UDR (UDR) 10-Q 2002 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission file number 1-10524

United Dominion Realty Trust, Inc.
(Exact name of registrant as specified in its charter)

Virginia	54-0857512
(State or other jurisdiction of incorporation of organization)	(I.R.S. Employer Identification No.)
1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129
(Address of principal executive offices - zip code)
(720) 283-6120
(Registrant’s telephone number, including area code)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for the past 90 days.

Yes x No o

          The number of shares of the issuer’s common stock, $1 par value, outstanding as of November 11, 2002 was 107,137,871.

UNITED DOMINION REALTY TRUST, INC.
FORM 10-Q
INDEX

			PAGES
		PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001		3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001		4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001		5
	Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2002		6
	Notes to Consolidated Financial Statements		7-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16-27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
Item 4.	Controls and Procedures		28
		PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		29
Item 6.	Exhibits and Reports on Form 8-K		29
Signatures			30
Certifications			31-32

2

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

			September 30, 2002			December 31, 2001
ASSETS
Real estate owned:
	Real estate held for investment (Note 2)		$	3,826,771		$	3,858,579
		Less: accumulated depreciation		(701,582	)		(646,366	)
				3,125,189			3,212,213
	Real estate under development			14,701			40,240
	Real estate held for disposition (net of accumulated depreciation of $8,939 and $0) (Note 3)			57,567			8,848
	Total real estate owned, net of accumulated depreciation			3,197,457			3,261,301
Cash and cash equivalents				6,949			4,641
Restricted cash				16,350			26,830
Deferred financing costs, net				18,886			15,802
Investment in unconsolidated development joint venture				—			3,355
Other assets				34,268			36,162
	Total assets		$	3,273,910		$	3,348,091
LIABILITIES AND SHAREHOLDERS’ EQUITY
Secured debt			$	1,024,763		$	974,177
Real estate held for disposition secured debt				4,842			—
	Total secured debt (Note 5)			1,029,605			974,177
Unsecured debt (Note 6)				978,485			1,090,020
Real estate taxes payable				30,253			28,099
Accrued interest payable				14,848			16,779
Security deposits and prepaid rent				20,447			20,481
Distributions payable				35,287			33,457
Accounts payable, accrued expenses and other liabilities				57,911			66,688
Real estate held for disposition - liabilities				1,260			—
	Total liabilities			2,168,096			2,229,701
Minority interests				70,947			75,665
Shareholders’ equity
	Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized;
		5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,416,009 in 2001)		135,400			135,400
		8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding (8,000,000 in 2001)		175,000			175,000
	Common stock, $1 par value; 150,000,000 shares authorized
		107,124,063 shares issued and outstanding (103,133,279 in 2001)		107,124			103,133
	Additional paid-in capital			1,147,874			1,098,029
	Distributions in excess of net income			(512,084	)		(448,345	)
	Deferred compensation - unearned restricted stock awards			(2,974	)		(1,312	)
	Notes receivable from officer-shareholders			(3,021	)		(4,309	)
	Accumulated other comprehensive loss (Note 7)			(12,452	)		(14,871	)
		Total shareholders’ equity		1,034,867			1,042,725
	Total liabilities and shareholders’ equity		$	3,273,910		$	3,348,091

See accompanying notes to consolidated financial statements.

3

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

			Three months ended September 30,						Nine months ended September 30,
			2002			2001			2002			2001
REVENUES
	Rental income		$	148,825		$	139,774		$	439,535		$	420,455
	Non-property income			138			363			885			2,169
		Total revenues		148,963			140,137			440,420			422,624
EXPENSES
	Rental expenses:
		Real estate taxes and insurance		15,026			14,450			47,892			44,949
		Personnel		15,774			14,618			44,068			42,548
		Utilities		8,776			7,929			25,290			26,375
		Repairs and maintenance		10,594			8,836			27,469			24,144
		Administrative and marketing		5,768			5,017			15,960			15,039
		Property management		4,312			4,487			13,028			12,801
		Other operating expenses		278			360			934			1,136
	Real estate depreciation			39,152			32,400			111,505			103,570
	Interest			34,179			35,311			97,954			105,468
	Severance costs and other organizational charges			—			—			—			5,404
	Impairment loss on real estate and investments			—			—			—			2,413
	General and administrative			2,974			4,546			15,478			14,693
	Other depreciation and amortization			949			801			3,217			2,454
		Total expenses		137,782			128,755			402,795			400,994
Income before gains on sales of investments, minority interests and extraordinary item				11,181			11,382			37,625			21,630
Gains on sales of depreciable property				—			—			1,248			24,748
Income before minority interests and extraordinary item				11,181			11,382			38,873			46,378
Minority interests of unitholders in outside partnerships				(377	)		(370	)		(1,098	)		(1,659	)
Minority interests of unitholders in operating partnerships				(264	)		(282	)		(1,066	)		(1,200	)
Income before discontinued operations and extraordinary item				10,540			10,730			36,709			43,519
Income from discontinued operations, net of minority interests (Note 3)				21,213			2,990			35,445			8,615
Income before extraordinary item				31,753			13,720			72,154			52,134
Extraordinary item - early extinguishment of debt, net of minority interests				(11,354	)		(173	)		(26,028	)		(610	)
Net income				20,399			13,547			46,126			51,524
Distributions to preferred shareholders - Series A and B				(2,911	)		(2,912	)		(8,733	)		(12,851	)
Distributions to preferred shareholders - Series D (Convertible)				(3,886	)		(3,857	)		(11,815	)		(11,571	)
Premium on preferred share repurchases				—			—			—			(3,496	)
Net income available to common shareholders			$	13,602		$	6,778		$	25,578		$	23,606
Earnings (loss) per common share - basic:
	Income before discontinued operations and extraordinary item, net of minority interests		$	0.03		$	0.04		$	0.15		$	0.16
	Income from discontinued operations, net of minority interests		$	0.20		$	0.03		$	0.32		$	0.08
	Extraordinary item, net of minority interests		$	(0.11	)		—		$	(0.25	)	$	(0.01	)
	Net income available to common shareholders		$	0.13		$	0.07		$	0.24		$	0.23
Earnings (loss) per common share - diluted:
	Income before discontinued operations and extraordinary item, net of minority interests		$	0.03		$	0.04		$	0.15		$	0.15
	Income from discontinued operations, net of minority interests		$	0.20		$	0.03		$	0.33		$	0.09
	Extraordinary item, net of minority interests		$	(0.11	)		—		$	(0.24	)	$	(0.01	)
	Net income available to common shareholders		$	0.13		$	0.07		$	0.24		$	0.23
Common distributions declared per share			$	0.2775		$	0.2700		$	0.8325		$	0.8100
Weighted average number of common shares outstanding-basic				107,148			99,623			106,139			100,612
Weighted average number of common shares outstanding-diluted				108,094			100,466			107,032			101,292

See accompanying notes to consolidated financial statements.

4

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Nine Months Ended September 30,				2002			2001
Operating Activities
	Net income			$	46,126		$	51,524
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			121,685			117,019
		Impairment loss on real estate and investments			2,301			3,188
		Gains on sales of investments			(31,873	)		(24,748	)
		Minority interests			2,788			3,377
		Extraordinary item-early extinguishment of debt			29,340			745
		Amortization of deferred financing costs and other			3,881			2,666
		Changes in operating assets and liabilities:
			(Decrease) / increase in operating liabilities		(5,827	)		472
			Decrease in operating assets		8,861			18,021
Net cash provided by operating activities					177,282			172,264
Investing Activities
	Proceeds from sales of real estate investments, net				271,494			118,565
	Development of real estate assets				(9,188	)		(46,844	)
	Acquisition of real estate assets, net of liabilities assumed				(232,143	)		(8,296	)
	Capital expenditures and other major improvements - real estate assets, net of escrow reimbursement				(32,966	)		(37,519	)
	Capital expenditures - non-real estate assets				(1,122	)		(789	)
	Funds held in escrow from tax free exchanges pending the acquisition of real estate				(7,180	)		—
Net cash (used in) / provided by investing activities					(11,105	)		25,117
Financing Activities
	Proceeds from the issuance of secured debt				324,282			179,600
	Scheduled principal payments on secured debt				(7,837	)		(33,265	)
	Non-scheduled principal payments and prepayment penalties on secured debt				(286,940	)		(31,947	)
	Proceeds from the issuance of unsecured debt				198,476			—
	Payments and prepayment penalties on unsecured debt				(154,843	)		(21,308	)
	Net repayment of revolving bank debt				(168,200	)		(27,500	)
	Payment of financing costs				(4,845	)		(2,475	)
	Cash paid to buy out minority interests				—			(4,267	)
	Proceeds from the issuance of common stock				58,761			8,981
	Proceeds from the issuance of performance shares				—			1,214
	Distributions paid to minority interests				(6,885	)		(10,687	)
	Distributions paid to preferred shareholders				(20,636	)		(27,713	)
	Distributions paid to common shareholders				(87,399	)		(81,634	)
	Repurchase of common and preferred stock				(7,803	)		(149,464	)
Net cash used in financing activities					(163,869	)		(200,465	)
Net increase / (decrease) in cash and cash equivalents					2,308			(3,084	)
Cash and cash equivalents, beginning of period					4,641			10,305
Cash and cash equivalents, end of period				$	6,949		$	7,221
Supplemental Information:
	Interest paid during the period			$	106,369		$	112,807
	Issuance of restricted stock awards				2,904			1,547
	Non-cash transactions:
		Secured debt assumed with the acquisition of properties			41,636			18,229
		Reduction in secured debt from the disposition of properties			31,063			7,694
		Conversion of operating partnership units to common stock (92,159 shares in 2002 and 42,944 shares in 2001)			1,252			237

See accompanying notes to consolidated financial statements.

