UDR (UDR) 10-Q 2006 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, 2006
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)

Maryland	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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of November 6, 2006 was 134,692,092.

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

		PAGE
PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)		2
	Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005		2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005		3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005		4
	Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2006 .		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		29
PART II—OTHER INFORMATION
Item 1A.	Risk Factors		30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 5.	Other Information		38
Item 6.	Exhibits		38
	Signatures		39

1

PART I—FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

UNITED DOMINION REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
(Unaudited)

	September 30,				December 31,
	2006				2005
ASSETS
Real estate owned:
Real estate held for investment		$	5,414,298			$	4,933,500
Less: accumulated depreciation		(1,164,077		)		(1,002,455		)
		4,250,221				3,931,045
Real estate under development (net of accumulated depreciation of $71 and $140)		161,580				90,769
Real estate held for disposition (net of accumulated depreciation of $14,680 and $121,234)		139,049				366,781
Total real estate owned, net of accumulated depreciation		4,550,850				4,388,595
Cash and cash equivalents		28,748				15,543
Restricted cash		5,591				4,583
Deferred financing costs, net		30,775				31,036
Notes receivable		10,000				64,805
Other assets		49,687				33,729
Other assets—real estate held for disposition		6,615				3,302
Total assets		$	4,682,266			$	4,541,593
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt		$	1,161,919			$	1,116,259
Unsecured debt		2,170,924				2,043,518
Real estate taxes payable		37,559				22,446
Accrued interest payable		22,429				26,672
Security deposits and prepaid rent		24,836				24,072
Distributions payable		47,199				45,313
Accounts payable, accrued expenses, and other liabilities		51,159				53,223
Other liabilities—real estate held for disposition		478				18,547
Total liabilities		3,516,503				3,350,050
Minority interests		86,339				83,819
Stockholders’ equity:
Preferred stock, no par value; 50,000,000 shares authorized 5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,416,009 in 2005)		135,400				135,400
2,803,812 shares 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 in 2005)		46,571				46,571
Common stock, $0.01 par value; 250,000,000 shares authorized 134,678,388 shares issued and outstanding (134,012,053 in 2005)		1,347				1,340
Additional paid-in capital		1,686,039				1,680,115
Distributions in excess of net income		(789,933		)		(755,702		)
Total stockholders’ equity		1,079,424				1,107,724
Total liabilities and stockholders’ equity		$	4,682,266			$	4,541,593

See accompanying notes to consolidated financial statements.

2

UNITED DOMINION REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share data)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
REVENUES
Rental income	$	177,634		$	157,715		$	514,236		$	459,798
Non-property income:
Sale of technology investment	796			—			796			12,306
Other income	451			2,319			2,352			2,976
Total non-property income	1,247			2,319			3,148			15,282
Total revenues	178,881			160,034			517,384			475,080
EXPENSES
Rental expenses:
Real estate taxes and insurance	20,159			19,420			61,971			55,080
Personnel	17,197			16,442			50,219			46,744
Utilities	10,006			9,081			29,709			26,543
Repair and maintenance	11,287			10,008			30,376			28,702
Administrative and marketing	5,474			5,460			15,777			15,859
Property management	5,126			4,771			15,211			14,428
Other operating expenses	308			291			907			870
Real estate depreciation and amortization	61,242			48,742			172,330			141,517
Interest	47,148			41,586			138,049			119,320
General and administrative	7,381			4,913			20,981			16,822
Loss on early debt retirement	—			—			—			6,662
Other depreciation and amortization	834			681			2,252			1,970
Total expenses	186,162			161,395			537,782			474,517
(Loss)/income before minority interests and discontinued operations	(7,281		)	(1,361		)	(20,398		)	563
Minority interests of outside partnerships	(33		)	22			(87		)	(89		)
Minority interests of unitholders in operating partnerships	773			316			2,040			649
(Loss)/income before discontinued operations, net of minority interests	(6,541		)	(1,023		)	(18,445		)	1,123
Income from discontinued operations, net of minority interests	65,893			16,158			121,990			81,395
Net income	59,352			15,135			103,545			82,518
Distributions to preferred stockholders—Series B	(2,911		)	(2,911		)	(8,733		)	(8,733		)
Distributions to preferred stockholders—Series E (Convertible)	(931		)	(931		)	(2,794		)	(2,794		)
Net income available to common stockholders	$	55,510		$	11,293		$	92,018		$	70,991
Earnings per weighted average common share—basic and diluted:
Loss from continuing operations available to common stockholders, net of minority interests	$	(0.07	)	$	(0.04	)	$	(0.22	)	$	(0.08	)
Income from discontinued operations, net of minority interests	$	0.49		$	0.12		$	0.91		$	0.60
Net income available to common stockholders	$	0.42		$	0.08		$	0.69		$	0.52
Common distributions declared per share	$	0.3125		$	0.3000		$	0.9375		$	0.9000
Weighted average number of common shares outstanding—basic	133,712			136,392			133,660			136,231
Weighted average number of common shares outstanding—diluted	133,712			136,392			133,660			136,231

See accompanying notes to consolidated financial statements.

3

UNITED DOMINION REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
(Unaudited)

	Nine Months Ended September 30,
	2006			2005
Operating Activities
Net income	$	103,545		$	82,518
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	181,849			158,504
Net gains on the sale of land and depreciable property	(114,497		)	(66,657		)
Gain on the sale of technology investment	(796		)	(12,306		)
Distribution of earnings from unconsolidated joint venture	—			124
Minority interests	5,972			4,498
Amortization of deferred financing costs and other	4,368			6,544
Changes in operating assets and liabilities:
Increase in operating assets	(9,888		)	(6,321		)
(Decrease)/increase in operating liabilities	(6,105		)	3,556
Net cash provided by operating activities	164,448			170,460
Investment Activities
Proceeds from sales of real estate investments, net	391,185			203,534
Repayment of note receivable	59,805			33,705
Acquisition of real estate assets (net of liabilities assumed and initial capital expenditures	(333,055		)	(310,551		)
Development of real estate assets	(38,920		)	(35,046		)
Capital expenditures and other major improvements—real estate assets, net of escrow reimbursement	(163,490		)	(96,858		)
Capital expenditures—non-real estate assets	(2,499		)	(1,950		)
Investment in consolidated joint venture	(10,630		)	—
Proceeds from the sale of technology investment	796			12,306
Decrease in funds held in escrow from 1031 exchanges pending the acquisition of real estate	—			17,039
Net cash used in investing activities	(96,808		)	(177,821		)
Financing Activities
Scheduled principal payments on secured debt	(69,289		)	(7,565		)
Non-scheduled principal payments on secured debt	—			(125,221		)
Payments on unsecured debt	(110,194		)	(21,100		)
Proceeds from the issuance of unsecured debt	125,000			268,875
Proceeds from the issuance of secured debt	44,814			—
Net proceeds from revolving bank debt	112,800			35,000
Payment of financing costs	(4,211		)	(6,374		)
Distribution of capital from unconsolidated joint venture	—			458
Collateral substitution deposit	(10,432		)	—
Proceeds from the issuance of common stock	4,441			4,185
Proceeds from the issuance of performance shares	400			380
Cancellation of performance shares	(2,059		)	—
Purchase of minority interests from outside partners	—			(522		)
Conversion of operating partnership units to cash	—			(50		)
Distributions paid to minority interests	(9,815		)	(9,365		)
Distributions paid to preferred stockholders	(11,527		)	(11,527		)
Distributions paid to common stockholders	(124,363		)	(122,237		)
Net cash (used in)/provided by financing activities	(54,435		)	4,937
Net increase/(decrease) in cash and cash equivalents	13,205			(2,424		)
Cash and cash equivalents, beginning of period	15,543			7,904
Cash and cash equivalents, end of period	$	28,748		$	5,480
Supplemental Information:
Interest paid during the period	$	143,312		$	119,709
Non-cash transactions:
Conversion of operating partnership minority interests to common stock (34,290 shares in 2006 and 92,985 shares in 2005)	317			1,382
Issuance of restricted stock awards	3,082			8,450
Secured debt assumed with acquisition of a property	14,236			26,825
Receipt of a note receivable in connection with sales of real estate investments	—			124,650
Deferred gain in connection with sales of real estate investments	—			11,794
Non-cash transactions associated with consolidated joint venture:
Issuance of note receivable	4,000			—
Real estate asset acquired	72,004			—
Secured debt assumed	55,899			—
Operating assets assumed	51			—
Operating liabilities assumed	5,028			—

See accompanying notes to consolidated financial statements.

