UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
FOR QUARTERLY AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-10524
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UNITED DOMINION REALTY TRUST, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0857512
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
400 East Cary Street, Richmond, Virginia 23219-3802
- --------------------------------------------------------------------------------
(Address of principal executive offices - zip code)
(804) 780-2691
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to filing requirements
for at least the past 90 days.
Yes X No___
---
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 9, 2001:
Common Stock, $1 Par Value: 99,083,281
_________________
UNITED DOMINION REALTY TRUST, INC.
FORM 10-Q
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000..................... 3
Consolidated Statements of Operations for the three and nine months ended
September 30, 2001 and 2000................................................................ 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2001
and 2000................................................................................... 5
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 2001......................................................................... 6
Notes to Consolidated Financial Statements..................................................... 7-14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................. 15-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................... 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 27
Item 2. Changes in Securities.......................................................................... 27
Item 3. Defaults Upon Senior Securities................................................................ 27
Item 4. Submission of Matters to a Vote of Security Holders............................................ 27
Item 5. Other Information.............................................................................. 27
Item 6. Exhibits and Reports on Form 8-K............................................................... 27-31
Signatures ................................................................................................. 32
2
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 30, December 31,
2001 2000
-----------------------------------------------------------------------------------------------------------------------------
ASSETS
Real estate owned:
Real estate held for investment (Note 2) $ 3,759,625 $ 3,758,974
Less: accumulated depreciation (608,642) (506,871)
---------------- ----------------
3,150,983 3,252,103
Real estate under development 54,010 60,366
Real estate held for disposition (net of accumulated depreciation
of $0 and $2,534) (Note 3) 15,567 14,446
---------------- ----------------
Total real estate owned, net of accumulated depreciation 3,220,560 3,326,915
Cash and cash equivalents 7,221 10,305
Restricted cash 34,283 44,943
Deferred financing costs, net 14,240 14,271
Investment in unconsolidated development joint venture (Note 4) 7,515 8,088
Other assets 39,192 49,435
---------------- ----------------
Total assets $ 3,323,011 $ 3,453,957
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt (Note 5) $ 991,290 $ 866,115
Unsecured debt (Note 6) 1,076,921 1,126,215
Real estate taxes payable 34,114 30,554
Accrued interest payable 16,421 18,059
Security deposits and prepaid rent 21,494 22,524
Distributions payable 32,310 36,128
Accounts payable, accrued expenses and other liabilities 63,467 47,144
---------------- ----------------
Total liabilities 2,236,017 2,146,739
Minority interests 77,406 88,326
Shareholders' equity
Preferred stock, no par value; $25 liquidation preference,
25,000,000 shares authorized;
0 shares 9.25% Series A Cumulative Redeemable issued and outstanding
(3,969,120 in 2000) - 99,228
5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding
(5,439,109 in 2000) 135,400 135,978
8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued
and outstanding (8,000,000 in 2000) 175,000 175,000
Common stock, $1 par value; 150,000,000 shares authorized
99,149,807 shares issued and outstanding (102,219,250 in 2000) 99,150 102,219
Additional paid-in capital 1,047,338 1,081,387
Distributions in excess of net income (424,031) (366,531)
Deferred compensation - unearned restricted stock awards (1,751) (828)
Notes receivable from officer-shareholders (5,482) (7,561)
Accumulated other comprehensive loss (Note 7) (16,036) -
---------------- ----------------
Total shareholders' equity 1,009,588 1,218,892
---------------- ----------------
Total liabilities and shareholders' equity $ 3,323,011 $ 3,453,957
================ ================
See accompanying notes to consolidated financial statements.
3
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2000
-------------------------------- -------------------------------
REVENUES
Rental income $ 153,814 $ 157,041 $ 462,753 $ 470,844
Non-property income 363 1,383 2,168 4,432
------------ ------------- ------------- ------------
Total revenues 154,177 158,424 464,921 475,276
EXPENSES
Rental expenses:
Real estate taxes and insurance 16,480 17,042 51,287 52,209
Personnel 16,150 16,311 47,114 49,335
Repair and maintenance 9,795 9,905 26,617 27,568
Utilities 8,557 9,253 27,997 26,585
Administrative and marketing 5,702 6,121 17,074 18,110
Property management 4,487 4,557 12,802 13,960
Other operating expenses 364 337 1,140 1,069
Real estate depreciation 36,029 37,349 114,440 115,305
Interest 36,633 39,100 109,688 117,926
Severance costs and other organizational charges (Note 9) - 1,020 5,404 1,020
Litigation settlement charges - 2,700 - 2,700
Impairment loss on real estate and investments (Note 3) - - 3,188 -
General and administrative 4,546 3,546 14,693 11,114
Other depreciation and amortization 844 984 2,579 3,438
------------ ------------- ------------- ------------
Total expenses 139,587 148,225 434,023 440,339
------------ ------------- ------------- ------------
Income before gains on sales of investments, minority interests
and extraordinary item 14,590 10,199 30,898 34,937
Gains on sales of depreciable property - 10,429 24,748 18,890
Gains on sales of land - 832 - 832
------------ ------------- ------------- ------------
Income before minority interests and extraordinary item 14,590 21,460 55,646 54,659
Minority interests of outside partnerships (370) (388) (1,659) (1,126)
Minority interests of unitholders in operating partnerships (487) (798) (1,718) (1,760)
------------ ------------- ------------- ------------
Income before extraordinary item 13,733 20,274 52,269 51,773
Extraordinary item - early extinguishment of debt (186) (91) (745) 267
------------ ------------- ------------- ------------
Net income 13,547 20,183 51,524 52,040
Distributions to preferred shareholders - Series A and B (2,912) (5,354) (12,851) (16,333)
Distributions to preferred shareholders - Series D (Convertible) (3,857) (3,825) (11,571) (11,475)
(Premium) / discount on preferred share repurchases - 157 (3,496) 2,334
------------ ------------- ------------- ------------
Net income available to common shareholders $ 6,778 $ 11,161 $ 23,606 $ 26,566
============ ============= ============= ============
Earnings per common share (Note 8):
Basic $ 0.07 $ 0.11 $ 0.23 $ 0.26
============ ============= ============= ============
Diluted $ 0.07 $ 0.11 $ 0.23 $ 0.26
============ ============= ============= ============
Common distributions declared per share $ 0.2700 $ 0.2675 $ 0.8100 $ 0.8025
============ ============= ============= ============
Weighted average number of common shares outstanding-basic 99,623 103,258 100,612 103,160
Weighted average number of common shares outstanding-diluted 100,466 103,514 101,292 103,346
See accompanying notes to consolidated financial statements.
4
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 51,524 $ 52,040
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 117,019 118,743
Impairment loss on real estate and investments 3,188 -
Gains on sales of investments (24,748) (19,722)
Minority interests 3,377 2,886
Extraordinary item-early extinguishment of debt 745 (267)
Amortization of deferred financing costs and other 2,666 4,219
Changes in operating assets and liabilities:
Increase in operating liabilities 472 3,120
Decrease / (increase) in operating assets 18,021 (2,572)
------------ -----------
Net cash provided by operating activities 172,264 158,447
Investing Activities
Proceeds from sales of real estate investments, net 118,565 141,892
Proceeds received for excess expenditures over investment contribution
in development joint venture - 33,412
Development of real estate assets and other major improvements (49,852) (66,061)
Capital expenditures - real estate assets, net of escrow reimbursement (34,511) (31,603)
Acquisition of real estate assets, net of liabilities assumed (8,296) (4,635)
Capital expenditures - non-real estate assets (789) (889)
------------ -----------
Net cash provided by investing activities 25,117 72,116
Financing Activities
Proceeds from the issuance of secured notes payable 179,600 38,285
Scheduled principal payments on secured notes payable (33,265) (29,420)
Non-scheduled principal payments on secured notes payable (31,947) (78,264)
Proceeds from the issuance of unsecured notes payable - 146,700
Payments on unsecured notes payable (21,308) (51,246)
Net borrowing/(repayment) of short-term bank debt (27,500) (123,100)
Payment of financing costs (2,475) (5,441)
Cash paid to buy out minority interests (4,267) -
Proceeds from the issuance of common stock 8,981 7,524
Proceeds from the issuance of performance shares 1,214 -
Distributions paid to minority interests (10,687) (7,548)
Distributions paid to preferred shareholders (27,713) (27,780)
Distributions paid to common shareholders (81,634) (82,494)
Repurchase of common and preferred stock (149,464) (14,572)
------------ -----------
Net cash used in financing activities (200,465) (227,356)
Net (decrease) / increase in cash and cash equivalents (3,084) 3,207
Cash and cash equivalents, beginning of period 10,305 7,678
------------ -----------
Cash and cash equivalents, end of period $ 7,221 $ 10,885
============ ===========
Supplemental Information:
Interest paid during the period $ 112,807 $ 113,878
Conversion of operating partnership units to common stock 43 241
Issuance of restricted stock awards 1,547 831
Non-cash transactions associated with the acquisition of properties:
Secured debt assumed 18,229 10,130
Non-cash transactions associated with the disposition of properties:
Reduction in secured debt 7,694 27,504
See accompanying notes to consolidated financial statements.
