Exhibit 13
SELECTED FINANCIAL INFORMATION
Years Ended December 31, 1994 1993 1992 1991 1990
In thousands, except per share data
OPERATING DATA
Rental income $ 139,972 $ 89,084 $ 63,202 $ 51,250 $ 44,042
Income from property operations 52,274 31,461 20,967 17,449 15,609
Income before gains (losses) on
investments and extraordinary item 19,118 11,286 8,141 3,578 4,556
Gains (losses) on investments 108 (89) (1,564)(b) 26 417
Extraordinary item - early extinguishment of debt (89) - (242) (35) (103)
Net income 19,137 11,197 6,335(b) 3,569 4,870
Distributions declared 37,539 27,988 23,271 15,872 14,402
Weighted average number of shares outstanding(a) 46,182 38,202 34,604 24,642 23,238
Per share:(a)
Net income $ .41 $ .29 $ .18(b) $ .14 $ .21
Distributions declared .78 .70 .66 .63 .62
BALANCE SHEET DATA
Real estate owned $1,007,599 $582,213 $ 454,115 $ 361,503 $ 294,205
Accumulated depreciation 120,341 91,444 71,806 56,074 43,229
Total assets 911,913 505,840 390,365 314,473 259,532
Mortgage notes payable 158,449 72,862 76,516 73,373 69,734
Notes payable 368,215 156,558 104,605 94,973 47,969
Shareholders' equity 356,968 259,963 197,677 136,152 118,154
Number of shares outstanding(a) 50,356 41,653 35,285 27,133 23,177
OTHER DATA
Funds from operations(c) $ 49,212 $ 31,658 $ 24,185 $ 17,158 $ 15,231
(a) All share and per share information has been adjusted to give retroactive
effect to a 2-for-1 stock split in May, 1993.
(b) Reflects a provision for possible investment losses of $1,564 ($.04 per
share).
(c) Funds from operations is defined as income before gains (losses) on
investments and extraordinary items adjusted for certain non-cash items,
primarily real estate depreciation. The trust considers funds from
operations in evaluating property acquisitions and its operating
performance, and believes that funds from operations should be considered
along with, but not as an alternative to, net income and cash flows as a
measure of the trust's operating performance and liquidity. Funds from
operations does not represent cash generated from operating activities in
accordance with the generally accepted accounting principals and is not
necessarily indicative of cash available to fund cash needs.
MANAGEMENT'S DISCUSSION OF
FINANCIAL CONDITION AND OPERATIONS
RESULTS OF OPERATIONS
FUNDS FROM OPERATIONS is defined as income before gains (losses) on investments
and extraordinary items adjusted for certain non-cash items, primarily real
estate depreciation. The Trust considers funds from operations in evaluating
property acquisitions and its operating performance, and believes that funds
from operations should be considered along with, but not as an alternative to,
net income and cash flows as a measure of the Trust's operating performance and
liquidity. Funds from operations 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.
Beginning in 1995, the Trust will implement the new definition of funds from
operations recently adopted by NAREIT (The National Association of Real Estate
Investment Trusts). If this definition had been available for adoption in 1994,
the Trust's reported funds from operations would have been approximately $1.0
million lower than under the definition currently used by the Trust.
YEAR ENDED DECEMBER 31, 1994
For 1994, the Trust reported significant increases over 1993 in rental income,
income from property operations, income before gains (losses) on investments and
extraordinary item, net income and funds from operations. Since the beginning of
1993, the Trust acquired 15,450 apartment units (63 apartment communities)
representing a 112% expansion in the number of apartment units owned during that
period. These additional apartment units provided a substantial portion of the
reported increases noted above. However, the improved performance of the Trust's
mature group of 13,832 apartment units (57 apartment communities) acquired prior
to 1993 also contributed to the increases, particularly when considered on a per
share basis.
For 1994, the Trust's mature apartment properties provided approximately 53%
of the Trust's rental income and 51% of its net operating income (rental income
less rental expenses). Total rental income from these units grew 6.2% in 1994
reflecting an increase in economic occupancy to 94.3% compared to 91.6% for 1993
and growth in average rents and other income of 3.3%. The improvement in
occupancy reflected stronger apartment markets throughout the Trust's region.
Rental expenses at these properties increased 2.3% resulting in a decrease in
the operating expense ratio (the ratio of rental expenses to rental income) of
1.7% to 44.0%. The increase in rental expenses was moderated by lower
advertising, rental promotions, electricity, and interior painting and cleaning
expenses caused by the combination of stronger occupancy and lower tenant
turnover. Turnover (measured by move-outs) was 57% for 1994. The combination of
increased occupancy, higher rents and only a moderate operating expense increase
led to an increase in net operating income from these mature apartment units of
approximately $3.6 million or 9.5%. For the 15,450 apartments in the 63
apartment communities acquired by the Trust since the beginning of 1993, average
occupancy was 92.8% and the operating expense ratio was 43.1% during 1994. For
the 29,282 apartments in the 120 communities owned on December 31, 1994,
occupancy averaged 93.7% and the operating expense ratio was 43.6% for the full
year 1994. For 1993, the 17,914 units then owned had occupancy of 91.5% and an
expense ratio of 45.5% for that year. For 1994, net operating income from
commercial properties increased $221,000 or 3% over 1993.
For 1994, depreciation expense increased $9.3 million with substantially all
of the increase attributable to the portfolio expansion that has occurred over
the past 24 months. Interest expense increased approximately $11.4 million in
1994 over 1993. The Trust used both debt and equity to finance its growth over
the past two years; however, the Trust used more debt relative to equity in 1994
than it did in 1993. The increase in interest expense of approximately $.17 per
share also reflects the rising interest rate environment of 1994 when rates were
generally higher than in 1993.
