AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 20, 1999
UNITED DOMINION REALTY TRUST, INC
(Exact name of registrant as specified in its charter)
Virginia 1-10524 54-0857512
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation of organization) Identification No.)
10 South Sixth Street, Virginia 23219-3802
-------------------------------------------------
(Address of principal executive offices - zip code)
(804) 780-2691
--------------------------------------------------
Registrant's telephone number, including area code
<PAGE>
Item 5. Other Event
Effective at the close of business on December 7, 1998, American Apartment
Communities II, Inc. (AAC), merged with and into United Dominion Realty Trust,
Inc. (United Dominion), pursuant to an Agreement and Plan of Merger (Merger
Agreement) between United Dominion and AAC. Pursuant to the Merger Agreement,
each share of AAC common and preferred stock is entitled to receive 7.812742
shares of United Dominion Series D Convertible Preferred Stock (Preferred Stock)
and $46.1824 in cash. In exchange for the Preferred Stock and cash, United
Dominion will acquire AAC's 79.1% interest in AAC II, LP. In addition, United
Dominion entered into a Partnership Interest Purchase and Exchange Agreement
(Partnership Exchange Agreement) between United Dominion, United Dominion
Realty, L.P. (United Dominion's Operating Partnership) and American Apartment
Communities Operating Partnership, L.P., AAC Management LLC and Schnitzer
Investment Corporation (the Limited Partners). The Limited Partners own a
combined 20.9% interest in AAC II, LP. In exchange for the Limited Partners
20.9% interest in AAC II, LP, United Dominion will issue 5,614,035 Operating
Partnership Units (OP Units) and cash. The transaction has been structured as a
tax-free merger (Merger) and exchange of OP Units and will be treated as a
purchase for accounting purposes. AAC owns 54 communities with 14,141 apartment
homes located in the West, Northwest, Midwest and Florida.
In addition to the Merger, the Pro Forma Information presented in this Form 8-K
assumes the following acquisition occurred on January 1, 1997: (i) 39 apartment
communities with 7,550 apartment homes owned by ASR Investment Corporation that
were merged with and into a wholly-owned subsidiary of the United Dominion, in a
statutory merger on March 27, 1998 (ii) the 1998 acquisitions of 13 communities
containing 4,318 apartment homes for an aggregate purchase price of
approximately $144.0 million, including closing costs and (iii) the 1997
acquisition of 17 communities with 5,394 apartment homes for an aggregate
purchase price of approximately $218.5 million, including closing costs.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information 4 through 15
3
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED CONSOLIDATED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
BASIS OF PRESENTATION
The accompanying Unaudited Consolidated Pro Forma Combined Balance Sheet gives
effect to the Merger as if it had occurred on September 30, 1998. The Unaudited
Consolidated Pro Forma Combined Balance Sheet gives effect to the Merger under
the purchase method of accounting in accordance with Accounting Standards Board
Opinion No. 16. In the opinion of management, all significant adjustments
necessary to reflect the effects of the Merger have been made. Included in the
AAC II, LP Historical Balance Sheet are two communities which will not be
acquired by United Dominion.
The Unaudited Consolidated Pro Forma Combined Balance Sheet is presented for
comparative purposes only and is not necessarily indicative of what the actual
combined financial position of United Dominion and AAC would have been at
September 30, 1998, nor does it purport to represent the future combined
financial position of United Dominion and AAC. This Unaudited Consolidated Pro
Forma Combined Balance Sheet should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements and notes
thereto of United Dominion included in its Annual Report on Form 10-K for the
year ended December 31, 1997, its Quarterly Report on Form 10-Q for the nine
months ended September 30, 1998 and the pro forma financial statements and notes
thereto of United Dominion's Form 8-K dated May 28, 1998 as filed with the
Securities and Exchange Commission on October 19, 1998.