5
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
Preferred Stock Common Stock Paid-in
-------------------------------------------------------
Shares Amount Shares Amount Capital
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 17,408,229 $ 410,206 102,219,250 $ 102,219 $ 1,081,387
Comprehensive Income
Net income
Other comprehensive loss:
Cumulative effect of a change in
accounting principle (Note 7)
Unrealized loss on derivative instruments
(Note 7)
-------------------------------------------------------------------------------------------------------------------------
Comprehensive income
-------------------------------------------------------------------------------------------------------------------------
Issuance of common shares to employees,
officers and director-shareholders 349,146 350 3,606
Issuance of common shares through
dividend reinvestment
and stock purchase plan 254,133 254 3,013
Purchase of common and preferred stock (91,900) (2,298) (3,842,766) (3,843) (45,778)
Redemption of Preferred A stock (3,900,320) (97,508) 3,496
Issuance of restricted stock awards 127,100 127 1,420
Adjustment for cash purchase and conversion of
minority interests of unitholders in
operating partnerships 42,944 43 194
Principal repayments on notes receivable from
officer-shareholders
Common stock distributions declared
($.81 per share)
Preferred stock distributions declared-Series A
($1.05 per share)
Preferred stock distributions declared-Series B
($1.58 per share)
Preferred stock distributions declared-Series D
($1.44 per share)
Amortization of deferred compensation
--------------------------------------------------------------------
Balance, September 30, 2001 13,416,009 $ 310,400 99,149,807 $ 99,150 $ 1,047,338
====================================================================
Deferred Accumulated
Distributions Notes Receivable Compensation - Other
in Excess of from Officer - Unearned Restricted Comprehensive
Net Income Shareholders Stock Awards Loss
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ (366,531) $ (7,561) $ (828) $ -
Comprehensive Income
Net income 51,524
Other comprehensive loss:
Cumulative effect of a change in
accounting principle (Note 7) (3,848)
Unrealized loss on derivative instruments
(Note 7) (12,188)
------------------------------------------------------------------------------------------------------------------------
Comprehensive income 51,524 (16,036)
------------------------------------------------------------------------------------------------------------------------
Issuance of common shares to employees,
officers and director-shareholders
Issuance of common shares through
dividend reinvestment
and stock purchase plan
Purchase of common and preferred stock
Redemption of Preferred A stock (3,496)
Issuance of restricted stock awards (1,547)
Adjustment for cash purchase and conversion of
minority interests of unitholders in
operating partnerships
Principal repayments on notes receivable from
officer-shareholders 2,079
Common stock distributions declared
($.81 per share) (81,106)
Preferred stock distributions declared-Series A
($1.05 per share) (4,111)
Preferred stock distributions declared-Series B
($1.58 per share) (8,740)
Preferred stock distributions declared-Series D
($1.44 per share) (11,571)
Amortization of deferred compensation 624
-------------------------------------------------------------------
Balance, September 30, 2001 $ (424,031) $ (5,482) $ (1,751) $ (16,036)
===================================================================
Total
- -----------------------------------------------------------------
Balance, December 31, 2000 $ 1,218,892
Comprehensive Income
Net income 51,524
Other comprehensive loss:
Cumulative effect of a change in
accounting principle (Note 7) (3,848)
Unrealized loss on derivative instruments
(Note 7) (12,188)
---------------------------------------------------------------
Comprehensive income 35,488
---------------------------------------------------------------
Issuance of common shares to employees,
officers and director-shareholders 3,956
Issuance of common shares through
dividend reinvestment
and stock purchase plan 3,267
Purchase of common and preferred stock (51,919)
Redemption of Preferred A stock (97,508)
Issuance of restricted stock awards -
Adjustment for cash purchase and conversion of -
minority interests of unitholders in
operating partnerships 237
Principal repayments on notes receivable from
officer-shareholders 2,079
Common stock distributions declared
($.81 per share) (81,106)
Preferred stock distributions declared-Series A
($1.05 per share) (4,111)
Preferred stock distributions declared-Series B
($1.58 per share) (8,740)
Preferred stock distributions declared-Series D
($1.44 per share) (11,571)
Amortization of deferred compensation 624
-----------
Balance, September 30, 2001 $ 1,009,588
===========
See accompanying notes to consolidated financial statements.
6
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. Consolidation and Basis of Presentation
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, 2001, there were
74,962,675 units in the Operating Partnership outstanding, of which 68,497,168
units, or 91.4%, were owned by United Dominion and 6,465,507 units, or 8.6%,
were owned by non-affiliated limited partners. As of September 30, 2001, there
were 5,501,300 units in the Heritage OP outstanding, of which 4,876,208 units,
or 88.6%, were owned by United Dominion and 625,092 units, or 11.4%, were owned
by non-affiliated limited partners. The consolidated financial statements of
United Dominion include the minority interests of the unitholders in the
operating partnerships.
The accompanying interim unaudited consolidated financial statements have been
prepared according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The accompanying consolidated
financial statements should be read in conjunction with the audited financial
statements and related notes appearing in United Dominion's December 31, 2000
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
In the opinion of management, the consolidated financial statements reflect all
adjustments which are necessary for the fair presentation of financial position
at September 30, 2001 and results of operations for the interim periods ended
September 30, 2001 and 2000. Such adjustments are normal and recurring in
nature. All significant inter-company accounts and transactions have been
eliminated in consolidation. The interim results presented are not necessarily
indicative of results that can be expected for a full year.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the dates of the
financial statements and the amounts of revenues and expenses during the
reporting periods. Actual amounts realized or paid could differ from those
estimates.
Certain previously reported amounts have been reclassified to conform to the
current financial statement presentation.
2. Real Estate Held for Investment
At September 30, 2001 there are 271 communities with 76,431 apartment homes
classified as real estate held for investment. The following table summarizes
the components of real estate held for investment at September 30, 2001 and
December 31, 2000 (dollars in thousands):
September 30, December 31,
2001 2000
-------------- --------------
Land and land improvements $ 563,033 $ 668,003
Buildings and improvements 2,990,781 2,902,386
Furniture, fixtures and equipment 205,179 188,321
Construction in progress 632 264
-------------- --------------
Real estate held for investment 3,759,625 3,758,974
Accumulated depreciation (608,642) (506,871)
-------------- --------------
Real estate held for investment, net
of accumulated depreciation $3,150,983 $3,252,103
============== ==============
7
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
3. Real Estate Held for Disposition
At September 30, 2001, United Dominion had six parcels of land included in real
estate held for disposition totaling $15.6 million.
During the first quarter of 2001, management performed an analysis of the
carrying value of all undeveloped land parcels in connection with the Company's
plans to accelerate the disposition of these sites. As a result, an aggregate
$2.8 million impairment loss was recognized on seven undeveloped sites in
selected markets. An impairment loss was indicated as a result of the net book
value of the assets being greater than the estimated fair market value less the
cost of disposal.
4. Investment in Unconsolidated Joint Ventures
At September 30, 2001, United Dominion's investment in an unconsolidated joint
venture ("the venture") consisted of a 25% partnership interest in a development
joint venture in which the Company is serving as the managing partner. No gain
or loss was recognized on the Company's contribution to the development joint
venture. The venture is developing five apartment communities with a total of
1,438 homes for an aggregate total cost of approximately $103 million. Upon
closing of the venture in June 2000, United Dominion contributed the projects in
return for its equity interest of approximately $8 million in the venture and
was reimbursed for approximately $35 million of development outlays that were
incurred prior to closing the joint venture.
United Dominion serves as the developer, general contractor and property manager
for the venture and recognized fee income, to the extent of the outside
partner's interest, of approximately $0.9 million for services provided by the
Company to the joint venture for the nine months ended September 30, 2001. As of
September 30, 2001, construction of all five of the joint venture properties
were complete. The Company has the option, but not the obligation, to purchase
these properties for fair value through December 31, 2006. If the Company or the
joint venture partner elects to not purchase these properties, the joint venture
will then dispose of the assets to a third party at the then market price.
Although the legal termination date of the joint venture is December 2006, the
Company does not anticipate that the venture's useful life will exceed three
years.
The following is a summary of the financial position of the joint venture as of
September 30, 2001 and December 31, 2000 (dollars in thousands):
September 30, December 31,
2001 2000
-------------- --------------
Assets:
Real estate, net $ 96,956 $85,644
Other assets 3,823 6,507
-------------- --------------
Total assets $100,779 $92,151
============== ==============
Liabilities and partners' equity:
Mortgage notes payable $ 65,938 $49,785
Other liabilities 5,459 11,436
Partners' equity 29,382 30,930
-------------- --------------
Total liabilities and partners' equity $100,779 $92,151
============== ==============
8
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
5. Secured Debt
Secured debt, which encumbers $1.7 billion or 44.9% of United Dominion's real
estate owned ($2.1 billion or 55.1% of United Dominion's real estate owned is
unencumbered) consists of the following at September 30, 2001 (dollars in
thousands):
No. of
Weighted Avg. Weighted Avg. Communities
Principal Outstanding Interest Rate Years to Maturity Encumbered
--------------------------- ---------------------------------------------------
September 30, December 31,
2001 2000 2001 2001 2001
- -------------------------------------------------------------- ---------------------------------------------------
Fixed Rate Debt
Mortgage Notes Payable (a) $502,827 $513,962 7.78% 4.8 73
Tax-Exempt Secured Notes Payable 76,207 79,756 6.91% 12.4 10
Secured Credit Facilities (b) 17,000 17,000 7.04% 12.3 --
--------------------------- ----------------------------------------------------
Total Fixed Rate Secured Debt 596,034 610,718 7.65% 6.0 83
Variable Rate Debt
Secured Credit Facilities (b) 360,160 216,960 4.26% 11.4 30
Tax-Exempt Secured Notes Payable 19,915 19,916 2.16% 23.7 3
Mortgage Notes Payable 15,181 18,521 4.64% 6.9 4
--------------------------- ----------------------------------------------------
Total Variable Rate Secured Debt 395,256 255,397 4.17% 11.9 37
--------------------------- ----------------------------------------------------
Total Secured Debt $991,290 $866,115 6.26% 8.4 120
=========================== ====================================================
(a) Includes fair value adjustments aggregating $8.7 million at September
30, 2001 and $10.2 million at December 31, 2000, recorded in connection
with the mergers in 1998.