5

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)

			Preferred Stock				Common Stock						Paid-in Capital
			Shares		Amount		Shares			Amount
Balance, December 31, 2001				13,416,009	$	310,400		103,133,279		$	103,133		$	1,098,029
Comprehensive Income
	Net income
	Other comprehensive income:
		Unrealized gain on derivative instruments (Note 7)
	Comprehensive income
	Issuance of common shares to employees, officers and director-shareholders							912,705			913			9,766
	Issuance of common shares through dividend reinvestment and stock purchase plan							152,343			152			2,347
	Issuance of common shares through public offering							3,166,800			3,167			41,139
	Purchase of common stock							(528,713	)		(529	)		(7,275	)
	Issuance of restricted stock awards							195,490			195			2,709
	Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships							92,159			93			1,159
	Principal repayments on notes receivable from officer-shareholders
	Common stock distributions declared ($.2775 per share)
	Preferred stock distributions declared-Series B ($.5375 per share)
	Preferred stock distributions declared-Series D ($.4955 per share)
	Amortization of deferred compensation
Balance, September 30, 2002				13,416,009	$	310,400		107,124,063		$	107,124		$	1,147,874

			Distributions in Excess of Net Income			Deferred Compensation - Unearned Restricted Stock Awards			Notes Receivable from Office - Shareholders			Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2001			$	(448,345	)	$	(1,312	)	$	(4,309	)	$	(14,871	)	$	1,042,725
Comprehensive Income
	Net income			46,126												46,126
	Other comprehensive income:
		Unrealized gain on derivative instruments (Note 7)											2,419			2,419
	Comprehensive income			46,126									2,419			48,545
	Issuance of common shares to employees, officers and director-shareholders															10,679
	Issuance of common shares through dividend reinvestment and stock purchase plan															2,499
	Issuance of common shares through public offering															44,306
	Purchase of common stock															(7,804	)
	Issuance of restricted stock awards						(2,904	)								—
	Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships															1,252
	Principal repayments on notes receivable from officer-shareholders									1,288						1,288
	Common stock distributions declared ($.2775 per share)			(89,317	)											(89,317	)
	Preferred stock distributions declared-Series B ($.5375 per share)			(8,733	)											(8,733	)
	Preferred stock distributions declared-Series D ($.4955 per share)			(11,815	)											(11,815	)
	Amortization of deferred compensation						1,242									1,242
Balance, September 30, 2002			$	(512,084	)	$	(2,974	)	$	(3,021	)	$	(12,452	)	$	1,034,867

See accompanying notes to consolidated financial statements.

6

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

1.  CONSOLIDATION AND BASIS OF PRESENTATION
          The accompanying consolidated financial statements include the accounts of United Dominion Realty Trust, Inc. and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”), (collectively, “United Dominion”).  As of September 30, 2002, there were 74,974,018 units in the Operating Partnership outstanding, of which 68,601,337 units, or 91.5%, were owned by United Dominion and 6,372,681 units, or 8.5%, were owned by non-affiliated limited partners.  As of September 30, 2002, there were 5,501,300 units in the Heritage OP outstanding, of which 4,906,867 units, or 89.2%, were owned by United Dominion and 594,433 units, or 10.8%, were owned by non-affiliated limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the operating partnerships. 

          The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in United Dominion’s Annual Report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission.

          In the opinion of management, the consolidated financial statements reflect all adjustments which are necessary for the fair presentation of financial position at September 30, 2002 and results of operations for the interim periods ended September 30, 2002 and 2001.  Such adjustments are normal and recurring in nature. All significant inter-company accounts and transactions have been eliminated in consolidation.  The interim results presented are not necessarily indicative of results that can be expected for a full year. 

          The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods.  Actual amounts realized or paid could differ from those estimates.

          Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

2.  REAL ESTATE HELD FOR INVESTMENT
          At September 30, 2002, there are 252 communities with 73,013 apartment homes classified as real estate held for investment.   The following table summarizes the components of real estate held for investment at September 30, 2002 and December 31, 2001 (dollars in thousands):

	September 30, 2002			December 31, 2001
Land and land improvements	$	704,306		$	695,923
Buildings and improvements		2,916,918			2,945,741
Furniture, fixtures and equipment		205,343			216,637
Construction in progress		204			278
Real estate held for investment		3,826,771			3,858,579
Accumulated depreciation		(701,582	)		(646,366	)
Real estate held for investment, net of accumulated depreciation	$	3,125,189		$	3,212,213

7

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

3.   INCOME FROM DISCONTINUED OPERATIONS
          United Dominion adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as of January 1, 2002.  SFAS No. 144 requires, among other things, that the primary assets and liabilities and the results of operations of United Dominion’s real properties which have been sold during 2002, or otherwise qualify as held for disposition (as defined by SFAS No. 144), be classified as discontinued operations and segregated in United Dominion’s Consolidated Statements of Operations and Balance Sheets. Properties classified as real estate held for disposition generally represent properties that are under contract for sale and are expected to close within the next twelve months.

          During the nine months ended September 30, 2002, United Dominion sold 23 communities with a total of 6,564 apartment homes and one commercial property with 143,000 square feet.  At September 30, 2002, United Dominion had eight communities with 1,475 apartment homes with a net book value of $48.5 million and four parcels of land with a net book value of $9.1 million included in real estate held for disposition.  The results of operations for these properties are classified on the Consolidated Statements of Operations in the line item entitled “Income from discontinued operations, net of minority interests.”  Real estate held for disposition contributed property operating income (property rental income less property operating expenses) of $1.2 million and $3.8 million for the three and nine month periods ended September 30, 2002 and $1.3 million and $3.7 million for the three and nine month periods ended September 30, 2001.   The assets and liabilities for these properties are classified on the Consolidated Balance Sheets in the line items entitled “Real estate held for disposition,” “Real estate held for disposition secured debt,” and “Real estate held for disposition - liabilities.”

          The following is a summary of income from discontinued operations for the three and nine month periods ended September 30, 2002 and 2001 (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Rental income	$	8,514		$	14,202		$	35,632		$	43,061
Rental  expenses		3,797			5,997			15,329			17,799
Other expenses		756			4,997			9,248			15,219
Impairment loss on real estate and investments		—			—			2,301			775
		4,553			10,994			26,878			33,793
Income before gains on sales of investments, minority interests and extraordinary items		3,961			3,208			8,754			9,268
Gains on sales of depreciable property		19,128			—			30,625			—
Income before minority interests and extraordinary item		23,089			3,208			39,379			9,268
Minority interests on income from discontinued operations		(1,402	)		(218	)		(2,343	)		(563	)
Income before extraordinary item		21,687			2,990			37,036			8,705
Extraordinary item - early extinguishment of debt, net of minority interests		(474	)		—			(1,591	)		(90	)
Income from discontinued operations, net of minority interests	$	21,213		$	2,990		$	35,445		$	8,615

8

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

4.  INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
          On September 10, 2002, United Dominion signed a development joint venture agreement with AEGON USA Realty Advisors, Inc. in which United Dominion is serving as the managing member.  The venture is expected to develop approximately eight to ten garden style apartment communities over the next three years, with a total development cost of up to $210 million. The venture will obtain bank construction financing for 65% to 80% of total costs.  The venture will provide equity contributions for the balance of the costs with AEGON providing 80% and United Dominion providing 20%.  United Dominion serves as the developer, general contractor and property manager for the venture.  United Dominion has guaranteed those project development costs, excluding financing costs (including fees and interest), which exceed the defined project cost budgeted amounts.

          As of September 30, 2002, the joint venture has not commenced operations.

