FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) January 21, 1997 UNITED DOMINION REALTY TRUST, INC. (Exact name of registrant as specified in its charter) Virginia 1-10524 54-0857512 State or other jurisdiction of (Commission (I.R.S. Employer incorporation of organization) File Number) Identification No.) 10 South Sixth Street, Suite 203, Richmond, Virginia 23219-3802 (Address of principal executive offices) Registrant's telephone number, including area code (804) 780-2691 NO CHANGE (Former name or former address, if change since last report) ITEM 5. OTHER EVENTS For the year ended December 31, 1996, United Dominion Realty Trust, Inc. ("United Dominion"), the registrant, and its wholly owned subsidiaries acquired in separate transactions 30 apartment communities containing 7,712 apartment homes at a total costs of $321.1 million, including closing costs. In addition, effective at 11:59 p.m. on December 31, 1996, South West Property Trust Inc., ("South West") merged with and into UDR Residential Inc., a wholly-owned subsidiary of United Dominion pursuant to the Amended and Restated Agreement and Plan of Merger dated as of October 1, 1996 (the "Merger") as previously filed as Annex I to the Joint Proxy Statement/Prospectus of United Dominion and South West that was made part of the Registration Statement (Form S-4, file number 333-13475) filed with the Securities and Exchange Commisssion on October 9, 1996. South West, a Texas based real estate investment trust, owned 44 apartment communities containing 14,975 apartment homes (includes 760 apartment homes under development). United Dominion issued approximately 22.8 million shares of its common stock at $14.125 per share for a total market equity of appproximatley $322 million and assumed debt and other liabilities estimated at approximately $235 million resulting in total consideration estimated at approximately $557 million (excluding transaction costs) in connection with the Merger. 2 ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits Description Location ----------- -------- (b) Pro Forma Financial Information 4 through 20 (c) Consent of Independent Public Accountants Exhibit 23 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents (File No. 1-11224) filed by South West with the Securities and Exchange Commission under the Exchange Act are hereby incorporated by reference into this Form 8-K: (i) South West's consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 1995 filed with the Securities and Exchange Commission on March 2, 1996 and (ii) South West's consolidated financial statements included in its quarterly report on Form 10-Q for the quarter ended September 30, 1996 filed with the Securities and Exchange Commission on November 4, 1996, filed under the Exchange Act including any amendments or reports filed for the purpose of updating such description. 3 UNITED DOMINION REALTY TRUST, INC. UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS The Unaudited Pro Forma Combined Balance Sheet at September 30, 1996, gives effect to the Merger of United Dominion and South West as if the Merger had occurred on September 30, 1996. The Unaudited Pro Forma Combined Balance Sheet gives effect to the Merger under the purchase method of accounting in accordance with Accounting Standards Board Opinion No. 16. In the opinion of management, all significant adjustments necessary to reflect the effects of the Merger have been made. The Unaudited Pro Forma Combined Balance Sheet is not necessarily indicative of what the actual combined finanical position of United Dominion and South West would have been at September 30, 1996, nor does it purport to represent the future combined financial position of United Dominion. The Unaudited Pro Forma Combined Balance Sheet should be read in conjunction with United Dominion's audited consolidated financial statements for the year ended December 31, 1995 (included in the United Dominion's Form 10-K for the year ended December 31, 1995) and its unaudited consolidated financial statements as of September 30, 1996 and for the nine months then ended (included in the United Dominion's Form 10-Q for the quarterly period ended September 30, 1996) and the accompanying notes thereto. The Unaudited Pro Forma Combined Statements of Operations for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996 are presented as if the Merger had occurred at the beginning of each period presented. The Unaudited Pro Forma Combined Statements of Operations give effect to the Merger under the purchase method of accounting in accordance with Accounting Standards Board Opinion No. 16, and the combined entity qualifying as a REIT, distributing at least 95% of its taxable income, and therefore, incurring no federal income tax liability for the periods presented. In addition to the Merger, the Unaudited Pro Forma Combined Statements of Operations give effect to the following acquisitions as if they had occurred on the first day of each period presented: (i) two apartment communities acquired during 1996 as previously reported on Form 8-K dated October 31, 1996 (ii) 18 apartment communities (the "Southeast Portfolio") acquired in an August 15, 1996 portfolio acquisition as previously reported on Form 8-K dated August 15, 1996 (subsequently updated to reflect the results of operations for the nine months ended September 30, 1996 on Form 8-K dated October 31, 1996), (iii) nine apartment communities acquired in a May 4, 1995 portfolio acquisition as previously reported on Form 8-K dated June 30, 1995 and (iv) four apartment communities acquired during the second half of 1995 as previously reported on Form 8-K dated December 28, 1995. The Unaudited Pro Forma Combined Statements of Operations are not necessarily indicative of what United Dominion's actual results would have been for the year ended December 31, 1995 and the nine months ended September 30, 1996 if the acquisitions and Merger had occurred at the beginning of each period presented, nor do they purport to be indicative of the results of operations in future periods. The Unaudited Pro Forma Combined Statements of Operations have been prepared by the management of United Dominion. The Unaudited Pro Forma Combined Statements of Operations should be read in conjunction with United Dominion's audited consolidated financial statements for the year ended December 31, 1995 (included in United Dominion's Form 10-K for the year ended December 31, 1995) and its unaudited consolidated financial statements as of September 30, 1996 and for the nine months then ended (included in United Dominion's Form 10-Q for the quarterly period ended September 30, 1996) and the accompanying notes thereto. 4 UNITED DOMINION REALTY TRUST, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEETS SEPTEMBER 30, 1996 (In thousands, except for share data) SOUTH WEST HISTORICAL (1) HISTORICAL (28) ----------------------- ------------------------- Assets Real estate owned: Real estate held for investment $ 1,448,622 $ 397,682 Less: accumulated depreciation (159,429) (79,632) ----------------------- ------------------------- 1,289,193 318,050 Construction in progress -- 73,598 ----------------------- ------------------------- 1,289,193 391,648 Real estate held for disposition 42,889 -- Cash and cash equivalents 7,803 9,333 Other assets 35,826 15,428 ----------------------- ------------------------- $ 1,375,711 $ 416,409 ======================= ========================= Liabilities and shareholders' equity Notes payable-secured $ 307,505 $ 218,124 7.25% Notes due April 1, 1999 75,000 8.50% Debentures due September 15, 2024 150,000 7.95% Medium Term Notes due July 12, 2006 125,000 Notes payable-unsecured 138,389 Distributions payable to common shareholders 14,099 5,375 Accounts payable, accrued expenses and other liabilities 34,992 11,210 ----------------------- ------------------------- 844,985 234,709 ----------------------- ------------------------- Minority interest of unitholders in operating partnership 2,030 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 Common stock, $1 par value; 100,000,000 shares authorized 81,548,734 shares issued and outstanding (58,744,488 at September 30, 1996) 58,744 205 Additional paid-in-capital 510,314 236,240 Notes receivable from officer-shareholders (5,903) (3,095) Distributions in excess of net income (141,336) (51,650) Unrealized gain on securities available-for-sale 1,877 ----------------------- ------------------------- Total shareholders' equity 528,696 181,700 ======================= ========================= 1,375,711 $ 416,409 ======================= ========================= PRO FORMA MERGER ADJUSTMENTS (29) --------------------------- Assets Real estate owned: Real estate held for investment $ 81,555 (30) Less: accumulated depreciation 79,632 (30) --------------------------- 161,187 Construction in progress --------------------------- 161,187 Real estate held for disposition -- Cash and cash equivalents Other assets (5,972)(31) --------------------------- $ 155,215 =========================== Liabilities and shareholders' equity Notes payable-secured $ (116,666)(32) 7.25% Notes due April 1, 1999 8.50% Debentures due September 15, 2024 7.95% Medium Term Notes due July 12, 2006 Notes payable-unsecured 131,797 (33) Distributions payable to common shareholders Accounts payable, accrued expenses and other liabilities --------------------------- 15,131 --------------------------- Minority interest of unitholders in operating partnership 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 Common stock, $1 par value; 100,000,000 shares authorized 81,548,734 shares issued and outstanding (56,744,488 at September 30, 1996) 22,600 (34) Additional paid-in-capital 62,739 (34) Notes receivable from officer-shareholders 3,095 (34) Distributions in excess of net income 51,650 (34) Unrealized gain on securities available-for-sale --------------------------- Total shareholders' equity 140,084 =========================== 155,215 =========================== UNITED DOMINION PRO FORMA COMBINED Assets ------------------------- Real estate owned: Real estate held for investment Less: accumulated depreciation $ 1,927,859 (159,429) ------------------------- Construction in progress 1,768,430 73,598 ------------------------- Real estate held for disposition 1,842,028 Cash and cash equivalents 42,889 Other assets 17,136 45,282 ------------------------- $ 1,947,335 ========================= Liabilities and shareholders' equity Notes payable-secured 7.25% Notes due April 1, 1999 $ 408,963 8.50% Debentures due September 15, 2024 75,000 7.95% Medium Term Notes due July 12, 2006 150,000 Notes payable-unsecured 125,000 Distributions payable to common shareholders 270,186 Accounts payable, accrued expenses and other liabilities 19,474 46,202 ------------------------- 1,094,825 ------------------------- Minority interest of unitholders in operating partnership 2,030 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 Common stock, $1 par value; 100,000,000 shares authorized 105,000 81,548,734 shares issued and outstanding (56,744,488 at September 30, 1996) Additional paid-in-capital 81,549 Notes receivable from officer-shareholders 809,293 Distributions in excess of net income (5,903) Unrealized gain on securities available-for-sale (141,336) 1,877 ------------------------- Total shareholders' equity 850,480 ========================= $ 1,947,335 ========================= See accompanying notes. UNITED DOMINION REALTY TRUST, INC. UNAUDITED PRO FORMA COMBINED PRO FORMA STATEMENT OF OPERATIONS For the Twelve Months Ended December 31, 1995 (In thousands of dollars, except per share data) ACQUISITIONS PREVIOUSLY REPORTED ON JUNE 30, 1995 AND FORM 8-K DATED DECEMBER 28, 1995 JUNE 30, 1995 AND ACQUISITIONS FORM 8-K DATED PRO FORMA HISTORICAL (1) DECEMBER 28, 1995 (2) ADJUSTMENTS (3) --------------- ---------------------- --------------- Income Rental Income $195,240 $6,519 $1,045 Interest and dividend income 1,692 (269)(4) -------- ------ ------ 196,932 6,519 776 Expenses Rental Expenses Utilities 14,464 430 64 Repairs & maintenance 30,374 895 98 Real estate taxes 14,058 504 67 Property management 5,300 284 (25)(5) Other operating expenses 17,446 844 106 Depreciation of real estate owned 38,939 1,088 (6) Interest 40,646 532 (7) General and administrative 4,865 Other depreciation and amortization 1,103 Other expenses: Impairment loss on real estate held for disposition 1,700 -------- ------ ------ 168,895 2,957 1,930 -------- ------ ------ Income before gains on sales of investments and 28,037 3,562 (1,154) minority interest of unitholders in operating partnership Gains on sales of investments 5,090 Minority interest of unitholders in operating partnership -------- ------ ------ Net income 33,127 3,562 (1,154) Dividends to preferred shareholders 6,637 2,599 (8) -------- ------ ------ Net income available to common shareholders $26,490 $3,562 ($3,753) ======= ====== ======= Net income per common share $0.50 ===== Distributions declared per common share $0.90 ===== Weighted average number of common shares outstanding 52,781 NON-DEVELOPMENT PROPERTIES PRO FORMA SOUTHEAST SOUTH HILLS BEFORE 1996 PORTFOLIO PRO FORMA ACQUISITIONS ACQUISITION (9) ADJUSTMENTS (11) ------------ --------------- ---------------- Income Rental Income $202,804 $17,539 $52 Interest and dividend income 1,423 -------- ------- --- 204,227 17,539 52 Expenses Rental Expenses Utilities 14,958 1,311 4 Repairs & maintenance 31,367 2,632 13 Real estate taxes 14,629 1,303 5 Property management 5,559 866 3 Other operating expenses 18,396 1,353 9 Depreciation of real estate owned 40,027 Interest 41,178 General and administrative 4,865 Other depreciation and amortization 1,103 Other expenses: Impairment loss on real estate held for disposition 1,700 -------- ------- --- 173,782 7,465 34 -------- ------- --- Income before gains on sales of investments and 30,445 10,074 18 minority interest of unitholders in operating partnership Gains on sales of investments 5,090 Minority interest of unitholders in operating partnership -------- ------- --- Net income 35,535 10,074 18 Dividends to preferred shareholders 9,236 -------- ------- --- Net income available to common shareholders $26,299 $10,074 $18 ======= ======= === Net income per common share $0.50 ===== Distributions declared per common share $0.90 ===== Weighted average number of common shares outstanding 52,781 NON-DEVELOPMENT DEVELOPMENT PROPERTIES DEVELOPMENT PROPERTIES SOUTHEAST PROPERTIES SOUTHEAST PORTFOLIO SOUTHEAST PORTFOLIO PRO FORMA PORTFOLIO PRO FORMA ADJUSTMENTS ACQUISITION (10) ADJUSTMENTS ----------- ---------------- ----------- Income Rental Income $5,011 Interest and dividend income -------- ------ ------- 0 5,011 0 Expenses Rental Expenses Utilities 319 Repairs & maintenance 447 Real estate taxes 325 Property management ($436)(13) 231 ($108)(18) Other operating expenses 96 (14) 542 26 (19) Depreciation of real estate owned 3,780 (15) 1,421 (20) Interest 7,362 (16) 2,447 (21) General and administrative Other depreciation and amortization Other expenses: Impairment loss on real estate held for disposition -------- ------ ------- 10,802 1,864 3,786 -------- ------ ------- Income before gains on sales of investments and (10,802) 3,147 (3,786) minority interest of unitholders in operating partnership Gains on sales of investments Minority interest of unitholders in operating partnership -------- ------ ------- Net income (10,802) 3,147 (3,786) Dividends to preferred shareholders -------- ------ ------- Net income available to common shareholders ($10,802) $3,147 ($3,786) ======== ====== ======= Net income per common share Distributions declared per common share Weighted average number of common shares outstanding 934 (17) 441 (22) WESTLAND PARK WESTLAND PARK AND STEEPLECHASE AND STEEPLECHASE UNITED APARTMENTS PRO FORMA DOMINION ACQUISITIONS (23) ADJUSTMENTS PRO FORMA ----------------- ----------- --------- Income Rental Income $4,639 $230,045 Interest and dividend income 1,423 ------ ----- -------- 4,639 0 231,468 Expenses Rental Expenses Utilities 173 16,765 Repairs & maintenance 481 34,940 Real estate taxes 398 16,660 Property management 245 (131)(25) 6,229 Other operating expenses 547 20,969 Depreciation of real estate owned 904 (26) 46,132 Interest 1,805 (27) 52,792 General and administrative 4,865 Other depreciation and amortization 1,103 Other expenses: Impairment loss on real estate held for disposition 1,700 ------ ----- -------- 1,844 2,578 202,155 ------ ----- -------- Income before gains on sales of investments and 2,795 (2,578) 29,313 minority interest of unitholders in operating partnership Gains on sales of investments 5,090 Minority interest of