UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT 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 March 31, 1996
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
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.)
10 South Sixth Street, Suite 203 Richmond, Virginia 23219-3802
(Address of principal executive offices - zip code)
(804) 780-2691
Registrant's telephone number, including area code
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 6, 1996:
Common Stock 56,746,288
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
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
-------------- --------------
ASSETS
Real estate held for investment:
Apartments $1,167,155 $1,123,849
Commercial 6,493 7,249
-------------- --------------
1,173,648 1,131,098
Less accumulated depreciation 139,524 129,454
-------------- --------------
1,034,124 1,001,644
Real estate held for disposition 52,356 51,015
Cash and cash equivalents 8,842 2,904
Other assets 25,684 25,053
-------------- --------------
$1,121,006 $1,080,616
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $180,129 $180,481
7 1/4% Notes due April 1, 1999 75,000 75,000
8 1/2% Debentures due September 15, 2024 150,000 150,000
Other notes payable 165,904 124,858
Distributions payable to common shareholders 13,562 12,695
Accounts payable, accrued expenses and other liabilities 24,459 21,193
-------------- --------------
609,054 564,227
Shareholders' equity:
Preferred stock, no par value; 25,000,0000 shares authorized: 9 1/4% Series A
Cumulative Redeemable Preferred Stock (liquidation preference of $25
per share), 4,200,000 shares issued
and outstanding 105,000 105,000
Common stock, $1 par value; 100,000,000 shares authorized
56,506,595 shares issued and outstanding (56,375,333 in 1995) 56,507 56,375
Additional paid-in-capital 482,357 480,971
Notes receivable from officer shareholders (6,152) (6,091)
Distributions in excess of net income (126,745) (120,314)
Unrealized gain on securities available-for-sale 985 448
-------------- --------------
Total shareholders' equity 511,952 516,389
============== ==============
$1,121,006 $1,080,616
============== ==============
See accompanying notes.
2
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended March 31, 1996 1995
- --------------------------------------------------------- --------- ---------
REVENUES
Rental income $54,839 $45,493
Interest and other income 350 174
--------- ---------
55,189 45,667
EXPENSES
Rental expenses:
Utilities 4,528 3,657
Repairs and maintenance 8,539 6,347
Real estate taxes 3,980 3,236
Property management 1,502 1,254
Other rental expenses 5,173 4,069
Real estate depreciation 10,560 9,056
Interest 10,646 10,454
General and administrative 1,383 1,234
Other depreciation and amortization 284 273
--------- ---------
46,595 39,580
Income before gains on sales of investments 8,594 6,087
Gains on sales of investments 965 63
--------- ---------
Net income 9,559 6,150
Dividends to preferred shareholders 2,428 -
--------- ---------
Net income available to common shareholders $ 7,131 $ 6,150
========= =========
Net income per common share $ 0.13 $ 0.12
========= =========
Weighted average number of common shares outstanding 56,467 51,125
See accompanying notes.
3
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended March 31, 1996 1995
- --------------------------------------------------------------------- ------------- -------------
OPERATING ACTIVITIES
Net income $ 9,559 $ 6,150
Adjustments to reconcile net income to cash provided
by operating activities:
Gains on sales of investments (965) (63)
Depreciation and amortization 10,844 9,329
Changes in operating assets and liabilities:
Increase (decrease) in operating liabilities 3,032 (2,554)
Increase in operating assets (1,136) (417)
------------- -------------
Net cash provided by operating activities 21,334 12,445
INVESTING ACTIVITIES
Acquisition of real estate, net of debt and liabilities assumed (36,146) (16,913)
Capital expenditures (11,073) (6,657)
Net proceeds from the sale of investments 4,248 1,281
Other 1 1
------------- -------------
Net cash used in investing activities (42,970) (22,288)
FINANCING ACTIVITIES
Net proceeds from the issuance of common stock 1,457 17,950
Net proceeds from the issuance of notes payable 111 10,000
Net proceeds from the issuance of mortgage notes payable 15 76
Net borrowings of short-term bank borrowings 51,100 22,350
Cash distributions paid to preferred shareholders (2,428) --
Cash distributions paid to common shareholders (12,695) (9,822)
Scheduled mortgage principal payments (353) (323)
Mortgage financing proceeds released from construction funds 734 --
Payments on notes and non-scheduled mortgage principal payments (10,077) (24,924)
Payment of financing costs (290) (339)
------------- -------------
Net cash provided by financing activities 27,574 14,968
Net increase in cash and cash equivalents 5,938 5,125
Cash and cash equivalents, beginning of period 2,904 7,261
------------- -------------
Cash and cash equivalents, end of period $ 8,842 $ 12,386
============= =============
See accompanying notes.
