EXHIBIT 99.1
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and
other information as of and for each of the years in the five-year period ended
December 31, 2002. The table should be read in conjunction with our consolidated
financial statements and the notes thereto, and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, included
elsewhere in this Report.
UNITED DOMINION REALTY TRUST, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share data and apartment homes owned)
Years ended December 31,
------------------------
* 2002* 2001* 2000* 1999* 1998*
----- ----- ----- ----- -----
Operating Data (a)
Rental income ........................................................ $594,314 $565,322 $575,657 $576,215 $441,259
Income before gains on sales of investments, minority interests, and
discontinued operations ............................................ 15,734 29,020 33,846 47,649 34,984
Gains on sales of land and depreciable property ...................... 1,248 24,748 31,450 37,995 26,672
Income from discontinued operations, net of minority interests ....... 36,937 11,424 14,642 12,653 12,217
Net income ........................................................... 53,229 61,828 76,615 93,622 72,332
Distributions to preferred shareholders .............................. 27,424 31,190 36,891 37,714 23,593
Net income available to common shareholders .......................... 25,805 27,142 42,653 55,908 48,739
Common distributions declared ........................................ 118,888 108,956 110,225 109,607 107,758
Weighted average number of common shares outstanding-basic ........... 106,078 100,339 103,072 103,604 99,966
Weighted average number of common shares outstanding-diluted ......... 106,952 101,037 103,208 103,639 100,062
Weighted average number of common shares, OP Units, and common share
equivalents-diluted ................................................ 127,838 120,728 123,005 124,127 103,793
Per share:
(Loss)/income before discontinued operations per share, net of
minority interests ................................................. $ (0.11) $ 0.16 $ 0.27 $ 0.41 $ 0.37
Basic earnings per share ............................................. 0.24 0.27 0.41 0.54 0.49
Diluted earnings per share ........................................... 0.24 0.27 0.41 0.54 0.49
Common distributions declared ........................................ 1.11 1.08 1.07 1.06 1.05
Balance Sheet Data (a)
Real estate owned, at carrying value ................................. $3,967,483 $3,907,667 $3,836,320 $3,953,045 $3,952,752
Accumulated depreciation ............................................. 748,733 646,366 509,405 395,864 316,630
Total real estate owned, net of accumulated depreciation ............. 3,218,750 3,261,301 3,326,915 3,557,181 3,636,122
Total assets ......................................................... 3,276,136 3,348,091 3,453,957 3,688,317 3,762,940
Secured debt ......................................................... 1,015,740 974,177 866,115 1,000,136 1,072,185
Unsecured debt ....................................................... 1,041,900 1,090,020 1,126,215 1,127,169 1,045,564
Total debt ........................................................... 2,057,640 2,064,197 1,992,330 2,127,305 2,117,749
Shareholders' equity ................................................. 1,001,271 1,042,725 1,218,892 1,310,212 1,374,121
Number of common shares outstanding .................................. 106,605 103,133 102,219 102,741 103,639
Other Data (a)
Cash Flow Data
Cash provided by operating activities ................................ $ 226,700 $ 224,411 $ 224,160 $ 190,602 $ 140,597
Cash (used in)/provided by investing activities ...................... (65,062) (64,055) 58,705 (103,836) (263,864)
Cash (used in)/provided by financing activities ...................... (163,127) (166,020) (280,238) (105,169) 148,875
Funds from Operations (b)
Net income ........................................................... $53,229 $ 61,828 $ 76,615 $ 93,622 $ 72,332
Adjustments:
Distributions to preferred shareholders ........................... (27,424) (31,190) (36,891) (37,714) (23,593)
Real estate depreciation, net of other partnerships' interest ..... 150,743 135,958 140,322 109,847 91,081
Gains on sales of depreciable property, net of other partnerships'
interest ........................................................ (1,244) (24,007) (30,300) (37,995) (26,672)
Minority interests of unitholders in operating partnership ........ (724) 1,139 1,822 3,430 1,430
Real estate depreciation related to unconsolidated entities ....... 471 1,105 251 181 24
Discontinued Operations:
Real estate depreciation .......................................... 6,986 14,248 11,198 10,696 8,507
Minority interests of unitholders in operating partnership ........ 2,433 828 1,063 1,004 --
Impairment loss on real estate .................................... 2,301 -- -- -- --
Gains on sales of depreciable property ............................ (31,450) -- -- -- --
--------- ---------- ---------- ---------- ---------
Funds from operations-basic .......................................... $ 155,321 $ 159,909 $ 164,080 $ 143,071 $ 123,109
========= ========= ========= ========= =========
Adjustment:
Distributions to preferred shareholders-Series D (Convertible) .... 15,779 15,428 15,300 15,154 986
--------- ---------- ---------- ---------- ---------
Funds from operations-diluted ........................................ $ 171,100 $ 175,337 $ 179,380 $ 158,225 $ 124,095
========= ========= ========= ========= =========
Adjustment:
Recurring capital expenditures .................................... (32,341) (31,535) (24,794) (43,528) (25,019)
--------- ---------- ---------- ---------- ---------
Adjusted Funds from Operations-diluted (c) ........................... $ 138,759 $ 143,802 $ 154,586 $ 114,697 $ 99,076
========= ========= ========= ========= =========
6
Apartment Homes Owned
Total apartment homes owned at December 31 ........................... 74,480 77,567 77,219 82,154 86,893
Weighted average number of apartment homes owned during the year ..... 76,567 76,487 80,253 85,926 70,724
(a) In 1998, United Dominion completed the following statutory mergers: (i)
ASR Investments Corporation Inc. on March 27, 1998 for an aggregate
purchase price of $323 million and; (ii) American Apartment Communities
II on December 7, 1998 for an aggregate purchase price of $794 million.