4
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED CONSOLIDATED PRO FORMA COMBINED BALANCE SHEET
September 30, 1998
(In thousands, except for share data)
<TABLE>
<CAPTION>
United Pro Forma United
Dominion AAC II, LP AAC II, Inc. Merger Dominion
Historical Historical Historical Adjustments Pro Forma
(A) (B) (C) (D) Combined
-------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate owned:
Real estate held for investment $ 2,918,192 $ 687,854 $ $ 90,022 (E) $ 3,696,068
Less: accumulated depreciation (269,659) (37,197) 37,197 (E) (269,659)
-------------- ------------- -------------- -------------- -------------
2,648,533 650,657 0 127,219 3,426,409
Real estate under development 76,011 76,011
Real estate held for disposition 105,350 105,350
Investment in AAC II, LP 165,835 (165,835) (F) --
Cash and cash equivalents 28,485 9,015 (187) (G) 37,313
Other assets 68,301 19,400 17,411 (20,657) (H) 84,455
-------------- ------------- -------------- -------------- -------------
Total assets $ 2,926,680 $ 679,072 $ 183,246 $ (59,460) $ 3,729,538
============== ============= ============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable-secured $ 646,718 $ 465,712 $ 19,572 $ (21,412) (I) $ 1,110,590
Notes payable-unsecured 902,180 75,066 (J) 977,246
Distributions payable to common and
preferred shareholders 30,181 30,181
Accounts payable, accrued expenses
and other liabilities 82,888 15,773 65 (52) (K) 98,674
-------------- ------------- -------------- -------------- -------------
Total liabilities 1,661,967 481,485 19,637 53,602 2,216,691
Minority interest 45,164 5,723 67,411 (L) 118,298
Shareholders' equity:
Preferred stock, no par value;
$25 liquidation preference,
25,000,000 shares authorized;
4,200,000 shares 9.25% Series
A Cumulative Redeemable 105,000 85,000 (85,000) (M) 105,000
6,000,000 shares 8.60% Series
B Cumulative Redeemable 150,000 150,000
8,000,000 shares 7.50% Series
D Convertible 175,000 (M) 175,000
103,206,581 shares issued and
outstanding 103,207 9 (9) (M) 103,207
Additional paid-in capital 1,084,331 67,312 (67,312) (M) 1,084,331
Notes receivable from employee-
shareholders (8,124) (8,124)
Distributions in excess of net
income (214,865) 11,288 (11,288) (M) (214,865)
Partners capital 191,864 (191,864) (M) --
-------------- ------------- -------------- -------------- -------------
Total shareholders' equity 1,219,549 191,864 163,609 (180,473) 1,394,549
-------------- ------------- -------------- -------------- -------------
Total liabilities and shareholders'
equity $ 2,926,680 $ 679,072 $ 183,246 $ (59,460) $ 3,729,538
============== ============= ============== ============== =============
</TABLE>
5
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(Amounts in thousands, except per share and OP Unit data)
(A) Represents United Dominion's Historical Consolidated Balance Sheet
contained in its Quarterly Report on Form 10-Q at September 30, 1998.
(B) Represents the AAC II, LP Historical Balance Sheet at September 30, 1998.
Certain reclassifications have been made to AAC II, LP's Historical
Balance Sheet at September 30, 1998 to conform to United Dominion's
balance sheet presentation.
(C) Represents the AAC II, Inc. Historical Balance Sheet at September 30,
1998. Certain reclassifications have been made to AAC II, Inc.'s
Historical Balance Sheet at September 30, 1998 to conform to United
Dominion's balance sheet presentation.
(D) Represents adjustments to record the Merger in accordance with the
purchase method of accounting, based upon an assumed purchase price of
$802.9 million, as follows (in thousands of dollars):
<TABLE>
<S> <C>
Assumption of AAC secured notes payable $ 451,497
Adjustment to record AAC fixed-rate secured notes payable at fair value 12,375
Issuance of Series D Convertible Preferred Stock, at fair value 175,000
Issuance of 5,614,035 OP Units, at fair value 67,411
Assumption of AAC liabilities and minority interest 21,508
Cash paid to AAC Partners 57,316
Merger costs (See calculation below) 13,435
Net asset value** 4,316
---------
$ 802,858
=========
</TABLE>
The following is a calculation of the fees and other expenses related
to the Merger (in thousands of dollars):
Advisory fees $ 9,804
Loan assumption fees 2,105
Legal and accounting costs 1,113
Recording costs 110
Other 303
---------
$ 13,435
=========
** Pursuant to the Merger Agreement, if the Net Asset Value (as defined
in the Merger Agreement) is greater than $336.5 million, then the
aggregate consideration will be increased by the difference between
the $336.5 million and the Net Asset Value, as calculated.