4
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Unrealized
Common Stock, $1 Par Value Preferred Stock Gain on
------------------------- --------------------- Additional Receivable Distributions Securities Total
Number Number Paid-in from Officer in Excess of Available Shareholders'
of Shares Amount of Shares Amount Capital Shareholder Net Income for Sale Equity
----------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 56,375,333 $56,375 4,200,000 $105,000 $480,971 ($6,091) ($120,314) $448 $516,389
Exercise of common
share options 93,032 93 - - 870 - - - 963
Common shares
purchased
by officers,
net of loan
repayments 5,000 5 - - 70 (61) - - 14
Common shares issued
through dividend
reinvestment
and stock
purchase plan 32,047 32 - - 428 - - - 460
Common shares issued
through employee
stock purchase plan 1,183 2 - - 18 - - - 20
Preferred stock
dividends declared
($.58 per share) - - - - - - (2,428) - (2,428)
Common stock
distributions
declared
($.24 per share) - - - - - - (13,562) - (13,562)
Unrealized gain
on securities
available-for-sale
at March 31, 1996 - - - - - - - 537 537
Net income - - - - - - 9,559 - 9,559
============= =========== ========== ========== ======== ========== ========== ========== ==============
Balance at
March 31, 1996 56,506,595 $56,507 4,200,000 $105,000 $482,357 ($6,152) ($126,745) $985 $511,952
============= =========== ========== ========== ======== ========== ========== ========== ==============
See accompanying notes.
5
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation. All financial information furnished reflects all adjustments
which are necessary for a fair presentation of financial position at March 31,
1996 and results of operations for the interim periods ended March 31, 1996 and
1995. Such adjustments are of a normal and recurring nature. The interim results
presented are not necessarily indicative of results that can be expected for a
full year. The accompanying financial statements should be read in conjunction
with the audited financial statements and related notes appearing in the
Company's 1995 Annual Report.
2. RECLASSIFICATIONS Certain previously reported amounts have been reclassified
to conform with the current financial statement presentation.
3. ACQUISITIONS
During the first quarter of 1996, the Company acquired 4 apartment communities
containing 812 apartment homes at a total cost of $36.4 million, including
closing costs. The first quarter acquisitions were as follows:
(UNAUDITED)
NO. APARTMENT YEAR PURCHASE
NAME/LOCATION HOMES BUILT PRICE
SEABROOK
Orlando, FL 200 1984 $ 6.0
HAMPTON RIDGE
Woodbridge, VA 192 1987 10.8
STEEPLECHASE
Greensboro, NC 244 1990 13.5
BROOKRIDGE
Nashville, TN 176 1986 6.1
--- ----
TOTAL 812 $ 36.4
=== ====
4. DISPOSITIONS
For financial reporting purposes the Company recognized a $965,000 gain on the
February, 1996 sale of Deerfield Plaza Shopping Center in Myrtle Beach, South
Carolina. The shopping center sale was structured to qualify as a
like-kind-exchange under Section 1031 of the Internal Revenue Code, so the
related gain will be deferred for federal income tax purposes.
Real estate held for disposition included in the Consolidated Balance Sheet in
the aggregate amount of $52.4 million includes (i) two parcels of land
aggregating $1.9 million, (ii) seven apartment communities aggregating $22.7
million, (iii) five shopping centers aggregating $27.5 million and (iv) one
industrial park in the amount of $.3 million. These properties contributed net
rental income (total rental income, less rental expenses, less depreciation
expense) in the aggregate amount of approximately $1.7 million for the quarter
ended March 31, 1996.
6
5. MORTGAGE NOTES PAYABLE
Mortgage notes payable consisted of the following at March 31, 1996 and 1995:
In thousands 1996 1995
- ------------ ---- ----
Conventional fixed-rate $ 56,015 $ 52,892
Tax-exempt fixed-rate 112,844 88,243
------- -------
Total fixed-rate 168,859 141,135
------- -------
Tax-exempt variable-rate 11,270 12,190
------- -------
$180,129 $153,325
======= =======
CONVENTIONAL FIXED-RATE MORTGAGE NOTES Conventional fixed-rate mortgage notes
included 19 loans encumbering 13 properties at March 31, 1996 and 22 loans
encumbering 16 properties at March 31, 1995. Mortgage notes are generally due in
monthly installments of principal and interest and mature at various dates
through 2020. At March 31, 1996 and 1995, this debt carried fixed rates of
interest ranging from 7.00% to 9.625% (8.19% weighted average) and 7.00% to
12.50% (8.45% weighted average), respectively.
TAX-EXEMPT MORTGAGE NOTES At March 31, 1996, 17 properties were encumbered by
fixed-rate mortgage notes aggregating $112.8 million 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 2025. At
March 31, 1996 and 1995, tax-exempt fixed-rate mortgage notes had interest rates
ranging from 5.98% to 8.50% (weighted average 6.90%), and 5.91% to 8.50%
(weighted average 6.97%), respectively.