(b) At September 30, 2001, United Dominion had $377.2 million outstanding
under three revolving credit facilities with the Federal National
Mortgage Association (the "FNMA Credit Facilities"). At September 30,
2001, the FNMA Credit Facilities had a weighted average floating rate
of interest of 4.39% after giving effect to swap agreements. In order
to limit a portion of its interest rate exposure, United Dominion has
two interest rate swap agreements associated with the FNMA Credit
Facilities. These agreements have an aggregate notional value of $17
million under which United Dominion pays a fixed rate of interest and
receives a variable rate on the notional amount. The interest rate swap
agreements effectively change United Dominion's interest rate exposure
on $17 million of secured debt from a variable rate to a weighted
average fixed rate of 7.04%.
Approximate principal payments due during each of the next five calendar years
and thereafter, as of September 30, 2001, are as follows (dollars in thousands):
Total
Fixed Rate Variable Rate Secured
Year Maturities Maturities Maturities
-----------------------------------------------------------
2001 $ 21,648 $ 70 $ 21,718
2002 49,055 5,399 54,454
2003 55,033 370 55,403
2004 139,201 391 139,592
2005 120,966 5,138 126,104
Thereafter 210,130 383,889 594,019
-------------- ---------------------------
Total $ 596,033 $ 395,257 $ 991,290
============== ===========================
9
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
6. UNSECURED DEBT
A summary of unsecured debt at September 30, 2001 and December 31, 2000 is as
follows (dollars in thousands):
2001 2000
------------- -------------
Commercial Banks
Borrowings outstanding under an
unsecured credit facility due August 2003 (a) (b) $ 216,900 $ 244,400
Borrowings outstanding under an
unsecured term loan due May 2004-2005 (c) 100,000 100,000
Senior Unsecured Notes - Other
7.60% Medium-Term Notes due January 2002 46,750 48,750
7.65% Medium-Term Notes due January 2003 (d) 10,000 10,000
7.22% Medium-Term Notes due February 2003 11,815 11,900
5.05% City of Portland, OR Bonds due October 2003 7,345 7,345
8.63% Notes due March 2003 78,030 79,030
7.98% Notes due March 2002-2003 (e) 14,857 22,285
7.67% Medium-Term Notes due January 2004 53,510 54,000
7.73% Medium-Term Notes due April 2005 22,400 22,400
7.02% Medium-Term Notes due November 2005 49,760 50,000
7.95% Medium-Term Notes due July 2006 103,179 107,398
7.07% Medium-Term Notes due November 2006 25,000 25,000
7.25% Notes due January 2007 105,020 110,080
ABAG Tax-Exempt Bonds due August 2008 46,700 46,700
8.50% Monthly Income Notes due November 2008 57,400 57,400
8.50% Debentures due September 2024 (f) 124,920 125,500
Other (g) 3,335 4,027
------------- ------------
760,021 781,815
------------- ------------
Total Unsecured Debt $ 1,076,921 $ 1,126,215
============= ============
(a) Weighted average interest rate of 6.22% and 7.5% at September 30, 2001 and
December 31, 2000, respectively.
(b) United Dominion had eight interest rate swap agreements associated with
commercial bank borrowings with an aggregate notional value of $155
million under which United Dominion pays a fixed rate of interest and
receives a variable rate of interest on the notional amounts. The interest
rate swaps effectively change United Dominion's interest rate exposure on
these borrowings from a variable rate to a weighted average fixed rate of
approximately 6.98%.
(c) United Dominion had five interest rate swap agreements associated with
borrowings under the term loan with an aggregate notional value of $100
million under which United Dominion pays a fixed rate of interest and
receives a variable rate of interest on the notional amounts. The interest
rate swaps effectively change United Dominion's interest rate exposure on
these borrowings from a variable rate to a weighted average fixed rate of
approximately 7.53%.
(d) United Dominion had one interest rate swap agreement associated with these
unsecured notes with an aggregate notional value of $10 million under
which United Dominion pays a fixed rate of interest and receives a
variable rate on the notional amount. The interest rate swap agreement
effectively changes United Dominion's interest rate exposure on the $10
million from a variable rate to a fixed rate of 7.65%.
(e) Payable annually in two equal principal installments of $7.4 million.
(f) Includes an investor put feature that grants a one-time option to redeem
the debentures in September 2004.
(g) Includes $3.2 million and $3.8 million at September 30, 2001 and December
31, 2000, respectively, of deferred gains from the termination of interest
rate risk management agreements.
10
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
7. Derivative Instruments and Hedging Activities
Statements of Financial Accounting Standards No. 133 and 138, "Accounting for
Certain Derivative Instruments and Hedging Activities" became effective on
January 1, 2001. The new accounting standards require companies to carry all
derivative instruments, including certain embedded derivatives, in the
consolidated balance sheet at fair value. The accounting for changes in the fair
value of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and on the type of hedging
relationship. For those derivative instruments that are designated and qualify
as hedging instruments, a company must designate the hedging instrument, based
on the exposure being hedged, as either a fair value hedge, cash flow hedge or a
hedge of a net investment in a foreign operation. At September 30, 2001, all of
the Company's derivative financial instruments are designated as cash flow
hedges of underlying exposures, and are qualifying hedges for financial
reporting purposes. For derivative instruments that qualify as cash flow hedges,
the effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income and reclassified into
earnings during the same period or periods during which the hedged transaction
affects earnings. The remaining gain or loss on the derivative instrument in
excess of the cumulative change in the present value of future cash flows of the
hedged item, if any, is recognized in current earnings during the period of
change. The adoption of Statements 133 and 138 on January 1, 2001 resulted in a
cumulative effect of an accounting change of a $3.8 million loss, all of which
was recorded directly to other comprehensive loss.
As part of United Dominion's overall interest rate risk management strategy, the
Company uses derivative financial instruments as a means to modify the exposure
to interest rate risk on variable rate debt obligations or to hedge anticipated
financing transactions. The Company's derivative transactions used for interest
rate risk management include various interest rate swaps with indices that
relate to the pricing of specific financial instruments of United Dominion.
Because of the close correlation between the hedging instrument and the
underlying exposure being hedged, fluctuations in the value of the derivative
instruments are generally offset by changes in the value of the underlying
exposures. As a result, United Dominion believes that it has appropriately
controlled the risk so that derivatives used for interest rate risk management
will not have a material unintended effect on consolidated earnings. The Company
does not enter into derivative financial instruments for trading purposes.
The fair value of the Company's derivative instruments is reported on balance
sheet at their current fair value. Estimated fair values for interest rate swaps
rely on prevailing market interest rates. These fair value amounts should not be
viewed in isolation, but rather in relation to the values of the underlying
hedging transactions and investments and to the overall reduction in exposure to
adverse fluctuations in interest rates. Each interest rate swap agreement is
designated with all or a portion of the principal balance and term of a specific
debt obligation. The interest rate swaps involve the periodic exchange of
payments over the life of the related agreements. Amounts received or paid on
the interest rate swaps are recorded on an accrual basis as an adjustment to the
related interest expense of the outstanding debt based on the accrual method of
accounting. The related amounts payable to and receivable from counterparties
are included in other liabilities and other assets, respectively.
11
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
The following table presents the fair values of the Company's derivative
instruments outstanding as of September 30, 2001 (dollars in thousands):
---------------------------------------------------------------------------------------
Notional Fixed Type of Effective Contract Fair Value
Amount Rate Contract Date Maturity Gain /
(Loss)
----------------------------------------------------------------------------------------
Secured Debt:
FNMA
$ 7,000 6.78% Swap 06/30/99 06/30/04 $ (453)
10,000 7.22% Swap 12/01/99 04/01/04 (704)
--------- ---- --------
17,000 7.04% (1,157)
Unsecured Debt:
Bank Credit Facility
5,000 7.32% Swap 06/26/95 07/01/04 (360)
10,000 7.14% Swap 10/18/95 10/03/02 (403)
5,000 6.98% Swap 11/21/95 10/03/02 (192)
25,000 7.39% Swap 11/01/00 08/01/03 (1,568)
25,000 7.39% Swap 11/01/00 08/01/03 (1,568)
25,000 7.21% Swap 12/01/00 08/01/03 (1,413)
25,000 7.21% Swap 12/04/00 08/01/03 (1,413)
35,000 5.98% Swap 03/13/01 04/01/03 (1,098)
--------- ---- --------
155,000 6.98% (8,015)
Bank Term Loan
25,000 7.49% Swap 11/15/00 05/15/03 (1,385)
20,000 7.49% Swap 11/15/00 05/15/03 (1,109)
23,500 7.62% Swap 11/15/00 05/15/04 (1,773)
23,000 7.62% Swap 11/15/00 05/15/04 (1,736)
8,500 7.26% Swap 12/04/00 05/15/03 (453)
--------- ---- --------
100,000 7.53% (6,456)
Medium-Term Notes
10,000 7.65% Swap 01/26/99 01/27/03 (472)
---------------------------------------------------------------------------------------
$ 282,000 $(16,100)
=======================================================================================
During the quarter ended September 30, 2001, United Dominion recognized $6.2
million of unrealized losses in accumulated other comprehensive loss related to
the Company's hedging instruments and $32.7 thousand in net loss related to the
ineffective portion of the Company's hedging instruments. For the nine months
ended September 30, 2001, the Company has recognized $12.1 million of unrealized
losses in accumulated other comprehensive loss, a $64.0 thousand loss in net
income, and a $3.8 million loss as a cumulative effect of a change in accounting
principle.