YEAR ENDED DECEMBER 31, 1993
For 1993, the Trust reported significant increases over 1992 in rental income,
income from property operations, income before gains (losses) on investments and
extraordinary item, net income, and funds from operations. These increases were
attributable primarily to the significant portfolio expansion that occurred
during 1993 and 1992. The performance of the Trust's then mature group of 10,924
apartment units (46 apartment communities) contributed to the increases.
For the year, the Trust's mature apartment properties provided 60% of the
Trust's rental income. These units had average economic occupancy of 91.2%
during 1993 compared to 90.6% for 1992, an increase of 0.6%. Average rents and
other income at these properties grew 2.9% and rental expenses increased 5.3%
resulting in an increase in the operating expense ratio of 0.8% to 47.9%. Net
operating income from these apartment units was up approximately $500,000 or
1.8%. For the 6,990 non-mature apartment units acquired by the Trust in 1993 and
1992, occupancy averaged 92.1% and the operating expense ratio was 43.3% during
1993. For the 17,914 apartments in the 74 communities owned on December 31,
1993, occupancy averaged 91.5% and the expense ratio was 45.5% for the full
year. In 1992, the 13,832 units then owned had occupancy of 90.7% and an expense
ratio of 46.5%. For 1993, net operating income from commercial properties
increased $288,000 or 4.0%, primarily reflecting additional small tenant leases.
For 1993, depreciation expense increased $4.0 million with substantially all
of the increase attributable to the portfolio expansion that has occurred during
the past year.
For 1993, interest income was $708,000 compared to $1.4 million in 1992.
During each year, the Trust completed a public offering of Common Stock and
invested the proceeds temporarily in short-term money market investments. During
1992, the Trust had such temporary investments throughout much of the year at
higher rates than in 1993 when the average amount invested in the money markets
was significantly lower. Consequently, interest income declined.
Interest expense increased approximately $5.2 million in 1993 over 1992
reflecting the fact that the Trust used less equity relative to debt to finance
its 1993 acquisitions than it did in 1992. While interest expense increased
$.105 per share in 1993, as a percent of rental income it was virtually
unchanged.
LIQUIDITY AND CAPITAL RESOURCES
As a qualified REIT, the Trust distributes a substantial portion of its cash
flow to its shareholders in the form of dividends. Over the past few years, the
Trust has sought to reduce its payout ratio (the ratio of distributions declared
per share to funds from operations) from above 90% to approximately 75%. For
1994, the dividend payout ratio was 73% compared to 84% for 1993 and 94% for
1992. The Trust presently intends to maintain a dividend payout ratio in the
75%-80% range and to retain sufficient cash to cover its normal operating needs,
including routine replacements. For 1994, the Trust's cash flow from operating
activities exceeded cash distributions paid to shareholders by approximately
$19.5 million. The Trust utilizes a variety of primarily external financing
sources to fund portfolio growth, major capital improvement programs and balloon
debt payments. The Trust has frequently utilized its bank lines of credit to
temporarily finance these expenditures and has subsequently replaced this short-
term bank debt with longer term debt or equity.
The Trust has, from time to time, used derivative instruments to
synthetically alter on-balance sheet liabilities or to hedge anticipated
financing transactions. No such derivative contracts were outstanding at
December 31, 1994. Derivative contracts did not have a material impact on
results of operations during the three years then ended.
For 1994, the Trust's cash flow from operating activities increased
substantially as a result of the significant expansion of the Trust's portfolio
as discussed below and under "Results of Operations".
At the beginning of 1994, the Trust had approximately $5.8 million of cash
and cash equivalents and $32.4 million of available and unused bank lines of
credit. During the year, the Trust added one bank to its lending group and
expanded its total bank lines of credit to $103.5 million. On April 7, 1994, the
Trust completed a $75 million public offering of 7 1/4% Senior Notes due April
1, 1999. The Notes were priced at 99.833% to yield 7.29% to maturity. The
proceeds of the offering aggregated $74.3 million. Near the end of June, 1994
the Trust completed a public offering of 8,479,400 shares of its common stock at
$14.25 per share. Net proceeds of the offering, after deducting underwriting
commissions and direct offering costs, were approximately $114 million. In
September 1994, the Trust registered $400 million of various debt and equity
securities with the Securities and Exchange Commission. Using this shelf
registration, on September 27, 1994, the Trust completed a $150 million public
offering of 8 1/2% Debentures due September 15, 2024. The debentures include an
investor "put" feature which grants each debentureholder a one-time option to
redeem debentures at the end of 10 years. The debentures were priced at 99.689%
to yield 8.55% to maturity. In anticipation of this transaction, the Trust
entered into two interest rate hedge transactions involving futures contracts in
an effort to lock-in the interest rate applicable to the debentures. These
interest rate protection agreements were terminated at the time the debentures
were issued and had the economic effect of reducing the interest rate to 8.22%
for the initial 10 years of the term. Net proceeds of the debenture sale
approximated $148.4 million. Also during 1994, the Trust completed new
tax-exempt multifamily housing bond financings or assumed such bond financings
in connection with certain acquisitions in the aggregate amount of approximately
$71 million ($12 million of which was defeased pending refunding).
During 1994, the Trust acquired a total of 47 apartment properties including
26 properties, one of which was subsequently sold, that were acquired in a
portfolio purchase from entities affiliated with Clover Financial Corporation,
for approximately $171 million. Also during the year the Trust acquired 21
additional apartment properties containing 6,115 units for approximately $238
million which includes approximately $56 million of mortgage or tax-exempt bond
financings encumbering the properties acquired.
