<PAGE>
File pursuant to rule 424B5
File number 333-92667
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement is not complete and may be +
+changed. This prospectus supplement and accompanying prospectus are not an +
+offer to sell these securities and are not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subject to Completion, Dated February 25, 2000
Prospectus Supplement
February , 2000
(To prospectus dated December 23, 1999)
$100,000,000
[LOGO]
% Notes Due
-----------
The Notes will mature on and are not redeemable before maturity.
-----------
The Notes are unsecured and rank equally with all of our other unsecured
senior indebtedness. The Notes will be represented by one or more global
certificates registered in the name of a depositary or its nominee. Except in
limited circumstances, investors will not be entitled to receive certificates
representing the Notes. Interest will be payable semi-annually in cash in
arrears on 15 and 15, commencing 15, 2000.
-----------
<TABLE>
<CAPTION>
Per Note Total
-------------- ------
<S> <C> <C>
Public offering price.................................... % $
Underwriting fees........................................ % $
Proceeds to the Company.................................. % $
</TABLE>
Before making any investment in our company, you should consider carefully
certain risks that are described in the "Risks of Investment" section of the
accompanying prospectus, beginning on page 3.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Banc of America Securities LLC
First Union Securities, Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette
Merrill Lynch & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................. S-2
The Company................................................................ S-3
Recent Developments........................................................ S-3
Use of Proceeds............................................................ S-6
Capitalization............................................................. S-7
Selected Consolidated Financial Data....................................... S-8
Description of the Notes................................................... S-10
Underwriting............................................................... S-12
Legal Matters.............................................................. S-13
PROSPECTUS
Risks of Investment........................................................ 3
About this Prospectus...................................................... 8
Where You Can Find More Information........................................ 8
Incorporation of Information Filed with the SEC............................ 9
Forward-Looking Statements................................................. 10
United Dominion Realty Trust, Inc. ........................................ 11
Use of Proceeds............................................................ 12
Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined
Fixed Charges and Preferred Dividends..................................... 12
Description of Our Debt Securities......................................... 13
Description of Our Capital Stock........................................... 28
Federal Income Tax Consequences of United Dominion's Status as a REIT...... 34
Plan of Distribution....................................................... 41
Legal Matters.............................................................. 42
Experts.................................................................... 42
</TABLE>
----------------
Prospective investors may rely only on the information contained or
incorporated by reference in this prospectus supplement or the accompanying
prospectus. Neither United Dominion nor any Underwriter has authorized anyone
to provide prospective investors with information different from that contained
or incorporated by reference in this prospectus supplement and the accompanying
prospectus. Neither this prospectus supplement nor the accompanying prospectus
is an offer to sell or seeks an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. Neither delivery of this
prospectus supplement and the accompanying prospectus nor any sale of these
securities implies that the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus is correct as of
any time other than the date of this prospectus supplement, the accompanying
prospectus or the date of the document in which it was first presented, if
different.
----------------
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus, including the
documents they incorporate by reference, contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements regarding our expected
financial position, results of operations, business and financing plans are
forward-looking statements. Although we believe that the expectations reflected
in our forward-looking statements are reasonable, we cannot assure you that our
expectations will be realized. Cautionary statements describing important
factors that could cause our actual results to differ materially from our
expectations are included in this prospectus supplement, the accompanying
prospectus and the documents they incorporate by reference. All our forward-
looking statements are qualified by these cautionary statements.
S-2
<PAGE>
THE COMPANY
United Dominion Realty Trust, Inc., a Virginia corporation, is a real estate
investment trust formed in 1972 with activities related to the ownership,
development, acquisition, renovation and management, and strategic disposition,
of multifamily apartment communities nationwide. Our strategy is to be a
national, highly efficient provider of quality apartment homes. During the past
several years, we have 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 our
existing communities. Through a combination of dispositions and acquisitions
over the past two years, United Dominion has aggressively moved into better
performing markets with attractive prospects for long-term growth. During this
same period, more emphasis has been focused on higher quality development
projects. This strategy has resulted in the upgrade of the overall quality and
average age of our portfolio of communities and we are now solidly positioned
with "B" and "A" grade apartments. United Dominion seeks to be a market leader
by operating a sufficiently sized portfolio of apartments within each of its
target markets in order to drive down operating costs through economies of
scale and management efficiencies. We believe that geographic market
diversification increases investment opportunities and decreases the risk
associated with cyclical local real estate markets and economies.
At December 31, 1999, we owned 301 communities containing 82,154 apartment
homes nationwide, including 37 communities containing 7,182 completed apartment
homes included in real estate held for disposition and 330 recently completed
apartment homes included in real estate under development.
We operate as a real estate investment trust under the applicable provisions
of the Internal Revenue Code. To qualify, we must meet certain tests which,
among other things, require that (i) our assets consist primarily of real
estate, (ii) our income be derived primarily from real estate and (iii) at
least 95% of our taxable income be distributed to our common shareholders.
Because we currently qualify as a real estate investment trust, we are
generally not subject to federal income taxes.
Our principal office is at 10 South 6th Street, Richmond, Virginia, 23219,
and our telephone number is (804) 780-2691.
RECENT DEVELOPMENTS
Dispositions
As part of a strategic repositioning, we determined that we would pursue a
disposition strategy to selectively dispose of assets that are not in core
markets, have a lower net operating income growth rate than the overall
portfolio or no longer meet our operating and investment strategies. The
disposition program allows us to reduce the age of our existing portfolio,
which should reduce operating expenses and capital expenditures associated with
older communities.
During 1999, we sold 36 communities with 7,443 apartment homes with an
average age of 25 years for $241.2 million and recognized gains for financial
reporting purposes of $38.0 million. These sales allowed us to improve the
average age of our overall apartment portfolio and to exit markets that had low
growth opportunities. During 1998, we sold 18 communities with 5,318 apartment
homes with an average age of 25 years for $156.6 million, resulting in gains
for financial reporting purposes of $26.7 million.
Proceeds from the disposition program were used to strengthen the balance
sheet by paying down debt, as well as to fund new development projects and to
selectively repurchase shares of our preferred and common stock. Where
necessary to defer capital gains taxes, sales proceeds have been reinvested in
strategically attractive communities.
In 2000, we have sold two communities with 185 apartment homes for
approximately $9 million. In addition, we have entered into contracts to sell
two communities with 369 apartment homes for an aggregate sales price in excess
of $16 million. For financial reporting purposes, aggregate gains on the sales
of these properties are not expected to be material. The transactions are
expected to close during the first and second quarters of 2000; however, there
can be no assurance that these transactions will be consummated as planned.
S-3
<PAGE>
Development
During 1999, we continued our commitment to development as part of the
strategic repositioning by shifting capital into development activity and away
from lower yielding acquisitions. During 1999, we completed the development of
almost 2,000 homes, double the number of completions during 1998. Development
activity is focused in core markets that have locally based development teams,
growth potential and strong operations managers in place.
During 1999, the following development projects were completed (dollars in
thousands except development costs per home):
<TABLE>
<CAPTION>
Development
No. Apt. Development Costs per Date % Leased
Property Location Homes Costs Home Completed at 12/31/99
-------- ------------- -------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
New Communities
Stone Canyon............ Houston, TX 216 $ 10,322 $ 47,800 3/99 89.4%
Dominion Franklin....... Nashville, TN 360 26,347 73,200 3/99 91.4%
Ashlar I................ Ft. Myers, FL 260 18,887 72,600 5/99 99.6%
Alexander Court......... Columbus, OH 356 22,827 64,100 11/99 91.9%
Sierra Foothills........ Phoenix, AZ 322 21,458 66,600 11/99 79.5%
Legends at Park 10...... Houston, TX 236 13,612 57,700 11/99 89.8%
----- -------- --------
1,750 113,453 64,800
Additional Phases
Heritage Green II....... Columbus, OH 96 6,740 70,200 5/99 94.8%
----- -------- --------
Total................... 1,846 $120,193 $ 65,100
===== ======== ========
</TABLE>
At December 31, 1999, United Dominion had 1,622 apartment homes under
development as outlined below (dollars in thousands except estimated cost per
home):
<TABLE>
<CAPTION>
Development Estimated Estimated Expected
No. Apt. Completed Costs Development Cost per Completion
Property Location Homes Apt. Homes To Date Costs Home Date
-------- --------------- -------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
New Communities
Ashton at Waterford
Lakes.................. Orlando, FL 292 204 $19,244 $ 19,000 $65,100 1Q00
The Meridian............ Dallas, TX 250 82 11,403 16,500 66,000 2Q00
Oaks at Weston.......... Raleigh, NC 380 -- 6,391 30,200 79,500 2Q01
----- --- ------- -------- -------
922 286 37,038 65,700 71,300
Additional Phases
Dominion Crown Point
II..................... Charlotte, NC 220 44 10,016 14,800 67,300 1Q01
Ashlar II............... Ft. Myers, FL 168 -- 1,712 12,900 76,800 4Q00
Escalante II............ San Antonio, TX 312 -- 5,295 19,700 63,100 4Q00
----- --- ------- -------- -------
700 44 17,023 47,400 67,700
----- --- ------- -------- -------
Total................... 1,622 330 $54,061 $113,100 $69,700
===== === ======= ======== =======
</TABLE>
In addition to the apartment homes under development at December 31, 1999,
we had land held for future development with a carrying value of $37.9 million.
Future development activity will be based upon the availability of capital and
real estate fundamentals in the relevant markets. Additional development starts
planned in 2000 are expected to be undertaken with financial partners through
joint ventures.
Acquisitions
During 1999, we curtailed the pace of growth through acquisition as part of
our strategic plan, investing in new communities only when necessary to
complete Section 1031 exchanges to defer taxes on large capital
S-4
<PAGE>
gains. During 1999, using proceeds from our disposition program, we acquired
five communities with 1,230 apartment homes at a total cost (including closing
costs) of $74.3 million or $60,400 per home. These communities are located in
markets that are considered strategically important to us, such as Baltimore,
Maryland, South Florida and Riverside and San Diego, California.
Financing Activity
In January 1999, we established a program for the sale of up to $200 million
aggregate principal amount of medium-term notes. For the year ended December
31, 1999, we sold an aggregate of $190 million of senior unsecured notes under
this program with a weighted average interest rate of 7.61%. 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.
During 1999, we closed on $195.7 million of a $200 million secured revolving
credit facility with the Federal National Mortgage Association. The weighted
average floating rate on the credit facility borrowings was 6.32% at December
31, 1999. The FNMA credit facility 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 our discretion. We
have used interest rate swap agreements to limit our interest rate exposure on
$57 million of these borrowings. The proceeds from the FNMA credit facility
were used to repay a $91 million secured credit facility assumed in connection
with a portfolio acquisition consummated in December 1998 to replace $58
million in maturing secured debt and to repay revolving bank debt.
Bank Credit Facilities. We have a $200 million three-year unsecured
revolving credit facility expiring in August 2000 and a $110 million one-year
unsecured line of credit expiring in September 2000 that are provided by a
consortium of banks. Under the revolving credit facility, pricing is based upon
the higher of our senior unsecured debt ratings from Standard & Poor's and
Moody's, currently BBB and Baa2, respectively. At these rating levels, interest
on borrowings under the revolving credit facility is adjusted LIBOR plus 0.50%,
and interest on line of credit borrowings is adjusted LIBOR plus 1.00%.
However, these rates are subject to change as our credit ratings change. The
revolving credit facility also includes a $100 million competitive bid option,
which allows us to solicit bids from participating banks at rates below the
contractual rate. At December 31, 1999, $277.6 million was outstanding under
these bank credit facilities leaving $32.4 million available for use.
The bank credit facilities are subject to customary financial covenants and
limitations.
Year End Results
On February 1, 2000, we issued a press release announcing our results of
operations for the three and twelve months ended December 31, 1999. The
information contained in that press release was filed with the SEC on Form 8-K
dated February 25, 2000 and may be obtained as described in the accompanying
prospectus under the caption "Where You Can Find More Information." Prospective
investors should review this Form 8-K for information regarding our results of
operations and financial condition as of and for the three and twelve months
ended December 31, 1999.
S-5
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the offering of the Notes will be
approximately $99.4 million, after deducting underwriting discounts and
commissions and other estimated offering expenses. We intend to use the net
proceeds from the offering of the Notes to prepay secured debt of $8 million
and the remaining $91.4 million of net proceeds will be used to repay short-
term borrowings outstanding under our bank credit facilities, having a
weighted average interest rate of 6.7% at December 31, 1999.
Pending application for the foregoing purposes, we may invest the net
proceeds in short-term investments.
S-6
<PAGE>
CAPITALIZATION
The following table sets forth our historical consolidated capitalization at
December 31, 1999 and as adjusted to give effect to the issuance of the Notes
and the application of the net proceeds of the offering.
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------
Historical As Adjusted
----------------- ----------------
(In thousands, except share data)
<S> <C> <C>
Debt:
Secured debt............................. $ 1,000,136 $ 992,136
8.13% Senior Notes due November 2000..... 146,150 146,150
7.60% Medium-Term Notes due January
2002.................................... 55,000 55,000
7.65% Medium-Term Notes due January
2003.................................... 10,000 10,000
7.22% Medium-Term Notes due February
2003.................................... 12,000 12,000
8.63% Notes due March 2003............... -- 100,000
5.05% City of Portland, OR Bonds due
October 2003............................ 7,345 7,345
7.67% Medium-Term Notes due January
2004.................................... 54,000 54,000
7.73% Medium-Term Notes due April 2005... 23,400 23,400
7.02% Medium-Term Notes due November
2005.................................... 50,000 50,000
7.95% Medium-Term Notes due July 2006.... 120,340 120,340
7.07% Medium-Term Notes due November
2006.................................... 25,000 25,000
7.25% Notes due January 2007............. 111,825 111,825
8.50% Monthly Income Notes due November
2008.................................... 59,778 59,778
8.50% Debentures due September 2024
(putable September 2004)................ 140,000 140,000
Borrowings outstanding under bank credit
facilities.............................. 277,600 186,200
Other unsecured debt..................... 34,731 34,731
---------------- ----------------
Total debt............................. 2,127,305 2,127,905
---------------- ----------------
Minority Interest.......................... 94,167 94,167
Shareholders' Equity:
Preferred stock, no par value; $25
liquidation preference, 25,000,000
shares authorized; issued and
outstanding:
4,168,560 shares 9.25% Series A
Cumulative Redeemable................. 104,214 104,214
5,946,300 shares 8.60% Series B
Cumulative Redeemable................. 148,658 148,658
8,000,000 shares 7.50% Series D
Convertible........................... 175,000 175,000
Common stock, $1 par value; 150,000,000
shares authorized, 102,740,777 shares
issued and outstanding.................. 102,741 102,741
Additional paid-in capital............... 1,083,687 1,083,687
Notes receivable from officer
shareholders............................ (7,753) (7,753)
Deferred compensation--unearned
restricted stock awards................. (305) (305)
Distributions in excess of net income.... (296,030) (296,030)
---------------- ----------------
Total shareholders' equity............. 1,310,212 1,310,212
---------------- ----------------
Total capitalization................. $ 3,531,684 $ 3,532,284
================ ================
</TABLE>
S-7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data for United Dominion
and should be read in conjunction with the consolidated financial statements of
United Dominion and related notes incorporated by reference in the accompanying
prospectus for the years ended December 31, 1995 through December 31, 1998.