5.  SECURED DEBT
          Secured debt on continuing and discontinued operations, which encumbers $1.5 billion or 39.4% of the carrying value of United Dominion’s real estate owned ($2.4 billion or 60.6% of the carrying value of United Dominion’s real estate owned is unencumbered) consists of the following at September 30, 2002 (dollars in thousands):

		Principal Outstanding				Weighted Average Interest Rate			Weighted Average Years to Maturity		Number of Communities Encumbered
		September 30, 2002		December 31, 2001		2002			2002		2002
Fixed Rate Debt
Mortgage notes payable (a)		$	199,277	$	450,643		7.59	%		6.6		16
Tax-exempt secured notes payable			61,476		65,806		6.68	%		11.8		8
Fannie Mae credit facilities			288,875		—		6.40	%		8.3		9
Fannie Mae credit facilities - swapped			17,000		17,000		6.74	%		15.0		—
Total fixed rate secured debt			566,628		533,449		6.86	%		8.3		33
Variable Rate Debt
Mortgage notes payable			11,869		15,082		4.93	%		7.5		3
Tax-exempt secured notes payable			9,970		19,915		1.55	%		19.9		2
Fannie Mae credit facilities			370,469		405,731		2.39	%		14.4		51
Freddie Mac credit facility			70,669		—		2.22	%		8.3		8
Total variable rate secured debt			462,977		440,728		2.41	%		13.4		64
Total Secured Debt		$	1,029,605	$	974,177		4.86	%		10.6		97
(a)	Includes fair value adjustments aggregating $2.6 million at September 30, 2002 and $7.9 million at December 31, 2001, recorded in connection with the assumption of debt associated with two acquisitions consummated in 1998.

9

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

          Approximate principal payments due during each of the next five calendar years and thereafter, as of September 30, 2002, are as follows (dollars in thousands):

Year	Fixed Rate Maturities		Variable Rate Maturities		Total Secured Maturities
2002	$	1,629	$	2,306	$	3,935
2003		19,176		437		19,613
2004		64,717		460		65,177
2005		19,748		5,028		24,776
2006		36,342		3,848		40,190
Thereafter		425,016		450,898		875,914
	$	566,628	$	462,977	$	1,029,605

          For the three and nine months ended September 30, 2002, United Dominion recognized $11.4 million  ($0.11 per diluted share) of extraordinary losses, net of minority interests, and $26.0 million  ($0.24 per diluted share) in extraordinary losses, net of minority interests as a result of prepayment penalties incurred from the refinancing of certain secured loans, using proceeds from the Fannie Mae and Freddie Mac credit facilities, and the repurchase of unsecured debt using proceeds from third quarter dispositions.

6.  UNSECURED DEBT
          A summary of unsecured debt at September 30, 2002 and December 31, 2001 is as follows (dollars in thousands):

		2002		2001
Commercial Banks
	Borrowings outstanding under an unsecured credit facility due August 2003 (a)	$	62,000	$	230,200
	Borrowings outstanding under an unsecured term loan due May 2004–2005 (b)		100,000		100,000
Senior Unsecured Notes – Other
	7.60% Medium-Term Notes due January 2002		—		46,750
	7.65% Medium-Term Notes due January 2003 (c)		10,000		10,000
	7.22% Medium-Term Notes due February 2003		11,815		11,815
	8.63% Notes due March 2003		78,005		78,030
	7.98% Notes due March 2002–2003 (d)		7,428		14,857
	5.05% City of Portland, OR Bonds due October 2003		7,345		7,345
	7.67% Medium-Term Notes due January 2004		51,405		53,510
	7.73% Medium-Term Notes due April 2005		21,100		22,400
	7.02% Medium-Term Notes due November 2005		49,760		49,760
	7.95% Medium-Term Notes due July 2006		91,559		103,179
	7.07% Medium-Term Notes due November 2006		25,000		25,000
	7.25% Notes due January 2007		101,370		105,020
	ABAG Tax-Exempt Bonds due August 2008		46,700		46,700
	8.50% Monthly Income Notes due November 2008		57,400		57,400
	6.50% Notes due June 2009 (e)		200,000		—
	8.50% Debentures due September 2024 (f)		55,906		124,920
	Other (g)		1,692		3,134
			816,485		759,820
	Total Unsecured Debt	$	978,485	$	1,090,020

10

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

(a)	At September 30, 2002, United Dominion had eight interest rate swap agreements associated with commercial bank borrowings with an aggregate notional value of $155 million under which United Dominion paid a fixed rate of interest and received a variable rate of interest on the notional amounts.  The interest rate swaps, which mature over the period from October 2002 to July 2004, effectively changed United Dominion’s interest rate exposure on the $155 million of borrowings from a variable rate to a weighted average fixed rate of approximately 7.13%.  At September 30, 2002 and December 31, 2001, the weighted average interest rate of the $62 million and $230.2 million in commercial borrowings, after giving effect to swap agreements, was 7.1% and 6.1%, respectively.
(b)	As of September 30, 2002, United Dominion had five interest rate swap agreements associated with borrowings under the term loan with an aggregate notional value of $100 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts.  The interest rate swaps, which mature in May 2003 and May 2004, effectively change United Dominion’s interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 8.17%.
(c)	United Dominion has one interest rate swap agreement associated with these unsecured notes with an aggregate notional value of $10 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount.  The interest rate swap agreement, which matures in January 2003, effectively changes United Dominion’s interest rate exposure on the $10 million from a variable rate to a fixed rate of 7.65%.
(d)	Payable annually in three equal principal installments of $7.4 million.  The first installment was paid in 2001 and the second installment was paid in the first quarter of 2002.
(e)	In June 2002, United Dominion issued $200 million of 6.50% senior unsecured notes due in June 2009.  The net proceeds of $198.3 million from the sale were used to reduce outstanding debt under United Dominion’s $375 million unsecured revolving credit facility.
(f)	Includes an investor put feature that grants a one-time option to redeem the debentures in September 2004.
(g)	Includes $1.7 million and $3.0 million at September 30, 2002 and December 31, 2001, respectively, of deferred gains from the termination of interest rate risk management agreements which are being amortized over their remaining useful life of approximately 3 years.

7.  FINANCIAL INSTRUMENTS

          United Dominion accounts for its derivative instruments in accordance with Statements of Financial Accounting Standards No. 133 and 138, “Accounting for Certain Derivative Instruments and Hedging Activities.” At September 30, 2002, all of United Dominion’s derivative financial instruments are interest rate swap agreements that are designated as cash flow hedges of debt with variable interest rate features, and are qualifying hedges for financial reporting purposes.   For derivative instruments that qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings during the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.

          The fair value of United Dominion’s derivative instruments is reported on balance sheet at their current fair value. Estimated fair values for interest rate swaps rely on prevailing market interest rates.  These fair value amounts should not be viewed in isolation, but rather in relation to the values of the underlying hedged transactions and investments and to the overall reduction in exposure to adverse fluctuations in interest rates. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation.  The interest rate swaps involve the periodic exchange of payments over the life of the related agreements.  Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting.  The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively.

11

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

          The following table presents the fair values of United Dominion’s derivative financial instruments outstanding, based on external market quotations, as of September 30, 2002 (dollars in thousands):

Notional Amount		Fixed Rate			Type of Contract		Effective Date		Contract Maturity		Fair Value
	Secured Debt:
	FNMA
$	7,000		6.48	%		Swap		06/30/99		06/30/04	$	(550	)
	10,000		6.92	%		Swap		12/01/99		04/01/04		(735	)
	17,000		6.74	%								(1,285	)
	Unsecured Debt:
	Bank Credit Facility
	5,000		8.85	%		Swap		06/26/95		07/01/04		(405	)
	10,000		7.24	%		Swap		10/18/95		10/03/02		(109	)
	5,000		7.08	%		Swap		11/21/95		10/03/02		(53	)
	25,000		7.49	%		Swap		11/01/00		08/01/03		(1,102	)
	25,000		7.49	%		Swap		11/01/00		08/01/03		(1,102	)
	25,000		7.31	%		Swap		12/01/00		08/01/03		(1,060	)
	25,000		7.31	%		Swap		12/04/00		08/01/03		(1,060	)
	35,000		6.08	%		Swap		03/13/01		04/01/03		(682	)
	155,000		7.13	%								(5,573	)
	Unsecured Debt:
	Bank Term Loan
	25,000		7.64	%		Swap		11/15/00		05/15/03		(812	)
	20,000		7.64	%		Swap		11/15/00		05/15/03		(649	)
	23,500		8.82	%		Swap		11/15/00		05/15/04		(1,865	)
	23,000		8.82	%		Swap		11/15/00		05/15/04		(1,825	)
	8,500		7.41	%		Swap		12/04/00		05/15/03		(263	)
	100,000		8.17	%								(5,414	)
	Medium-Term Notes
	10,000		7.65	%		Swap		01/26/99		01/27/03		(178	)
$	282,000										$	(12,450	)

          During the quarter ended September 30, 2002, United Dominion recognized $0.5 million of unrealized gains in comprehensive income and a $55 thousand gain in net income related to the ineffective portion of its hedging instruments.  In addition, United Dominion has recognized $12.5 million of derivative financial instrument liabilities on the Consolidated Balance Sheet.  For the nine months ended September 30, 2002, United Dominion recognized $2.4 million of net unrealized gains in comprehensive income and a $62 thousand gain in net income related to the ineffective portion of our hedging instruments. 