During 1994, the Trust also made approximately $18.9 million of capital
improvements to its property portfolio. This amount includes approximately $7.2
million of improvements at the Trust's 13,832 mature apartment units that had
been owned since the beginning of 1993. Excluding six properties that were
acquired in the latter part of 1992 and which still were undergoing
rehabilitation in 1994, the remaining 12,069 mature units averaged $299 per unit
in capital expenditures. This amount includes the following: carpet and tile
replacements ($107/unit), appliances ($38/unit), HVAC equipment ($22/unit),
various interior improvements, including washer/dryer connections, ($39/unit),
various exterior improvements, including new roofs, ($35/unit), new site
lighting ($22/unit) and various other improvements ($36/unit).
The Trust expects to acquire 7,000 or more apartment units during 1995 at an
average cost of $30,000 to $40,000 per unit. While the Trust used more debt than
equity to fund its acquisition program during 1994, it anticipates that it will
use more equity than debt to fund its 1995 acquisitions. During the first half
of 1995 the Trust anticipates raising a modest amount of additional equity,
possibly $40 million. The Trust is actively negotiating the sale of four
shopping centers (Glen Lea, Hanover Village, Laburnum Park and Laburnum Square)
in a single transaction and, for financial reporting purposes, expects to
recognize an aggregate gain on the sales of approximately $3 million. For income
tax purposes, the sales are expected to be structured as tax deferred exchanges.
There is no assurance that these sales transactions will be consummated. The
Trust also intends to sell certain other properties during 1995. Proceeds from
any property sales are expected to be reinvested into additional apartment
properties. Assuming continued acquisition activity, the Trust anticipates
raising additional equity capital later in the year.
The Trust's liquidity and capital resources are believed to be more than
adequate to meet its cash requirements for the foreseeable future.
INFLATION
Management believes that the direct effects of inflation on the Trust's
operations have been inconsequential.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and Shareholders
United Dominion Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of United Dominion
Realty Trust, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United
Dominion Realty Trust, Inc. and subsidiaries at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
January 25, 1995,
except for Note 11, as to which the date is March 6, 1995
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993 1994 1993
IN THOUSANDS, EXCEPT SHARE DATA
Assets
Real estate owned (Notes 1, 2 and 3):
Apartments $ 928,758 $ 503,226
Shopping centers 74,237 74,404
Office and industrial buildings 4,604 4,583
1,007,599 582,213
Less accumulated depreciation 120,341 91,444
887,258 490,769
Cash and cash equivalents 7,261 5,773
Other assets 17,394 9,298
$ 911,913 $ 505,840
Liabilities and Shareholders' Equity
Mortgage notes payable (Notes 2, 4 and 6) $ 158,449 $ 72,862
Notes payable (Notes 5 and 6) 368,215 156,558
Accounts payable, accrued expenses and other liabilities 12,731 6,070
Tenants' deposits and rents paid in advance 5,728 3,099
Distributions payable to shareholders 9,822 7,288
554,945 245,877
Shareholders' equity (Notes 8, 9 and 11):
Preferred stock, 25,000,000 shares authorized, no
shares outstanding - -
Common stock, $1 par value; 100,000,000 shares
authorized 50,355,640 shares issued and outstanding
(41,653,097 in 1993) 50,356 41,653
Additional paid-in capital 410,797 302,486
Notes receivable from officer shareholders (5,991) (4,384)
Distributions in excess of net income (98,194) (79,792)
Total shareholders' equity 356,968 259,963
$ 911,913 $ 505,840
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1994, 1993 and 1992 1994 1993 1992
IN THOUSANDS, EXCEPT PER SHARE DATA
INCOME
Property operations:
Rental income $139,972 $ 89,084 $ 63,202
Property expenses:
Utilities 11,206 7,838 5,367
Repairs and maintenance 21,216 13,950 9,635
Real estate taxes 9,658 5,777 4,147
Property management 4,645 2,782 2,064
Other operating expenses 11,924 7,512 5,290
Depreciation of real estate owned 29,049 19,764 15,732
87,698 57,623 42,235
Income from property operations 52,274 31,461 20,967
Interest and other income 756 708 1,402
53,030 32,169 22,369
EXPENSES
Interest 28,303 16,938 11,697
General and administrative 5,021 3,349 2,231
Other depreciation and amortization 588 596 300
33,912 20,883 14,228
Income before gains (losses) on investments and
extraordinary item 19,118 11,286 8,141
Gains (losses) on sale of investments 108 (89) -
Provision for possible investment losses (Note 2) - - (1,564)
Income before extraordinary item 19,226 11,197 6,577
Extraordinary item-early extinguishment of debt (89) - (242)
Net income $ 19,137 $ 11,197 $ 6,335
Net income per share:
Before extraordinary item $ .41 $ .29 $ .19
Extraordinary item - - (.01)
$ .41 $ .29 $ .18
Weighted average number of shares outstanding 46,182 38,202 34,604
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992 1994 1993 1992
IN THOUSANDS
OPERATING ACTIVITIES
Net Income $ 19,137 $ 11,197 $ 6,335
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gains) losses on sales of investments (108) 89 -
Provision for possible investment losses - - 1,564
Extraordinary item 89 - 242
Depreciation and amortization 29,644 20,372 16,044
Adoption of SFAS No. 112 "Employers'
Accounting for Postemployment
Benefits" (Note 1) 450 - -
Changes in operating assets and
liabilities:
Increase in operating liabilities 6,680 2,724 135
(Increase) decrease in operating
assets (1,348) (443) 288
Net cash provided by operating activities 54,544 33,939 24,608
INVESTING ACTIVITIES