Financial information for the year ended December 31, 1999, is contained in our
current report on Form 8-K filed February 25, 2000, also incorporated by
reference in the accompanying prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
In thousands, except per share
data and apartment homes owned
<S> <C> <C> <C> <C> <C>
Operating Data (a)
Rental income.......... $ 618,749 $ 478,718 $ 386,672 $ 241,260 $ 194,511
Income before gains on
sales of investments,
minority interests and
extraordinary item.... 60,379 47,339 57,813 33,726 28,037
Gains on sales of
investments........... 37,995 26,672 12,664 4,346 5,090
Extraordinary item--
early extinguishment
of debt............... 927 (138) (50) (23) --
Net income............. 93,622 72,332 70,149 37,991 33,127
Distributions to
preferred
shareholders.......... 37,714 23,593 17,345 9,713 6,637
Net income available to
common shareholders... 55,908 48,739 52,804 28,278 26,490
Common distributions
declared.............. 109,607 107,758 88,587 55,493 48,610
Weighted average number
of common shares
outstanding--basic.... 103,604 99,966 87,145 57,482 52,781
Weighted average number
of common shares
outstanding--diluted
...................... 103,639 100,062 87,339 57,655 52,972
Weighted average number
of common shares, OP
Units and common share
equivalents--diluted.. 124,127 103,793 87,656 57,724 52,972
Per share:
Basic earnings per
share................. $ 0.54 $ 0.49 $ 0.61 $ 0.49 $ 0.50
Diluted earnings per
share................. 0.54 0.49 0.60 0.49 0.50
Common distributions
declared.............. 1.06 1.05 1.01 0.96 0.90
Balance Sheet Data (a)
Real estate owned, at
carrying value........ $3,953,045 $3,952,752 $2,517,398 $2,099,641 $1,205,685
Accumulated
depreciation.......... 395,864 316,630 245,367 187,909 153,026
Total real estate
owned, net of
accumulated
depreciation.......... 3,557,181 3,636,122 2,272,031 1,911,732 1,052,659
Total assets........... 3,688,317 3,762,940 2,313,725 1,966,904 1,080,616
Secured debt........... 1,000,136 1,072,185 417,325 376,560 180,481
Unsecured debt......... 1,127,169 1,045,564 738,901 668,275 349,858
Total debt............. 2,127,305 2,117,749 1,156,226 1,044,835 530,339
Shareholders' equity... 1,310,212 1,374,121 1,058,357 850,379 516,389
Number of common shares
outstanding........... 102,741 103,639 89,168 81,983 56,375
Other Data (a)
Cash Flow Data
Cash provided by
operating
activities............ $ 190,876 $ 152,875 $ 137,903 $ 90,064 $ 66,428
Cash used in investing
activities............ (34,294) (276,142) (342,273) (161,572) (183,930)
Cash (used in)
provided by financing
activities............ (174,985) 148,875 191,391 82,056 113,145
Funds From Operations
(b)
Income before gains on
sales of investments,
minority interests
and extraordinary
item.................. $ 60,379 $ 47,339 $ 57,813 $ 33,726 $ 28,037
Adjustments:
Depreciation of real
estate owned, net of
outside partners'
interest ............ 120,543 99,588 76,688 47,410 38,939
Distributions to
preferred
shareholders......... (37,714) (23,593) (17,345) (9,713) (6,637)
Minority interest of
outside
partnerships......... (1,245) (111) -- -- --
Non-recurring items:
Impairment loss on
real estate and
investments......... 19,300 -- 1,400 290 1,700
Loss on termination
of an interest rate
risk management
agreement........... -- 15,591 -- -- --
Prior years'
employment and other
taxes............... -- -- -- -- 395
Adjustment for
internal acquisition
costs (c)........... -- (544) (1,341) (901) (587)
---------- ---------- ---------- ---------- ----------
Funds from
operations--basic..... $ 161,263 $ 138,270 $ 117,215 $ 70,812 $ 61,847
========== ========== ========== ========== ==========
Adjustments:
Distributions to
preferred
shareholders--Series
D (Convertible)...... 15,154 986 -- -- --
---------- ---------- ---------- ---------- ----------
Funds from
operations--diluted... $ 176,417 $ 139,256 $ 117,215 $ 70,812 $ 61,847
========== ========== ========== ========== ==========
Fixed Charge Ratios (d)
Ratio of earnings to
fixed charges......... 1.55 1.63 1.82 1.73 1.81
Ratio of earnings to
combined fixed charges
and preferred
dividends............. 1.25 1.34 1.51 1.45 1.56
Apartment Homes Owned
Total apartment homes
owned at December 31.. 82,154 86,893 62,789 55,664 34,224
Weighted average number
of apartment homes
owned during the year
...................... 85,926 70,724 58,038 37,481 31,242
</TABLE>
S-8
<PAGE>
- --------
(a) From 1996 to 1999, United Dominion completed the following statutory
mergers: (i) South West Property Trust, Inc. on December 31, 1996 for an
aggregate purchase price of $572 million, (ii) ASR Investments Corporation
on March 27, 1998 for an aggregate purchase price of $323 million, and
(iii) American Apartment Communities on December 7, 1998 for an aggregate
purchase price of $794 million.
(b) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interests of unit holders 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. This definition conforms to recommendations set forth in a
White Paper adopted by the National Association of Real Estate Investment
Trusts in early 1995. 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.
(c) Reflects the adjustment for internal acquisition costs that were
capitalized prior to March 19, 1998.
(d) These ratios have been computed as indicated in the following table:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income before
extraordinary item........ $ 92,695 $ 72,470 $ 70,199 $38,014 $33,127
Add:
Portion of rents
representative of the
interest factor......... 928 569 412 257 201
Interest on
indebtedness............ 153,748 106,238 79,004 50,843 40,646
-------- -------- -------- ------- -------
Earnings................... $247,371 $179,277 $149,615 $89,114 $73,974
======== ======== ======== ======= =======
Fixed charges and preferred
dividends:
Interest on
indebtedness............ $153,748 $106,238 $ 79,004 $50,843 $40,646
Capitalized interest..... 5,153 3,360 2,634 541 40
Portion of rents
representative of the
interest factor......... 928 569 412 257 201
-------- -------- -------- ------- -------
Fixed charges.......... 159,829 110,167 82,050 51,641 40,887
-------- -------- -------- ------- -------
Add:
Preferred dividends...... 37,714 23,593 17,345 9,713 6,637
-------- -------- -------- ------- -------
Combined fixed charges
and preferred
dividends............. $197,543 $133,760 $ 99,395 $61,354 $47,524
======== ======== ======== ======= =======
Ratio of earnings to fixed
charges................... 1.55x 1.63x 1.82x 1.73x 1.81x
Ratio of earnings to
combined fixed charges and
preferred dividends....... 1.25 1.34 1.51 1.45 1.56
</TABLE>
S-9
<PAGE>
DESCRIPTION OF THE NOTES
The Notes offered hereby are a separate series of our debt securities. The
following description of the particular terms and provisions of the Notes
supplements the description of our debt securities contained in the
accompanying prospectus. We have not described every aspect of the Notes. You
should refer to the Senior Indenture described in the prospectus and the form
of the Notes for a complete description of the provisions of the Notes. The
Senior Indenture is an exhibit to the registration statement referred to under
"About This Prospectus" in the prospectus, and the form of the Notes will be
filed as an exhibit to a report we file with the SEC. See "Where You Can Find
More Information" in the prospectus for information on how to obtain a copy of
the Senior Indenture and the form of the Notes for your review.
General
The Notes will constitute a separate series of Debt Securities under the
Senior Indenture, initially limited to $100 million aggregate principal amount,
subject to our right to reopen the series and issue additional Notes without
the consent of holders. The Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and in integral multiples of
$1,000. The Notes will be represented by one or more permanent Global
Securities in book-entry form, except under the limited circumstance described
in the accompanying prospectus under "Description of Debt Securities--Book-
Entry System". The Global Securities will be registered in the name of a
nominee of The Depository Trust Company, as Depository for the Notes. See
"Description of Debt Securities--Book-Entry System" in the accompanying
prospectus.
The Notes will not be entitled to the benefit of any sinking fund and will
not be subject to repurchase by us at the option of the holders or to
redemption at our option.
The Notes will be subject to defeasance and covenant defeasance as described
under "Description of Debt Securities--Discharge, Defeasance and Covenant
Defeasance" in the accompanying prospectus.
Notices and demands to or upon us in respect of the Notes and the Senior
Indenture may be served and, in the event that the Notes are issued in
definitive certificated form, the Notes may be surrendered for payment,
registration of transfer or exchange, at our office or agency maintained for
that purpose in the Borough of Manhattan, The City of New York (which will
initially be the office of the Senior Indenture Trustee which is located at 40
Broad Street, Suite 55, New York, New York 10004) and in Charlotte, North
Carolina (which will initially be the Corporate Trust Operations Office of the
Senior Indenture Trustee which is located at 1525 West W.T. Harris Boulevard
3C3, Charlotte, North Carolina 28262-1153).
Interest Rate, Interest Payment Dates and Maturity
The Notes will mature on March 15, 2003. The Notes will bear interest at the
rate of 8.625% per annum. Interest on the Notes will accrue from and including
March 3, 2000 or from the most recent date to which interest has been paid or
duly provided for. Interest on the Notes will be payable semiannually in
arrears on March 15 and September 15 of each year, commencing September 15,
2000, to the persons in whose names the Notes are registered at the close of
business on the next preceding March 1 and September 1, as the case may be.
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months.
If any interest payment date or maturity date for the Notes is not a
Business Day, then payment of principal and interest need not be made on that
date but may be made without additional interest on the next succeeding
Business Day.
Ranking; Holding Company Structure
The Notes will be our unsecured and unsubordinated obligations and will rank
on a parity in priority of payment with all our other unsecured and
unsubordinated indebtedness. The Notes will be effectively
S-10
<PAGE>
subordinated to our secured and unsubordinated indebtedness to the extent of
the collateral pledged as security for such indebtedness. See "Capitalization."
The Notes will be our obligations exclusively. Although a significant
portion of our consolidated assets is held by us directly, substantially more
than a majority of our consolidated assets is held by our subsidiaries.
Accordingly, our cash flow and our ability to service our debt, including the
Notes, is in large part dependent upon the results of operations of our
subsidiaries and upon the ability of our subsidiaries to provide cash (whether
in the form of dividends, loans or otherwise) to pay amounts due in respect of
our obligations, including the Notes. Our subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due on the Notes or to make any funds available to pay such
amounts. In addition, dividends, loans and other distributions from our
subsidiaries to us are subject to contractual and other restrictions, are
contingent upon results of operations of such subsidiaries and are subject to
various business considerations.
The Notes will be effectively subordinated to all existing and future
liabilities (including indebtedness, guarantees, trade payables, lease
obligations and letter of credit obligations) of our subsidiaries. Therefore,
our rights and the rights of our creditors, including the holders of the Notes,
to participate in the assets of any subsidiary upon its liquidation or
reorganization will be subject to the prior claims of its creditors, except to
the extent that we may ourself be a creditor with recognized claims against it,
in which case our claims would still be effectively subordinated to any lien or
security interest affecting the assets of that subsidiary and would be
subordinated to any of its indebtedness senior to that held by us. In addition,
subsidiaries owning a significant portion of our consolidated assets have
guaranteed our borrowings under our bank credit facilities, and under certain
circumstances, one or more of our other subsidiaries may also be required to
guarantee our borrowings under these facilities. As of December 31, 1999,
borrowings of $277.6 million under these facilities were outstanding. Although
the Senior Indenture and certain instruments and agreements to which we and our
subsidiaries are parties or by which we and they are bound impose limitations
on the incurrence of additional indebtedness, both we and our subsidiaries
retain the ability to incur substantial indebtedness and other liabilities.
S-11
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters named below, we have agreed to sell to each of
the underwriters and each of the underwriters severally has agreed to purchase
from us the principal amount of the Notes set forth opposite its name below.
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions and that the underwriters will be obligated
to purchase all of the Notes if any are purchased.
<TABLE>
<CAPTION>
Principal
Underwriters Amount of Notes
------------ ---------------
<S> <C>
Banc of America Securities LLC................................. $ 70,000,000
First Union Securities, Inc.................................... 20,000,000
Chase Securities Inc. ......................................... 3,334,000
Donaldson, Lufkin & Jenrette Securities Corporation............ 3,333,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............. 3,333,000
------------
Total...................................................... $100,000,000
============
</TABLE>
The underwriters propose to offer the Notes to the public at the public
offering price set forth on the cover page of this prospectus supplement and to
dealers at that price less a concession of no more than .210% of the principal
amount of the Notes. The underwriters may allow, and the dealers may reallow, a
discount of no more than .175% of the principal amount of the Notes to other
dealers. The public offering price, concession and discount may be changed
after the offering to the public of the Notes.
The Notes are a new issue of securities with no established trading market.
We do not intend to apply for listing of the Notes on any national securities
exchange or for quotation of the Notes on any automated dealer quotation
system. The underwriters have advised us that they intend to make a market in
the Notes after the offering, although they are under no obligation to do so.
The underwriters may discontinue any market-making activities at any time
without any notice. We can give no assurance as to the liquidity of the trading
market for the Notes or that a public trading market for the Notes will
develop. If no active public trading market develops, the market price and
liquidity of the Notes may be adversely affected. If the Notes are traded, they
may trade at a discount from their initial offering price, depending on factors
such as prevailing interest rates, the market for similar securities, the
performance of our company as well as other factors not listed here.
We have agreed to indemnify the underwriters against, or to contribute to
payments that the underwriters may be required to make with respect to, certain
liabilities, including liabilities under the Securities Act of 1933.
The underwriters, as well as dealers and agents, may purchase and sell Notes
in the open market. These transactions may include stabilizing transactions and
purchases to cover syndicate short positions created in connection with the
offering. Stabilizing transactions consist of bids and purchases made to
prevent or slow a decline in the market price of the Notes. Syndicate short
positions arise when the underwriters or agents sell more Notes than we are
required to sell to them in the offering. The underwriters may also impose
penalty bids whereby the underwriting syndicate may reclaim selling concessions
allowed either syndicate members or broker dealers who sell Notes in the
offering for their own account if the syndicate repurchases the Notes in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Notes, which may be higher as a
result of these activities than it might otherwise be in the open market. These
activities, if commenced, may be discontinued at any time without notice.
We and the underwriters make no representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Notes. In addition, we and the underwriters make no
representation that the underwriters will engage in those types of transactions
or that those transactions, once commenced, will not be discontinued without
notice.
S-12
<PAGE>
Certain of the underwriters, and certain of their affiliates, have provided,
and may continue to provide, investment banking, financial advisory, commercial
banking and other services to us and our affiliates.
Bank of America, N.A., an affiliate of Banc of America Securities LLC, and
First Union National Bank, an affiliate of First Union Securities, Inc., are
agents and lenders under our bank credit facilities, and have received and will
receive customary fees under these facilities, and The Chase Manhattan Bank, an
affiliate of Chase Securities Inc., is a lender under our bank line of credit.
Bank of America, N.A., First Union National Bank and The Chase Manhattan Bank
will receive a proportionate share of the repayment by us of amounts
outstanding under these facilities. See "Use of Proceeds."
Under Conduct Rule 2710 (c)(8) ("Rule 2710(c)(8)") of the National
Association of Securities Dealers, Inc. ("NASD"), where more than 10% of the
net offering proceeds, not including underwriting compensation, is intended to
be paid to members participating in the offering of notes or associated or
affiliated persons of such members, such offering must be conducted in
accordance with the applicable provisions of Rule 2710(c)(8). Because more than
10% of the net proceeds of the offering of the Notes may be paid to NASD
members participating in the offering or associated or affiliated persons of
such members, the offering of the Notes is being conducted in accordance with
the applicable provisions of Rule 2710(c)(8).
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $150,000.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Hunton & Williams, Richmond, Virginia. Brown & Wood LLP, New York, New York,
will act as counsel to the Underwriters. Brown & Wood LLP will rely on Hunton &
Williams as to all matters of Virginia law.
S-13
<PAGE>
Prospectus
[LOGO]
$700,000,000
Debt Securities
Preferred Stock
Common Stock
This prospectus generally describes the debt securities and equity
securities that we may offer. Each time we sell these securities using this
prospectus, we will provide a prospectus supplement that will contain specific
information about the terms of the offering and may add to or update the
information in this prospectus. You should read this prospectus and any
supplement carefully before you invest. We cannot sell any of these securities
unless this prospectus is accompanied by a prospectus supplement.
Our common shares and currently outstanding Series A and Series B preferred
shares are listed on The New York Stock Exchange (NYSE) under the symbols
"UDR," "UDRpfA" and "UDRpfB," respectively. Our Monthly Income Notes are
listed on the NYSE under the symbol "UDM."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Beginning on page 3, we have listed risks that you should consider before
investing in these securities.
This prospectus is dated December 23, 1999.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<S> <C>
RISKS OF INVESTMENT......................................................... 3
ABOUT THIS PROSPECTUS....................................................... 8
WHERE YOU CAN FIND MORE INFORMATION......................................... 8
INCORPORATION OF INFORMATION FILED WITH THE SEC............................. 9
FORWARD-LOOKING STATEMENTS.................................................. 10
UNITED DOMINION REALTY TRUST, INC. ......................................... 11
USE OF PROCEEDS............................................................. 12
RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS...................................... 12
DESCRIPTION OF OUR DEBT SECURITIES.......................................... 13
DESCRIPTION OF OUR CAPITAL STOCK............................................ 28
FEDERAL INCOME TAX CONSEQUENCES OF UNITED DOMINION'S STATUS AS A REIT....... 34
PLAN OF DISTRIBUTION........................................................ 41
LEGAL MATTERS............................................................... 42
EXPERTS..................................................................... 42
</TABLE>
2
<PAGE>
RISKS OF INVESTMENT
Unless the context otherwise requires, all references to "we," "us" or "our
company" in this prospectus refer collectively to United Dominion Realty
Trust, Inc., a Virginia corporation, and its subsidiaries, including United
Dominion Realty, L.P., a Virginia limited partnership.
Before you invest in our securities, you should be aware that there are
risks involved in the investment, including those described below. You should
consider carefully these risks together with all of the information included
or incorporated by reference in this prospectus or any prospectus supplement
before you decide to purchase our securities. This section includes or refers
to certain forward-looking statements; you should refer to the explanation of
the qualifications and limitations on such forward-looking statements
discussed in the accompanying prospectus supplement.