6
<PAGE>
(E) Increase of $127.2 million in the book value of AAC's real estate assets
based upon United Dominion's assumed purchase price of $802.9 and the
adjustment to eliminate AAC's historical accumulated depreciation as
follows (in thousands of dollars):
<TABLE>
<S> <C> <C>
Purchase price (See note (D)) $802,858
Less basis of AAC's assets assumed:
Real estate held for investment 687,854
Cash and cash equivalents 8,829
Investment in Joint Venture 2,342
Other assets (see Note (H)) 13,811 712,836
------------ -------
Pro forma adjustment 90,022
AAC historical accumulated depreciation 37,197
-------
Total pro forma adjustment to real estate held for investment $127,219
=======
</TABLE>
(F) Represents the elimination of AAC II, Inc's investment in AAC II, L.P
which was not consolidated by AAC II, Inc. in its September 30, 1998
Historical Balance Sheet as AAC II, Inc. accounts for its investment in
AAC II, LP under the equity method of accounting. Pursuant to the Merger
Agreement, United Dominion issued Preferred Stock and cash in exchange for
AAC II, Inc.'s 79.1% interest in AAC II, LP.
(G) Represents the elimination of cash included in the AAC II, L.P. Historical
Balance Sheet related to two communities which United Dominion did not
acquire in connection with the Merger.
(H) To adjust the historical basis of AAC's other assets in the aggregate
amount of $20,657, which was eliminated in connection with the Merger.
These assets consist primarily of deferred financing costs and related
party receivables.
(I) Represents the following adjustments to notes payable: (i) the $12,375
premium required to adjust the AAC notes payable to estimated fair value,
(ii) the elimination of two notes payable aggregating $14,215 securing two
communities included in the AAC II LP Historical Balance Sheet that will
not be acquired by United Dominion in connection with the Merger and (iii)
the elimination of the $19,572 AAC II, Inc. note payable which was paid
off by the prior owners of AAC with proceeds from the Merger.
(J) United Dominion issued debt in November 1998, prior to the effective date
of the Merger on December 7, 1998. Proceeds of $75,066 from the debt
issuance were used to fund the following costs in connection with the
Merger (in thousands of dollars):
Cash portion of purchase price $ 57,315
Merger costs (See Note (D)) 13,435
Net asset value (See Note (D)) 4,316
-------
$ 75,066
=======
(K) Represents the adjustment to eliminate other liabilities included in the
AAC II, L.P. Historical Balance Sheet related to two communities which
United Dominion did not acquire in connection with the Merger.
(L) Adjustment to record the fair value of 5,614,035 OP Units which were
issued in connection with the Merger. Pursuant to the Partnership Exchange
Agreement, each OP Unit is convertible into one share of United Dominion
common stock at a price of $14.25 per Unit. The fair value of the OP Units
is estimated at a value of $12 per Unit.
7
<PAGE>
(M) To adjust AAC's shareholders' equity to reflect the issuance of 8,000,000
shares of United Dominion Series D Convertible Preferred Stock and cash in
exchange for all of AAC's outstanding common and preferred stock as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
Preferred Common Additional Accumulated Partners
Stock Stock Paid-in Capital Deficit Capital Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series D
Convertible Preferred Stock $ 175,000 $ 175,000
AAC II, LP Historical
Shareholders' Equity $ (191,864) $ (191,864)
AAC II, Inc. Historical
Shareholders' Equity (85,000) $ (9) (67,312) $ (11,288) $ (163,609)
--------------------------------------------------------------------------------------
Pro forma adjustment $ 90,000 $ (9) $ (67,312) $ (11,288) $ (191,864) $ (180,473)
======================================================================================
</TABLE>
8
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED CONSOLIDATED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
BASIS OF PRESENTATION
The Unaudited Consolidated Pro Forma Combined Statements of Operations for the
twelve months ended December 31, 1997 and the nine months ended September 30,
1998 are presented as if the Merger had occurred on January 1, 1997. The
Unaudited Consolidated Pro Forma Combined Statements of Operations give effect
to the Merger under the purchase method of accounting in accordance with
Accounting Standards Board Opinion No. 16, and the combined entity qualifying as
a REIT, distributing at least 95% of its taxable income, and therefore,
incurring no federal income tax liability for the periods presented. In addition
to the Merger, the column titled "Previously Reported Transactions" is presented
as if the following acquisitions occurred on January 1, 1997: (i) 39 apartment
communities with 7,550 apartment homes owned by ASR Investment Corporation that
were merged with and into a wholly-owned subsidiary of the United Dominion, in a
statutory merger on March 27, 1998, (ii) the 1998 acquisitions of 13 communities
containing 4,318 apartment homes for an aggregate purchase price of
approximately $144.0 million, including closing costs and (iii) the 1997
acquisition of 17 communities containing 5,394 apartment homes for an aggregate
purchase price of approximately $218.5 million, including closing costs (See
Note (A) to the Unaudited Consolidated Pro Forma Combined Statements of
Operations). In the opinion of management, all adjustments necessary to reflect
the effects of these transactions have been made.