          As of September 30, 2002, United Dominion expects to reclassify $9.8 million of net losses on derivative instruments from accumulated other comprehensive loss to earnings (interest expense which, combined with the interest paid on the underlying debt, results in interest expense at the fixed rates shown above) during the next twelve months on the related hedged transactions.

12

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

8.  EARNINGS PER SHARE
          Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period.  Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents.  The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion’s average stock price.

          The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2002		2001		2002		2001
Numerator for basic and diluted earnings per share-net income available to common shareholders	$	13,602	$	6,778	$	25,578	$	23,606
Denominator for basic earnings per share-weighted average common shares outstanding		107,148		99,623		106,139		100,612
Effect of dilutive securities:
Employee stock options and non-vested restricted stock awards		946		843		893		680
Denominator for diluted earnings per share		108,094		100,466		107,032		101,292
Basic earnings per share	$	0.13	$	0.07	$	0.24	$	0.23
Diluted earnings per share	$	0.13	$	0.07	$	0.24	$	0.23

         The effect of the conversion of the operating partnership units and convertible preferred stock is not dilutive and is therefore not included in the above calculations. If the operating partnership units were converted to common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2002 and 2001 would be 6,972,581 and 7,010,248 for 2002 and 7,222,480 and 7,354,237 for 2001, respectively.  If the convertible preferred stock was converted to common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2002 and 2001 would be 12,307,692 common shares.

9.  COMPREHENSIVE INCOME
          Total comprehensive income for the three and nine months ended September 30, 2002 and 2001 was $20.9 million and $48.5 million for 2002 and $7.3 million and $35.5 million for 2001, respectively.  The difference between net income and total comprehensive income is primarily due to the fair value accounting for interest rate swaps. 

10.  COMMITMENTS AND CONTINGENCIES
Commitments
          United Dominion is committed to completing its real estate currently under development, which has an estimated cost to complete of $6.9 million at September 30, 2002.

Contingencies
          In May 2001, the shareholders of United Dominion approved the Out-Performance Program (the “Program”) pursuant to which executives and other key officers of United Dominion were given the opportunity to invest in United Dominion by purchasing performance shares (“Out-Performance Partnership Shares” or  “OPPSs”) of the Operating Partnership for an initial investment of $1.27 million (the full market value of the OPPSs at inception, as determined by an independent investment banking firm).  The Program measures United Dominion’s performance over a 28-month period beginning February 2001.

13

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

          The Program is designed to provide participants with the possibility of substantial returns on their investment if United Dominion’s total return, considering the reinvestment of dividend income as well as share price appreciation, on its common stock during the measurement period exceeds the greater of a) industry average (defined as the total cumulative return of the Morgan Stanley REIT Index over the same period) or b) a 30% total return (12% annualized) (the “minimum return”).

          At the conclusion of the measurement period, if United Dominion’s total return satisfies these criteria, the holders of the OPPSs will receive distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of interests in the Operating Partnership (“OP Units”) obtained by:

i.	determining the amount by which the cumulative total return of United Dominion’s common stock over the measurement period exceeds the greater of the cumulative total return of the peer group index (the Morgan Stanley REIT Index) or the minimum return (such being the “excess return”);
ii.	multiplying 4% of the excess return by United Dominion’s market capitalization (defined as the average number of shares outstanding over the 28-month period multiplied by the daily closing price of United Dominion’s common stock) up to a maximum of 2% of market capitalization; and
iii.	dividing the number obtained in (ii) by the market value of one share of United Dominion common stock on the valuation date, determined by the volume-weighted average price of the common stock for the 20 trading days immediately preceding the valuation date.

          If, on the valuation date, the cumulative total return of United Dominion’s common stock does not meet the minimum return or the total return of the peer group and there is no excess return, then the holders of the OPPSs will forfeit their entire initial investment of $1.27 million.   The OPPSs, unlike United Dominion’s other OP Units, are not convertible into common stock except upon a change of control of United Dominion or upon the death of the participant.  It is this feature, combined with the fact that management paid market value for the shares, that we believe makes this program better than previous programs, such as stock options, that were likewise designed to motivate and retain executives and key management.  It ensures that management’s goals are perpetually aligned with the shareholders since the OP Units can not be conveyed or disposed of except as outlined previously.  Accordingly, the contingently issuable OPPSs are not included in common stock and common stock equivalents in the calculation of earnings per share.  Based upon results through September 30, 2002, 1,224,144 OPPSs would have been issued had the Program terminated on that date.  However, since the ultimate determination of OPPSs to be issued will not occur until June 2003, and the number of OPPSs is determinable only upon future events, the financial statements do not reflect any additional impact for these events.

Legal Matters
          United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending.  The ultimate liability in respect of such litigations and claims cannot be determined at this time.  United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion.

11.  RELATED PARTY TRANSACTIONS
          As of September 30, 2002 the Company has $3.0 million of Notes Receivable from certain Officers and Directors of the Company (original principal balances of $3.5 million), at an interest rate of 7.0% and maturities scheduled from December 2002 to June 2004.  The purpose of the loans was for the borrowers to purchase shares of the Company’s common stock pursuant to the Company’s 1991 Stock Purchase and Loan Plan.  The loans are evidenced by Promissory Notes between the borrowers and the Company and are secured by a pledge of the shares of common stock (281,750 shares with a market value of $4.5 million at September 30, 2002).  The Notes require that dividends received on the shares be applied towards payment of the Notes.

          In addition, the Company entered into a Servicing and Purchase Agreement (the “ Servicing Agreement”) with Sun Trust Bank (the “Bank”) whereby the Company has agreed to act as servicing agent for and to purchase certain loans made by the Bank to Officers and Directors of the Company (the “Borrowers”) to finance the purchase

14

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

of shares of the Company’s common stock.  The loans are evidenced by promissory notes (“Notes”) between each Borrower and the Bank. The Servicing Agreement provides that the Bank can require the Company to purchase the Notes upon an event of default by the Borrower or the Company under the Servicing Agreement and at certain other times during the term of the Servicing Agreement.  The aggregate outstanding principal balance of the Notes as of September 30, 2002 was $11.7 million (original principal balance was $12.7 million), and all of the Notes mature during 2004.  Because certain of the Borrowers elected floating rate loans and others elected fixed rate loans, the interest rates on these loans as of September 30, 2002 ranged from 3.64% to 7.68%.    Each Borrower entered into a Participation Agreement with the Company that requires that all cash dividends received on the shares (1,083,256 shares at September 30, 2002 with a closing market value of $17.2 million) be applied towards payment of the Notes.  Based upon the fact that 100% of all cash dividend payments are paid to amortize the Notes and that the Notes are recourse to the Borrowers, the Company believes that its exposure to liability under the Notes is remote.

12.  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
          In April 2002, the FASB issued Statement 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction” (“SFAS No. 145”). Statement 4, “Reporting Gains and Losses from Extinguishment of Debt” (“SFAS No. 4”), required that gains and losses from the extinguishment of debt that were included in the determination of net income be aggregated and, if material, classified as an extraordinary item.  The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 will require United Dominion to reclassify prior period items into continuing operations, including those recorded in the current period, that do not meet the extraordinary classification.  Additionally, future gains and losses related to debt extinguishment may be required to be classified in income from continuing operations.  The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 become effective in fiscal years beginning after May 15, 2002.  United Dominion, from time to time, incurs such charges and is currently assessing the impact that this statement will have on its consolidated financial position or results of operations.

15

Item 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
          The following information should be read in conjunction with the United Dominion Realty Trust, Inc. (“United Dominion”) Annual Report on Form 10-K for the year ended December 31, 2001 as well as the financial statements and notes included in Item 1 of this report.  This quarterly report contains 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. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth.  Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements.  Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of United Dominion to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting United Dominion or its properties, adverse changes in the real estate markets and general and local economies and business conditions.  Although United Dominion believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this report may prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by United Dominion or any other person that the results or conditions described in such statements or the objectives and plans of United Dominion will be achieved.