unitholders in operating partnership ------ ----- -------- Net income 2,795 (2,578) 34,403 Dividends to preferred shareholders 9,236 ------ ----- -------- Net income available to common shareholders $2,795 ($2,578) $25,167 ====== ======= ======= Net income per common share $0.46 ===== Distributions declared per common share $0.90 ===== Weighted average number of common shares outstanding 54,156 SOUTH WEST UNITED PRO FORMA DOMINION SOUTH WEST MERGER PRO FORMA HISTORICAL (28) ADJUSTMENTS COMBINED --------------- ----------- -------- Income Rental Income $71,061 $301,106 Interest and dividend income 1,053 2,476 ------ ----- ------ 72,114 0 303,582 Expenses Rental Expenses Utilities 4,940 21,705 Repairs & maintenance 9,980 44,920 Real estate taxes 6,499 23,159 Property management 2,464 (493)(35) 8,200 Other operating expenses 9,782 30,751 Depreciation of real estate owned 12,304 1,859 (36) 60,295 Interest 10,686 (614)(37) 62,864 General and administrative 2,037 (1,039)(38) 5,863 Other depreciation and amortization 393 1,496 Other expenses: Impairment loss on real estate held for disposition 1,700 ------ ----- ------ 59,085 (287) 260,953 ------ ----- ------ Income before gains on sales of investments and 13,029 287 42,629 minority interest of unitholders in operating partnership Gains on sales of investments 10 5,100 Minority interest of unitholders in operating partnership (8) (8) ------ ----- ------ Net income 13,031 287 47,721 Dividends to preferred shareholders 9,236 ------ ----- ------ Net income available to common shareholders $13,031 $287 $38,485 ======= ===== ======= Net income per common share $0.52 ===== Distributions declared per common share $0.90 ===== Weighted average number of common shares outstanding 20,308 (39) 74,464 See accompanying notes. 6 UNITED DOMINION REALTY TRUST, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Nine Months Ended September 30, 1996 (In thousands, except per share data) NON-DEVELOPMENT NON-DEVELOPMENT PROPERTIES DEVELOPMENT PROPERTIES SOUTHEAST PROPERTIES SOUTHEAST PORTFOLIO SOUTHEAST PORTFOLIO PRO FORMA PORTFOLIO HISTORICAL (1) ACQUISITION (9) ADJUSTMENTS (12) ACQUISITION (10) -------------- --------------- ----------------- ---------------- Income Rental income $175,119 $9,160 $2,265 $3,757 Interest and dividend income 1,197 -------- ------ ------ ------ 176,316 9,160 2,265 3,757 Expenses Rental expenses: Utilities 12,810 662 164 219 Repairs & maintenance 29,847 1,146 283 316 Real estate taxes 12,698 651 161 321 Property management 4,192 452 (172)(13) 184 Other operating expenses 16,852 699 232 (14) 266 Depreciation of real estate owned 33,711 2,344 (15) Interest 35,413 4,566 (16) General and administrative 4,192 Other depreciation and amortization 917 Impairment loss on real estate held for disposition 290 -------- ------ ------ ------ 150,922 3,610 7,578 1,306 Income before gains on sales of investments and 25,394 5,550 (5,313) 2,451 minority interest of unitholders in operating partnership Gains on sales of investments 2,176 Minority interest of unitholders in operating partnership (26) -------- ------ ------ ------ Net income 27,544 5,550 (5,313) 2,451 Dividends to preferred shareholders 7,284 -------- ------ ------ ------ Net income available to common shareholders $20,260 $5,550 (5,313) $2,451 ======= ====== ====== ====== Net income per common share $0.36 ===== Distributions declared per common share $0.72 ===== Weighted average number of common shares outstanding 56,978 774 (17) DEVELOPMENT PROPERTIES SOUTHEAST WESTLAND PARK WESTLAND PARK PORTFOLIO AND STEEPLECHASE AND STEEPLECHASE PRO FORMA APARTMENTS PRO FORMA ADJUSTMENTS (12) AQUISITIONS (23) ADJUSTMENTS (24) ---------------- ---------------- ---------------- Income Rental income $929 $1,278 $95 Interest and dividend income ---- ------ --- 929 1,278 95 Expenses Rental expenses: Utilities 54 50 4 Repairs & maintenance 78 139 10 Real estate taxes 79 114 8 Property management (70)(18) 69 (30)(25) Other operating expenses 89 (19) 153 11 Depreciation of real estate owned 1,316 (20) 252 (26) Interest 2,223 (21) 499 (27) General and administrative Other depreciation and amortization Impairment loss on real estate held for disposition ---- ------ --- 3,769 525 754 Income before gains on sales of investments and (2,840) 753 (659) minority interest of unitholders in operating partnership Gains on sales of investments Minority interest of unitholders in operating partnership ---- ------ --- Net income (2,840) 753 (659) Dividends to preferred shareholders ---- ------ --- Net income available to common shareholders (2,840) 753 (659) ====== === ==== Net income per common share Distributions declared per common share Weighted average number of common shares outstanding 578 (22) UNITED SOUTH WEST UNITED DOMIMINION PRO FORMA DOMINION PRO SOUTH WEST MERGER PRO FORMA FORMA HISTORICAL (28) ADJUSTMENTS COMBINED ----- --------------- ----------- -------- Income Rental income $192,603 $61,559 $254,162 Interest and dividend income 1,197 439 1,636 -------- ------- ----- -------- 193,800 61,998 0 255,798 Expenses Rental expenses: Utilities 13,963 4,037 18,000 Repairs & maintenance 31,819 7,582 39,401 Real estate taxes 14,032 5,859 19,891 Property management 4,625 2,114 (346)(35) 6,393 Other operating expenses 18,302 8,789 27,091 Depreciation of real estate owned 37,623 9,952 1,656 (36) 49,231 Interest 42,701 9,747 (756)(37) 51,692 General and administrative 4,192 1,342 (722)(38) 4,812 Other depreciation and amortization 917 248 1,165 Impairment loss on real estate held for disposition 290 290 -------- ------- ----- -------- 168,464 49,670 (168) 217,966 Income before gains on sales of investments and 25,336 12,328 168 37,832 minority interest of unitholders in operating partnership Gains on sales of investments 2,176 2,176 Minority interest of unitholders in operating partnership (26) (26) -------- ------- ----- -------- Net income 27,486 12,328 168 39,982 Dividends to preferred shareholders 7,284 7,284 -------- ------- ----- -------- Net income available to common shareholders $20,202 $12,328 $168 $32,698 ======= ======= ===== ======= Net income per common share $0.35 $0.41 ===== ===== Distributions declared per common share $0.72 $0.72 ===== ===== Weighted average number of common shares outstanding 58,330 22,370 (39) 80,700 See accompanying notes. 7 UNITED DOMINION REALTY TRUST, INC. NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE TWELVE MONTHS ENDED DECEMBER 31, 1995 Basis of Presentation The Unaudited Pro Forma Combined Statements of Operations on this Form 8-K reflect the historical results of United Dominion adjusted to reflect the operations of: (i) 44 apartment communities containing 14,975 apartment homes (includes 760 apartment homes under development) owned by South West that were merged with and into UDR Western Residential, Inc., a wholly-owned subsidiary of United Dominion, on December 31, 1996, (ii) two apartment communities acquired during 1996 as previously reported on Form 8-K dated October 31, 1996 (iii) 18 apartment communities (the "Southeast Portfolio") acquired in an August 15, 1996 portfolio acquisition as previously reported on Form 8-K dated August 15, 1996 (subsequently updated to reflect the results of operations for the nine months ended September 30, 1996 on Form 8-K dated October 31, 1996), (iv) nine apartment communities acquired in a May 4, 1995 portfolio acquisition as previously reported on Form 8-K dated June 30, 1995 and (v) four apartment communities acquired during the second half of 1995 as previously reported on Form 8-K dated December 28, 1995. For presentation purposes in the Unaudited Pro Forma Combined Statements of Operations on this Form 8-K, the Southeast Portfolio has been segregated into two components, the development properties and the non-development properties. There are 14 properties containing 3,196 units which are considered non-development properties and 4 properties containing 1,312 units which are considered development properties. The 14 non-development properties were built prior to 1995 and the four development properties had completed units available for occupancy at various times during 1995 and 1996. For each of the periods presented, the pro forma adjustments for the four development properties are determined based upon the weighted average balance of the purchase price outstanding. The