to the sellers of the Winton
Properties and 27,721 LP Units to the sellers of the three Dallas apartment
communities acquired in September 1997. In 1997, Heritage LP issued 1,887,415
LP Units to the Company in connection with the 1997 acquisitions discussed in
Note 2. As of December 31, 1997, Heritage LP had 2,858,837 LP Units
outstanding. Heritage LP declared a distribution of $0.50 per Unit for each of
the quarters ended June 30, 1997, September 30, 1997 and December 31, 1997.
5. MORTGAGE ASSETS
In 1997, the Company received a total of $20,880,000 from the sale or
redemption of all remaining mortgage assets and realized total redemption
income of $16,650,000. During 1996, the Company sold or exercised its
redemption rights on nine mortgage assets for net proceeds of $13,625,000 and
redemption income of $9,461,000. During 1995, the Company exercised its
redemption rights on five mortgage assets for net proceeds of $6,348,000 and
redemption income of $2,882,000. Using proceeds from one of the redemptions, in
1995, the Company prepaid its notes payable secured by mortgage assets and
recorded income of $2,420,000 for the reversal of the excess yield maintenance
accrual on such notes payable. The income was included in the 1995 income from
redemptions and sales of mortgage assets.
For 1996 and 1995, the average carrying value of the mortgage assets was
$8,118,000 and $14,827,000, respectively, and the average prospective yield was
35% and 28%, respectively. At December 31, 1996 and 1995, the prospective yield
was 38% and 29%.
The cash flows and prospective yield income were affected primarily by
mortgage prepayment rates and short-term interest rates. Higher mortgage
prepayment rates or higher short-term rates reduced the income and total cash
flows over the life of the mortgage assets. Income from mortgage asset
redemptions was affected by the timing of meeting the specified conditions for
redemptions and the value of the underlying mortgage instruments. As a result,
mortgage asset redemptions did not occur on a regular basis and the income
fluctuated significantly between periods. In addition, redemption of mortgage
assets reduced the prospective yield income in future periods.
6. NOTES PAYABLE
Real estate notes payable
During 1997, the Company obtained new mortgage loans or assumed existing
mortgage loans totaling $113,632,000 in connection with its apartment
acquisitions. In addition, as discussed in Note 2, the Company had obtained a
$15,350,000 construction loan to finance the construction of its Finisterra
apartment community. The loan bore interest at 1% per annum above the bank's
prime rate. The interest rate at December 31, 1996 was 9.25%. At December 31,
1997 and 1996, the amount outstanding was $12,748,000 and $255,000. In
September 1997, the Company converted the construction loan into a miniperm
loan that bears interest at 2.5% over the one-month LIBOR. The loan matures at
the end of March 1998 at which time the Company may extend the loan or
refinance it to a permanent loan at a lower interest rate.
Excluding the construction loan, all the Company's mortgage loans are
nonrecourse and non-cross collateralized. They generally have terms from seven
to fifteen years. At December, 31, 1997, the mortgage loans consisted of
$145,364,000 of fixed rate loans and $27,789,000 of variable rate loans which
F-12
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
includes the construction loan. All of the Company's mortgage loans were fixed
rate at December 31, 1996. The fixed interest rates range from 7.1% to 10.1%,
with a weighted average rate for all the Company's loans of 8.1% and 8.6% at
December 31, 1997 and 1996. Amortization of deferred loan costs were $412,000,
$155,000 and $120,000 for 1997, 1996 and 1995.
The scheduled maturities of the real estate notes payable are as follows
(in thousands):
1998 .............. $ 15,863
1999 .............. 2,262
2000 .............. 17,426
2001 .............. 26,390
2002 .............. 2,143
2003-2017 ......... 109,069
--------
Total ........ $173,153
========
On February, 27, 1998, the Company obtained a $2,500,000 short-term loan
secured by one its apartment communities. The apartment community's first
mortgage loan had been paid off in December 1997. The loan bears interest at
one-month LIBOR plus 2.75% and matures on August 27, 1998.
Short-term Borrowings (Secured By Mortgage Assets) -- At December 31,
1996, the Company had short-term borrowings of $2,014,000. These
borrowings were secured by mortgage assets with a total carrying value
of $3,084,000, respectively. The interest rate averaged 6.55% during 1996
and was 6.88% at December 31, 1996. During 1997, the Company paid off all
of the short-term borrowings in connection with the sale of its mortgage asset
portfolio.
7. STOCK OPTIONS
The Company has two stock option plans which are administered by the Board
of Directors. The purpose of the plans is to provide a means of
performance-based compensation to attract and retain directors and key
personnel.
Under the plans, options to acquire a maximum of 140,000 shares of the
Company's common stock may be granted at an exercise price not less than the
fair market value of the stock. The options expire ten years after the date of
grant. Upon exercise of the options, the Company can elect to distribute cash
in lieu of shares.
In addition, in connection with the renewal of the management agreement
for 1994, the Company and Pima Mortgage L.P., (the "Manager" of the Company's
operations), agreed to eliminate the incentive management fee provision and the
Company granted to the partners of the Manager non-qualified options to
purchase 309,800 shares of common stock and 90,200 shares of stock appreciation
rights ("SARs") with an exercise price of $8.60 per share. The exercise price
was 10% above the closing market price of the common stock on the grant date.
The holders will also receive payments equal to the product of the per share
dividend amount times the number of options and SARs outstanding. Upon exercise
of the options, the Company can elect to distribute cash in lieu of shares. The
options and SARs will expire in December 1998. In February 1997, two holders
exchanged the value of 60.134 shares of SARs for options granted under the
Company's KEPSOP (see Note 8). As of December 31, 1997, 30,067 SARs and 309,800
options were remaining and exercisable.
In 1995, certain holders exercised options to purchase 50,496 shares by
giving full recourse notes totaling $652,000 to the Company. In 1996, one
holder exercised additional options of 2,667 shares by giving a full recourse
note totaling $30,000 to the Company. The notes are secured by the shares of
common stock issued and bear interest at the prime rate plus 1%. The notes are
due on December 31, 1998 and can be repaid by giving the Company shares of
common stock owned by the optionholders based on
F-13
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
the then market price on the common stock. During 1996, two optionholders paid
off their notes of $297,000 using 12,011 of common stock and cash of $61,842.
During 1997, one optionholder paid off his note with cash of $118,000. Notes
outstanding at December 31, 1997 totaled $267,000.