The Unaudited Consolidated Pro Forma Combined Statements of Operations are
presented for comparative purposes only and are not necessarily indicative of
what United Dominion Consolidated actual results would have been for the year
ended December 31, 1997 and the nine months ended September 30, 1998 if the
Merger and other acquisitions had occurred at the beginning of each period
presented, nor do they purport to be indicative of the results of operations in
future periods. The Unaudited Consolidated Pro Forma Combined Statements of
Operations should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of United
Dominion included in its Annual Report on Form 10-K for the year ended December
31, 1997, its Quarterly Report on Form 10-Q for the nine months ended September
30, 1998 and the pro forma financial statements and notes thereto of United
Dominion's Form 8-K dated May 28, 1998 as filed with the Securities and Exchange
Commission on October 19, 1998.
9
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED CONSOLIDATED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Previously
Reported
United Previously Transactions
Dominion Reported Pro Forma
Historical Transactions Adjustments
(A) (B) (C)
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenues
Rental income $ 386,672 $ 74,829 $ 15,240
Earnings from investments in real estate
Interest and other non-property income 1,123 732 (162)
-------------- --------------- ---------------
387,795 75,561 15,078
Expenses
Rental expenses:
Utilities 24,861 4,568 1,173
Repairs and maintenance 54,607 8,739 2,018
Real estate taxes 30,961 6,569 1,693
Property management 12,203 3,127 (654)
Other rental expenses 41,099 10,599 1,689
Real estate depreciation 76,688 6,335 10,872
Interest 79,004 9,642 19,096
General and administrative 7,075 3,114 (2,487)
Acquisition related expenses 6,684
Other depreciation and amortization 2,084 412 -
Impairment loss on real estate held for disposition 1,400
-------------- --------------- ---------------
329,982 59,789 33,400
Income from gains on sales of mortgage assets 17,213 (17,213)
Income before gains on sales of investments,
minority interest and extraordinary items 57,813 32,985 (35,535)
Gains on sales of investments 12,664 474
-------------- --------------- ---------------
Income before minority interest and extraordinary item 70,477 33,459 (35,535)
Minority interest (278) (355) (1,272)
-------------- --------------- ---------------
Income before extraordinary item 70,199 33,104 (36,807)
Extraordinary items-early extinguishment of debt (50)
-------------- --------------- ---------------
Net income 70,149 33,104 (36,807)
Dividends to preferred shareholders (17,345)
-------------- --------------- ---------------
Net income available to common shareholders 52,804 33,104 (36,807)
============== =============== ===============
Basic earnings per common share $ 0.61
==============
Diluted earnings per common share $ 0.60
==============
Distributions declared per common share $ 1.01
==============
Weighted average number of common shares-basic 87,145 8,340
Weighted average number of common shares-diluted 87,339 11,024
</TABLE>
<TABLE>
<CAPTION>
Adjustments to
United Dominion AAC
Pre AAC Merger AAC II, LP AAC II, Inc. Historical
Pro Forma Historical (D) Historical (E) Financials (F)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 476,741 $ 90,444
Earnings from investments in real estate 14,360
Interest and other non-property income 1,693 6,969 264 (1,957)
--------------- --------------- --------------- ---------------
478,434 97,413 14,624 (1,957)
Expenses
Rental expenses:
Utilities 30,602 6,740
Repairs and maintenance 65,364 10,200
Real estate taxes 39,223 7,418 (152)
Property management 14,676 2,786
Other rental expenses 53,387 11,710 (74)
Real estate depreciation 93,895 14,618 (632)
Interest 107,742 30,292 3,054 (1,098)
General and administrative 7,702 3,937 243
Acquisition related expenses 6,684
Other depreciation and amortization 2,496
Impairment loss on real estate held for disposition 1,400
--------------- --------------- --------------- ---------------
423,171 87,701 3,297 (1,956)
Income from gains on sales of mortgage assets -
Income before gains on sales of investments,
minority interest and extraordinary items 55,263 9,712 11,327 (1)
Gains on sales of investments 13,138
--------------- --------------- --------------- ---------------
Income before minority interest and extraordinary item 68,401 9,712 11,327 (1)
Minority interest (1,905) 16
