SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant |_|
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|_| Preliminary Proxy Statement |_| Confidential, for Use of the
|_| Definitive Proxy Statement Commission Only (as permitted
|X| Definitive Additional Materials by Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SOUTH WEST PROPERTY TRUST INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
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14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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<PAGE>
November 6, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: South West Property Trust Inc./Definitive Additional Proxy Materials
Ladies and Gentlemen:
On behalf of South West Property Trust Inc., a Maryland corporation (the
"Company"), we submit herewith for filing definitive additional proxy materials
in connection with the Joint Proxy Statement/Prospectus of United Dominion
Realty Trust, Inc. ("UDR") and the Company. The Joint Proxy Statement/Prospectus
was filed with UDR's Registration Statement on Form S-4 (File No. 333-13745),
declared effective by the Securities and Exchange Commission on November 6,
1996.
Please contact the undersigned at (214) 369-1995 if you have any questions
concerning these materials.
Very truly yours,
/s/ LEWIS H. SANDLER
---------------------
Lewis H. Sandler
Executive Vice President,
Secretary and General Counsel
cc: New York Stock Exchange
Pacific Stock Exchange
<PAGE>
TO OUR FELLOW INVESTORS
South West Property Trust Inc. (SWP/NYSE) is a self-administered, fully
integrated, equity real estate investment trust ("REIT") that has acquired,
developed and managed apartment communities since 1973. In the third quarter of
1996, the Company's funds from operations ("FFO") grew by 16 percent to $0.37
per share from $0.32 per share for the same period in 1995. For the first three
quarters of 1996, FFO per share increased by ten percent to $1.08 from $0.98 for
the first nine months of 1995. South West also increased its quarterly dividend
for the first three quarters of 1996 by four percent from its 1995 rate.
The Company's principal objectives are to protect its investors' capital, to
increase both funds from operations per share and quarterly dividends to its
shareholders, and to maximize the long-term value of its portfolio. South West's
portfolio includes 42 completed communities containing 13,905 apartment units,
two development properties with 48 percent of their 698 units completed and
three additions to existing properties under construction which will add 372
units. The Company operates in the southwestern and southeastern United States
and is headquartered in Dallas, Texas.
On October 1, 1996 South West Property Trust announced that it had agreed to
merge into United Dominion Realty Trust in a transaction valued at approximately
$561,000,000. Under the terms of the merger agreement, each outstanding share of
South West common stock will be exchanged for 1.0833 shares of United Dominion
common stock. The exchange will be effective as of December 31, 1996. South West
shareholders will not recognize taxable gain or loss on the exchange except with
respect to the receipt of cash in lieu of fractional share interests.
Between September 30, 1996 and October 31, 1996, except for the period of
October 7 through October 10 (which could have been affected by United
Dominion's dividend payment), the closing price per share of United Dominion's
common stock on the New York Stock Exchange averaged $13.988. Based on the
exchange ratio, the imputed exchange value to South West shareholders is $15.15
per share. The exchange ratio also maintains the current annual dividend rate
for South West common shareholders of $1.04 per share.
The merger is subject to the approval of both South West and United Dominion
shareholders of record on November 1, 1996, at special meetings which will be
held simultaneously on December 10, 1996. The Board of Directors of South West
believes the merger is in the best interests of its shareholders and recommends
that the shareholders vote for approval of the agreement for the following
additional principal reasons:
(1) The merger will create the largest and most experienced REIT
acquirer, developer, owner and manager of multi-unit residential
properties in the southwestern and southeastern United States,
through the combination of South West's proven development
capability and market presence in the southwest and United
Dominion's portfolio acquisition expertise and market presence in
the southeast;
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(2) The general trend in the real estate industry is towards
consolidation and South West's shareholders should benefit from a
significant participation in a much larger and more widely
diversified company, while maintaining South West's traditional
focus on the ownership and operation of multi-family residential
communities;
(3) The merger is anticipated to improve significantly South
West's access to debt and equity financing on more attractive
terms which should permit the merged company to take advantage of
additional acquisition and development opportunities in the
southwest;
(4) The merger is expected to significantly reduce administrative
costs, which should have a positive effect on financial results
for the merged company;
(5) The investment banking firm of Lehman Brothers Inc. rendered
an opinion on November 1, 1996, that the exchange ratio was fair
to the shareholders of South West from a financial point of view.