4

UNITED DOMINION REALTY TRUST, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except for share data)
(Unaudited)

											Distributions
	Preferred Stock			Common Stock				Paid-in			In Excess of
	Shares	Amount		Shares	Amount			Capital			Net Income				Total
Balance, December 31, 2005	8,219,821	$	181,971	134,012,053		$	1,340	$	1,680,115			$	(755,702	)	$	1,107,724
Comprehensive Income
Net income												103,545			103,545
Comprehensive income												103,545			103,545
Issuance of common and restricted shares and other				632,045		7		7,666				—			7,673
Adjustment for conversion of minority interests of unitholders in operating partnerships				34,290		—		317				—			317
Adjustment for cancellation of minority interests in Series A LLC								(2,059		)					(2,059		)
Common stock distributions declared ($0.9375 per share)												(126,249		)	(126,249		)
Preferred stock distributions declared-Series B ($1.6125 per share)												(8,733		)	(8,733		)
Preferred stock distributions declared-Series E ($0.9966 per share)												(2,794		)	(2,794		)
Balance, September 30, 2006	8,219,821	$	181,971	134,678,388		$	1,347	$	1,686,039			$	(789,933	)	$	1,079,424

See accompanying notes to consolidated financial statements.

5

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(UNAUDITED)

1.CONSOLIDATION AND BASIS OF PRESENTATION

United Dominion Realty Trust, Inc. is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages middle-market apartment communities nationwide. The accompanying consolidated financial statements include the accounts of United Dominion 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, 2006, there were 166,185,740 units in the Operating Partnership outstanding, of which 156,145,126 units or 94% were owned by United Dominion and 10,040,614 units or 6% were owned by limited partners (of which 1,650,322 are owned by the holders of the Series A OPPS, see Note 6). As of September 30, 2006, there were 5,542,200 units in the Heritage OP outstanding, of which 5,212,993 units or 94% were owned by United Dominion and 329,207 units or 6% were owned by limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the Operating Partnership and the Heritage OP. All significant intercompany accounts and transactions have been eliminated in consolidation.

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, 2005, filed with the Securities and Exchange Commission as updated by the Current Report on Form 8-K filed August 17, 2006.

In the opinion of management, the consolidated financial statements reflect all adjustments that are necessary for the fair presentation of financial position at September 30, 2006, and results of operations for the interim periods ended September 30, 2006 and 2005. Such adjustments are normal and recurring in nature. 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.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. United Dominion is currently evaluating the impact of this Interpretation on our results of operations and financial position.

6

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2.REAL ESTATE HELD FOR INVESTMENT

At September 30, 2006, there are 237 communities with 68,890 apartment homes classified as real estate held for investment. The following table summarizes the components of real estate held for investment (dollars in thousands):

	September 30, 2006				December 31, 2005
Land and land improvements		$	1,249,914		$	1,219,540
Buildings and improvements		3,870,894			3,469,817
Furniture, fixtures, and equipment		292,507			244,143
Construction in process		983			—
Real estate held for investment		5,414,298			4,933,500
Accumulated depreciation		(1,164,077		)	(1,002,455		)
Real estate held for investment, net		$	4,250,221		$	3,931,045

3.INCOME FROM DISCONTINUED OPERATIONS

FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 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 subsequent to January 1, 2002, or are held for disposition subsequent to January 1, 2002, 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 actively marketed or contracted for sale which are expected to close within the next twelve months.

For purposes of these financial statements, FAS 144 results in the presentation of the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition through September 30, 2006, as discontinued operations for all periods presented. The adoption of FAS 144 does not have an impact on net income available to common stockholders. FAS 144 only results in the reclassification of the operating results of all properties sold or classified as held for disposition through September 30, 2006, within the Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets for 2006 and 2005.

For the nine months ended September 30, 2006, United Dominion sold 22 communities with a total of 6,768 apartment homes and 351 condominiums from four communities with a total of 612 condominiums. We recognized gains for financial reporting purposes of $114.5 million on these sales. At September 30, 2006, United Dominion had three communities with a total of 1,152 homes and a net book value of $72.4 million, four communities with a total of 562 condominiums and a net book value of $62.5 million, and one parcel of land with a net book value of $4.1 million included in real estate held for disposition. During 2005, United Dominion sold 22 communities with a total of 6,352 apartment homes, 240 condominiums from five communities with a total of 648 condominiums, and one parcel of land. In conjunction with the sale of ten communities in July 2005, we received short-term notes for $124.7 million that bear interest at 6.75% and had maturities ranging from September 2005 to July 2006. As of September 30, 2006, all of the notes receivable had matured and had been repaid. We recognized previously deferred gains for financial reporting purposes of $6.4 million during the nine months ended September 30, 2006. The results of operations for these properties and the interest expense associated with the secured debt on these

7

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

properties are classified on the Consolidated Statements of Operations in the line item titled “Income from discontinued operations, net of minority interests.”

United Dominion has elected Taxable REIT Subsidiary (“TRS”) status for certain of its corporate subsidiaries, primarily those engaged in condominium conversion and development activities. United Dominion recognized a $2.4 million income tax benefit for the three months ended September 30, 2006, and a provision for income taxes of $2.4 million for the three months ended September 30, 2005. For the nine months ended September 30, 2006 and 2005, United Dominion recognized a provision for income taxes of $4.9 million and $3.8 million, respectively. These amounts are included in the income from discontinued operations, net of minority interests in the accompanying consolidated statement of operations.

The following is a summary of income from discontinued operations for the periods presented, (dollars in thousands):

	Three Months Ended September 30						Three Months Ended September 30
	2006			2005			2006			2005
Rental income	$	8,779		$	15,828		$	38,892		$	65,015
Non-property income	—			—			5			8
	8,779			15,828			38,897			65,023
Rental expenses	3,978			7,462			17,251			28,147
Real estate depreciation	608			4,283			7,232			14,929
Interest (income)/expense	(313		)	(254		)	(1,039		)	242
Loss on early debt retirement	—			—			—			1,821
Other expenses	1			26			35			88
	4,274			11,517			23,479			45,227
Income before net gain on the sale of depreciable property and minority interests	4,505			4,311			15,418			19,796
Net gain on the sale of depreciable property	65,669			12,851			114,497			66,657
Income before minority interests	70,174			17,162			129,915			86,453
Minority interests on income from discontinued operations	(4,281		)	(1,004		)	(7,925		)	(5,058		)
Income from discontinued operations, net of minority interests	$	65,893		$	16,158		$	121,990		$	81,395

8

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.SECURED DEBT

Secured debt on continuing and discontinued operations, which encumbers $2.0 billion or 34% of United Dominion’s real estate owned based upon book value ($3.8 billion or 66% of United Dominion’s real estate owned is unencumbered) consists of the following as of September 30, 2006 (dollars in thousands):

							Weighted			Weighted		Number of
	Principal Outstanding						Average			Average Years		Communities
	September 30,			December 31,			Interest Rate			to Maturity		Encumbered
	2006			2005			2006			2006		2006
Fixed Rate Debt
Mortgage notes payable		$	342,719		$	359,281		5.40	%		5.0		14
Tax-exempt secured notes payable		26,285			26,400			5.85	%		18.4		3
Fannie Mae credit facilities		399,362			363,875			6.09	%		4.5		9
Total fixed rate secured debt		$	768,366		749,556			5.77	%		5.2		26
Variable Rate Debt
Mortgage notes payable		93,314			66,464			7.17	%		3.7		4
Tax-exempt secured notes payable		7,770			7,770			3.92	%		21.8		1
Fannie Mae credit facilities		292,469			292,469			5.60	%		6.2		46
Total variable rate secured debt		393,553			366,703			5.94	%		5.9		51
Total secured debt		$	1,161,919		$	1,116,259		5.83	%		5.4		77

Approximate principal payments due during each of the next five calendar years and thereafter, as of September 30, 2006, are as follows (dollars in thousands):

Year	Fixed Rate Maturities		Variable Rate Maturities		Total Secured Maturities
2006	$	1,516	$	33,628	$	35,144
2007	81,841		—		81,841
2008	9,513		—		9,513
2009	18,114		—		18,114
2010	272,641		22,271		294,912
Thereafter	384,741		337,654		722,395
	$	768,366	$	393,553	$	1,161,919

During the first quarter of 2005, United Dominion prepaid approximately $110 million of secured debt. In conjunction with these prepayments, we incurred prepayment penalties of $8.5 million in both continuing and discontinued operations as “Loss on early debt retirement.” These penalties were funded by the proceeds from the sale of our technology investment of $12.3 million.