--------------- --------------- --------------- ---------------
Income before extraordinary item 66,496 9,728 11,327 (1)
Extraordinary items-early extinguishment of debt (50)
--------------- --------------- --------------- ---------------
Net income 66,446 9,728 11,327 (1)
Dividends to preferred shareholders (17,345)
--------------- --------------- --------------- ---------------
Net income available to common shareholders 49,101 9,728 11,327 (1)
=============== =============== =============== ===============
Basic earnings per common share $ 0.51
===============
Diluted earnings per common share $ 0.50
===============
Distributions declared per common share $ 1.01
===============
Weighted average number of common shares-basic 95,485
Weighted average number of common shares-diluted 98,363
</TABLE>
<TABLE>
<CAPTION>
AAC United
Pro Forma Dominion
Merger Pro Forma
Adjustments Combined
--------------- ---------------
<S> <C> <C>
Revenues
Rental income $ 567,185
Earnings from investments in real estate (14,360) (G) -
Interest and other non-property income (264) (H) 6,705
--------------- ---------------
(14,624) 573,890
Expenses
Rental expenses:
Utilities 37,342
Repairs and maintenance 75,564
Real estate taxes 46,489
Property management 17,462
Other rental expenses 65,023
Real estate depreciation 5,172 (I) 113,053
Interest 972 (J) 140,962
General and administrative (2,961)(K) 8,921
Acquisition related expenses 6,684
Other depreciation and amortization 2,496
Impairment loss on real estate held for disposition 1,400
--------------- ---------------
3,183 515,396
Income from gains on sales of mortgage assets -
Income before gains on sales of investments,
minority interest and extraordinary items (17,807) 58,494
Gains on sales of investments 0 13,138
--------------- ---------------
Income before minority interest and extraordinary item (17,807) 71,632
Minority interest (1,342)(L) (3,231)
--------------- ---------------
Income before extraordinary item (19,149) 68,401
Extraordinary items-early extinguishment of debt (50)
--------------- ---------------
Net income (19,149) 68,351
Dividends to preferred shareholders (15,000) (M) (32,345)
--------------- ---------------
Net income available to common shareholders (34,149) 36,006
=============== ===============
Basic earnings per common share $ 0.38
===============
Diluted earnings per common share $ 0.38
===============
Distributions declared per common share $ 1.01
===============
Weighted average number of common shares-basic 95,485
Weighted average number of common shares-diluted 5,614 (N) 103,977
</TABLE>
See accompanying notes.
10
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED CONSOLIDATED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREVIOUSLY
REPORTED
PREVIOUSLY TRANSACTIONS UNITED DOMINION
UNITED DOMINION REPORTED PRO FORMA PRE AAC MERGER
HISTORICAL (A) TRANSACTIONS (B) ADJUSTMENTS (C) PRO FORMA
------------------ ------------------ ----------------- ----------------
INCOME
<S> <C> <C> <C> <C>
Rental income $ 346,171 $ 16,648 $ 1,095 $ 363,914
Earnings from investments in real estate
Interest and non-property income 2,735 252 2,987
-------------- ------------------ ----------------- ------------------
348,906 16,900 1,095 366,901
EXPENSES
Rental expenses:
Utilities 19,204 998 52 20,254
Repairs and maintenance 45,107 1,712 144 46,963
Real estate taxes 29,802 1,610 86 31,498
Property management 11,855 564 (100) 12,319
Other rental expenses 37,241 2,561 138 39,940
Depreciation of real estate owned 73,376 2,613 770 76,759
Interest 75,784 3,452 1,848 81,084
General and administrative 7,306 1,273 (993) 7,586
Other depreciation and amortization 2,434 189 (18) 2,605
-------------- ------------------ ----------------- ------------------
302,109 14,972 1,927 319,008
-------------- ------------------ ----------------- ------------------
Income before gains on sales of investments,
minority interest, and extraordinary item 46,797 1,928 (832) 47,893
Gains on sales of investments 20,474 20,474
-------------- ------------------ ----------------- ------------------
Income before minority interest and
extraordinary item 67,271 1,928 (832) 68,367
Minority interest (1,200) (363) (405) (1,968)
-------------- ------------------ ----------------- ------------------
Income before extraordinary item 66,071 1,565 (1,237) 66,399
Extraordinary items (116) (7,053) 7,053 (116)
-------------- ------------------ ----------------- ------------------
Net income 65,955 (5,488) 5,816 66,283
Dividends to preferred shareholders (16,953) (16,953)
