UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
FOR QUARTERLY AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-10524
---------
UNITED DOMINION REALTY TRUST, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0857512
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
10 South Sixth Street, Richmond, Virginia 23219-3802
- --------------------------------------------------------------------------------
(Address of principal executive offices - zip code)
(804) 780-2691
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to filing requirements
for at least the past 90 days.
Yes X No
---------- -----------
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of August 9, 1999:
Common Stock, $1 Par Value: 104,074,410
<PAGE>
<TABLE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<CAPTION>
June 30, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Real estate owned:
Real estate held for investment $ 3,565,716 $ 3,643,245
Less: accumulated depreciation 316,764 280,663
------------------ ------------------
3,248,952 3,362,582
Real estate under development 93,323 99,395
Real estate held for disposition (net of accumulated
depreciation of $37,583) 270,460 174,145
------------------ ------------------
Total real estate owned, net of accumulated depreciation 3,612,735 3,636,122
Cash and cash equivalents 15,916 18,529
Restricted cash 51,878 50,805
Deferred financing costs, net of accumulated amortization 13,766 10,894
Other assets 83,469 39,038
------------------ ------------------
Total assets $ 3,777,764 $ 3,755,388
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable-secured $ 1,049,493 $ 1,072,185
Notes payable-unsecured 1,119,151 1,045,564
Real estate taxes payable 25,638 29,078
Accrued interest payable 14,660 20,714
Security deposits and prepaid rent 21,660 21,125
Distributions payable 36,946 31,423
Accounts payable, accrued expenses and other liabilities 32,788 45,736
------------------ ------------------
Total liabilities 2,300,336 2,265,825
Minority interests 107,410 115,442
Shareholders' equity:
Preferred stock, no par value; $25 liquidation preference,
25,000,000 shares authorized;
4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000
6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 150,000
8,000,000 shares 7.50% Series D Cumulative Convertible
Redeemable 175,000 175,000
Common stock, $1 par value; 150,000,000 shares authorized
104,250,306 shares issued and outstanding (103,639,117
in 1998) 104,250 103,639
Additional paid-in capital 1,097,320 1,090,432
Distributions in excess of net income (253,609) (242,331)
Deferred compensation - unearned restricted stock awards (391) --
Notes receivable from officer-shareholders (7,552) (7,619)
------------------ ------------------
Total shareholders' equity 1,370,018 1,374,121
------------------ ------------------
Total liabilities and shareholders' equity $ 3,777,764 $ 3,755,388
================== ==================
2
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
----------------------------- ----------------------------
Rental income $154,430 $118,176 $308,221 $222,275
Rental expenses:
Real estate taxes and insurance 16,515 12,056 32,510 22,753
Personnel 16,411 12,712 33,039 22,879
Utilities 7,390 6,140 15,639 11,945
Repair and maintenance 10,448 9,352 19,705 16,512
Administrative and marketing 6,432 4,338 12,435 8,098
Other operating expenses 281 72 678 52
Property management 4,784 4,648 9,296 8,033
----------- -------------- -------------- --------------
62,261 49,318 123,302 90,272
Other income:
Interest and other non-property income 483 1,147 930 2,159
Other expenses:
Real estate depreciation 31,465 25,548 60,857 46,476
Interest 38,918 25,736 76,997 48,561
Impairment loss on real estate owned 7,100 --- 7,100 ---
General and administrative 2,750 2,539 6,444 4,618
Other depreciation and amortization 1,030 795 2,121 1,541
----------- -------------- -------------- --------------
81,263 54,618 153,519 101,196
----------- -------------- -------------- --------------
Income before gains on sales of investments, minority
interests and extraordinary item 11,389 15,387 32,330 32,966
Gains on sales of investments 32,214 20,721 32,405 20,461
----------- -------------- -------------- --------------
Income before minority interests and extraordinary item 43,603 36,108 64,735 53,427
Minority interests of outside partnerships (214) --- (381) ---
Minority interests of unitholders in operating partnerships (3,098) (987) (3,981) (1,122)
----------- -------------- -------------- --------------
Income before extraordinary item 40,291 35,121 60,373 52,305
Extraordinary item - early extinguishment of debt 509 (116) 509 (116)
----------- -------------- -------------- --------------
Net income 40,800 35,005 60,882 52,189
Distributions to preferred shareholders-Series A and B (5,653) (5,653) (11,306) (11,303)
Distributions to preferred shareholders-Series D (Convertible) (3,787) --- (7,573) ---
----------- -------------- -------------- --------------
Net income available to common shareholders $31,360 $29,352 $42,003 $40,886
=========== ============== ============== ==============
Earnings per common share:
Basic $0.30 $0.29 $0.40 $0.42
=========== ============== ============== ==============
Diluted $0.30 $0.29 $0.40 $0.42
=========== ============== ============== ==============
Common distributions declared per share $0.2650 $0.2625 $0.5300 $0.5250
=========== ============== ============== ==============
Weighted average number of common shares outstanding-basic 104,324 101,562 104,274 96,244
Weighted average number of common shares outstanding -diluted 104,338 101,667 104,284 96,355
See accompanying notes to consolidated financial statements.
3
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended June 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 60,882 $ 52,189
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 62,978 48,017
Minority interests 4,362 1,122
Impairment loss on real estate owned 7,100 --
Amortization of deferred financing costs 1,729 965
Gains on sales of investments (32,405) (20,461)
Extraordinary item-early extinguishment of debt (509) 116
Changes in operating assets and liabilities:
Decrease in operating liabilities (19,391) (811)
Increase in operating assets (9,151) (1,307)
------------- -------------
Net cash provided by operating activities 75,595 79,830
Investing Activities
Development of real estate assets, including acquisition of land (56,597) (30,075)
Capital expenditures to real estate assets (32,529) (30,209)
Acquisition of real estate, net of liabilities assumed (26,250) (129,049)
Proceeds from sales of investments 99,790 134,850
Funds held in escrow from 1031 exchanges pending acquisition of real estate (32,936) (30,878)
Issuance of and payments on notes receivable 1,132 (12,951)
Net cash acquired or paid in connection with mergers (4,331) 330
Capital expenditures-non real estate assets (3,155) (3,728)
------------- -------------
Net cash used in investing activities (54,876) (101,710)
Financing Activities
Proceeds from notes payable - unsecured (Medium-Term Notes) 190,000 --
Proceeds from secured credit facility - FNMA 129,655 --
Proceeds from the issuance of common stock 8,685 29,017
Proceeds from notes payable - unsecured -Bonds 7,345 --
Proceeds from the issuance of common stock through
unit investment trusts -- 38,876
Net (payments) borrowings of short-term bank debt (23,100) 96,900
Distributions paid to common shareholders (52,787) (48,963)
Distributions paid to preferred shareholders (16,078) (11,303)
Distributions paid to minority interest operating partnership unitholders (3,651) (2,586)
Proceeds from the issuance of notes payable - secured -- 7,770
Non-scheduled principal payments on notes payable - secured (126,651) (46,431)
Payments on notes payable - unsecured (82,528) (7,504)
Repurchase of notes payable - unsecured (17,990) --
Payment of notes payable - secured in connection with the sales of investments (15,729) (18,288)
Scheduled principal payments on notes payable - secured (9,718) (3,192)
Payments of financing costs (4,790) (1,314)
Cash paid to redeem operating partnership units (3,375) --
Repurchase of common stock (2,594) --
Purchase of restricted stock (476) --
------------- -------------
Net cash (used in) provided by financing activities (23,332) 32,982
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,613) 11,102
Cash and cash equivalents, beginning of period 18,529 473
------------- -------------
Cash and cash equivalents, end of period $ 15,916 $ 11,575
============= =============
Supplemental Information:
Interest paid during the period $ 84,975 $ 48,496
Conversion of operating partnership units to common stock 1,005 --
Non-cash transactions associated with the acquisition of properties:
Secured debt assumed -- 86,626
Issuance of operating partnership units -- 17,617
Issuance of common stock -- 1,077
Non-cash transactions associated with Mergers:
Real estate assets acquired -- 313,700
Other operating assets acquired -- 8,848
Issuance of common stock -- 108,465
Issuance of operating partnership units -- 21,420
Secured debt assumed -- 179,440
Operating liabilities assumed -- 13,553
See accompanying notes to consolidated financial statements.
4
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 1999
(In thousands, except per share data)
(Unaudited)
Preferred Stock
Balance, December 31, 1998 $ 430,000
---------------------
Balance, June 30, 1999 $ 430,000
=====================
Common Stock, $1 Par Value
Balance, December 31, 1998 $ 103,639
Issuance of common shares through dividend reinvestment
and stock purchase plan 843
Purchase of treasury stock (232)
Purchase of common stock for restricted stock awards (46)
Issuance of restricted stock awards 46
---------------------
Balance, June 30, 1999 $ 104,250
=====================
Additional Paid-in Capital
Balance, December 31, 1998 $ 1,090,432
Issuance of common shares through dividend reinvestment
and stock purchase plan 7,716
Issuance of common shares to employees, officers and director-shareholders 59
Purchase of treasury stock (2,362)
Adjustment for cash purchase and conversion of minority interests of
unitholders in Operating Partnerships 1,475
---------------------
Balance, June 30, 1999 $ 1,097,320
=====================
Distributions in Excess of Net Income
Balance, December 31, 1998 $ (242,331)
Net income 60,882
Common stock distributions declared ($.53 per share) (53,281)
Preferred stock distributions declared-Series A ($1.16 per share) (4,856)
Preferred stock distributions declared-Series B ($1.08 per share) (6,450)
Preferred stock distributions declared-Series D ($.95 per share) (7,573)
---------------------
Balance, June 30, 1999 $ (253,609)
=====================
Deferred compensation - unearned restricted stock awards
Balance, December 31, 1998 $ -
Issuance of restricted stock awards (476)
Amortization of deferred compensation 85
---------------------
Balance, June 30, 1999 $ (391)
=====================
Notes Receivable from Officer-Shareholders
Balance, December 31, 1998 $ (7,619)
Principal repayments 67
---------------------
Balance, June 30, 1999 $ (7,552)
=====================
Total Shareholders' Equity $ 1,370,018
=====================
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
United Dominion Realty Trust, Inc. and its subsidiaries, including United
Dominion Realty, L.P., its Operating Partnership, and Heritage Communities, L.P.
(collectively, "United Dominion"). As of June 30, 1999, there were 38,338,636
units in the Operating Partnership outstanding, of which, 30,920,389, or 80.7%
were owned by United Dominion and 7,418,247, or 19.3% were owned by
non-affiliated limited partners. In connection with the acquisition of ASR
Investments Corporation, United Dominion acquired Heritage Communities, L.P., a
Delaware limited partnership (Heritage OP). As of June 30, 1999, there were
3,512,423 units in the Heritage OP outstanding, of which, 2,974,252 or 84.7%
were owned by United Dominion and 15.3% were owned by non-affiliated limited
partnerships. The financial statements of United Dominion include the minority
interests of the unitholders in the operating partnerships.
The accompanying interim unaudited consolidated financial statements have been
prepared according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The accompanying consolidated
financial statements should be read in conjunction with the audited financial
statements and related notes appearing in United Dominion's December 31, 1998
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
In the opinion of management, the consolidated financial statements reflect all
adjustments which are necessary for fair presentation of financial position at
June 30, 1999 and results of operations for the interim periods ended June 30,
1999 and 1998. Such adjustments are normal and recurring in nature. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The interim results presented are not necessarily indicative of
results that can be expected for a full year.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the dates of the
financial statements and the amounts of revenues and expenses during the
reporting periods. Actual amounts realized or paid could differ from those
estimates.
Certain previously reported amounts have been reclassified to conform with the
current financial statement presentation.
2. Real Estate Held for Investment
At June 30, 1999, there are 281 communities with 76,667 apartment homes
classified as real estate held for investment. The following table summarizes
the components of real estate held for investment at June 30, 1999 and December
31, 1998:
June 30, December 31,
Dollars in thousands 1999 1998
- ------------------------------------------------------------------------------
Land and land improvements $ 635,447 $ 647,328
Buildings and improvements 2,747,810 2,819,312
Furniture, fixtures and equipment 165,821 169,364
Construction in progress 16,638 7,241
----------- -----------
Real estate held for investment 3,565,716 3,643,245
Accumulated depreciation (316,764) (280,663)
----------- -----------
Real estate held for investment, net
of accumulated depreciation $ 3,248,952 $ 3,362,582
=========== ===========
At the beginning of June, United Dominion embarked on an accelerated disposition
plan for non-strategic properties. As a result of the review of its real estate
apartment portfolio, 21 properties included in real estate held for investment
were moved to real estate held for disposition during the second quarter.