9

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.UNSECURED DEBT

A summary of unsecured debt as of September 30, 2006 and December 31, 2005 is as follows (dollars in thousands):

	2006		2005
Commercial Banks
Borrowings outstanding under an unsecured credit facility due May 2008(a)	$	323,600	$	210,800
Senior Unsecured Notes—Other
7.95% Medium-Term Notes due July 2006	—		85,374
7.07% Medium-Term Notes due November 2006	25,000		25,000
7.25% Notes due January 2007	92,255		92,255
4.30% Medium-Term Notes due July 2007	75,000		75,000
4.50% Medium-Term Notes due March 2008	200,000		200,000
8.50% Monthly Income Notes due November 2008	29,081		29,081
4.25% Medium-Term Notes due January 2009	50,000		50,000
6.50% Notes due June 2009	200,000		200,000
3.90% Medium-Term Notes due March 2010	50,000		50,000
5.00% Medium-Term Notes due January 2012	100,000		100,000
6.05% Medium-Term Notes due June 2013(b)	125,000		—
5.13% Medium-Term Notes due January 2014	200,000		200,000
5.25% Medium-Term Notes due January 2015	250,000		250,000
5.25% Medium-Term Notes due January 2016	100,000		100,000
8.50% Debentures due September 2024	54,118		54,118
4.00% Convertible Senior Notes due December 2035	250,000		250,000
Other	170		370
	2,124,224		1,761,198
Unsecured Notes—Other
Verano Construction Loan due February 2006	—		24,820
ABAG Tax-Exempt Bonds due August 2008	46,700		46,700
	46,700		71,520
Total Unsecured Debt	$	2,170,924	$	2,043,518

(a)United Dominion has a three-year $500 million unsecured revolving credit facility. The credit facility matures on May 31, 2008, and at United Dominion’s option, can be extended for an additional year. United Dominion has the right to increase the credit facility to $750 million if the initial lenders increase their commitments or we receive commitments from additional lenders. Based on United Dominion’s current credit ratings, the credit facility carries an interest rate equal to LIBOR plus a spread of 57.5 basis points, which represents a 12.5 basis point reduction to the previous unsecured revolver, and the facility fee was reduced from 20 basis points to 15 basis points. Under a competitive bid feature and for so long as United Dominion maintains an Investment Grade Rating, United Dominion has the right to bid out 100% of the commitment amount.

(b)In June 2006, United Dominion issued $125 million of 6.05% medium-term notes. Interest is payable semiannually on June 1 and December 1, with the first interest payment due December 1, 2006. The notes mature on June 1, 2013.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6.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 for the periods presented, (dollars in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Numerator for basic and diluted earnings per share—
Net income available to common stockholders	$	55,510		$	11,293		$	92,018		$	70,991
Denominator:
Denominator for basic and diluted earnings per share—
Weighted average common shares outstanding	134,626			137,164			134,430			137,017
Non-vested restricted stock awards	(914		)	(772		)	(770		)	(786		)
Denominator for basic and diluted earnings per share	133,712			136,392			133,660			136,231
Basic and diluted earnings per share	$	0.42		$	0.08		$	0.69		$	0.52

The effect of the conversion of the operating partnership units, Series A Out-Performance Partnership Shares, and convertible preferred stock is not dilutive and is therefore not included in the above calculations. If the operating partnership units were converted into common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2006 would be 8,724,535 and 8,739,982 weighted average common shares, and 8,503,993 and 8,509,748 weighted average common shares for the three and nine months ended September 30, 2005. If the Series A Out-Performance Partnership Shares were converted into common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2006 would be 1,691,845 and 1,739,433 weighted average common shares, and 1,791,329 weighted average common shares for the three and nine months ended September 30, 2005. If the convertible preferred stock were converted into common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2006 and 2005 would be 2,803,812 weighted average common shares.

7.COMPREHENSIVE INCOME

Total comprehensive income for the three and nine months ended September 30, 2006 and 2005, was $59.3 million and $103.5 million for 2006 and $15.1 million and $82.5 million for 2005, respectively. There is no difference between net income and total comprehensive income for the periods presented.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8.COMMITMENTS AND CONTINGENCIES

Commitments

United Dominion is committed to completing its real estate under development, which has an estimated cost to complete of $53.7 million at September 30, 2006.

United Dominion has entered into two contracts to purchase apartment communities upon their development completion. Provided that the developer meets certain conditions, United Dominion will purchase these communities for a total of $76.5 million.

Contingencies

Series C Out-Performance Program

In May 2005, the stockholders of United Dominion approved a new Out-Performance Program and the first series of new Out-Performance Partnership Shares under the program are the Series C Out-Performance Units (the “Series C Program”) pursuant to which certain executive officers and other key employees of United Dominion (the “Series C Participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in UDR Out-Performance III, LLC, a Delaware limited liability company (the “Series C LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series C Out-Performance Partnership Shares” or “Series C OPPSs”). The purchase price for the Series C OPPSs was determined by the Compensation Committee of United Dominion’s board of directors to be $750,000, assuming 100% participation, and was based upon the advice of an independent valuation expert. United Dominion’s performance for the Series C Program will be measured over the 36-month period from June 1, 2005 to May 30, 2008.

The Series C Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on United Dominion’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if United Dominion’s cumulative total return satisfies these criteria, the Series C LLC as holder of the Series C OPPSs will receive (for the indirect benefit of the Series C Participants as holders of interests in the Series C LLC) 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 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 Minimum Return (such excess being the “Excess Return”);

ii.     multiplying 2% of the Excess Return by United Dominion’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, common stock equivalents and OP Units); and

iii.    dividing the number obtained in clause (ii) by the market value of one share of United Dominion’s common stock on the valuation date, computed as the volume-weighted average price per day of common stock for the 20 trading days immediately preceding the valuation date.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Series C OPPSs, the number determined pursuant to (ii) above is capped at 1% of market capitalization.

If, on the valuation date, the cumulative total return of United Dominion’s common stock does not meet the Minimum Return, then the Series C Participants will forfeit their entire initial investment.

Based on the results through September 30, 2006, the Series C LLC would not be entitled to receive distributions or allocations of income had the Series C Program terminated on that date. However, since the ultimate determination of Series C OPPSs to be issued will not occur until May 30, 2008, and the number of Series C OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events.

Series D Out-Performance Program

In February 2006, the board of directors of United Dominion approved the Series D Out-Performance Program (the “Series D Program”) pursuant to which certain executive officers and other key employees of United Dominion (the “Series D Participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in UDR Out-Performance IV, LLC, a Delaware limited liability company (the “Series D LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series D Out-Performance Partnership Shares” or “Series D OPPSs”). The Series D Program is part of the New Out-Performance Program approved by United Dominion’s stockholders in May 2005. The Series D LLC has agreed to sell 830,000 membership units to members of United Dominion’s senior management at a price of $1.00 per unit. The aggregate purchase price of $830,000 for the Series D OPPSs, assuming 100% participation, is based upon the advice of an independent valuation expert. The Series D Program will measure the cumulative total return on our common stock over the 36-month period beginning January 1, 2006 and ending December 31, 2008.

The Series D Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on United Dominion’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if United Dominion’s cumulative total return satisfies these criteria, the Series D LLC as holder of the Series D OPPSs will receive (for the indirect benefit of the Series D Participants as holders of interests in the Series D LLC) 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 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 Minimum Return (such excess being the “Excess Return”);

ii.     multiplying 2% of the Excess Return by United Dominion’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, common stock equivalents and OP Units); and

iii.    dividing the number obtained in (ii) by the market value of one share of United Dominion’s common stock on the valuation date, computed as the volume-weighted average price per day of the common stock for the 20 trading days immediately preceding the valuation date.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the Series D OPPSs, the number determined pursuant to clause (ii) above is capped at 1% of market capitalization.

If, on the valuation date, the cumulative total return of United Dominion’s common stock does not meet the Minimum Return, then the Series D Participants will forfeit their entire initial investment.

Based on the results through September 30, 2006, the Series D LLC would not be entitled to receive distributions or allocations of income had the Series D Program terminated on that date. However, since the ultimate determination of Series D OPPSs to be issued will not occur until December 31, 2008, and the number of Series D OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events.

Litigation and Legal Matters

United Dominion is subject to various legal proceedings and claims arising in the ordinary course of business. United Dominion cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. United Dominion believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow.

9. SUBSEQUENT EVENT

On October 12, 2006, United Dominion completed the sale of $250 million aggregate principal amount of convertible senior unsecured notes due 2011 with a coupon of 3.625%. The net proceeds from the offering of approximately $245 million were used for the repayment of indebtedness under our revolving credit facility, the cost of a capped call transaction, and for other general corporate purposes.

Prior to July 15, 2011, upon the occurrence of specified events, the notes will be convertible at the option of the holder into cash and, in certain circumstances, shares of United Dominion’s common stock at an initial conversion rate of 26.6326 shares per $1,000 principal amount of notes (which equates to an initial conversion price of approximately $37.55 per share). On or after July 15, 2011, the notes will be convertible at any time prior to the close of business on the second business day prior to maturity at the option of the holder into cash and, in certain circumstances, shares of United Dominion’s common stock at the above initial conversion rate. The initial conversion rate is subject to adjustment under certain circumstances.

The notes will not be redeemable at the option of United Dominion, except to preserve the status of United Dominion as a REIT. If United Dominion undergoes certain change of control transactions, note holders may require United Dominion to repurchase all or a portion of their notes at a purchase price equal to 100% of the principal amount of the notes to be repurchased plus unpaid interest (including additional interest, if any) accrued to, but not including, the repurchase date.

Concurrent with the issuance of the convertible senior unsecured notes, United Dominion entered into a capped call transaction with JPMorgan Chase Bank, National Association, London Branch. The capped call transaction has a low strike price of $37.548 and a high strike price of $43.806.