-------------- ------------------ ----------------- ------------------
Net income available to common shareholders $ 49,002 $ (5,488) $ 5,816 $ 49,330
============== ================== ================= ==================
Basic earnings per common share $ 0.50 $ 0.48
============== ==================
Diluted earnings per common share $ 0.50 $ 0.46
============== ==================
Distributions declared per common share $ 0.7875 $ 0.7875
==============
Weighted average number of common shares
outstanding-basic 98,786 3,961 102,747
Weighted average number of common shares
outstanding-diluted 101,352 5,313 106,665
</TABLE>
<TABLE>
<CAPTION>
AAC
ADJUSTMENTS TO PRO FORMA
AAC II, LP AAC II, INC. AAC HISTORICAL MERGER
HISTORICAL (D) HISTORICAL (E) FINANCIALS (F) ADJUSTMENTS
------------------ ---------------- ------------------ ---------------
INCOME
<S> <C> <C> <C> <C>
Rental income $ 80,245 $ $(1,614) $
Earnings from investments in real estate 11,341 (11,341) (G)
Interest and non-property income 5,378 13 (10) (13) (H)
------------ ------------------ -------------- ------------------
85,623 11,354 (1,624) (11,354)
EXPENSES
Rental expenses:
Utilities 6,188
Repairs and maintenance 10,587
Real estate taxes 5,973 (159)
Property management 2,264
Other rental expenses 7,892 (16)
Depreciation of real estate owned 13,213 (440) 4,887 (I)
Interest 26,652 973 (769) 1,866 (J)
General and administrative 4,632 236 (4,331)(K)
Other depreciation and amortization
------------ ------------------ -------------- ------------------
77,401 1,209 (1,384) 2,422
------------ ------------------ -------------- ------------------
Income before gains on sales of investments,
minority interest and extraordinary item 8,222 10,145 (240) (13,776)
Gains on sales of investments
------------ ------------------ -------------- ------------------
Income before minority interest
and extraordinary item 8,222 10,145 (240) (13,776)
Minority interest (183) (1,849) (L)
------------ ------------------ -------------- ------------------
Income before extraordinary item 8,039 10,145 (240) (15,625)
Extraordinary items
------------ ------------------ -------------- ------------------
Net income 8,039 10,145 (240) (15,625)
Dividends to preferred shareholders (11,250) (M)
------------ ------------------ -------------- ------------------
Net income available to common shareholders $ 8,039 $10,145 $ (240) $ (26,875)
============ ================== ============== ==================
Basic earnings per common share
Diluted earnings per common share
Distributions declared per common share
Weighted average number of common shares
outstanding-basic
Weighted average number of common shares
outstanding-diluted 5,614 (N)
</TABLE>
<TABLE>
<CAPTION>
UNITED DOMINION
PRO FORMA
COMBINED
------------------
INCOME
<S> <C>
Rental income $ 442,545
Earnings from investments in real estate --
Interest and non-property income 8,355
------------------
450,900
EXPENSES
Rental expenses:
Utilities 26,442
Repairs and maintenance 57,550
Real estate taxes 37,312
Property management 14,583
Other rental expenses 47,816
Depreciation of real estate owned 94,419
Interest 109,806
General and administrative 8,123
Other depreciation and amortization 2,605
------------------
398,656
------------------
Income before gains on sales of investments,
minority interest and extraordinary item 52,244
Gains on sales of investments 20,474
------------------
Income before minority interest
and extraordinary item 72,718
Minority interest (4,000)
------------------
Income before extraordinary item 68,718
Extraordinary items (116)
------------------
Net income 68,602
Dividends to preferred shareholders (28,203)
------------------
Net income available to common shareholders $ 40,399
==================
Basic earnings per common share $ 0.39
==================
Diluted earnings per common share $ 0.40
==================
Distributions declared per common share $ 0.7875
Weighted average number of common shares
outstanding-basic 102,747
Weighted average number of common shares
outstanding-diluted 112,279
</TABLE>
11
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED NOTES TO CONSOLIDATED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (Amounts in
thousands, except per share and OP Unit data)
(A) Represents United Dominion's Historical Consolidated Statements of
Operations contained in its Annual Report on Form 10-K for the twelve
month period ended December 31, 1997 and its Quarterly Report on Form 10-Q
for the nine month period ended September 30, 1998.