At March 31, 1996, three of the Company's properties were encumbered by
variable-rate mortgage notes aggregating $11.3 million which secure tax-exempt
housing bond issues. Interest on these notes is generally payable in monthly
installments and the notes mature at various dates through 2010. At March 31,
1996 and 1995, tax-exempt variable-rate notes had interest rates ranging from
5.00% to 7.29% (weighted average 5.16%) and 4.60% to 7.29% (weighted average
5.46%), respectively.
The tax-exempt mortgage notes contain covenants which require the Company to
lease or hold for lease 15% to 40% of the apartment homes for low to moderate
income residents, as defined. Certain of the Company's tax-exempt notes contain
covenants which require minimum rentals to individuals based upon income levels,
as specified.
6. OTHER NOTES PAYABLE
A summary of other notes payable at March 31, 1996 and 1995 is as follows:
Dollars in thousands 1996 1995
- -------------------- ---- ----
Commercial Banks
Borrowings outstanding under revolving credit
facilities (a) $ 69,500 $ 36,500
Variable rate note due June, 1995 (b) -- 10,000
Insurance Companies--Senior Unsecured Notes
7.98% due March, 1997-2003 (c) 52,000 52,000
9.57% due July, 1996 35,000 35,000
7.89% due March, 1996 --- 10,000
8.72% due November, 1996-1998 (d) 6,000 8,000
Other (e) 3,404 3,855
------- -------
165,904 155,355
Senior Unsecured Notes - Other
7 1/4% Notes due April 1, 1999 75,000 75,000
8 1/2% Debentures due September 15, 2024(f) 150,000 150,000
------- -------
$390,904 $380,355
======= =======
7
(a) The weighted average daily interest rate during the
first quarter of 1996 and 1995 was 6.13% and 6.77%,
respectively. The weighted average daily interest
rate at March 31, 1996 and 1995 was 6.12% and 7.05%,
respectively.
(b) The note had an interest rate of one month LIBOR plus
62 1/2 basis points.
(c) Payable in seven equal annual principal installments
of $7.4 million.
(d) Payable in equal annual principal installments
of $2 million.
(e) Includes $3.0 million and $3.5 million at March 31,
1996 and 1995, respectively, of deferred gain from
interest rate hedge transaction.
(f) Debentures include an investor put feature which
grants the debenture-holder a one time option to
redeem debentures at the end of 10 years.
The underlying loan agreements contain certain covenants which, among other
things, require the Company to maintain minimum consolidated tangible net worth,
as defined, and maintain certain financial ratios.
At March 31, 1996, the Company had $70 million of unsecured revolving credit
facilities with four commercial banks. These credit agreements currently expire
in June, 1996 and 1997, but are renewable annually by mutual agreement between
the Company and each bank. Interest on borrowings outstanding under these
agreements are at varying rates depending on the level of the Company's debt and
the term of the borrowing. Generally, loans for 30 days or more are priced at
LIBOR plus 5/8% to 1%. Loans of shorter duration are priced at spreads of 5/8%
to 1 1/8% over the applicable base rate. The Company is obligated to pay a fee
equal to 1/4% per annum on the average daily amount of the unused portion of the
commitment during the revolving loan period. None of these agreements have
compensating balance requirements. The Company had $69.5 million outstanding
under these revolving credit facilities at March 31, 1996.
At March 31, 1996, the Company had unsecured lines of credit with three
commercial banks totalling $33.5 million. At March 31, 1996, there were no
borrowings outstanding under these lines. Each line is subject to periodic bank
review and requires the Company to maintain a depository relationship with the
respective bank, however, there are no formal compensating balance arrangements.
Borrowings bear interest generally at negotiated rates in line with borrowings
under the Company's revolving credit facilities.
8
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report.
United Dominion Realty Trust, Inc., a Virginia corporation, and its subsidiaries
(collectively, the "Company") is a self-administered equity real estate
investment trust ("REIT"), formed in 1972, whose business is devoted to one
industry segment, the ownership and operation of income-producing real estate,
primarily apartment communities located in the southeastern U.S. (the
"Southeast"). The Company is a fully integrated real estate company with
acquisition, development and asset and property management capabilities.