During 1996, the Company granted to three employees 165,000 SARs that
expire December 16, 1998, in lieu of a salary or bonus compensation plan. The
employees received payments equal to the product of the per share dividend
amount times the number of SARs outstanding. At the beginning of 1997, the
Company eliminated the dividend payment on one third of the employees' SARs and
resumed a salary compensation plan for the three employees. At December 31,
1997, 61,667 of the stock appreciation rights for these employees were
outstanding. During 1997 and 1996, as a result of the increase in the Company's
common stock price, the Company recorded an accrual for the SARs of
approximately $642,000 and $750,000, respectively, which is included in
administrative expenses.
Information on all stock options and stock appreciation rights granted is
summarized below:
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average
Shares Per Share Exercise Price
------ --------- --------------
<S> <C> <C> <C>
Stock Options:
Outstanding at December 31, 1995 ........... 357,744 $ 8.13-$20.90 $ 9.60
Options exercised .......................... (4,666) $ 11.25 $ 11.25
-------
Outstanding at December 31, 1996 ........... 353,078 $ 8.13-$20.90 $ 9.60
-------
Options exercised .......................... (1,725) $ 8.13-$11.19 $ 10.04
-------
Outstanding and exercisable at December
31, 1997 .................................. 351,353 $ 8.13-$20.90 $ 9.60
=======
Options at December 31, 1997 consisted of
the following:
1991 options granted .................... 24,420 $ 20.00-$20.90 $ 20.07
1990, 1992-1994 options granted ......... 326,933 $ 8.13-$13.13 $ 8.80
-------
Outstanding at December, 31 1997 ........... 351,353 $ 8.13-$20.90 $ 9.60
=======
Stock Appreciation Rights:
Outstanding at December 31, 1995 ........... 90,200 $ 8.60 $ 8.60
SARs granted ............................... 165,000 $ 16.50-$16.63 $ 16.55
-------
Outstanding at December 31, 1996 ........... 255,200 $ 8.60-$16.63 $ 13.74
SARs exercised ............................. (163,466) $ 8.60-$16.63 $ 12.47
--------
Outstanding and exercisable at December
31, 1997 .................................. 91,734 $ 8.60-$16.63 $ 13.97
========
</TABLE>
At December 31, 1997, the weighted average contractual life of the above
stock options and stock appreciation rights was 1.4 and 1 years, respectively.
8. DEFERRED COMPENSATION ARRANGEMENTS
In January 1997, the Company adopted a Key Executive Share Option Plan
(the "KEYSOP") whereby participants could elect to defer the receipt of future
compensation and exchange the value of such deferred compensation into options
to purchase designated property from the Company. The Company is required to
purchase the designated property for options granted. The obligations of the
Company to the participants are unsecured general obligations and the
designated properties purchased by the Company are general assets of the
Company. At December 31, 1997, the amounts deferred under the KEYSOP amounted
$1,113,000 and the designated properties and the related liabilities are
included in Other Assets and Other Liabilities, respectively, in the
accompanying Consolidated Balance Sheet.
F-14
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
In addition, the Company approved deferred compensation agreements in 1997
whereby participants could elect to defer the receipt of future compensation
until a future date. The obligations of the Company to the participants are
unsecured general obligations. At December 31, 1997, such deferred compensation
totalled $1,438,964 which is included in Other Liabilities in the accompanying
Consolidated Balance Sheet.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at December 31, 1997 and 1996
consisted of real estate notes payable. Although management uses its best
judgement in estimating the fair value of financial instruments, there are
inherent limitations in any estimation technique and the estimates are thus not
necessarily indicative of the amounts which the Company could realize on a
current transaction. The Company has used the carrying value of real estate
notes payable as their fair value. At December 31, 1997, the interest rates on
the Company's notes payable approximated the market rates for debt instruments
with similar terms and maturities.
10. RELATED PARTY TRANSACTIONS
From the inception of the Company through April 30, 1997, Pima Mortgage
L.P. (the "Manager"), managed the operations of the Company pursuant to a
management agreement. The Company also had a property management agreement with
Pima Realty Advisors, Inc. (the "Property Manager") for each of its apartment
communities. The Manager and the Property Manager were owned by three principal
executive officers of the Company. On April 30, 1997, pursuant to the approval
of the Company's stockholders, the Company acquired the entire interests in the
Manager and the Property Manager as well as 24,000 shares of ASR common stock
owned by the Manager, for 262,008 shares of common stock and terminated the
management agreements. The common stock issued was recorded at $20.038 per
share which was the average closing price of the common stock for the ten days
preceding the public announcement of the acquisition. In addition, the Company
paid the three principal executive officers $802,700 in connection with the
acquisition of the Winton Properties. As the contracts with the Pima entities
were effectively terminated, the cost of the Pima entities and the amounts paid
to the executive officers were recorded as an acquisition related expense in
the accompanying statements of income. Furthermore, as a result of the
acquisition, the Company has become a self-administered and self-managed REIT
and the owners of the previous Manager continue to be executive officers and
members of the Board of Directors of the Company.
Pursuant to the agreement which was terminated April 30, 1997, the Manager
received a base management fee of 3/8 of 1% per annum of the Company's
average invested assets before deduction for reserves and depreciation. The
management fees for 1997, 1996 and 1995 were $167,000, $386,000 and $374,000,
respectively.
Under the agreement, the Manager was required to reimburse the Company for
any management fees received for the year to the extent that the operating
expenses (as defined) for the year exceed the greater of 2% of the Company's
average invested assets or 25% of its net income (as defined), unless the
unaffiliated directors determine that a higher level of expenses is justified
for such year. There were no such excess operating expenses in 1997 (prior to
April 30, 1997), 1996 and 1995. Additionally, if the agreement was terminated
without cause (as defined) or not renewed on terms as favorable to the Manager,
the Manager was entitled to receive the management fees relating to the
invested assets purchased prior to the termination date, for a three-year
period as if the agreement had remained in effect.
Under the agreement, the Manager had also performed certain analyses and
other services in connection with the administration of structured financing
related to the Company's mortgage assets. For such services, the Company paid
the Manager $52,000 for 1997, $193,000 for 1996 and $216,000 for 1995.
F-15
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
As discussed in Note 7, the Company and the Manager agreed to eliminate
the incentive fee provision in the management agreement beginning with 1994.
The Company granted to the owners of the Manager options and stock appreciation
rights ("SARs") that provide for dividend equivalent payments based on the per
share amounts of dividends paid on the common stock. In 1997, 1996 and 1995,
the dividend equivalent payments were $680,000, $800,000 and $800,000 which are
included in administrative expenses. As a result of the increase in the common
stock price, the Company recorded an accrual for the SARs of $214,000 in 1997,
$101,000 in 1996 and $705,000 in 1995, which amounts are included in
administrative expenses.