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

Forward-Looking Statements

This 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 achievements of United Dominion Realty Trust, Inc. to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

·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,

·the timing and closing of planned dispositions under agreement,

·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 stockholders,

·development and construction risks that may impact our profitability,

·potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us,

·risks from extraordinary losses for which we may not have insurance or adequate reserves,

·uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage,

·delays in completing developments and lease-ups on schedule,

·our failure to succeed in new markets,

·changing interest rates, which could increase interest costs and affect the market price of our securities,

·potential liability for environmental contamination, which could result in substantial costs to us,

·the imposition of federal taxes if we fail to qualify as a REIT under the Internal Revenue Code in any taxable year,

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·our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price, and

·changes in real estate tax laws, tax laws and other laws affecting our business.

A discussion of these and other factors affecting our business and prospects is set forth below in Part II, Item 1A. Risk Factors. We encourage investors to review these risks factors.

Although we believe 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 not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Any forward-looking statement speaks only as of the date on which it is made. Except to fulfill our obligations under the federal securities laws, we undertake no obligation to update any such statement to reflect events or circumstances after the date on which it is made.

Business Overview

We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a Delaware limited partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the company,” or “United Dominion” refer collectively to United Dominion Realty Trust, Inc. and its subsidiaries.

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At September 30, 2006, our portfolio included 243 communities with 70,604 apartment homes nationwide. The following table summarizes our market information by major geographic markets (includes real estate held for disposition, real estate under development, and land, but excludes commercial properties):

	As of September 30, 2006										Three Months Ended September 30, 2006						Nine Months Ended September 30, 2006
	Number of Apartment Communities		Number of Apartment Homes		Percentage of Carrying Value			Carrying Value (in thousands)			Average Physical Occupancy			Total Income  per Occupied  Home(a)			Average Physical Occupancy			Total Income  per Occupied  Home(a)
WESTERN REGION
Orange Co., CA		13		4,067		11.9	%		$	682,096		94.8	%		$	1,446		94.8	%		$	1,419
San Francisco, CA		10		2,425		7.8	%		443,860			97.0	%		1,561			97.0	%		1,525
Los Angeles, CA		6		1,210		3.4	%		192,967			92.8	%		1,401			93.7	%		1,396
Seattle, WA		8		1,984		2.9	%		168,736			95.7	%		922			95.8	%		894
San Diego, CA		5		1,123		2.8	%		162,324			93.7	%		1,250			94.0	%		1,108
Inland Empire, CA		4		1,282		2.7	%		155,317			91.3	%		1,045			91.9	%		1,030
Monterey Peninsula, CA		7		1,568		2.5	%		143,118			91.5	%		962			89.7	%		949
Portland, OR		5		1,365		1.5	%		84,992			94.7	%		766			94.5	%		739
Sacramento, CA		2		914		1.1	%		64,306			91.9	%		870			92.4	%		865
MID-ATLANTIC REGION
Metropolitan DC		8		2,469		4.3	%		246,458			96.2	%		1,217			96.2	%		1,201
Raleigh, NC		11		3,663		4.0	%		227,664			92.7	%		698			93.0	%		691
Baltimore, MD		10		2,118		3.1	%		174,915			95.7	%		1,069			96.0	%		1,052
Richmond, VA		9		2,636		3.0	%		170,809			96.2	%		882			96.5	%		888
Wilmington, NC		6		1,868		1.8	%		102,395			95.9	%		763			95.0	%		752
Charlotte, NC		6		1,226		1.5	%		87,318			94.6	%		755			94.2	%		730
Norfolk, VA		6		1,438		1.3	%		73,379			95.8	%		915			95.7	%		909
Other Mid-Atlantic		13		2,817		2.5	%		143,791			95.4	%		868			95.3	%		855
SOUTHEASTERN REGION
Tampa, FL		12		4,144		4.7	%		269,733			93.1	%		958			92.5	%		949
Orlando, FL		12		3,476		3.6	%		205,893			92.6	%		923			94.0	%		889
Nashville, TN		10		2,966		3.2	%		184,546			94.9	%		749			95.1	%		700
Jacksonville, FL		4		1,557		1.9	%		109,306			94.7	%		857			94.5	%		841
Atlanta, GA		6		1,426		1.5	%		83,177			94.9	%		709			95.4	%		695
Other Florida		8		2,401		2.8	%		160,152			89.3	%		931			92.7	%		916
Other Southeastern		7		1,752		1.4	%		78,402			96.1	%		646			95.2	%		639
SOUTHWESTERN REGION
Houston, TX		16		5,447		4.6	%		262,647			94.4	%		682			94.7	%		674
Dallas, TX		5		2,054		3.0	%		173,826			96.4	%		667			96.2	%		582
Arlington, TX		6		1,828		1.7	%		94,900			94.9	%		685			95.1	%		674
Phoenix, AZ		5		1,261		1.5	%		87,865			82.7	%		1,014			84.8	%		990
Austin, TX		5		1,425		1.5	%		86,325			97.1	%		734			96.5	%		721
Denver, CO		2		884		1.2	%		70,020			93.9	%		757			91.2	%		739
Other Southwestern		6		2,469		2.6	%		148,850			96.1	%		745			95.5	%		733
MIDWESTERN REGION
Columbus, OH		6		2,530		2.9	%		163,633			92.7	%		735			93.6	%		732
Other Midwestern		3		444		0.4	%		24,616			92.3	%		755			91.8	%		758
Real Estate Under Development		1		367		1.5	%		87,375			—			—			—			—
Land		—		—		1.9	%		110,710			—			—			—			—
Total		243		70,604		100.0	%		$	5,726,421		94.1	%		$	906		94.3	%		$	885

(a)  Total Income per Occupied Home represents total revenues per weighted average number of apartment homes occupied.

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale or maturity of existing assets, or by the acquisition of additional funds through capital management. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes. We routinely use our 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.

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We expect to meet our short-term liquidity requirements generally through 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 additional debt or equity securities. 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 the company in accordance with REIT requirements in both the short- and long-term. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations.

We have a shelf registration statement filed with the Securities and Exchange Commission which provides for the issuance of an indeterminate amount of common stock, preferred stock, debt securities, warrants, purchase contracts and units to facilitate future financing activities in the public capital markets. 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 with proceeds from the sale of property, with construction loans, through joint ventures, the use of our unsecured revolving credit facility, and, to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed through the issuance of equity and debt securities, the issuance of operating partnership units, the assumption or placement of secured and/or unsecured debt, and by the reinvestment of proceeds from the sale of properties.

During the remainder of 2006, we have approximately $35.1 million of secured debt and $25.0 million of unsecured debt maturing and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities, the issuance of new unsecured debt securities or equity, or from disposition proceeds.

Critical Accounting Policies and Estimates

Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, and (3) real estate investment properties. 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, 2005. There have been no significant changes in our critical accounting policies from those reported in our 2005 Annual Report on Form 10-K. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.

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 our Consolidated Statements of Cash Flow.

Operating Activities

For the nine months ended September 30, 2006, our cash flow provided by operating activities was $164.4 million compared to $170.5 million for the same period in 2005. The decrease in cash flow from operating activities resulted primarily from a $23.3 million increase in depreciation and amortization expense, a $17.4 million increase in interest expense, a decrease of $11.5 million in other income due to a

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2005 sale of a technology investment, a $9.7 million decrease in operating liabilities and a $3.6 million increase in operating assets in 2006 as compared to 2005. These decreases in operating income were partially offset by $47.8 million more in gains recognized from the sale of depreciable property in 2006 as compared to 2005, a $26.6 million increase in property operating income from our apartment community portfolio for the nine months ended September 30, 2006 (see discussion under “Apartment Community Operations”), and an $8.5 million decrease in prepayment penalties.

Investing Activities

For the nine months ended September 30, 2006, net cash used in investing activities was $96.8 million as compared to $177.8 million for the same period in 2005. Changes in the level of investing activities from period to period reflects our strategy as it relates to our acquisition, capital expenditure, development, and disposition programs, as well as the impact of the capital market environment on these activities, all of which are discussed in further detail below.

Acquisitions

During the nine months ended September 30, 2006, we acquired seven apartment communities with 2,133 apartment homes for a total consideration of $302.2 million and one parcel of land for $3.6 million. These acquisitions were in the Texas, Tennessee and Southern California markets that are expected to benefit from favorable demographic and economic trends. One element of our long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been expanding our interests in the fast growing Southern California, Florida, and Metropolitan DC markets over the past three years. During 2006, we plan to continue to channel new investments into those markets that we believe will provide the best investment returns. Markets will be targeted based upon defined criteria including past performance, greater operating efficiencies, expected job growth, current and anticipated housing supply and demand, the ability to attract and support household formation, and opportunities to create value in real estate that exceeds our invested capital.

Capital Expenditures

In conformity with accounting principles generally accepted in the United States, we capitalize 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 2006, we spent $163.5 million or $2,252 per home on capital expenditures for all of our 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, siding, parking lots, and other non-revenue enhancing capital expenditures, which aggregated $21.1 million or $291 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, and other extensive interior upgrades totaled $115.4 million or $1,589 per home and major renovations totaled $27.0 million or $372 per home for the nine months ended September 30, 2006.