weighted average balance of the purchase price outstanding was calculated by assuming the properties were financed and acquired by United Dominion on the dates on which certificates of occupancy were obtained for each unit during 1995 and 1996. The Unaudited Pro Forma Combined Statements of Operations assume the following events occurred on the first day of each reporting period presented: (i) the Merger of South West Property Trust Inc. with and into UDR Western Residential, Inc., through the issuance of approximately 22.8 million shares of United Dominion common stock at $14.125 per share for a total market equity value of approximately $322 million and the assumption of debt and other liabilities estimated at approximately $235 million for an aggregate value estimated at approximately $557 million (excluding transaction costs), (ii) the acquisition of Westland Park and Steeplechase Apartments with bank line borrowings aggregating $30.2 million and a weighted average interest rate of 5.98% (United Dominion's weighted average market interest rate on short-term bank borrowings in effect at the time of each of the acquisitions), (iii) the acquisition of four apartment communities previously reported on Form 8-K dated December 28, 1995, and (iv) the acquisition of nine apartment communities previously reported on Form 8-K dated June 30, 1995. For 1995, in connection with the acquisitions previously described, the pro forma statements of operations include the April 24, 1995 sale of 4.2 million shares of 9-1/4% Cumulative Redeemable Preferred Stock with a $25 liquidation preference value ("preferred stock"). Net proceeds from the sale of the preferred stock were used to fund the Acquisitions Previously Reported on Form 8-K dated June 30, 1995 and to temporarily repay in full, then existing bank debt until such time additional acquisitions were completed. Of the 4.2 million shares sold, 2.7 million shares were assumed to be used to acquire the Acquisitions Previously Reported on Form 8-K dated June 30, 1995 and 878,589 shares were assumed to have been used to acquire Hunters Ridge Apartments and Mallards of Wedgewood Apartments (two of the properties included in the acquisitions previously reported on Form 8-K dated December 28, 1995). Therefore, such consolidated pro forma statements of operations assume the issuance of 3.6 million shares of preferred stock from the period January 1, 1995 to April 24, 1995 for the twelve months ended December 31, 1995. In addition, the consolidated pro forma statements of operations assume the acquisition of the 14 non-development apartment communities contained in the Southeast Portfolio as if it had occurred on the first day of each reporting period presented. The pro forma statements of operations include the effect of 8 debt and equity incurred in connection with the acquisition of the 14 non-development apartment communities contained in the Southeast Portfolio which includes: (i) bank lines of credit of approximately $14.0 million with a weighted average interest rate of 6.01% (United Dominion's market interest rate on short-term bank borrowings in effect at the time of the acquisition), (ii) the assumption of secured debt encumbering the properties in the aggregate amount of approximately $75.2 million with a weighted average interest rate of 7.30%, (iii) Seller financing of approximately $13.9 million bearing interest of 7.10%, and (iv) the issuance of approximately 934,000 newly issued shares of the United Dominion's common stock valued at $13.50 (the closing sales price of United Dominion's common stock on the date of acquisition) per share for total consideration of $12.6 million. The Unauidted Pro Forma Statements of Operations also assume the acquisition of the four development apartment communities contained in the Southeast Portfolio. The Unaudited Pro Forma Statements of operations include the effects of debt and equity incurred in connection with the acquisition of the four development apartment communities contained in the Southeast Portfolio which includes: (i) bank lines of credit of approximately $11.2 million with a weighted average interest rate of 6.01% (United Dominion's market interest rate on short-term bank borrowings in effect at the time of the acquisition), (ii) the assumption of secured debt encumbering the properties in the aggregate amount of approximately $34.6 million with a weighted average interest rate of 6.59%, (iii) Seller financing of approximately $11.1 million bearing interest of 7.10% and (iv) the issuance of approximately 746,000 newly issued shares of the United Dominion's common stock valued at $13.50 per share (the closing sales price of United Dominion's common stock on the date of acquisition) for total consideration of $10.1 million. The assumption of secured debt encumbering the Southeast Portfolio properties consists of the following: (i) four mortgage notes payable encumbering specific properties aggregating $38.6 million, (ii) a $40 million secured senior credit facility with Wachovia Bank and (iii) a $31.2 million secured senior credit facility with First Union National Bank, as follows: Specific Mortgage or Construction Notes Payable: Loan Interest Property Name Amount Rate ------------- ------ ---- Cape Harbor* $ 9,500,000 6.531% (Variable-LIBOR + 1%) The Village at Cliffdale 10,509,232 7.875% Rivergate 9,837,246 8.000% Morganton Place 8,739,750 6.531% (Variable-LIBOR + 1%) ------------ $38,586,228 ============ *Construction Note Payable Cross-Collateralize Secured Notes Payable: Loan Interest Lender Amount Rate ------ ------ ---- Wachovia Bank** $10,000,000 7.14% Wachovia Bank** 5,000,000 6.98% Wachovia Bank** 25,000,000 6.53% (Variable-LIBOR +1%) First Union National Bank*** 20,000,000 7.75% First Union National Bank*** 5,000,000 7.38% First Union National Bank*** 5,000,000 7.50% First Union National Bank*** 1,232,805 6.61% (Variable-LIBOR +1.18%) ----------- $71,232,805 =========== Total Mortgage Notes Payable $109,819,033 ============ ** The $40 million Wachovia Bank senior credit facility is secured by six properties contained in the Southeast Portfolio. For purposes of this Form 8- K, LIBOR is assumed to be 5.53% which represents the 3 month LIBOR on August 15, 1996, the date of the acquisition. There are two related interest rate swap agreements with Wachovia Bank in the aggregate notional amount of $15 million under which the United Dominion pays a fixed-rate of interest and receives a variable-rate on the notional amounts. The interest rate swaps effectively change the United Dominion's interest rate exposure from a variable-rate to a fixed-rate of 7.09% (weighted average) on $15 million of the $40 million senior credit facility. 9 *** The $31.2 million First Union National Bank senior credit facility is secured by seven properties contained in the Southeast Portfolio. For purposes of this Form 8- K, LIBOR is assumed to be 5.43% which represents the 1 month LIBOR on August 15, 1996, the date of the acquisition. There are three interest rate swap agreements with First Union National Bank in the aggregate notional amount of $30 million under which the United Dominion pays a fixed-rate of interest and receives a variable-rate on the notional amounts. The interest rate swaps effectively change the United Dominion's interest rate exposure from a variable-rate to a fixed-rate of 7.65% (weighted average) on $30 million of the $31.2 million senior credit facility. The Unaudited Pro Forma Combined Statements of Operations are not necessarily indicative of what the United Dominion's results would have been for the nine months ended September 30, 1996 and for the year ended December 31, 1995 if the acquisitions had been consummated at the beginning of each period presented, nor do they purport to be indicative of the results of operations or financial position in future periods. (1) Represents the United Dominion's Historical Statements of Operations contained in its Quarterly Report on Form 10-Q for the nine months ended September 30, 1996 and its Annual Report on Form 10-K for the year ended December 31, 1995 and United Dominion's Historical Balance Sheet contained in its Quarterly Report on Form 10-Q for the nine months ended September 30, 1996. (2) Amounts appearing under the column entitled "Acquisitions Previously Reported on Form 8-K dated June 30, 