As discussed above, the Company had a property management agreement with
Pima Realty Advisors, Inc. (the "Property Manager"), an affiliate of the
Manager, for each of its apartment properties. Under the property management
agreements, the Property Manager provided the customary property management
services at its cost without profit or distributions to its owners, subject to
the limitation of the prevailing management fee rates for similar properties in
the market. The costs were allocated to the Company monthly based on the ratio
of the number of units owned by the Company relative to the total apartment
units managed by the Property Manager. The costs allocated to the Company for
1997 (through April 30, 1997), 1996 and 1995 were $190,000, $466,000 and
$417,000 respectively.
11. TAXABLE INCOME (LOSS)
As of December 31, 1997, the Company had an estimated net operating loss
("NOL") carryforward of $75,904,000 which can be used to offset taxable income
other than excess inclusion income through 2009 (1999 for state taxes). The
1997, 1996 and 1995 dividends consist of the following:
1997 1996 1995
---- ---- ----
Ordinary Income ........................ 33.6% 8.5% 14.5%
Long Term Capital Gain -- 20% .......... 14.7% -- --
Long Term Capital Gain -- 28% .......... 10.0% 69.0% --
Return of Capital ...................... 41.7% 22.5% 85.5%
In 1997, 1996, and 1995, the Company had excess inclusion income from the
residual interest in certain real estate mortgage investment conduits
("REMICs") which cannot be used to offset operating losses (including NOL
carryforward) and deductions from other sources. Under the current tax law for
REITs, excess inclusion income is required to be distributed as dividends.
Substantially, all of the ordinary income for the 1996 and 1995 years is excess
inclusion income. Approximately 88% of the ordinary income for 1997 is excess
inclusion income.
Net income reported in the accompanying consolidated financial statements
is different than the taxable income due to the reporting of some income and
expense items in different periods for income tax purposes. The difference
consists primarily of (1) reserves taken on mortgage assets in prior years
which were not allowed for income taxes, (2) differences in income recognition
methods on mortgage assets and (3) excess inclusion income for tax purposes.
These timing differences will reverse in future years.
Taxable income for 1997 is subject to change when the Company prepares and
files its income tax returns. The taxable income amounts also are subject to
adjustments, if any, resulting from audits of the Company's tax returns by the
Internal Revenue Service.
12. SUBSEQUENT EVENT
On March 27, 1998, following the approval by the shareholders on March 25,
1998, the acquisition by UDR, which is described in Note 3, was consummated. In
connection with the acquisition of ASR by UDR the following also occurred: (i)
a closing dividend of $737,000 or $.15 per share was declared and
F-16
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued)
paid, (ii) a distribution of $146,000 or $.15 per LP Unit was declared and paid
by Heritage Communities L.P. to minority unitholders of LP Units, (iii)
severance payments to employees of $1,071,000 were paid, (iv) employment
agreement termination payments to executive officers of $1,225,000 were paid,
and (v) all SARs outstanding, 91,734 shares, were exercised.
In addition, on March 26, 1998, holders of options to purchase 309,801
shares of the Company's common stock exchanged the value of the stock options
for options agreements granted under the Company's KEYSOP. The exchange
resulted in a charge to income for financial accounting purposes of $4,256,000.
On March 26, 1998, options to purchase 30,372 shares of the Company's common
stock were exercised for which the Company elected to pay cash of $174,000.
All of the above transactions were accounted for as 1998 transactions and
are not reflected in the accompanying statements of operations for the year
ended December 31, 1997.
13. QUARTERLY FINANCIAL DATA (unaudited)
(Dollars in Thousands Except Per Share Amounts)
Total Dividend
Income Net Income Per share
------ ---------- ---------
1997
----
First ................. $ 9,557 $ 4,946 $ 0.50
Second ................ 19,348 5,194 0.50
Third ................. 10,232 (106) 0.50
Fourth ................ 12,341 (200) 0.50
1996
----
First ................. $ 6,429 $ 2,340 $ 0.50
Second ................ 7,529 3,326 0.50
Third ................. 7,129 2,092 0.50
Fourth ................ 5,585 1,083 0.50
1995
----
First ................. $ 7,983 $ 3,359 $ 0.50
Second ................ 6,410 2,015 0.50
Third ................. 4,798 570 0.50
Fourth ................ 4,491 610 0.50
The amount of net income for the second and third quarter have been
restated to reflect the limited partnership units discussed in Note 4 as income
allocated to minority interest is deducted in arriving at net income. This
change reduced the amount of net income previously reported by $33,000 and
$82,000 for the second and third quarters, respectively.
F-17
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
All acquisitions reported on this Form 8-K/A were consummated before
March 31, 1998 and are therefore reflected in United Dominion Realty Trust,
Inc.'s ("United Dominion") historical unaudited consolidated balance sheet at
March 31, 1998 included in it's quarterly report on Form 10-Q for the quarter
then ended. Effective at the close of business on March 27, 1998, United
Dominion acquired ASR Investment Corporation ("ASR"), an Arizona based real
estate investment trust in a statutory merger (the "Merger"). The Merger has
been accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. Assets and liabilities acquired were recorded at their
estimated fair values at March 27, 1998 and results of operations are included
from the date of acquisition.
The unaudited consolidated pro forma statements of operations for the
twelve months ended December 31, 1997 and the three months ended March 31, 1998
are presented as if the Merger had occurred on January 1, 1997. In addition, the
unaudited consolidated pro forma statements of operations for the twelve months
ended December 31, 1997 and the three months ended March 31, 1998 give effect to
the following 1997 acquisitions as if they had occurred on January 1, 1997: (i)
the acquisition of Crosswinds Apartments (formerly Tradewinds Apartments),
Stoney Pointe Apartments (formerly Stoneybrooke Apartments) and Dominion Trinity
Place Apartments, (formerly Trinity Place Apartments) on February 28, 1997, (ii)
the acquisition of Anderson Mill Oaks Apartments acquired on March 25, 1997, Oak
Ridge Apartments (formerly Post Oak Ridge Apartments) acquired on March 27,
1997, and Green Oaks Apartments (formerly Pineloch Apartments) and Skyhawk
Apartments (formerly Seahawk Apartments) acquired on May 8, 1997, (iii) the July
1, 1997 portfolio acquisition of five apartment communities which consists of
Lakeside Apartments, Mallards of Brandywine Apartments, Lotus Landing
Apartments, Orange Oaks Apartments and Forest Creek Apartments, (iv) the
acquisition of Greenhouse Patio Apartments (formerly Pecan Grove Apartments) and
Braesridge Apartments acquired on September 26, 1997, Bammelwood Apartments
acquired on October 30, 1997 and Camino Village Apartments acquired on November
20, 1997, and (v) the acquisition of Waterside at Ironbridge Apartments on
September 29, 1997.