Business Overview
          United Dominion is a real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages middle market apartment communities nationwide.  From 1996 through 1999, United Dominion acquired other REITs, private portfolios and individual communities to create a national platform.  Beginning in 2000, United Dominion started to upgrade the quality of the portfolio and invested in infrastructure and technology to catch up with the rapid growth of its portfolio of assets.  In 2002, United Dominion continues to refine its strategy with the goal of enhancing long-term earnings growth on a sustained basis by focusing on operational opportunities that management believes will produce above-average net operating income growth, steadily increase cash flow per apartment home and strengthen the capital structure of United Dominion.  Our strategy includes the following key initiatives:

• Own and operate middle market apartment homes across a geographically diverse platform by enhancing our presence in 25 to 30 core markets to enable United Dominion to capitalize on operating efficiencies.

• As local market cycles create opportunities, exit current markets where long-term growth is below the national average (the “non-core markets”).

• Employ a strict capital allocation discipline throughout all decision-making processes to enhance performance, improve the strength of United Dominion’s balance sheet and increase financial flexibility.

• Lead, manage, measure and reward associates based upon performance specifically tied to key financial and investment indicators, including the growth of funds from operations, adjusted funds from operations and the common share price.

          Over the long-term, these key initiatives will better position United Dominion to serve its customers, increase profitability and capitalize on changes in the marketplace.  At September 30, 2002, United Dominion owned 260 communities with 74,488 apartment homes nationwide, including properties held for disposition.

16

          The following table summarizes United Dominion’s apartment market information by major geographic markets (includes real estate under development and real estate held for disposition, excludes commercial properties):

		As of September 30, 2002									Three Months Ended September 30, 2002					Nine Months Ended September 30, 2002
		Number of Apartment Communities		Number of Apartment Homes		Percentage of Carrying Value			Carrying Value (in thousands)		Average Physical Occupancy			Average Monthly Rental Rates		Average Physical Occupancy			Average Monthly Rental Rates
Dallas, TX			15		5,133		6.7	%	$	261,798		92.8	%	$	701		93.6	%	$	707
Houston, TX			22		5,726		5.9	%		230,793		93.4	%		648		94.8	%		644
Phoenix, AZ			12		3,855		5.9	%		227,352		92.9	%		716		93.2	%		718
Orlando, FL			14		4,140		5.3	%		204,737		92.1	%		733		91.7	%		744
Raleigh, NC			11		3,663		5.2	%		203,431		90.5	%		774		90.2	%		715
Metropolitan DC			8		2,330		4.4	%		171,821		95.6	%		943		95.9	%		920
Mid Cities, TX			10		3,465		4.1	%		157,358		93.8	%		680		94.5	%		678
Tampa, FL			10		3,372		3.9	%		153,465		90.5	%		705		91.5	%		658
Columbus, OH			6		2,530		3.8	%		149,051		93.1	%		690		94.2	%		707
San Francisco, CA			4		980		3.6	%		141,194		97.0	%		1,572		97.2	%		690
Charlotte, NC			10		2,711		3.6	%		138,159		91.8	%		633		89.4	%		1,602
Nashville, TN			8		2,220		3.1	%		120,428		91.1	%		667		92.4	%		653
Greensboro, NC			8		2,122		2.7	%		104,538		89.1	%		607		89.9	%		672
Southern California			4		1,318		2.6	%		100,816		94.7	%		931		94.5	%		620
Monterey Peninsula, CA			9		1,706		2.5	%		97,919		91.6	%		929		91.8	%		922
Richmond, VA			8		2,372		2.5	%		97,522		93.0	%		726		94.4	%		911
Wilmington, NC			6		1,868		2.3	%		91,145		91.9	%		655		91.6	%		725
Atlanta, GA			6		1,426		1.9	%		72,371		86.9	%		733		89.4	%		737
Baltimore, MD			6		1,292		1.7	%		67,718		95.0	%		863		96.0	%		855
Columbia, SC			6		1,584		1.6	%		62,579		95.5	%		592		94.7	%		591
Jacksonville, FL			3		1,157		1.5	%		58,887		94.9	%		676		94.6	%		764
Norfolk, VA			6		1,438		1.4	%		54,572		98.2	%		701		97.4	%		675
Lansing, MI			4		1,226		1.3	%		49,708		89.7	%		687		92.8	%		694
Seattle, WA			3		628		0.9	%		34,164		92.1	%		750		93.5	%		678
Other Western			6		2,650		4.0	%		155,756		90.7	%		769		92.3	%		746
Other Southwestern			10		2,503		3.3	%		127,157		93.5	%		679		92.4	%		755
Other Pacific			8		2,275		3.2	%		123,772		89.6	%		755		91.0	%		682
Other Florida			8		2,089		2.8	%		107,573		93.4	%		837		93.7	%		736
Other Midwestern			10		2,122		2.4	%		94,990		93.7	%		634		94.0	%		636
Other North Carolina			8		1,893		1.9	%		75,738		95.7	%		575		95.6	%		569
Other Southeastern			4		1,394		1.8	%		69,084		90.5	%		588		90.6	%		592
Other Mid-Atlantic			5		928		1.1	%		42,766		97.3	%		803		97.2	%		796
Other Northeastern			2		372		0.5	%		18,242		96.7	%		692		97.0	%		688
Construction in Progress			—		—		0.1	%		3,307		—			—		—			—
Land			—		—		0.5	%		20,484		—			—		—			—
	Total Apartments		260		74,488		100.0	%	$	3,890,395		92.6	%	$	724		93.1	%	$	718

17

Liquidity and Capital Resources
          Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of additional funds through working capital management.  Both the coordination of asset and liability maturities and effective working capital management are important to the maintenance of liquidity.  United Dominion’s primary source of liquidity is its cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to its portfolio of apartment homes. United Dominion routinely uses its unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities.

          United Dominion expects to meet its short-term liquidity requirements generally through its net cash provided by operations and borrowings under credit arrangements.  We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties and the issuance of debt securities or additional equity securities of United Dominion.  We believe that our net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends by United Dominion in accordance with REIT requirements in both the short- and long-term.  The budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations.

          United Dominion filed a shelf registration statement in December 1999 providing for the issuance of up to an aggregate of $700 million in common shares, preferred shares and debt securities to facilitate future financing activities in the public capital markets.  In March 2002, United Dominion completed the sale of 3.0 million shares of common stock at a price of $14.91 per share.  In June 2002, United Dominion issued $200 million of 6.50% senior unsecured notes due in June 2009.  As of September 30, 2002, approximately $294 million of equity and debt securities remain available for use under the shelf registration statement.  Access to capital markets is dependent on market conditions at the time of issuance. 

Future Capital Needs
          Future development expenditures are expected to be funded primarily through joint ventures or with proceeds from the sale of property, and to a lesser extent, cash flows provided by operating activities.  Acquisition activity in strategic markets is expected to be largely financed by the reinvestment of proceeds from the sale of property in non-strategic markets. 

          As of September 30, 2002, United Dominion had approximately $3.9 million of secured debt maturing during the remainder of 2002 which we anticipate repaying using proceeds from mortgage refinancing activity or borrowings under unsecured or secured credit facilities.

Significant and Critical Accounting Policies
          Our significant accounting policies are described in Note 1 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2001.  The accounting policies used in preparing our interim consolidated financial statements for the three and nine months ended September 30, 2002 are the same as those described in our Annual Report on Form 10-K.

          Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgements and estimates.  These policies include those related to (1) capital expenditures, (2) revenue recognition, and (3) derivatives and hedging activities.  Our critical accounting policies are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2001.  There have been no significant changes in our critical accounting policies from those reported in our 2001 Annual Report on Form 10-K.  With respect to these critical accounting policies, management believes that the application of judgements and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.

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Statements of Cash Flow
          The following discussion explains the changes in net cash provided by operating activities and net cash used in investing and financing activities that are presented in United Dominion’s Consolidated Statements of Cash Flows.

Operating Activities
          For the nine months ended September 30, 2002, United Dominion’s net cash flow from operating activities was $177.3 million compared to $172.3 million for the same period in 2001.  The slight increase in net cash flow from operating activities resulted primarily from increased rental revenues from a larger portfolio and decreased interest expense that was partially offset by lower collections on escrow accounts and receivables and increased payments of accrued incentive compensation.

Investing Activities
          For the nine months ended September 30, 2002, net cash used in investing activities was $11.1 million compared to net cash provided by investing activities of $25.1 million for the same period in 2001.  Changes in the level of investing activities from period to period reflect United Dominion’s strategy as it relates to its acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities. 

Acquisitions
          During the nine months ended September 30, 2002, United Dominion acquired seven communities with 2,623 apartment homes for approximately $204 million.   In addition, in June 2002, United Dominion purchased, for approximately $52 million, the remaining two apartment communities with 644 apartment homes that were part of an unconsolidated development joint venture in which United Dominion owned a 25% interest and served as the managing partner.  In August 2002, United Dominion purchased the 36% outside partnership interest in two properties in California containing 926 apartment homes for $17.3 million.