Accordingly, through the review and analysis of communities targeted for
strategic disposition which included exiting one of United Dominion's major
markets, an aggregate $7.1 million impairment loss was recognized on five
communities. An impairment loss was indicated as a result of the net book value
of the assets held for disposition being greater than the estimated fair market
value less the cost of disposal.
6
<PAGE>
3. Notes Payable - Secured
Notes payable-secured, which encumber $1.9 billion or 47.8% of United Dominion's
real estate owned, ($2.1 billion or 52.2% of United Dominion's real estate owned
is unencumbered) consist of the following at June 30, 1999:
<TABLE>
<CAPTION>
Principal Weighted Average Weighted Average No. Communities
Dollars in thousands Balance Interest Rate Years to Maturity Encumbered
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed-Rate Debt
Mortgage Notes Payable (a) $ 589,717 7.98% 6.2 93
Tax-Exempt Notes Payable 113,508 6.99% 13.1 16
REMIC Financings 70,068 7.88% 1.5 23
Secured Notes Payable (b)(c) 52,000 7.49% 0.1 8
------------------------------------------------------------------------------
Total Fixed-Rate Notes Payable 825,293 7.80% 6.4 140
Variable-Rate Debt
Mortgage Notes Payable 27,998 7.40% 15.2 10
Tax-Exempt Notes Payable 66,547 4.17% 17.7 5
Secured Credit Facilities (FNMA) (c) 129,655 5.70% 4.7 12
-------------------------------------------------------------------------------
Total Variable-Rate Notes Payable 224,200 5.45% 9.9 27
------------------------------------------------------------------------------
Total Notes Payable - Secured $ 1,049,493 7.30% 7.1 167
==============================================================================
</TABLE>
(a) Includes fair value adjustments aggregating $16.7 million recorded in
connection with the ASR Merger and the AAC Merger on March 27, 1998 and
December 7, 1998, respectively.
(b) Secured notes payable consist of a $31.7 million variable-rate secured
senior credit facility which encumbers five communities and three
secured variable-rate notes payable aggregating $20.3 million, all of
which matured in August 1999 and were paid off with proceeds from the
additional $66 million borrowed under the FNMA credit facility in
August 1999.
(c) United Dominion has six interest rate swap agreements associated with
secured debt with an aggregate notional value of $52 million under
which United Dominion pays a fixed-rate of interest and receives a
variable-rate on the notional amounts. The interest rate swap
agreements effectively change United Dominion's interest rate exposure
on $52 million from a variable-rate to a weighted average fixed-rate of
approximately 7.49%.
(d) During the first six months of 1999, United Dominion closed $129.7
million of a $200 million revolving credit facility (the "Credit
Facility") with the Federal National Mortgage Association. The Credit
Facility currently bears a variable rate of interest of 5.70%. The
financing is for an initial term of five years, bears interest at a
floating rate which can be fixed for periods of up to 270 days, and can
be extended for an additional five or ten years at United Dominion's
discretion.
7
<PAGE>
4. Notes Payable - Unsecured
A summary of notes payable - unsecured at June 30, 1999 and December 31, 1998 is
as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Commercial Banks
Borrowings outstanding under
revolving credit facilities (a) $ 216,900 $240,000
Insurance Companies--Senior Unsecured Notes
7.98% due March, 2000-2003 (b) 29,800 37,228
Other (c) 5,596 5,836
Senior Unsecured Notes - Other
7.73% Medium-Term Notes due April 2005 (f) 25,000 --
7.53% Medium-Term Notes due April 2029 (d) (f) 15,000 --
5.05% City of Portland, OR Bonds due October 2003 7,345 --
7.60% Medium-Term Notes due January 2002 (f) 70,000 --
7.67% Medium-Term Notes due January 2004 (f) 58,000 --
7.65% Medium-Term Notes due January 2003 (e) (f) 10,000 --
7.22% Medium-Term Notes due February 2003 (f) 12,000 --
8.50% Monthly Income Notes due November 2008 61,985 62,500
8.13% Senior Notes due November 2000 146,150 150,000
7.25% Notes repaid April 1999 -- 75,000
8.50% Debentures due September 2024 (g) 150,000 150,000
7.95% Medium-Term Notes due July 2006 123,400 125,000
7.25% Notes due January 2007 112,975 125,000
7.07% Medium-Term Notes due November 2006 25,000 25,000
7.02% Medium-Term Notes due November 2005 50,000 50,000
------------- ------------
866,855 762,500
------------- ------------
Total Notes Payable - Unsecured $ 1,119,151 $1,045,564
=========== ==========
</TABLE>
(a) Weighted average interest rate of 5.6% and 6.0% at June 30, 1999 and
December 31, 1998, respectively.
(b) Payable in four equal principal installments of $7.4 million.
(c) Includes $5.0 million and $5.4 million at June 30, 1999 and December
31, 1998, respectively, of deferred gains from the termination of
interest rate risk management agreements.
(d) Notes include an investor put feature which grants options to redeem
the notes in April 2003, 2009, 2014 and 2019 at par.
(e) United Dominion has one interest rate swap agreement associated with
unsecured debt with an aggregate notional value of $10 million under
which United Dominion pays a fixed-rate of interest and receives a
variable-rate on the notional amount. The interest rate swap agreement
effectively changes United Dominion's interest rate exposure on the $10
million from a variable-rate to a fixed-rate of 7.65%.
(f) During the first six months of 1999, United Dominion issued $190
million aggregate principal amounts of senior unsecured notes under its
$200 million Medium-Term Note Program, with a weighted average interest
rate of 7.6% and a weighted average term of 6.3 years.
(g) Debentures include an investor put feature which grants a one-time
option to redeem debentures in September 2004.
During the second quarter of 1999, United Dominion recognized a $509 thousand
extraordinary gain related to the repurchase of $18.0 million of its unsecured
notes payable at less than face value.
8
<PAGE>
5. Earnings Per Share
Basic earnings per common share is computed based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share is computed based on common shares outstanding plus the effect of
dilutive stock options and other potentially dilutive common stock equivalents.
The dilutive effect of stock options and other potential common stock
equivalents is determined using the treasury stock method based on United
Dominion's average stock price. The early extinguishment of debt does not have
an effect on the earnings per share calculation for the periods presented. The
effect of the conversion of the operating partnership units and convertible
preferred stock is not dilutive and is therefore not included in the following
calculations. The weighted average effect of the conversion of the operating
partnership units for the three and six months ended June 30, 1999 and 1998 was
8,363,908 and 8,476,792 for 1999 and 3,478,649 and 2,311,090 for 1998,
respectively. The weighted average effect of the conversion of the convertible
preferred stock for the three and six months ended June 30, 1999 was 12,307,692.
The following table sets forth the computation of basic and diluted earning per
share.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
-------------------------- ------------------------
<S> <C>
In thousands, except per share data
Numerator for basic and diluted earnings
per share-net income available to common
shareholders $ 31,360 $ 29,352 $ 42,003 $ 40,886
Denominator:
Denominator for basic earnings per share-
weighted average shares 104,324 101,562 104,274 96,244
Effect of dilutive securities:
Employee stock options 14 105 10 111
--------- --------- --------- ---------
Dilutive potential common shares
Denominator for dilutive earnings per
share-adjusted weighted average shares
and assumed conversions 104,338 101,667 104,284 96,355
========= ========= ========= =========
Basic earnings per share $ .30 $ .29 $ .40 $ .42
========= ========= ========= =========
Diluted earnings per share $ .30 $ .29 $ .40 $ .42
========= ========= ========= =========
</TABLE>
6. Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133),
as amended by Statement No. 137 "Accounting for Derivative Instruments and
Hedging Activities" - Deferral of the Effective Date of FASB Statement No. 133 -
an Amendment of FASB Statement No. 133, which is required to be adopted in years
beginning after June 15, 2000. Statement 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance, however, United Dominion
does not anticipate adopting Statement 133 until such time as it is required.
Statement 133 will require United Dominion to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of the derivative's
change in fair value will be immediately recognized in earnings. United Dominion
has not yet determined what the effect of Statement 133 will be on earnings and
the financial position of United Dominion, however, management does not
anticipate that the adoption of Statement 133 will have a significant effect on
earnings or the financial position of United Dominion.
9
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of United Dominion Realty Trust, Inc.
("United Dominion") appearing elsewhere in this report. This quarterly report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1993, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements include, without
limitation, statements concerning 1999 property acquisitions and dispositions,
1999 development activity and capital expenditures, 1999 capital raising
activities, 1999 rent growth, occupancy and rental expense growth. Such
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievement of United
Dominion to be materially different from the results of operations or plans
expressed or implied by such forward-looking statements. Such factors include,
among other things, unanticipated adverse business developments affecting United
Dominion, and/or its properties, adverse changes in the real estate markets and
general and local economies and business conditions. Although United Dominion
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore there can be no assurance that such statements included in this report
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as representation by United Dominion or any
other person that the results or conditions described in such statements or the
objectives and plans of United Dominion will be achieved.
United Dominion operates in one defined business segment as an owner, operator,
renovator and developer of apartment communities nationwide. Management's
strategy is to be a national, highly efficient provider of quality apartment
homes. During the past several years, United Dominion has implemented this
strategy through the acquisition of portfolios of higher quality communities,
the disposition of non-strategic communities, a greater commitment to
development and the upgrade of its older communities. United Dominion seeks to
be a market leader by operating a sufficiently sized portfolio of apartments
within each if its targeted markets in order to drive down operating costs
through economies of scale and management efficiencies. United Dominion believes
that geographic market diversification increases investment opportunity and
decreases the risk associated with cyclical local real estate markets and
economies. At June 30, 1999, United Dominion owned 324 communities with 85,402
apartment homes nationwide.
10
<PAGE>
The following table summarizes United Dominion's apartment market information by
geographic market:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
As of June 30, 1999 June 30, 1999 June 30, 1999
------------------------------------------------- -------------------- --------------------
Average Average
No. of % of Carrying Monthly Monthly
No. of Apartment Apartment Value Physical Rental Physical Rental
Market Communities Homes Homes (in thousands) Occupancy Rates (a) Occupancy Rates (a)
- --------------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dallas/Ft. Worth, TX 29 8,956 10% $ 399,263 94.2% $ 619 94.1% $ 622
Houston, TX 25 6,012 7% 228,469 91.9% 570 91.9% 573
Phoenix, AZ 10 3,240 4% 189,207 90.7% 660 89.9% 662
Orlando, FL 14 3,902 5% 185,967 93.5% 661 94.3% 664
San Antonio, TX 13 3,840 4% 174,723 92.2% 615 91.4% 620
Tampa, FL 12 4,018 5% 172,340 91.9% 642 91.6% 643
Nashville, TN 11 3,064 4% 142,762 93.7% 601 95.1% 602
Raleigh, NC 9 2,951 3% 142,269 92.3% 689 91.9% 690
San Francisco, CA 4 980 1% 129,485 98.3% 1,470 98.5% 1,471
Charlotte, NC 10 2,490 3% 120,951 91.1% 676 90.6% 678
Columbus, OH 7 2,282 3% 119,865 93.3% 619 93.2% 619
Columbia, SC 11 3,320 4% 114,265 90.7% 528 91.3% 529
Eastern NC 10 2,710 3% 111,042 86.6% 597 88.5% 592
Monterey
Peninsula, CA 16 2,076 2% 106,577 93.5% 728 94.4% 734
Memphis, TN 7 2,196 3% 104,958 93.2% 592 94.8% 592
Greensboro, NC 8 2,123 2% 101,911 87.8% 623 88.7% 624
Richmond, VA 8 2,372 3% 99,446 92.1% 656 93.1% 658
Miami /
Ft. Lauderdale, FL 5 1,280 1% 80,912 91.9% 822 91.5% 826
Baltimore, MD 7 1,596 2% 72,385 95.4% 689 95.4% 691
Atlanta, GA 6 1,426 2% 68,696 91.1% 685 91.2% 688
Portland, OR 4 996 1% 60,074 91.7% 679 91.8% 683
Jacksonville, FL 3 1,157 1% 56,163 89.4% 636 90.6% 638
Hampton Roads, VA 6 1,437 2% 53,665 94.0% 597 94.6% 599
Los Angeles, CA 2 926 1% 53,620 95.7% 738 95.1% 750
Eastern Shore, MD /
Delaware 6 1,156 1% 52,338 96.6% 659 96.0% 663
Greenville, SC 6 1,436 2% 50,906 85.7% 545 87.3% 546
Lansing, MI 4 1,227 1% 50,674 88.8% 620 85.8% 622
Sacramento, CA 2 914 1% 47,723 97.7% 639 97.5% 642
Seattle, WA 4 790 1% 46,562 90.1% 674 91.3% 679
Denver , CO 2 876 1% 44,347 92.0% 632 92.0% 637
Fort Myers /
Naples, FL 3 804 1% 45,614 97.6% 664 97.3% 666
Washington, DC 4 803 1% 43,988 95.9% 773 96.0% 775
Fayetteville, NC 3 884 1% 41,026 94.2% 576 93.3% 578
Detroit, MI 4 744 1% 38,234 94.2% 683 94.9% 682
Indianapolis, IN 3 875 1% 32,895 94.4% 518 95.4% 517
Daytona Beach /
Melbourne, FL 4 862 1% 32,421 94.1% 583 93.3% 587
Tucson, AZ 8 1,112 1% 28,247 90.1% 423 90.7% 424
Albuquerque, NM 4 758 1% 26,645 83.3% 509 84.6% 507
Austin, TX 2 542 1% 23,526 93.3% 611 91.4% 616
Other Virginia 6 1,154 1% 47,850 92.8% 620 92.9% 620
Other Midwest 5 969 1% 42,597 94.1% 600 94.5% 601
Other California 3 652 1% 27,158 92.3% 581 92.7% 582
Other Washington State 2 536 1% 25,258 77.0% 721 73.2% 699
Other Georgia 2 468 1% 22,549 86.3% 657 86.0% 657
Other Texas 3 776 1% 22,261 86.2% 489 85.1% 488
Arkansas 2 512 1% 22,036 92.8% 590 94.3% 591
Nevada 1 384 1% 20,640 92.0% 643 94.0% 644
Other South Carolina 2 408 -- 13,558 91.1% 439 91.8% 441
Alabama 1 242 -- 8,749 92.2% 510 92.3% 510
Other North Carolina 1 168 -- 7,696 95.1% 609 96.8% 612
-------------------------------------- ------------------- --------------
Total 324 85,402 100% $3,954,513 92.1% $635 92.3% $637
====================================== =================== ==============
</TABLE>
11
<PAGE>
(a) Average monthly rental rates represent potential rent collections
(gross potential rents less market adjustments), which approximate net
effective rents. These figures exclude two acquisition completed in
1999 and development communities in lease-up.