The Company operates primarily in 15 major markets dispersed throughout a nine
state area. At March 31, 1996, the Company did not own more than 11% of its
apartment homes in any one market. The Company believes that this diversity in
its apartment portfolio reduces the risk of volatility in its aggregate
occupancy and rental rates. The following table describes the Company's major
apartment market information (includes real estate held for investment and real
estate held for disposition):
Quarter Ended
As of March 31, 1996 March 31, 1996
________________________________________ __________________
Average
Number of Number of Percentage of Monthly
Apartment Apartment Apartment Economic Rental
Market Communities Homes Homes Occupancy Rates
- ------------------------------ ---------- -------------- --------- -------
Richmond, VA 14 3,773 11% 95.6% $508
Columbia, SC 11 3,218 9% 92.9% 475
Orlando, FL 9 2,453 7% 91.3% 516
Raleigh, NC 8 2,440 7% 98.5% 563
Tampa, FL 8 2,351 7% 90.6% 539
Charlotte, NC 12 2,334 7% 95.4% 528
Atlanta, GA 7 1,894 5% 93.7% 541
Baltimore, MD 8 1,746 5% 88.9% 630
Eastern, NC 8 1,730 5% 96.0% 504
Nashville, TN 6 1,436 4% 93.2% 490
Hampton Roads, VA 6 1,520 4% 91.0% 519
Greenville, SC 7 1,330 4% 92.5% 479
Washington, DC 5 1,203 3% 86.0% 580
Ft. Lauderdale, FL 4 960 3% 92.8% 772
Memphis, TN 4 935 3% 91.7% 480
Other 28 5,713 16% 92.8% 517
--- ------ ----- ----- -----
Total 145 35,036 100% 93.1% $529
=== ====== ===== ===== =====
Financial Condition
As a qualified REIT, the Company distributes a substantial portion of its cash
flow to its shareholders in the form of quarterly distributions. The Company
seeks to retain sufficient cash to cover normal operating needs, including
routine replacements and to help fund additional acquisitions. For the three
months ended March 31, 1996, the Company's cash flow from operating activities
exceeded cash distributions paid to common shareholders by approximately $8.6
million. The Company utilizes a variety of primarily external financing sources
to fund portfolio growth, major capital improvement programs and balloon debt
payments. The Company 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 Company has, from time
to time, used derivative instruments to synthetically alter on-balance sheet
liabilities or to hedge anticipated financing transactions. Derivative contracts
did not have a material impact on results of operations during the periods ended
March 31, 1996 or 1995.
9
At the beginning of 1996, the Company had approximately $2.9 million of cash and
cash equivalents and $85.1 million of available and unused bank lines of credit.
For the three months ended March 31, 1996, the Company's cash flow from
operating activities increased $8.9 million over the same period last year,
primarily as a result of the significant expansion of the Company's portfolio as
discussed below and under "Results of Operations".
During the three months ended March 31, 1996, net cash used for investing
activities was $43.0 million which resulted primarily from the Company's
acquisition of 4 apartment communities containing 812 apartment homes for a
total cost, net of liabilities assumed, of $36.1 million. The Company also
funded $11.1 million of capital improvements to its properties during the
quarter. The Company received net cash proceeds of $4.2 million from the sale of
real estate held for disposition during the first quarter of 1996.
Net cash provided by financing activities during the three months ended March
31, 1996, was approximately $27.6 million reflecting (i) net proceeds from the
issuance of common stock through the exercise of stock options and amounts
received from the dividend reinvestment and stock purchase plan in the amount of
$1.5 million, (ii) net proceeds from the issuance of mortgage notes payable and
notes payable of approximately $0.1 million, (iii) net short-term bank
borrowings of $51.1 million, and (iv) mortgage financing proceeds released from
construction funds in the amount of $0.7 million. These cash inflows were
partially offset by (i) $15.1 million of cash distributions paid to common and
preferred shareholders, (ii) scheduled mortgage principal payments of $0.4
million, (iii) payments on notes and non-scheduled mortgage principal payments
of $10.1 million, and (iv) payment of financing costs aggregating $0.3 million.
The Company considers its cash provided by operating activities to be adequate
to meet operating requirements and payments of distributions. The Company
expects to acquire an additional 5,000 to 6,000 apartment homes during 1996 at
an estimated cost of $35,000 to $40,000 per apartment home. The Company
anticipates that it will use a combination of equity, debt and proceeds from
property dispositions to fund these acquisitions. During the second quarter of
1996 the Company hopes to implement a medium-term note program, the proceeds of
which will be used to (i) curtail existing bank debt which has been incurred in
connection with acquisitions and $10 million of balloon debt repayments, (ii) to
repay a 9.57%, $35 million senior note maturing in July, 1996 and (iii) to help
fund additional apartment acquisitions. Including the $35 million note, the
Company has aggregate debt maturities of $37 million during the remainder of
1996 with a weighted average interest rate of 9.52%. In July, 1995, the Company
executed a forward starting interest rate swap with a notional amount of $50
million which had the effect of fixing the interest rate on a 10-year Treasury
starting July 15, 1996 at 6.544%. When this hedge transaction was executed, it
was intended to fix a rate on 7-10 year debt at approximately 7.5% which was
approximately 170 basis points lower than the maturing debt. The Company also
expects to expand its revolving credit and line of credit facilities from $103.5
million to $200 million sometime during the middle of 1996.
Depending upon the volume and timing of acquisition activity, the Company
anticipates raising equity capital during the middle of the year through both a
public offering and private placements.