Investment Strategy:
South West Property Trust's acquisition and development programs focus on well
located communities in high job-growth markets which appeal to middle and
upper-middle income apartment residents, and which can be acquired or developed
at attractive prices. Management believes that in 1996 the supply of new
apartments in its aggregated markets will somewhat exceed demand, which will
result in a slight decline in occupancy and a modest slowing of rental rate
increases.
The Company also believes that prices of existing properties and the current
cost to develop new properties are generally too high to justify substantial new
investment, based on its current cost of capital. In 1996, therefore, South West
has been focusing on adding value through revenue-generating capital
improvements to its existing portfolio and building additions to a select few of
its communities where the total potential return meets the Company's investment
objectives.
The proposed merger with United Dominion, however, should result in a
significantly lower cost of capital which, combined with less dynamic apartment
markets, is expected to generate more profitable acquisition and development
opportunities.
Dividend Policy:
A primary objective of South West Property Trust is to raise its dividend
annually. Beginning with the first quarter of 1996, the Company increased its
quarterly dividend to $0.26 per share, bringing the total dividend increase
since 1992 to 49 percent. In the first nine months of 1996, South West paid out
72 percent of its funds from operations as dividends. This low payout ratio
allows the Company to invest internally generated funds in revenue-generating
capital improvements to its existing communities and in its development
properties.
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<PAGE>
Results of Operations:
In the third quarter of 1996, the Company's funds from operations ("FFO")
increased to $7,688,000, up from $6,549,000 for the same period in 1995. On a
per share basis, FFO grew by 16 percent to $0.37 from $0.32 for the third
quarter of 1995. For the first nine months of 1996, FFO were $22,280,000, or
$1.08 per share, up ten percent from $18,848,000, or $0.98 per share for the
first nine months of 1995.
Funds available for distribution ("FAD"), derived by subtracting from FFO a
capital expenditure reserve to maintain South West's properties, for the third
quarter of 1996 were $7,331,000, or $0.35 per share, up 17 percent from
$6,226,000, or $0.30 per share for the same period in 1995. FAD for the first
nine months of 1996 were $21,223,000, or $1.03 per share, up 11 percent from
$17,880,000, or $0.93 per share for the first nine months of 1995. The FAD
reserve deduction from FFO is $110 per apartment unit per year, after South West
expenses apartment turnover costs. SWP had a total of $5,075,000 in its capital
expenditure reserve at September 30, 1996.
Total revenues were $21,464,000 for the third quarter of 1996, up 16 percent
compared with total revenues of $18,508,000 for the same period in 1995. Total
revenues in the first nine months of 1996 were $61,080,000, a 15 percent
increase from $52,961,000 in the first three quarters of 1995. This increase was
due primarily to rental rate increases at communities which were fully
operational for all of 1995 and 1996 of 4.1 percent in the third quarter of 1996
and 4.4 percent in the first nine months of 1996, compared to the similar
periods of 1995, and an increasing contribution from South West's development
properties. In 1996, 18 percent of third quarter and 15 percent of nine month
total revenues came from the development properties.
Economic occupancy for communities which were fully operational for all of 1995
and 1996 was 91.7 percent in the third quarter and 91.4 percent for the first
nine months of 1996, compared to 91.7 percent and 91.8 percent, respectively,
for the same periods in 1995. Average gross income per unit per month increased
by 2.3 percent to $481 from $470 in the third quarter of 1996 compared to the
third quarter of 1995, and by 3.3 percent to $474 from $459 in the first nine
months of 1996 compared to the first nine months of 1995.
Total operating expenses (property operating expenses plus general and
administrative expenses) were $10,060,000 for the third quarter of 1996, up from
$9,455,000 for the third quarter of 1995. Total operating expenses for the first
nine months of 1996 were $28,562,000 compared to $26,320,000 for the same period
in 1995. These increases were attributable to added operating expenses at
recently completed development units and higher operating expenses on the
existing properties.