Liquidity and Capital Resources
As a qualified real estate investment trust ("REIT"), United Dominion
distributes a substantial portion of its cash flow to its shareholders in the
form of quarterly distributions. United Dominion believes that cash provided by
operations will be adequate to meet normal operating requirements and payment of
distributions by United Dominion in accordance with REIT requirements in both
the short and long-term. United Dominion utilizes a variety of primarily
external financing sources to fund portfolio growth, major capital improvement
programs and balloon debt payments. United Dominion's bank lines of credit
generally have been used to temporarily finance these expenditures, and
subsequently this short-term bank debt has been replaced with longer-term debt
or equity. At June 30, 1999, United Dominion had cash and cash equivalents of
$15.9 million and amounts available under its credit facilities aggregating
$48.1 million.
United Dominion expects to meet its short-term liquidity requirements through
net cash provided by operations and borrowings under credit facilities. To meet
certain long-term liquidity requirements, such as scheduled debt maturities,
development activity and significant capital improvements, United Dominion
expects to issue secured and unsecured notes payable. Although United Dominion
believes that it will have the capacity to meet its long-term liquidity needs,
there can be no assurance that such additional debt financing or debt and equity
offerings will be available or, if available, on terms satisfactory to United
Dominion. United Dominion may also fund its capital requirements through: (i)
proceeds from asset sales, (ii) common shares sold through United Dominion's
Dividend Reinvestment and Stock Purchase Plan, (iii) retained operating cash
flow and (iv) the use of unused credit facilities. United Dominion completed the
majority of its 1999 financing activity during the first half of 1999 (See
Financing Activities). United Dominion has no significant debt maturities until
November 2000, except for $70.3 million of notes payable-secured maturing during
the third quarter of 1999 which was repaid with the proceeds from additional
borrowings under a $200 million revolving credit facility with the Federal
National Mortgage Association. In addition, we expect expenditures for
development activity to decrease as funding is anticipated to occur through
joint venture arrangements.
The following discussion explains the changes in net cash provided by operating
activities, net cash used for investing activities and net cash provided by
financing activities which are presented in United Dominion's Consolidated
Statement of Cash Flows.
Operating Activities
For the six months ended June 30, 1999, United Dominion's cash flow from
operating activities of $75.6 million decreased slightly from $79.8 million for
the same period last year. The decrease relates primarily to the payment of
accrued operating expenses subsequent to December 31, 1998.
Investing Activities
During the six months ended June 30, 1999, net cash used for investing
activities was $54.9 million compared to $101.7 million for the same period last
year. During 1999, United Dominion's investing activities will consist primarily
of the acquisition of real estate with proceeds from the sales of investments
and funding its current development commitments and its share of potential joint
venture development projects. Changes in the level of investing activities from
period to period primarily reflect the changing levels of United Dominion's
acquisition, capital expenditure, development and sales programs, as well as,
the impact of the capital market environment on these activities. During the
past several years, United Dominion has been strategically repositioning its
portfolio through the development of communities, the upgrade of its existing
portfolio and the disposition of communities that did not meet its long-term
strategic direction.
Real estate under development
United Dominion focuses its development activity in certain of its major markets
where it is believed that there will be stabilized demand. During 1998, United
Dominion increased its commitment to development as part of its strategic
repositioning. During the first six months of 1999, United Dominion invested
$56.6 million on development projects, including the acquisition of land.
12
<PAGE>
At June 30, 1999, United Dominion had apartment communities with 1,988 apartment
homes under development as outlined below (dollars in thousands except estimated
cost per home):
<TABLE>
<CAPTION>
Estimated Estimated Expected
No. Apt. Completed Development Development Cost per Completion
Property Location Homes Apt. Homes Costs Costs Home Date
- ---------------------------------------------------------------------------------------------------------------
New Communities
- ----------------
<S> <C> <C> <C> <C> <C> <C>
Sierra Foothills Phoenix, AZ 322 104 $ 15,702 $ 22,400 $ 69,600 4Q99
Alexander Court Columbus, OH 356 308 20,091 23,000 64,600 3Q99
Legends at Park 10 Houston, TX 236 20 9,142 13,400 56,800 4Q99
Ashton at Waterford Lakes Orlando, FL 292 54 11,936 19,000 65,100 4Q99
The Meridian I Dallas, TX 250 -- 5,550 15,500 62,000 2Q00
----------------------------------------------------------------
1,456 486 62,421 93,300 64,100
Additional Phases
Dominion Crown Point II Charlotte, NC 220 -- 3,647 14,800 67,300 1Q00
Carmel II San Antonio, TX 312 -- 1,907 19,700 63,100 4Q00
Land Held for Future Development -- 25,348 -- -- --
----------------------------------------------------------------
Total to Date 1,988 486 $93,323 $127,800 $64,300 --
================================================================
During 1999, the following development projects were completed (dollars in
thousands except estimated cost per home):
<CAPTION>
Estimated
No. Apt. Development Cost per Date % Leased
Property Location Homes Costs Home Completed at 6/30/99
- ----------------------------------------------------------------------------------------------------------------------
New Communities
Stone Canyon Houston, TX 216 $ 10,227 $ 47,300 3/99 65.3%
Dominion Franklin Nashville, TN 360 25,831 71,800 3/99 71.0%
Ashlar I Fort Myers, FL 260 18,919 72,800 5/99 68.5%
Additional Phases
Heritage Green II Columbus, OH 96 5,897 61,400 5/99 68.8%
----------------------------------------
Total 932 $ 60,874 $ 65,300
========================================
</TABLE>
United Dominion is committed to completing its real estate currently under
development, which has an estimated cost to complete of $59.8 million.
Additional development starts planned for the remainder of 1999 will likely be
done with financial partners in joint ventures.
Capital Expenditures
United Dominion capitalizes value enhancing improvements plus improvements that
substantially extend the useful life of an existing asset. In addition to United
Dominion's capital expenditures to upgrade and improve new acquisitions, a
significant portion of capital expenditures relate to United Dominion's same
communities. During the first six months of 1999, United Dominion invested $32.5
million on capital improvements to its apartment portfolio.
During the first six months of 1999, non-revenue enhancing capital expenditures,
including floor coverings, HVAC equipment, roofs, appliances, landscaping,
parking lots and other non-revenue enhancing capital expenditures, aggregated
$9.4 million or $173 per home or $346 per home on an annualized basis. These
non-revenue enhancing capital expenditures are on target with our budgets of
$350 per home for 1999. In addition, non-recurring/revenue-enhancing capital
expenditures, including water sub-metering, the additions of microwaves,
washer-dryers, interior upgrades and new business and fitness centers totaled
$4.2 million or $77 per home during the first six months of 1999.
United Dominion has completed the majority of its same community upgrade program
and has reduced its capital expenditures related to same communities during the
first six months of 1999, but will continue to selectively add revenue enhancing
improvements which are budgeted to provide a high return on investment.
13
<PAGE>
Acquisitions
During the six months ended June 30, 1999, United Dominion acquired two
communities with 496 apartment homes at a total cost (including closing costs)
of $26.2 million or $52,900 per home. During the remainder of 1999, United
Dominion does not anticipate acquiring communities except to reinvest a portion
of the proceeds from property dispositions.
<TABLE>
<CAPTION>
Purchase
Purchase No. Apt. Price Cost
Location Date Name Homes (thousands) per Home
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nashville, Tennessee 01/07/99 Colonnade 288 $17,475 $60,700
San Bernadino, California 06/30/99 Grand Terrace 208 8,739 42,000
----------------------------------------------------------------------------------------------
Total/Weighted Average 496 $26,214 $52,900
</TABLE>
Disposition of investments
As part of its strategic repositioning, United Dominion has undertaken proactive
portfolio review analyses with the objective of identifying communities that no
longer meet United Dominion's long-term investment objectives due to size,
location, age, quality and/or performance. The disposition program allows United
Dominion to reduce the age of its existing portfolio, which should result in
lower operating expense and capital expenditure growth associated with the older
communities, to exit non-core markets and divest itself of communities that are
no longer strategically important. United Dominion intends to sell as much as
10,000 apartment homes during 1999 which will substantially complete the
disposition process that is part of our strategic repositioning plan. It is
anticipated that the proceeds from the sales, estimated at more than $300
million, will be used to fund acquisitions in order to complete tax-deferred
exchanges to defer large capital gains, to fund development activity, to reduce
debt and to repurchase common stock. The dispositions are expected to be
moderately dilutive to current earnings as the initial returns on investment on
higher quality communities and the interest rate on debt repaid are lower than
the returns on investment on the communities being sold.
In connection with its disposition strategy, during the first six months of
1999, United Dominion sold 11 communities with 2,703 apartment homes for an
aggregate sales price of $102.9 million and a net book value of $67.8 million.
Proceeds received in connection with the sales were used to repay debt,
repurchase common stock and complete 1031 tax deferred exchanges (See
Acquisitions). For financial reporting purposes, gains on the sales of these
assets aggregated $32.4 million.
At June 30, 1999, there are 44 communities with 8,735 apartment homes and 4
commercial properties classified as real estate held for disposition with a net
book value of $270.5 million (net of $37.6 million of accumulated depreciation).
These communities contributed property operating income (property rental income
less property operating expenses) of $6.6 million and $13.5 million for the
three and six month periods ended June 30, 1999. United Dominion believes that
these properties will be disposed of over the next twelve months.
United Dominion has entered into several contracts with a number of purchasers
to sell 20 communities with 3,849 apartment homes for an aggregate sales price
of $121.1 million. In addition, United Dominion has two communities with 395
apartment homes and one parcel of land under letter of intent for an aggregate
sales price of $15 million. For financial reporting purposes, aggregate gains on
the sales of investments are not expected to be material. The transactions are
expected to close during the third and fourth quarter of 1999, however, there
can be no assurance that these transactions will be consummated as planned.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 1999
was $23.3 million compared to net cash provided by financing activities of $33.0
million last year. The financing activities of United Dominion are affected by
the capital markets environment and the level of its acquisition, development,
capital expenditures and sales programs.