1995 and Form 8-K dated December 28, 1995" give effect to significant acquisitions that have been previously reported to the Securities and Exchange Commission by the United Dominion on Form 8-K dated June 30, 1995 and Form 8-K dated December 28, 1995. A reconciliation of net income for the twelve months ended December 31, 1995 is as follows: Net Income Filing to Update Twelve Months 8-K Filed 8-K (In thousands) ----------------------------------------------------------------------- June 30, 1995 N/A $ 1,821 December 28, 1995 8-K/A 1,741 ---------- $ 3,562 ========== (3) Represents operations of the Acquisitions Previously Reported on Form 8-K Dated June 30, 1995 for the 33 day period from April 1, 1995 to May 3, 1995, which represents the period not owned by the United Dominion during the second quarter of 1995 (based on the operating statements of the properties for the stub period January 1, 1995 to March 31, 1995). The unaudited combined statements of rental operations were for the stub period January 1, 1995 to March 31, 1995. (4) Reflects the reduction of interest income associated with the use of short-term investments to acquire Hunters Ridge Apartments (66 of the 365 days during 1995) and Mallards of Wedgewood Apartments (93 of the 365 days during 1995) at market interest rates in effect at the time of the acquisition. As discussed in the "Basis of Presentation", Hunters Ridge Apartments and Mallards of Wedgewood Apartments were assumed to have been acquired with 878,589 shares of the preferred stock. The net proceeds from the sale of the preferred stock were received on April 24, 1995 and were temporarily invested in short-term investments until such time as these acquisitions occurred. Purchase Interest Interest Income Property Price Rate Adjustment -------- ----- ---- ---------- Hunters Ridge $13,403,983 6.17% $ 149,544 Mallards of Wedgewood 7,823,950 6.00% 119,610 ----------- ---------- $21,227,933 $ 269,154 =========== ========== (5) Reflects the net reduction in property management fees for the Acquisitions Previously Reported on Form 8-K dated June 30, 1995 and Form 8-K dated December 28, 1995. United Dominion internally managed its apartment portfolio at a then assumed cost of approximately 3.5% of rental income (based on 1994 actual information). United Dominion uses 98% of the amount reported as rental income in calculating the property 10 management fee, as 2% of the amount reported as rental income is assumed to be other income which is not subject to management fee. As documented in Notes 13 and 18, based upon 1995 actual information, United Dominion internally managed its apartment properties at an assumed cost of approximately 2.5% of rental income. The decrease in the management fee from 3.5% in 1994 to 2.5% in 1995 was a result of the economies of scale and efficiencies the United Dominion achieved due to the significant growth experienced by the United Dominion during this same time. (6) Reflects the net adjustments to depreciation expense to record the Acquisitions Previously Reported on Form 8-K dated June 30, 1995 and December 28, 1995 at the beginning of each period presented. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Buildings have been depreciated over 35 years and other improvements over 15 years based upon the initial cost of the Acquisitions Previously Reported on Form 8-K dated June 30, 1995 of $65.7 million and Acquisitions Previously Reported on Form 8-K dated December 31, 1995 of $32.9 million. The allocation and estimated useful lives are as follows: Acquisitions Previously Reported on Form 8-K dated June 30, 1995: Estimated Twelve Month Allocation of Useful Life Depreciation Purchase Price In Years Adjustment** -------------- -------- ------------ Building $ 50,495,338 35 $ 492,931 Other Improvements 2,916,939 15 66,441 Land 12,292,524 N\A -- ---------- ------------ $ 65,704,801 $ 559,372 ============ ============ ** The Acquisitions Previously Reported on Form 8-K Dated June 30, 1995 were purchased by United Dominion on May 4, 1995, as such, the depreciation adjustment for the twelve months ended December 31, 1995 is computed for the 123 day period (out of 360 days) the properties were not owned by United Dominion. Acquisitions Previously Reported on Form 8-K dated December 28, 1995: Estimated Twelve Month Allocation of Useful Life Depreciation Purchase Price In Years Adjustment** -------------- -------- ------------ Building $ 25,438,503 35 $ 442,549 Other Improvements 2,138,662 15 86,814 Land 5,290,780 N\A -- ------------ ------------ $ 32,867,945 $ 529,363 ============ ============ Total $ 98,572,746 $ 1,088,735 ============ ============ ** The Acquisitions Previously reported on Form 8-K Dated December 28, 1995 were purchased by United Dominion at various times during the second and third quarters of 1995. The depreciation adjustment is computed for each property based on the number of days the properties were not owned by the United Dominion. The weighted average number of days the properties were not owned by United Dominion during 1995 was 219.20 days (out of 360 days). (7) Reflects the additional interest expense associated with the Acquisitions Previously Reported on Form 8-K dated December 28, 1995 as follows: (i) variable-rate bank debt aggregating $2.7 million used to fund the acquisitions at assumed interest rates equal to market rates in effect at the time of each respective acquisition, (ii) the assumption of a fixed-rate mortgage note in the amount of $3.3 million bearing interest of 7.6% in connection with the acquisition of Marble Hill Apartments and (iii) the assumption of a $5.6 million variable-rate tax-exempt housing bond bearing interest of 5.14% in connection with the acquisition of Andover Place Apartments. 11 Twelve Month Amount Interest Interest Property Type of Debt Debt Rate Adjustment** --------------------- ---- ---- ------------ Marble Hill Bank Debt $ 2,629,662 6.48% $ 126,517 Marble Hill Mortgage Debt 3,344,066 7.60% 188,697 Andover Place Bank Debt 46,284 6.48% 2,227 Andover Place Tax-Exempt Bonds 5,620,000 5.14% 214,475 ----------- ---- --------- $11,640,012 $ 531,916 =========== ========= ** For the twelve months ended December 31, 1995, the interest expense adjustment is for 271 days (based on a 365 day year) as the properties were purchased on September 28, 1995. (8) Reflects the adjustment to net income to record dividends paid to preferred shareholders on 3,598,001 shares of preferred stock in calculating net income available to common shareholders for the 114 day period (out of 365 days) from the period January 1, 1995 to April 24, 1995 for the twelve months ended December 31, 1995. (9) Represents the actual results of operations for the 14 properties containing 3,196 units which are considered non-development properties. A reconciliation of the combined rental operations of the development and non-development properties to the audited combined results of operations for the twelve months ended December 31, 1995 and the unaudited combined results of operations for the six months ended June 30, 1996, as appearing in Form 8-K dated August 15, 1996, is as follows: Net Income Net Income Twelve Months Nine Months Properties (In 000's) (In 000's) ---------- ---------- ---------- Development Properties $ 3,147 $ 2,451 Non-Developmement Properties 10,074 5,550 -------------- ------------- $ 13,221 $ 8,001 ============== ============= (10) Represents the actual results of operations for the 4 properties containing 1,312 units which are considered development properties for the six month period ended June 30, 1996. See Note 9 above. (11) Represents operations of South Hills Apartments for the 29 day period from January 1, 1995 to January 29, 1995, which represents the period not owned by the Sellers of the Southeast Portfolio during 1995 (based on the unaudited operating statement of the property for the stub period January 30, 1995 to December 31 , 1995). (12) Represents the pro forma results of operations for the 14 non-development properties and the four development properties for the the 45 day period from July 1, 1996 to August 15, 1996, which was the period that the properties were not owned by United Dominion during the quarter ended September 30, 1996 (based on the unaudited combined statement of rental operations for the 182 day stub period from January 1, 1996 to June 30, 1996). The unaudited combined statement of rental operations was for the stub period January 1, 1996 to June 30, 1996, as appearing in Form 8-K dated August 15, 1996 (See Notes 9 and 10 above). (13) Reflects the net decrease in property management fees for the non-development properties. United Dominion internally manages its apartment properties at an assumed cost of approximately 2.5% of rental income (based upon 1995 actual information). United Dominion uses 98% of the amount reported as rental income in calculating the property management fee, as 2% of the amount reported as rental income is assumed to be other income which is not subject to management fee. (14) Represents the net increase in insurance expense to reflect that the United Dominion insures its apartments for approximately $29.97 per unit more than the historical insurance expense of the 3,196 apartment units for the the non-development properties contained in Southeast Portfolio (the nine months ended September 30, 1996, includes a pro forma adjustment for 227 out of 366 days). 