Total operating expenses as a percentage of total revenues declined from 51.1
percent in the third quarter of 1995 to 46.9 percent in the third quarter of
1996 and 49.7 percent in the first nine months of 1995 to 46.8 percent for the
first nine months of 1996. These gains were primarily the result of higher
profit margins from the Company's completed development units, general and
administrative expenses being spread over a larger number of total units and
extraordinarily high operating expenses in the third quarter of 1995.
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Net operating income ("NOI"), from communities which were fully operational for
all of 1995 increased by 7.6 percent in the third quarter and by 4.1 percent for
the first nine months of 1996 compared to similar periods in 1995. The Company's
2,732-unit development portfolio accounted for about 23 percent of South West's
total NOI in the third quarter and approximately 18 percent of its total NOI for
the first nine months of 1996. Management estimates that by 1998 these
development units will account for about 30 percent of total NOI from the
current portfolio.
Additions to property in the first nine months of 1996 were $8,550,000 compared
to $4,293,000 for the first nine months of 1995. The Company plans to continue
using internally generated funds to upgrade its properties in order to increase
their revenue-generating capacity.
The Development Portfolio:
SWP's current market rents on its development properties are 14 percent higher
than corresponding rates on existing properties. Operating expenses, as a
percentage of revenues, are expected to stabilize at about 20 percent lower on
the development properties than on the existing portfolio, in part because the
residents on these properties pay their own water and sewer charges. About 74
percent of the Company's 2,732 development units have been completed and, in the
aggregate, 97 percent of the completed units have been leased.
DEVELOPMENT PORTFOLIO STATUS
<TABLE>
<CAPTION>
Expected Rental Rate GPR @ Percentage Completed
Total Completion Per Sq.Ft. Completion of Units Units
Property Units Date ($000) Completed Leased
<S> <C> <C> <C> <C> <C> <C>
Oak Forest 1 436 Completed $0.86 $ 3,740 100% 98%
Ashley Oaks 2 246 Completed 0.75 2,182 100% 98%
Promontory Pointe 596 Completed 0.80 5,692 100% 92%
Sierra Palms 320 Completed 0.83 3,267 100% 97%
Copper Mill 278 4thQtr/96 0.85 2,686 96% 93%
Sunset Pointe 2 96 4thQtr/96 0.99 642 67% 128%
Oak Park 2 80 2ndQtr/97 0.77 632 0% 0%
Providence Court 420 4thQtr/97 0.82 4,487 19% 123%
Oak Forest 2 260 2ndQtr/98 0.84 2,386 0% 0%
--- --------- ---- ----- ---- ----
Totals 2,732 $0.82 $25,716 74% 97%
===== ===== ======= === ====
</TABLE>
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<PAGE>
The Outlook For South West Property Trust:
The creation of new jobs, which Management believes is one of the most important
factors affecting demand for apartments, continues to be greater in South West's
markets than in the United States as a whole. Non-agricultural employment in the
Company's markets increased by a monthly average of 296,000 jobs in the first
nine months of 1996, a gain of 3.0 percent over the average monthly growth for
the same markets in 1995. During the same period, average monthly
non-agricultural employment in the United States grew by 2,093,000 jobs, a 1.8
percent increase from the monthly average for 1995.
Management believes that South West should benefit from another year of
substantial internal growth in 1997, in part because current market rents from
communities which have been fully operational for all of 1996 have increased to
$0.72 per square foot per month and actual current gross potential rent on these
same properties is $0.66 per square foot per month. Internal growth in 1997
should also be enhanced by the 1996 investment of about $7,400,000 in
revenue-enhancing or expense-reducing capital improvements to these same
communities.
The more than 435 employees of South West Property Trust are proud of our record
of achievement and looking forward to becoming an important part of a very fine
company in United Dominion Realty Trust. Management believes that the combined
company can create greater value for its shareholders over a longer period of
time than would have been possible on an individual basis, and we urge you to
vote for the merger by completing and returning your proxy card (which you will
receive separately) as soon as possible.
Sincerely,
/s/ John S. Schneider
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John S. Schneider
Chief Executive Officer
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