The unaudited consolidated pro forma statements of operations have been
prepared by the management of United Dominion. The unaudited consolidated pro
forma statements of operations are not necessarily indicative of the results
that would have occurred had the acquisitions been completed on the dates
indicated, nor are purported to be indicative of future results. The unaudited
consolidated pro forma statements of operations should be read in conjunction
with United Dominion's audited consolidated financial statements for the twelve
months ended December 31, 1997 (included in United Dominion's Form 10-K for the
twelve months ended December 31, 1997) and its unaudited consolidated financial
statements for the three months ended March 31, 1998 (included in United
Dominion's Form 10-Q for the quarterly period ended March 31, 1998) and the
accompanying notes thereto.
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Acquisition Acquisition of
of Option Texas
Historical (1) Properties (2) Properties (3)
----------------------------------------------------------
<S> <C>
Revenues
Rental income $ 386,672 $ 1,401 $ 2,346
Interest and other non-property income 1,123
-------------- -------------------- -----------------
387,795 1,401 2,346
Expenses
Rental expenses:
Utilities 24,861 79 168
Repairs and maintenance 54,607 152 253
Real estate taxes 30,961 76 294
Property management 12,203 70 88
Other rental expenses 41,099 87 268
Real estate depreciation 76,688
Interest 79,004
General and administrative 7,075
Acquisition realted expenses
Other depreciation and amortization 2,084
Impairment loss on real estate held for
disposition 1,400
-------------- -------------------- -----------------
329,982 464 1,071
Income from gains on sales of mortgage assets
Income before gains (losses) on sales of
investments and minority interest of
unitholders in operating partnership 57,813 937 1,275
Gains on sales of investments 12,664
Minority interest of unitholders in operating
partnership (278)
-------------- -------------------- -----------------
Income before extraordinary item 70,199 937 1,275
Extraordinary items-early extinguishment of debt (50)
-------------- -------------------- -----------------
Net income 70,149 937 1,275
Dividends to preferred shareholders (17,345)
-------------- -------------------- -----------------
Net income available to common shareholders $ 52,804 937 1,275
============== ==================== =================
Basic earnings per common share $ 0.61
==============
Diluted earnings per common share 0.60
==============
Dividends declared per common share $ 1.01
==============
Weighted average number of common shares-basic 87,145
Weighted average number of common shares-diluted 87,339
</TABLE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Options Properties,
Texas Properties
and Florida
Acquisition of Acquisition Portfolio
Texas Properties of Florida Pro Forma
Adjustments (4) Portfolio (5) Adjustments
--------------------------------------------------------------
<S> <C>
Revenues
Rental income $ 473 $ 2,943 $
Interest and other non-property income
------------------- --------------- -------------------
473 2,943 0
Expenses
Rental expenses:
Utilities 36 207
Repairs and maintenance 53 460
Real estate taxes 55 249
Property management 18 152 (92) (6)
Other rental expenses 48 466
Real estate depreciation 1,059 (7)
Interest 2,801 (8)
General and administrative
Acquisition realted expenses
Other depreciation and amortization
Impairment loss on real estate held for disposition
----------------- --------------- -------------------
210 1,534 3,768
Income from gains on sales of mortgage assets
Income before gains (losses) on sales of investments and
minority interest of unitholders in operating
partnership 263 1,409 (3,768)
Gains on sales of investments
Minority interest of unitholders in operating partnership
----------------- --------------- -------------------
Income before extraordinary item 263 1,409 (3,768)
Extraordinary items-early extinguishment of debt
----------------- --------------- -------------------
Net income 263 1,409 (3,768)
Dividends to preferred shareholders ----------------- --------------- -------------------
Net income available to common shareholders $ 263 1,409 (3,768)
================= =============== ===================
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share
Weighted average number of common shares-basic
Weighted average number of common shares-diluted
</TABLE>
<TABLE>
<CAPTION>
Option Properties,
Texas Properties
and Florida
Acquisition Acquisition of and Waterside at
of Houston Waterside at Ironbridge
Portfolio (9) Ironbridge (10) Adjustments (11)
------------------------------------------------------------
<S> <C>
Revenues
Rental income $ 7,317 $ 1,456 $ 1,127
Interest and other non-property income
-------------- ---------------- -------------------
7,317 1,456 1,127
Expenses
Rental expenses:
Utilities 532 77 76
Repairs and maintenance 1,275 143 183
Real estate taxes 842 87 118
Property management 303 58 46
Other rental expenses 1,021 112 143
Real estate depreciation
Interest
General and administrative
Acquisition realted expenses
Other depreciation and amortization
Impairment loss on real estate held for disposition
-------------- ---------------- -------------------
3,973 477 566
Income from gains on sales of mortgage assets
Income before gains (losses) on sales of investments and
minority interest of unitholders in operating
partnership 3,344 979 561
Gains on sales of investments
Minority interest of unitholders in operating partnership
-------------- ---------------- -------------------
Income before extraordinary item 3,344 979 561
Extraordinary items-early extinguishment of debt
-------------- ---------------- -------------------
Net income 3,344 979 561
Dividends to preferred shareholders -------------- ---------------- -------------------
Net income available to common shareholders 3,344 979 561
============== ================ ===================
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share
Weighted average number of common shares-basic
Weighted average number of common shares-diluted
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Before 1998 ASR
Adjustments Acquisitions Historical (16)
------------------------------------------------------------
<S> <C> <S> <C>
Revenues
Rental income $ 403,735 $ 33,034
Interest and other non-property income 1,123 732
---------------- ----------------- --------------
0 404,858 33,766
Expenses
Rental expenses:
Utilities 26,036 2,351
Repairs and maintenance 57,126 3,126
Real estate taxes 32,682 2,972
Property management (103)(12) 12,743 1,320
Other rental expenses 43,244 5,308
Real estate depreciation 1,437 (13) 79,184 6,335
Interest 3,304 (14) 85,109 9,642
General and administrative 7,075 3,114
Acquisition realted expenses 6,684
Other depreciation and amortization 2,084 412
Impairment loss on real estate held for disposition 1,400
---------------- ----------------- --------------
4,638 346,683 41,264
Income from gains on sales of mortgage assets 17,213
Income before gains (losses) on sales of investments and
minority interest of unitholders in operating
partnership (4,638) 58,175 9,715
Gains on sales of investments 12,664 474
Minority interest of unitholders in operating
partnership (331)(15) (609) (355)
---------------- ----------------- --------------
Income before extraordinary item (4,969) 70,230 9,834
Extraordinary items-early extinguishment of debt (50)
---------------- ----------------- --------------
Net income (4,969) 70,180 9,834