12 (15) Reflects the net adjustments to depreciation expense to record the non-development properties in the Southeast Portfolio acquisition at the beginning of each period presented. Depreciation is computed on a straight-line basis over the useful lives of the related assets based upon the actual purchase price allocation of the Southeast Portfolio. Buildings have been depreciated over 35 years and other improvements over a weighted average life of 7.1622 years based upon the initial cost of the non-development properties in the Southeast Portfolio of $115.7 million. The allocation and useful lives are as follows for the non-development properties: Twelve Months Nine Months Allocation of Useful Life Depreciation Depreciation Purchase Price In Years Adjustment** Adjustment** -------------- -------- ------------ ------------ Building $ 96,637,354 35 $ 2,761,067 $ 1,712,465 Other Improvements 7,296,003 7.1622 1,018,681 631,805 Land 11,739,024 N\A -- -- ------------ ----------- ------------- $115,672,381 $ 3,779,748 $ 2,344,270 ============ =========== ============= ** The nine months ended September 30, 1996, includes a pro forma adjustment for 227 out of 366 days. The twelve months ended December 31, 1995 includes a pro forma adjustment for the full year. (16) Reflects the additional interest expense associated with the acquisition of the non-development properties contained in the Southeast Portfolio as follows: (i) variable-rate bank debt aggregating $14.0 million used to fund the acquisition at assumed interest rates equal to market rates in effect at the time of the acquisition of 6.01%, (ii) the assumption of secured debt in the amount of $75.2 million which includes two mortgage notes aggregating $20.3 million and seven cross-collateralized notes aggregating $54.9 million with a weighted average interest rate of 7.36%, and (iii) the issuance of a fixed-rate $13.9 million note to the Seller of the Southeast Portfolio bearing interest of 7.10%. Weighted Average Twelve Month Nine Month Interest Interest Expense Interest Expense Type of Debt Amount Rate Adjustment** Adjustment** ------------ ------ ---- ------------ ------------ Bank Lines $ 13,982,880 6.01% $ 840,371 $ 521,214 Secured Debt* 75,175,680 7.36% 5,534,563 3,432,639 Note to Seller 13,902,591 7.10% 987,084 612,208 ------------- ------------- -------------- $ 103,061,151 $ 7,362,018 $ 4,566,061 ============= ============= ============== ** The nine months ended September 30, 1996, includes a pro forma adjustment for 227 out of 366 days. The twelve months ended December 31, 1995 includes a pro forma adjustment for the full year. (17) Represents the issuance of 934,165 shares of United Dominion's common stock to the Seller of the Southeast Portfolio at $13.50 per share attributable to the non-development properties in the Southeast Portfolio based upon the aggregate allocated purchase price. The shares are assumed to have been outstanding from the beginning of each period presented. The nine months ended September 30, 1996, includes a pro forma adjustment for 227 out of 274 days. The twelve months ended December 31, 1995 includes a pro forma adjustment for the full year. (18) Reflects the net decrease in property management fees for the development properties. United Dominion internally manages its apartment properties at an assumed cost of approximately 2.5% of rental income (based upon 1995 actual information). United Dominion uses 98% of the amount reported as rental income in calculating the property management fee, as 2% of the amount reported as rental income is assumed to be other income which is not subject to management fee. 13 (19) Represents the net increase in insurance expense to reflect that United Dominion insures its apartments for approximately $29.97 per unit more than the historical insurance expense of the 1,312 apartment units for the development properties contained in Southeast Portfolio. Since the four development properties were under various stages of construction during 1995 and 1996, the weighted average number of units outstanding for both periods presented is used in the calculation of the insurance expense pro forma adjustment. For the twelve months ended December 31, 1995, and the nine months ended September 30, 1996, the weighted average number of development units outstanding was 861 and 1,241 (the nine months ended September 30, 1996, includes a pro forma adjustment for 227 out of 366 days), respectively. (20) Reflects the net adjustments to depreciation expense to record the development properties in the Southeast Portfolio acquisition at the beginning of each period presented. Depreciation is computed on a straight-line basis over the useful lives of the related assets based upon the actual purchase price allocations of the Southeast Portfolio. Buildings have been depreciated over 35 years and other improvements over a weighted average life of 6.7 years based upon the initial cost of the development properties in the Southeast Portfolio of $67.0 million. The allocation and useful lives are as follows for the development properties: For the twelve months ended December 31, 1995: Weighted Average Twelve Months Allocation of Allocation of Useful Life Depreciation Purchase Price Purchase Price** In Years Adjustment*** -------------- ---------------- -------- ------------- Building $ 57,967,420 $37,151,197 35 $ 1,061,463 Other Improvements 4,048,512 2,408,985 6.7 359,550 Land 4,952,938 2,938,969 N\A -- -------------- ----------- ----------- $ 66,968,870 $42,499,151 $ 1,421,013 ============== =========== =========== For the nine months ended September 30, 1996: Weighted Average Twelve Months Allocation of Allocation of Useful Life Depreciation Purchase Price Purchase Price** In Years Adjustment*** -------------- ---------------- -------- ------------- Building $ 57,967,420 $54,604,690 35 $ 967,624 Other Improvements 4,048,512 3,768,179 6.7 348,820 Land 4,952,938 4,623,032 N\A -- -------------- ----------- ----------- $ 66,968,870 $62,995,901 $ 1,316,444 ============== =========== =========== ** Since the four development properties were under various stages of construction during 1995 and 1996, the weighted average balance of the purchase price outstanding for both periods presented is used in the calculation for the depreciation expense pro forma adjustment. *** The nine months ended September 30, 1996, includes a pro forma adjustment for 227 out of 366 days. The twelve months ended December 31, 1995 includes a pro forma adjustment for the full year. (21) Reflects the additional interest expense associated with the acquisition of the development properties contained in the Southeast Portfolio as follows: (i) additional bank debt aggregating $11.2 million used to fund the acquisition at assumed interest rates equal to market rates in effect at the time of the acquisition of 6.01%, (ii) the assumption of various secured debt aggregating $34.6 million bearing a weighted average interest rate of 6.76% which includes one mortgage note, one construction note and seven cross-collateralized notes and (iii) the issuance of a fixed-rate $11.1 million note to the Seller of the Southeast Portfolio bearing interest of 7.10%. For the twelve months ended December 31, 1995: Twelve Months Development