I. Unfavorable Changes in Apartment Market and Economic Conditions Could
Adversely Affect Occupancy Levels and Rental Rates
Market and economic conditions in the various metropolitan areas of the
United States in which we operate may significantly affect our occupancy
levels and rental rates and therefore our profitability. This may impair our
ability to satisfy our financial obligations and pay distributions to our
shareholders. Factors that may adversely affect these conditions include the
following:
. a reduction in jobs and other local economic downturns;
. oversupply of, or reduced demand for, apartment homes;
. declines in household formation; and
. rent control or stabilization laws, or other laws regulating rental hous-
ing, which could prevent us from raising rents to offset increases in op-
erating costs.
Any of these factors could adversely affect our ability to achieve desired
operating results from our communities.
II. Acquisitions or New Development May Not Achieve Anticipated Results
We intend to continue to selectively acquire apartment communities that
meet our investment criteria. Our acquisition activities and their success may
be exposed to the following risks:
. An acquired community may fail to perform as we expected in analyzing our
investment.
. When we acquire an apartment community, we often invest additional
amounts in it with the intention of increasing profitability. These addi-
tional investments may not produce the anticipated improvements in prof-
itability.
. New developments may not achieve proforma rents or occupancy levels.
III. Possible Difficulty of Selling Apartment Communities Could Limit
Operational and Financial Flexibility
Although we have experienced success in disposing of apartment communities
that no longer meet our strategic objectives, market conditions could change
and purchasers would not be willing to pay prices acceptable to us. A weak
market may limit our ability to change our portfolio promptly in response to
changing economic conditions. Furthermore, a significant portion of the
proceeds from our overall property sales may be held in escrow accounts in
order for some sales to qualify as a like-kind exchange under Section 1031 of
the Internal Revenue Code so that any related capital gain can be deferred for
federal income tax purposes. As a result, we may not have immediate access to
all of the cash flow generated from our property sales. In addition, federal
tax laws limit our ability to profit on the sale of communities that we have
owned for fewer than four years, and this limitation may prevent us from
selling communities when market conditions are favorable.
3
<PAGE>
IV. Increased Competition Could Limit Our Ability to Lease Apartment Homes or
Increase or Maintain Rents
Our apartment communities compete with numerous housing alternatives in
attracting residents, including other apartment communities and single-family
rental homes, as well as owner occupied single- and multi-family homes.
Competitive housing in a particular area could adversely affect our ability to
lease apartment homes and increase or maintain rents.
V. Insufficient Cash Flow Could Affect Our Debt Financing and Create
Refinancing Risk
We are subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to make required
payments of principal and interest. Although we may be able to use cash flow
to make future principal payments, we cannot assure investors that sufficient
cash flow will be available to make all required principal payments and still
satisfy our distribution requirements to maintain our status as a real estate
investment trust or "REIT." Therefore, we are likely to need to refinance at
least a portion of our outstanding debt as it matures. There is a risk that we
may not be able to refinance existing debt or that the terms of any
refinancing will not be as favorable as the terms of the existing debt.
VI. Failure to Generate Sufficient Revenue Could Impair Debt Service Payments
and Distributions to Shareholders
If our apartment communities do not generate sufficient net rental income
to meet rental expenses, our ability to make required payments of interest and
principal on our debt securities and to pay distributions to our shareholders
will be adversely affected. The following factors, among others, may affect
the net rental income generated by our apartment communities:
. the national and local economies;
. local real estate market conditions, such as an oversupply of apartment
homes;
. tenants' perceptions of the safety, convenience and attractiveness of our
communities and the neighborhoods where they are located;
. our ability to provide adequate management, maintenance and insurance;
and
. rental expenses, including real estate taxes and utilities.
Expenses associated with our investment in a community, such as debt
service, real estate taxes, insurance and maintenance costs, are generally not
reduced when circumstances cause a reduction in rental income from that
community. If a community is mortgaged to secure payment of debt and we are
unable to make the mortgage payments, we could sustain a loss as a result of
foreclosure on the community or the exercise of other remedies by the
mortgagee.
VII. Debt Level May Be Increased
Our current debt policy does not contain any limitations on the level of
debt that we may incur, although our ability to incur debt is limited by
covenants in our bank and other credit agreements. We manage our debt to be in
compliance with these debt covenants, but subject to compliance with these
covenants, we may increase the amount of our debt at any time without a
concurrent improvement in our ability to service the additional debt.
VIII. Financing May Not Be Available and Could be Dilutive
Our ability to execute our business strategy depends on our access to an
appropriate blend of debt financing, including unsecured lines of credit and
other forms of secured and unsecured debt, and equity financing, including
common and preferred equity. Debt or equity financing may not be available in
sufficient amounts, or on favorable terms or at all. If we issue additional
equity securities to finance developments and acquisitions instead of
incurring debt, the interests of our existing shareholders could be diluted.
4
<PAGE>
IX. Development and Construction Risks Could Impact Our Profitability
We intend to continue to develop and construct apartment communities.
Development activities may be conducted through wholly-owned affiliated
companies or through joint ventures with unaffiliated parties. Our development
and construction activities may be exposed to the following risks:
. We may be unable to obtain, or face delays in obtaining, necessary zon-
ing, land-use, building, occupancy, and other required governmental per-
mits and authorizations, which could result in increased development
costs and could require us to abandon our activities entirely with re-
spect to a project for which we are unable to obtain permits or authori-
zations.
. If we are unable to find joint venture partners to help fund the develop-
ment of a community or otherwise obtain acceptable financing for the de-
velopments, our development potential may be limited.
. We may abandon development opportunities that we have already begun to
explore, and we may fail to recover expenses already incurred in connec-
tion with exploring them.
. We may be unable to complete construction and lease-up of a community on
schedule, or incur development or construction costs that exceed our
original estimates, and we may be unable to charge rents that would com-
pensate for any increase in such costs.
. Occupancy rates and rents at a newly developed community may fluctuate
depending on a number of factors, including market and economic condi-
tions, preventing us from meeting our profitability goals for that commu-
nity.
Construction costs have been increasing in our existing markets, and the
costs of upgrading acquired communities have, in some cases, exceeded our
original estimates. We may experience similar cost increases in the future.
Our inability to charge rents that will be sufficient to offset the effects of
any increases in these costs may impair our profitability.
X. Failure to Succeed in New Markets May Limit Our Growth
We may from time to time make acquisitions outside of our existing market
areas if appropriate opportunities arise. Our historical experience in our
existing markets does not ensure that we will be able to operate successfully
in new markets. We may be exposed to a variety of risks if we choose to enter
new markets. These risks include, among others:
. inability to evaluate accurately local apartment market conditions and
local economies;
. inability to obtain land for development or to identify appropriate ac-
quisition opportunities;
. inability to hire and retain key personnel; and
. lack of familiarity with local governmental and permitting procedures.
XI. Changing Interest Rates Could Increase Interest Costs and Could Affect the
Market Price of Our Securities
We currently have, and expect to incur in the future, debt bearing interest
at rates that vary with market interest rates. Therefore, if interest rates
increase, our interest costs will rise to the extent our variable rate debt is
not hedged effectively. In addition, an increase in market interest rates may
lead purchasers of our securities to demand a higher annual yield, which could
adversely affect the market price of our common and preferred stock and debt
securities.
XII. Limited Investment Opportunities Could Adversely Affect Our Growth
We expect that other real estate investors will compete with us to acquire
existing properties and to develop new properties. These competitors include
insurance companies, pension and investment funds, developer partnerships,
investment companies and other apartment REITs. This competition could
increase
5
<PAGE>
prices for properties of the type that we would likely pursue, and our
competitors may have greater resources than we do. As a result, we may not be
able to make attractive investments on favorable terms, which could adversely
affect our growth.
XIII. Failure to Integrate Acquired Communities and New Personnel Could Create
Inefficiencies
To grow successfully, we must be able to apply our experience in managing
our existing portfolio of apartment communities to a larger number of
properties. In addition, we must be able to integrate new management and
operations personnel as our organization grows in size and complexity.
Failures in either area will result in inefficiencies that could adversely
affect our expected return on our investments and our overall profitability.
XIV. Interest Rate Hedging Contracts May Be Ineffective and May Result in
Material Charges
From time to time when we anticipate issuing debt securities, we may seek
to limit our exposure to fluctuations in interest rates during the period
prior to the pricing of the securities by entering into interest rate hedging
contracts. We may do this to increase the predictability of our financing
costs. Also, from time to time we may rely on interest rate hedging contracts
to limit our exposure under variable rate debt to unfavorable changes in
market interest rates. If the pricing of new debt securities is not within the
parameters of, or market interest rates produce a lower interest cost than
that which we incur under a particular interest rate hedging contract, the
contract is ineffective. Furthermore, the settlement of interest rate hedging
contracts has involved and may in the future involve material charges.
XV. Year 2000 Issues May Disrupt Our Operations
"Year 2000 issues" means problems that may result from the improper
processing by computer systems of dates after 1999. These problems could
result in systems failures or miscalculations causing disruptions of
operations. Our efforts to address our Year 2000 issues are focused on three
areas:
. reviewing and taking any necessary steps to attempt to correct our com-
puter information systems;
. evaluating and making any necessary modifications to other computer sys-
tems that do not relate to information technology but include embedded
technology, such as telecommunication, security, elevator, fire and safe-
ty, and heating, ventilation and air conditioning systems; and
. communicating with our important service providers to determine whether
there will be any interruption to their systems that could affect us.
We believe that our own systems will be Year 2000 compliant by December 31,
1999. Although we are still in the process of evaluating potential disruptions
or complications that might result from Year 2000 issues, we have not
identified any specific business functions that are likely to suffer material
disruptions. Due to the unique and pervasive nature of Year 2000 issues,
however, we are not able to anticipate all events that might affect us,
particularly those outside of our company. While our efforts to address Year
2000 issues will involve additional costs, we believe that these costs will
not have a material impact on our financial results. If we do not complete our
efforts on time or if the costs of updating or replacing our systems exceed
our estimates, or if essential services are disrupted because the provider has
not adequately dealt with its Year 2000 issues, our business, financial
condition and results of operations could be materially adversely affected.
XVI. Potential Liability for Environmental Contamination Could Result in
Substantial Costs
We are in the business of acquiring, developing, owning, operating and from
time to time selling real estate. Under various federal, state and local
environmental laws, as a current or former owner or operator, we could be
required to investigate and remediate the effects of contamination of
currently or formerly owned real estate by hazardous or toxic substances,
often regardless of our knowledge of or responsibility for the contamination
and solely by virtue of our current or former ownership or operation of the
real estate. In addition, we could be held liable to a governmental authority
or to third parties for property damage and for
6
<PAGE>
investigation and clean-up costs incurred in connection with the contamination.
These costs could be substantial, and in many cases environmental laws create
liens in favor of governmental authorities to secure their payment. The
presence of such substances or a failure to properly remediate any resulting
contamination could materially and adversely affect our ability to borrow
against, sell or rent an affected property.
XVII. Compliance With REIT Share Ownership Limit May Prevent Takeovers
Beneficial to Shareholders
One of the requirements for maintenance of our qualification as a REIT for
federal income tax purposes is that no more than 50% in value of our
outstanding capital stock may be owned by five or fewer individuals, including
entities specified in the Internal Revenue Code, during the last half of any
taxable year. Our Restated Articles of Incorporation, also referred to as our
"Charter," include provisions allowing us to stop transfers of and redeem our
shares that are intended to assist us in complying with this requirement. These
provisions may have the effect of delaying, deferring or preventing someone
from taking control of us, even though a change of control might involve a
premium price for our shareholders or might otherwise be in our shareholders'
best interests. See the subsection entitled "Requirements for Qualification" in
the section entitled "Federal Income Tax Consequences of United Dominion's
Status as a REIT" in this prospectus.
XVIII. Failure to Qualify as a REIT Would Cause Us to Be Taxed as a
Corporation, Which Would Significantly Lower Funds Available For
Distribution to Our Shareholders
If we fail to qualify as a REIT for federal income tax purposes, we will be
taxed as a corporation. We believe that we are organized and currently qualify
as a REIT and intend to operate in such a manner that will allow us to continue
to qualify as a REIT. However, we cannot assure you that we are qualified as a
REIT or that we will remain qualified as a REIT in the future. Qualification as
a REIT involves the application of highly technical and complex provisions of
the federal income tax laws, as to which there are only limited judicial and
administrative interpretations, and requires favorable determination of various
factual matters and circumstances not entirely within our control. In addition,
future legislation, new regulations, administrative interpretations or court
decisions may significantly change the tax laws or the application of the tax
laws with respect to our qualification as a REIT for federal income tax
purposes or the federal income tax consequences of our qualification.
If, in any taxable year, we fail to qualify as a REIT, we will be subject to
federal income tax on our taxable income at regular corporate rates, plus any
applicable alternative minimum tax. In addition, unless we are entitled to
relief under applicable statutory provisions, we would be disqualified from
treatment as a REIT for the four taxable years following the year in which we
lose our qualification. The additional tax liability resulting from the failure
to qualify as a REIT would significantly reduce or eliminate funds otherwise
available for distribution to our shareholders. Furthermore, we would no longer
be required to make distributions to our shareholders. See the section entitled
"Federal Income Tax Consequences of United Dominion's Status as a REIT" in this
prospectus.
XIX. The Ability of Our Shareholders to Control Our Policies and Effect a
Change of Control of Our Company is Limited, Which May Not Be in Our
Shareholders' Best Interests
In 1998, we adopted a shareholder rights plan. Under the terms of the
shareholder rights plan, our Board of Directors can in effect prevent a person
or group from acquiring more than 15% of the outstanding shares of our common
stock. Unless our Board of Directors approves the person's purchase, after that
person acquires more than 15% of our outstanding common stock, all other
shareholders will have the right to purchase securities from us at a price that
is less than their then fair market value. Purchases by other shareholders
would substantially reduce the value and influence of the shares of our common
stock owned by the acquiring person. Our Board of Directors, however, can
prevent the shareholder rights plan from operating in this manner. This gives
our Board of Directors significant discretion to approve or disapprove a
person's efforts to acquire a large interest in us. For a more complete
description, you should refer to the subsection entitled "Description of Our
Capital Stock -- Rights to Purchase Series C Preferred Stock."
7
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC utilizing a "shelf" registration process. Under this
process, we may sell any combination of the securities described in this
prospectus in one or more offerings up to a total dollar amount of
$700,000,000.
This prospectus provides you with a general description of the securities
that we may offer and the terms of the offering. Each time we offer securities,
we will provide a prospectus supplement that will contain specific descriptions
of those securities and the offering terms. The prospectus supplement may also
add to, update or otherwise change information contained in this prospectus.
The documents incorporated in this prospectus by reference and the registration
statement that we filed with the SEC, including exhibits to the registration
statement, provide more detail on the matters discussed in this prospectus. In
making your investment decision, you should carefully read this prospectus and
any prospectus supplement together with the additional information described
below under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file with the SEC annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and proxy or information statements, which
are incorporated by reference in this prospectus as described under the heading
"Incorporation of Information Filed With the SEC" below. The public may read
and copy the reports and other information that we file with the SEC at their
public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of these materials can be obtained from the Public Reference
Section of the SEC in Washington, D.C. 20549 at prescribed rates. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
You may also obtain information about us from the following regional offices
of the SEC: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601-
2511.
The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding United Dominion and
other issuers that file electronically with the SEC. The address of that site
is http://www.sec.gov.
This prospectus omits certain information included in the registration
statement and its exhibits. Statements made in this prospectus as to the
contents of any contract, agreement or other document that is an exhibit to the
registration statement are only summaries and are not complete. We refer you to
the relevant exhibits for a more complete description of the matter involved.
Each statement regarding an exhibit is qualified by the text of the relevant
document.
8
<PAGE>
INCORPORATION OF INFORMATION FILED WITH THE SEC
We are "incorporating by reference" certain information that we have filed
with the SEC, which means:
. incorporated documents are considered part of this prospectus;
. we are disclosing important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and su-
persede this prospectus.
We incorporate by reference the documents listed below that we filed with
the SEC under the Securities Exchange Act of 1934:
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
. Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
. Current Report on Form 8-K dated October 23, 1998;
. Current Report on Form 8-K dated January 20, 1999;
. Current Report on Form 8-K dated March 29, 1999;
. Current Report on Form 8-K dated December 22, 1999; and
. The description of our common stock contained in our Registration State-
ment on Form 8A dated April 19, 1990, including any amendment filed for
the purpose of updating that description.
We also incorporate by reference each of the following documents that we
may file with the SEC after the date of this prospectus:
. Reports filed under Sections 13(a) and (c) of the Exchange Act;
. Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders' meeting; and
. Any reports filed under Section 15(d) of the Exchange Act.
We will provide to each person, including any beneficial owner, to whom
this prospectus is delivered, a copy of any or all of the information
incorporated by reference upon written or oral request at no cost to the
requester. Requests must be made to:
United Dominion Realty Trust, Inc. 10 South Sixth Street Richmond, Virginia
23219-3802
Attention: Investor Relations (804) 780-2691.