Acquisitions of real estate, net of debt and
liabilities assumed (346,730) (117,197) (68,197)
Capital expenditures (19,154) (11,060) (13,161)
Purchase of mortgage note receivable, net of
repayments 63 (1,907) -
Net proceeds from sales of properties 2,706 69 -
Proceeds from gain on interest rate hedge
transactions 3,484 - -
Other - 31 (15)
Net cash used in investing activities (359,631) (130,064) (81,373)
FINANCING ACTIVITIES
Net proceeds from issuance of mortgages and notes
payable 262,006 65,800 31,208
Net proceeds from issuance of shares 115,407 79,077 78,461
Net short-term bank borrowings (repayments) (14,500) 150 (10,400)
Mortgage financing proceeds released from
construction funds 24,866 - 1,394
Payments on notes and non-scheduled mortgage
principal payments (44,744) (16,905) (21,292)
Cash distributions paid to shareholders (35,005) (26,523) (21,791)
Scheduled mortgage principal payments (1,455) (806) (767)
Other - - (36)
Net cash provided by financing activities 306,575 100,793 56,777
Net increase in cash and cash equivalents 1,488 4,668 12
Cash and cash equivalents, beginning of year 5,773 1,105 1,093
Cash and cash equivalents, end of year $ 7,261 $ 5,773 $ 1,105
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Notes
Common Stock, $1 Par Value Additional Receivable Distributions Total
Number Paid-In from Officer In Excess of Shareholders'
Years ended December 31, 1994, of Shares Amount Capital Shareholders Net Income Equity
1993, and 1992
IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA
Balance at December 31, 1991 27,132,708 $27,133 $157,366 $ (2,282) $ (46,065) $136,152
Shares issued in public offering 8,050,000 8,050 69,755 - - 77,805
Exercise of share options 58,600 59 395 - - 454
Shares purchased by officers,
net of repayments 25,000 25 235 (260) - -
Shares issued through
dividend reinvestment plan 18,410 18 184 - - 202
Net income for the year - - - - 6,335 6,335
Distributions declared
($.66 per share) - - - - (23,271) (23,271)
Balance at December 31, 1992 35,284,718 35,285 227,935 (2,542) (63,001) 197,677
Shares issued in public offering 6,095,000 6,095 71,573 - - 77,668
Exercise of share options 98,900 99 741 - - 840
Shares purchased by officers,
net of repayments 135,500 135 1,712 (1,842) - 5
Shares issued through dividend
reinvestment plan 38,979 39 525 - - 564
Net income for the year - - - - 11,197 11,197
Distributions declared
($.70 per share) - - - - (27,988) (27,988)
Balance at December 31, 1993 41,653,097 41,653 302,486 (4,384) (79,792) 259,963
Shares issued in public offering 8,479,400 8,479 105,731 - - 114,210
Exercise of share options 50,488 51 456 - - 507
Shares purchased by officers,
net of repayments 137,500 138 1,652 (1,607) - 183
Shares issued through
dividend reinvestment plan 35,155 35 472 - - 507
Net income for the year - - - - 19,137 19,137
Distributions declared
($.78 per share) - - - - (37,539) (37,539)
Balance at December 31, 1994 50,355,640 $50,356 $410,797 $ (5,991) $ (98,194) $356,968
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS United Dominion Realty Trust, Inc. (the "Trust"), a Virginia
corporation, is an equity investor in income producing real estate, primarily
multifamily properties in the mid-Atlantic and southeastern U.S.
BASIS OF PRESENTATION The accompanying consolidated financial statements
include the accounts of the Trust and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
FEDERAL INCOME TAXES The Trust is operated as and annually elects to be
taxed as a real estate investment trust under the Internal Revenue Code of 1986,
as amended (the "Code"). Generally, a real estate investment trust which
complies with the provisions of the Code and distributes at least 95% of its
taxable income to its shareholders does not pay federal income taxes on its
distributed income. Accordingly, no provision has been made for federal income
taxes.
CASH AND CASH EQUIVALENTS All highly liquid investments with maturities,
when purchased, of three months or less are considered to be cash equivalents.
REAL ESTATE Real estate investments are carried at the lower of cost or
estimated net realizable value.
Repairs and maintenance costs are expensed as incurred while significant
improvements, renovations, and replacements are capitalized. Certain costs,
principally payroll, directly related to real estate acquisitions and
redevelopment, are capitalized. Depreciation is computed on a straight-line
basis over the estimated useful lives of the related assets which range from 25
to 40 years for properties, 10 to 35 years for major improvements, and 3 to 15
years for fixtures, equipment and other assets.
INTEREST Interest is capitalized on accumulated expenditures relating to the
acquisition and development of certain qualifying properties. During 1994, 1993
and 1992, total interest paid was $22,944,000, $14,649,000, and $11,530,000,
respectively, which includes $73,000, that was capitalized in 1992. No interest
was capitalized in 1994 or 1993.
Deferred financing costs typically are amortized over a period not to exceed
that of the term of the related debt. Amortization of deferred financing costs
included in the consolidated statements of operations were $1,180,000, $707,000,
and $279,000 for 1994, 1993 and 1992, respectively.
INTEREST RATE SWAP AGREEMENTS The Trust may from time to time enter into
interest rate swap agreements to modify the interest characteristics of its
outstanding debt from a floating rate to a fixed rate basis or visa versa. These
agreements generally involve the exchange of fixed and variable rate interest
payment obligations without the exchange of underlying principal amounts. Net
amounts paid or received under these agreements are reflected as adjustments to
interest expense. The Trust did not terminate or enter into any new interest
rate swap agreements in 1994.