As of September 30, 2001, United Dominion expects to reclassify $8.6 million of
net losses on derivative instruments from accumulated other comprehensive income
to earnings (interest expense) during the next twelve months in order to
artificially fix the interest rate on the related hedged transactions.
12
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
8. Earnings Per Share
Basic earnings per common share is computed based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share is computed based upon common shares outstanding plus the effect of
dilutive stock options and other potentially dilutive common stock equivalents.
The dilutive effect of stock options and other potential common stock
equivalents is determined using the treasury stock method based on United
Dominion's average stock price. The following table sets forth the computation
of basic and diluted earnings per share (dollars in thousands, except per share
data):
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
---------------------- --------- -----------
Numerator for basic and diluted earnings per share-
net income available to common shareholders $ 6,778 $ 11,161 $ 23,606 $ 26,566
Denominator:
Beginning denominator for basic earnings
per share-weighted average common
shares outstanding 99,777 103,354 100,766 103,256
Non-vested restricted stock (154) (96) (154) (96)
--------- --------- --------- -----------
Denominator for basic earnings per share 99,623 103,258 100,612 103,160
--------- --------- --------- -----------
Non-vested restricted stock 154 96 154 96
Effect of dilutive securities:
Employee stock options 689 160 526 90
--------- --------- --------- -----------
Denominator for diluted earnings per share 100,466 103,514 101,292 103,346
========= ========= ========= ===========
Basic earnings per share $ 0.07 $ 0.11 $ 0.23 $ 0.26
========= ========= ========= ===========
Diluted earnings per share $ 0.07 $ 0.11 $ 0.23 $ 0.26
========= ========= ========= ===========
The effect of the conversion of the operating partnership units and convertible
preferred stock is not dilutive and is therefore not included in the above
calculations. If the operating partnership units were converted to common stock,
the additional shares of common stock outstanding for the three and nine months
ended September 30, 2001 and 2000 would be 7,222,480 and 7,354,237 for 2001 and
7,489,450 and 7,498,455 for 2000, respectively. If the convertible preferred
stock was converted to common stock, the additional shares of common stock
outstanding for the three and nine months ended September 30, 2001 and 2000
would be 12,307,692 common shares.
9. Restructuring Charges
During the first quarter of 2001, United Dominion announced the appointment of a
new chief executive officer and senior management structure. The new management
team began a comprehensive review of the organizational structure of the Company
and its operations. As a result of this review, the Company recorded a charge of
$5.4 million related to workforce reductions and other miscellaneous costs.
These charges are included in the Consolidated Statements of Operations within
the line item "Severance costs and other organizational charges." All charges
came under consideration subsequent to the appointment of the Company's new CEO
in February 2001 and were approved by management and the Board of Directors in
March 2001.
The planned workforce reductions resulted in a charge of $4.5 million and in the
planned termination of approximately 200 full time equivalent positions, or 10%
of total staffing in corporate functions, including senior management and
general and administrative functions, and in apartment operations. Employee
termination benefits include severance packages and related benefits and
outplacement services for employees terminated. As of September 30, 2001,
approximately 230 employees have been terminated. All of the unpaid charge was
paid during the third quarter of 2001.
13
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
A reconciliation of the unpaid severance costs for the nine months ended
September 30, 2001, is presented below (dollars in millions):
Balance, beginning of period $ --
Accrued severance costs 4.5
Cash payments (0.9)
--------------------------------------------------
Balance, March 31, 2001 $ 3.6
Cash payments (2.0)
--------------------------------------------------
Balance, June 30, 2001 $ 1.6
Cash payments (1.6)
--------------------------------------------------
Balance, September 30, 2001 $ 0.0
--------------------------------------------------
In connection with senior management's review of the Company during the first
quarter, United Dominion also recognized $0.4 million related to relocation
costs associated with the new executive offices in Denver and $0.5 million
related to other miscellaneous costs.
10. Contingencies
In May 2001, the shareholders of United Dominion approved the Out-Performance
Program (the "Program) pursuant to which officers and other key employees of the
Company will be given the opportunity to invest in the Company by purchasing
performance shares ("Out-Performance Partnership Shares" or "OPPSs") of the
Operating Partnership for an initial investment of $1.27 million. To begin the
Program, the Company's performance will be measured over a twenty-eight month
period beginning with the month of the new CEO's employment (February 2001). The
Program is designed to provide participants with the possibility of substantial
returns on their investment if the Company's total return, defined as dividend
income plus share price appreciation, on its common stock during the measurement
period exceeds the greater of industry average (defined as the total cumulative
return of the Morgan Stanley REIT Index over the same period) or a 30% total
return (12% annualized-the "minimum return"). At the conclusion of the
measurement period, if United Dominion's total return satisfies these criteria,
the holders of the OPPSs will receive distributions and allocations of income
and loss from the Operating Partnership equal to the distributions and
allocations that would be received on the number of interests in the Operating
Partnership ("OP Units") obtained by: (i) determining the amount by which the
cumulative total return of the Company's common stock over the measurement
period exceeds the greater of the cumulative total return of the peer group
index (the Morgan Stanley REIT Index) or the minimum return (such being the
"excess return"); (ii) multiplying 4% of the excess return by the Company's
market capitalization (defined as the average number of shares outstanding over
the 28 month period multiplied by the daily closing price of the Company's
common stock); and (iii) dividing the number obtained in (ii) by the market
value of one share of the Company common stock on the valuation date, as the
weighted average price per day of the common stock for the 20 trading days
immediately preceding the valuation date. If, on the valuation date, the
cumulative total return of United Dominion's common stock does not meet the
minimum return or the total return of the peer group and there is no excess
return, then the holders of the OPPSs will forfeit their entire initial
investment of $1.27 million. The Company has not met the required measurement
benchmarks as of September 30, 2001 and; therefore, the Company has not recorded
any value to the OPPSs in the consolidated financial statements as of September
30, 2001.
11. Impact of Recently Issued Accounting Standards
In August 2001, the FASB issued Statement 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"). The Statement supercedes
Statement 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of and APB Opinion No. 30, Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for segments of a business to be disposed of. SFAS No. 144 retains
the requirements of Statement 121 relating to the recognition and measurement of
an impairment loss and resolves certain implementation issues resulting from
Statement 121. This Statement is effective for fiscal years beginning after
December 15, 2001. We are currently assessing the impact of this statement on
the Company, however, we do not anticipate this statement to have a material
impact on the consolidated financial position or results of operations of the
Company.
14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Forward-Looking Statements
The following information should be read in conjunction with the United Dominion
Realty Trust, Inc. ("United Dominion") 2000 Form 10-K as well as the financial
statements and notes included in Item 1 of this report. This quarterly report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1993, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements include, without
limitation, statements concerning property acquisitions and dispositions,
development activity and capital expenditures, capital raising activities, rent
growth, occupancy and rental expense growth. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. Such statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievement of United Dominion to be materially different from the results of
operations or plans expressed or implied by such forward-looking statements.
Such factors include, among other things, unanticipated adverse business
developments affecting United Dominion, or its properties, adverse changes in
the real estate markets and general and local economies and business conditions.
Although United Dominion believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore there can be no assurance that
such statements included in this report will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by United Dominion or any other person that the results or
conditions described in such statements or the objectives and plans of United
Dominion will be achieved.
Overview
United Dominion is a real estate investment trust (REIT) with activities related
to the ownership, development, acquisition, renovation, management, marketing
and strategic disposition of multifamily apartment communities nationwide. Over
the past four years, United Dominion has diversified into new markets to create
a national platform, upgraded the quality of the portfolio and invested in
infrastructure and technology. The Company continues to review its strategy with
a goal of enhancing long-term earnings growth on a sustained basis. At September
30, 2001, United Dominion owned 271 communities with 76,431 apartment homes
nationwide.