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The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development and commercial properties, for the periods presented:

	Nine Months Ended September 30, (dollars in thousands)							Nine Months Ended September 30, (per home)
	2006		2005		% Change			2006		2005		% Change
Turnover capital expenditures	$	10,665	$	14,263		-25.2	%	$	147	$	187		-21.4	%
Other recurring capital expenditures	10,451		14,972			-30.2	%	144		196			-26.5	%
Total recurring capital expenditures	21,116		29,235			-27.8	%	291		383			-24.0	%
Revenue enhancing improvements	115,366		56,311			104.9	%	1,589		739			115.0	%
Major renovations	27,008		11,312			138.8	%	372		148			151.4	%
Total capital improvements	$	163,490	$	96,858		68.8	%	$	2,252	$	1,270		77.3	%
Repair and maintenance	32,712		33,365			-2.0	%	451		438			3.0	%
Total expenditures	$	196,202	$	130,223		50.7	%	$	2,703	$	1,708		58.3	%

Total capital improvements increased $66.6 million or $982 per home for the nine months ended September 30, 2006 compared to the same period in 2005. This increase was partially attributable to $15.7 million of major renovations at certain of our properties. These renovations may include the re-wiring and/or re-plumbing of an entire building as well as major structural changes and/or architectural revisions to existing buildings. The increase was also attributable to an additional $59.1 million being invested in revenue enhancing improvements compared to the same period in 2005. We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment substantially in excess of our cost of capital. Recurring capital expenditures during 2006 are currently expected to be approximately $530 per home.

Real Estate Under Development

Development activity is focused in core markets in which we have strong operations in place. For the nine months ended September 30, 2006, we invested approximately $38.9 million on development projects, an increase of $3.9 million from $35.0 million for the same period in 2005.

The following wholly owned projects were under development as of September 30, 2006:

	Number of Apartment Homes		Completed Apartment Homes		Cost to Date (In thousands)			Budgeted Cost (In thousands)			Estimated Cost Per Home		Expected Completion Date
2000 Post—Phase III San Francisco, CA		24		—		$	9,280		$	10,000	$	416,667		4Q06
Villas at Ridgeview Townhomes Plano, TX		48		—		4,454			8,000		166,667			2Q07
Ridgeview Apartments Plano, TX		202		—		4,954			18,000		89,109			3Q07
Lincoln Towne Square—Phase II Plano, TX		302		—		3,600			22,000		72,848			3Q07
Northwest Houston—Phase I Houston, TX		320		—		3,960			22,000		68,750			2Q08
Total wholly owned—under development		896		—		$	26,248		$	80,000	$	89,286

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In addition, we own five parcels of land that we continue to hold for future development that had a carrying value at September 30, 2006 of $35.4 million.

The following wholly owned projects were complete as of September 30, 2006:

	Number of Apartment Homes		Development Cost (In thousands)			Cost Per Home		Date Completed		% Leased at 9/30/06
Verano at Town Square Rancho Cucamonga, CA		414		$	67,346	$	162,671		Jun-06		82.6	%
Mandalay on the Lake Irving, TX		367		32,286		87,973			Sep-06		72.5	%
Total wholly owned—completed development		781		$	99,632	$	127,570

Development Joint Ventures

In June 2006, United Dominion completed the formation of a development joint venture that will invest approximately $134 million to develop one apartment community with 298 apartment homes in Marina del Rey, California. United Dominion is the financial partner and is responsible for funding the costs and receives a preferred return from 7% to 8.5% before our partner receives a 50% participation. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” this venture has been consolidated into United Dominion’s financial statements. Our joint venture partner is the managing partner as well as the developer, general contractor, and property manager. Our initial investment was $27.5 million.

In July 2006, United Dominion closed on a joint venture to develop a site in Bellevue, Washington. At closing, we owned 49% of the $135 million project that involves building a 400 home high rise apartment building with ground floor retail. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” this venture has been consolidated into United Dominion’s financial statements. Our joint venture partner is the managing partner as well as the developer, general contractor, and property manager. Our initial investment was $5.7 million.

The following joint venture projects were under development as of September 30, 2006:

	Number of Apartment Homes		Completed Apartment Homes		Cost to  Date (In thousands)			Budgeted Cost (In thousands)			Estimated Cost Per Home		Expected Completion Date
Jefferson at Marina del Rey Marina del Rey, CA		298		—		$	67,246		$	138,000	$	463,087		1Q08
Bellevue Plaza Bellevue, WA		400		—		32,800			135,000		337,500			2010
Total joint venture		698		—		$	100,046		$	273,000	$	391,117

Disposition of Investments

For the nine months ended September 30, 2006, United Dominion sold 22 communities with a total of 6,768 apartment homes for a gross consideration of $341.9 million and 351 condominiums from four communities with a total of 612 condominiums for a gross consideration of $66.6 million. We recognized $95.4 million of net gains for financial reporting purposes on our apartment community sales and $19.1 million of net gains on the sale of our condominium homes. Proceeds from the sales were used primarily to reduce debt.

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During 2006, we plan to continue to pursue our 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. We intend to use the proceeds from 2006 dispositions to reduce debt, acquire communities, and fund development activity.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2006, was $54.4 million as compared to net cash provided by financing activities of $4.9 million for the same period in 2005. As part of the plan to improve our balance sheet, we utilized proceeds from dispositions to pay down existing debt and purchase new properties.

The following is a summary of our financing activities for the nine months ended September 30, 2006:

·Repaid $69.3 million of secured debt and $110.2 million of unsecured debt.

·Authorized a new 10 million share repurchase program in February 2006. This program replaces our previous 11 million share program under which we repurchased approximately 10 million shares.

·Sold $125 million aggregate principal amount of 6.05% senior unsecured notes due June 2013 in June 2006 under our medium-term note program. The net proceeds of approximately $124 million were used for debt repayment.

Credit Facilities

We have four secured revolving credit facilities with Fannie Mae with an aggregate commitment of $860 million. As of September 30, 2006, $691.8 million was outstanding under the Fannie Mae credit facilities leaving $168.2 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 our option. We have $399.4 million of the outstanding balance fixed at a weighted average interest rate of 6.1% and the remaining balance is currently at a weighted average variable interest rate of 5.6%.

We have a $500 million unsecured revolving credit facility that matures in May 2008, and, at our option, can be extended an additional year. We have the right to increase the credit facility to $750 million under certain circumstances. Based on our current credit ratings, the revolving credit facility bears interest at a rate equal to LIBOR plus 57.5 basis points. Under a competitive bid feature and for so long as we maintain an Investment Grade Rating, we have the right to bid out 100% of the commitment amount. As of September 30, 2006, $323.6 million was outstanding under the revolving credit facility leaving $176.4 million of unused capacity.

The Fannie Mae credit facility and the revolving credit facility are subject to customary financial covenants and limitations.

Information concerning short-term bank borrowings under our revolving credit facility is summarized in the table that follows (dollars in thousands):

	Three Months Ended September 30, 2006				Twelve Months Ended December 31, 2005
Total revolving credit facility		$	500,000			$	500,000
Borrowings outstanding at end of period		323,600				210,800
Weighted average daily borrowings during the period		340,053				315,487
Maximum daily borrowings during the period		415,800				440,200
Weighted average interest rate during the period		5.7		%		3.6		%
Weighted average interest rate at end of period		5.8		%		4.7		%

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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 (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust’s (“NAREIT”) April 1, 2002 White Paper. We consider FFO in evaluating property acquisitions and our operating performance, and believe that FFO should be considered along with, but not as an alternative to, net income and cash flow as a measure of our activities in accordance with generally accepted accounting principles. 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.

Historical cost accounting for real estate assets in accordance with generally accepted accounting principles implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance and defines FFO as net income (computed in accordance with accounting principles generally accepted in the United States), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The use of FFO, combined with the required presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. We believe that FFO is the best measure of economic profitability for real estate investment trusts.

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The following table outlines our FFO calculation and reconciliation to generally accepted accounting principles for the three and nine months ended September 30, (dollars and shares in thousands):

	Three Months Ended September 30						Three Months Ended September 30
	2006			2005			2006			2005
Net income	$	59,352		$	15,135		$	103,545		$	82,518
Adjustments:
Distributions to preferred stockholders	(3,842		)	(3,842		)	(11,527		)	(11,527		)
Real estate depreciation and amortization	61,242			48,742			172,330			141,517
Minority interests of unitholders in operating partnership	(773		)	(316		)	(2,040		)	(649		)
Real estate depreciation related to unconsolidated entities	—			84			—			220
Discontinued Operations:
Real estate depreciation	608			4,283			7,232			14,929
Minority interests of unitholders in operating partnership	4,281			1,004			7,925			5,058
Net gains on the sale of depreciable property	(65,669		)	(12,851		)	(114,497		)	(66,657		)
Net incremental gains on the sale of condominium homes and development joint venture	4,105			5,320			19,109			7,650
Funds from operations—basic	$	59,304		$	57,559		$	182,077		$	173,059
Distributions to preferred stockholders—Series E (Convertible)	931			931			2,794			2,794
Funds from operations—diluted	$	60,235		$	58,490		$	184,871		$	175,853
Weighted average number of common shares and OP Units outstanding—basic	142,437			144,896			142,400			144,741
Weighted average number of common shares, OP Units, and common stock equivalents outstanding—diluted	148,104			150,473			147,896			150,299

In the computation of diluted FFO, OP units, out-performance partnership shares, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count.