Dividends to preferred shareholders (17,345)
---------------- ----------------- --------------
Net income available to common shareholders (4,969) 52,835 9,834
================ ================= ==============
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share
Weighted average number of common shares-basic
Weighted average number of common shares-diluted
</TABLE>
<TABLE>
<CAPTION>
Pro Forma United Dominion
ASR Pro Forma Disposition of Merger Pro Forma
Adjustments (17) Mortgage Assets (18) Adjustments Combined
----------------------------------------------------------------------------
<S> <C>
Revenues
Rental income $ 13,640 $ $ $ 450,409
Interest and other non-property income (162) 1,693
------------- ------------ -------------- ------------------
13,478 452,102
Expenses
Rental expenses:
Utilities 1,061 29,448
Repairs and maintenance 1,782 62,034
Real estate taxes 1,520 37,174
Property management 240 (486)(19) 13,817
Other rental expenses 1,498 50,050
Real estate depreciation 3,299 (194)(20) 88,624
Interest 3,847 (1,624)(21) 96,974
General and administrative (55) (2,432)(22) 7,702
Acquisition realted expenses 6,684
Other depreciation and amortization 24 (24)(23) 2,496
Impairment loss on real estate held for
disposition 1,400
------------- ------------ -------------- ------------------
13,216 (4,760) 396,403
Income from gains on sales of mortgage assets 52 (17,265) 0
Income before gains (losses) on sales of investments an
minority interest of unitholders in operating
partnership 314 (17,265) 4,760 55,699
Gains on sales of investments 13,138
Minority interest of unitholders in operating
partnership (964)
------------- ------------ -------------- ------------------
Income before extraordinary item 314 (17,265) 4,760 67,873
Extraordinary items-early extinguishment of debt (50)
------------- ------------ -------------- ------------------
Net income 314 (17,265) 4,760 67,823
Dividends to preferred shareholders (17,345)
------------- ------------ -------------- ------------------
Net income available to common shareholders 314 (17,265) 4,760 50,478
============= ============ ============== ==================
Basic earnings per common share $ 0.53
=================
Diluted earnings per common share 0.52
=================
Dividends declared per common share $ 1.01
=================
Weighted average number of common shares-basic 7,859 (25) 95,004
Weighted average number of common shares-diluted 9,389 (25) 96,728
</TABLE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1998
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma United Dominion
United Dominion ASR Merger Pro Forma
Historical (1) Historical (16) Adjustments Combined
---------------- -------------- -------------- ---------------
<S> <C>
Income
Rental income $ 104,249 $ 11,730 $ $ 115,979
Interest and non-property income 1,012 252 1,264
---------------- -------------- -------------- ---------------
105,261 11,982 0 117,243
Expenses
Rental expenses:
Utilities 5,805 744 6,549
Repairs and maintenance 12,354 1,043 13,397
Real estate taxes 9,052 1,177 10,229
Property management 3,330 368 (114)(19) 3,584
Other rental expenses 10,480 1,890 12,370
Depreciation of real estate owned 20,928 2,613 (253)(20) 23,288
Interest 22,825 3,452 (474)(21) 25,803
General and administrative 2,163 1,273 (993)(22) 2,443
Other depreciation and amortization 746 189 (18)(23) 917
---------------- -------------- -------------- ---------------
87,683 12,749 (1,852) 98,580
---------------- -------------- -------------- ---------------
Income before gains on sales of investments and
minority interest of unitholders in operating
partnership 17,578 (767) 1,852 18,663
Gains on sales of investments (260) (260)
Minority interest of unitholders in
operating partnership (135) (363) (498)
---------------- -------------- -------------- ---------------
Extraordinary items (7,053) 7,053 (24)
Net income 17,183 (8,183) 8,905 17,905
Dividends to preferred shareholders (5,650) (5,650)
---------------- -------------- -------------- ---------------
Net income available to common shareholders $ 11,533 $ (8,183)$ 8,905 $ 12,255
================ ============== ============== ===============
Basic earnings per common share $ 0.13 $ 0.12
================ ===============
Diluted earnings per common share $ 0.13 $ 0.12
================ ===============
Distributions declared per common share $ 0.2625 $ 0.2625
================ ===============
Weighted average number of common
shares outstanding-basic 90,867 7,743 (25) 98,610
Weighted average number of common
shares outstanding-diluted 92,115 9,272 (25) 101,387
</TABLE>
21
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
Basis of Presentation
The unaudited consolidated pro forma statements of operations on this Form 8-K/A
reflect the historical results of United Dominion adjusted to reflect the
operations of: (i) 39 apartment communities with 7,550 apartment homes owned by
ASR that were merged with and into a wholly-owned subsidiary of the United
Dominion, in a statutory merger on March 27, 1998, (as previously reported on
Form 8-K dated March 27, 1998 which was filed with the Securities and Exchange
Commission on April 13, 1998), (ii) Crosswinds Apartments (formerly Tradewinds
Apartments), Stoney Pointe Apartments (formerly Stoneybrooke Apartments) and
Dominion Trinity Place Apartments, formerly (Trinity Place Apartments) acquired
on February 28, 1997, (collectively the "Option Properties) (as previously
reported on Form 8-K dated July 1, 1997 and subsequently amended on Form 8-K/A
No. 1 dated July 1, 1997 which was filed with the Securities and Exchange
Commission on September 15, 1997), (iii) Anderson Mill Oaks Apartments acquired
on March 25, 1997, Oak Ridge Apartments (formerly Post Oak Ridge Apartments)
acquired on March 27, 1997, Green Oaks Apartments (formerly Pineloch Apartments)
and Skyhawk Apartments (formerly Seahawk Apartments) acquired on May 8, 1997,
(collectively the "Texas Properties") (as previously reported on Form 8-K dated
July 1, 1997 and subsequently amended on Form 8-K/A No. 1 dated July 1, 1997
which was filed with the Securities and Exchange Commission on September 15,
1997), (iv) a portfolio of five apartment communities containing 934 apartment
homes acquired on July 1, 1997 (the "Florida Portfolio") which consist of
Lakeside Apartments, Mallards of Brandywine Apartments, Lotus Landing Apartments
, Orange Oaks Apartments and Forest Creek Apartments, (as previously reported on
Form 8-K dated July 1, 1997 and subsequently amended on Form 8-K/A No. 1 dated
July 1, 1997 which was filed with the Securities and Exchange Commission on
September 15, 1997), (v) a portfolio of four apartment communities (collectively
the "Houston Portfolio") which consist of Greenhouse Patio Apartments (formerly
Pecan Grove Apartments) and Braesridge Apartments acquired on September 26,
1997, Bammelwood Apartments acquired on October 30, 1997 and Camino Village
Apartments acquired on November 20, 1997, (as previously reported on Form 8-K
dated October 21, 1997 and subsequently amended on Form 8-K/A No. 1 dated
October 21, 1997 which was filed with the Securities and Exchange Commission on
December 31, 1997), and (vi) Waterside at Ironbridge Apartments acquired on
September 29, 1997, (as previously reported on Form 8-K dated October 21, 1997
and subsequently amended on Form 8-K/A No. 1 dated October 21, 1997 which was
filed with the Securities and Exchange Commission on December 31, 1997). The
above referenced acquisitions are shown as if they had occurred on January 1,
1997.