INTEREST RATE PROTECTION AGREEMENTS The Trust may from time to time enter
into interest rate futures contracts to hedge anticipated debt transactions.
Gains and losses, if any, on these transactions are deferred and amortized over
the terms of the related debt as an adjustment to interest expense.
INCOME PER SHARE Primary net income per share is calculated using the
weighted average number of shares outstanding during each year. Options
outstanding are not included since their inclusion would not be materially
dilutive.
POSTEMPLOYMENT BENEFITS Effective January 1, 1994, the Trust adopted the
provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits".
This statement requires the accrual of the estimated cost of benefits provided
by an employer to its former or inactive employees after employment, but before
retirement. Adoption of SFAS No. 112 increased 1994 general and administrative
expense by $450,000 or $.01 per share.
RECLASSIFICATIONS Certain previously reported amounts have been reclassified
to conform with the current financial statement presentation.
2. REAL ESTATE OWNED
The following is a summary of real estate owned at December 31, 1994:
Initial
Number of Acquisition Accumulated
DOLLARS IN THOUSANDS Properties Cost Cost Depreciation Encumbrances
Apartments
North Carolina 30 $ 192,397 $ 225,596 $ 35,208 $ 28,006
Florida 21 200,640 209,002 4,737 28,770
Virginia 25 127,593 158,434 40,996 27,312
South Carolina 20 121,088 136,444 8,920 22,272
Georgia 7 53,896 64,982 8,284 6,471
Maryland 7 62,931 64,333 2,213 31,185
Tennessee 6 42,413 44,691 1,292 5,970
Alabama 2 12,742 12,849 208 -
Delaware 2 12,325 12,427 173 -
Shopping Centers
Virginia 9 26,938 47,457 11,900 8,463
South Carolina 2 12,565 14,877 2,398 -
North Carolina 3 8,198 11,903 2,601 -
Office and Industrial Buildings
Tennessee 1 1,176 2,438 646 -
Virginia 3 1,607 2,166 765 -
138 $ 876,509 $ 1,007,599 $ 120,341 $ 158,449
The following is a reconciliation of the carrying amount of real estate owned:
IN THOUSANDS 1994 1993 1992
Balance at January 1 $ 582,213 $ 454,115 $ 361,503
Real estate purchased* 409,280 118,265 81,788
Improvements 18,857 10,380 12,388
Real estate sold (2,751) (547) -
Provision for possible investment loses - - (1,564)
Balance at December 31 $1,007,599 $ 582,213 $ 454,115
*IN CONNECTION WITH THE PURCHASE OF CERTAIN PROPERTIES IN 1994 AND 1992, THE TRUST ASSUMED
APPROXIMATELY $60.3 AND $13.8 MILLION, RESPECTIVELY, OF MORTGAGE DEBT ENCUMBERING THE PROPERTIES ACQUIRED.
The following is a reconciliation of accumulated depreciation:
IN THOUSANDS 1994 1993 1992
Balance at January 1 $ 91,444 $ 71,806 $ 56,074
Depreciation expense for the year 29,049 19,764 15,732
Real estate sold (152) (126) -
Balance at December 31 $ 120,341 $ 91,444 $ 71,806
The Trust's properties are leased to others under operating leases. Certain
shopping center leases provide that tenants share certain operating costs such
as real estate taxes, insurance, and maintenance by reimbursement to the Trust.
Such reimbursements amounted to $1,070,000 in 1994, $936,000 in 1993 and
$895,000 in 1992. The Trust has no material net lease arrangements.
Minimum annual fixed rentals to be received, principally from commercial
property tenants, under all noncancelable leases with terms greater than one
year subsequent to December 31, 1994 were as follows (in thousands): 1995
$7,295, 1996 - $6,196, 1997 - $4,944, 1998 - $3,946, 1999 $2,804, thereafter -
$15,120.
During 1992, the Trust established an allowance for possible investment
losses in the amount of $1,564,000 based upon management's estimate of net
realizable value as compared to the carrying value of each real estate
investment.
The aggregate cost of real estate owned for federal income tax purposes was
approximately $987 million at December 31, 1994 and $563 million at December 31,
1993.
3. ACQUISITIONS
During 1994, the Trust acquired 47 apartment communities containing 11,433 units
at a total cost of $409.3 million. During 1993, the Trust acquired 17 apartment
communities containing 4,082 units at a total cost of $118.3 million. The Trust
assumed $60.3 million in mortgage notes payable and bond indebtedness in
connection with the 1994 acquisitions.
Unaudited pro forma results of operations for the years ended December 31,
1994 and 1993 are set forth below. For 1994, such pro forma results assume the
acquisition of 41 apartment communities containing 9,749 units at a total cost
of $350.3 million at the beginning of the year. For 1993, such pro forma results
assume (i) the 1993 acquisition of 11 apartment communities containing 2,811
units at a total cost of $81.9 million, and (ii) the 1994 acquisition of 41
apartment communities containing 9,749 units at a total cost of $350.3 million
at the beginning of 1993.
Pro Forma Pro Forma
IN THOUSANDS, EXCEPT Year Ended Year Ended
PER SHARE AMOUNTS Dec. 31, 1994 Dec. 31, 1993
Rental income $167,100 $154,173
Net income 21,143 18,146
Net income per share $ .42 $ .39
The unaudited information is not necessarily indicative of what the Trust's
results of operations would have been if the acquisitions had occurred at the
beginning of each period presented. Additionally, the pro forma information does
not purport to be indicative of the Trust's results of operations for future
periods.