(b) Funds from operations ("FFO") is defined as net income (computed in
accordance with generally accepted accounting principles), excluding
gains (losses) from sales of depreciable property, plus depreciation
and amortization, less preferred dividends and after adjustments for
unconsolidated partnerships and joint ventures. This definition
conforms with the National Association of Real Estate Investment
Trust's definition issued in October 1999 which was effective beginning
January 1, 2000. United Dominion considers FFO in evaluating property
acquisitions and its operating performance and believes that FFO should
be considered along with, but not as an alternative to, net income as a
measure of United Dominion's activities in accordance with generally
accepted accounting principles and is not necessarily indicative of
cash available to fund cash needs. For 2001, FFO includes a
non-recurring charge of $8.6 million related to workforce reductions,
other severance costs, executive office relocation costs, and the write
down of seven undeveloped land sites along with United Dominion's
investment in an online apartment leasing company. For 2000, FFO
includes a non-recurring charge of $3.7 million related to the
settlement of litigation and an organizational charge.
(c) Adjusted funds from operations is defined as FFO less recurring capital
expenditures for our stabilized portfolio. United Dominion considers
AFFO in evaluating property acquisitions and its operating performance,
and believes that AFFO should be considered along with, but not as an
alternative to, net income as a measure of United Dominion's operating
performance and liquidity.
* Reclassified to conform to current year presentation as described in
Note 15 to the consolidated financial statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This annual report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements include,
without limitation, statements concerning property acquisitions and
dispositions, development activity and capital expenditures, capital raising
activities, rent growth, occupancy, and rental expense growth. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates,"
and variations of such words and similar expressions are intended to identify
such forward-looking statements. Such statements involve known and unknown
risks, uncertainties, and other factors which may cause the actual results,
performance or achievements of United Dominion Realty Trust, Inc. to be
materially different from the results of operations or plans expressed or
implied by such forward-looking statements. Such factors include, among other
things, unanticipated adverse business developments affecting United Dominion,
or its properties, adverse changes in the real estate markets and general and
local economies and business conditions. Although United Dominion believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore such
statements included in this report may not prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by United Dominion or any other person that the results or
conditions described in such statements or the objectives and plans of United
Dominion will be achieved.
Business Overview
United Dominion is a real estate investment trust, or REIT, that owns,
acquires, renovates, develops, and manages middle-market apartment communities
nationwide. We were formed in 1972 as a Virginia corporation and our
subsidiaries include two operating partnerships, United Dominion Realty, L.P.
and Heritage Communities, L.P. Unless the context otherwise requires, all
references in this report to "we," "us," "our," or "United Dominion" refer
collectively to United Dominion Realty Trust, Inc. and its subsidiaries.
From 1996 through 1999, United Dominion acquired other REITs, private
portfolios, and individual communities to create a national platform. Since that
time, we have upgraded the quality of our portfolio through capital
reinvestment, development, divestitures and acquisitions, and invested in
infrastructure and technology to support our portfolio of assets. In 2001,
management established a long-term strategy that resulted in certain fundamental
conclusions and initial steps towards achieving our goals.
We believe that we must distinguish ourselves within the industry to
maintain a leadership position over the long-term. We believe an increased focus
on being an excellent operator of apartment homes will be a compelling and
successful business model to differentiate United Dominion in the eyes of
residents, associates, and investors. With this strategy, we believe that we can
become the best in the multifamily industry based upon the following key
principles:
OPERATIONAL EXCELLENCE--In short, operational excellence is a way of
doing business with consistent, standard systems and business processes
throughout our organization, to provide customers, residents,
7
and associates similar experiences regardless of location. Through operational
excellence, we believe that we can enhance our existing portfolio and new
properties we seek to acquire, deliver superior service to our residents, and
provide greater returns to our investors.
MIDDLE-MARKET--United Dominion will focus efforts on owning and
managing apartments that provide housing for customers who cannot typically
afford an entry-level home, or customers who choose apartment living over other
alternatives. We will primarily serve the price-sensitive, value-for-money
customers, in the broad middle-market segments of the population.