15
The following table summarizes United Dominion's apartment market
information by major geographic markets (including real estate under
development):
Nine Months Ended Three Months Ended
As of September 30, 2001 September 30, 2001 September 30, 2001
----------------------------------------------------- ------------------------- ----------------------
Number of Total % Of Carrying Average Average Average Average
Apartment Apartment Carrying Value Physical Monthly Physical Monthly
Communities Homes Value (in thousands Occupancy Rental Rates Occupancy Rental Rates
----------------------------------------------------- ------------------------- ----------------------
Houston, TX 22 5,722 6.0% $ 226,179 93.6% $ 612 94.3% $ 629
Dallas, TX 14 4,533 5.8% 219,537 95.4% 679 95.6% 686
Phoenix, AZ 11 3,618 5.6% 210,720 94.3% 691 93.5% 719
Orlando, FL 14 4,140 5.3% 201,408 93.1% 705 93.3% 713
San Antonio, TX 12 3,827 5.0% 189,368 93.8% 702 88.5% 668
Raleigh, NC 10 3,147 4.3% 163,507 91.0% 723 91.6% 730
Tampa, FL 10 3,372 4.0% 151,373 91.3% 657 94.0% 699
Fort Worth, TX 11 3,561 3.9% 147,687 96.8% 634 96.6% 644
Columbus, OH 6 2,527 3.9% 146,892 93.3% 668 94.0% 676
San Francisco, CA 4 980 3.7% 140,825 97.5% 1,782 96.9% 1,787
Charlotte, NC 10 2,710 3.6% 135,460 89.5% 688 87.4% 702
Nashville, TN 8 2,220 3.2% 119,421 94.1% 688 95.5% 691
Greensboro, NC 8 2,122 2.7% 103,348 91.2% 640 90.4% 646
Monterey Penninsula, CA 9 1,706 2.6% 97,075 96.1% 847 95.5% 875
Memphis, TN 6 1,956 2.6% 96,597 92.8% 634 93.0% 638
Richmond, VA 8 2,372 2.5% 95,782 95.5% 708 94.1% 719
Southern California 5 1,414 2.4% 90,673 95.7% 894 95.6% 921
Wilmington, NC 6 1,869 2.3% 88,792 92.1% 659 95.9% 665
Metropolitan DC 5 1,291 1.9% 73,699 98.3% 832 97.8% 857
Atlanta, GA 6 1,426 1.9% 70,860 93.7% 740 93.4% 747
Baltimore, MD 6 1,291 1.8% 66,939 97.3% 809 96.3% 830
Columbia, SC 6 1,584 1.6% 62,050 94.5% 584 95.5% 588
Jacksonville, FL 3 1,157 1.5% 57,959 92.2% 669 94.7% 672
Norfolk, VA 6 1,437 1.4% 53,906 95.5% 661 95.7% 672
East Lansing, MI 4 1,226 1.3% 48,387 90.8% 658 89.3% 669
Seattle, Wa 3 628 0.9% 33,989 95.4% 738 94.9% 753
Other Western 6 2,474 3.6% 139,749 95.8% 728 95.8% 743
Other Florida 8 2,073 2.7% 100,987 94.0% 694 93.0% 701
Other Southwestern 9 2,212 2.6% 97,398 93.2% 588 91.4% 595
Other Midwestern 10 2,122 2.5% 93,068 92.8% 626 94.6% 633
Other Pacific 7 1,757 2.3% 86,951 92.8% 697 92.2% 709
Other North Carolina 8 1,893 2.0% 74,055 94.9% 564 94.9% 571
Other Mid-Atlantic 5 928 1.1% 42,302 96.1% 766 97.3% 778
Other Southeastern 3 764 1.0% 37,290 94.5% 586 95.7% 588
Other Northeastern 2 372 0.5% 18,049 96.3% 666 95.2% 680
---------------------------------------------------- ---------------------- ----------------------
Total Apartments 271 76,431 100.0% $3,782,282 93.9% $ 696 93.8% $ 706
==================================================== ====================== ======================
16
Liquidity and Capital Resources
United Dominion's primary source of liquidity is its cash flow from operations
as determined by rental rates, occupancy levels and operating expenses related
to its portfolio of apartment homes. United Dominion routinely uses its
unsecured bank credit facility to temporarily fund certain investing and
financing activities prior to arranging for longer-term financing. During the
past several years, proceeds from the sales of real estate have been used for
both investing and financing activities.
United Dominion regularly reviews its short and long-term liquidity requirements
and considers the adequacy of its cash flow from operations as well as other
liquidity sources to meet these requirements. United Dominion believes that it
can fund its short-term liquidity needs such as normal recurring operating
expenses, debt service payments, recurring capital expenditures and
distributions to common and preferred shareholders through cash provided by
operating activities and borrowings from the Company's unsecured bank credit
facility, as needed (see discussion that follows under "Financing Activities").
To facilitate future financing activities in the public capital markets,
management believes that it is prudent to maintain shelf registration statement
capacity. In this regard, United Dominion filed a shelf registration statement
in December 1999 providing for the issuance of up to $700 million in common
shares, preferred shares and debt securities. In March 2000, United Dominion
utilized this shelf registration statement to sell $100 million of senior
unsecured notes due March 2003 at an interest rate of 8.625%. As of September
30, 2001, $600 million of equity and debt securities remain available for use
under the shelf registration.
Future Capital Needs
Future development expenditures are expected to be funded primarily through
joint ventures or with proceeds from the sale of property, and to a lesser
extent, cash flows provided by operating activities. Acquisition activity in
strategic markets is expected to be largely financed by the reinvestment of
proceeds from the sale of property in non-strategic markets.
During the fourth quarter of 2001, United Dominion has approximately $21.7
million of maturing debt which the Company anticipates repaying using proceeds
from mortgage refinancing activity or borrowings under the Company's unsecured
credit facility.
The following discussion explains the changes in net cash provided by operating
and investing activities and net cash used in financing activities which are
presented in United Dominion's Consolidated Statements of Cash Flows.
Operating Activities
For the nine months ended September 30, 2001, United Dominion's cash flow from
operating activities was $172.3 million compared to $158.4 million for the same
period last year. The increase of $13.9 million in the cash flow from operating
activities resulted primarily from (i) a change in the level of operating assets
as a result of collections on escrow accounts and joint venture receivables and
(ii) an increase in the level of operating liabilities due to the timing of
payments of certain operating liabilities, both of which were offset by a
decline in revenues generated from a smaller portfolio of assets.
Investing Activities
For the nine months ended September 30, 2001, net cash provided by investing
activities was $25.1 million compared to net cash provided by investing
activities of $72.1 million for 2000. Changes in the level of investing
activities from period to period reflects United Dominion's strategy as it
relates to its acquisition, capital expenditure, development and disposition
programs, as well as the impact of the capital market environment on these
activities.
17
Real Estate under Development
Development activity is focused in core markets that have strong operations
managers in place. For the nine months ended September 30, 2001, United Dominion
invested approximately $43.4 million in real estate projects, down $19.3 million
from its 2000 level of $62.7 million.
The following projects were under development at September 30, 2001:
Cost to Budgeted Expected
No. of Apt. Completed Date Cost Est. Cost Completion
Location Homes Apt. Homes (In thousands) (In thousands) Per Home Date
------------- ------------ ------------- --------------- ---------------- ------------- -------------
New Communities:
- ------------------------
Dominion Place at Raleigh, NC 332 196 $21,300 $25,700 $77,400 1Q02
Kildaire Farm
Additional Phases:
- ------------------------
Greensview II Denver, CO 192 48 12,700 16,700 87,000 1Q02
The Meridian II Dallas, TX 270 - 9,100 17,400 64,400 2Q02
---------- --------- --------------- ---------------- -------------
Subtotal 462 48 21,800 34,100 73,800
---------- --------- --------------- ---------------- -------------
Total 794 244 $43,100 $59,800 $75,300
========== ========= =============== ================ =============
In addition, United Dominion owns eight parcels of land that it continues to
hold for future development that had a carrying value at September 30, 2001 of
$11.0 million. Seven of the eight parcels represent second phases to existing
communities.
During the third quarter, Red Stone Ranch, a 324 home community located in
Austin, Texas and Manor at England Run III, a 120 home community located in
Fredericksburg, Virginia, were completed. Both properties were completed on
schedule and under budget and were 57.9% and 100.0% leased, respectively, as of
September 30, 2001.
Development Joint Venture
On June 21, 2000, United Dominion completed the formation of a joint venture
that will invest approximately $103 million to develop five apartment
communities with a total of 1,438 apartment homes. United Dominion owns a 25%
interest in the joint venture and is serving as the managing partner of the
joint venture as well as the developer, general contractor and property manager.
Upon closing of the venture, United Dominion contributed the projects in return
for its equity interest of approximately $8 million in the venture and was
reimbursed for approximately $35 million of development outlays that were
incurred prior to closing the joint venture.
For the three and nine months ended September 30, 2001, United Dominion
recognized fee income of approximately $0.2 million and $0.9 million,
respectively, for general contracting, developer services and management fee
provided by the Company to the joint venture. The Company has the option, but
not the obligation, to purchase these properties for fair value through December
31, 2006. If the Company or the joint venture partner elects to not purchase
these properties, the joint venture will then dispose of the assets to a third
party at the then market price.
18
The following joint venture projects were complete as of September 30, 2001:
Development
No. of Apt. Cost Cost Per Date
Location Homes (In thousands) Home Completed % Leased
-------------- ------------- ----------------- -------------- ------------- ------------
New Communities:
- --------------------
Meridian I Dallas, TX 250 $16,400 $65,600 6/00 97.6%
Parke 33 Lakeland, FL 264 17,100 64,800 2/01 95.5%
Sierra Canyon Phoenix, AZ 236 15,400 65,300 3/01 99.2%
Oaks at Weston Raleigh, NC 380 28,000 73,700 3/01 79.7%
Mandolin Dallas, TX 308 21,100 68,500 9/01 97.1%
------------ ---------------- -------------
Total 1,438 $98,000 $68,200
============ ================ =============
Disposition of Investments
For the nine months ended September 30, 2001, United Dominion sold nine
communities with 1,889 apartment homes and two parcels of land for an aggregate
sales price of approximately $134.1 million and recognized gains for financial
reporting purposes of $24.7 million. Proceeds from the sales were applied
primarily to reductions in long-term debt and to the repurchase of common
shares, and to a lesser extent, to complete 1031 exchanges in order to defer
taxable gains. The Company currently has three development sites under contract
for sale for a total consideration of $6.3 million through which no gains or
losses are expected to be recognized. These sales are subject to due diligence
evaluations by the buyers.