The Company's liquidity and capital resources are believed to be more than
adequate to meet its cash requirements for the next several years. The Company
expects to meet its long-term liquidity requirements, such as balloon debt
maturities, property acquisitions and significant capital improvements primarily
through the issuance of capital stock and the issuance of long-term unsecured
notes payable. The Company will also rely upon (i) the assumption of mortgage
indebtedness, (ii) property sales, (iii) distributions reinvested and cash
invested through the Company's Dividend Reinvestment and Stock Purchase Plan and
(iv) retained cash flow to meet its cash requirements.
At the end of October, 1995, the Company executed a letter of intent to sell
five shopping centers in a bulk sale at an aggregate purchase price of $28.4
million. During the first quarter of 1996, the contract for the five shopping
centers was terminated. Subsequently, a contract was executed for the sale of
one of the shopping centers, Village Square Shopping Center, located in Myrtle
Beach, South Carolina. Closing is expected to occur during the second quarter of
10
1996. The remaining four centers are currently not under letter of intent or
contract for sale. In addition to Village Square Shopping Center, the Company
has an additional eight properties under letter of intent or contract to sell.
Included in the consolidated balance sheet as "Real estate held for disposition"
are 13 properties in the aggregate amount of $52.4 million, net of accumulated
depreciation and impairment loss valuation allowance. Real estate held for
disposition contributed net rental income (total rental income, less rental
expenses, less depreciation expense) of approximately $1.7 million for the
quarter ended March 31, 1996. The 13 properties consist of the following: (i)
seven apartment communities aggregating $22.7 million, (ii) five shopping
centers aggregating $27.5 million, (iii) one industrial park in the amount of
$0.3 million and (iv) two parcels of land aggregating $1.9 million.
The Company currently has seven apartment communities, three shopping centers,
one industrial park and two parcels of undeveloped land under contract or letter
of intent to sell. These sales are expected to occur during the remainder of
1996 and are expected to generate approximately $46.9 million in cash proceeds.
One of these properties is encumbered with approximately $3.2 million of secured
debt. For income tax purposes, it is anticipated that the transactions will be
structured to qualify as tax deferred exchanges pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended (the "Code"), so that a substantial
portion of the related capital gains will be deferred. The proceeds from these
sales are expected to be reinvested in acquisitions of apartment communities.
There are no assurances that any of these sales transactions will be
consummated.
Funds from operations
Funds from Operations ("FFO") is defined as income before gains (losses) on
sales of investments and extraordinary items (computed in accordance with
generally accepted accounting principles) plus real estate depreciation, less
preferred dividends and after adjustment for significant non-recurring items, if
any. The Company computes FFO in accordance with the recommendations set forth
by the National Association of Real Estate Investment Trusts ("NAREIT"). The
Company 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 the Company'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.
For the three months ended March 31, 1996, FFO increased 10.5% to $16.7 million,
compared with $15.1 million for the first quarter of 1995. The increase in FFO
for the first quarter of 1996 was principally due to the increased net rental
income from the Company's non-mature apartment communities (those acquired
subsequent to December 31, 1994), however, this increase was somewhat offset by
the dividends to preferred shareholders recorded in the first quarter of 1996.
Three Months Ended March 31,
(In thousands)
(Unaudited)
1996 1995 % Change
-----------------------------
Calculation of Funds from operations
Income before gains on sales
of investments $ 8,594 $ 6,087 41.2%
Adjustments:
Real estate depreciation 10,560 9,056 16.6%
Dividends to preferred shareholders (2,428) --- 100%
------- ------ -----
Funds from operations $16,726 $15,143 10.5%
====== ====== =====
11
Results of Operations
Quarter Ended March 31, 1996 Compared to March 31, 1995
The Company's net income is primarily generated from the operations of its
apartment communities. For purposes of evaluating the Company's comparative
operating performance, the Company categorizes its apartment communities into
two categories (i) mature - those communities acquired prior to January 1, 1995
and (ii) non-mature - those communities acquired subsequent to December 31,
1994.
For the quarter ended March 31, 1996, the Company reported significant increases
over the same period last year in rental income, income before gains on sales of
investments, net income and FFO. Since the beginning of 1995, the Company
acquired a total of 5,954 apartment homes in 27 communities representing a 20.5%
expansion in the number of apartment homes owned during that period. These
apartment homes (the "non-mature" communities) provided a substantial portion of
the aggregate reported increases noted above.
All Communities
The operating performance for all of the Company's 145 apartment communities
containing 35,036 apartment homes and the 122 apartment communities containing
29,761 apartment homes for the three months ended March 31, 1996 and 1995,
respectively is summarized as follows:
Three Months ended March 31,
(In thousands)
(Unaudited)
1996 1995 % Change
---------------------------------
Rental income $53,280 $43,327 23.0%
Rental expenses 23,223 18,192 27.7%
Real estate depreciation 10,466 8,461 23.7%
------ ------ -----
Net rental income (1) $19,591 $16,674 17.5%
====== ====== =====
Weighted average number of
apartment homes 34,460 29,416 17.1%
Economic occupancy (2) 93.1% 94.5% (1.4%)
Average monthly rents $ 529 $ 502 5.4%
(1) Net rental income for an apartment community is defined as total rental
income, less rental expenses, less depreciation expense.