4. MORTGAGE NOTES PAYABLE
CONVENTIONAL MORTGAGE NOTES PAYABLE Conventional mortgage notes payable
included 22 loans encumbering 17 properties at December 31, 1994, and 18 loans
encumbering 12 properties at December 31, 1993. Mortgage notes payable are
generally due in monthly installments of principal and interest and mature at
various dates through 2022. Mortgage notes payable aggregating $53.2 million and
$25.8 million at December 31, 1994 and 1993 had fixed rates of interest ranging
from approximately 7.00% to 12.50% (weighted average interest rate of 8.45% at
December 31, 1994). While each note is secured by the particular property
mortgaged, certain notes extend liability to the Trust if the security is not
sufficient to satisfy the mortgage note payable.
BOND INDEBTEDNESS At December 31, 1994, 17 of the Trust's properties were
encumbered by mortgage notes payable which secure related tax exempt housing
bond issues. Interest on these notes is generally payable in semi-annual
installments and the notes mature at various dates through 2024. Bond
indebtedness aggregating $93.1 million at December 31, 1994 had fixed rates of
interest ranging from 5.91% to 10.235% (weighted average interest rate of 7.15%
at December 31, 1994). At December 31, 1994, the Trust had variable rate bond
indebtedness aggregating $12.1 million (weighted average interest rate of 5.57%
at December 31, 1994).
The aggregate maturities of mortgage notes payable (conventional and bond
related) for the five years subsequent to December 31, 1994 were as follows (in
thousands):
1995 $ 9,285
1996 2,124
1997 14,178
1998 6,854
1999 6,862
Thereafter 119,146
$ 158,449
These payments include special principal curtailments and balloon
payments of $7.2 million in 1995, $12.2 million in 1997, $4.8 million in 1998
and $5.0 million in 1999.
5. NOTES PAYABLE
A summary of notes payable at December 31, 1994 and 1993 is as follows:
DOLLARS IN THOUSANDS 1994 1993
COMMERCIAL BANKS
Borrowings outstanding under revolving credit
facilities $ 14,150 $ 28,650
Variable rate note due March, 1995(a) 10,000 -
Variable rate note due November, 1994 - 10,000
INSURANCE COMPANIES-SENIOR UNSECURED NOTES
7.98% due March, 1997-2003(b) 52,000 52,000
9.57% due July, 1996 35,000 35,000
7.89% due March, 1996 10,000 10,000
7.57% due March, 1995 10,000 10,000
8.72% due November, 1995-1998(c) 8,000 10,000
SENIOR UNSECURED NOTES-OTHER
7.25% notes due April, 1999 75,000 -
8.50% debentures due September, 2024(d) 150,000 -
OTHER 4,065(e) 908
$ 368,215 $ 156,558
(a) The note bears interest at one month libor plus 62 1/2 basis points.
(b) Payable in seven equal principal installments of $7.4 million.
(c) Payable in four equal annual principal installments of $2 million.
(d) Debentures include an investor put feature which grants the debentureholder
a one time option to redeem debentures at the end of 10 years.
(e) Includes $3.5 million deferred gain from interest rate hedge transaction
discussed in note 6.
Certain of the loan agreements contain covenants which require the Trust,
among other things, to maintain minimum tangible net worth, as defined, and
maintain certain financial ratios.
At December 31, 1994, the Trust had $70 million of revolving credit
facilities with four commercial banks. These credit agreements currently expire
in June, 1995 and 1996, but are renewable annually by mutual agreement between
the Trust and each bank. Borrowings bear interest from LIBOR + 5/8% to the
respective bank's prime rate, depending on the level of the Trust's debt as
defined. At December 31, 1994, there were outstanding borrowings of $14.15
million under these credit facilities.
At December 31, 1994, the Trust had lines of credit with three commercial
banks for a total of $33.5 million. At December 1994, there were no borrowings
outstanding under these lines of credit. Each line is subject to periodic bank
review and requires the Trust to maintain a depository relationship with the
respective bank. Borrowings bear interest at or below the respective bank's
prime rate.
Information concerning short-term bank borrowings is summarized in the table
that follows:
IN THOUSANDS 1994 1993 1992
Total revolving credit facilities
and lines of credit at
December 31 $103,500 $ 61,000 $ 51,000
Borrowings outstanding at
December 31 14,150 28,650 28,500
Weighted average daily
borrowings during the year 33,787 11,313 4,059
Maximum daily borrowings
during the year 79,300 43,200 38,900
Weighted average daily interest
rate during the year 5.1% 4.0% 5.4%
Weighted average daily interest
rate at December 31 6.5% 3.8% 4.3%
6. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated
fair value of financial instruments were determined by the Trust using available
market information and appropriate valuation methodologies. Considerable
judgment is necessary to interpret market data and develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Trust could realize upon disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The carrying amounts and estimated fair value of the Trust's financial
instruments at December 31, 1994 were as follows:
IN THOUSANDS Carrying Amount Fair Value
Cash and cash equivalents $ 7,261 $ 7,261
Conventional mortgage 53,205 50,870
notes payable
Bond indebtedness 105,265 98,583
Notes payable 368,215 351,243
The following methods and assumptions were used by the Trust in estimating
the fair values set forth above.
CONVENTIONAL MORTGAGE NOTES PAYABLE Estimated fair value is based on
mortgage rates believed to be available to the Trust for issuance of debt with
similar terms and remaining maturities as of December 31, 1994.
BOND INDEBTEDNESS Fair value is estimated using discounted cash flow
analysis, based upon the incremental borrowing rate for similar types of bond
indebtedness.
NOTES PAYABLE The carrying amounts of the Trust's borrowings under short-
term revolving credits agreements and lines of credit approximate the fair
value. The fair value of the Trust's fixed rate term debt are estimated using
discounted cash flow analysis, based on the Trust's estimated incremental
borrowing rate at December 31, 1994 for similar types of borrowing arrangements.