Within each market, United Dominion plans to dispose of selected communities
with inferior locations, significant capital expense requirements without the
potential of a corresponding increase in rent or insufficient growth potential.
Proceeds from the 2001 sales, expected to be at levels below that of 2000, are
expected to be used to reduce debt, repurchase common and preferred shares, fund
development activity and acquire communities.
Acquisitions
During the nine months ended September 30, 2001, United Dominion acquired two
communities with 510 apartment homes at a total cost (including closing costs)
of approximately $32.0 million which included the use of tax free exchange
funds.
During the remainder of 2001 and for 2002, the new senior management team plans
to channel new investments to those markets that are projected to provide the
best investment returns for the Company over the next ten years. Markets will be
targeted based upon refined criteria including past performance, expected job
growth, current and anticipated housing supply and demand, ability to attract
and support household formation and local market expertise.
Capital Expenditures
United Dominion capitalizes those expenditures related to acquiring new assets,
materially enhancing the value of an existing asset, or substantially extending
the useful life of an existing asset. Expenditures necessary to maintain an
existing property in ordinary operating condition are expensed as incurred.
During the nine months ended September 30, 2001, $34.5 million or $455 per home
was spent on capital expenditures for all of United Dominion's communities
excluding development and commercial properties. These capital improvements
included turnover related expenditures such as floor coverings and appliances,
other recurring capital expenditures such as HVAC equipment, roofs, landscaping,
siding, parking lots and other non-revenue enhancing capital expenditures, which
aggregated $21.8 million or $287 per home. In addition, revenue enhancing
capital expenditures, including water sub-metering, gating and access systems,
the addition of microwaves, washer-dryers, interior upgrades and new business
and fitness centers totaled $12.7 million or $168 per home for the nine months
ended September 30, 2001. United Dominion will continue to selectively add
revenue-enhancing improvements that the Company believes will provide a return
on investment in excess of United Dominion's cost of capital. Capital
expenditures during 2001 are currently expected to be at levels somewhat higher
than those experienced in 2000.
19
The following table outlines capital expenditures and repair and maintenance
costs for the Company's total portfolio, excluding real estate under development
and commercial properties, containing 75,853 and 80,356 apartment homes on a
weighted average basis for the nine months ended September 30, 2001 and 2000
respectively (dollars in thousands):
Nine Months Ended Nine Months Ended
September 30, September 30, (per unit)
-------------------------------------- --------------------------------------
2001 2000 % Change 2001 2000 % Change
-------------------------------------- --------------------------------------
Turnover Capital Expenditures $12,242 $11,261 8.71% $161 $140 15.00%
Recurring Capital Expenditures 9,558 8,453 13.07% 126 105 20.00%
------------------------------------ ------------------------------------
Total Recurring Capital Expenditures 21,800 19,714 10.58% 287 245 17.14%
Revenue Enhancing Improvements 12,711 11,889 6.91% 168 148 13.51%
------------------------------------ ------------------------------------
Total Capital Improvements $34,511 $31,603 9.20% $455 $393 15.78%
==================================== ====================================
Repair and Maintenance 26,566 27,039 -1.75% 350 336 4.17%
------------------------------------ ------------------------------------
Total Expenditures $61,077 $58,642 4.15% $805 $729 10.43%
==================================== ====================================
Financing Activities
Net cash used in financing activities during the nine months ended September 30,
2001 was $200.5 million compared to $227.4 million for 2000, a decrease of $26.9
million. As part of the plan to improve the Company's balance sheet position,
United Dominion used proceeds from its disposition program and borrowings under
its FNMA credit facility to pay down secured and unsecured debt, to repurchase
shares of common and preferred stock and to complete 1031 exchanges in order to
defer taxable gains.
On June 15, 2001, the Company completed the redemption of all of its outstanding
9.25% Series A Cumulative Redeemable Preferred shares at $25 per share plus
accrued dividends utilizing proceeds from its line of credit. For the three
months ended September 30, 2001, the Company did not purchase any preferred B
shares. For the nine months ended September 30, 2001, United Dominion has
repurchased 17,600 Series B preferred shares at an average price of $24.42 per
share.
For the quarter ended September 30, 2001, the Company repurchased 1,397,419
common shares and operating partnership units at an average price of $14.10. As
of September 30, 2001, approximately 3.2 million common shares remained
available for purchase under the common share repurchase program. Repurchases of
shares will be made from time to time in the open market or in privately
negotiated transactions. The timing, volume and purchase price will be at the
discretion of the Company.
On August 14, 2001, United Dominion closed on a $200 million credit facility
with ARCS Commercial Mortgage Co., L.P. ARCS is a Fannie Mae DUS Lender. The
initial funding on the facility was $139 million. The adjustable rate loan was
provided through Fannie Mae DMBS for a five-year term based on three month
LIBOR, with an initial interest rate of 3.99%. The Company has the option to
extend the facility for an additional five years. The proceeds of the loan were
used principally to replenish the Company's line of credit for the redemption of
the $100 million 9.25% Series A Cumulative Redeemable Stock that occurred
earlier this year. The balance of the loan proceeds was used to refinance
maturing secured loans.
For the nine months ended September 30, 2001, the Company has repaid $21.3
million of unsecured debt and $65.2 million of secured debt, was relieved of
$7.7 million of secured debt in connection with the disposition of properties
and assumed $18.2 million of secured debt in connection with the acquisition of
properties.
On September 24, 2001, Moody's Investors Service lowered its rating on the
securities of the Company to Baa3 from Baa2. This revision will not trigger a
material increase in the borrowing rate under the Company's $375 million
three-year unsecured revolving credit facility (see discussion under "Credit
Facilities" that follows). In addition, management does not anticipate that this
revision will prevent the Company from accessing the public or private markets
for either secured or unsecured financing.
20
Credit Facilities
United Dominion has a $375 million three-year unsecured revolving credit
facility (the "Credit Facility") which extends until August 2003. As of
September 30, 2001, $216.9 million was outstanding under the Credit Facility.
Under the Credit Facility, effective September 24, 2001, the Company may borrow
at a rate of LIBOR plus 110 basis points for LIBOR-based borrowings. Under the
Credit Facility, the Company pays a facility fee, which is equal to 0.25% of the
commitment. The Credit Facility is subject to customary financial covenants and
limitations.
Information concerning short-term bank borrowings is summarized in the table
that follows (dollars in thousands):
Nine months ended Year ended
September 30, 2001 December 31, 2000
- -------------------------------------------------------------------------------------------------------
Total revolving credit facilities $375,000 $375,000
Borrowings outstanding at end of period 216,900 244,400
Weighted average daily borrowings during the period 261,956 195,128
Maximum daily borrowings during the period 347,200 308,000
Weighted average interest rate during the period 5.6% 7.3%
Weighted average interest rate at end of period 4.4% 7.7%
Derivative Instruments
As part of United Dominion's overall interest rate risk management strategy, the
Company uses derivatives as a means to modify the interest rate characteristics
of variable rate debt obligations or to hedge anticipated financing
transactions. The Company's derivative transactions used for interest rate risk
management include various interest rate swaps with indices that relate to the
pricing of specific financial instruments of United Dominion. The Company
believes that it has appropriately controlled its interest rate risk through the
use of its derivative instruments. Due to the current interest rate environment,
the fair value of the Company's derivative instruments has declined from $(3.8)
million at December 31, 2000 to $(16.1) million at September 30, 2001 (see Note
7 - Derivative Instruments and Hedging Activities).
Funds from Operations
Funds from operations ("FFO") is defined as net income (computed in accordance
with generally accepted accounting principles), excluding gains (losses) from
sales of depreciable property, plus real estate depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint ventures. United
Dominion computes FFO for all periods presented in accordance with the
recommendations set forth by the National Association of Real Estate Investment
Trust's October 1, 1999 White Paper. United Dominion considers FFO in evaluating
property acquisitions and its operating performance, and believes that FFO
should be considered along with, but not as an alternative to, net income and
cash flows as a measure of United Dominion's operating performance and
liquidity. FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs. Adjusted funds from operations
("AFFO") is defined as FFO less recurring capital expenditures for our
stabilized portfolio at $350 per unit in 2001 and $311 per unit in 2000. The
2001 unit charge will be adjusted to actual at year end. The Company believes
AFFO is the best measure of economic profitability for real estate investment
trusts.
21
The following table outlines United Dominion's FFO calculation for the three and
nine months ended September 30, (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2001 2000 2001 2000
--------------------- --------------------
Net income $ 13,547 $ 20,183 $51,524 $ 52,040
Adjustments:
Distributions to preferred shareholders (6,769) (9,179) (24,422) (27,808)
Real estate depreciation, net of outside partners' interest 35,646 36,987 113,188 114,174
Net gains on sale of depreciable property, net of outside
partners' interest -- (10,424) (24,005) (18,572)
Minority interests of unitholders in operating partnership 487 798 1,718 1,760
Real estate depreciation related to unconsolidated entities 282 79 746 188
Extraordinary item-early extinguishment of debt 186 91 745 (267)
--------- --------- -------- ---------
Funds From Operations-basic $ 43,379 $ 38,535 $119,494 $ 121,515
========= ========= ======== =========
Adjustment:
Distribution to preferred shareholders-Series D (Convertible) 3,857 3,825 11,571 11,475
--------- --------- -------- ---------
Funds From Operations-diluted $ 47,236 $ 42,360 $131,065 $ 132,990
========= ========= ======== =========
Adjustment:
Recurring capital expenditures (6,613) (6,168) (19,911) (18,743)
--------- --------- -------- ---------
Adjusted Funds From Operations-diluted $ 40,623 $ 36,192 $111,154 $ 114,247
========= ========= ======== =========
Weighted average number of common shares and OP Units outstanding -
basic 107,000 110,774 108,120 110,590
Weighted average number of common shares and OP Units outstanding -
diluted 120,032 123,281 120,989 123,069
In the computation of diluted FFO, OP units and the convertible Series D
preferred shares are dilutive; therefore, they are included in the diluted share
count.