(2) Economic occupancy is defined as rental income (gross potential rent less
vacancy losses, management units and credit loss) divided by potential
collections (gross potential rent less management units) for the period,
expressed as a percentage.
Due to the acquisition of 5,954 apartment homes since January 1, 1995, the
weighted average number of apartment homes has increased 17.1% to 34,460 for the
first three months of 1996, from 29,416 apartment homes compared to the same
period last year, resulting in the significant increases in rental income and
rental expenses experienced by the Company.
The 5,954 non-mature apartment communities provided the majority of the
increases in rental income, rental expenses and depreciation expense, however,
the higher average rents at the Company's mature communities also contributed to
the increase in rental income. For the 35,036 apartment homes in the 145
apartment communities owned at March 31, 1996, economic occupancy averaged
93.1%, the operating expense ratio (ratio of rental expenses to rental income)
averaged 43.6 % and average monthly rents were $529 for the quarter ended March
31, 1996. For the first quarter last year, the 29,761 apartment homes then owned
had economic occupancy of 94.5%, an operating expense ratio of 42.0% and the
average monthly rents of $502.
12
Overall, for the quarter ended March 31, 1996, rent growth was 5.4% higher than
the same period last year, however, this increase was offset by lower occupancy
and higher expenses, some of which was attributable to the severe winter weather
experienced in the Company's region during the first quarter of 1996. The major
markets in which the Company operates have experienced good job growth and
household formation, which has led to strong rent growth.
Mature Communities
The operating performance for the Company's 118 mature apartment communities
containing 29,082 apartment homes for the three months ended March 31, 1996 and
1995 is summarized as follows:
Three Months Ended March 31,
(In thousands)
(Unaudited)
1996 1995 % Change
--------------------------------
Rental income $44,325 $42,803 3.6%
Rental expenses 19,553 17,956 8.9%
Real estate depreciation 8,872 8,368 6.0%
------ ------ -------
Net rental income (1) $15,900 $16,479 (3.5)%
====== ====== ======
Economic occupancy (2) 93.1% 94.6% (1.5%)
Average monthly rents $ 530 $ 507 4.5%
(1) Net rental income for an apartment community is defined as total rental
income, less rental expenses, less depreciation expense.
(2) Economic occupancy is defined as rental income (gross potential rent less
vacancy losses, management units and credit loss) divided by potential
collections (gross potential rent less management units) for the period,
expressed as a percentage.
The Company's mature communities provided approximately 83% of the Company's
rental income and 81% of its net rental income. Reflecting generally strong
rental markets, total rental income from these apartment homes grew 3.6%, or
$1.5 million in 1996, reflecting an increase in average monthly rents of 4.5%
and other income of 31.1%. Due to the strong job and household growth in the
Southeast, the Company has experienced good rent growth and has been able to
increase fee income. These increases were offset by a decrease in economic
occupancy of 1.5% to 93.1% which resulted from a decrease in physical occupancy
of 1% an increase in credit loss of .5%. Occupancy peaked in mid-1994 and
remained above 95% through mid-1995 before trending downward slightly in the
second half of 1995. The Company expects to sustain economic occupancy of
approximately 94% which is lower than the economic occupancy of 94.6% achieved
in the first quarter of 1995.
Rental expenses at these communities increased 8.9%, or $1.6 million, resulting
in an increase in the operating expense ratio (the ratio of rental expenses to
rental income) of 2.2% to 44.1%. The increase in rental expenses is partly
attributable to the severe winter of 1996 compared to the relatively mild winter
of 1995. Of the $1.6 million increase, approximately $450,000 was weather
related which included increases in gas, snow removal and repair labor expenses.
In addition, the Company's mature apartments experienced increases in real
estate taxes, lawn and grounds maintenance, exterior painting, and security
expenses compared to the same period last year. Although the Company expects
rental expenses to moderate in the remaining quarters of 1996, rental expenses
for mature apartments are expected to be approximately 4% higher for the entire
year. Turnover (measured by move-outs) was 13.7 % at the mature communities
which approximates the turnover last year during the first quarter. The
combination of a decrease in occupancy, higher rents and higher rental expenses
led to a decrease in net rental income from mature communities of approximately
$579,000 or 3.5%.
13
Non-Mature Communities
The operating performance for the Company's non-mature apartment communities
containing 5,954 apartment homes for the three months ended March 31, 1996 and
1995 is summarized as follows:
Three Months Ended March 31,
(In thousands)
(Unaudited)
1996 1995 % Change
-------------------------------
Rental income $8,956 $ 524 1609%
Rental expenses 3,670 236 1455%
Real estate depreciation 1,594 92 1632%
----- --- -----
Net rental income (1) $3,692 $ 196 1784%
===== === =====
(1) Net rental operating income for an apartment community is defined as total
rental income, less rental expenses, less depreciation expense.