Disclosure about the fair value of financial instruments are based upon
relevant information available to the Trust at December 31, 1994. Although
management is not aware of any factors that would have a material effect on the
fair value amounts reported herein, such amounts have not been revalued since
that date and current estimates of fair value may significantly differ from the
amounts presented.
INTEREST RATE SWAP AGREEMENTS Interest rate swap contracts with a notional
amount of $10,000,000 and $20,000,000 matured during 1994 and 1993,
respectively. At December 31, 1994, there were no interest rate swap agreements
outstanding. For all periods presented, the Trust had no deferred gains or
losses relating to terminated swap contracts. Interest rate swap contracts did
not have a material impact on interest expense or consolidated results of
operations during the periods presented.
INTEREST RATE PROTECTION AGREEMENTS During the third quarter of 1994, the
Trust entered into two interest rate hedge transactions involving futures
contracts with a total principal amount of $150 million to hedge against
possible interest rate fluctuations during the period prior to the issuance of
the $150 million Debentures. These two transactions effectively reduced the
interest rate on the Debentures from 8.50% to 8.22% for ten years. These
contracts were terminated upon issuance of the Debentures. Gains from these
contracts of $3.5 million are deferred as an adjustment to the carrying amount
of the debentures and will be amortized on a straight line basis as a reduction
of interest expense over a ten year period.
There were no interest rate protection contracts outstanding at December 31,
1994.
7. Income Taxes
The differences between net income for financial reporting purposes and
taxable income before dividend deductions relate primarily to timing
differences, depreciation adjustments resulting from book-tax basis differences
of certain properties and the deferral for tax purposes of certain gains on
property sales. The Trust has approximately $628,000 of net operating loss
carryforwards, expiring through 1998, available to offset future REIT taxable
income, if any.
All realized gains (losses) on sales of investments are distributed to
shareholders if and when recognized for income tax purposes. Since 1980, gains
aggregating approximately $7.7 million have been deferred for income tax
purposes and are undistributed at December 31, 1994.
For income tax purposes, distributions paid to shareholders consist of
ordinary income, capital gains, return of capital or a combination thereof. For
the three years ended December 31, 1994, distributions paid per share were
taxable as follows:
1994 1993 1992
Ordinary income $ .629 $ .493 $ .418
Capital gains .004 - -
Return of capital .127 .197 .237
$ .760 $ .690 $ .655
8. Share Options
Under the 1985 Share Option Plan, as amended, a maximum of 2,400,000
options could be granted, at the discretion of the Board, to certain officers,
directors and key employees of the Trust, through 1997.
On December 13, 1994, the Board granted 283,476 incentive stock options
(ISO's) to officers and key employees of the Trust and 87,524 non-qualified
options (NQO's) to certain officers and Directors of the Trust at $13.13 per
share. Certain options are subject to a vesting schedule whereby 175,976 ISO's
and 69,524 NQO's will not vest until December 31, 1995. Of the options
outstanding at December 31, 1994, 511,372 options were not then exercisable
under the provisions of the Plan.
The Plan generally provides, among other things, that options be granted at
exercise prices not lower than the market value of the shares on the date of
grant. Generally, the optionee has up to five years from the date on which the
options first become exercisable during which to exercise the options. Activity
in the Trust's share option plan during the three years ended December 31, 1994
is summarized in the following table.
Options Outstanding
Shares Available
DOLLARS IN THOUSANDS, for future Price per Aggregate
EXCEPT SHARE AND PER SHARE AMOUNTS Option Grant Shares Share Value
Balance, December 31, 1991 374,000 426,000 $ 7.44 - $9.19 $ 3,428
Authorization of additional options 1,600,000 - - -
Options granted (615,000) 615,000 $ 11.56 7,111
Options exercised - (58,600) $ 7.44 - $9.19 (458)
Options expired 12,000 (12,000) $ 8.31 - $9.06 (105)
Balance, December 31, 1992 1,371,000 970,400 $ 7.44 - $11.56 9,976
Options granted (67,100) 67,100 $ 13.63 914
Options exercised - (98,900) $ 7.44 - $11.56 (840)
Options expired 4,000 (4,000) $ 9.09 - $11.56 (55)
Balance, December 31, 1993 1,307,900 934,600 $ 7.44 - $13.63 9,995
Options granted (371,000) 371,000 $ 13.13 4,869
Options exercised - (50,488) $ 7.44 - $11.56 (507)
Options expired 23,240 (23,240) $ 11.56 - $13.63 (288)
Balance, December 31, 1994 960,140 1,231,872 $ 7.44 - $13.63 $ 14,069
9. Shareholders' Equity
PREFERRED STOCK In May, 1994, the Trust's shareholders authorized a class of
25,000,000 shares of undesignated preferred stock which may be issued at the
discretion of the Board of Directors in one or more series having varying
voting, redemption, conversion, distribution, preference and other rights. As of
December 31, 1994, no shares of preferred stock had been issued.
COMMON STOCK In June, 1994, the Trust completed a public offering of
8,000,000 shares of its common stock at $14.25 per share. In July, 1994, the
underwriters exercised their over-allotment option and purchased an additional
479,400 shares. Net proceeds of the offering after deducting underwriting
commissions and direct offering costs aggregated approximately $114.2 million,
of which approximately $17.9 million was used to curtail then existing bank
debt. The remaining net proceeds were temporarily invested in short-term money
market investments and were used primarily for the acquisition of additional
properties.