You should rely only on the information contained or incorporated by
reference in this prospectus, any prospectus supplement and the registration
statement. We have not authorized anyone to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. You should assume that the information
appearing in this prospectus, as well as information that we filed with the
SEC before the date of this prospectus and incorporated by reference in this
prospectus, is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects
may have changed since that date.
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FORWARD-LOOKING STATEMENTS
This prospectus and the registration statement, and the reports, proxy
statements and other information that we have filed with the SEC, which we
incorporate by reference in this prospectus, may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. The words
"anticipate," "believe," "estimate," "expect," "project" and similar
expressions, as they relate to us or our management, are intended to identify
forward-looking statements.
We have based these forward-looking statements largely on our expectations
as well as assumptions that we have made and information currently available
to our management. Although we believe that our expectations and assumptions
are reasonable, they are subject to a number or risks and uncertainties, some
of which are beyond our control, and we therefore can give no assurance that
they will in fact be realized. Forward-looking statements that are dependent
upon realization of our assumptions and expectations include, but are not
limited to, those discussing:
. our declaration or payment of distributions;
. our potential developments or acquisitions or dispositions of properties,
assets or other public or private companies;
. our policies regarding investments, indebtedness, acquisitions, disposi-
tions, financings, conflicts of interest and other matters;
. our qualification as a REIT under the Internal Revenue Code;
. the real estate markets in which we operate and in general;
. the availability of debt and equity financing;
. interest rates;
. general economic conditions; and
. trends affecting our financial condition or results of operations.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
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UNITED DOMINION REALTY TRUST, INC.
United Dominion operates in one defined business segment as an owner,
operator, renovator and developer with activities related to the ownership,
acquisition, development, management and strategic disposition of multifamily
apartment communities nationwide. Our strategy is to be a national, highly
efficient provider of quality apartment homes. During the past several years,
we have implemented this strategy through:
. the acquisition of portfolios and mergers with companies primarily in
different markets and different regions;
. the acquisition of higher quality communities;
. the disposition of communities that do not meet our long-term strategic
objectives due to location, size, age, quality and/or operating perfor-
mance;
. the development of higher quality apartment communities in target markets
that can provide higher returns on investment;
. the upgrade of our communities through various capital investments and
through the addition of revenue enhancing and/or expense reducing fea-
tures;
. the hiring of experienced corporate and operations staff; and
. the investment in efficient, scalable systems.
We seek to be a market leader by operating a sufficiently sized portfolio of
apartments within each of our targeted markets in order to reduce operating
costs through economies of scale and management efficiencies. We believe that
geographic market diversification increases investment opportunity and
decreases the risk associated with cyclical local real estate markets and
economies.
At September 30, 1999, we owned 318 communities with 85,216 apartment homes
nationwide. In addition, we had apartment communities with approximately 2,000
apartment homes under development. Our apartment communities consist primarily
of upper and middle income garden and townhouse communities. Most of the
communities are considered to be "A" and "B" quality, that compete at or near
the top of their respective markets. "A" grade communities are generally
properties less than five years old with superior amenity packages. "B" grade
communities are generally either of 1980s construction, located in good
neighborhoods, or renovated 1970s construction in good neighborhoods. We
believe that these well located apartments offer us a good combination of
current income and longer-term income growth.
We intend to continue to qualify as a REIT under the applicable provisions
of the federal income tax laws. To qualify, we must satisfy various tests that,
among other things, require that our assets consist primarily of real estate,
our income be derived primarily from real estate and at least 95% of our
taxable income be distributed to our shareholders. Because we qualify as a
REIT, we are generally not subject to federal income taxes. For a more complete
discussion of the tax related consequences of our being a REIT, see the section
entitled "Federal Income Tax Consequences of United Dominion's Status as a
REIT" in this prospectus.
United Dominion is a Virginia corporation and a self-managed real estate
investment trust. Our common stock is traded on The New York Stock Exchange
under the symbol "UDR." Our principal office is at 10 South Sixth Street,
Richmond, Virginia 23219-3802. Our telephone number is (804) 780-2691, our E-
mail address is [email protected], and our Internet address is http://www.udrt.com.
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USE OF PROCEEDS
Unless we state otherwise in the applicable prospectus supplement, we intend
to use the net proceeds from the sale of our securities for one or more of the
following:
. to repay indebtedness;
. to fund improvements to properties;
. to acquire and develop additional properties; and
. for other general corporate purposes.
The prospectus supplement may also include the allocation of the net
proceeds from the sale of our securities among the various uses listed above.
We may temporarily invest any proceeds that are not immediately applied to
the above purposes in U.S. government or agency obligations, commercial paper,
bank certificates of deposit or repurchase agreements collateralized by U.S.
government or agency obligations. We may also deposit the proceeds with banks.
RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth United Dominion's consolidated ratios of
earnings to fixed charges and earnings to combined fixed charges and preferred
stock dividends for the periods shown.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------- Nine Months Ended
1994 1995 1996 1997 1998 September 30, 1999
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges...................... 1.69x 1.81x 1.73x 1.82x 1.63x 1.63x
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 1.69 1.56 1.45 1.51 1.34 1.32
</TABLE>
The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends was computed by dividing earnings by the total of fixed charges
and preferred stock dividends. For purposes of computing these ratios, earnings
consist of income before extraordinary items plus fixed charges other than
capitalized interest, and fixed charges consist of interest on borrowed funds
(including capitalized interest) and amortization of debt discount and expense.
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DESCRIPTION OF OUR DEBT SECURITIES
The following is a description of the material terms of our debt
securities. We will provide additional terms of our debt securities in a
prospectus supplement.
As required by federal law for all publicly offered notes and debentures,
the debt securities that we may offer with this prospectus are governed by
documents called "indentures." We will issue senior debt securities under an
Indenture, dated as of November 1, 1995, between United Dominion and First
Union National Bank, as trustee. We refer to this indenture as the "Senior
Indenture." We will issue our subordinated debt securities under the
Indenture, dated as of August 1, 1994, between United Dominion and Crestar
Bank, as trustee. We refer to this indenture as the "Subordinated Indenture."
As trustees, First Union and Crestar serve two roles. First, the trustees can
enforce your rights against us should we default on the debt securities.
Second, the trustees assist in administering our obligations under the debt
securities, such as payments of interest.
Below, we describe the indentures and summarize some of their provisions.
However, we have not described every aspect of the debt securities. You should
refer to the actual indentures for a complete description of their provisions
and the definitions of terms used in them. In this prospectus, we provide only
the definitions for some of the more important terms in the indentures.
Wherever we refer to defined terms of the indentures in this prospectus or in
the prospectus supplement, we are incorporating by reference those defined
terms.
The indentures are exhibits to the registration statement. See "Where You
Can Find More Information" for information on how to obtain a copy of the
indentures for your review.
General Terms of Our Debt Securities
We may offer with this prospectus up to $700,000,000 in aggregate principal
amount of unsecured debt obligations. However, the indentures do not limit the
aggregate principal amount of debt securities that we may issue and provide
that we may issue debt securities from time to time in one or more series,
except that the Senior Indenture contains limitations on the amount of
indebtedness that we may incur. See " --Covenants Applicable to Our Senior
Debt Securities."
The senior debt securities will be unsecured obligations and will rank on a
parity with all of our other unsecured and unsubordinated indebtedness.
The subordinated debt securities will be our unsecured obligations and will
be subordinated in right of payment to all senior debt.
Each indenture allows for any one or more series of debt securities to have
one or more trustees. Any trustee under either indenture may resign or be
removed with respect to one or more series of debt securities, and a successor
trustee may be appointed to act with respect to the series. In the event that
two or more persons are acting as trustee with respect to different series of
debt securities, each trustee will be a trustee of a trust under the
applicable indenture separate and apart from the trust administered by any
other trustee. Unless this prospectus states differently, each trustee of a
series of debt securities may take any action that United Dominion may take
under the applicable indenture.
The prospectus supplement will describe the particular terms of each series
of debt securities, as well as any modifications or additions to the general
terms of the indenture applicable to the series of debt securities. This
description will contain all or some of the following as applicable:
. the title of the debt securities and whether the debt securities are se-
nior debt securities or subordinated debt securities;
. the aggregate principal amount of the debt securities being offered, the
aggregate principal amount of debt securities outstanding, and any limit
on the principal amount, including the aggregate principal amount of debt
securities authorized;
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. the percentage of the principal amount at which we will issue the debt
securities and, if other than the principal amount of the debt securi-
ties, the portion of the principal amount payable upon declaration of ac-
celeration of their maturity, or, if applicable, the portion of the prin-
cipal amount of the debt securities that is convertible into United Do-
minion capital stock, or the method for determining the portion;
. if convertible, in connection with the preservation of our status as a
REIT, any applicable limitations on the ownership or transferability of
our capital stock into which the debt securities are convertible;
. the date or dates, or the method for determining the date or dates, on
which the principal of the debt securities will be payable and the amount
of principal payable on the debt securities;
. the rate or rates, which may be fixed or variable, at which the debt se-
curities will bear interest, if any, or the method for determining the
rate or rates, the date or dates from which the interest will accrue or
the method for determining the date or dates, the interest payment dates
on which any interest will be payable and the regular record dates for
the interest payment dates or the method for determining the dates, the
person to whom interest should be payable, and the basis for calculating
interest if other than that of a 360-day year consisting of twelve 30-day
months;
. the place or places where the principal of, and any premium or make-whole
amount as defined in each indenture, any interest on, and any additional
amounts payable in respect of, the debt securities will be payable, where
holders of debt securities may surrender for registration of transfer or
exchange, and where holders may serve notices or demands to or upon
United Dominion in respect of the debt securities and the applicable in-
denture;
. the period or periods within which, the price or prices, including any
premium or make-whole amount, at which, the currency or currencies, cur-
rency unit or units or composite currency or currencies in which and
other terms and conditions upon which the debt securities may be redeemed
in whole or in part at our option, if we have the option;
. our obligation, if any, to redeem, repay or purchase the debt securities
pursuant to any sinking fund or analogous provision or at the option of a
holder of the debt securities, and the period or periods within which or
the date or dates on which, the price or prices at which, the currency or
currencies, currency unit or units or composite currency or currencies in
which, and other terms and conditions upon which the debt securities will
be redeemed, repaid or purchased, in whole or in part, pursuant to the
obligation;
. if other than United States dollars, the currency or currencies in which
the debt securities will be denominated and payable, which may be a for-
eign currency or units of two or more foreign currencies or a composite
currency or currencies;
. whether the amount of payments of principal of, and any premium or make-
whole amount, or any interest on the debt securities may be determined
with reference to an index, formula or other method, which index, formula
or method may be based on one or more currencies, currency units, compos-
ite currencies, commodities, equity indices or other indices, and the
manner for determining the amounts;
. whether the principal of, and any premium or make-whole amount, or any
interest or additional amounts on the debt securities are to be payable,
at the election of United Dominion or a holder, in a currency or curren-
cies, currency unit or units or composite currency or currencies other
than that in which the debt securities are denominated or stated to be
payable, the period or periods within which, and the terms and conditions
upon which, the election may be made, and the time and manner of, and
identity of the exchange rate agent with responsibility for, determining
the exchange rate between the currency or currencies, currency unit or
units or composite currency or currencies in which the debt securities
are denominated or stated to be payable and the currency or currencies,
currency unit or units or composite currency or currencies in which the
debt securities are to be so payable;
. provisions, if any, granting special rights to the holders of the debt
securities upon the occurrence of specified events;
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<PAGE>
. any deletions from, modifications of or additions to the events of de-
fault or covenants of United Dominion with respect to the debt securi-
ties, whether or not the events of default or covenants are consistent
with the events of default or covenants set forth in the applicable in-
denture;
. whether the debt securities will be issued in certificated or book-entry
form;
. the applicability, if any, of the defeasance and covenant defeasance pro-
visions of the applicable indenture;
. whether and under what circumstances we will pay additional amounts as
contemplated in the applicable indenture on the debt securities in re-
spect of any tax, assessment or governmental charge and, if so, whether
we will have the option to redeem the debt securities rather than pay the
additional amounts, and the terms of the option; and
. any other terms of the debt securities not inconsistent with the provi-
sions of the applicable indenture.
The debt securities may be original issue discount securities, which are
debt securities that may provide for less than their entire principal amount
to be payable upon declaration of acceleration of their maturity. Special
United States federal income tax, accounting and other considerations
applicable to original issue discount securities will be described in the
prospectus supplement.
We will provide you with more information in the applicable prospectus
supplement regarding any deletions, modifications or additions to the events
of default or covenants that are described below, including any addition of a
covenant or other provision.
Denominations, Interest, Registration and Transfer
Unless the prospectus supplement states differently, the debt securities of
any series issued in registered form will be issuable in denominations of
$1,000 and integral multiples of $1,000. Unless the prospectus supplement
states differently, the debt securities of any series issued in bearer form
will be issuable in denominations of $5,000.
Unless the prospectus supplement provides differently, the trustees will
pay the principal of and any premium and interest on the debt securities and
will register the transfer of any debt securities at their offices. However,
at our option, we may distribute interest payments by mailing a check to the
address of each holder of debt securities that appears on the register for the
debt securities.
Any interest on a debt security not punctually paid or duly provided for on
any interest payment date will cease to be payable to the holder on the
applicable regular record date. This defaulted interest may be paid to the
person in whose name the debt security is registered at the close of business
on a special record date for the payment of the defaulted interest. United
Dominion will set the special record date and give the holder of the debt
security at least 10 days' prior notice. In the alternative, this defaulted
interest may be paid at any time in any other lawful manner, all as more
completely described in the applicable indenture.
Subject to any limitations imposed upon debt securities issued in book-
entry form, the debt securities of any series will be exchangeable for other
debt securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender to the
applicable trustee of the debt securities. In addition, subject to any
limitations imposed upon debt securities issued in book-entry form, a holder
may surrender the debt securities to the trustee for conversion or
registration of transfer. Every debt security surrendered for conversion,
registration of transfer or exchange will be duly endorsed or accompanied by a
written instrument of transfer from the holder. A holder will not have to pay
a service charge for any registration of transfer or exchange of any debt
securities, but United Dominion may require payment of a sum sufficient to
cover any applicable tax or other governmental charge.
If the prospectus supplement refers to any transfer agent, in addition to
the applicable trustee that United Dominion initially designated with respect
to any series of debt securities, United Dominion may at any time
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<PAGE>
rescind the designation of the transfer agent or approve a change in the loca-
tion through which the transfer agent acts, except that United Dominion will
be required to maintain a transfer agent in each place of payment for the se-
ries. United Dominion may at any time designate additional transfer agents
with respect to any series of debt securities.
Neither United Dominion nor the trustees will be required to:
. issue, register the transfer of or exchange debt securities of any series
during a period beginning at the opening of business 15 days before any
selection of debt securities of that series to be redeemed and ending at
the close of business on the day of mailing of the relevant notice of re-
demption;
. register the transfer of or exchange any debt security, or portion there-
of, called for redemption, except the unredeemed portion of any debt se-
curity being redeemed in part; or
. issue, register the transfer of or exchange any debt security that has
been surrendered for repayment at the holder's option, except the por-
tion, if any, of the debt security not to be repaid.
Merger, Consolidation or Sale
We may consolidate with, or sell, lease or convey all or substantially all
of our assets to, or merge with or into, any other entity, provided that:
. either we will be the continuing entity, or the successor entity formed
by or resulting from the consolidation or merger or that will have re-
ceived the transfer of the assets is a person organized and existing un-
der the laws of the United States or any state and will expressly assume
payment of the principal of, and any premium or make-whole amount, and
interest on all of the debt securities and the due and punctual perfor-
mance and observance of all of the covenants and conditions contained in
each indenture;
. immediately after giving effect to the transaction and treating any re-
sulting indebtedness that becomes our or any subsidiary's obligation as
having been incurred by us or the subsidiary at the time of the transac-
tion, no event of default under the indenture, and no event which, after
notice or the lapse of time, or both, would become an event of default,
will have occurred and be continuing; and
. we receive an Officers' Certificate and legal opinion as to compliance
with these conditions.
Covenants Applicable to Our Senior Debt Securities
Senior Indenture Limitations on Incurrence of Debt. The Senior Indenture
provides that we will not, and will not permit any subsidiary to, incur any
Debt (as defined below) if, immediately after giving effect to the incurrence
of the Debt and the application of the proceeds from the Debt, the aggregate
principal amount of all of our outstanding Debt on a consolidated basis
determined in accordance with generally accepted accounting principles is
greater than 60% of the sum of, without duplication:
. our Total Assets (as defined below) as of the end of the calendar quarter
covered in our Annual Report on Form 10-K or Quarterly Report on Form 10-
Q, as the case may be, most recently filed with the SEC, or, if the fil-
ing is not permitted under the Exchange Act, with the trustee, prior to
the incurrence of the additional Debt; and
. the purchase price of any real estate assets or mortgages receivable ac-
quired, and the amount of any securities offering proceeds received, to
the extent the proceeds were not used to acquire real estate assets or
mortgages receivable or used to reduce Debt, by us or any subsidiary
since the end of the calendar quarter, including those proceeds obtained
in connection with the incurrence of the additional Debt.