Cash provided by (used in) financing activities
In January 1999, United Dominion established a program for the sale of up to
$200 million aggregate principal amount of medium-term notes (the "MTN
Program"). During the first six months of 1999, United Dominion sold an
aggregate of $190 million of senior unsecured notes under the MTN Program which
consisted of the following: (i) $70 million of 7.60% Notes due January 25, 2002,
(ii) $58 million of 7.67% Notes due January 26, 2004, (iii) $10 million of
variable-rate Notes due January 27, 2003 on which United Dominion subsequently
14
<PAGE>
executed a swap fixing the rate at 7.65%, (iv) $12 million of 7.22% notes due
February 19, 2003, (v) $25 million of 7.73% Notes due April 5, 2005 and (vi) $15
million of 7.53% Notes due April 27, 2029 (puttable to United Dominion beginning
2003). Net proceeds from the offerings were used to repay amortizing unsecured
debt, repay maturing mortgage debt, repay a $75 million senior unsecured note
that matured in April 1999 and repay revolving bank debt.
On March 18, 1999, United Dominion closed on the first part of a $200 million
revolving credit facility (the "Credit Facility") with the Federal National
Mortgage Association. The $102.3 million initially borrowed under the terms of
the Credit Facility has an initial interest rate of 5.70%, which is fixed
through December 1, 1999. In April 1999, United Dominion borrowed an additional
$16.6 million at an interest rate of 5.68% and $10.7 million at an interest rate
of 5.72%. Each of the financings are for an initial term of five years, bear
interest at a floating rate which can be fixed for periods of up to 270 days,
and can be extended for an additional five or ten years at United Dominion's
discretion. The proceeds from the Credit Facility were used to repay a $91
million secured credit facility assumed in connection with the American
Apartment Communities II transaction and the remaining proceeds were used to
repay revolving bank debt. In August, an additional $66.0 million was borrowed
under the Credit Facility which has an initial interest rate of 6.53%. Proceeds
from the borrowing were used to replace $58 million in maturing secured debt and
the remaining $8 million was used to repay revolving bank debt.
United Dominion issued 842,848 shares of its common stock and received $8.6
million under its Dividend Reinvestment and Stock Purchase Plan during the first
half of 1999 which included $0.7 million in optional cash investments and $7.9
million of reinvested dividends.
During the first six months of 1999, United Dominion paid distributions to its
common shareholders and unitholders in its operating partnerships aggregating
$56.4 million. The distribution to common shareholders and holders of operating
partnership units equates to an annualized dividend rate of $1.06 per share or
unit. In addition, $16.1 million of preferred dividends were paid to Series A, B
and D preferred shareholders.
Using proceeds from its disposition program, United Dominion repurchased $18.0
million of certain of its higher rate outstanding unsecured debt with a weighted
average yield of 8.25%.
In May 1999, the Board of Directors authorized the repurchase of up to 5.5
million common shares, or 5% of the total common shares outstanding, using
proceeds from the disposition program. Such purchases will be made from time to
time in the open market or in privately negotiated transactions; the timing,
volume and price of such purchases will be at the discretion of management and
the Board. During June 1999, United Dominion repurchased 232,100 common shares
at an average price of $11.14 per share. Subsequent to June 30, 1999, United
Dominion repurchased an additional 1,165,500 common shares at an average price
of $11.37 per share.
Other significant financing activities included: (i) scheduled repayments of
secured notes payable aggregating $9.7 million, (ii) payment of financing costs
related to the issuance of debt in the amount of $4.8 million, (iii) the
conversion of operating partnership units in exchange for cash aggregating $3.4
million.
Credit Facilities
United Dominion has a $200 million three year unsecured revolving credit
facility (the "Credit Facility"), a $50 million one year unsecured line of
credit (the "Line of Credit") and a $15 million uncommitted line of credit (the
"Uncommitted Line") with a major U.S. financial institution. At and for the six
months ended June 30, 1999, United Dominion had the following credit facilities
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 At June 30, 1999
--------------------------------- -----------------------------------
Weighted Average
Amount of Amount Weighted Average Amount Weighted Average
Credit Facility Facility Outstanding Interest Rate Outstanding Interest Rate
- ------------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Credit Facility $ 200,000 $192,298 5.5% $190,000 5.6%
Line of Credit 50,000 30,733 5.6% 20,000 5.5%
Uncommitted Line 15,000 3,629 5.5% 6,900 5.5%
--------- ----------------------------- -----------------------------
$ 265,000 $226,660 5.5% $216,900 5.6%
========== ============================= =============================
</TABLE>
15
<PAGE>
Derivative Instruments
United Dominion has, from time to time, used derivative instruments to
synthetically alter on-balance sheet liabilities to hedge anticipated
transactions. Derivative contracts did not have a material impact on the results
of operations during the six months ended June 30, 1999.
Market Risk Disclosures
United Dominion is exposed to market risk principally from interest rate risk
associated with variable-rate notes payable and maturing debt that has to be
refinanced. A large portion of United Dominion's market risk is exposure to
short-term interest rate fluctuations on variable-rate borrowings outstanding
under its various credit facilities, which was $216.9 million at June 30, 1999
and borrowings of $129.7 million outstanding under its revolving credit facility
with FNMA. The impact on United Dominion's financial statements of refinancing
fixed-rate debt that matured during the second quarter was not material.
United Dominion's market risk has not changed materially from the amounts
reported in United Dominion's Annual Report on Form 10-K for the year ended
December 31, 1998.
Funds from Operations
Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interests of unitholders in operating
partnerships and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation, less preferred
dividends and after adjustment for significant non-recurring items, if any.
United Dominion computes FFO in accordance with the recommendations set forth by
the National Association of Real Estate Investment Trusts ("NAREIT"). United
Dominion considers FFO in evaluating property acquisitions and its operating
performance, and believes that FFO should be considered along with, but not as
an alternative to, net income and cash flows as a measure of United Dominion's
operating performance and liquidity. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs.
For the six months ended June 30, 1999, FFO increased 30.2% to $88.0 million,
compared with $67.6 million for the same period last year. The increase in FFO
was principally due to the increased net rental income from United Dominion's
non-mature apartment homes acquired and developed subsequent to January 1, 1998
as well as increased property operating income from its same community
portfolio.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) (in thousands)
-------------------------------- ---------------------------------
1999 1998 % Change 1999 1998 % Change
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calculation of funds from operations:
Income before gains (losses) on sales of investments
and minority interests $ 11,389 $ 15,387 (26.0)% $ 32,330 $ 32,966 (2.0)%
Adjustments:
Real estate depreciation, net of outside partners'
interest 31,114 25,548 21.8% 60,251 46,476 29.6%
Minority interest of outside partnerships (214) -- -- (381) -- --
Distributions to preferred shareholders (9,440) (5,653) 67.0% (18,879) (11,303) 67.0%
Impairment loss on real estate owned 7,100 -- -- 7,100 -- --
Adjustment for internal acquisition costs -- -- -- -- (544) --
-------------------------------- ---------------------------------
Funds from operations-basic $ 39,949 $ 35,282 13.2% $ 80,421 $ 67,595 19.0%
================================ =================================
Adjustments:
Distributions to preferred shareholders-
Series D (Convertible) 3,787 -- -- 7,573 -- --
-------------------------------- ---------------------------------
Funds from operations-diluted $ 43,736 $ 35,282 24.0% $ 87,994 $ 67,595 30.2%
================================ =================================
</TABLE>
Results of Operations
United Dominion's net income is primarily generated from the operations of its
apartment communities. For purposes of evaluating its comparative operating
performance, United Dominion categorizes its communities into two categories,
same community and non-mature. For the 1999 versus 1998 comparison, these
communities are as follows: (i) same community--those communities acquired,
developed and stabilized prior to January 1, 1998 and held throughout the first
six months of 1999 and 1998 and (ii) non-mature--those communities acquired,
developed or sold subsequent to January 1, 1998.
16
<PAGE>
For the three and six months ended June 30, 1999, United Dominion reported
increases over the same period last year in rental income and rental expenses.
United Dominion's non-mature communities provided a substantial portion of the
aggregate reported increases. Net income available to common shareholders for
the three and six months ended June 30, 1999 includes aggregate gains on the
sale of investments of $32.2 million ($.31 per share) and $32.4 million ($.31
per share), respectively compared to $20.7 million ($.20 per share) and $20.5
million ($.21 per share) during the same periods last year. However, the
increases associated with the gains on sales of investments were moderated in
part due to the $7.1 million impairment loss recorded during the second quarter
of 1999. Net income per common share, both basic and diluted increased $.01 per
share for the three months ended June 30, 1999 and decreased $.02 per share for
the six months ended June 30, 1999.
Same Communities
The operating performance of the 196 same communities with 54,392 apartment
homes for the three and six months ended June 30, 1999 and 1998 is summarized
below (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1999 1998 % Change 1999 1998 % Change
-------------------------------- ---------------------------------
<S> <C>
Property rental income $ 95,432 $ 92,719 2.9 % $ 190,290 $ 184,215 3.3%
Property operating expenses (excluding
depreciation and amortization) (37,627) (37,824) (0.5)% (74,498) (73,563) 1.3%
-------------------------------- ---------------------------------
Property operating income $ 57,805 $ 54,895 5.3 % $ 115,792 $ 110,652 4.6%
================================ =================================
Physical occupancy 92.5% 92.8% (0.3)% 92.2% 92.7% (0.5%)
Average monthly rental rates $ 625 $ 603 3.6% $ 623 $ 601 3.6%
Operating margin 60.6% 59.2% 1.4% 60.9% 60.1% 0.8%
</TABLE>
United Dominion's primary earnings driver comes from increased property
operating income generated from its same communities. For the three and six
months ended June 30, 1999 same community property operating income was strong,
increasing 5.3% and 4.6%, respectively, over the same periods last year.
During the first six months of 1999, property rental income for the same
communities grew 3.3%, or $6.1 million over the same period last year. The
increase was attributable to an increase in average monthly rents of 3.7% which
was offset by a slight decrease of 0.5% in physical occupancy to 92.2%. A
portion of the rent growth reflected the impact of United Dominion's revenue
enhancing expenditure program that has been ongoing since the end of 1996. The
operating margin (property operating income divided by property rental income)
improved 1.3% to 60.9% as a result of increased property rental income during
this period. For the quarter, property rental income grew 2.9% or $2.7 million,
reflecting an increase in average monthly rents of 3.6% and fairly stable
physical occupancy. United Dominion expects to maintain annualized rent growth
in the 3% range.
For the six months ended June 30, 1999, property operating expenses at the same
communities increased 1.3%, or $935 thousand. The increase was primarily the
result of a $1 million increase in personnel costs as United Dominion
experienced pressure on wages due to low unemployment and tighter job markets,
in its service area, as well as increased real estate taxes which was offset by
a decrease in repair and maintenance and property management expenses. For the
quarter, rental expenses were relatively flat, decreasing $197 thousand. United
Dominion expects to maintain annualized expense growth in the 2% range during
1999.
17
<PAGE>
Non-Mature Communities
The operating performance for the three and six months ended June 30, 1999 for
the 128 non-mature communities with 31,010 homes is summarized in the chart
below (dollars in thousands):
<TABLE>
Three Months Ended June 30:
<CAPTION>
Disposition Development
1998 Acquisitions 1999 Acquisitions Communities Communities Total Non-Mature
------------------ ----------------- ----------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
------------------ ----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property rental income $ 51,926 $ 18,642 $ 478 $ -- $ 3,545 $ 6,033 $ 2,683 $ 682 $ 58,632 $ 25,357
Property operating
expenses (excluding
depreciation and
amortization) (21,045) (8,368) (246) -- (1,492) (2,854) (1,353) (318 ) (24,136) (11,540)
------------------ ----------------- ----------------- ----------------- -------------------
Property operating
income $ 30,881 $ 10,274 $ 232 $ -- $ 2,053 $ 3,179 $ 1,330 $ 364 $ 34,496 $ 13,817
================== ================= ================= ================= ===================
Six Months Ended June 30:
<CAPTION>
Disposition Development
1998 Acquisitions 1999 Acquisitions Communities Communities Total Non-Mature
------------------ ----------------- ----------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
------------------ ----------------- ----------------- ----------------- -------------------
Property rental income $103,648 $ 21,433 $ 882 $ -- $ 7,980 $15,132 $ 4,685 $1,189 $117,195 $ 37,754
Property operating
expenses (excluding
depreciation and
amortization) (41,691) (9,150) (430) -- (3,376) (6,955) (2,449) (609) (47,946) (16,714)
------------------ ----------------- ----------------- ----------------- -------------------
Property operating
income $ 61,957 12,283 $ 452 $ -- $ 4,604 $ 8,177 $ 2,236 $ 580 $ 69,249 $ 21,040
================== ================= ================= ================= ===================
</TABLE>
For the quarter ended June 30, 1999, the non-mature communities had physical
occupancy of 91.9% (excluding Development Properties undergoing lease-up) and an
operating margin of 58.8%. For the six months ended June 30, 1999, these
communities had physical occupancy of 91.8% and an operating margin of 59.1%.