Net incremental gains on the sale of condominium homes and the gain on the disposition of real estate developed for sale are defined as net sales proceeds less a tax provision (based on our annual estimated tax liability which could differ from amounts recorded per GAAP) and the gross investment basis of the asset before accumulated depreciation. We consider FFO with the net incremental gains on the sale of condominium homes to be a meaningful supplemental measure of performance because the short-term use of funds produce a profit that differs from the traditional long-term investment in real estate for REITs.

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The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the Consolidated Statements of Operations for the three and nine months ended September 30, (shares in thousands):

	Three Months Ended September 30				Nine Months Ended September 30
	2006		2005		2006		2005
Weighted average number of common shares and OP Units outstanding—basic	142,437		144,896		142,400		144,741
Weighted average number of OP units outstanding	(8,725	)	(8,504	)	(8,740	)	(8,510	)
Weighted average number of common shares outstanding—basic per the Consolidated Statements of Operations	133,712		136,392		133,660		136,231
Weighted average number of common shares, OP Units and common stock equivalents outstanding—diluted	148,104		150,473		147,896		150,299
Weighted average number of OP units outstanding	(8,725	)	(8,504	)	(8,740	)	(8,510	)
Weighted average incremental shares from assumed conversion of stock options	(812	)	(857	)	(782	)	(869	)
Weighted average incremental shares from unvested restricted stock	(193	)	(125	)	(171	)	(94	)
Weighted average incremental shares from assumed conversion of $250 million convertible debt	(166	)	—		—		—
Weighted average number of Series A OPPSs outstanding	(1,692	)	(1,791	)	(1,739	)	(1,791	)
Weighted average number of Series E preferred shares outstanding	(2,804	)	(2,804	)	(2,804	)	(2,804	)
Weighed average number of common shares outstanding—diluted per the Consolidated Statements of Operations	133,712		136,392		133,660		136,231

FFO also does not represent cash generated from operating activities in accordance with generally accepted accounting principles, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of liquidity. Additionally, it is not necessarily indicative of cash availability to fund cash needs.

A presentation of cash flow metrics based on generally accepted accounting principles is as follows for the three and nine months ended September 30, (dollars in thousands):

	Three Months Ended September 30						Nine Months��Ended September 30
	2006			2005			2006			2005
Net cash provided by operating activities	$	67,366		$	59,758		$	164,448		$	170,460
Net cash provided by/(used in) investing activities	97,162			(116,816		)	(96,808		)	(177,821		)
Net cash (used in)/provided by financing activities	(142,070		)	56,371			(54,435		)	4,937

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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 Stockholders

Net income available to common stockholders was $55.5 million ($0.42 per diluted share) for the three months ended September 30, 2006, compared to $11.3 million ($0.08 per diluted share) for the same period in the prior year. The increase for the three months ended September 30, 2006, when compared to the same period in 2005, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

·a $52.8 million increase in gains recognized from the sale of depreciable property, and

·a $12.9 million increase in apartment community operating results.

These increases in income were partially offset by an $8.8 million increase in real estate depreciation and amortization expense, a $5.5 million increase in interest expense, a $2.5 million increase in general and administrative expense, and a $1.1 million decrease in non-property income during the third quarter of 2006 when compared to the same period in 2005.

Net income available to common stockholders was $92.0 million ($0.69 per diluted share) for the nine months ended September 30, 2006, compared to $71.0 million ($0.52 per diluted share) for the same period in the prior year. The increase for the nine months ended September 30, 2006, when compared to the same period in 2005, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

·a $47.8 million increase in gains recognized from the sale of depreciable property,

·a $26.6 million increase in apartment community operating results, and

·an $8.5 million decrease in losses on early debt retirement.

These increases in income were partially offset by a $23.1 million increase in real estate depreciation and amortization expense, a $17.4 million increase in interest expense, a $12.1 million decrease in non-property income, and a $4.2 million increase in general and administrative expense during the first nine months of 2006 when compared to the same period in 2005.

Apartment Community Operations

Our net income is primarily generated from the operation of our apartment communities. The following table summarizes the operating performance of our total apartment portfolio for each of the periods presented, (dollars in thousands):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2006			2005			% Change			2006			2005			% Change
Property rental income	$	186,310		$	173,175			7.6	%	$	552,977		$	522,840			5.8	%
Property operating expense*	(68,123		)	(67,870		)		0.4	%	(204,616		)	(201,048		)		1.8	%
Property operating income	$	118,187		$	105,305			12.2	%	$	348,361		$	321,792			8.3	%
Weighted average number of homes	73,162			74,335				-1.6	%	74.678			76,501				-2.4	%
Physical occupancy**	94.1		%	94.0		%		0.1	%	94.3		%	94.1		%		0.2	%

* Excludes depreciation, amortization, and property management expenses.

** Based upon weighted average stabilized homes.

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The following table is our reconciliation of property operating income to net income as reflected on the Consolidated Statements of Operations for the periods presented, (dollars in thousands):

	Three Months Ended September 30						Nine Months Ended September 30
	2006			2005			2006			2005
Property operating income	$	118,187		$	105,305		$	348,361		$	321,792
Commercial operating income/(loss)	125			364			(536		)	1,945
Non-property income	1,247			2,319			3,153			15,290
Real estate depreciation and amortization	(62,685		)	(53,732		)	(181,849		)	(158,504		)
Interest expense	(46,835		)	(41,331		)	(137,010		)	(119,562		)
Loss on early debt retirement	—			—			—			(8,482		)
General and administrative and property management	(12,507		)	(9,684		)	(36,192		)	(31,250		)
Other operating expenses	(308		)	(291		)	(907		)	(870		)
Net gain on sale of depreciable property	65,669			12,851			114,497			66,657
Minority Interests	(3,541		)	(666		)	(5,972		)	(4,498		)
Net income per the Consolidated Statement of Operations	$	59,352		$	15,135		$	103,545		$	82,518

Same Communities

For the three months ended September 30, 2006, our same communities (those communities acquired, developed, and stabilized prior to September 30, 2005, and held on September 30, 2006, which consisted of 61,259 apartment homes) provided 85% of our property operating income.

For the third quarter of 2006, same community property operating income increased 10.6% or $9.6 million compared to the same period in 2005. The increase in property operating income was primarily attributable to a 6.4% or $9.4 million increase in revenues from rental and other income and a 0.2% or $0.1 million decrease in operating expenses. The increase in revenues from rental and other income was primarily driven by a 5.5% or $8.2 million increase in rental rates, a 19.1% or $0.6 million decrease in concession expense, and a 13.2% or $1.4 million increase in utility reimbursement income and fee income. Physical occupancy remained constant at 94.8%.

The decrease in property operating expenses was primarily driven by a 7.4% or $1.1 million decrease in real estate taxes that was offset by a 7.6% or $0.7 million increase in repair and maintenance expenses and a 6.3% or $0.5 million increase in utility costs.

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) increased ­­­2.5% to 63.9%.

For the nine months ended September 30, 2006, our same communities, which consisted of 60,270 apartment homes, provided 82% of our property operating income. Same community property operating income increased 8.6% or $22.6 million compared to the same period in 2005. The increase in property operating income was primarily attributable to a 6.3% or $26.7 million increase in revenues from rental and other income that was offset by a 2.5% or $4.1 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 4.8% or $20.7 million increase in rental rates, a 20.1% or $2.0 million decrease in concession expense, a 3.2% or $0.8 million decrease in vacancy loss, and a 12.8% or $3.8 million increase in utility reimbursement income and fee income. Physical occupancy increased 0.4% to 94.9%.

The increase in property operating expenses was primarily driven by an 8.2% or $2.0 million increase in utility costs, a 2.9% or $1.3 million increase in real estate taxes, a 2.1% or $0.9 million increase in

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personnel costs, an 8.6% or $0.7 million increase in insurance costs, and a 1.6% or $0.4 million increase in repair and maintenance expenses. These increases in operating expenses were partially offset by a 6.1% or $0.9 million decrease in administrative and marketing expenses.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin increased 1.3% to 63.4%.

Non-Mature Communities

The remaining 18% of our property operating income during the first nine months of 2006 was generated from communities that we classify as “non-mature communities” (primarily those communities acquired or developed in 2005 and 2006, sold properties, and those properties classified as real estate held for disposition). The 15 communities with 4,694 apartment homes that we acquired in 2005 and 2006 provided $22.4 million of property operating income. The 44 communities with 13,120 homes and the 351 condominiums from four communities that we sold in 2005 and 2006 provided $16.1 million of property operating income. In addition, our development communities, which included 414 apartment homes constructed since January 1, 2004, provided $1.3 million of operating income and the three communities with 1,152 apartment homes and four communities with 562 condominiums classified as real estate held for disposition provided $5.6 million of property operating income. Other non-mature communities provided $16.8 million of property operating income for the nine months ended September 30, 2006.