The Subordinated Indenture does not limit the incurrence of Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Senior Indenture provides that we will not, and will not permit any subsidiary
to, incur any Debt secured by any mortgage, lien, charge, pledge,
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encumbrance or security interest of any kind upon any of our or any
subsidiary's property if, immediately after giving effect to the incurrence of
the Debt and the application of the proceeds from the Debt, the aggregate
principal amount of all of our outstanding Debt on a consolidated basis that
is secured by any mortgage, lien, charge, pledge, encumbrance or security in-
terest on our or any subsidiary's property is greater than 40% of our Total
Assets.
In addition to the foregoing limitations on the incurrence of Debt, the
Senior Indenture provides that we will not, and will not permit any subsidiary
to, incur any Debt if the ratio of Consolidated Income Available for Debt
Service (as defined below) to the Annual Service Charge (as defined below) for
the four consecutive fiscal quarters most recently ended prior to the date on
which the additional Debt is to be incurred will have been less than 1.5, on a
pro forma basis after giving effect to the Debt and to the application of the
proceeds from the Debt, and calculated on the assumption that:
. the Debt and any other Debt that we have incurred since the first day of
the four-quarter period and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of the
period;
. our repayment or retirement of any other Debt since the first day of the
four-quarter period had been incurred, repaid or retired at the beginning
of the period, except that, in making the computation, the amount of Debt
under any revolving credit facility will be computed based upon the aver-
age daily balance of the Debt during the period;
. in the case of Acquired Debt (as defined below) or Debt incurred in con-
nection with any acquisition since the first day of the four-quarter pe-
riod, the related acquisition had occurred as of the first day of the pe-
riod with the appropriate adjustments with respect to the acquisition be-
ing included in the pro forma calculation; and
. in the case of our acquisition or disposition of any asset or group of
assets since the first day of the four-quarter period, whether by merger,
stock purchase or sale, or asset purchase or the acquisition or disposi-
tion or any related repayment of Debt had occurred as of the first day of
the period with the appropriate adjustments with respect to the acquisi-
tion or disposition being included in the pro forma calculation.
The following terms used in the covenants summarized above have the
indicated meanings:
"Acquired Debt" means Debt of a person (i) existing at the time the person
becomes a subsidiary or (ii) assumed in connection with the acquisition of
assets from the person, in each case, other than Debt incurred in connection
with, or in contemplation of, the person becoming a subsidiary or the
acquisition. Acquired Debt will be deemed to be incurred on the date of the
related acquisition of assets from any person or the date the acquired person
becomes a subsidiary.
"Annual Service Charge" as of any date means the maximum amount that is
payable in any period for interest on, and original issue discount of, our
Debt and the amount of dividends that are payable in respect of any
Disqualified Stock (as defined below).
"Capital Stock" means, with respect to any person, any capital stock,
including preferred stock, shares, interests, participations or other
ownership interests, however designated, of the person and any rights, other
than debt securities convertible into or exchangeable for corporate stock,
warrants or options to purchase any capital stock.
"Consolidated Income Available for Debt Service" for any period means Funds
from Operations (as defined below) plus amounts that have been deducted for
interest on Debt.
"Debt" of United Dominion or any subsidiary means any indebtedness of
United Dominion, or any subsidiary, whether or not contingent, in respect of,
without duplication:
. borrowed money or evidenced by bonds, notes, debentures or similar in-
struments;
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. indebtedness secured by any mortgage, pledge, lien, charge, encumbrance
or any security interest existing on property owned by United Dominion or
any subsidiary;
. the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued or amounts representing the
balance deferred and unpaid of the purchase price of any property or
services, except any balance that constitutes an accrued expense or trade
payable, or all conditional sale obligations or obligations under any ti-
tle retention agreement;
. the principal amount of all obligations of United Dominion or any subsid-
iary with respect to redemption, repayment or other repurchase of any
Disqualified Stock; or
. any lease of property by United Dominion or any subsidiary as lessee that
is reflected on United Dominion's consolidated balance sheet as a capi-
talized lease in accordance with generally accepted accounting principles
to the extent, in the case of items of indebtedness under the first three
bullet points above, that any of the items, other than letters of credit,
would appear as a liability on United Dominion's consolidated balance
sheet in accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any obligation of
United Dominion or any subsidiary to be liable for, or to pay, as obli-
gor, guarantor or otherwise, other than for purposes of collection in the
ordinary course of business, Debt of another person, other than United
Dominion or any subsidiary.
Debt will be deemed to be incurred by us or any subsidiary whenever we or a
subsidiary creates, assumes, guarantees or otherwise becomes liable for that
Debt.
"Disqualified Stock" means, with respect to any person, any capital stock
of the person that by the terms of the capital stock, or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable, upon the happening of any event or otherwise:
. matures or is mandatorily redeemable, pursuant to a sinking fund obliga-
tion or otherwise;
. is convertible into or exchangeable or exercisable for Debt or Disquali-
fied Stock; or
. is redeemable at the option of the holder thereof, in whole or in part,
in each case on or prior to the Stated Maturity of the series of debt se-
curities.
"Funds From Operations" for any period means income before gains or losses
on investments and extraordinary items plus amounts that have been deducted,
and minus amounts that have been added, for the following items, without
duplication:
. provision for preferred stock dividends;
. provision for property depreciation and amortization; and
. the effect of any adjustments for significant non-recurring items, in-
cluding any noncash charge resulting from a change in accounting princi-
ples in determining income before gains or losses on investments and ex-
traordinary items for the period, as reflected in our financial state-
ments for the period determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Total Assets" as of any date means the sum of:
. our Undepreciated Real Estate Assets; and
. all of our other assets determined in accordance with generally accepted
accounting principles, but excluding intangibles.
"Undepreciated Real Estate Assets" as of any date means the original cost
plus capital improvements of our real estate assets on the date, before
depreciation and amortization determined on a consolidated basis in accordance
with generally accepted accounting principles.
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Except as described above, the indentures do not contain any provisions
that would limit our ability to incur indebtedness or that would afford
holders of the debt securities protection in the event of a highly leveraged
or similar transaction involving us or in the event of a change of control.
However, our Charter includes provisions for mandatory redemption and stopping
transfer of our common stock designed to preserve our status as a REIT. The
Internal Revenue Code of 1986 provides that concentration of more than 50% in
value of direct or indirect ownership of common stock in five or fewer
individual shareholders during the last six months of any year will result in
our disqualification as a REIT. Enforcement of the provisions of our Charter
would prevent this concentration and, therefore, prevent or hinder a change of
control. You should refer to the prospectus supplement for information with
respect to any deletions from, modifications of or additions to the events of
default or covenants of United Dominion that are described in this section,
including any addition of a covenant or other provision providing event risk
or similar protection.
Covenants Applicable to All Debt Securities
Existence. Except as described above under "--Merger, Consolidation or
Sale," we will do or cause to be done all things necessary to preserve and
keep in full force and effect our existence, rights, both under our Charter
and statutory, and franchises. However, we will not be required to preserve
any right or franchise if we determine that its preservation is no longer
desirable in the conduct of our business as a whole and that the loss thereof
is not disadvantageous in any material respect to the holders of the debt
securities of any series.
Maintenance of Properties. We will cause all of our properties used or
useful in the conduct of our business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in our
judgment may be necessary so that our business may be properly and
advantageously conducted at all times. However, we will not be prevented from
selling or otherwise disposing of for value our properties in the ordinary
course of business.
Insurance. We will, and will cause each of our subsidiaries to, keep all of
our insurable properties insured against loss or damage in an amount at least
equal to their then full insurable value with financially sound and reputable
insurance companies.
Payment of Taxes and Other Claims. We will pay or discharge or cause to be
paid or discharged, before the same will become delinquent:
. all taxes, assessments and governmental charges levied or imposed upon us
or any subsidiary or upon our or any subsidiary's income, profits or
property; and
. all lawful claims for labor, materials and supplies that, if unpaid,
might by law become a lien upon our or any subsidiary's property.
However, we will not be required to pay or discharge or cause to be paid or
discharged any tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Provision of Financial Information. Whether or not we are subject to
Sections 13 or 15(d) of the Exchange Act, we will, to the extent permitted
under the Exchange Act, file with the SEC in a timely fashion the annual
reports, quarterly reports and other documents that we would have been
required to file with the SEC pursuant to Sections 13 and 15(d). We will also
in any event:
. within 15 days of each required filing date
--transmit by mail to all holders of debt securities, as their names and
addresses appear in the security register, without cost to the holders,
copies of the annual reports and quarterly reports that we would have
been required to file with the SEC pursuant to Sections 13 or 15(d) of
the Exchange Act if we were subject to those Sections; and
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--file with the trustee copies of the annual reports, quarterly reports
and other documents that we would have been required to file with the
SEC pursuant to Sections 13 or 15(d) of the Exchange Act if we were sub-
ject to those Sections; and
. if our filing the documents with the SEC is not permitted under the Ex-
change Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of the documents to any
prospective holder.
Events of Default, Notice and Waiver
Each indenture provides that the following events are "events of default"
with respect to any issued series of debt securities:
. default for 30 days in the payment of any installment of interest or ad-
ditional amounts payable on any debt security of the series;
. default in the payment of the principal of, or any premium or make-whole
amount on any debt security of the series at its maturity;
. default in making any sinking fund payment as required for any debt secu-
rity of the series;
. default in the performance of any other covenant of United Dominion con-
tained in the indenture, other than a covenant added to the indenture
solely for the benefit of a series of debt securities issued under the
indenture other than the series, continued for 60 days after written no-
tice as provided in the indenture;
. default under any bond, debenture, note, mortgage, indenture or instru-
ment under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by United Dominion, or by
any subsidiary, the repayment of which we have guaranteed or for which we
are directly responsible or liable as obligor or guarantor, having an ag-
gregate principal amount outstanding of at least $10,000,000, whether the
indebtedness now exists or will later be created, which default will have
resulted in the indebtedness being declared due and payable prior to the
date on which it would otherwise have become due and payable, without the
acceleration having been rescinded or annulled within 10 days after writ-
ten notice as provided in the indenture;
. the entry by a court of competent jurisdiction of one or more judgments,
orders or decrees against United Dominion or any subsidiary in an aggre-
gate amount, excluding amounts covered by insurance, in excess of
$10,000,000 and those judgments, orders or decrees remain undischarged,
unstayed and unsatisfied in an aggregate amount, excluding amounts cov-
ered by insurance, in excess of $10,000,000 for a period of 30 consecu-
tive days;
. certain events of bankruptcy, insolvency or reorganization, or court ap-
pointment of a receiver, liquidator or trustee of United Dominion or any
significant subsidiary or for all or substantially all of either of their
property; and
. any other event of default provided with respect to the series of debt
securities.
The term "significant subsidiary" means each significant subsidiary, as
defined in Regulation S-X promulgated under the Securities Act, of United
Dominion.
If an event of default under either indenture with respect to debt
securities of any series at the time outstanding occurs and is continuing,
then in every case the trustee or the holders of not less than 25% in
principal amount of the outstanding debt securities of that series may declare
the principal amount, or, if the debt securities of that series are original
issue discount securities or indexed securities, the portion of the principal
amount as may be specified in their terms, of, and any make-whole amount on,
all of the debt securities of that series to be due and payable immediately by
written notice to United Dominion, and to the trustee if given by the holders.
However, at any time after the declaration of acceleration with respect to
debt securities of the series, or of all debt securities then outstanding
under the applicable indenture, as the case may
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be, has been made, but before a judgment or decree for payment of the money
due has been obtained by the trustee, the holders of not less than a majority
in principal amount of the outstanding debt securities of the series, or of
all debt securities then outstanding under the applicable indenture, as the
case may be, may rescind and annul the declaration and its consequences if:
. United Dominion will have deposited with the trustee all required pay-
ments of the principal of and any premium or make-whole amount and inter-
est, and any additional amounts, on the debt securities of the series, or
of all debt securities then outstanding under the applicable indenture,
as the case may be, plus certain fees, expenses, disbursements and ad-
vances of the trustee; and
. all events of default, other than the nonpayment of accelerated princi-
pal, or specified portion thereof and any premium or make-whole amount,
or interest, with respect to the debt securities of the series, or of all
debt securities then outstanding under the applicable indenture, as the
case may be, have been cured or waived as provided in the indenture.
Each indenture also provides that the holders of not less than a majority
in principal amount of the outstanding debt securities of any series, or of
all debt securities then outstanding under the applicable indenture, as the
case may be, may waive any past default with respect to the series and its
consequences, except a default:
. in the payment of the principal of, or any premium or make-whole amount,
or interest or additional amounts payable on any debt security of the se-
ries; or
. in respect of a covenant or provision contained in the applicable inden-
ture that cannot be modified or amended without the consent of the holder
of each affected outstanding debt security.
Each trustee is required to give notice to the holders of debt securities
within 90 days of a default under the applicable indenture. However, the
trustee may withhold notice to the holders of any series of debt securities of
any default with respect to that series, except a default in the payment of
the principal of, or any premium or make-whole amount, or interest or
additional amounts payable, on any debt security of the series or in the
payment of any sinking fund installment in respect of any debt security of the
series, if the trustee considers the withholding to be in the interest of the
holders.
Each indenture provides that no holders of debt securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
indenture or for any remedy thereunder, except in the case of failure of the
trustee for 60 days to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of
not less than 25% in principal amount of the outstanding debt securities of
the series, as well as an offer of reasonable indemnity This provision will
not prevent, however, any holder of debt securities from instituting suit for
the enforcement of payment of the principal of, and any premium or make-whole
amount, interest on and additional amounts payable with respect to, the debt
securities at their respective due dates.
Modification of the Indentures
United Dominion and the applicable trustee may modify and amend either
indenture with the consent of the holders of not less than a majority in
principal amount of all outstanding debt securities issued under the indenture
affected by the modification or amendment. However, we must have the consent
of the holders of all affected outstanding debt securities to:
. change the stated maturity of the principal of, or any premium or make-
whole amount, or any installment of principal of or interest or addi-
tional amounts payable on, any debt security;
. reduce the principal amount of, or the rate or amount of interest on, or
any premium or make-whole amount payable on redemption of, or any addi-
tional amounts payable with respect to, any debt security, or reduce the
amount of principal of an original issue discount security or make-whole
amount, if any, that would be due and payable upon declaration of accel-
eration of its maturity or would be provable in bankruptcy, or adversely
affect any right of repayment of the holder of any debt security;
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. change the place of payment, or the coin or currency, for payment of
principal of, and any premium or make-whole amount, or interest on, or
any additional amounts payable with respect to, a debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any debt security;
. reduce the percentage of outstanding debt securities of any series neces-
sary to modify or amend the applicable indenture, to waive compliance
with any provisions of that indenture or any defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in
the indenture; or
. modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect the action or to provide that
certain other provisions may not be modified or waived without the con-
sent of the holder of the debt security.
The holders of not less than a majority in principal amount of outstanding
debt securities issued under either indenture have the right to waive our
compliance with some covenants in the indenture.
Subordination
Upon any distribution to our creditors in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on the
subordinated debt securities will be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all senior debt. Our obligation to make payment of the principal and interest
on the subordinated debt securities will not otherwise be affected.
No payment of principal or interest may be made on the subordinated debt
securities at any time if a default on senior debt exists that permits the
holders of the senior debt to accelerate its maturity and the default is the
subject of judicial proceedings or we receive notice of the default. After all
senior debt is paid in full and until the subordinated debt securities are
paid in full, holders will be subrogated to the rights of holders of senior
debt to the extent that distributions otherwise payable to holders have been
applied to the payment of senior debt. By reason of this subordination, in the
event of a distribution of assets upon insolvency, certain of our general
creditors may recover more, ratably, than holders of the subordinated debt
securities.
Senior debt is defined in the Subordinated Indenture as the principal of
and interest on, or substantially similar payments to be made by United
Dominion in respect of, the following, whether outstanding at the date of
execution of the Subordinated Indenture or thereafter incurred, created or
assumed:
. indebtedness of United Dominion for money borrowed or represented by pur-
chase-money obligations;
. indebtedness of United Dominion evidenced by notes, debentures, or bonds,
or other securities issued under the provisions of an indenture, fiscal
agency agreement or other instrument;
. obligations of United Dominion as lessee under leases of property either
made as part of any sale and leaseback transaction to which United Domin-
ion is a party or otherwise;
. indebtedness of partnerships and joint ventures that is included in the
consolidated financial statements of United Dominion;
. indebtedness, obligations and liabilities of others in respect of which
United Dominion is liable contingently or otherwise to pay or advance
money or property or as guarantor, endorser or otherwise or which United
Dominion has agreed to purchase or otherwise acquire; and
. any binding commitment of United Dominion to fund any real estate invest-
ment or to fund any investment in any entity making a real estate invest-
ment, in each case other than the following:
--any indebtedness, obligation or liability referred to in the above bul-
let points as to which, in the instrument creating or evidencing the
same pursuant to which the same is outstanding, it is provided
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that the indebtedness, obligation or liability is not superior in right
of payment to the subordinated debt securities or ranks pari passu with
the subordinated debt securities;
--any indebtedness, obligation or liability that is subordinated to in-
debtedness of United Dominion to substantially the same extent as or to
a greater extent than the subordinated debt securities are subordinated;
and
--the subordinated debt securities.