(B) Represents the actual results of operations of the following 1998 and 1997
acquisitions by United Dominion (collectively, the Previously Reported
Transactions): (i) 39 apartment communities with 7,550 apartment homes
owned by ASR Investment Corporation (ASR Merger) 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 and subsequently amended on Form 8-K/A No.1 dated March 27, 1998
which was filed with the Securities and Exchange Commission on June 12,
1998), (ii) a portfolio of three apartment communities (collectively the
Tennessee Portfolio) acquired on January 9, 1998 which consists of The
Trails at Kirby Parkway Apartments and The Trails at Mount Moriah
Apartments (which run as one community under the name The Trails), and
Cinnamon Trails Apartments (as previously reported on Form 8-K
dated June 9, 1998 which was filed with the Securities and Exchange
Commission on June 24, 1998), (iii) Dogwood Creek Apartments acquired on
February 6, 1998 (as previously reported on Form 8-K dated June 9, 1998
which was filed with the Securities and Exchange Commission on June 24,
1998), (iv) a portfolio of eight apartment communities (collectively the
San Antonio Portfolio) acquired on April 16, 1998 which consists of
Audubon Apartments, Carmel Apartments, Cimarron Apartments, Grand Cypress
Apartments, Kenton Place Apartments, Peppermill Apartments, The Crest
Apartments and Villages of Thousand Oaks Apartments (as previously
reported on Form 8-K dated June 9, 1998 which was filed with the
Securities and Exchange Commission on June 24, 1998), (v) Rancho Mirage
Apartments acquired on May 28, 1998 (as previously reported on Form 8-K
dated May 28, 1998 which was filed with the Securities and Exchange
Commission on October 19, 1998), (vi) 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),
(vii) 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 Portfolio") (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), (viii) 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),
(ix) 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 (x) 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 acquisitions
described in (i) through (x) above are shown in detail in United
Dominion's Form 8-K dated May 28, 1998 as filed with the Securities and
Exchange Commission on October 19, 1998.
12
<PAGE>
(C) Represents the aggregate pro forma adjustments for United Dominion's 1998
and 1997 Previously Reported Transactions as described in Note B above.
The pro forma adjustments for these acquisitions are shown in detail in
United Dominion's Form 8-K dated May 28, 1998 as filed with the Securities
and Exchange Commission on October 19, 1998.
(D) Represents the AAC II, LP Historical Consolidated Statement of Operations
for the twelve months ended December 31, 1997 and the nine months ended
September 30, 1998. Certain reclassifications have been made to AAC II, LP
Historical Consolidated Statements of Operations to conform to United
Dominion's presentation.
(E) Represents the AAC II, Inc. Historical Consolidated Statement of
Operations for the twelve months ended December 31, 1997 and the nine
months ended September 30, 1998. Certain reclassifications have been made
to AAC II, Inc.'s Historical Consolidated Statements of Operations to
conform to United Dominion's presentation.
(F) Represents the elimination of rental income and rental expenses related to
the results of operations of two properties included in the AAC II, LP
Historical Statements of Operations for the twelve months ended December
31, 1997 and the nine months ended September 30, 1998. Pursuant to the
Merger Agreement, there are two properties that were not acquired by
United Dominion in connection with the Merger.
(G) Represents the elimination of AAC II, Inc's equity earnings in AAC II, LP.
Pursuant to the Merger Agreement, United Dominion issued Preferred Stock
and cash in exchange for AAC II, Inc.'s 79.1% interest in AAC II, LP.
(H) Represents the elimination of other income included in AAC II, Inc's
Historical Statements of Operations Operations for the twelve months ended
December 31, 1997 and the nine months ended September 30, 1998. The other
income is eliminated since this income will not have a continuing impact
on the results of operations for the combined entity.
(I) Represents the estimated net increase in depreciation of real estate owned
as a result of recording the AAC 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 27.6 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 as of
September 30, 1998 (in thousands of dollars):
<TABLE>
<S> <C>
Purchase price $802,858
Less:
Purchase price allocated to cash and cash equivalents 8,829
Purchase price allocated to other assets 13,811
Purchase price allocated to land 117,384
Purchase price allocated to investment in joint venture 2,342
--------
Pro forma basis of AAC's depreciable real estate held for investment
at fair value $660,492
========
</TABLE>
13
<PAGE>
Calculation of pro forma adjustment to depreciation of real estate owned
for the twelve months ended December 31,1997 and the nine months ended
September 30, 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, 1997 ** Sept. 30, 1998
----------------- ---------------
<S> <C> <C>
Depreciation expense based upon an estimated weighted
average useful life of approximately 27.6 years $ 19,790 $ 17,963
Less: AAC's depreciation of real estate owned (14,618) (13,076)
--------- --------
Pro forma adjustment $ 5,172 $ 4,887
========= ========
</TABLE>
** During the twelve months ended December 31, 1997, AAC acquired 17
communities throughout the period for an aggregate purchase price of
$318 million. Consequently, the pro forma depreciation expense
calculation for the twelve months ended December 31, 1997 is based
upon AAC's average depreciable assets for the twelve months ended
December 31, 1997 of $497,805, a proportionate increase of fair
value of 9.6%.