The unaudited consolidated pro forma statements of operations assume the Merger
with ASR occurred on January 1, 1997. The Merger was accounted for as a purchase
in accordance with Accounting Principles Board No. 16. Assets and liabilities
acquired were recorded at their fair values at March 27, 1998 and the results of
operations are included from the date of acquisition. In connection with the
Merger, the Company issued 7,742,839 million shares of the Company's common
stock at $14 per share for all of the outstanding common stock of ASR for an
aggregate equity value of $108.4 million plus the issuance of 1,529,990 Units in
the ASR Operating Partnership valued at $21.4 million. The Company acquired real
estate assets of $313.7 million plus other operating assets of $8.8 million,
respectively. In addition, the Company assumed mortgage debt totaling $179.4
million, at fair value and other liabilities of $13.6 million.
In addition, the unaudited consolidated pro forma statements of operations on
this Form 8-K/A assume the acquisition of 17 communities containing 5,394
apartment homes for an aggregate purchase price of approximately $218.5 million,
including closing costs as referenced in sections (ii) through (vi) of the above
paragraphs. These acquisitions are assumed to have been purchased with bank line
borrowings aggregating $145.9 million with a weighted average interest rate of
6.24%, the assumption of seven mortgage notes payable aggregating $60.1 million
with a weighted average interest rate of 8.43% and the issuance of 849,498
Operating Partnership Units at $14.75 per Unit for an aggregate value of $12.5
million. These acquisitions are shown as if the acquisitions occurred on January
1, 1997.
The unaudited consolidated pro forma statements of operations are not
necessarily indicative of what United Dominion's results would have been for the
twelve months ended December 31, 1997 and the three months ended March 31, 1998
if the acquisitions had been consummated at the beginning of each period
presented, nor do they purport to be indicative of the results of operations or
financial position of United Dominion in future periods.
(1) Represents United Dominion's Historical Statements of Operations
contained in its Quarterly Report on Form 10-Q for the three
months ended March 31, 1998 as filed with the Securities and
Exchange Commission on May 15, 1998 and its Annual Report on Form
10-K for the twelve months ended December 31, 1997 as filed with
the Securities and Exchange Commission on March 31, 1998.
(2) Represents the actual results of operations of the Option
Properties as previously reported in the unaudited combined
results of operations as appearing on Form 8-K/A No. 1 dated July
1, 1997 filed with the Securities and Exchange Commission on
September 15, 1997.
(3) Represents the actual results of operations of the Texas
Properties as previously reported in the unaudited combined
results of operations as appearing on Form 8-K/A No. 1 dated
July 1, 1997 filed with the Securities and Exchange Commission on
September 15, 1997.
(4) Represents the operations of Oak Ridge Apartments (for the 26 day
period from March 1, 1997 to March 26, 1997) and Anderson Mill
Oaks Apartments (for the 24 day period from March 1, 1997 to
March 24, 1997), which represents the period the properties were
not owned by United Dominion during 1997 (based on the operating
statements of the properties for the stub period January 1, 1997
to February 28, 1997). The unaudited combined statements of
rental operations were for the stub period January 1, 1997 to
February 28, 1997. Represents operations of Pineloch Apartments
and Seahawk Apartments, (for the 7 day period from May 1, 1997 to
May 7, 1997), which represents the period the properties were not
owned by United Dominion during 1997 (based on the operating
statements of the properties for the stub period January 1, 1997
to April 30, 1997). The unaudited combined statements of rental
operations were for the stub period January 1, 1997 to April 30,
1997.
(5) Represents the actual results of operations of the Florida
Portfolio as previously reported in the unaudited combined
results of operations as appearing on Form 8-K/A dated July 1,
1997 filed with the Securities and Exchange Commission on
September 15, 1997.
(6) Reflects the net reduction in property management fees for the
Option Properties, Texas Properties and Florida Portfolio. United
Dominion internally managed its apartment portfolio at an assumed
cost of approximately 3.4% of rental income (based on 1997 actual
information) at the time of the filing of the Form 8-K/A dated
July 1, 1997 filed with the Securities and Exchange Commission on
September 15, 1997. United Dominion used 96% of the amount
reported as rental income in calculating the property management
fee, as approximately 4% (based on 1997 actual information) of
the amount reported as rental income is assumed to be other
income which is not subject to management fee.
(7) Reflects the net adjustments to record depreciation expense for
the Option Properties, Texas Properties and Florida Portfolio as
if the transactions had occurred on January 1, 1997. Depreciation
is computed on a straight-line basis over the useful lives of the
related assets based upon the actual purchase price allocations
of the Properties. Buildings have been depreciated over 35 years
and other assets over 5, 10 or 20 years depending on the useful
life of the related asset. United Dominion's policy is to record
a full month of depreciation in the month of acquisition. The
weighted average life of other improvements is approximately 7.67
years based upon the initial cost of the properties of $151.1
million. The allocation and useful lives are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Twelve Month
Useful Life Depreciation
Purchase Price In Years Expense Adjustments *
--------------- ----------- ----------------------
<S> <C>
Buildings $ 118,714 35 $ 814
Other Improvements 7,822 7.67 245
Land 24,612 n/a --
----------- --------
Total $ 151,148 $ 1,059
=========== ========
</TABLE>
* Includes a pro forma adjustment for 2.88 months (1
month for the Option Properties, 2 months for
Anderson Mill Oaks and Oak Ridge Apartments, 4
months for Pineloch Apartments and Seahawk
Apartments, and 6 months for the Florida Portfolio)
out of 12 months.