At September 30, 1999, our senior debt aggregated approximately $2.2
billion.
Discharge, Defeasance and Covenant Defeasance
Under each indenture, United Dominion may discharge certain obligations to
holders of any series of debt securities issued under an indenture that have
not already been delivered to the applicable trustee for cancellation and that
either have become due and payable or will become due and payable within one
year, or scheduled for redemption within one year, by irrevocably depositing
with the applicable trustee, in trust, funds in the currency or currencies,
currency unit or units or composite currency or currencies in which the debt
securities are payable in an amount sufficient to pay the entire indebtedness
on the debt securities in respect of principal, and any premium or make-whole
amount, and interest and any additional amounts payable to the date of the
deposit, if the debt securities have become due and payable, or to the stated
maturity or redemption date, as the case may be.
Each indenture provides that, if the provisions of its Article Fourteen are
made applicable to the debt securities of or within any series pursuant the
indenture, United Dominion may elect:
. ""defeasance," which is to defease and be discharged from any and all ob-
ligations with respect to the debt securities, except for the obligation
to pay additional amounts, if any, upon the occurrence of certain events
of tax, assessment or governmental charge with respect to payments on the
debt securities and the obligations to register the transfer or exchange
of the debt securities, to replace temporary or mutilated, destroyed,
lost or stolen debt securities, to maintain an office or agency in re-
spect of the debt securities and to hold moneys for payment in trust; or
. ""covenant defeasance," which is to be released from our obligations with
respect to the debt securities under provisions of each indenture de-
scribed under "Covenants Applicable to Our Senior Debt Securities" and
"Covenants Applicable to All Debt Securities," or, if provided pursuant
to Section 301 of each indenture, our obligations with respect to any
other covenant, and any omission to comply with the obligations will not
constitute a default or an event or default with respect to the debt se-
curities.
In either case upon our irrevocable deposit with the applicable trustee, in
trust, of an amount, in the currency or currencies, currency unit or currency
units or composite currency or currencies in which the debt securities are
payable at stated maturity, or Government Obligations (as defined below), or
both, applicable to the debt securities that through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of, and any premium or make-whole
amount, and interest on the debt securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, United
Dominion has delivered to the applicable trustee an opinion of counsel, as
specified in each indenture, to the effect that the holders of the debt
securities will not recognize income, gain or loss for United States federal
income tax purposes as a result of the defeasance or covenant defeasance and
will be subject to United States federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the
defeasance or covenant defeasance had not occurred. In the case of defeasance,
the opinion of counsel must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal
income tax laws occurring after the date of the indenture.
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"Government Obligations" means securities that are:
. direct obligations of the United States of America or the government that
issued the foreign currency in which the debt securities of a particular
series are payable, for the payment of which its full faith and credit is
pledged; or
. obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or the govern-
ment that issued the foreign currency in which the debt securities of the
series are payable, the payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America or any
other government, which, in either case, are not callable or redeemable
at the option of the issuer, and will also include a depository receipt
issued by a bank or trust company as custodian with respect to any Gov-
ernment Obligation or a specific payment of interest on or principal of
any Government Obligation held by the custodian for the account of the
holder of a depository receipt, provided that, except as required by law,
the custodian is not authorized to make any deduction from the amount
payable to the holder of the depository receipt from any amount received
by the custodian in respect of the Government Obligation or the specific
payment of interest on or principal of the Government Obligation evi-
denced by the depository receipt.
Unless otherwise provided in the prospectus supplement, if after United
Dominion has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to debt securities of any
series,
. the holder of a debt security of the series is entitled to, and does,
elect pursuant to Section 301 of the indenture or the terms of the debt
security to receive payment in a currency, currency unit or composite
currency other than that in which the deposit has been made in respect of
the debt security; or
. a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which the deposit has been made,
the indebtedness represented by the debt security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of
the principal of, and any premium or make-whole amount, and interest on
the debt security as they become due out of the proceeds yielded by con-
verting the amount deposited in respect of the debt security into the
currency, currency unit or composite currency in which the debt security
becomes payable as a result of the election or cessation of usage based
on the applicable market exchange rate.
"Conversion Event" means the cessation of use of:
. a currency, currency unit or composite currency, other than the ECU or
other currency unit, both by the government of the country that issued
the currency and for the settlement of transactions by a central bank or
other public institutions of or within the international banking communi-
ty;
. the ECU both within the European Monetary System and for the settlement
of transactions by public institutions of or within the European Communi-
ties; or
. any currency unit or composite currency other than the ECU for the pur-
poses for which it was established.
Unless otherwise provided in the prospectus supplement, all payments of
principal of, and any premium or make-whole amount, and interest on any debt
security that is payable in a foreign currency that ceases to be used by its
government of issuance will be made in United States dollars.
If United Dominion effects covenant defeasance with respect to any debt
securities and those debt securities are declared due and payable because of
the occurrence of any event of default, the amount in the currency, currency
unit or composite currency in which the debt securities are payable, and
Government Obligations on deposit with the trustee, will be sufficient to pay
amounts due on the debt securities at the time of their stated maturity but
may not be sufficient to pay amounts due on the debt securities at the time of
the acceleration resulting from the event of default. This situation will not
apply in the case of an event of default described in the fourth bullet point
under "--Events of Default, Notice and Waiver" of either indenture, which
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sections would no longer be applicable to the debt securities or described in
the last bullet point under "--Events of Default, Notice and Waiver" with
respect to a covenant as to which there has been covenant defeasance. However,
we would remain liable to make payment of the amounts due at the time of
acceleration.
The prospectus supplement may further describe the provisions, if any,
permitting defeasance or covenant defeasance, including any modifications to
the provisions described above, with respect to the debt securities of or
within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are
convertible into United Dominion capital stock will be set forth in the
applicable prospectus supplement. The terms will include:
.whether the debt securities are convertible into capital stock;
.the conversion price, or its manner of calculation;
.the conversion period;
.provisions as to whether conversion will be at the option of the
holders or United Dominion;
.the events requiring an adjustment of the conversion price; and
.provisions affecting conversion in the event of the redemption of the
debt securities.
Book-Entry System
We may issue the debt securities of a series as one or more fully
registered global securities. We will deposit the global securities with, or
on behalf of, a depository bank identified in the prospectus supplement
relating to the series. We will register the global securities in the name of
the depository bank or its nominee. In that case, one or more global
securities will be issued in a denomination or aggregate denominations equal
to the aggregate principal amount of outstanding debt securities of the series
represented by the global security or securities. Until any global security is
exchanged in whole or in part for debt securities in definitive certificated
form, the depository bank or its nominee may not transfer the global
certificate except to each other, another nominee or to their successors and
except as described in the applicable prospectus supplement.
The prospectus supplement will describe the specific terms of the
depository arrangement with respect to a series of debt securities that a
global security will represent. We anticipate that the following provisions
will apply to all depository arrangements.
Upon the issuance of any global security, and the deposit of the global se-
curity with or on behalf of the depository bank for the global security, the
depository bank will credit, on its book-entry registration and transfer sys-
tem, the respective principal amounts of the debt securities represented by
the global security to the accounts of institutions, also referred to as "par-
ticipants," that have accounts with the depository bank or its nominee. The
accounts to be credited will be designated by the underwriters or agents en-
gaging in the distribution or placement of the debt securities or by us, if we
offer and sell the debt securities directly. Ownership of beneficial interests
in the global security will be limited to participants or persons that may
hold interests through participants.
Ownership of beneficial interests by participants in the global security
will be shown by book-keeping entries on, and the transfer of that ownership
interest will be effected only through book-keeping entries to, records
maintained by the depository bank or its nominee for the global security.
Ownership of beneficial interests in the global security by persons that hold
through participants will be shown by book-keeping entries on, and the
transfer of that ownership interest among or through the participants will be
effected only through book-keeping entries to, records maintained by the
participants.
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The laws of some jurisdictions require that some of the purchasers of
securities take physical delivery of the securities in definitive certificated
form rather than book-entry form. Such laws may impair the ability to own,
transfer or pledge beneficial interests in any global security.
So long as the depository bank for a global security or its nominee is the
registered owner of the global security, the depository bank or the nominee,
as the case may be, will be considered the sole owner or holder of the debt
securities represented by the global security for all purposes under the
indenture. Except as described below or otherwise specified in the applicable
prospectus supplement, owners of beneficial interests in a global security:
. will not be entitled to have debt securities of the series represented by
the global security registered in their names;
. will not receive or be entitled to receive physical delivery of debt se-
curities of the series in definitive certificated form; and
. will not be considered the holders thereof for any purposes under the in-
denture.
Accordingly, each person owning a beneficial interest in the global
security must rely on the procedures of the depository bank and, if the person
is not a participant, on the procedures of the participant through which the
person directly or indirectly owns its interest, to exercise any rights of a
holder under the indenture. The indenture provides that the depository bank
may grant proxies and otherwise authorize participants to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action that a holder is entitled to give or take under the indenture.
We understand that under existing industry practices, if we request any
action of holders or any owner of a beneficial interest in the global security
desires to give any notice or take any action that a holder is entitled to
give or take under the indenture, the depository bank for the global security
would authorize the participants holding the relevant beneficial interest to
give notice or take action, and the participants would authorize beneficial
owners owning through the participants to give notice or take action or would
otherwise act upon the instructions of beneficial owners owning through them.
Principal and any premium and interest payments on debt securities
represented by a global security registered in the name of a depository bank
or its nominee will be made to the depository bank or its nominee, as the case
may be, as the registered owner of the global security. None of us, the
trustee or any paying agent for the debt securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in any global
security or for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
We expect that the depository bank for any series of debt securities
represented by a global security, upon receipt of any payment of principal,
premium or interest, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global security as shown on the records of the
depository bank. We also expect that payments by participants to owners of
beneficial interests in the global security or securities held through the
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of the
participants.
If the depository bank for any series of debt securities represented by a
global security is at any time unwilling or unable to continue as depository
bank and we do not appoint a successor depository bank within 90 days, we will
issue the debt securities in definitive certificated form in exchange for the
global security. In addition, we may at any time and in our sole discretion
determine not to have the debt securities of a series represented by one or
more global securities and, in the event, will issue debt securities of the
series in definitive certificated form in exchange for the global security
representing the series of debt securities.
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Debt securities of the series issued in definitive certificated form will,
except as described in the applicable prospectus supplement, be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form.
Trustees
First Union National Bank is the trustee under the Senior Indenture. Crestar
Bank is the trustee under the Subordinated Indenture. Both First Union National
Bank and Crestar Bank have lending relationships with us.
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DESCRIPTION OF OUR CAPITAL STOCK
General
The following is a summary of some of the important terms of our capital
stock. You should review the applicable Virginia law and our Charter and our
Restated Bylaws for a more complete description of our capital stock.
United Dominion is authorized to issue 150,000,000 shares of common stock,
$1 par value, and 25,000,000 shares of preferred stock, no par value. The
preferred stock is issuable in series designated by our Board of Directors,
which has designated four series: 9.25% Series A Cumulative Redeemable
Preferred Stock, 8.60% Series B Cumulative Redeemable Preferred Stock, Series C
Junior Participating Cumulative Redeemable Preferred Stock and Series D
Cumulative Convertible Redeemable Preferred Stock. At November 9, 1999, there
were outstanding 102,996,532 shares of common stock, 4,200,000 shares of Series
A Preferred Stock, 6,000,000 shares of Series B Preferred Stock and 8,000,000
shares of Series D Preferred Stock. No shares of Series C Preferred Stock have
been issued, and we will not issue any shares of Series C Preferred Stock
except upon the exercise of rights as described below under "--Rights to
Purchase Series C Preferred Stock." We will not issue additional shares of any
outstanding series of preferred stock.
Common Stock
Holders of our common stock are entitled to receive dividends when and as
declared by the Board of Directors after payment of, or provision for, full
cumulative dividends on and any required redemptions of shares of our preferred
stock then outstanding. Holders of our common stock have one vote per share and
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting can elect all of the directors if they choose to do so, and, in
the event, the holders of the remaining shares will not be able to elect any
directors. In the event of our voluntary or involuntary liquidation or
dissolution, holders of our common stock are entitled to share ratably in our
distributable assets remaining after satisfaction of the prior preferential
rights of our preferred stock and the satisfaction of all of our debts and
liabilities. Holders of our common stock do not have preemptive rights.
The dividend and liquidation rights of holders of our common stock are
specifically limited by the terms of the outstanding preferred stock, which
provide that no dividends will be declared or paid or on the common stock
unless the accrued dividends on each series of outstanding preferred stock have
been fully paid or declared and set apart for payment, and that in the event of
any liquidation, dissolution or winding up of United Dominion, the holders of
each series of preferred stock will be entitled to receive out of our assets
available for distribution to shareholders the liquidation preference of that
series before any amount is distributed to common shareholders.
The transfer agent for our common stock is ChaseMellon Shareholder Services,
L.L.C., Ridgefield Park, New Jersey. Our common stock is traded on the NYSE
under the symbol "UDR."
Preferred Stock
The following description sets forth general terms and provisions of our
preferred stock. Specific terms of any series of preferred stock offered by a
prospectus supplement will be described in that prospectus supplement. You
should review our Charter for a more complete description of the preferences,
limitations and relative rights of a particular series of preferred stock.
General. Under our Charter, the Board of Directors is authorized, without
further shareholder action, to provide for the issuance of up to 25,000,000
shares of preferred stock, in one or more series, with the voting powers and
with the designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions, as the
Board of Directors will approve.
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Our preferred stock will have the dividend, liquidation, redemption,
conversion and voting rights set forth below unless otherwise provided in the
prospectus supplement relating to a particular series of preferred stock. In an
offering of a series of our preferred stock, the prospectus supplement will
provide specific terms of the series, including:
. the title and liquidation preference per share of the preferred stock and
the number of shares offered;
. the price at which the series will be issued;
. the dividend rate or method of its calculation, the dates on which divi-
dends will be payable and the dates from which dividends will commence to
accumulate;
. any redemption or sinking fund provisions of the series;
. any conversion provisions of the series; and
. any additional dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions of the se-
ries.
Our preferred stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the prospectus supplement relating to a
particular series of preferred stock, each series will rank on a parity as to
dividends and distributions in the event of a liquidation with each other
series of preferred stock and, in all cases, will be senior to the common
stock.
Dividend Rights. Holders of preferred stock of each series will be entitled
to receive, when declared by the Board of Directors, cash dividends at the
rates and on the dates as set forth in the prospectus supplement relating to
the series of preferred stock. The rate may be fixed or variable or both and
may be cumulative, noncumulative or partially cumulative.
If the prospectus supplement provides, as long as any shares of preferred
stock are outstanding, no dividends will be declared or paid or any
distributions be made on the common stock, other than a dividend payable in
common stock, unless the accrued dividends on each series of preferred stock
have been fully paid or declared and set apart for payment and United Dominion
will have set apart all amounts, if any, required to be set apart for all
sinking funds, if any, for each series of preferred stock.
If the prospectus supplement so provides, when dividends are not paid in
full upon any series of preferred stock and any other series of preferred stock
ranking on a parity as to dividends with the series of preferred stock, all
dividends declared upon the series of preferred stock and any other series of
preferred stock ranking on a parity as to dividends will be declared pro rata
so that the amount of dividends declared per share on the series of preferred
stock and the other series will in all cases bear to each other the same ratio
that accrued dividends per share on the series of preferred stock and the other
series bear to each other.
Each series of preferred stock will be entitled to dividends as described in
the prospectus supplement relating to the series, which may be based upon one
or more methods of determination. Different series of preferred stock may be
entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable prospectus
supplement, no series of preferred stock will be entitled to participate in our
earnings or assets.
Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of United Dominion, the holders of each
series of preferred stock will be entitled to receive out of our assets
available for distribution to shareholders the amount stated or determined on
the basis set forth in the prospectus supplement relating to the series. This
distribution may include accrued dividends, if the liquidation, dissolution or
winding up is involuntary. If the liquidation, dissolution or winding up is
voluntary the distribution may equal the current redemption price per share
provided for the series set forth in the prospectus supplement, otherwise than
for the sinking fund, if any, provided for the series. Any preferential basis
for the distribution will be set forth in the prospectus supplement.