Real Estate Depreciation and Amortization

For the three and nine months ended September 30, 2006, real estate depreciation and amortization on both continuing and discontinued operations increased 16.6% or $8.8 million and 14.8% or  $23.1 million compared to the same period in 2005, primarily due to the significant increase in per home acquisition cost compared to the existing portfolio and other capital expenditures.

Interest Expense

For the three months ended September 30, 2006, interest expense on both continuing and discontinued operations increased 13.3% or $5.5 million compared to the same period in 2005 primarily due to the issuance of debt and higher interest rates. For the three months ended September 30, 2006, the weighted average amount of debt outstanding increased 11.9% or $359.7 million compared to the same period in 2005 and the weighted average interest rate increased from 5.3% to 5.6% during 2006. The weighted average amount of debt outstanding during 2006 is higher than 2005 as acquisition costs in 2005 and in 2006 have been funded, in most part, by the issuance of debt. The increase in the weighted average interest rate during 2006 reflects short-term bank borrowings and variable rate debt that had higher interest rates when compared to the prior period that were partially offset by the retirement of higher coupon debt with lower coupon debt.

For the nine months ended September 30, 2006, interest expense on both continuing and discontinued operations increased 14.6% or $17.4 million compared to the same period in 2005 primarily due to the issuance of debt and higher interest rates. For the nine months ended September 30, 2006, the weighted average amount of debt outstanding increased 12.4% or $361.9 million compared to the same period in 2005 and the weighted average interest rate increased from 5.1% to 5.4% during 2006. The weighted average amount of debt outstanding during 2006 is higher than 2005 as acquisition costs in 2005 and in 2006 have been funded, in most part, by the issuance of debt. The increase in the weighted average interest rate during 2006 reflects short-term bank borrowings and variable rate debt that had higher interest rates when compared to the prior period that were partially offset by the retirement of higher coupon debt with lower coupon debt.

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General and Administrative

For the three months ended September 30, 2006, general and administrative expenses increased $2.5 million or 50.2% compared to the same period in 2005. For the nine months ended September 30, 2006, general and administrative expenses increased $4.2 million or 24.7% compared to the same period in 2005. These increases were due to a number of factors, including increases in incentive compensation, professional fees, relocation costs, and an operating lease on an airplane.

Gains on the Sales of Land and Depreciable Property

For the three and nine months ended September 30, 2006, we recognized after-tax gains for financial reporting purposes of $65.7 million and $114.5 million compared to $12.9 million and $66.7 million for the comparable period in 2005. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period, as well as the extent of gains related to specific properties sold.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While inflation primarily impacts our results through wage pressures, utilities and material costs, substantially all of our leases are for a term of one year or less, which generally enables us to compensate for inflationary effects by increasing rents. Although extreme growth in energy prices could have a negative impact on our residents and their ability to absorb rent increases, this has not had a material impact on our results.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES 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. In prior periods, United Dominion had used derivative instruments solely to manage its exposure to interest rates.

See our Annual Report on Form 10-K for the year ended December 31, 2005 “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a more complete discussion of our interest rate sensitive assets and liabilities. As of September 30, 2006, our market risk has not changed materially from the amounts reported on our Annual Report on Form 10-K for the year ended December 31, 2005.

Item 4.CONTROLS AND PROCEDURES

As of September 30, 2006, 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 our 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. In addition, our

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Chief Executive Officer and our Chief Financial Officer concluded that during the quarter ended September 30, 2006, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our internal control over financial reporting is designed with the objective of providing reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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.  However, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective under circumstances where our disclosure controls and procedures should reasonably be expected to operate effectively.

PART II—OTHER INFORMATION

Item 1A.RISK FACTORS

There are many factors that affect our business and our results of operations, some of which are beyond our control. The following is a description of important factors that may cause our actual results of operations in future periods to differ materially from those currently expected or discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date on which it is made.

Unfavorable Changes in Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels and Rental Rates.   Market and economic conditions in the metropolitan areas in which we operate may significantly affect our occupancy levels and rental rates and, therefore, our profitability. Factors that may adversely affect these conditions include the following:

·a reduction in jobs and other local economic downturns,

·declines in mortgage interest rates, making alternative housing more affordable,

·government or builder incentives which enable first time homebuyers to put little or no money down, making alternative housing decisions easier to make,

·oversupply of, or reduced demand for, apartment homes,

·declines in household formation, and

·rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs.

The strength of the United States economy has become increasingly susceptible to global events and threats of terrorism. At the same time, productivity enhancements and the increased exportation of labor have resulted in limited job growth despite an improving economy. Continued weakness in job creation, or any worsening of current economic conditions, generally and in our principal market areas, could have a material adverse effect on our occupancy levels, our rental rates and our ability to strategically acquire and dispose of apartment communities. This may impair our ability to satisfy our financial obligations and pay distributions to our stockholders.

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New Acquisitions, Developments and Condominium Projects May Not Achieve Anticipated Results.   We intend to continue to selectively acquire apartment communities that meet our investment criteria and to develop apartment communities for rental operations, to convert properties into condominiums and to develop condominium projects. Our acquisition, development and condominium activities and their success are subject to the following risks:

·an acquired community may fail to perform as we expected in analyzing our investment, or a significant exposure related to the acquired property may go undetected during our due diligence procedures,

·when we acquire an apartment community, we often invest additional amounts in it with the intention of increasing profitability. These additional investments may not produce the anticipated improvements in profitability,

·new developments may not achieve pro forma rents or occupancy levels, or problems with construction or local building codes may delay initial occupancy dates for all or a portion of a development community, and

·an over supply of condominiums in a given market may cause a decrease in the prices at which we expect to sell condominium properties.

Possible Difficulty of Selling Apartment Communities Could Limit Operational and Financial Flexibility.   We periodically dispose of apartment communities that no longer meet our strategic objectives, but market conditions could change and purchasers may not be willing to pay prices acceptable to us. A weak market may limit our ability to change our portfolio promptly in response to changing economic conditions. Furthermore, a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify as like-kind exchanges under Section 1031 of the Internal Revenue Code, so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash flow generated from our property sales. In addition, federal tax laws limit our ability to profit on the sale of communities that we have owned for fewer than four years, and this limitation may prevent us from selling communities when market conditions are favorable.

Increased Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents.   Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents.

Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk.   We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow will be insufficient to make required payments of principal and interest, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. Sufficient cash flow may not be available to make all required principal payments and still satisfy our distribution requirements to maintain our status as a REIT for federal income tax purposes, and the full limits of our line of credit may not be available to us if our operating performance falls outside the constraints of our debt covenants. Additionally, we are likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise not choose to do so.

Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Stockholders.   If our apartment communities do not generate sufficient net rental income to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay

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distributions to our stockholders will be adversely affected. The following factors, among others, may affect the net rental income generated by our apartment communities:

·the national and local economies,

·local real estate market conditions, such as an oversupply of apartment homes,

·tenants’ perceptions of the safety, convenience, and attractiveness of our communities and the neighborhoods where they are located,

·our ability to provide adequate management, maintenance and insurance, and

·rental expenses, including real estate taxes and utilities.

Expenses associated with our investment in a community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgage holder.

Debt Level May Be Increased.   Our current debt policy does not contain any limitations on the level of debt that we may incur, although our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt.

Financing May Not Be Available and Could Be Dilutive.   Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Debt or equity financing may not be available in sufficient amounts, or on favorable terms or at all. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted.

Development and Construction Risks Could Impact Our Profitability.   We intend to continue to develop and construct apartment communities. Development activities may be conducted through wholly owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities may be exposed to the following risks:

·we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased development costs and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations,

·if we are unable to find joint venture partners to help fund the development of a community or otherwise obtain acceptable financing for the developments, our development capacity may be limited,

·we may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring such opportunities,

·we may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs,

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·occupancy rates and rents at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our profitability goals for that community, and

·when we sell to third parties homes or properties that we developed or renovated, we may be subject to warranty or construction defect claims that are uninsured or exceed the limits of our insurance.

Construction costs have been increasing in our existing markets, and the costs of upgrading acquired communities have, in some cases, exceeded our original estimates. We may experience similar cost increases in the future. Our inability to charge rents that will be sufficient to offset the effects of any increases in these costs may impair our profitability.

Some Potential Losses Are Not Covered by Insurance.   We have a comprehensive insurance program covering our property and operating activities. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of extraordinary losses for which we may not have insurance. Accordingly, we may sustain uninsured losses due to insurance deductibles, self-insured retention, uninsured claims or casualties, or losses in excess of applicable coverage.

We may not be able to renew insurance coverage in an adequate amount or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and mold, or, if offered, these types of insurance may be prohibitively expensive. If an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Material losses in excess of insurance proceeds may occur in the future. If one or more of our significant properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could adversely affect our cash flow and ability to make distributions to stockholders.

Failure to Succeed in New Markets May Limit Our Growth.   We may from time to time make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets, and we may not be able to operate successfully in new markets. These risks include, among others:

·inability to accurately evaluate local apartment market conditions and local economies,

·inability to obtain land for development or to identify appropriate acquisition opportunities,

·inability to hire and retain key personnel, and

·lack of familiarity with local governmental and permitting procedures.