On April 2, 1993, the Trust's Board of Directors declared a two-for-one
split of the Trust's common stock, effective May 5, 1993 to shareholders of
record as of April 19, 1993. All share and per share information in the
financial statements have been adjusted to retroactively reflect the stock
split. Stock options and all other agreements payable in shares of the Trust's
common stock were amended to provide for issuance of two shares of common stock
for every one share issuable prior to declaration of the stock split. An amount
equal to the par value of the common shares issued was transferred from
additional paid-in capital to the common stock account.
The Trust has entered into stock purchase agreements whereby certain
officers purchased common stock at the then current market price. The Trust
provides 100% financing for the purchase of the shares with interest payable
quarterly at rates escalating from 7% to 8 1/2%. The underlying notes mature
beginning in November, 1998. At December 31, 1994, 543,000 shares were
outstanding under stock purchase agreements. Shares available for future
issuance under this plan total 57,000.
Shares in the amount of 907,456 are reserved for future issuance under the
Trust's dividend reinvestment plan.
10. Quarterly Financial Data (unaudited)
The following is a summary of quarterly results of operations for 1994 and 1993
(In thousands, except per share data):
1994 First Quarter Second Quarter Third Quarter Fourth Quarter
Rental income $ 26,706 $ 29,673 $ 39,526 $ 44,066
Income from property operations 9,615 10,920 14,685 17,054
Income before extraordinary item 3,415 4,067 5,975 5,768
Net income 3,415 3,978 5,975 5,768
Per share:
Income before extraordinary item $ .08 $ .09 $ .12 $ .11
Net income .08 .09 .12 .11
1993 First Quarter Second Quarter Third Quarter Fourth Quarter
Rental income $ 20,182 $ 21,736 $ 22,683 $ 24,483
Income from property operations 7,400 7,790 7,829 8,442
Income before extraordinary item 2,589 2,250 2,933 3,425
Net income 2,589 2,250 2,933 3,425
Per share:
Income before extraordinary item $ .07 $ .06 $ .07 $ .08
Net income .07 .06 .07 .08
11. Subsequent Events
On February 10, 1995, the Trust purchased an apartment complex for $7.1
million, including closing costs. Subsequent to December 31, 1994 the Trust
entered into additional contracts to purchase two apartment properties in
separate transactions for $13.4 million and nine properties in a portfolio
purchase for $65.5 million. Each contract contains numerous contingencies that
must be satisfied prior to closing and, therefore, there is no assurance that
any of these transactions will be consummated.
At December 31, 1994, the Trust was contractually committed to sell an
apartment complex for $3.1 million and a shopping center outparcel for $560,000.
Subsequent to December 31, 1994, the Trust entered into contracts to sell two
apartment complexes for a total of $7.0 million and an industrial park, shopping
center and vacant land at another shopping center for a total of $3.5 million.
All of the pending property sales are to separate unrelated buyers and no
material gain or loss is anticipated on such sales.
In mid-February, 1995, the Trust sold 1,360,000 shares of common stock to a
group of unrelated institutional investors at a price of $13 1/8 per share. Net
proceeds of $17.8 million were used to curtail then existing bank debt.
GENERAL INFORMATION
GENERAL OFFICES
United Dominion Realty Trust
10 S. Sixth Street, Suite 203
Richmond, Virginia 23219-3802
(804) 780-2691
(804) 343-1912 FAX
GENERAL COUNSEL
Hunton & Williams
Riverfront Plaza, East Tower
901 E. Byrd Street
Richmond, Virginia 23219-4074
INDEPENDENT AUDITORS
Ernst & Young LLP
901 East Cary Street
Richmond, Virginia 23219
TRANSFER AGENT
Mellon Securities Trust Company
Four Station Square, 3rd Floor
Pittsburgh, Pennsylvania 15219-1173
SHAREHOLDERS
On March 1, 1995, the Trust had
5,103 shareholders of record.
EMPLOYEES
For its payroll period ended February 20,
1995, the Trust had 914 full and part-time
employees.
ANNUAL MEETING
The Annual Meeting of Shareholders is
scheduled for Tuesday, May 2, 1995, at 4:00
p.m., at the Omni Richmond Hotel
in Richmond, Virginia. All shareholders
are cordially invited to attend.
MEMBER
National Association of Real Estate
Investment Trusts (NAREIT)
National Apartment Association
National Multi-Housing Council
STOCK LISTING
New York Stock Exchange
Symbol UDR
10-K REPORT
The Trust offers its shareholders, without
charge, copies of its Annual Report on Form
10-K, as reported to the Securities and
Exchange Commission. Requests should be
addressed to Shareholder Relations, United
Dominion Realty Trust, at the Trust's office.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
The Trust offers its shareholders the
opportunity to purchase additional shares of
common stock through the Dividend
Reinvestment and Stock Purchase Plan.
Information regarding the Plan can be
obtained by completing the enclosed card or
by calling the Trust.
COMMON STOCK PRICE
The table below sets forth the range of the
high and low sales prices per share for each
quarter of the last two years. Dividend
information reflects dividends declared for
each calendar quarter and paid at the end
of the following month. Information for the
first quarter of 1993 gives retroactive effect to
a 2-for-1 share split in May 1993.
Dividend
1993 High Low Declared
1st Quarter $14 13/16 $11 7/8 $.175
2nd Quarter 14 5/8 12 1/2 .175
3rd Quarter 16 5/8 13 1/2 .175
4th Quarter 16 7/8 12 5/8 .175
1994
1st Quarter $15 7/8 $12 3/4 $.195
2nd Quarter 15 1/8 13 3/8 .195
3rd Quarter 14 1/4 13 .195
4th Quarter 14 1/2 12 1/4 .195