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If, upon any voluntary or involuntary liquidation, dissolution or winding
up of United Dominion, the amounts payable with respect to preferred stock of
any series and any other shares of stock of United Dominion ranking as to any
such distribution on a parity with the series of preferred stock are not paid
in full, the holders of preferred stock of the series and of the other shares
will share ratably in any distribution of our assets in proportion to the full
respective preferential amounts to which they are entitled or on such other
basis as is set forth in the applicable prospectus supplement. The rights, if
any, of the holders of any series of preferred stock to participate in our
remaining assets after the holders of other series of preferred stock have
been paid their respective specified liquidation preferences upon any
liquidation, dissolution or winding up of United Dominion will be described in
the prospectus supplement relating to the series.
Redemption. A series of preferred stock may be redeemable, in whole or in
part, at our option, and may be subject to mandatory redemption pursuant to a
sinking fund, in each case upon terms, at the times, the redemption prices and
for the types of consideration set forth in the prospectus supplement relating
to the series. The prospectus supplement relating to a series of preferred
stock that is subject to mandatory redemption will specify the number of
shares of the series that we will redeem in each year commencing after a
specified date at a specified redemption price per share, together with an
amount equal to any accrued and unpaid dividends to the date of redemption.
If, after giving notice of redemption to the holders of a series of
preferred stock, United Dominion deposits with a designated bank funds
sufficient to redeem the preferred stock, then from and after the deposit, all
shares called for redemption will no longer be outstanding for any purpose,
other than the right to receive the redemption price and the right to convert
the shares into other classes of capital stock of United Dominion. The
prospectus supplement will set forth the redemption price relating to a
particular series of preferred stock.
Except as indicated in the applicable prospectus supplement, the preferred
stock is not subject to any mandatory redemption at the option of the holder.
Sinking Fund. The prospectus supplement for any series of preferred stock
will state the terms, if any, of a sinking fund for the purchase or redemption
of that series.
Conversion Rights. The prospectus supplement for any series of preferred
stock will state the terms, if any, on which shares of that series are
convertible into shares of common stock or another series of preferred stock.
The preferred stock will have no preemptive rights.
Voting Rights. Except as indicated in the prospectus supplement relating to
a particular series of preferred stock, or except as expressly required by
Virginia law, a holder of preferred stock will not be entitled to vote. Except
as indicated in the prospectus supplement relating to a particular series of
preferred stock, in the event United Dominion issues full shares of any series
of preferred stock, each share will be entitled to one vote on matters on
which holders of the series of preferred stock are entitled to vote.
Under Virginia law, the affirmative vote of the holders of a majority of
the outstanding shares of all series of preferred stock, voting as a separate
voting group, will be required for:
. the authorization of any class of stock ranking prior to or on parity
with preferred stock or the increase in the number of authorized shares
of any such stock;
. any increase in the number of authorized shares of preferred stock; and
. certain amendments to our Charter that may be adverse to the rights of
outstanding preferred stock.
Transfer Agent and Registrar. The prospectus supplement will state our
selection for the transfer agent, registrar and dividend disbursement agent
for a series of preferred stock. The registrar for shares of preferred stock
will send notices to shareholders of any meetings at which holders of
preferred stock have the right to vote on any matter.
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Rights to Purchase Series C Preferred Stock
Pursuant to our shareholder rights plan, each share of common stock has
attached to it one right to purchase from United Dominion one one-thousandth
of a share of Series C Preferred Stock. Each one one-thousandth of a share of
Series C Preferred Stock is structured to be the equivalent of one share of
common stock. The exercise price of the rights is $45.00, subject to
adjustment. For a discussion of the impact of our shareholder rights plan, you
should refer to the subsection entitled "Risks of Investment--The Ability of
Our Shareholders to Control Our Policies and Effect a Change of Control of Our
Company is Limited, Which May Not Be in Our Shareholders' Best Interests."
The rights will separate from the common stock and a distribution of
certificates evidencing the rights will occur upon the earlier of:
. 10 business days following a public announcement that a person or group
of related persons has acquired, or obtained the right to acquire, bene-
ficial ownership of more than 15% of the outstanding shares of common
stock; or
. 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning more
than 15% of the outstanding shares of common stock.
The rights will expire at the close of business on February 4, 2008, unless
we redeem or exchange them earlier.
Series C Preferred Stock
The Series C Preferred Stock is junior to all other outstanding series of
preferred stock in respect of rights to receive dividends and to participate
in distributions or payments in the event of our liquidation, dissolution or
winding up. The Series C Preferred Stock is senior to the common stock and, as
to dividends and upon liquidation, any of our other capital stock that ranks
junior to the Series C Preferred Stock.
Holders of shares of the Series C Preferred Stock are be entitled to
receive cumulative preferential cash dividends payable quarterly in an amount
per share equal to:
. the greater of
--$.01 or
--1,000 times the aggregate per share amount of all cash dividends; and
. 1,000 times the aggregate per share amount, payable in kind, of all non-
cash dividends or other distributions, other than dividends payable in
shares of common stock, declared on the common stock since the immedi-
ately preceding quarterly dividend payment date, or, with respect to the
first quarterly dividend payment date, since the first issuance of any
share or fraction of a share of Series C Preferred Stock.
In the event of any liquidation, dissolution or winding up of United
Dominion, the holders of shares of Series C Preferred Stock are entitled to be
paid out of our assets legally available for distribution to our shareholders
a liquidation preference of $1,000 per share, plus accrued and unpaid
dividends thereon to the date of payment, of which is referred to as the
"Series C Preferred Liquidation Preference." After the payment to the holders
of the shares of the Series C Preferred Stock of the full Series C Preferred
Liquidation Preference, the holders of the Series C Preferred Stock as such
shall have no right or claim to any of the remaining assets of the corporation
until the holders of common stock shall have received an amount per share,
referred to as the "common adjustment," equal to the quotient obtained by
dividing the Series C Preferred Liquidation Preference by 1,000. In the event
that there are not sufficient assets available after payment in full of the
Series C Preferred Liquidation Preference to permit payment in full of the
common adjustment, then the remaining assets shall be distributed ratably to
the holders of the common stock.
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The outstanding shares of Series C Preferred Stock may be redeemed at the
option of the Board of Directors as a whole, but not in part, at any time, or
from time to time, at a redemption price per share equal to 1,000 times the
Average Market Value of the common stock, plus all accrued and unpaid
dividends to and including the date fixed for redemption. The "Average Market
Value" is the average of the closing sale prices of a share of the common
stock during the 30-day period immediately preceding the date before the
redemption date quoted on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if the common stock is not quoted on the Composite Tape, on
The New York Stock Exchange, or, if the common stock is not listed on such
exchange, on the principal United States registered securities exchange on
which the common stock is listed, or, if the common stock is not listed on any
such exchange, the average of the closing bid quotations with respect to a
share of common stock during such 30-day period on The Nasdaq Stock Market, or
if no such quotations are available, the fair market value of a share of
common stock as determined by the Board of Directors in good faith.
Each share of Series C Preferred Stock entitles its holder to 1,000 votes
on all matters submitted to a vote of our shareholders. The holders of shares
of Series C Preferred Stock and the holders of shares of common stock vote
together as one voting group on all those matters.
Whenever dividends on any shares of Series C Preferred Stock are in arrears
for six or more consecutive quarterly periods, our entire Board of Directors
will be increased by two directors and the holders of Series C Preferred
Stock, voting separately as a class with all other series of preferred stock
having like voting rights, may vote for the election of two additional
directors of United Dominion until all dividend arrearages have been fully
paid.
The dividend rate on the Series C Preferred Stock , the Series C Preferred
Liquidation Preference, the Common Adjustment, the Series C Preferred
Redemption Price and the number of votes per share of Series C Preferred Stock
are all subject to adjustment upon the declaration of any dividend payable in
common stock, subdivision of the outstanding common stock or combination of
the outstanding shares of common stock into a smaller number of shares.
Dividend Restrictions
A covenant in our loan agreement with a group of insurance company lenders
effectively prohibits us from declaring or paying dividends if, after giving
effect to the declaration or payment,
. a default or "Event of Default" under the agreement will occur and be
continuing,
. we would be prohibited from incurring debt under other covenants in the
agreement, and
. the dividends and other "Restricted Payments," as defined in the loan
agreement, declared during the same fiscal year as the dividends would
exceed the sum of "Cash Flow," as defined in the loan agreement, from the
beginning of that fiscal year to and including the last day of the com-
pleted fiscal quarter immediately preceding the dividend payment date,
and the net cash proceeds received by us from the issuance or sale of
capital stock after February 24, 1993, plus $20,000,000, minus the total
of the amounts, if any, by which "Restricted Payments" declared during
each fiscal year after December 31, 1992, exceed "Cash Flow" for the ap-
plicable fiscal year.
In addition, a covenant in our credit agreement with a group of bank
lenders prohibits the payment of dividends and distributions on our common
stock in excess of 95% of our "Funds From Operations," as defined in the
credit agreement, during any period, excluding dividends paid as a result of
extraordinary gains which are excluded from the "Funds From Operations"
calculation.
Despite these covenants, we may pay dividends required to maintain our
qualification as a REIT under the Internal Revenue Code.
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Affiliated Transactions
The Virginia Stock Corporation Act contains provisions governing
"affiliated transactions" designed to deter uninvited takeovers of Virginia
corporations. These provisions, with several exceptions discussed below,
require approval of material acquisition transactions between a Virginia
corporation and any interested shareholders by the holders of at least two-
thirds of the remaining voting shares. An interested shareholder is any holder
of more than 10% of any class of its outstanding voting shares.
For three years following the time that the interested shareholder becomes
an owner of 10% of the outstanding voting shares, Virginia corporations cannot
engage in an affiliated transaction with the interested shareholder without
approval of two-thirds of the voting shares other than those shares
beneficially owned by the interested shareholder, and majority approval of the
disinterested directors. At the expiration of the three year period, the
statute requires approval of affiliated transactions by two-thirds of the
voting shares other than those beneficially owned by the interested
shareholder absent an exception. The principal exceptions to the special
voting requirement apply to transactions proposed after the three year period
has expired and require either that the transaction be approved by a majority
of the corporation's disinterested directors or that the transaction satisfy
the fair-price requirements of the law.
The Virginia Stock Corporation Act also provides that shares acquired in a
transaction that would cause the acquiring person's voting strength to cross
any of three thresholds, namely, 20%, 33% or 50%, have no voting rights unless
granted by a majority vote of shares not owned by the acquiring person or any
officer or employee-director of United Dominion. An acquiring person may
require that we hold a special meeting of shareholders to consider the matter
within 50 days of its request.
Redemption and Restrictions on Transfer
In order to preserve our status as a REIT, we can redeem or stop the
transfer of our shares. Our Charter provides that United Dominion is organized
to qualify as a REIT. Because the concentration of more than 50% in value of
the direct or indirect ownership of our shares in five or fewer individual
shareholders during the last six months of any year would result in our
disqualification as a REIT, our Charter provides that United Dominion will
have the power:
. to redeem that number of concentrated shares sufficient in the opinion of
our Board of Directors to maintain or bring the direct or indirect owner-
ship of shares into conformity with the requirements of the federal in-
come tax laws; and
. to stop the transfer of shares to any person whose acquisition thereof
would, in the opinion of our Board of Directors, result in our disquali-
fication as a REIT.
The per share redemption price of any shares that we redeem pursuant to
this provision will be the last reported sale price for the shares as of the
business day preceding the day on which the notice of redemption is given. The
Board of Directors can require shareholders to disclose in writing to us the
information with respect to ownership of our shares as the Board deems
necessary to comply with the REIT provisions of the federal income tax laws.
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FEDERAL INCOME TAX CONSEQUENCES
OF UNITED DOMINION'S STATUS AS A REIT
The following sections summarize the federal income tax issues that you, as
a prospective holder of securities of United Dominion, may consider relevant.
Because this section is a summary, it does not address all of the tax issues
that may be important to you. In addition, this section does not address the
tax issues that may be important to certain types of security holders that are
subject to special treatment under the federal income tax laws, such as
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, and non-U.S. individuals and foreign corporations.
The statements in this section are based on the current federal income tax
laws governing our qualification as a REIT. United Dominion cannot assure you
that new laws, interpretations thereof, or court decisions, any of which may
take effect retroactively, will not cause any statement in this section to be
inaccurate.
United Dominion urges you to consult your own tax advisor regarding the
specific tax consequences to you of investing in our securities and of our
election to be taxed as a REIT. Specifically, you should consult your own tax
advisor regarding the federal, state, local, foreign and other tax
consequences of such investment and election, and regarding potential changes
in applicable tax laws.
Taxation of United Dominion
United Dominion elected to be taxed as a REIT under the Internal Revenue
Code commencing with its taxable year ended December 31, 1972. We believe that
we have operated in a manner intended to qualify as a REIT since our election
to be a REIT, and we intend to continue to so operate. This section discusses
generally the laws governing the federal income tax treatment of a REIT and
its shareholders. These laws are highly technical and complex.
United Dominion's qualification as a REIT depends on our ability to meet on
a continuing basis qualification tests set forth in the federal tax laws.
Those qualification tests involve the percentage of income that United
Dominion earns from specified sources, the percentage of our assets that fall
within specified categories, the diversity of our share ownership, and the
percentage of our earnings that we distribute. The REIT qualification tests
are described in more detail below. For a discussion of the tax treatment of
United Dominion and our shareholders if United Dominion fails to qualify as a
REIT, see "--Failure to Qualify."
If United Dominion qualifies as a REIT, we generally will not be subject to
federal income tax on the taxable income that we distribute to our
shareholders. The benefit of this tax treatment is that it avoids the "double
taxation" at both the corporate and shareholder levels that generally results
from owning stock in a corporation. However, United Dominion will be subject
to federal tax in the following circumstances:
. United Dominion will pay federal income tax on taxable income, including
net capital gain, that we do not distribute to our shareholders during,
or within a specified time period after, the calendar year in which the
income is earned.
. United Dominion may be subject to the "alternative minimum tax" on any
items of tax preference that we do not distribute or allocate to our
shareholders.
. United Dominion will pay income tax at the highest corporate rate on (A)
net income from the sale or other disposition of property acquired
through foreclosure ("foreclosure property") that it holds primarily for
sale to customers in the ordinary course of business and (B) other non-
qualifying income from foreclosure property.
. United Dominion will pay a 100% tax on net income from sales or other
dispositions of property, other than foreclosure property, that it holds
primarily for sale to customers in the ordinary course of business ("pro-
hibited transactions").
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. If United Dominion fails to satisfy the 75% gross income test or the 95%
gross income test (as described below under "--Requirements for Qualifi-
cation--Income Tests"), and nonetheless continues to qualify as a REIT
because we meet other requirements, we will pay a 100% tax on (A) the
gross income attributable to the greater of the amounts by which we fail
the 75% and 95% gross income tests, multiplied by (B) a fraction intended
to reflect our profitability.
. If United Dominion fails to distribute during a calendar year at least
the sum of (A) 85% of our REIT ordinary income for such year, (B) 95% of
our REIT capital gain net income for such year, and (C) any undistributed
taxable income from prior periods, we will pay a 4% excise tax on the ex-
cess of such required distribution over the amount we actually distribut-
ed.
. United Dominion may elect to retain and pay income tax on our net long-
term capital gain.
. If United Dominion acquires any asset from a corporation generally sub-
ject to full corporate-level tax in a merger or other transaction in
which we acquire a basis in the asset that is determined by reference to
the corporation's basis in that or another asset, we will pay tax at the
highest regular corporate rate applicable if we recognize gain on the
sale or disposition of such asset during the 10-year period after we ac-
quire such asset. The amount of gain on which we will pay tax is the
lesser of (A) the amount of gain that we recognize at the time of the
sale or disposition and (B) the amount of gain that we would have recog-
nized if we had sold the asset at the time we acquired the asset. The
rule described in this paragraph will apply assuming that United Dominion
makes an election under a temporary Treasury Regulation upon our acquisi-
tion of an asset from a C corporation.
Requirements for Qualification
A REIT is a corporation, trust, or association that meets the following
requirements:
1. it is managed by one or more trustees or directors;
2. its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
3. it would be taxable as a domestic corporation, but for provisions of
federal income tax law defining a REIT;
4. it is neither a financial institution nor an insurance company
subject to specified provisions of the federal income tax law;
5. at least 100 persons are beneficial owners of its shares or ownership
certificates;
6. not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals, as defined in the federal income tax laws to include certain
entities, during the last half of any taxable year;
7. it elects to be taxed as a REIT, or has made such election for a
previous taxable year, and satisfies all relevant filing and other
administrative requirements established by the Internal Revenue Service
that must be met to maintain REIT status;
8. it uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the federal income tax laws; and
9. it meets other qualification tests, described below, regarding the
nature of its income and assets.