Rental income, rental expenses and depreciation expense increased from 1995 to
1996 directly as a result of the increase in the number of apartment homes
acquired during 1995 and the first quarter of 1996. For the 5,954 apartments in
the 27 non-mature communities acquired since January 1, 1995, average economic
occupancy was 93.1% and the operating expense ratio was 41.0% during 1996. These
communities provided increases of $8.4 million, $3.4 million and $3.5 million,
respectively, in rental income, rental expenses, and net rental income.
Commercial
Rental income, rental expenses and net rental income from commercial properties
decreased $875,000, $160,000 and $215,000, respectively during the first three
months of 1996 compared to the same period last year. These decreases are
directly attributable to the sale of eight shopping centers since the beginning
of 1995.
Other Income and Expenses
Interest and other income increased $176,000 for the three months ended March
31, 1996, primarily due to dividend income from the Company's investment in
securities available-for-sale in First Washington Realty Trust, Inc. 9.75%
Series A Cumulative Participating Preferred Stock which was not held by the
Company during the first quarter of 1995.
Depreciation of real estate owned increased $1.5 million for the three month
period ended March 31, 1996 over the same period last year with substantially
all of the increase attributable to the portfolio expansion that occurred during
1995. However, the increase was somewhat offset by the sales of eight shopping
centers since January 1, 1995 and the transfer of properties from real estate
held for investment to real estate held for disposition.
Interest expense increased $0.2 million over the same period last year. The
Company used both debt and equity to finance its growth over the past two years;
however, the weighted average amount of debt employed was higher in 1996 than it
was in 1995 ($554 million in 1996 versus $541 million in 1995). The $.016 per
share increase in interest expense reflected this higher average amount of
outstanding debt in 1996, however, the weighted average interest rate on this
debt was slightly lower than it was during the same period last year, decreasing
from 7.72 % in 1995 to 7.61 % in 1996.
14
General and administrative expenses increased by $149,000 or 12% over the same
period last year. In 1996, the Company incurred increases in most of its general
and administrative expense categories with the largest increases in payroll and
payroll related expenses, shareholder relation expense and dividend reinvestment
plan expense which are directly related to the higher administrative costs
associated with increasing the size of the Company.
Gains on sales of investments During the three months ended March 31, 1996, the
Company sold one shopping center and recognized gains for financial reporting
purposes totaling $965,000. The shopping center sale was structured to qualify
as tax deferred exchanges which enabled the Company to defer capital gains for
income tax purposes.
Other depreciation and amortization increased $11,000 for the three months ended
March 31, 1996, primarily due to the purchases of computers and other office
equipment associated with the increasing size of the Company.
Net income increased 55.4% to $9.6 million for the first quarter of 1996
compared to $6.2 million for the same period last year. The increase in net
income for 1996 when compared to 1995 arose principally from increased net
rental income from the Company's 5,954 apartment communities acquired during
1995 and and the first quarter of 1996. Net income per share increased 8.3% for
the first three months of 1996 to $.13 per share from $.12 per share primarily
as a result of the $965,000 gains on the sales of investments recorded in the
first quarter of 1996.
Dividends to preferred shareholders totaled $2.4 million for the three months
ended March 31, 1996. The Company issued 4.2 million shares of 9 1/4% Cumulative
Redeemable Preferred Stock in April, 1995, therefore, there were no dividends to
preferred shareholders for the first quarter of 1995.
15
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 7, 1996, The Company held its Annual Meeting of Shareholders. A
total of 45,852,249 shares of common stock, representing 81.15% of the
56,506,249 shares outstanding and entitled to vote as of the record date (March
15 , 1996) were represented in person or by proxy and constituted a quorum.
At the meeting eight (8) directors were re-elected and one (1)
director was elected. Each Director will serve an approximate one (1) year term
until the Company's next Annual Meeting. The following persons were elected
Directors with each receiving at least 45,561,589 shares, representing 80.63%
of the total number of shares entitled to vote at the meeting and 99.4% of the
shares voted: Jeff C. Bane, R. Toms Dalton, Jr., James Dolphin, Barry M.
Kornblau, John C. Lanford, John P. McCann, H. Franklin Minor, Lynne B. Sagalyn
and C. Harmon Williams, Jr.
The 1985 Stock Option Plan, as amended to date (the "Stock Option
Plan"), was amended as follows: (i) established the number and other terms of
options to be granted annually to directors who are not employees of the
Company, (ii) increase the number of shares of common stock dedicated to
issuance upon exercise of options granted from 2,400,000 to 4,200,000, and (iii)
extended the termination date from Decmber 31, 1997 to December 31, 2002. The
Stock Option Plan amendment received 30,261,535 shares, representing 53.55% of
the total number of shares entitled to vote at the meeting and 90.53% of the
shares voted.