Results of Operations
Net Income Available to Common Shareholders
Net income available to common shareholders decreased $4.4 million for the three
months ended September 30, 2001. The decrease in net income available to common
shareholders for the quarter was primarily attributable to gains on the sales of
investments of $11.3 million recognized during the third quarter of 2000 with no
corresponding gains recognized during 2001. These gains were partially offset by
two one-time charges recognized in 2000 aggregating $3.7 million related to
severance costs and the settlement of litigation. In addition, rental income
decreased $3.2 million to $153.8 million and expenses decreased $4.9 million
(excluding non-recurring charges in 2000 as mentioned above) due to lower
interest costs of $36.6 million for the three months ended September 30, 2001
compared to $39.1 million in 2000.
For the nine months ended September 30, 2001, net income available to common
shareholders decreased $3.0 million. The decrease for the period was primarily
due to an overall decrease in rental income of $8.1 million to $462.8 million
offset by an overall decrease in expenses of $11.2 million (excluding
non-recurring charges in 2000 as discussed above and charges recognized in 2001
- - see discussion that follows under "Restructuring Charge" and "Impairment Loss
on Real Estate and Investments") due to lower interest costs of $109.7 million
for the nine months ended September 30, 2001 compared to $117.9 million in 2000.
In addition, the Company recognized higher gains on the sale of investments for
the nine month period ended 2001; however, these gains were offset by the
premium paid to redeem the Company's 9.25% Series A preferred shares.
22
Apartment Community Operations
United Dominion's net income is primarily generated from the operations of its
apartment communities. The following table summarizes the operating performance
for United Dominion's total apartment portfolio for each of the periods
presented (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2001 2000 % Change 2001 2000 % Change
---------------------------------- ----------------------------------
Property rental income $153,526 $156,720 -2.0% $461,656 $469,743 -1.7%
Property rental expenses (excluding
property management, depreciation
and amortization) (56,451) (58,738) -3.9% (169,897) (173,454) -2.1%
-------------------------------- --------------------------------
Property operating income $ 97,075 $ 97,982 -0.9% $291,759 $296,289 -1.5%
================================ ================================
Weighted average number of homes 76,102 80,021 -4.9% 76,421 81,221 -5.9%
Physical occupancy 93.8% 94.5% -0.7% 93.9% 94.2% -0.3%
The decrease in property operating income and property operating expenses by the
Company's apartment community operations is due to the disposition of 7,724
apartment homes during 2000 and 2001. As a result of these dispositions, the
weighted average number of apartment homes declined 5.9% from the nine month
period ended September 30, 2000 to the nine month period ended September 30,
2001.
Same Communities
United Dominion's same communities (those communities acquired, developed or
stabilized prior to July 1, 2000 and held on July 1, 2001 which consisted of
73,557 and 73,000 weighted average apartment homes for the three and nine month
comparative periods) provided 95% of the Company's property operating income for
the nine months ended September 30, 2001.
For the third quarter of 2001, property operating income for the same
communities increased 2.7% or $2.5 million compared to the same period in 2000.
The growth in property operating income resulted from a $3.3 million or 2.3%
increase in property rental income over the same period in the prior year. The
increase was driven by a $6.6 million or 4.4% increase in rental rates. During
the nine months ended September 30, 2001, same community property operating
income increased 2.7% or $7.2 million compared to the same period last year. The
growth in property operating income resulted primarily from a $14.0 million or
3.3% increase in property rental income that was driven by a $17.7 million or
4.0% increase in average monthly rental rates. For both periods, the increased
rental rates were partially offset by higher concessions and an increase in bad
debt expense. Physical occupancy decreased 0.7% to 93.8% for the third quarter
of 2001 compared to the same period in 2000.
For the quarter ended September 30, 2001, property operating expenses at these
same communities increased only $0.8 million or 1.5%. The increase in property
operating expenses was primarily due to a $0.8 million increase in taxes due to
reassessments. During the nine months ended September 30, 2001, same community
operating expense increased 4.4% or $6.8 million compared to the same period
last year. The increase in property operating expenses resulted primarily from a
$3.3 million or 14.1% increase in gas costs (net of reimbursement by residents)
experienced during the first half of 2001 due to the run-up in prices for
natural gas and overall increases in market rates. In addition, the Company
experienced a $1.3 million or 5.6% increase in repair and maintenance and a $0.9
million or 2.4% increase in taxes.
As a result of the percentage changes in total property operating income and
total property operating expenses, the operating margin (property operating
income divided by property rental income) for the three and nine months ended
September 30, 2001 was 63.3% compared to 63.0% and 63.7% for the same periods
last year.
23
Non-Mature Communities
The remaining 5% of United Dominion's property operating income during the nine
months ended September 30, 2001 was generated from its non-mature communities
(those communities acquired or developed during 2000 and 2001). United
Dominion's development communities which included 1,680 apartment homes
constructed since January 1, 2000 provided an additional $1.7 million and $6.6
million of property operating income for the three and nine months ended
September 30, 2001. In addition, the three communities with 777 apartment homes
acquired by United Dominion during 2000 and 2001 provided an additional $1.0
million and $2.7 million of property operating income for the three and nine
months ended September 30, 2001.
Real Estate Depreciation
Real estate depreciation decreased $1.3 million or 3.5% and $0.9 million or 0.8%
for the three and nine months ended September 30, 2001, over the same periods
last year. The decrease in depreciation expense is attributable to the overall
decrease in the weighted average number of apartment homes partially offset by
the impact of completed development communities and capital expenditures.
Interest Expense
Interest expense decreased $2.5 million and $8.2 million for the three and nine
months ended September 30, 2001, respectively, over the same periods last year
due to a decrease in the level of outstanding debt and decreasing interest
rates. For the nine month period, the weighted average amount of debt
outstanding decreased 3.8% or $79.1 million from 2000 levels and the weighted
average interest rate decreased from 7.6% in 2000 to 7.2% in 2001. For the three
month period, the weighted average amount of debt outstanding decreased 3.8% or
$81.3 million in 2001 as compared to the same period in the prior year and the
weighted average interest rate decreased from 7.6% in 2000 to 7.0% in 2001. The
weighted average amount of debt employed during 2001 is lower as a portion of
disposition proceeds was used to repay outstanding debt. The decrease in the
average interest rate during 2001 reflects the ability of the Company to take
advantage of declining interest rates through refinancing and the utilization of
variable rate debt.
Restructuring Charge
During the quarter ended March 31, 2001, United Dominion undertook a
comprehensive review of the organizational structure of the Company and its
operations subsequent to the appointment of a new senior management team and
CEO. As a result, the Company recorded $4.5 million of expense related to the
termination of approximately 10% of United Dominion's workforce (ultimately
approximately 230 full-time equivalent positions) in operations and at the
corporate headquarters. Management anticipates that the reduction in workforce
will result in an annualized savings of approximately $3.0 to $3.5 million
through ongoing cost efficiencies. These reductions will impact both personnel
and general and administrative expenses. As of September 30, 2001, approximately
$4.0 million of the accrued charge has been paid with the remainder to be paid
during the fourth quarter of 2001. In addition, United Dominion recognized
expense in the aggregate of $0.9 million related to relocation costs associated
with the new executive offices in Denver and other miscellaneous costs. No
adjustments to the existing reserve are contemplated at this time. All charges
came under consideration subsequent to the appointment of the Company's new CEO
in February 2001 and were approved by management and the Board of Directors in
March 2001.
Impairment Loss on Real Estate and Investments
In connection with the evaluation of the Company's real estate assets and
operations during the first quarter of 2001, senior management determined that
it was in the Company's best interest to dispose of a majority of its
undeveloped tracts of land at an accelerated pace and redeploy the proceeds
elsewhere. This represented a change from prior management in the holding period
of these assets and their respective values. Prior management had purchased
these tracts of land in 1999 and 2000 with the intent to build apartment
communities on them. In order to accelerate the disposition of these undeveloped
land sites, the Company recorded an aggregate $2.8 million impairment loss
during the first quarter for the write down of seven undeveloped sites in
selected markets. The $2.8 million charge represents the discount necessary to
dispose of these assets in a short time frame coupled with decreases in market
value in 2001 for these properties. In addition, the Company recognized a $0.3
million charge for the write down of United Dominion's investment in an online
apartment leasing company.
24
General and Administrative
For the three and nine months ended September 30, 2001, general and
administrative expenses increased $1.0 million or 28.2% and $3.6 million or
32.2% over 2000. The increase was primarily due to an increase in accrued
incentive bonus expense.
Gains on Sales of Investments
For the three and nine months ended September 30, 2001, United Dominion
recognized gains for financial reporting purposes of $0 and $24.7 million,
respectively, compared to $11.3 million and $19.7 million for the comparable
periods last year. Changes in the level of gains recognized from period to
period reflect the changing level of United Dominion's divestiture activity from
period to period as well as the extent of gains related to specific properties
sold.