United Dominion must meet requirements 1 through 4, inclusive, during our
entire taxable year and must meet requirement 5 during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. If we comply with all the requirements for ascertaining
the ownership of our outstanding shares in a taxable year and have no reason to
know that we violated requirement 6, we will be deemed to have satisfied
requirement 6 for such taxable year. For purposes of determining share
ownership
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under requirement 6, an "individual" generally includes a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of
a trust permanently set aside or used exclusively for charitable purposes.
An "individual," however, generally does not include a trust that is a
qualified employee pension or profit sharing trust under the federal income tax
laws, and beneficiaries of such a trust will be treated as holding shares of
United Dominion's capital stock in proportion to their actuarial interests in
the trust for purposes of requirement 6.
United Dominion believes that we have issued sufficient common stock with
sufficient diversity of ownership to satisfy requirements 5 and 6 set forth
above. In addition, our Charter restricts the ownership and transfer of the
common stock so that United Dominion should continue to satisfy requirements 5
and 6. The provisions of our Charter restricting the ownership and transfer of
the common stock are described in "Description of Our Capital Stock--Redemption
and Restrictions on Transfer."
United Dominion currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. A corporation that is a
"qualified REIT subsidiary" is not treated for federal income tax purposes as a
corporation separate from its parent REIT. All assets, liabilities, and items
of income, deduction and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements described herein, any
"qualified REIT subsidiary" of United Dominion will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of the subsidiary will
be treated as assets, liabilities and items of income, deduction and credit of
United Dominion. United Dominion's corporate subsidiaries are qualified REIT
subsidiaries. Accordingly, they are not subject to federal corporate income
taxation, though they may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
treated as owning its proportionate share of the assets of the partnership and
as earning its allocable share of the gross income of the partnership for
purposes of the applicable REIT qualification tests. Thus, United Dominion's
proportionate share of the assets, liabilities and items of income of the
partnerships in which we own an interest, directly or indirectly, are treated
as assets and gross income of United Dominion for purposes of applying the
various REIT qualification requirements.
Income Tests
United Dominion must satisfy two gross income tests annually to maintain our
qualification as a REIT. First, at least 75% of our gross income, excluding
gross income from prohibited transactions, for each taxable year must consist
of defined types of income that we derive, directly or indirectly, from
investments relating to real property or mortgages on real property or
temporary investment income (the "75% gross income test"). Qualifying income
for purposes of the 75% gross income test generally includes:
. rents from real property;
. interest on debt secured by mortgages on real property or on interests in
real property; and
. dividends or other distributions on and gain from the sale of shares in
other REITs.
Second, at least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year generally must consist of income
that is qualifying income for purposes of the 75% gross income test, dividends,
other types of interest, gain from the sale or disposition of stock or
securities, or any combination of the foregoing (the "95% gross income test").
Gross income from United Dominion's sale of property that we hold primarily for
sale to customers in the ordinary course of business is excluded from both
income tests. The following paragraphs discuss the specific application of
these tests to United Dominion.
Rents and Interest. Rent that United Dominion receives from real property
that we own and lease to tenants will qualify as "rents from real property"
only if the following conditions are met.
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. First, the rent must not be based, in whole or in part, on the income or
profits of any person. However, "rents from real property" generally does
not exclude an amount solely because it is based on a fixed percentage or
percentages of receipts or sales.
. Second, neither United Dominion nor a direct or indirect owner of 10% or
more of our stock may own, actually or constructively, 10% or more of a
tenant from whom we receive rent.
. Third, in order for 100% of the rent received under a lease of real prop-
erty to qualify as "rents from real property," the rent attributable to
the personal property leased in connection with such lease must not be
more than 15% of the total rent received under the lease.
. Finally, United Dominion generally must not operate or manage our real
property or furnish or render services to our tenants, other than through
an "independent contractor" who is adequately compensated and from whom
United Dominion does not derive revenue. However, United Dominion need
not provide services through an "independent contractor," but instead may
provide services directly, if the services are "usually or customarily
rendered" in connection with the rental of space for occupancy only and
are not otherwise considered "rendered to the occupant." In addition,
United Dominion may render a de minimis amount of "non-customary" serv-
ices to the tenants of a property, other than through an independent con-
tractor, as long as its income from the services does not exceed 1% of
our income from the related property.
United Dominion does not receive any rent that is based on the income or
profits of any person. In addition, we do not own, directly or indirectly, 10%
or more of any tenant. Furthermore, United Dominion believes that any personal
property rented in connection with our apartment facilities is well within the
15% restriction. Finally, United Dominion does not provide services, other
than within the 1% de minimis exception described above, to our tenants that
are not customarily furnished or rendered in connection with the rental of the
apartment units, other than through an independent contractor.
United Dominion's investment in apartment communities in major part gives
rise to rental income that is qualifying income for purposes of the 75% and
95% gross income tests. Gains on sales of apartment communities, other than
from prohibited transactions, as described below, or of United Dominion's
interest in a partnership generally will be qualifying income for purposes of
the 75% and 95% gross income tests. We anticipate that income on our other
investments will not result in our failing the 75% or 95% gross income test
for any year.
Prohibited Transaction Rules. A REIT will incur a 100% tax on the net
income derived from a sale or other disposition of property, other than
foreclosure property, that the REIT holds primarily for sale to customers in
the ordinary course of a trade or business. United Dominion believes that none
of our assets is held for sale to customers and that a sale of any such asset
would not be in the ordinary course of our business. Whether a REIT holds an
asset "primarily for sale to customers in the ordinary course of a trade or
business" depends, however, on the facts and circumstances in effect from time
to time, including those related to a particular asset. Nevertheless, United
Dominion will attempt to comply with the terms of safe-harbor provisions in
the federal income tax laws prescribing when an asset sale will not be
characterized as a prohibited transaction. We cannot assure you, however, that
United Dominion can comply with such safe-harbor provisions or that we will
avoid owning property that may be characterized as property that we hold
"primarily for sale to customers in the ordinary course of a trade or
business."
Hedging Transactions. From time to time, United Dominion may enter into
hedging transactions with respect to one or more of our assets or liabilities.
Our hedging activities may include entering into interest rate swaps, caps and
floors, or options to purchase such items, and futures and forward contracts.
To the extent that United Dominion enters into an interest rate swap or cap
contract, option, futures contract, forward rate agreement or any similar
financial instrument to hedge our indebtedness incurred to acquire or carry
"real estate assets," any periodic income or gain from the disposition of such
contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. To the extent that United
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Dominion hedges with other types of financial instruments, or in other
situations, it is not entirely clear how the income from those transactions
will be treated for purposes of the gross income tests. United Dominion
intends to structure any hedging transactions in a manner that does not
jeopardize our status as a REIT.
Failure to Qualify. If United Dominion fails to satisfy one or both of the
75% or 95% gross income tests for any taxable year, we may nevertheless
qualify as a REIT for that year if we are eligible for relief under certain
provisions of the federal income tax laws. Those relief provisions generally
will be available if:
. United Dominion's failure to meet the gross income tests was due to rea-
sonable cause and not due to willful neglect;
. United Dominion attaches a schedule of the sources of our income to our
federal income tax return; and
. any incorrect information on the schedule is not due to fraud with intent
to evade tax.
It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of those relief provisions. For example, if
we fail to satisfy the gross income tests because nonqualifying income that we
intentionally receive or accrue exceeds the gross income test limits on such
income, the Internal Revenue Service could conclude that our failure to
satisfy the tests was not due to reasonable cause. As discussed above in "--
Taxation of United Dominion," even if the relief provisions apply, United
Dominion would incur a 100% tax on the gross income attributable to the
greater of the amounts by which we fail the 75% and 95% gross income tests,
multiplied by a fraction intended to reflect our profitability.
Asset Tests
To maintain our qualification as a REIT, United Dominion also must satisfy
three tests relating to the nature and diversification of our assets at the
close of each quarter of each taxable year:
. First, at least 75% of the value of our total assets must consist of cash
or cash items, including receivables, government securities, "real estate
assets," or qualifying temporary investments (the "75% asset test");
. Second, no more than 25% of our total assets may be represented by secu-
rities other than those that are qualifying assets for purposes of the
75% asset test; and
. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities that United Dominion owns may not exceed 5%
of the value of our total assets, and we may not own more than 10% of any
one issuer's outstanding voting securities.
For purposes of those tests, "securities" does not include our interest in
partnerships or any qualified REIT subsidiary. For purposes of the asset
tests, we are deemed to own our proportionate share of the assets of any
partnership in which we own an interest, rather than our interest in that
partnership. United Dominion has operated and intends to continue to operate
so that we have not acquired or disposed, and in the future will not acquire
or dispose, of assets in a way that would cause us to violate either asset
test. If United Dominion should fail to satisfy the asset tests at the end of
a calendar quarter, we would not lose our REIT status if (A) we satisfied the
asset tests at the close of the preceding calendar quarter and (B) the
discrepancy between the value of our assets and the asset test requirements
arose from changes in the market values of our assets and was not wholly or
partly caused by the acquisition of one or more non-qualifying assets. If
United Dominion did not satisfy the condition described in clause (B) of the
preceding sentence, we still could avoid disqualification as a REIT by
eliminating any discrepancy within 30 days after the close of the calendar
quarter in which the discrepancy arose.
Recently enacted legislation, the Ticket to Work and Work Incentives
Improvements Act of 1999 (the "Tax Bill"), allows United Dominion to own up to
100% of the stock of taxable REIT subsidiaries ("TRSs"), which can perform
activities unrelated to our tenants, such as third-party management,
development and other independent business activities, as well as provide
services to our tenants, without disqualifying the rent we receive from our
tenants. The Tax Bill also prevents us from owning more than 10% of the voting
power or
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value of the stock of a taxable subsidiary that is not treated as a TRS. Prior
to the Tax Bill, we were prohibited only from owning more than 10% of the
voting stock of a taxable subsidiary. Overall, no more than 20% of our assets
can consist of securities of TRSs under the Tax Bill. The TRS provisions in
the Tax Bill will apply for taxable years beginning after December 31, 2000.
Distribution Requirements
Each taxable year, United Dominion must distribute, other than capital gain
dividends and deemed distributions of retained capital gain, to our
shareholders in an aggregate amount at least equal to:
. the sum of (A) 95% of its "REIT taxable income," computed without regard
to the dividends paid deduction and our net capital gain or loss, and (B)
95% of our after-tax net income, if any, from foreclosure property, minus
. the sum of certain items of noncash income.
United Dominion must pay such distributions in the taxable year to which
they relate, or in the following taxable year if we declare the distribution
before we timely file our federal income tax return for such year and pay the
distribution on or before the first regular dividend payment date after such
declaration.
Under the Tax Bill, the 95% distribution requirement discussed above was
reduced to 90% for taxable years beginning after December 31, 2000.
United Dominion will pay federal income tax on taxable income, including
net capital gain, that we do not distribute to our shareholders. Furthermore,
if we fail to distribute during a calendar year, or, in the case of
distributions with declaration and record dates falling in the last three
months of the calendar year, by the end of January following such calendar
year, at least the sum of:
. 85% of our REIT ordinary income for such year,
. 95% of our REIT capital gain income for such year, and
. any undistributed taxable income from prior periods,
we will incur a 4% nondeductible excise tax on the excess of such required
distribution over the amounts we actually distributed. United Dominion may
elect to retain and pay income tax on the net long-term capital gain that we
receive in a taxable year. If we so elect, we will be treated as having dis-
tributed any such retained amount for purposes of the 4% excise tax described
above. United Dominion has made, and intends to continue to make, timely dis-
tributions sufficient to satisfy the annual distribution requirements.
It is possible that, from time to time, United Dominion may experience
timing differences between (A) the actual receipt of income and actual payment
of deductible expenses and (B) the inclusion of that income and deduction of
such expenses in arriving at our REIT taxable income. For example, United
Dominion may not deduct recognized capital losses from our "REIT taxable
income." Further, it is possible that, from time to time, United Dominion may
be allocated a share of net capital gain attributable to the sale of
depreciated property that exceeds our allocable share of cash attributable to
that sale. As a result of the foregoing, United Dominion may have less cash
than is necessary to distribute all of our taxable income and thereby avoid
corporate income tax and the excise tax imposed on undistributed income. In
such a situation, we may need to borrow funds or issue preferred or common
stock.
Under specified circumstances, United Dominion may be able to correct a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to our shareholders in a later year. United Dominion may include
such deficiency dividends in our deduction for dividends paid for the earlier
year. Although United Dominion may be able to avoid income tax on amounts
distributed as deficiency dividends, we will be required to pay interest to
the Internal Revenue Service based upon the amount of any deduction we take
for deficiency dividends.
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Recordkeeping Requirements
United Dominion must maintain records of specified information in order to
qualify as a REIT. In addition, to avoid a monetary penalty, United Dominion
must request on an annual basis certain information from our shareholders
designed to disclose the actual ownership of our outstanding stock. United
Dominion has complied, and intends to continue to comply, with such
requirements.
Failure to Qualify
If United Dominion failed to qualify as a REIT in any taxable year, and no
relief provision applied, we would be subject to federal income tax, including
any applicable alternative minimum tax, on our taxable income at regular
corporate rates. In calculating our taxable income in a year in which we failed
to qualify as a REIT, United Dominion would not be able to deduct amounts paid
out to our shareholders. In fact, United Dominion would not be required to
distribute any amounts to our shareholders in such year. In such event, to the
extent of our current and accumulated earnings and profits, all distributions
to our shareholders would be taxable as ordinary income. Subject to certain
limitations of the Internal Revenue Code, corporate shareholders might be
eligible for the dividends received deduction. Unless United Dominion qualified
for relief under specific statutory provisions, we also would be disqualified
from taxation as a REIT for the four taxable years following the year during
which we ceased to qualify as a REIT. United Dominion cannot predict whether in
all circumstances we would qualify for such statutory relief.
Other Tax Consequences
State and Local Taxes. United Dominion and/or you may be subject to state
and local tax in various states and localities, including those states and
localities in which United Dominion or you transact business, own property or
reside. The state and local tax treatment in such jurisdictions may differ from
the federal income tax treatment described above. Consequently, you should
consult your own tax advisor regarding the effect of state and local tax laws
upon an investment in our securities.
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PLAN OF DISTRIBUTION
United Dominion may sell these securities to or through underwriters or to
investors directly or through designated agents. Any underwriter or agent
involved in the offer and sale of these securities will be named in the
applicable prospectus supplement.
Underwriters may offer and sell these securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to the prevailing market prices or at
negotiated prices. We also may, from time to time, authorize underwriters
acting as agents to offer and sell these securities upon the terms and
conditions set forth in any prospectus supplement. In connection with the sale
of these securities, underwriters may be deemed to have received compensation
from United Dominion in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of these securities for whom they
may act as agent. Underwriters may sell these securities to or through
dealers. The dealers may receive compensation in the form of discounts,
concessions or commissions, which may be changed from time to time, from the
underwriters and/or from the purchasers for whom they may act as agent.
Any underwriting compensation that we pay to underwriters or agents in
connection with the offering of these securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers
will be set forth in the applicable prospectus supplement. Underwriters,
dealers and agents participating in the distribution of these securities may
be deemed to be underwriters, and any discounts and commissions received by
them and any profit realized by them on resale of these securities may be
deemed to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with United Dominion, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
If indicated in the applicable prospectus supplement, United Dominion will
authorize dealers acting as our agents to solicit offers by certain
institutions to purchase these securities from United Dominion at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in the prospectus supplement. Each delayed delivery contract will be
for an amount not less than, and the principal amount of the securities sold
pursuant to delayed delivery contracts will not be less nor more than, the
respective amounts stated in the prospectus supplement.
Institutions with which delayed delivery contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to our approval. Delayed
delivery contracts will not be subject to any conditions except:
. an institution's purchase of the securities covered by its delayed deliv-
ery contract will not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which the institution is
subject; and
. United Dominion will have sold to the underwriters the total principal
amount of the securities less the principal amount thereof covered by de-
layed delivery contracts.
A commission indicated in the prospectus supplement will be paid to agents
and underwriters soliciting purchases of these securities pursuant to delayed
delivery contracts that we accepted. Agents and underwriters will have no
responsibility in respect of the delivery or performance of delayed delivery
contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for United Dominion in the
ordinary course of business.
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LEGAL MATTERS
The validity of these securities will be passed upon for United Dominion by
Hunton & Williams, Richmond, Virginia. Brown & Wood LLP, New York, New York,
will act as counsel to any underwriters, dealers or agents.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. We have incorporated by reference our financial statements and
schedule in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
The consolidated financial statements of American Apartment Communities II,
Inc. and American Apartment Communities II, L.P., for the year ended December
31, 1997, included in our current report on Form 8-K filed with the SEC on
October 23, 1998, incorporated herein by reference, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of Arthur Andersen LLP as experts in giving these reports.
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February , 2000
$100,000,000
[LOGO]
% Notes Due
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PROSPECTUS SUPPLEMENT
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Banc of America Securities LLC
First Union Securities, Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette
Merrill Lynch & Co.
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