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) A Form 8-K dated January 31, 1996 was filed with the
Securities and Exchange Commission on January 31, 1996. The
filing reported the pro forma results of operations for the
twelve months ended December 31, 1994 and for the nine months
ended September 30, 1995.
A Form 8-K dated April 12, 1996 as filed with the Securities
and Exchange Commission on April 12, 1996. The filing reported
the pro forma consolidated results of operations for the
twelve months ended December 31, 1995.
16
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
3(a) Restated Articles of Incorporation Exhibit 4(i)(c) to the Company's Form S-3
Registration Statement (Registration No. 33-64275)
filed with the Commission on November 15, 1995
3(b)(i) By-Laws Exhibit 4(c) to the Company's Form S-3 Registration
Statement (Registration No. 33-44743) filed with the
Commission on December 31, 1991.
3(b)(ii) Amendment of By-Laws Exhibit 3(b)(ii) to the Company's Annual Report.
On Form 10-K for the year ended December 31, 1995.
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)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995.
Redeemable Preferred Stock
4(ii)(a) Loan Agreement dated as of Exhibit 6(c)(i) to the Company's Form 8-A
November 7, 1991, between the Registration Statement dated April 19, 1990.
Company and Aid Association for
Lutherans
4(ii)(c) Note Purchase Agreement dated Exhibit 6(c)(3) to the Company's Form 8-A
as February 19, 1992, between Registration Statement dated April 19, 1990.
the Company and Principal Mutual
Life Insurance Company
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, 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 6 (c)(6) to the Company's
December 15, 1994 between the Form 8-A Registration Statement
Company and First Union National Bank dated April 19, 1990.
of Virginia
4(ii)(g)(1) Indenture dated as of April 1, 1994, Exhibit 4(ii)(f)(1) to the Company's
between the Company and Quarterly Report on Form 10-Q for
First Union National Bank of Virginia, the quarter ended March 31, 1994
as Trustee
4(ii)(g)(2) Resolution of the Board of Directors Exhibit 4(ii)(f)(2) to the Company's
of the Company establishing terms of Quarterly Report on Form 10-Q for
7 1/4% Notes due April 1, 1999 the quarter ended March 31, 1994.
4(ii)(g)(3) Form of 7 1/4% Notes due Exhibit 4(ii)(f)(3) to the Company's
April 1, 1999 Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994.
4(ii)(g)(4) Resolution of the Board of Exhibit 4 (ii)(f)(4) to the Company's
the Company establishing terms of Quarterly Report on Form 10-Q for
8 1/2% Debentures due the quarter ended September 30, 1994.
September 15, 2024
4(ii)(g)(5) Form of 8 1/2% Debentures Exhibit 4 (ii)(f)(5) to the Company's
due September 15, 2024 Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994.
The Company agrees to furnish to the Commission on request a copy of
any instrument with respect to long-term debt of the Company or its subsidiaries
the total amount of securities authorized under which does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
10(i) Employment Agreement between Exhibit 10(v)(i) to the Company's Annual Report on
the Company and John Form 10-K for the year ended December 31, 1982.
P. McCann dated October 29, 1982
10(ii) Employment Agreement between Exhibit 10(v)(ii) to the Comapny's Annual Report on
the Company and James Form 10-K for the year ended December 31, 1982.
Dolphin dated October 29, 1982.
10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual
The Company and Barry M. Kornblau, Report on Form 10-K for the year December
dated February 1, 1991. 31, 1990.
10(iv) 1985 Stock Option Plan, Exhibit A to the Company's definitive proxy
as amended statement dated March 28, 1996.
10(v) 1991 Stock Purchase and Loan Exhibit 10(v) to the Company's Annual Report on
Plan Form 10-K for the year ended December 31, 1991.
10(vi) Amended and Restated Agreement Exhibit 10(vi) to the Company's Annual Report on
of Limited Partnership of Form 10-k for the year ended December 31, 1995.
United Dominion Realty, L.P.
Dated as of December 31, 1995
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges
21 The Company has the following subsidiaries, all of which are
wholly owned:
The Commons of Columbia, a Virginia corporation
UDRT of North Carolina, L.L.C., a North Carolina limited
liability company
UDRT of Alabama, Inc., an Alabama corporation
UDR of Marble Hill, L.L.C., a Virginia limited liability
company
United Dominion Realty, L.P., a Virginia limited partnership
United Dominion Residential, Inc., a Virginia corporation
UDRT of Virginia, Inc., a Virginia corporation
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Company, Inc.
(registrant)
Date: May 15, 1996 /s/ James Dolphin
- ------------------ -----------------
James Dolphin
Director, Senior Vice President,
and Chief Financial Officer
Date: May 15, 1996 /s/ Jerry A. Davis
- ------------------ ------------------
Jerry A. Davis
Vice President, Controller-Corporate
Accounting and Chief Accounting Officer
20