(8) Reflects the additional interest expense associated with the
acquisition of the Option Properties, Texas Properties and
Florida Portfolio which consists of the following: (i)
variable-rate bank debt aggregating approximately $129.1 million
used to fund the acquisitions at assumed interest rates equal to
market rates in effect at the time of each acquisition with a
weighted average interest rate of 6.26% and (ii) the assumption
of approximately $22.0 million of fixed-rate mortgage debt with a
weighted average interest rate of 8.39% as outlined below (in
thousands of dollars):
<TABLE>
<CAPTION>
Twelve Month
Weighted Average Interest Expense
Acquisition Type of Debt Amount Interest Rate Adjustment
-------------------------- ----------------------------------------------------------------------------------
<S> <C>
Option Properties Bank Lines $ 36,774 6.058% $ 360 **
Option Properties Secured Debt 22,063 8.389% 299 **
Texas Properties Bank Lines 56,311 6.291% 998 ***
Florida Portfolio Bank Lines 36,000 6.410% 1,144 ****
----------- ---------
$ 151,148 $ 2,801
=========== =========
</TABLE>
** Includes a pro forma adjustment for 59 out of 365 days.
*** Includes a pro forma adjustment for 103 out of 365
days.
**** Includes a pro forma adjustment for 181 out of 365 days.
(9) Represents the actual results of operations of the Houston
Portfolio as previously reported in the unaudited combined
results of operations as appearing on Form 8-K/A dated October
21, 1997 filed with the Securities and Exchange Commission on
December 31, 1997.
(10) Represents the actual results of operations of Waterside at
Ironbridge Apartments as previously reported in the unaudited
combined results of operations as appearing on Form 8-K/A No. 1
dated October 21, 1997 filed with the Securities and Exchange
Commission on December 31, 1997.
(11) Represents the operations of Greenhouse Patio Apartments and
Braesridge Apartments (for the 26 day period from September 1,
1997 to September 26, 1997) and Waterside at Ironbridge
Apartments (for the 29 day period from September 1, 1997 to
September 29, 1997), which represents the period the properties
were not owned by United Dominion during 1997 (based on the
operating statements of the properties for the stub period
January 1, 1997 to August 31, 1997 which consists of 243 days).
The unaudited combined statements of rental operations for these
properties was for the stub period January 1, 1997 to August 31,
1997. In addition, this represents the operations of Bammelwood
Apartments (for the 30 day period from October 1, 1997 to October
30, 1997) and Camino Village Apartments (for the 50 day period
from October 1, 1997 to November 20, 1997). The unaudited
combined statements of rental operations for these properties was
for the stub period from January 1, 1997 to September 30, 1997.
(12) Reflects the net reduction in property management fees for the
Houston Properties and Waterside at Ironbridge Apartments. United
Dominion internally managed its apartment portfolio at an assumed
cost of approximately 3.2% of rental income (based on 1997 actual
information). The Company used 96% of the amount reported as
rental income in calculating the property management fee, as
approximately 4% (based on 1997 actual information) of the amount
reported as rental income is assumed to be other income which is
not subject to management fee.
(13) Reflects the net adjustments to record depreciation expense for
the Houston Properties and Waterside at Ironbridge Apartments, as
if the transactions had occurred on January 1, 1997. Depreciation
is computed on a straight-line basis over the useful lives of the
related assets based upon the actual purchase price allocations
of the properties. Buildings have been depreciated over 35 years
and other assets over 5, 10 or 20 years depending on the useful
life of the related asset. United Dominion's policy is to record
a full month of depreciation in the month of acquisition. The
weighted average life of other improvements is approximately 7.72
years based upon the initial cost of the properties of $67.4
million. The allocation and useful lives are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Twelve Month
Useful Life Depreciation
Purchase Price In Years Expense Adjustments *
-------------- ----------- ------------------
<S> <C>
Buildings $ 50,828 35 $ 1,027
Other Improvements 4,415 7.72 410
Land 12,120 n/a --
------------- --------
Total $ 67,363 $ 1,437
============ ========
</TABLE>
* Includes a pro forma adjustment for approximately 8.48 months (8
months for Greenhouse Patio Apartments, Braesridge Apartments and
Waterside at Ironbridge Apartments and 10 months for Camino
Village Apartments and 9 months for Bammelwood Apartments) out of
12 months.
(14) Reflects the additional interest expense associated with the
acquisition of the Houston Properties and Waterside at Ironbridge
Apartments which consists of the following: (i) variable-rate
bank debt aggregating approximately $16.8 million used to fund
the acquisitions at assumed interest rates equal to market rates
in effect at the time of each acquisition with a weighted average
interest rate of 6.1% and (ii) the assumption of approximately
$38.0 million of fixed-rate mortgage debt with a weighted average
interest rate of 8.43% as outlined below (in thousands of
dollars):
<TABLE>
<CAPTION>
Twelve Month
Weighted Average Interest Expense
Acquisition Type of Debt Amount Interest Rate Adjustment
-------------------------- ----------------- ------------------ ---------------- -------------
<S> <C>
Houston Properties Bank Lines $ 6,877 6.089% $ 340**
Houston Properties Secured Debt 32,874 8.685% 2,245**
Waterside Bank Lines 9,949 6.087% 451***
Waterside Secured Debt 5,133 7.000% 268***
------------ ----------
$ 54,833 $ 3,304
========== ==========
</TABLE>
** Includes a pro forma adjustment for approximately 297 out of 365
days.
*** Includes a pro forma adjustment for approximately 272 out of 365
days
(15) Reflects the additional minority interest expense associated with
the acquisition of the Houston Properties. In connection with
the acquisition of the Houston Properties, United Dominion issued
849,498 Operating Partnership Units at $14.75 per Unit for an
aggregate value of $12.5 million. Assuming the acquisition of
the Houston Properties on January 1, 1997 the minority interest
ownership would have been 10.6339% of the Operating Partnership
which had earnings of approximately $4.2 million for the twelve
months ended December 31, 1997.
(16) Represents ASR's Historical Consolidated Statement of Operations
for the twelve months ended December 31, 1997 as filed elsewhere
herein and the actual results of operations of ASR for the period
January 1, 1998 through March 27, 1998. Certain
reclassifications have been made to ASR's historical consolidated
statements of operations to conform to United Dominion's
presentation.