1998 Acquisitions
Single Acquisitions and ASR Portfolio
- -------------------------------------
Included in this category are (i) 24 communities with 6,959 apartment homes
acquired in individual and portfolio transactions by United Dominion during 1998
and (ii) 39 communities with 7,550 apartment homes included in the ASR portfolio
acquired on March 27, 1998. The return on investment (property rental income
less property operating expenses divided by the average capital investment in
real estate) for these communities for the six months ended June 30, 1999, on an
average investment of $654 million was 8.3%. This return on investment is below
our projected expectations for 1999, however, these communities continue to be
upgraded, repositioned and selectively sold, which is expected to improve their
operating results over the long-term.
American Apartment Communities II, Inc. (AAC)
- ---------------------------------------------
The acquisition of 53 communities with 14,001 apartment homes on December 7,
1998 included in the statutory merger with AAC was approximately on target
with United Dominion's pro forma acquisition expectations during the first half
18
<PAGE>
of 1999, providing an annualized first year return on investment of 8.7% on an
average investment of $781 million. In addition, these communities achieved
physical occupancy of 93.3% during this same period which is higher than United
Dominion's average physical occupancy primarily due to the California markets
included in this portfolio.
1999 Acquisitions
Included in this category are two communities with 496 apartment homes acquired
by United Dominion during the first half of 1999 which are projected to have a
first year average return on investment in the 9% range. These communities did
not have a material impact on 1999 results of operation.
Disposition Communities
Included in this category are the 29 communities with 8,021 apartment homes sold
as part of United Dominion's strategic repositioning (see Disposition of
Investments under Liquidity and Capital Resources) since January 1, 1998. The
communities sold during 1998 and 1999 had an annualized return on investment in
excess of 10%.
Development Communities
This represents the 1,646 homes developed at various times since January 1,
1998, which included the completion of three new communities and three
additional phases to existing communities. These communities did not have a
material impact on the results of operations for the first half of 1999. Once
stabilized, development communities are projected to generate an average return
on investment of approximatey 10%, however, the full impact on property
operating income is not realized until after the communities are stabilized,
which is generally six months after construction is completed.
All Communities
The operating performance of the 324 communities with 85,402 apartment homes for
the three and six months ended June 30, 1999, and 264 communities with 71,164
apartment homes for the three and six months ended June 30, 1998, respectively,
is summarized in the chart below (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1999 1998 % Change 1999 1998 % Change
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property rental income $ 154,064 $ 118,076 30.5% $ 307,485 $ 221,969 38.5%
Property operating expenses (excluding
depreciation and amortization) (61,763) (49,364) 25.1% (122,444) (90,277) 35.6%
-------------------------------- ---------------------------------
Property operating income $ 92,301 $ 68,712 34.4% $ 185,041 $ 131,692 40.5%
================================ =================================
Weighted average number of apartment homes 86,979 70,726 23.0% 87,208 63,341 37.7%
Physical occupancy 92.3% 91.3% 1.0% 92.1% 91.3% 0.8%
</TABLE>
Due to the acquisition and development of 30,652 apartment homes since January
1, 1998, the increase in the weighted average number of apartment homes for the
three and six months ended June 30, 1999 resulted in significant increases in
property rental income and property operating expenses for both the three and
six months ended June 30, 1999.
Real Estate Depreciation
Real estate depreciation increased $5.9 million or 23.2% and $14.4 million or
30.9% for the three and six months ended June 30, 1999, respectively over the
same period last year. This increase is directly attributable to the addition of
depreciable real estate assets as a result of United Dominion's acquisition,
development and capital expenditure programs during 1998 and 1999.
Interest Expense
Interest expense increased $13.2 million and $28.4 million for the three and six
months ended June 30, 1999, respectively, over the same period last year as the
weighted average amount of debt employed during 1999 was higher than it was for
the same periods last year primarily due to debt assumed and issued during 1998
to fund United Dominion's investment activities. For the six month period, the
weighted average debt outstanding was $2.1 billion in 1999 versus $1.4 billion
in 1998 and for the three month period it was $2.1 billion in 1999 versus $1.5
billion in 1998. For both the three and six months ended June 30, 1999, the
weighted average interest rate on this debt was 7.4%, reflecting no change from
the same period last year. For the three and six months ended June 30, 1999,
total interest capitalized was $1.5 million and $3.2 million, respectively.
General and Administrative
During the three and six months ended June 30, 1999, general and administrative
expenses increased $210 thousand and $1.8 million, respectively over the same
period last year primarily due to (i) the added infrastructure costs incurred
due to the increased size of United Dominion, (ii) the change in accounting for
internal acquisition costs subsequent to March 19, 1998, and (iii) severance
compensation fully expensed during the first quarter of 1999.
Distributions to Preferred Shareholders
Distributions to preferred shareholders increased $3.8 million and $7.6 million
for the three and six months ended June 30, 1999, respectively over the same
periods last year. The increase is the result of the issuance of 8 million
shares of 7.5% Series D Cumulative Convertible Redeemable Preferred Stock on
December 7, 1998 in connection with the acquisition of AAC.
Inflation
United Dominion believes that the direct effects of inflation on United
Dominion's operations have been inconsequential.
Information Technology
In 1998, United Dominion Realty Trust joined with another public multifamily
real estate company (which was in the process of developing new on-site property
management and leasing automation systems) to capture, review and analyze data,
on-line in a centralized data base. We believe these new systems will enable us
to become a more efficient provider of a high quality living environment for our
current residents, and provide the scalability necessary to support future
growth. We intend to formalize this "joint venture" and to continue development
of these systems through the joint venture entity. Employees of the joint
venture partners who have significant related project management experience are
currently managing the software development process. The actual programming and
documentation of the software is being conducted by employees of the joint
venture and third party consultants under the supervision of these experienced
project leaders.
Current projections indicate that total development costs over a three-year
period will be approximately $7.5 million (including hardware costs and
expenses, the costs of employees and related overhead, and the costs of engaging
third party consultants) and that such development costs will be shared on an
equal basis by us and our joint venture partner. Once developed, we intend to
use the property management system in place of current property management
information systems for which we pay a license fee to third parties and we
intend to use the leasing automation system to make the lease application
process easier for residents and more efficient for the Company.
The property management system is expected to undergo an on-site test (i.e., a
"beta test") during the second quarter of 2000 and the system should be
functional by the fourth quarter of 2000. The leasing automation system is
currently in beta testing at two communities and we intend, if such testing is
successful, to implement the system during the first quarter of 2000.
19
<PAGE>
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of United Dominion's
computer programs or hardware that have date sensitive software or embedded
chips may recognize a date using "00"" as the year 1900 rather than the year
2000. This could result in system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
United Dominion continues to identify and address issues regarding the
transition to Year 2000, as it is dependent on computer systems and applications
to conduct its business. United Dominion has performed a thorough assessment of
its personal computers, desktop software and major applications and is in the
process of completing its server environment assessment. To ensure that United
Dominion completed a formalized and thorough assessment of its Year 2000 issues,
United Dominion engaged an outside consulting firm to conduct a Year 2000
assessment and develop a remediation plan. The plans covers four stages: (i)
inventory, (ii) assessment, (iii) remediation and (iv) testing and
certification. Because United Dominion operates in a structured, standardized
environment, the assessment indicated a high degree of Year 2000 compliance with
few items for remediation. All mission-critical applications have been
determined to be Year 2000 compliant. Desktop hardware and software are 100%
compliant as remediation of the non-compliant 10% was completed in July 1999.
None of the non-compliant issues identified were mission-critical.
United Dominion is commencing the assessment phase for non-IT operating
equipment at its communities (gates, security, telephone, elevator, HVAC systems
and other such systems). This assessment will be completed in August, 1999, with
any remediation to be completed by November 1, 1999.
United Dominion is also assessing the Year 2000 compliance of vendors and other
external relationships to determine the extent to which United Dominion may be
vulnerable to such parties' failure to resolve their own Year 2000 issues.
United Dominion has initiated formal communication with these parties. United
Dominion cannot ensure timely compliance of third parties and; therefore, could
be adversely affected by failure of a significant third party to become Year
2000 compliant. The effect, if any, on United Dominion's results of operations
from the failure of such third parties to be Year 2000 compliant is not
reasonably estimable.
United Dominion estimates that the total Year 2000 project cost will be
approximately $100,000, of which approximately 75% has been incurred as of June
30, 1999. Amounts expended to ensure Year 2000 compliance have been funded by
cash flows from operations and are not expected to have a material impact on
United Dominion's financial position, results of operations, or cash flows.
United Dominion believes that its Year 2000 initiatives are adequate to address
reasonably likely Year 2000 issues.
<TABLE>
<CAPTION>
Assessment Remediation / Testing
% Complete Compliance Completion
- ---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
IT - Mission-Critical
Applications 100% 100% July 1999
- ---------------------------- -------------------------- -------------------------- --------------------------
IT - Desktop
Hardware / Software 100% 100% July 1999
- ---------------------------- -------------------------- -------------------------- --------------------------
IT - Network
Hardware / Software 100% 100% July 1999
- ---------------------------- -------------------------- -------------------------- --------------------------
Operating Equipment Expected Expected
at Communities 100% Completion, Completion,
August 1999 November 1999
- ---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
Failure to correct a material Year 2000 problem could result in the failure of
certain normal business activities or operations. Management believes that, with
the implementation of new or upgraded business systems, as needed, and the
completion of the Year 2000 project as scheduled, the possibility of significant
interruptions of normal operations due to the failure of those systems will be
reduced. However, United Dominion is dependent on the power and
telecommunications infrastructure within the United States. The most reasonably
20
<PAGE>
likely worst case scenario would be that United Dominion may experience
disruption in its operations if any of the third-party suppliers reported a
system failure. Although United Dominion's Year 2000 project will reduce the
level of uncertainty about the compliance and readiness of its material
third-party providers, due to the general uncertainty over Year 2000 readiness
of these third-party suppliers, United Dominion is unable to determine at this
time whether the consequences of Year 2000 failures will have a material impact.
The final phase of United Dominion's Year 2000 project relates to a contingency
plan. United Dominion maintains contingency plans in the normal course of
business designed to be deployed in the event of various potential business
interruptions.
21
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Information required by Item 3 regarding Quantitative and Qualitative Disclosure
of Market Risk is included in Part I, Item 2 of this Form 10-Q included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
22
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
- -------------------------
Neither the Company nor any of its apartment communities is presently
subject to any material litigation nor, to the Company's knowledge, is any
litigation threatened against the Company or any of the communities, other than
routine actions arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the business or financial
condition or results of operations of the Company.
Item 2. CHANGES IN SECURITIES
- -----------------------------
None
Item 3. DEFAULT UPON SENIOR SECURITIES
- --------------------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None
Item 5. OTHER INFORMATION
- -------------------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) The exhibits listed on the accompanying index to exhibits are filed as part
of this quarterly report.
23
<PAGE>
EXHIBIT INDEX
Item 6 (a)
The exhibits listed below are filed as part of this Quarterly Report.
References under the caption Location to exhibits, forms, or other filings
indicate that the form or other filing has been filed, that the indexed exhibit
and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit Description Location
- ------- ----------- --------
<S> <C>
2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration
as of December 19, 1997, between Statement (Registration No. 333-45305) filed with
the Company, ASR Investment the Commission on January 30, 1998.
Corporation and ASR Acquisition Sub,
Inc.
2(b) Agreement of Plan of Merger dated as Exhibit 2(c) to the Company's Form S-3 Registration
of September 10, 1998, between the Statement (Registration No. 333-64281) filed with
Company and American Apartment the Commission on September 25, 1998.
Communities II, Inc. including as
exhibits thereto the proposed terms
of the Series D Preferred Stock and the
proposed form of Investment Agreement
between the Company, United Dominion
Realty, L.P., American Apartment
Communities II, Inc., American
Apartment Communities Operating
Partnership, L.P., Schnitzer Investment
Corp., AAC Management LLC and LF
Strategic Realty Investors, L.P.
2(c) Partnership Interest Purchase and Exchange Exhibit 2(d) to the Company's Form S-3 Registration
Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with
between the Company, United Dominion the Commission on September 25, 1998.