Weighted Average Weighted Average Interest Expense Property Total Debt Debt Outstanding Interest Rate Adjustment** -------- ---------- ---------------- ------------- ------------ Morganton Place $ 12,386,796 $ 11,264,470 6.537781% $ 736,446 Lake Brandt 12,000,041 7,495,453 7.016978% 525,954 Cape Harbor 16,733,447 2,868,373 6.540838% 187,616 Stonesthrow 15,781,975 14,919,438 6.684529% 997,294 ------------ ------------- -------------- $ 56,902,259 $ 36,547,734 $ 2,447,310 ============ ============ ============== 14 For the nine months ended September 30, 1996: Development Weighted Average Weighted Average Interest Expense Property Total Debt Debt Outstanding Interest Rate Adjustment** -------- ---------- ---------------- ------------- ------------ Morganton Place $ 12,386,796 $ 12,386,796 6.537781% $ 502,266 Lake Brandt 12,000,041 12,000,041 7.016978% 522,249 Cape Harbor 16,733,447 13,410,168 6.540838% 544,017 Stonesthrow 15,781,975 15,781,975 6.684529% 654,300 ------------ --------------- -------- ------------ $ 56,902,259 $ 53,578,980 $ 2,222,832 ============= =============== ============ ** Since the four development properties were under various stages of construction during 1995 and 1996, the interest expense pro forma adjustment is based on the weighted average amount of debt outstanding as determined by the weighted average balance of the purchase price outstanding during each of the periods presented. For the nine months ended September 30, 1996, the interest expense adjustment is calculated on 227 out of 366 days. (22) Represents the issuance of 745,675 shares of United Dominion's common stock to the Seller of the Southeast Portfolio at $13.50 per share attributable to the development properties in the Southeast Portfolio based on the aggregate allocated purchase price. The shares are assumed to have been issued and outstanding from the earlier of the beginning of each period presented or the date on which certificates of occupancy were granted for each unit contained in the development properties. For the twelve months ended December 31, 1995 and the nine months ended September 30, 1996, based upon the weighted average balance of the purchase price outstanding during 1995 and 1996, the weighted average days the stock is assumed to have been outstanding is 215.79 (out of 365 days) and 175.92 (out of 227 days), respectively. (23) Represents the actual results of operations for Steeplechase Apartments and Westland Park Apartments that have been previously reported to the Securities and Exchange Commission by United Dominion on Form 8-K dated October 31, 1996. (24) Represents the pro forma adjustments for Westland Park and Steeplechase Apartments. For Westland Park Apartments this represents the 8 day period from May 1, 1996 to May 9, 1996, which was the period that the property was not owned by the United Dominion during 1996 and the period not included in the actual results of operations in Note 23 (based on the average per day unaudited statement of rental operations for the 121 day stub period from January 1, 1996 to April 30, 1996). For Steeplechase Apartments this represents the 6 day period from March 1, 1996 to March 6, 1996, which was the period that the property was not owned by United Dominion during 1996 and the period not included in the actual results of operations in Note 23 (based on the average per day unaudited statement of rental operations for the 60 day stub period from January 1, 1996 to February 29, 1996). (25) Reflects the net decrease in property management fees for Westland Park and Steeplechase Apartments. United Dominion internally manages its apartment properties at an assumed cost of approximately 2.5% of rental income (based upon 1995 actual information). United Dominion uses 98% of the amount reported as rental income in calculating the property management fee, as 2% of the amount reported as rental income is assumed to be other income which is not subject to management fee. (26) Reflects the net adjustments to depreciation expense to record Westland Park and Steeplechase Apartments acquisitions at the beginning of each period presented. Depreciation is computed on a straight-line basis over the useful lives of the related assets based upon the actual purchase price allocations of the properties. Buildings have been depreciated over 35 years and other assets over 5, 10 or 20 years depending on the useful life of the related asset. The weighted average life of other assets for Westland Park and Steeplechase Apartments is approximately 7.41 years based upon the initial cost of the properties of $30.2 million. The allocation and useful lives are as follows: 15 For the twelve months ended December 31, 1995: Twelve Months Allocation of Useful Life Depreciation Purchase Price In Years Adjustment -------------- -------- ---------- Building $ 25,133,903 35 $ 718,112 Other Improvements 1,375,227 7.405319 185,707 Land 3,689,016 -- -------------- ----------- Total $ 30,198,146 $ 903,819 ============== =========== For the nine months ended September 30, 1996: Nine Months Allocation of Useful Life Depreciation Purchase Price In Years Adjustment -------------- -------- ---------- Building $ 25,133,903 35 $ 200,384 Other Improvements 1,375,227 7.405319 51,820 Land 3,689,016 -- -------------- ----------- $ 30,198,146 $ 252,204 ============== =========== ** The nine months ended September 30, 1996, includes a pro forma adjustment for 102.13 (66 days for Steeplechase Apartments and 129 days for Westland Park Apartments) out of 366 days. The twelve months ended December 31, 1995 includes a pro forma adjustment for the full year. (27) Reflects the additional interest expense associated with the acquisition of Westland Park and Steeplechase Apartments on variable-rate bank debt aggregating $30.2 million used to fund the acquisitions at assumed interest rates equal to market rates in effect at the time of each respective acquisition. For the twelve months ended December 31, 1995: Twelve Months Interest Expense Property Total Debt Interest Rate Adjustment** -------- ---------- ------------- ------------ Westland Park $ 16,699,276 6.0296% $ 1,006,899 Steeplechase 13,498,870 5.9144% 798,376 ------------ ----------- $ 30,198,146 $ 1,805,275 ============ =========== For the nine months ended September 30, 1996: Nine Months Interest Expense Property Total Debt Interest Rate Adjustment** -------- ---------- ------------- ------------ Westland Park $ 16,699,276 6.0296% $ 354,891 Steeplechase 13,498,870 5.9144% 143,969 ------------ ----------- $ 30,198,146 $ 498,860 ============ =========== ** For the twelve months ended December 31, 1995, the interest expense adjustment is for the full year. *** For the nine months ended September 30, 1996, the interest expense adjustment for Westland Park and Steeplechase Apartments is for 129 and 66 days, respectively (based on a 366 day year). (28) Certain reclassifications have been made to South West's historical statements of operations for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996 to conform to United Dominion's financial statement presentations. (29) Represents adjustments to record the Merger in accordance with the purchase method of accounting, based upon the estimated purchase price of approximately $572 million, based on a market value of $14.125 per share of United Dominion common stock, as follows (in thousands): 16 Issuance of 22,805 shares of United Dominion common stock based on the 1.0833 exchange ratio in exchange for 21,051 shares of South West common stock* $ 322,110 Assumption of South West liabilities 234,709 Adjustment to record South West mortgages, other notes payable and interest rate swap agreement at fair value 2,016 Merger costs (See calculation below) 12,788 -------------------- $ 571,623 ==================== * 21,050,721 shares of South West common stock were outstanding on December 31, 1996. The following is a calculation of the estimated fees and other expenses related to the Merger (in thousands): Advisory fees $ 1,200 Legal and accounting fees 985 Termination, severance and relocations costs 1,887 Printing, filing fees and transfer costs 222 Payments of options and notes** 7,684 Due diligence 230 Other 580 ---------------- $ 12,788 ================ ** Represents payment for the purchase of unvested options and forgiveness of notes to South West employees