(17) Represents the cumulative pro forma adjustments reported by ASR
on Form 8-K/A No. 1 dated October 27, 1997 filed with the
Securities and Exchange Commission on January 6, 1998 to reflect
the actual results of operations and the pro forma adjustments
for ASR's 1997 acquisitions which included 22 communities with
4,208 apartment homes at a total cost of approximately $176.1
million.
(18) Represents the elimination of the income from the gains on sales
or redemptions of mortgage assets reported by ASR during the
periods presented. Beginning in 1996, ASR implemented a strategic
plan to divest its mortgage assets portfolio and reinvest the net
proceeds in the acquisition of apartment communities. ASR
completed the sale of its remaining mortgage asset portfolio in
June 1997, the net proceeds of which were primarily used to
acquire apartment communities. The income from the gains on sales
of mortgage assets is eliminated since these assets will not have
a continuing impact on the results of operations for the combined
entity.
(19) Reflects the net estimated reduction of property management costs
of $486 and $114 for the twelve months ended December 31, 1997
and the three months ended March 31, 1998, respectively, based
upon the identified historical costs of certain items which are
anticipated to be eliminated or reduced as a result of the Merger
with ASR, as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C>
Net reduction in salary, benefits and other
compensation due to the termination of ASR
employees prior to the Merger in
accordance with the Merger Agreement $ 377 $ 75
Net reduction in travel and entertainment 25 6
Net reduction in professional services 34 15
Net reduction in other expenses 50 18
-------- -------
Pro forma adjustment $ 486 $ 114
======= =======
</TABLE>
(20) Represents the net decrease in depreciation of real estate owned
as a result of recording the ASR real estate at fair value versus
historical cost and using United Dominion's depreciable lives.
Depreciation is computed on a straight line basis over the
estimated useful lives of the related assets which have an
estimated weighted average useful life of approximately 27.5
years. Buildings have been depreciated over 35 years and other
assets over 5, 10 or 20 years depending on the useful life of the
related asset.
Calculation of the fair value of depreciable real estate assets
at March 27, 1998 (in thousands of dollars)::
<TABLE>
<S> <C>
Purchase price $323,155
Less: Purchase price allocated to cash and cash equivalents (5,934)
Purchase price allocated to other assets (3,521)
Purchase price allocated to land (47,782)
Purchase price allocated to real estate under development (925)
Purchase price allocated to real estate held for
disposition (5,000)
--------
Pro forma basis of ASR's depreciable real estate held for investment
at fair value $259,993
===========
</TABLE>
Calculation of depreciation of real estate owned for the twelve
months ended December 31,1997 and the three months ended March 31, 1998 (in
thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C>
Depreciation expense based upon an estimated weighted
average useful life of approximately 27.5 years $ 9,440 $ 2,360
Less: ASR's pro forma depreciation of real estate owned (9,634)** (2,613)
------------ ---------
Pro forma adjustment $ (194) $ (253)
============ ==========
</TABLE>
** Represents ASR's historical depreciation expense
for the twelve months ended December 31, 1997 plus
the cumulative pro forma adjustments to
depreciation expense reported by ASR on Form 8-K/A
No. 1 dated October 27, 1997 filed with the
Securities and Exchange Commission on January 6,
1998 to reflect the actual results of operations
and the pro forma adjustments for ASR's 1997
acquisitions.
(21) Represents the net adjustment to interest expense for the twelve
months ended December 31, 1997 and the three months ended March
31, 1998 associated with the Merger with ASR, as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C>
To adjust amortization of ASR's deferred financing
costs which were eliminated in the Merger $ (412) $ (171)
To reflect amortization of the premium required to
record ASR's mortgage notes payable at fair value (1,261) (315)
To reflect additional borrowings of $792 under United
Dominion's bank line borrowings at current
market interest rates available to United Dominion
of 6.14% 49 12
-------- --------
Pro forma adjustment $(1,624) $ (474)
======== ========
</TABLE>
(22) Reflects the net estimated reduction of general and
administrative expenses of $2,432 and $993 for the twelve months
ended December 31, 1997 and the three months ended March 31,
1998, respectively, based upon the identified historical costs of
certain items which are anticipated to be eliminated or reduced
as a result of the Merger with ASR, as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C>
Net reduction in salary, benefits and other
compensation due to the termination of ASR
employees prior to the ASR Merger in
accordance with the ASR Merger Agreement $ 1,909 $ 219
Net reduction in duplicative public company expenses 333 497
Net reduction in professional services 35 7
Net reduction in other expenses 155 270
------- ------
Pro forma adjustment $ 2,432 $ 993
======= ======
</TABLE>
(23) Represents the elimination of the amortization of goodwill
included in the ASR historical and pro forma financial
statements which were eliminated in connection with the Merger.
(24) Represents the elimination of extraordinary items included in
the ASR historical statement of operations for the period ended
March 27, 1998 which relates to costs directly attributable to
the Merger and are therefore non-recurring.
(25) The pro forma weighted average shares outstanding to reflect
the Merger with ASR for the twelve months ended December 31,
1997 and the three months ended March 31, 1998,
respectively, are computed as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Three Months
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C>
ASR's pro forma weighted average common shares and
operating partnership units outstanding 5,961 5,887
Less: units in the operating partnership (971) (971)
------- -------
ASR pro forma weighted average common shares
outstanding-basic 4,990 4,916
United Dominion pro forma weighted average common shares
outstanding-basic 87,145 90,867
Increase in United Dominion's common stock at the Exchange
Ratio of 1.575 for the ASR pro forma weighted average
common shares outstanding** 7,859 7,743
------- --------
Pro forma combined common shares-basic 95,004 98,610
======= ========
ASR pro forma weighted average common shares
outstanding-diluted 9,389 9,272
United Dominion pro forma weighted average common shares
outstanding-diluted 87,339 92,115
------ --------
Pro forma combined common shares-diluted 96,728 101,387
====== ========
</TABLE>
** Weighted average pro forma adjusted ASR common shares outstanding
multiplied by the Exchange Ratio.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.'s
333-27221, 33-64275, 333-53401, 333-48557, 333-11207, 33-40433, 333-44463, and
333-15133 on Form S-3, and Registration Statement No.'s 333-42691, 33-48000,
333-32829, 33-47296, and 33-58201 on Form S-8 of United Dominion Realty Trust,
Inc., of our report dated February 27, 1998 (March 27, 1998 as to Note 12),
appearing in the Annual Report on Form 10-K of ASR Investments Corporation
for the year ended December 31, 1997, and included and incorporated by
reference in this Form 8-K/A dated June 12, 1998 of United Dominion Realty
Trust, Inc.
DELOITTE & TOUCHE LLP
Tucson, Arizona
June 11, 1998