          During 2002, management plans to continue to channel new investments to those markets that are projected to provide the best investment returns for us over the next ten years. Markets will be targeted based upon defined criteria including past performance, expected job growth, current and anticipated housing supply and demand and the ability to attract and support household formation.

Capital Expenditures
          United Dominion capitalizes those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. 

          During the first nine months of 2002, $33.0 million or $430 per home was spent on capital expenditures for all of United Dominion’s communities excluding development and commercial properties.  These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as HVAC equipment, roofs, landscaping, siding, parking lots and other non-revenue enhancing capital expenditures, which aggregated $25.8 million or $337 per home.  In addition, revenue enhancing capital expenditures, including water sub-metering, the initial installation of microwaves or washer-dryers, and extensive interior upgrades totaled $6.8 million or $88 per home and major renovations totaled $0.4 million or $5 per home for the nine months ended September 30, 2002.

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          The following table outlines capital expenditures and repair and maintenance costs for United Dominion’s total portfolio, excluding real estate under development and commercial properties for the periods presented (dollars in thousands):

				Nine Months Ended September 30,						(Per Unit) Nine Months Ended September 30,
					2002		2001	% Change			2002		2001	% Change
Turnover capital expenditures				$	12,727	$	12,242	4.0	%	$	166	$	160	3.8	%
Other recurring capital expenditures					13,114		9,558	37.2	%		171		125	3.7	%
			Total recurring capital expenditures		25,841		21,800	18.5	%		337		285	18.2	%
Revenue enhancing improvements					6,750		12,711	-46.9	%		88		166	-47.0	%
Major renovations					375		3,008	-87.5	%		5		39	-87.2	%
		Total capital improvements		$	32,966	$	37,519	-12.1	%	$	430	$	490	-12.2	%
Repair and maintenance					29,805		26,566	12.2	%		389		348	11.8	%
	Total expenditures			$	62,771	$	64,085	-2.1	%	$	819	$	838	-2.3	%

          Total capital improvements during the first nine months of 2002 decreased 12.2% per unit compared to the same period in 2001. United Dominion will continue to selectively add revenue enhancing improvements that we believe will provide a return on investment substantially in excess of United Dominion’s cost of capital.  Recurring capital expenditures during 2002 are currently expected to be approximately $435 per home.

Real Estate under Development
          Development activity is focused in core markets that have strong operations in place.   For the nine months ended September 30, 2002, United Dominion invested approximately $9.2 million in real estate projects, down $37.7 million from its 2001 level of $46.8 million.

          The following projects were completed during the first nine months of 2002:

	Location	Number of Apartment Homes		Development Cost (In thousands)		Cost Per Home		Date Completed		%Leased at 9/30/02
Greensview II	Denver, CO		192	$	16,800	$	87,500		3/02		76.6	%
The Meridian II	Dallas, TX		270		14,800		54,800		6/02		95.6	%
			462	$	31,600	$	68,400

          The following project, representing an additional phase to an existing community, was under development at September 30, 2002:

	Location	Number of Apartment Homes		Completed Apartment Homes		Cost to Date (In thousands)		Budgeted Cost (In thousands)		Estimated Cost Per Home		Expected Completion Date
The Mandolin II	Dallas, TX		178		—	$	3,300	$	10,200	$	57,300		2Q03

          In addition, United Dominion owns nine parcels of land that it continues to hold for future development that had a carrying value at September 30, 2002 of $11.4 million.  Eight of the nine parcels represent additional phases to existing communities as United Dominion plans to add apartment homes adjacent to currently owned communities that are in improving markets.

Disposition of Investments
          For the nine months ended September 30, 2002, United Dominion sold 23 communities with a total 6,564 apartment homes and one commercial property for an aggregate sales price of approximately

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$300 million and recognized gains for financial reporting purposes of $30.6 million. Proceeds from the sales were applied primarily to acquire communities and reduce debt.  In addition, during the first quarter of 2002, $3.1 million in proceeds was received on the condemnation of 96 units of a community in Fresno, California that resulted in a gain of $1.2 million. 

          United Dominion continues to pursue its strategy of exiting markets where long-term growth prospects are limited and redeploying capital into markets that would enhance future growth rates and economies of scale. 

          During the remainder of 2002, United Dominion plans to dispose of selected communities in non-core markets, with inferior locations, significant capital expense requirements without the potential of a corresponding increase in rent, or insufficient growth potential.  Proceeds from 2002 dispositions will be used to acquire communities, to fund development activity and to reduce debt.

Financing Activities
          Net cash used in financing activities during the nine months ended September 30, 2002 was $163.9 million compared to net cash used of $200.5 million for the nine months ended September 30, 2001.   As part of the plan to improve United Dominion’s balance sheet position, we utilized proceeds from dispositions, equity and debt offerings and refinancings to extend maturities, pay down existing debt and purchase new properties. 

          The following is a recap of the financing activities for the first nine months of 2002:

• Borrowed an additional $253.6 million under our existing Fannie Mae credit facilities and $70.7 million under a new $72 million Freddie Mac revolving credit facility.

• Repaid $294.8 million of secured debt and $154.8 million of unsecured debt (includes tender offer and prepayment penalties referred to below), assumed $41.6 million of secured debt in connection with the acquisition of properties and was relieved of $31.1 million of secured debt in connection with the disposition of properties.

• In March 2002, completed the sale of 3.0 million common shares at a price of $14.91 per share.  The net proceeds of $42.3 million were used to acquire apartment communities.

• In June 2002, issued $200 million of 6.50% senior unsecured notes due in June 2009.  The net proceeds of $198.3 million from the issuance were used to reduce outstanding debt under our $375 million unsecured revolving credit facility.

• In September 2002, launched tender offers to purchase $124.9 million of United Dominion’s 8.50% debentures maturing in 2024 and $103.1 million of our 7.95% notes maturing in 2006.  Upon completion of the tender offers, which expired September 30, 2002, $70.6 million of the 8.50% debentures and $12.6 million of the 7.95% notes had been repurchased. United Dominion also repurchased $2.1 million of the Company’s 7.67% notes maturing in 2004, $1.3 million of its 7.73% notes maturing in 2005 and $3.7 million of its 7.25% notes maturing in 2007.

• Repurchased 302,300 common shares at an average price of $13.98.  As of September 30, 2002, approximately 2.9 million common shares remained available for purchase under the common share repurchase program.

• Incurred $29.3 million in extraordinary charges.  These charges consisted of prepayment penalties of $15.8 million incurred during the first quarter of 2002 associated with the refinancing of certain mortgages using proceeds from the new Fannie Mae and Freddie Mac credit facilities.  Management believes that the net present value of these refinancing transactions ranges from approximately $17 to $20 million.  In addition, premiums of $12.6 million were paid during the third quarter of 2002 for the redemption of certain higher coupon bonds.  Management projects a net present value of approximately $1 to $2 million on these redemptions.  The remainder of the charges, incurred throughout the nine-month period, resulted from prepayment penalties for the early payoff of loans on the sale of properties.

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Credit Facilities
          United Dominion has four secured revolving credit facilities with Fannie Mae with an aggregate commitment of $860 million and one with Freddie Mac for $72 million.  As of September 30, 2002, $676.3 million was outstanding under the Fannie Mae credit facilities leaving $183.7 million of unused capacity.  The Fannie Mae credit facilities are for an initial term of ten years, bear interest at floating and fixed rates and can be extended for an additional five years at United Dominion’s discretion.  As of September 30, 2002, $70.7 million had been funded under the Freddie Mac credit facility leaving $1.3 million of unused capacity.  The Freddie Mac credit facility is for an initial term of five years with an option by United Dominion to extend for an additional four-year term at the then market rate.

          As of September 30, 2002, the aggregate borrowings under both the Fannie Mae and Freddie Mac credit facilities was $747 million.  We have $288.9 million of the funded balance fixed at a weighted average interest rate of 6.4% with a weighted average maturity of eight years.  The remaining balance on these facilities is currently at a weighted average variable rate of 2.4%.

          United Dominion has a $375 million three-year unsecured bank revolving credit facility that matures in August 2003.  As of September 30, 2002, $62 million was outstanding under the bank credit facility leaving $313 million of unused capacity.  Under the bank credit facility, United Dominion may borrow at a rate of LIBOR plus 110 basis points and pays a facility fee, which is equal to 0.25% of the commitment.

          The Fannie Mae and Freddie Mac credit facilities and the bank credit facility are subject to customary financial covenants and limitations.  As of September 30, 2002, management believes that United Dominion is in compliance with all covenants and limitations.