Changing Interest Rates Could Increase Interest Costs and Adversely Affect Our Cash Flow and the Market Price of Our Securities.   We currently have, and expect to incur in the future, interest-bearing debt at rates that vary with market interest rates. As of September 30, 2006, we had approximately $0.7 million of variable rate indebtedness outstanding, which constitutes approximately 22% of our total outstanding indebtedness as of such date. An increase in interest rates would increase our interest expenses to the extent our variable rate debt is not hedged effectively, and it would increase the costs of refinancing existing indebtedness and of issuing new debt. Accordingly, higher interest rates could adversely affect cash flow and our ability to service our debt and to make distributions to security holders. In addition, an increase in market interest rates may lead our security holders to demand a higher annual yield, which could adversely affect the market price of our common and preferred stock and debt securities.

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Risk of Inflation/Deflation.   Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses.

Limited Investment Opportunities Could Adversely Affect Our Growth.   We expect that other real estate investors will compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources than we do. As a result, we may not be able to make attractive investments on favorable terms, which could adversely affect our growth.

Failure to Integrate Acquired Communities and New Personnel Could Create Inefficiencies.   To grow successfully, we must be able to apply our experience in managing our existing portfolio of apartment communities to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability.

Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges.   From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the terms of new debt securities are not within the parameters of, or market interest rates fall below that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges.

Potential Liability for Environmental Contamination Could Result in Substantial Costs.   Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property.

We Would Incur Adverse Tax Consequences if We Fail to Qualify as a REIT.   We have elected to be taxed as a REIT under the Internal Revenue Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method of operation enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect our stockholders.

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If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to our stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year in which we first failed to qualify. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to our stockholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.

We May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which are Subject to Certain Tax Risks.   We have established several taxable REIT subsidiaries. Despite our qualification as a REIT, our taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected.

Certain Property Transfers May Generate Prohibited Transaction Income, Resulting in a Penalty Tax on Gain Attributable to the Transaction.   From time to time, we may transfer or otherwise dispose of some of our properties. Under the Internal Revenue Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.

Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of Our Common Stock.   The stock markets, including the New York Stock Exchange, on which we list our common shares, have experienced significant price and volume fluctuations. As a result, the market price of our common stock could be similarly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects.

Property Ownership Through Joint Ventures May Limit Our Ability to Act Exclusively in Our Interest.   We have in the past and may in the future develop and acquire properties in joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. If we use such a structure, we could become engaged in a dispute with one or more of our joint venture partners that might affect our ability to operate a jointly-owned property. Moreover, joint venture partners may have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to

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the appropriate timing and terms of any sale or refinancing of a property. In some instances, joint venture partners may have competing interests in our markets that could create conflicts of interest.

Real Estate Tax and Other Laws.   Generally we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes, to tenants under leases. These costs may adversely affect funds from operations and the ability to make distributions to stockholders. Similarly, compliance with or changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions or (ii) rent control or rent stabilization laws or other laws regulating housing, such as the Americans with Disabilities Act of 1990 and the Fair Housing Amendments Act of 1988, may result in significant unanticipated expenditures, which would adversely affect funds from operations and the ability to make distributions to stockholders.

Any Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on Our Stock Price.   Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal report over financial reporting. If we identify one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on our stock price.

Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in Our Stockholders’ Best Interests.   Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 662¤3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote.

Limitations on Share Ownership and Limitations on the Ability of Our Stockholders to Effect a Change in Control of Our Company May Prevent Takeovers That are Beneficial to Our Stockholders.   One of the requirements for maintenance of our qualification as a REIT for federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Internal Revenue Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to our stock primarily to assist us in complying with this requirement; however, the restrictions may have the effect of preventing a change of control, which does not threaten REIT status. These restrictions include a provision that generally limits a person from beneficially owning or constructively owning shares of our outstanding equity stock in excess of a 9.9% ownership interest, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our outstanding equity stock. These provisions may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for our stockholders or might otherwise be in our stockholders’ best interests.

Under the terms of our shareholder rights plan, our board of directors can, in effect, prevent a person or group from acquiring more than 15% of the outstanding shares of our common stock. Unless our board of directors approves the person’s purchase, after that person acquires more than 15% of our outstanding

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common stock, all other stockholders will have the right to purchase securities from us at a price that is less than their then fair market value. Purchases by other stockholders would substantially reduce the value and influence of the shares of our common stock owned by the acquiring person. Our board of directors, however, can prevent the shareholder rights plan from operating in this manner. This gives our board of directors significant discretion to approve or disapprove a person’s efforts to acquire a large interest in us.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

On October 12, 2006, we completed the sale of $250 million principal amount of our 3.625% convertible senior notes due 2011. These notes are convertible into shares of our common stock at an initial conversion rate of 26.6326 shares per $1,000 principal amount of notes, which equates to an initial conversion price of approximately $37.55 per share. The initial purchasers of the notes were J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wachovia Capital Markets, LLC and Bear, Stearns & Co. Inc. Because the notes and the shares of common stock issuable upon conversion of the notes were sold to accredited investors in transactions not involving a public offering, the transactions are exempt from registration under the Securities Act of 1933 in accordance with Section 4(2) of the Securities Act.

In connection with the offering of the notes, we also entered into a capped call transaction with respect to our common stock with JPMorgan Chase Bank, National Association, London Branch, an affiliate of one of the initial purchasers of the notes. The capped call transaction covers, subject to anti-dilution adjustments similar to those contained in the notes, approximately 6,658,150 shares of our common stock. We used approximately $12.6 million of the net proceeds from the offering of the notes to pay the cost of the capped call transaction.

Information regarding the offering of our 3.625% convertible senior notes due 2011, the shares of our common stock issuable upon conversion of the notes, and the capped call transaction is set forth in our Current Report on Form 8-K dated October 5, 2006 and filed with the SEC on October 12, 2006, and is incorporated herein by reference.

Repurchase of Equity Securities

In February 2006, our Board of Directors authorized a new 10 million share repurchase program. This program replaces our previous 11 million share repurchase program (of which 1,180,737 shares were available for repurchase) and authorizes the repurchase of our common stock in open market purchases, in block purchases, privately negotiated transactions, or otherwise. As reflected in the table below, no shares of common stock were repurchased under this program or otherwise during the quarter ended September 30, 2006.

Period	Total Number of Shares Purchased		Average Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Beginning Balance								10,000,000
July 1, 2006 through July 31, 2006		0		N/A		0		10,000,000
August 1, 2006 through August 31, 2006		0		N/A		0		10,000,000
September 1, 2006 through September 30, 2006		0		N/A		0		10,000,000
Balance as of September 30, 2006		0		N/A		0		10,000,000

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Item 5.OTHER INFORMATION

Effective December 31, 2006, Christopher D. Genry will resign as our Executive Vice President-Corporate Strategy. A copy of the separation agreement entered into and dated as of November 9, 2006 between us and Mr. Genry is attached hereto as Exhibit 10.3 and is incorporated herein by reference.

As previously reported in our Current Report on Form 8-K dated October 13, 2006 and filed with the Securities and Exchange Commission on October 19, 2006, our Board of Directors amended and restated our bylaws effective October 13, 2006 to include, among other things, a new Section 2.11 governing the procedures by which securityholders may nominate persons to our Board of Directors. A copy of our Amended and Restated Bylaws (as amended through October 13, 2006), including the provisions of the new Section 2.11, is attached as Exhibit 3.1 to our Current Report on Form 8-K dated October 13, 2006 and is incorporated herein by reference.

Item 6.EXHIBITS

The exhibits filed or furnished with this Report are set forth in the Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNITED DOMINION REALTY TRUST, INC.
	(registrant)
Date: November 9, 2006	/s/ MICHAEL A. ERNST
	Michael A. Ernst Executive Vice President and Chief Financial Officer
Date: November 9, 2006	/s/ DAVID L. MESSENGER
	David L. Messenger Vice President and Chief Accounting Officer

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Bylaws (as amended through October 13, 2006) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated October 13, 2006 and filed with the SEC on October 19, 2006 (Commission File No. 1-10524)).
4.1	Registration Rights Agreement dated October 12, 2006, among the Company and the Initial Purchasers (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 5, 2006 and filed with the SEC on October 12, 2006 (Commission File No. 1-10524)).
4.2	Form of 3.625% Convertible Senior Note due 2011 (incorporated by reference to Exhibit A to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2006 and filed with the SEC on October 12, 2006 (Commission File No. 1-10524)).
10.1	Indenture dated October 12, 2006, between United Dominion Realty Trust, Inc. and U.S. Bank National Association, as the Trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2006 and filed with the SEC on October 12, 2006 (Commission File No. 1-10524)).
10.2	Form of Indemnification Agreement by and between the Company and Michael A. Ernst (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 2, 2006 and filed with the SEC on May 8, 2006 (Commission File No. 1-10524)).
10.3	Separation Agreement dated November 9, 2006 by and between the Company and Christopher D. Genry.
12	Computation of Ratio of Earnings to Fixed Charges.
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.
32.1	Section 1350 Certification of the Chief Executive Officer.
32.2	Section 1350 Certification of the Chief Financial Officer.