Premium on Preferred Share Repurchases
During the second quarter of 2001, United Dominion redeemed all of the Company's
9.25% Series A preferred shares. The amount paid to redeem these shares exceeded
the net proceeds received from the initial issuance of shares (due to
transaction costs at initial issuance), and that excess is reflected in the
Statement of Operations as a reduction of net income available to common
shareholders.
Contingencies
During the third quarter of 2000, the Company agreed to settle a class action
lawsuit concerning water usage billing in Texas in the amount of $2.7 million.
As a result of the settlement, the Company accrued $2.7 million in 2000 for the
settlement amount and estimated fees. The settlement received final court
approval during the first quarter of 2001 and the Company subsequently made
payment during the second quarter of 2001.
Inflation
United Dominion believes that the direct effects of inflation on the Company's
operations have been inconsequential. Substantially all of the Company's leases
are for a term of one year or less which generally minimizes United Dominion's
risk from the adverse effects of inflation.
25
Item 3. Quantitative and Qualitative Disclosure of Market Risk
United Dominion is exposed to interest rate changes associated with the
Company's unsecured credit facility and other variable rate debt as well as
refinancing risk on the Company's fixed rate debt. United Dominion's involvement
with derivative financial instruments is limited and the Company does not expect
to use them for trading or other speculative purposes. United Dominion uses
derivative instruments to manage the Company's exposure to interest rates.
See United Dominion's Form 10-K for the year ended December 31, 2000 "Item 7A
Qualitative and Quantitative Disclosures About Market Risk" for a more complete
discussion of our interest rate sensitive assets and liabilities. As of
September 30, 2001, United Dominion's market risk has not changed materially
from the amounts reported on the Form 10-K for the year ended December 31, 2000.
26
PART II
Item 1. LEGAL PROCEEDINGS
- -------------------------
United Dominion and its subsidiaries are engaged in various litigations
and have a number of unresolved claims pending. The ultimate liability in
respect of such litigations and claims cannot be determined at this time. United
Dominion is of the opinion that such liability, to the extent not provided for
through insurance or otherwise, is not likely to be material in relation to the
consolidated financial statements of United Dominion.
Item 2. CHANGES IN SECURITIES
- -----------------------------
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None
Item 5. OTHER INFORMATION
- -------------------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) The exhibits listed on the accompanying index to exhibits are filed as
part of this quarterly report.
(b) Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission on
August 21, 2001. The filing reported United Dominion's transfer of all
of the Company's Series D Cumulative Convertible Redeemable Preferred
Stock to Security Capital Preferred Growth Incorporated on August 20,
2001.
A Form 8-K was filed with the Securities and Exchange Commission on
September 12, 2001. The filing reported United Dominion's closing of a
$200 million Fannie Mae revolving credit facility on September 10,
2001.
A Form 8-K was filed with the Securities and Exchange Commission on
September 26, 2001. The filing included information that United
Dominion presented to analysts on Wall Street that are interested in
United Dominion and its business, finances or securities as first
presented on September 10, 2001.
A Form 8-K was filed with the Securities and Exchange Commission on
October 12, 2001. The filing included information that United Dominion
presented to current and prospective stockholders and other persons and
institutions as first presented on October 10, 2001.
A Form 8-K was filed with the Securities and Exchange Commission on
October 25, 2001. The filing reported United Dominion's 2001 third
quarter results of operations as reported on its Press Release issued
on October 22, 2001.
27
EXHIBIT INDEX
Item 6 (a)
The exhibits listed below are filed as part of this Quarterly Report.
References under the caption Location to exhibits, forms, or other filings
indicate that the form or other filing has been filed, that the indexed exhibit
and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference.
Exhibit Description Location
- ------- ------------------------------------------- -----------------------------------------------------
(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration
as of December 19, 1997, between Statement (Registration No. 333-45305) filed with
the Company, ASR Investment the Commission on January 30, 1998.
Corporation and ASR Acquisition Sub,
Inc.
2(b) Agreement of Plan of Merger dated as Exhibit 2(c) to the Company's Form S-3 Registration
of September 10, 1998, between the Statement (Registration No. 333-64281) filed with
Company and American Apartment the Commission on September 25, 1998.
Communities II, Inc. including as
exhibits thereto the proposed terms
of the Series D Preferred Stock and the
proposed form of Investment Agreement
between the Company, United Dominion
Realty, L.P., American Apartment
Communities II, Inc., American
Apartment Communities Operating
Partnership, L.P., Schnitzer Investment
Corp., AAC Management LLC and LF
Strategic Realty Investors, L.P.
2(c) Partnership Interest Purchase and Exchange Exhibit 2(d) to the Company's Form S-3 Registration
Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with
between the Company, United Dominion the Commission on September 25, 1998.
Realty, L.P., American Apartment
Communities Operating Partnership, L.P.,
AAC Management LLC, Schnitzer
Investment Corp., Fox Point Ltd. and
James D. Klingbeil including as an exhibit
thereto the proposed form of the Third
Amended and Restated Limited Partnership
Agreement of United Dominion Realty, L.P.
3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3
Registration Statement (Registration No. 333-72885)
filed with the Commission on February 24, 1999.
3(b) Restated By-Laws Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the year ended December 31,
2000.
28
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report
Certificate on Form 10-K for the year ended December
31, 1993.
4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 8.60% Series B Cumulative Registration Statement dated June 11, 1997.
Redeemable Preferred Stock
4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form
8-A January 27, 1998, between the Company Registration Statement dated February 4, 1998.
and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
4(i)(d)(a) First Amended and Restated Rights Exhibit 4(i)(d)(a) to the Company's Quarterly
Agreement dates as of September 14, Report on Form 10-Q for the quarter ended
1999, between the Company and September 30, 1999.
ChaseMellon Shareholders Services,
L.L.C., as Rights Agent
4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A
Registration Statement dated February 4, 1998.
4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A
as of February 15, 1993, between Registration Statement dated April 19, 1990.
the Company and CIGNA Property
and Casualty Insurance Company,
Connecticut General Life Insurance
Company, on behalf of
one or more separate accounts,
Insurance Company of North
America, Principal Mutual Life
Insurance Company and Aid
Association for Lutherans
4(ii)(f) Credit Agreement dated as of Exhibit 4(ii)(g) to the Company's Annual
November 14, 2000, between Report on Form 10-K for the year ended
the Company and certain subsidiaries December 31, 2000.
and a syndicate of banks represented
by First Union Nation Bank
4(ii)(g) Credit Agreement dated as of Filed herewith.
August 14, 2001, between the
Company and certain subsidiaries
and ARCS Commercial Mortgage
Company, L.P., as Lender.
10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual Report
the Company and Richard Giannotti on Form 10-K for the year ended December 31,
dated December 8, 1998. 1998.
29
10(v) 1985 Stock Option Plan, Exhibit 10(iv) to the Company's Quarterly
as amended. Report on Form 10-Q for the quarter ended
June 30, 1998.
10(vi) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report
Plan. on Form 10-Q for the quarter ended March 31, 1997.
10(vii) Third Amended and Restated Exhibit 10(vi) to the Company's Annual Report
Agreement of Limited Partnership of on Form 10-K for the year ended December 31,
United Dominion Realty, L.P. 1998.
Dated as of December 7, 1998.
10(vii)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Quarterly
April 16, 1998, between the Report on Form 10-Q for the quarter ended
Company and United Dominion March 31, 1998.
Realty, L.P.
10(vii)(b) First Amendment to Third Amended Filed herewith.
and Restated Agreement of Limited
Partnership of United Dominion
Realty, L.P.
10(viii) Servicing and Purchase Exhibit 10(vii) to the Company's Quarterly
Agreement dated as of June 24, Report on Form 10-Q for the quarter ended
1999, including as an exhibit June 30, 1999.
thereto the Note and Participation
Agreement forms.
10(ix) Description of Restricted Stock Exhibit 10(ix) to the Company's Annual Report
Awards Program. on Form 10-K for the year ended December 31,
1999.
10(x) Description of United Dominion Exhibit 10(x) to the Company's Annual
Realty Trust, Inc. Shareholder Report on Form 10-K for the year ended
Value Plan. December 31, 1999.
10(xi) Description of United Dominion Exhibit 10(xi) to the Company's Annual
Realty Trust, Inc. Executive Report on Form 10-K for the year ended
Deferral Plan. December 31, 1999.
10(xiii) Employment Agreement between Exhibit 10(xiii) to the Company's Annual
the Company and Mark E. Wood Report on Form 10-K for the year ended
dated March 21, 2000. December 31, 1999.
10(xv) Retirement Agreement and Covenant Exhibit 10(xv) to the Company's Quarterly
Not to Compete between the Company Report on Form 10-Q for the quarter
and John P. McCann dated March 20, ended March 31, 2001.
2001.
10(xviii) Description of Out-Performance Program Filed herewith.
30
10(xix) Description of Long Term Incentive Filed herewith.
Compensation Plan
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Quarterly Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Trust, Inc.
- -----------------------------------
(registrant)
Date: November 14, 2001 /s/ Christopher D. Genry
- ------------------------------------ -------------------------------
Christopher D. Genry
Executive Vice President and
Chief Financial Officer
Date: November 14, 2001 /s/ Scott A. Shanaberger
- ------------------------------------ -------------------------------
Scott A. Shanaberger
Vice President and
Chief Accounting Officer
32