          Information concerning short-term bank borrowings under United Dominion’s bank credit facility is summarized in the table that follows (dollars in thousands):

	Three months ended September 30, 2002			Twelve months ended December 31, 2001
Total line of credit	$	375,000		$	375,000
Borrowings outstanding at end of period		62,000			230,200
Weighted average daily borrowings during the period		77,686			248,367
Maximum daily borrowings outstanding during the period		141,900			347,200
Weighted average interest rate during the period		3.6	%		5.2	%
Weighted average interest rate at end of period		3.3	%		3.2	%
Weighted average interest rate at end of period, after giving effect to swap agreements		7.1	%		6.1	%

Derivative Instruments
          As part of United Dominion’s overall interest rate risk management strategy, we use derivatives as a means to fix the interest rates of variable rate debt obligations or to hedge anticipated financing transactions.  United Dominion’s derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion.  United Dominion believes that it has appropriately controlled its interest rate risk through the use of derivative instruments.  For the first nine months of 2002, the fair value of United Dominion’s derivative instruments has improved from an unfavorable value position of $14.9 million at December 31, 2001 to an unfavorable value position of $12.5 million at September 30, 2002.  This decrease is primarily due to the normal progression of the fair market value of derivative instruments to get closer to zero as they near the end of their terms.

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Funds from Operations
          Funds from operations, or FFO, is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (losses) from sales of depreciable property and extraordinary items, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  United Dominion computes FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust’s October 1, 1999 White Paper. 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.  Adjusted funds from operations, or AFFO, is defined as FFO less projected recurring capital expenditures for our stabilized portfolio of $435 per unit in 2002 and $418 per unit actually spent in 2001.  The 2002 unit charge will be adjusted to actual at year-end.  We believe AFFO is the best measure of economic profitability for REITs.

          The following table outlines United Dominion’s FFO calculation for the three and nine months ended September 30 (dollars in thousands):

							Three Months Ended September 30,						Nine Months Ended September 30,
							2002			2001			2002			2001
Net income							$	20,399		$	13,547		$	46,126		$	51,524
Adjustments:
						Distributions to preferred shareholders		(6,797	)		(6,769	)		(20,548	)		(24,422	)
						Real estate depreciation, net of outside partners’ interest		38,804			32,017			110,370			102,318
						Minority interests of unitholders in operating partnership		264			282			1,066			1,200
					Real estate depreciation related to unconsolidated entities			60			282			437			746
					Gains on sales of depreciable property, net of outside partners’ interest			—			—			(1,248	)		(24,005	)
				Extraordinary item-early extinguishment of debt, net of minority interest				11,354			173			26,028			610
Discontinued Operations:
				Real estate depreciation				326			3,629			6,879			10,871
			Minority interests of unitholders in operating partnership					1,402			218			2,343			563
			Impairment loss on real estate					—			—			2,301			—
			Gains on sales of depreciable property					(19,128	)		—			(30,625	)		—
		Extraordinary item-early extinguishment of debt, net of minority interest						474			—			1,591			90
		Funds from operations-basic					$	47,158		$	43,379		$	144,720		$	119,495
Adjustment:
		Distribution to preferred shareholders-Series D (Convertible)					$	3,886		$	3,857		$	11,815		$	11,571
	Funds from operations-diluted						$	51,044		$	47,236		$	156,535		$	131,066
Adjustment:
	Recurring capital expenditures						$	(8,259	)	$	(7,886	)	$	(25,013	)	$	(23,631	)
	Adjusted funds from operations-diluted						$	42,785		$	39,350		$	131,522		$	107,435
Weighted average number of common shares and OP Units outstanding-basic								114,121			107,000			113,149			108,120
Weighted average number of common shares, OP Units and common stock equivalents outstanding-diluted								128,557			120,032			127,534			120,989

          In the computation of diluted FFO, OP units, out-performance partnership shares and the convertible Series D preferred shares are dilutive; therefore, they are included in the diluted share count.

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Results of Operations
          The following discussion includes the results of both continuing and discontinued operations for the periods presented.

Net Income Available to Common Shareholders
          Net income available to common shareholders was $13.6 million or $0.13 per share for the quarter ended September 30, 2002, compared to $6.8 million or $0.07 per share for the same period in the prior year.  The increase in net income available to common shareholders resulted primarily from higher gains recognized on the sales of depreciable property during 2002 compared to the same period in 2001.  In addition, continuing property operations generated $9.1 million more in rental income during 2002 and United Dominion reduced interest expense by over $1.1 million.  This, in part, was offset by an increase in depreciation expense and rental expenses as a result of a larger portfolio.  Furthermore, United Dominion incurred non-recurring charges of $12.6 million during the third quarter of 2002 compared to $0 for the same period in 2001.  These charges related primarily to the tender offers to purchase United Dominion’s 8.50% debentures due 2024 and 7.95% notes due 2006 and the purchase of other unsecured debt.  The amount paid to repurchase this debt exceeded the net proceeds received from the initial issuance of the debt, and that excess is reflected in the Statement of Operations as an extraordinary charge to earnings. 

          Net income available to common shareholders was $25.6 million or $0.24 per share for the nine-month period ended September 30, 2002, compared to $23.6 million or $0.23 per share for the same period in the prior year.  The increase in net income available to common shareholders resulted primarily from a $19.1 million increase in rental income generated from continuing property operations, higher gains recognized on the sales of depreciable property during 2002 compared to 2001 and a reduction in interest expense.  These increases were partially offset by an increase in depreciation expense and rental expenses, as a result of a larger portfolio, as well as higher extraordinary charges to earnings from debt refinancing and debt repurchases. 

Apartment Community Operations
          United Dominion’s net income is primarily generated from the operations of its apartment communities.  The following table summarizes the operating performance of United Dominion’s total apartment portfolio for each of the periods presented (dollars in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
		2002			2001		% Change			2002			2001		% Change
Property rental income	$	157,082		$	153,588		2.3	%	$	474,148		$	462,078		2.6	%
Property operating expense*		(59,628	)		(56,690	)	5.2	%		(175,567	)		(170,319	)	3.1	%
Property operating income	$	97,454		$	96,898		0.6	%	$	298,581		$	291,759		2.3	%
Weighted average number of homes		76,812			76,102		0.9	%		77,491			76,421		1.4	%
Physical occupancy**		92.6	%		93.8	%	-1.2	%		93.1	%		93.9	%	-0.8	%

* Excludes depreciation, amortization and property management expenses.

** Based upon weighted average units.

          The increase in property operating income provided by the same communities, development communities and acquisition communities since September 30, 2001 is primarily due to the weighted average number of apartment homes increasing 1.4% from the nine month period ended September 30, 2001 to the nine month period ended September 30, 2002, and to the continued lease-up and stabilization of developed communities.

Same Communities
          United Dominion’s same communities (those communities acquired, developed and stabilized prior to January 1, 2001 and held on January 1, 2002 which consisted of 65,730 apartment homes at September 30, 2002) provided 86% of our property operating income for the nine months ended September 30, 2002.

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          For the third quarter of 2002, property operating income for the same communities decreased 3.4% or $3.0 million compared to the same period in 2001.  The decrease in property operating income resulted primarily from a 1.4% or $1.9 million decrease in property rental income over the same period in the prior year.  This decrease was driven by a 0.6% or $0.9 million decrease in rental rates, a 25.5% or $0.9 million increase in concessions and a 24.2% or $2.1 million increase in vacancy loss.  These decreases in income were partially offset by a 42.6% or $1.0 million increase in sub-meter, trash and vacant utility reimbursements and a 21.3% or $1.0 million increase in other income.  In addition, property operating expenses at these same communities increased 2.3% or $1.1 million over the same period in the prior year.  This increase in property operating expenses was driven by an 8.2% or $0.7 million increase in repair and maintenance expense, a 3.4% or $0.5 million increase in personnel costs, a 2.9% or $0.4 million increase in taxes and a 3.4% or $0.3 million increase in utilities expense.  These increases in expense were partially offset by a 45.7% or $0.9 million decrease in insurance costs.  Physical occupancy for the three-month period ended September 30, 2002, declined 1.2% to 92.8%.

          As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property operating income divided by property rental income) decreased 1.4% from the comparable period last year to 62.4% for the quarter ended September 30, 2002.