Realty, L.P., American Apartment
Communities Operating Partnership, L.P.,
AAC Management LLC, Schnitzer
Investment Corp., Fox Point Ltd. and
James D. Klingbeil including as an exhibit
thereto the proposed form of the Third
Amended and Restated Limited Partnership
Agreement of United Dominion Realty, L.P.
3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3
Registration Statement (Registration No. 333-72885)
with the Commission on February 24, 1999.
3(b) Restated By-Laws Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
24
<PAGE>
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report
Certificate on Form 10-K for the year ended December
31, 1993.
4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995.
Redeemable Preferred Stock
4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 8.60% Series B Cumulative Registration Statement dated June 11, 1997.
Redeemable Preferred Stock
4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A
January 27, 1998, between the Company Registration Statement dated February 4, 1998.
and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A
Registration Statement dated February 4, 1998.
4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A
as of February 15, 1993, between Registration Statement dated April 19, 1990.
the Company and CIGNA Property
and Casualty Insurance Company,
Connecticut General Life Insurance
Company, Connecticut General Life
Insurance Company, on behalf of
one or more separate accounts,
Insurance Company of North
America, Principal Mutual Life
Insurance Company and Aid
Association for Lutherans
10(i) Employment Agreement between Exhibit 10(i) to the Company's Annual Report
the Company and John P. McCann on Form 10-K for the year ended December 31,
dated December 8, 1998. 1998.
10(ii) Employment Agreement between Exhibit 10(ii) to the Company's Annual Report
the Company and John S. Schneider on Form 10-K for the year ended December 31,
dated December 8, 1998. 1998.
10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual Report
the Company and Richard Giannotti on Form 10-K for the year ended December 31,
dated December 8, 1998. 1998.
10(iv) 1985 Stock Option Plan, Exhibit 10(iv) to the Company's Quarterly
as amended. Report on Form 10-Q for the quarter ended
June 30, 1998.
10(v) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report
Plan. on Form 10-Q for the quarter ended March 31, 1997.
25
<PAGE>
10(vi) Third Amended and Restated Exhibit 10(vi) to the Company's Annual Report
Agreement of Limited Partnership of on Form 10-K for the year ended December 31,
United Dominion Realty, L.P. 1998.
dated as of December 7, 1998.
10(vi)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Form 10-Q for
April 16, 1998, between the the quarter ended March 31, 1998.
Company and United Dominion
Realty, L.P.
10(vii) Servicing and Purchase Filed herewith.
Agreement dated as of June 24,
1999, including as an exhibit
thereto the Note and Participation
Agreement forms.
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges.
27 Financial Data Schedule. Filed herewith.
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Quarterly Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Trust, Inc.
(registrant)
Date: August 13, 1999 /s/ John P. McCann
- ------------------------------- ------------------
John P. McCann
Chairman of the Board and
Chief Executive Officer
Date: August 13, 1999 /s/ Robin R. Flanagan
- ------------------------------- ---------------------------------
Robin R. Flanagan
Assistant Vice President and
Chief Accounting Officer
27
EXHIBIT 10(vii)
SERVICING AND PURCHASE AGREEMENT
THIS SERVICING AND PURCHASE AGREEMENT (as amended, modified or
supplemented from time to time, the "Agreement"), is made the _____ day of June,
1999, by and between United Dominion Realty Trust, Inc., a Virginia corporation
("UDR"), and Crestar Bank, a Virginia banking corporation (the "Bank").
RECITALS:
UDR has requested that the Bank make loans (collectively, the "Loans"
and each, a "Loan") to the directors and officers of UDR listed on Exhibit A
attached hereto (collectively, the "Eligible Individuals," and each, an
"Eligible Individual"). In order to induce the Bank to make the Loans, UDR has
agreed to act for the benefit of the Bank as the servicing agent with respect to
the Loans, to purchase the Loans from the Bank in accordance with the terms of,
and under the circumstances described in, this Agreement, and otherwise to
comply with the representations, warranties and agreements contained herein.
Accordingly, in consideration of the foregoing and of the mutual promises herein
contained, the parties agree hereto as follows:
1. (a) Subject to the terms and conditions of this Agreement, the Bank
will make Loans from time to time from the date of this Agreement until December
1, 1999. The amount of each Loan shall not exceed the respective "Maximum Loan
Amount" listed on Exhibit A for each Eligible Individual. The maximum amount of
Loans shall not exceed $12,000,000 in aggregate principal amount.
(b) The Loans shall be evidenced by promissory notes (collectively,
the "Notes," and each, a "Note") in the forms of Exhibit B-1 or Exhibit B-2
attached hereto, to be made by the respective Eligible Individuals. Each Loan
<PAGE>
must be in a principal amount not less than $25,100. Each request for a Loan
shall be made by delivery of a written request from UDR, in substantially the
form of Exhibit C attached hereto, to the Bank at least three business days
prior to the date on which the Loan is to be disbursed. The original Note shall
be delivered to the Bank upon the disbursement of the Loan evidenced thereby.
(c) The proceeds of the Loans shall be used by the respective
Eligible Individuals to finance the purchase of shares of common stock of UDR
("Stock"), and for no other purpose.
(d) UDR represents and warrants to the Bank that each Note will be a
legal, valid and binding obligation of the Eligible Individual named as maker
thereof, enforceable in accordance with its terms, and evidencing a bona fide
transaction which has arisen out of a loan made by the Bank to such Eligible
Individual in full compliance with Regulations G and U of the Board of Governors
of the Federal Reserve System, the Equal Credit Opportunity Act, and any usury
laws of states other than Virginia that might be applicable to the Loans ("Legal
Requirements"). UDR further represents and warrants to the Bank that none of the
Notes shall be secured, directly or indirectly, with any "Margin Security" as
defined by Regulation G or Regulation U of the Board of Governors of the Federal
Reserve System.
2. UDR agrees to give the Bank prompt written notice of (a) any
Eligible Individual that has failed to make payment on any Note within three (3)
months after its due date and (b) any breach of the representation and warranty
as to compliance with Legal Requirements provided in Section 1 hereof.
3. (a) When UDR, in performance of its duties as agent for the Bank,
has not received payment with respect to any Note within three (3) months after
its due date, for any reason, or if there has been a breach of any
representation or warranty made by UDR with respect to any such Note, the Bank,
at its option, may request UDR, upon each Quarterly Payment Date (as defined
below), to purchase such Note from the Bank at a price equal to the then unpaid
principal balance of such Note reflected on the Bank's records, plus any
2
<PAGE>
interest, finance, penalty or other charges collected under such Note and not
previously remitted to the Bank under Section 6 hereof, and plus, if applicable,
interest charges with respect to such Note calculated in accordance with Section
9 hereof (the "Purchase Price"), and UDR shall purchase such Note at the
Purchase Price immediately upon such Quarterly Payment Date. Any such request
from the Bank shall be given in writing to UDR not less than 90 days prior to
the applicable Quarterly Payment Date. UDR may, at its option, purchase any Note
which is in default at any time or from time to time at the Purchase Price.
Purchases pursuant to this Section 3(a) will not be subject to the Penalty, as
defined in Section 11 hereof.
(b) In addition to, and without limiting the Bank's rights pursuant
to Section 3(a) above, on __________ and ___________ of each year, beginning on
___________, 1999 (each, a "Semiannual Purchase Date"), the Bank may require UDR
to purchase at the Purchase Price all of the then outstanding Notes, and UDR
will purchase the Notes on such Semiannual Purchase Date. If the Bank wishes to
exercise this option, it shall provide written notice to that effect to UDR no
later than 90 days prior to the relevant Semiannual Purchase Date. Purchases
pursuant to this Section 3(b) will not be subject to the Penalty;
(c) In addition to, and without limiting the Bank's rights under
Sections 3(a) and 3(b) above, the Bank also may require UDR immediately to
purchase, at the Purchase Price, all then outstanding Notes upon the occurrence
3
<PAGE>
of an Event of Default (as defined below), and UDR will purchase the Notes
within ten business days after it receives the Bank's written demand therefor.
Purchases pursuant to this Section 3(c) will be subject to the Penalty.
(d) On __________, 2001 (the "Maturity Date"), UDR shall purchase
all then outstanding Notes from the Bank at the Purchase Price. The Bank will
review this credit facility on an annual basis, beginning in April 2000, to
determine whether it is willing to extend the Maturity Date for an additional
year. UDR acknowledges and agrees that the Bank is under no obligation to extend
the Maturity Date.
(e) Upon receipt of the Purchase Price, the Bank shall endorse and
deliver each purchased Note to the order of UDR, without recourse and without
representation or warranty, except warranty of title (that the Bank is the sole
legal holder of the Note) and any endorsements necessary for the Bank to
transfer its interest in such Note to UDR.
4. UDR shall pay its and the Bank's costs and expenses incurred in
entering into this Agreement (provided that the obligation to pay the Bank's
costs and expenses incurred in entering into this Agreement will not exceed
$10,000), and shall pay all of the Bank's costs and expenses incurred in
connection with the enforcement of this Agreement.
5. The Bank hereby appoints UDR as agent for the Bank to perform such
duties as are expressly set forth in this Agreement for the purpose of carrying
out the intent hereof, and UDR hereby accepts such appointment.
6. As agent for the Bank, UDR shall, with respect to the Notes that
have not been purchased by UDR, and at the sole cost and expense of UDR:
(a) Cause each Note to be completed, executed and delivered by each
Eligible Individual to whom a Loan is made;
(b) Receive, at its offices and at its duly authorized collection
agencies, payments made by Eligible Individuals on account of the Notes;
4
<PAGE>
(c) Furnish, prepare and mail "past-due notices" to Eligible
Individuals, on forms provided by the Bank and satisfactory to UDR, with respect
to such installments as are not paid by Eligible Individuals within thirty (30)
days after their respective due dates, or as otherwise agreed upon by UDR and
the Bank;
(d) Take diligent steps to effect collection of past-due
installments;
(e) Remit to the Bank quarterly, on February 1, May 1, August 1 and
October 1 of each year (or as of the next business day following such date if
such date is not a business day), beginning on August 1, 1999 (each, a
"Quarterly Payment Date"), all payments of principal (if any), including
prepayments, received by UDR as agent for the Bank in respect of the Notes
during such calendar quarter then ending; and remit to the Bank quarterly, on
each Quarterly Payment Date, all interest, finance, penalty and other charges
collected by UDR as agent for the Bank in respect of the Notes during such
calendar quarter then ending; and
(f) Transmit to the Bank quarterly as of each Quarterly Payment
Date, such information concerning the Notes as is reasonably necessary to enable
the Bank to maintain accurate books and records with respect to the transactions
under this Agreement. Such information shall include, as of the time of
transmission and without limitation, a statement of all then outstanding Notes,
together with a statement of the maker or makers of each Note, the original
principal balance thereof, the current principal balance thereof, the original
date thereof, the maturity date thereof, and interest and principal paid during
the quarterly period subject thereto.
7. In determining the amount of finance charges collected under the
Notes, each installment payment by an Eligible Individual shall include
5
<PAGE>
principal (upon maturity or if a curtailment is being made by such Eligible
Individual) and interest as reflected in the records maintained by UDR as agent
with respect to each Note.
8. UDR shall indemnify the Bank against any and all liability, claims,
expenses, and damage (including reasonable attorneys' fees) resulting from UDR's
performance or nonperformance of its duties as agent or from any violation or
alleged violation of any applicable Legal Requirements with respect to the
Notes. If any such action is brought against the Bank, UDR shall be entitled to
assume the defense thereof with counsel reasonably satisfactory to the Bank;
provided, however, that the Bank may at its own expense continue to participate
in the defense of such action if the Bank so chooses.
9. (a) UDR agrees to pay to the Bank, on each Quarterly Payment Date,
commencing on August 1, 1999, on the Maturity Date, and on demand, after the
Maturity Date or upon the occurrence of an Event of Default, an interest charge
in an amount computed by multiplying (a) the daily unpaid principal balances of
the Notes, as shown by the Bank's books, for the number of days elapsed from the
last payment of interest (or from the date of the first Loan in case of the
first payment), by (b) a daily percentage rate equal to the then Applicable Bank
Rate (as defined below), divided by 360, and carried to five decimal places.