and directors. (30) Estimated increase of $81.6 million in the book value of South West's real estate assets based upon United Dominion's estimated purchase price and the adjustment to eliminate South West's historical accumulated depreciation of $79.6 million, as follows (in thousands): Purchase price (See Note (29)) $ 571,623 Less basis of South West's assets assumed: Real estate held for investment 397,682 Construction in progress 73,598 Cash and cash equivalents 9,333 Other assets (See Note (31)) 9,455 (490,068) ---------- Pro forma adjustment $ 81,555 ========== South West historical accumulated depreciation $ 79,632 Less basis assigned to accumulated depreciation --- ----------- Pro forma adjustment $ 79,632 =========== Total pro forma adjustment to real estate held for investment $ 161,187 =========== (31) To adjust the historical basis of South West's other assets to eliminate deferred financing and similar costs in the aggregate amount of approximately $6.0 million which will be eliminated in connection with the Merger. (32) To record the estimated $2,016,227 premium as of September 30, 1996 required to adjust South West fixed-rate mortgages, other notes payable and an interest rate swap agreement to estimated fair value using market quotations from investment banks. To record the reclassification of $118,682,000 of notes payable-secured to notes payable-unsecured. For purposes of this Form 8-K, it is assumed that United Dominion would refinance $118,682,000 of South West's secured notes payable which consists of the following amounts at September 30, 1996: (i) bank-line borrowings aggregating $56.6 million, (ii) construction notes payable aggregating $53.7 million and (iii) two mortgage notes payable aggregating $8.4 million with unsecured notes payable. 17 (33) Additional borrowings estimated at $13,115,000 of variable-rate bank debt incurred by United Dominion to fund Merger costs estimated at $12,788,000 (See note (29) and the estimated registration costs of $327,000. (See Note (34)). To record the reclassification of $118,682,000 of notes payable-secured to notes payable-unsecured. See Note (32) above. (34) To adjust South West's shareholders' equity to reflect the issuance of 22,804,246 (at an exchange ratio of 1.0833) shares of United Dominion common stock based on a market value of $14.125 per share, in exchange for all of the 21,050,721 outstanding shares of South West's common stock and to record the estimated registration costs in connection with the Merger of $327,000, as follows: Notes Receivable From Distributions Common Paid-in Officer in Excess Stock Capital Shareholders Of Earnings (000's) (000's) (000's) (000's) ----- ------- ------------ ----------- Issuance of United Dominion common stock $ 22,805 $ 299,306 $ --- $ --- Registration costs incurred in connection with the Merger (327) South West's historical shareholders' equity (205) (236,240) 3,095 51,650 ---------- ---------- -------- ----------- Pro forma adjustments $ 22,600 $ 62,739 $ 3,095 $ 51,650 ========== ========== ======== =========== (35) Reflects the estimated net reduction of property management costs of $493,032 and $346,013 for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996, respectively, based upon the identified historical costs for those items which are anticipated to be eliminated or reduced as a result of the Merger, as follows: Twelve Months Nine Months Ended Ended December 31, 1995 September 30, 1996 (000's) (000's) ----------------- ------------------- Net reduction in salary, benefits and occupancy costs $ 285 $ 230 Net reduction in travel, entertainment & other 57 51 Net reduction in other expenses 151 65 ------- ------- Pro forma adjustment $ 493 $ 346 ======= ======= (36) Represents the estimated net increase in depreciation of real estate owned as a result of recording the South West real estate assets at fair value versus historical cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which have an estimated weighted average useful life of approximately 26.3 years. Buildings have been depreciated over 35 years and other assets over 5, 10 or 20 years depending on the useful life of the related asset. Calculation of fair value of depreciable real estate assets at September 30, 1996 (in thousands): ------------------------------------------------------------------------------------------------- Purchase price (See Note (30)) $ 571,623 Less: Purchase price allocated to cash and other assets (18,788) Purchase price allocated to land (71,886) Purchase price allocated to construction in progress** (73,598) ------------ Pro Forma basis of South West's depreciable real estate held for investment at fair value assets $ 407,351 ============ ** At September 30, 1996, South West had two apartment communities containing 698 apartment homes and three additions to existing properties which will total 392 apartment homes under construction. The historical cost of construction in progress is assumed to be at fair value. 18 Calculation of depreciation of real estate owned for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996: Twelve Months Nine Months Ended Ended December 31, 1995 September 30, 1996 (In 000's) (In 000's) ---------- ---------- Depreciation expense based upon an estimated weighted average useful life of approximately 26.3 years $ 14,163 $ 11,608 Less historical South West depreciation of real estate owned (12,304) (9,952) -------- ---------- Pro forma adjustment $ 1,859 $ 1,656 ======== ========== (37) Represents the estimated net adjustment to interest expense, as follows: Twelve Months Nine Months Ended Ended December 31, 1995 September 30, 1996 (In 000's) (In 000's) ----------------- ------------------ To adjust amortization of South West's deferred financing costs which would be eliminated in connection with the Merger $ (965) $ (921) To adjust the amortization of the premium required to adjust South West's mortgages, other notes payable and an interest rate swap agreement at fair value (440) (428) To reflect the additional borrowings of $13.1 million of variable-rate bank line borrowings used to fund the Merger costs (See Note (34)) at current market interest rates available to United Dominion of 6.03% 791 593 ------------ ----------- Pro forma adjustment $ (614) $ (756) ============ =========== (38) Represents the estimated net reduction to general and administrative costs of $1,039,471 and $722,046 for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996, respectively, based upon the identified historical costs of certain items which are anticipated to be eliminated or reduced as a result of the Merger, as follows: Twelve Months Nine Months Ended Ended December 31, 1995 September 30, 1996 (In 000's) (In 000's) ----------------- ------------------ Net reduction in salary, benefits and occupancy costs $ 704 $ 471 Net reduction in duplication of public company expenses 181 123 Net reduction in other expenses 154 128 -------- ----- $ 1,039 $ 722 ======== ===== 19 (39) The pro forma weighted average shares outstanding for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996 are computed as follows: Twelve Months Nine Months Ended Ended December 31, 1995 September 30, 1996 (In 000's) (In 000's) ---------- ---------- South West's historical weighted average common shares outstanding 18,627 20,659 Plus: effect of South West vested stock options converted upon Merger 211 211 Less: dilutive effect of South West stock options To be eliminated in the Merger ( 92) (220) ------ ------ South West adjusted weighted average common shares outstanding 18,746 20,650 ====== ====== United Dominion Pro Forma weighted average common shares outstanding 54,156 58,330 Issuance of United Dominion common stock at an exchange ratio of 1.0833 for all of the South West common stock in connection with the Merger ** 20,308 22,370 ------ ------ Pro Forma Shares 74,464 80,700 ====== ====== ** Weighted average historical South West common shares outstanding multiplied by the exchange ratio. 20 Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNITED DOMINION REALTY TRUST, INC. Date: January 21, 1997 /s/ James Dolphin ------------------------------------ James Dolphin, Senior Vice President Chief Financial Officer Date: January 21, 1997 /s/ Jerry A. Davis ------------------------------------ Jerry A. Davis, Vice President Corporate Controller 21