(J) Represents the estimated net adjustment to interest expense for the twelve
months ended December 31, 1997 and the nine months ended September 30,
1998 associated with the Merger, as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, 1997 Sept, 30, 1998
----------------- --------------
<S> <C> <C>
To adjust amortization of AAC's deferred financing
costs which will be eliminated in the Merger $ (745) $ (740)
To reflect amortization of the adjustment required to
record AAC's mortgage notes payable at fair value (1,406) (1,054)
To eliminate the interest expense related to the $19,572 secured note
payable on AAC II, Inc's Historical Balance Sheet which was paid
off by the prior owners of AAC with proceeds from the Merger (3,054) (973)
To reflect interest expense associated with United
Dominion's issuance of debt at a weighted
average interest rate of 8.23%. (See Note J to the Consolidated
Pro Forma Combined Balance Sheet) 6,177 4,633
---------- --------
Pro forma adjustment $ 972 $ 1,866
========== ========
</TABLE>
(K) Reflects the net estimated reduction of general and administrative
expenses of $2,961 and $4,331 for the twelve months ended December 31,
1997 and the nine months ended September 30, 1998, respectively, based
upon the identified historical costs of certain items which
were eliminated or reduced as a result of the Merger, as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, 1997 Sept. 30, 1998
----------------- --------------
<S> <C> <C>
Net reduction in salary, benefits, severance and other compensation due to
the termination of AAC employees prior to the Merger in
accordance with the Merger Agreement $ 2,809 $4,212
Net reduction in office rent as a result of the Merger 152 119
--------- ------
Pro forma adjustment $ 2,961 $4,331
========= ======
</TABLE>
14
<PAGE>
(L) Reflects the increase in minority interest expense assuming the
consummation of the Merger on January 1, 1997. A percentage of net income
was allocated to Minority Interest representing interests not owned by
United Dominion. The pro forma allocation to Minority Interest is based
upon the percentage estimated to be owned by such Minority Interests as a
result of the Merger. In connection with the Merger Agreement, United
Dominion Realty, LP will issue 5,614,035 OP Units to the Limited Partners
in exchange for their 20.9% interest in AAC II, LP. As a result, the pro
forma weighted average OP Units outstanding, including the pro forma
effect of the Merger (as a percentage of all common stock and Operating
Partnership Units) was 8.28% and 8.42% for and the twelve months ended
December 31, 1997 and the nine months ended September 30, 1998,
respectively.
The Minority Interest ownership in United Dominion is calculated as
follows (Shares and OP Units in thousands):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, 1997 Sept. 30, 1998
----------------- --------------
<S> <C> <C>
United Dominion historical weighted average common
shares outstanding 87,145 98,786
Common shares issued in connection with the Previously
Reported Transactions 8,340 3,961
----- ---------
Total pro forma weighted average common shares 95,485 102,747
United Dominion historical weighted average
OP Units outstanding 317 2,482
OP Units issued in connection with the Previously
Reported Transactions 2,684 1,352
OP Units issued in connection with the Merger 5,614 5,614
----- -----
Total pro forma weighted average OP Units 8,615 9,448
Total weighted average common shares and OP Units 104,100 112,195
Pro forma Minority Interest ownership of United Dominion's
Operating Partnership 8.28% 8.42%
</TABLE>
(M) Reflects the increase in dividends to preferred shareholders of $15,000
and $11,250 for the twelve months ended December 31, 1997 and the nine
months ended September 30, 1998. Based upon the Merger Agreement, United
Dominion issued 8,000,000 shares of 7.5% Convertible Preferred Stock
(Preferred Stock) for an aggregate stated value of $200 million to AAC II,
Inc. in exchange for their 79.1% interest in AAC II, LP.
(N) Represents the adjustment to United Dominion's weighted average number of
common shares outstanding to reflect the Merger as if it had occurred on
January 1, 1997. In connection with the Merger, United Dominion Realty, LP
issued 5,614,035 OP Units to the AAC Limited Partners in exchange for
their 20.9% ownership interest in AAC, which are included in diluted
earnings per share.
15
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED DOMINION REALTY TRUST, INC.
Date: January 20, 1999 /s/ Robin R. Flanagan
----------------- ------------------------------
Robin R. Flanagan, Assistant Vice
President and Chief Accounting
Officer
16