(b) Prior to the occurrence of an Event of Default, the "Applicable
Bank Rate" shall mean LIBOR (as defined below) for a six-month term (the
"Six-Month LIBOR") plus 1.65%, based initially on the Six-Month LIBOR in effect
on the date hereof, and adjusted on each Semiannual Purchase Date and on the
Maturity Date to reflect Six-Month LIBOR then in effect. From and after the
occurrence of an Event of Default, the Applicable Bank Rate shall mean the
Applicable Bank Rate then in effect plus 2%. "LIBOR" shall mean, for any term,
the rate per annum at which dollar deposits with a maturity equal to such term
are offered to leading banks in the London interbank market at 11:00 a.m.
(London time) two business days prior to the effective date on which LIBOR is to
be determined hereunder, based on the British Bankers Association quotations
6
<PAGE>
published by the Dow Jones Telerate Service, the Reuters Monitor Money Rates
Service or any other reliable interest rate reporting service customarily used
by financial institutions, as adjusted from time to time in the Bank's sole
discretion, for then-applicable reserve requirements, deposit insurance
assessment rates, broker's commissions and other regulatory costs.
(c) If the interest charge exceeds the aggregate amount of finance
charges payable to the Bank under the Notes, UDR shall pay such excess to the
Bank. If the aggregate amount of financing charges payable to the Bank under the
Notes exceeds the interest charge, UDR shall retain the excess.
10. UDR agrees to pay to the Bank (a) on December 1, 1999, a
nonrefundable fee in an amount equal to .10% of the aggregate principal amount
of Loans made by the Bank, and (b) on the first to occur of ____________, 2000,
or the date on which UDR is required to purchase all of the Notes in accordance
with the terms of this Agreement, a nonrefundable fee equal to .10% of the
aggregate principal amount of the Loans then outstanding and held by the Bank.
11. If UDR purchases Notes pursuant to Section 3(c) hereof, UDR shall
at the time of such purchase pay to the Bank a purchase penalty calculated in
accordance with this Section 11 (the "Penalty"). The Penalty shall be calculated
by multiplying the principal balance of the Notes being purchased by the Rate
Differential and by the remaining term to the next succeeding Semiannual
Purchase Date, the Maturity Date, or, if the purchase is made after the Maturity
Date, six months after the Maturity Date, as applicable (the "Assumed Maturity
Date"). The "Rate Differential" shall mean the difference between the Original
Base Rate and the Current Base Rate discounted at the Current Base Rate from the
7
<PAGE>
Assumed Maturity Date to the date of purchase. The "Original Base Rate" shall
mean the Six-Month LIBOR used by the Bank in establishing the then Applicable
Bank Rate and the "Current Base Rate" shall mean LIBOR as of the date of the
purchase for a term equal to the term beginning on the date of the purchase and
ending on the Assumed Maturity Date.
12. Provided that Eligible Individual confidentiality and privacy are
maintained, UDR's books, accounts, correspondence and other records pertaining
to Notes serviced for the Bank shall at all reasonable times be open for
inspection and audit by the Bank or any governmental agency having jurisdiction
over the Bank's activities. UDR, as agent, shall furnish to the Bank any
information reasonably requested by the Bank in respect of the Notes.
13. (a) The following conditions must be satisfied prior to the Bank
making the first Loan:
(1) Receipt by the Bank of this Agreement duly
executed by UDR;
(2) Receipt by the Bank of certified copies of
appropriate resolutions of the board of directors of UDR authorizing the
execution and deliver of the documents described in this Agreement and the
performance of its obligations under such documents, together with a certificate
as to the incumbency and signature of each officer authorized to sign such
documents;
(3) No event shall have occurred and be continuing
which constitutes an Event of Default (as defined below) under this Agreement,
8
<PAGE>
or which would constitute an Event of Default but for the requirement that
notice be given or that a period of time elapse, or both;
(4) All representations and warranties contained in
this Agreement shall be true and correct;
(5) Receipt by the Bank of an opinion of counsel to
UDR, in a form reasonably acceptable to the Bank, and
(6) All legal matters incident to this Agreement will
be satisfactory to the Bank's counsel.
(b) The following conditions must be satisfied prior to the making
of any subsequent Loan:
(1) No event shall have occurred and be continuing
which constitutes an Event of Default under this Agreement, or which would
constitute an Event of Default but for the requirement that notice be given or
that a period of time elapse, or both;
(2) All representations and warranties contained in
this Agreement (including those representations and warranties incorporated by
reference herein) shall be true and correct as of the date of each subsequent
Loan; and
(3) All legal matters incident to each subsequent
Loan shall be satisfactory to the Bank and its counsel.
14. The Borrower hereby repeats, as of the date of this Agreement, all
of the representations and warranties set forth in Sections 6.3, 6.7, 6.8, 6.9,
6.10, and 6.11 of the Three-Year Credit Agreement, dated as of August 4, 1997,
by and among the Borrower, NationsBank, N.A., as agent, and the lenders and
9
<PAGE>
guarantors party thereto (the "Senior Unsecured Credit Facility Agreement"), and
such representations and warranties are incorporated by reference with the same
force and effect as if set forth herein. In addition, UDR represents and
warrants as follows:
(a) UDR has the power and has taken all the necessary corporate
actions to execute, deliver and perform the terms of this Agreement and all of
the documents required by this Agreement to be executed and delivered by it
(collectively, the "Documents"), and the Documents, when executed and delivered,
will be binding obligations of UDR, enforceable in accordance with their terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency and other laws affecting creditors' rights generally and general
equitable principles), and will not violate any provisions of law or conflict
with, result in a breach of, or constitute a default under the articles of
incorporation or by-laws of UDR, or any other note, indenture, mortgage, lease,
contract or other agreement to which UDR is a party;
(b) All financial statements and information delivered to the Bank
by UDR in connection with this Agreement were prepared in accordance with
generally accepted accounting principles, are correct and complete and present
fairly the financial condition, and reflect all known liabilities, contingent or
otherwise, of UDR as of the dates of such statements and information, and since
such dates no material adverse change in the assets, liabilities, financial
condition, business or operations of UDR has occurred; and
(c) There is no action, suit or proceeding pending or, to the
knowledge of UDR, threatened against or affecting UDR which may, either in any
case or in the aggregate, result in any material adverse change in the business,
properties or assets or in the condition, financial or otherwise, of UDR, or
which may result in any material liability on the part of UDR, or which
questions the validity of any of the Documents or any action taken or to be
taken in connection with the Documents.
10
<PAGE>
15. During the term of this Agreement, UDR agrees to perform, observe
and comply with the covenants and agreements set forth in Sections 7, 8 and 9 of
the Senior Unsecured Credit Facility Agreement, and such covenants and
agreements are incorporated by reference with the same force and effect as if
set forth herein.
16. Each of the following shall constitute an "Event of Default"
under this Agreement:
(a) If UDR fails to make when due any Purchase Price, installment or
other payment owing to the Bank under the terms of this Agreement within ten
days after the date due;
(b) If UDR fails to perform or observe any term, covenant, warranty
or agreement contained in this Agreement (including any term, covenant, warranty
or agreement incorporated by reference herein) and such failure shall continue
for a period of 30 days after written notice of such failure has been given to
UDR by the Bank, provided that if such failure is not capable of being cured
within such 30-day period, it shall not be an Event of Default if UDR commences
the curing of such failure, continues to prosecute such cure diligently and
completes the curing of such failure within 60 days after the end of such 30-day
period;
(c) Discovery that any representation or warranty made by the
Company in this Agreement (including any representation or warranty incorporated
by reference herein), or any statement or representation made in any
certificate, report or opinion delivered pursuant to this Agreement or in
connection with any borrowing under this Agreement (including any statement or
representation incorporated by reference herein) was materially untrue or is
breached in any material respect;
11
<PAGE>
(d) If any event of default, or an event which with the giving of
notice or lapse of time, or both, would constitute an event of default, shall
occur with respect to any present or future indebtedness of UDR for borrowed
money in excess of $10,000,000;
(e) A material adverse change occurs in the financial or business
condition of UDR; or
(f) The occurrence of an Event of Default under the Senior Unsecured
Credit Facility Agreement.
17. All rights hereunder shall remain in effect until all of the Notes
have been fully paid and remitted to the Bank or until all of the Notes have
been purchased by UDR. Failure by the Bank or UDR to exercise any right
hereunder shall not operate as a waiver of such right or any other default. All
rights and remedies hereunder are cumulative, and not alternative.
18. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the parties hereto, and shall not be changed
except in writing by duly authorized officers of the parties thereto at the time
of such change.
19. This Agreement shall be construed in accordance with, and governed
by, the laws of the Commonwealth of Virginia, without reference to conflict of
laws principles.
20. All notices and other communications provided for hereunder shall
be in writing (including telecopier, telegraphic, telex or cable communication)
and mailed, telecopied, telegraphed, telexed, cabled or delivered by hand or
sent, prepaid, by Federal Express (or a comparable overnight delivery service),
if to the UDR, at its address at 10 South 6th Street, Richmond, Virginia 23219,
Attention: Vice President of Finance, with a copy to the attention of the
General Counsel at the same address, if to the Bank at 8245 Boone Boulevard,
Vienna, Virginia, Attention: Nancy B. Richards; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
12
<PAGE>
other parties. Any such notice or other communication, when mailed, telecopied,
telegraphed, telexed, cabled, delivered by hand or sent overnight, shall be
effective on the earliest of (a) the date it is actually received or telecopied,
telexed (confirmed by telex answerback), or delivered by hand, (b) the Business
Day after the day on which it is properly delivered to a telegraph or cable
company or to Federal Express (or a comparable overnight delivery service), as
applicable, or (c) the third Business Day after the day on which it is deposited
in the United States mail.
21. This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof.
UNITED DOMINION REALTY TRUST, INC. CRESTAR BANK
By:_______________________________ By:______________________________
Name:_____________________________ Name:____________________________
Title:____________________________ Title:___________________________
13
<PAGE>
EXHIBIT A
UNITED DOMINION REALTY TRUST, INC.
Participation Agreement
(Director)
THIS AGREEMENT dated as of the 12th day of July, 1999, by and between
UNITED DOMINION REALTY TRUST, INC. (the "Company") and {{Participant}}
("Participant") recites and provides as follows:
RECITALS:
In order to facilitate investment by its officers and directors in its Common
Stock and to promote identification of their personal interests with its
corporate interests, the Company has entered into a Servicing and Purchase
Agreement dated as of June 9, 1999 (the "Servicing and Purchase Agreement") with
Crestar Bank, a Virginia banking corporation ("Crestar"), pursuant to which
Crestar has agreed to make loans to officers and directors for the purpose of
financing the purchase of Common Stock, and, in order that the participating
officers and directors may benefit from the more favorable lending terms
available to the Company and not to such participants on an individual basis,
the Company has agreed, among other things, that Crestar may require the Company
to purchase notes of such participants at regular intervals.
The Participant has obtained a loan from Crestar in the principal amount of
{{Amount}} Dollars (the "Loan"), evidenced by a note dated as of July 12, 1999,
in the principal amount of the Loan (the "Note"), made by the Participant for
the benefit of Crestar, and has used the proceeds of the Loan to purchase
{{Shares}} shares (the "Shares") of Common Stock.
In order to assure that its objectives in entering into the Servicing and
Purchase Agreement are realized, the Company has requested, and the Participant
has agreed, that certain acts by the Participant that are inconsistent with
these objectives shall have the consequences herein specified.
AGREEMENT:
IN CONSIDERATION of the covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Participant agree as follows:
1. Transfer of Shares. In the event that Participant shall transfer any
of the Shares, the rate of interest borne by the Note shall, at the option of
the Company, increase effective as of the effective date of such transfer to
five percent (5%) over the then applicable interest rate under the Note.
2. Dividends. All cash dividends the Participant receives on the Shares
shall be applied toward the payment of the Note.
3. Late Fees. Participant shall pay the Company a late fee of two
percent (2%) in excess of the then applicable interest rate under the Note on
any payments that are not paid in a timely fashion.
4. Termination of Service. If the Participant's service with the Board
of Directors terminates, the Participant shall pay the Note in full within 90
days after the effective date of the termination of service except in the
following circumstances:
(i) if the termination is as a result of a "Change of Control," as
hereinafter defined, the Participant shall pay the Note in full on the maturity
of the Note.
(ii) if the Participant retires after at least ten (10) years of
service with the Company (including service with a predecessor of the Company),
the Note shall be paid in full on the maturity of the Note.
5. Change of Control. For purposes of this Agreement, "Change of
Control" shall mean (i) the merger or consolidation of the Company with any
other real estate investment trust, corporation or other business entity, in
which the Company is not the survivor (without respect to the legal structure of
the transaction), (ii) the transfer or sale of all or substantially all of the
assets of the Company other than to an affiliate or subsidiary of the Company,
(iii) the liquidation of the Company, or (iv) the acquisition by any person or
by a group of persons acting in concert, of more than 50% of the outstanding
voting securities of the Company, which results in the resignation or addition
of fifty percent (50%) or more members of the Board of Directors of the Company
(the "Board") or the resignation or addition of fifty percent (50%) or more
independent members of the Board.