          For the nine months ended September 30, 2002, same community property operating income remained constant compared to the same period last year.  The overall increase in property operating income of 0.2% or $0.9 million was primarily driven by a 0.9% or $3.7 million increase in rental rates, a 33.1% or $2.5 million increase in reimbursements and an 18.6% or $2.6 million increase in other income.  These increases in income were partially offset by a 17.6% or $4.3 million increase in concessions.  In addition, property operating expenses at these same communities increased 0.9% or $0.9 million over the same period in the prior year.  This increase in property operating expenses was primarily driven by a 10.3% or $2.4 million increase in repair and maintenance costs and a 3.1% or $1.1 million increase in taxes, both of which were partially offset by a 7.0% or $1.8 million decrease in utilities expense, a 31.7% or $0.5 million decrease in incentive bonus expense and a 5.5% or $0.4 million decrease in insurance costs.  Physical occupancy for the nine-month period ended September 30, 2002, declined 0.6% to 93.3%.

          As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property operating income divided by property rental income) decreased 0.1% from the comparable period last year to 63.7% for the nine months ended September 30, 2002.

Non-Mature Communities
          The remaining 14% of United Dominion’s property operating income during the first nine months of 2002 was generated from its non-mature communities (those communities acquired or developed during 2001 and 2002, sold properties and those properties classified as held for disposition). United Dominion’s development communities, which included 1,238 apartment homes constructed since January 1, 2001, provided $4.6 million of property operating income for the nine months ended September 30, 2002. In addition, the 14 communities with 4,571 apartment homes acquired by United Dominion during 2001 and 2002 provided $12.6 million of property operating income for the nine month period.  The 23 communities with 6,545 apartment homes sold during 2002 provided $16.5 million of property operating income, the eight communities with 1,475 apartment homes classified as real estate held for disposition provided $3.8 million of property operating income and other non-mature communities provided $3.4 million of property operating income for the nine months ended September 30, 2002.

Interest Expense
          Interest expense decreased $1.1 million and $7.5 million for the three and nine months ended September 30, 2002, respectively, from the corresponding periods in 2001 primarily due to debt refinancings and decreasing interest rates that were partially offset by the overall increase in the weighted average level of debt outstanding.  For the nine month period, the weighted average amount of debt outstanding increased 4.3% or $87.4 million when compared to the same period in the prior year and the weighted average interest rate decreased from 7.1% for the nine months ended September 30, 2001 to 6.2% for the same period in 2002.  For the quarter ended September 30, 2002, the weighted average amount of debt outstanding increased 0.8% or $17.1 million when compared to the same period in the prior year and

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the weighted average interest rate decreased from 7.0% for the three months ended September 30, 2001 to 6.2% for the same period in 2002.  The weighted average amount of debt employed during 2002 is higher than the same period in 2001 as we borrowed additional funds to acquire apartment communities and repurchased shares of our common and preferred stock.  The decrease in the average interest rate during 2002 reflects the ability of United Dominion to take advantage of declining interest rates through refinancing and the utilization of variable rate debt.

Impairment Loss on Real Estate
          United Dominion is diligently pursuing its strategy of exiting markets where long-term growth prospects are limited and the redeployment of capital would enhance future growth rates and economies of scale.  During the first quarter of 2002, United Dominion placed nine assets, with an aggregate book value of $89.3 million, under contract for sale and reclassified them as “Real estate held for disposition.”  These sales closed in the second quarter of 2002 and resulted in our withdrawal from Naples, Florida, Tucson, Arizona, Las Vegas, Nevada and substantially all of Memphis, Tennessee.  Although these sales resulted in an aggregate net gain of $11.5 million, certain of these assets were sold at net selling prices below their net book values at March 31, 2002.  As a result, United Dominion recorded an aggregate $2.3 million impairment loss during the first quarter for the write-down of a portfolio of five apartment communities in Memphis, Tennessee. 

General and Administrative
          For the three months ended September 30, 2002, general and administrative expenses decreased $1.6 million or 34.6% from the comparable period in 2001. The decrease was primarily due to the reversal of a provision made during the first quarter of 2002 for the pending buyout of certain long-term security monitoring contracts that United Dominion currently has on approximately 25% of its apartment portfolio.

          For the nine months ended September 30, 2002, general and administrative expenses increased $0.8 million or 5.3% from the comparable period in 2001. The increase was primarily due to an increase in incentive compensation expense.

Gains on Sales of Investments
          For the three and nine months ended September 30, 2002, United Dominion recognized gains for financial reporting purposes of $19.1 million and $31.9 million (including a $1.2 million gain on condemnation in Fresno, California), respectively, compared to $0 and $24.7 million for the comparable periods in 2001.  Changes in the level of gains recognized from period to period reflect the changing level of United Dominion’s divestiture activity from period to period as well as the extent of gains related to specific properties sold.

Inflation
          United Dominion believes that the direct effects of inflation on our operations have been inconsequential.  Substantially all of United Dominion’s leases are for a term of one year or less which generally minimizes our risk from the adverse effects of inflation.

Factors Affecting Our Business and Prospects
          There are many factors that affect our business and the results of our operations, some of which are beyond our control.  These factors include:

• Unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates.

• The failure of acquisitions to achieve anticipated results.

• Possible difficulty in selling apartment communities.

• Competitive factors that may limit our ability to lease apartment homes or increase or maintain rents.

• Insufficient cash flow that could affect our debt financing and create refinancing risk.

• Failure to generate sufficient revenue, which could impair our debt service payments and distributions to shareholders.

• Development and construction risks that may impact our profitability.

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• Our failure to succeed in new markets.

• Changing interest rates, which could increase interests costs and affect the market price of our securities.

• Potential liability for environmental contamination, which could result in substantial costs.

• Certain tax risks if we fail to qualify as a REIT in any taxable year.

          For a discussion of these and other factors affecting our business and prospects, see “Item 1.--Business--Factors Affecting Our Business and Prospects” in our Annual Report on Form 10-K for the year ended December 31, 2001.

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Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET  RISK

          United Dominion is exposed to interest rate changes associated with our unsecured credit facility and other variable rate debt as well as refinancing risk on our fixed rate debt.  United Dominion’s involvement with derivative financial instruments is limited and we do not expect to use them for trading or other speculative purposes.  United Dominion uses derivative instruments solely to manage its exposure to interest rates.

          See United Dominion’s Form 10-K for the year ended December 31, 2001 “Item 7A Qualitative and Quantitative Disclosures About Market Risk” for a more complete discussion of our interest rate sensitive assets and liabilities.  As of September 30, 2002, United Dominion’s market risk has not changed materially from the amounts reported on the Form 10-K for the year ended December 31, 2001.

Item 4.    CONTROLS AND PROCEDURES

          Within the 90 days prior to the filing of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of United Dominion’s disclosure controls and procedures. Our disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

          There have been no significant changes in United Dominion’s internal controls or in other factors which could significantly affect internal controls subsequent to the date of this evaluation.

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PART II

Item 1.    LEGAL PROCEEDINGS

          United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending.  The ultimate liability in respect of such litigations and claims cannot be determined at this time.  United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion.

Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits.

Exhibit	Description
12	Computation of Ratio of Earnings to Fixed Charges.
99.1	Certification of the Chief Executive Officer.
99.2	Certification of the Chief Financial Officer.

(b)     Reports on Form 8-K.

                    We filed the following Current Report on Form 8-K during the quarter ended September 30, 2002:

                    Current Report on Form 8-K dated September 12, 2002, filed with the Securities and Exchange Commission on September 16, 2002, under Item 5. Other Events, and Item 7. Exhibits and Financial Statements.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNITED DOMINION REALTY TRUST, INC.
(registrant)
Date: November 13, 2002	/s/  CHRISTOPHER D. GENRY
	Christopher D. Genry Executive Vice President and Chief Financial Officer
Date: November 13, 2002	/s/  SCOTT A. SHANABERGER
	Scott A. Shanaberger Senior Vice President and Chief Accounting Officer

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CERTIFICATIONS

I, Thomas W. Toomey, President and Chief Executive Officer of United Dominion Realty Trust, Inc., certify that:

1.          I have reviewed this quarterly report on Form 10-Q of United Dominion Realty Trust, Inc.;

2.           Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.           Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.           The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          (a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

          (b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

          (c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.           The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          (a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

          (b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.           The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	November 13, 2002	/s/ THOMAS W. TOOMEY
		Thomas W. Toomey President and Chief Executive Officer

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CERTIFICATIONS

I, Christopher D. Genry, Executive Vice President & Chief Financial Officer of United Dominion Realty Trust, Inc., certify that:

1.           I have reviewed this quarterly report on Form 10-Q of United Dominion Realty Trust, Inc.;

2.           Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.           Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.           The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          (a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

          (b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

          (c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.           The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          (a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

          (b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.           The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	November 13, 2002	/s/ CHRISTOPHER D. GENRY
		Christopher D. Genry Executive Vice President & Chief Financial Officer

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EXHIBIT INDEX

Exhibit	Description
12	Computation of Ratio of Earnings to Fixed Charges.
99.1	Certification of the Chief Executive Officer.
99.2	Certification of the Chief Financial Officer.

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