6. No Right to Continued Service. This Agreement does not confer upon
the Participant any right to continuance of nomination for service on the Board.
7. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the legatees, distributees, and personal representatives of the
Participant and the successors and assigns of the Company.
8. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
9. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original document, but all
of which counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by a duly authorized officer and the Participant has affixed his
signature hereto.
UNITED DOMINION REALTY TRUST, INC.
By:_______________________________________
Title:____________________________________
__________________________________________
{{Participant}}
<PAGE>
EXHIBIT A
UNITED DOMINION REALTY TRUST, INC.
Participation Agreement
(Officer)
THIS AGREEMENT dated as of the 12th day of July, 1999, by and between
UNITED DOMINION REALTY TRUST, INC. (the "Company") and {{Participant}}
("Participant") recites and provides as follows:
RECITALS:
In order to facilitate investment by its officers and directors in its Common
Stock and to promote identification of their personal interests with its
corporate interests, the Company has entered into a Servicing and Purchase
Agreement dated as of June 9, 1999 (the "Servicing and Purchase Agreement") with
Crestar Bank, a Virginia banking corporation ("Crestar"), pursuant to which
Crestar has agreed to make loans to officers and directors for the purpose of
financing the purchase of Common Stock, and, in order that the participating
officers and directors may benefit from the more favorable lending terms
available to the Company and not to such participants on an individual basis,
the Company has agreed, among other things, that Crestar may require the Company
to purchase notes of such participants at regular intervals.
The Participant has obtained a loan from Crestar in the principal amount of
{{Amount}} Dollars (the "Loan"), evidenced by a note dated as of July 12, 1999,
in the principal amount of the Loan (the "Note"), made by the Participant for
the benefit of Crestar, and has used the proceeds of the Loan to purchase
{{Shares}} shares (the "Shares") of Common Stock.
In order to assure that its objectives in entering into the Servicing and
Purchase Agreement are realized, the Company has requested, and the Participant
has agreed, that certain acts by the Participant that are inconsistent with
these objectives shall have the consequences herein specified.
AGREEMENT:
IN CONSIDERATION of the covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Participant agree as follows:
1. Transfer of Shares. In the event that Participant shall transfer any
of the Shares, the rate of interest borne by the Note shall, at the option of
the Company, increase effective as of the effective date of such transfer to
five percent (5%) over the then applicable interest rate under the Note.
2. Dividends. All cash dividends the Participant receives on the Shares
shall be applied toward the payment of the Note.
3. Late Fees. Participant shall pay the Company a late fee of two
percent (2%) in excess of the then applicable interest rate under the Note on
any payments that are not paid in a timely fashion.
4. Termination of Employment. If the Participant's employment with the
Company or its Affiliates terminates:
(i) by the Participant, or by the Company for cause, the Participant
shall pay the Note in full within 90 days after the effective date of the
termination of employment.
(ii) by the Company without cause, the Participant shall pay the Note
in full on the earlier of the first anniversary of the termination of employment
or the maturity of the Note.
(iii) as a result of a "Change of Control," as hereinafter defined, the
Participant shall pay the Note in full on the maturity of the Note.
5. Change of Control. For purposes of this Agreement, "Change of
Control" shall mean (i) the merger or consolidation of the Company with any
other real estate investment trust, corporation or other business entity, in
which the Company is not the survivor (without respect to the legal structure of
the transaction), (ii) the transfer or sale of all or substantially all of the
assets of the Company other than to an affiliate or subsidiary of the Company,
(iii) the liquidation of the Company, or (iv) the acquisition by any person or
by a group of persons acting in concert, of more than 50% of the outstanding
voting securities of the Company, which results in the resignation or addition
of fifty percent (50%) or more members of the Board of Directors of the Company
(the "Board") or the resignation or addition of fifty percent (50%) or more
independent members of the Board.
6. No Right to Continued Employment. This Agreement does not confer
upon the Participant any right to continuance of employment by the Company or
any Affiliate, nor shall it interfere in any way with the right of the Company
or an Affiliate to terminate the Participant's employment at any time.
7. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the legatees, distributees, and personal representatives of the
Participant and the successors and assigns of the Company.
8. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
9. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original document, but all
of which counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by a duly authorized officer and the Participant has affixed his
signature hereto.
UNITED DOMINION REALTY TRUST, INC.
By:_______________________________________
Title:____________________________________
__________________________________________
{{Participant}}
<PAGE>
EXHIBIT B-1
PROMISSORY NOTE
(Crestar - LIBOR)
${{Number}} Richmond, Virginia
June 24, 1999
FOR VALUE RECEIVED, the undersigned ("Maker"), {{Participant}} promises
(or if there shall be two Makers, both jointly and severally promise) to pay to
the order of CRESTAR BANK, on June 24, 2004, at such place as the holder hereof
may designate in writing, in lawful money of the United States of America, the
principal sum of {{Amount}} Dollars (${{Number}}), with interest thereon payable
in arrears on the first days of each February, May, August and October until
this Note is paid in full, at the rate set forth below.
1. Interest shall be payable at LIBOR, as defined below, for a
six-month term ("Six-Month LIBOR") plus 1.65%, based initially on the Six-Month
LIBOR in effect on the date hereof, and adjusted on December 31 and June 30 of
each year during the term hereof based upon the Six-Month LIBOR then in effect.
"LIBOR" shall mean, for any term, the rate per annum at which dollar deposits
with a maturity equal to such term are offered to leading banks in the London
interbank market at 11:00 a.m. (London time) two business days prior to the
effective date on which LIBOR is to be determined hereunder, based on the
British Bankers Association quotations published by the Dow Jones Telerate
Services, the Reuters Monitor Money Rates Service or any other reliable interest
rate reporting service customarily used by financial institutions, as adjusted
from time to time in the holder's sole discretion, for then-applicable reserve
requirements, deposit insurance assessment rates, broker's commissions and other
regulatory costs.
2. The Maker (or if there shall be two Makers, each Maker) shall have
the right to prepay this Note in whole at any time or in part from time to time
with the following penalty on any amounts so prepaid.
3. All prepayments, mandatory or optional, shall be applied first to
payment of accrued interest and then to reduction of outstanding principal.
4. If any payment under this Note is not made when due, all unpaid
principal and accrued interest under this Note may, at the option of the holder,
be declared immediately due and payable. If proceedings under the federal
Bankruptcy Code or under any other law, state or federal, for the relief of
debtors are filed by or against the Maker (or if there shall be two Makers,
either Maker) and not dismissed within 60 days after filing, all such principal
and accrued interest shall become immediately due and payable without
declaration or notice of any kind. No failure by the holder of this Note to
exercise any right hereunder shall be or be deemed to be a waiver of such right
or of any remedy consequent thereon.
5. Maturity of this Note may be accelerated, the rate of interest borne
hereby may be increased and late fees may be imposed, all as provided in the
Participation Agreement of even date herewith between United Dominion Realty
Trust, Inc. (the "Company") and the Maker (the "Participation Agreement"). The
Maker shall pay any increase in the interest rate or late fees pursuant to the
Participation Agreement to the Company.
6. Presentment, demand and notice of dishonor are hereby waived, and
the Maker agrees (or if there shall be two Makers, both jointly and severally
agree) to be bound for the payment hereof notwithstanding any agreement for the
extension of the due date of any payment made by the holder after the maturity
thereof.
7. The Maker agrees (or if there shall be two Makers, both jointly and
severally agree) to pay all collection expenses, court costs and reasonable
attorneys' fees incurred in collection of this Note or any part hereof.
References to the Maker or Makers shall include the Maker or Makers and all
endorsers, sureties, guarantors and other obligors hereon.
__________________________________(SEAL)
{{Participant}}
<PAGE>
EXHIBIT B-2
PROMISSORY NOTE
(Crestar - Fixed)
${{Number}} Richmond, Virginia
July 12 , 1999
FOR VALUE RECEIVED, the undersigned ("Maker"), promises (or if there
shall be two Makers, both jointly and severally promise) to pay to the order of
CRESTAR BANK, on June __, 2004, at such place as the holder hereof may designate
in writing, in lawful money of the United States of America, the principal sum
of {{Amount}} and no/100 Dollars (${{Number}}), with interest thereon payable in
arrears on the first days of each February, May, August and October until this
Note is paid in full, at the rate set forth below.
1. Interest shall be payable at 7.68% per annum.
2. The Maker (or if there shall be two Makers, each Maker) shall have
the right to prepay this Note in whole at any time or in part from time to time
with the following penalty on any amounts so prepaid.
3. All prepayments, mandatory or optional, shall be applied first to
payment of accrued interest and then to reduction of outstanding principal.
4. If any payment under this Note is not made when due, all unpaid
principal and accrued interest under this Note may, at the option of the holder,
be declared immediately due and payable. If proceedings under the federal
Bankruptcy Code or under any other law, state or federal, for the relief of
debtors are filed by or against the Maker (or if there shall be two Makers,
either Maker) and not dismissed within 60 days after filing, all such principal
and accrued interest shall become immediately due and payable without
declaration or notice of any kind. No failure by the holder of this Note to
exercise any right hereunder shall be or be deemed to be a waiver of such right
or of any remedy consequent thereon.
5. Maturity of this Note may be accelerated, the rate of interest borne
hereby may be increased and late fees may be imposed, all as provided in the
Participation Agreement of even date herewith between United Dominion Realty
Trust, Inc. (the "Company") and the Maker (the "Participation Agreement"). The
Maker shall pay any increase in the interest rate or late fees pursuant to the
Participation Agreement to the Company.
6. Presentment, demand and notice of dishonor are hereby waived, and
the Maker agrees (or if there shall be two Makers, both jointly and severally
agree) to be bound for the payment hereof notwithstanding any agreement for the
extension of the due date of any payment made by the holder after the maturity
thereof.
7. The Maker agrees (or if there shall be two Makers, both jointly and
severally agree) to pay all collection expenses, court costs and reasonable
attorneys' fees incurred in collection of this Note or any part hereof.
References to the Maker or Makers shall include the Maker or Makers and all
endorsers, sureties, guarantors and other obligors hereon.
__________________________________(SEAL)
{{Participant}}
<TABLE>
Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(Dollars in thousands)
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
--------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- ---------------
<S> <C>
Net income before extraordinary items $40,291 $35,121 $60,373 $52,305
Add:
Portion of rents representative
of the interest factor 221 133 488 246
Interest on indebtedness 38,918 25,736 76,997 48,561
-------------- -------------- --------------- ---------------
Earnings $79,430 $60,990 $137,858 $101,112
============== ============== =============== ===============
Fixed charges and preferred stock dividend:
Interest on indebtedness $38,918 $25,736 $76,997 $48,561
Capitalized interest 1,517 777 3,184 1,312
Portion of rents representative
of the interest factor 221 133 488 246
-------------- -------------- --------------- ---------------
Fixed charges 40,656 26,646 80,669 50,119
-------------- -------------- --------------- ---------------
Add:
Preferred stock dividend 9,440 5,653 18,879 11,303
-------------- -------------- --------------- ---------------
Combined fixed charges and preferred
stock dividend $50,096 $32,299 $99,548 $61,422
============== ============== =============== ===============
Ratio of earnings to fixed charges 1.95x 2.29x 1.71x 2.02x
Ratio of earnings to combined fixed charges
and preferred stock dividend 1.59 1.89 1.38 1.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,916
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 149,113
<PP&E> 3,967,082
<DEPRECIATION> 354,347
<TOTAL-ASSETS> 3,777,764
<CURRENT-LIABILITIES> 131,692
<BONDS> 2,168,644
0
430,000
<COMMON> 104,250
<OTHER-SE> 835,768
<TOTAL-LIABILITY-AND-EQUITY> 3,777,764
<SALES> 308,221
<TOTAL-REVENUES> 309,151
<CGS> 0
<TOTAL-COSTS> 123,302
<OTHER-EXPENSES> 69,422
<LOSS-PROVISION> 7,100
<INTEREST-EXPENSE> 76,997
<INCOME-PRETAX> 60,373
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,373
<DISCONTINUED> 0
<EXTRAORDINARY> 509
<CHANGES> 0
<NET-INCOME> 60,882
<EPS-BASIC> .40
<EPS-DILUTED> .40
</TABLE>