PORTFOLIO MANAGEMENT--We intend to continue to own and operate
middle-market apartment homes across a geographically diverse platform. We
believe that enhancing our presence in 25 to 30 core markets will enable us to
capitalize on operating efficiencies. As local market cycles create
opportunities, we intend to exit current markets where long-term growth is below
the national average (the "non-core markets"), and redeploy capital within our
core markets.
We believe that over the long-term, the fundamental principles of
operational excellence, middle-market focus, and proactive portfolio management
will better position United Dominion to serve its residents, increase
profitability, provide rewarding careers to our associates, and capitalize on
changes in the marketplace.
At December 31, 2002, United Dominion's portfolio included 260
communities with 74,480 apartment homes nationwide. The following table
summarizes United Dominion's market information by major geographic markets
(includes real estate held for disposition, real estate under development, and
land, but excludes commercial properties):
Year Ended
As of December 31, 2002 December 31, 2002
-------------------------------------------------------- -------------------------
Number of Number of Percentage of Carrying Average Average
Apartment Apartment Carrying Value Physical Monthly
Communities Homes Value (in thousands) Occupancy Rental Rates
----------- ----- ----- -------------- --------- ------------
Dallas, TX ....................... 15 5,133 6.6% $ 262,197 93.6% $703
Houston, TX ...................... 22 5,726 5.9% 231,886 93.8% 644
Phoenix, AZ ...................... 12 3,855 5.8% 227,703 93.1% 717
Orlando, FL ...................... 14 4,140 5.2% 205,970 91.8% 739
Raleigh, NC ...................... 11 3,663 5.2% 203,887 89.5% 738
Metropolitan DC .................. 8 2,330 4.4% 172,734 95.8% 937
Arlington, TX .................... 10 3,465 4.0% 158,031 94.5% 677
Tampa, FL ........................ 10 3,372 3.9% 153,925 91.6% 706
Columbus, OH ..................... 6 2,530 3.8% 149,247 94.0% 689
San Francisco, CA ................ 4 980 3.6% 141,245 97.2% 1,590
Charlotte, NC .................... 10 2,711 3.5% 139,050 90.8% 643
Southern California .............. 5 1,558 3.3% 130,459 95.1% 928
Nashville, TN .................... 8 2,220 3.0% 120,572 92.4% 669
Greensboro, NC ................... 8 2,122 2.6% 104,653 90.4% 613
Monterey Peninsula, CA ........... 9 1,706 2.5% 98,264 92.1% 914
Richmond, VA ..................... 8 2,372 2.5% 97,759 94.5% 723
Wilmington, NC ................... 6 1,868 2.3% 91,247 91.4% 655
Baltimore, MD .................... 7 1,470 2.3% 89,345 96.0% 861
Atlanta, GA ...................... 6 1,426 1.8% 72,547 89.3% 728
Columbia, SC ..................... 6 1,584 1.6% 62,716 95.0% 592
Jacksonville, FL ................. 3 1,157 1.5% 58,974 95.0% 675
Norfolk, VA ...................... 6 1,438 1.4% 54,727 97.3% 698
Lansing, MI ...................... 4 1,226 1.3% 50,185 93.2% 675
Seattle, WA ...................... 3 628 0.9% 34,291 92.6% 748
Other Western .................... 6 2,650 4.0% 157,164 91.7% 760
Other Pacific .................... 8 2,275 3.1% 124,176 91.7% 742
Other Southwestern ............... 8 2,077 2.8% 110,066 91.0% 717
Other Florida .................... 8 2,089 2.7% 107,797 93.8% 783
Other Midwestern ................. 10 2,122 2.4% 95,627 93.9% 635
Other North Carolina ............. 8 1,893 1.9% 75,865 95.2% 572
Other Southeastern ............... 4 1,394 1.7% 69,273 90.0% 591
Other Mid-Atlantic ............... 5 928 1.1% 42,835 97.0% 801
Other Northeastern ............... 2 372 0.5% 18,253 96.9% 692
Real Estate Under Development .... -- -- 0.5% 21,269 -- --
Land ............................. -- -- 0.4% 16,196 -- --
--- ------ ----- ---------- ---- ----
Total Apartments ........... 260 74,480 100.0% $3,950,135 93.0% $721
=== ====== ===== ========== ==== ====
8
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial
obligations either through the sale or maturity of existing assets or by the
acquisition of additional funds through working capital management. Both the
coordination of asset and liability maturities and effective working capital
management are important to the maintenance of liquidity. United Dominion's
primary source of liquidity is its cash flow from operations as determined by
rental rates, occupancy levels, and operating expenses related to its portfolio
of apartment homes. United Dominion routinely uses its unsecured bank credit
facility to temporarily fund certain investing and financing activities prior to
arranging for longer-term financing. During the past several years, proceeds
from the sale of real estate have been used for both investing and financing
activities.
United Dominion expects to meet its short-term liquidity requirements
generally through its net cash provided by operations and borrowings under
credit arrangements. We expect to meet certain long-term liquidity requirements
such as scheduled debt maturities, the repayment of financing on development
activities, and potential property acquisitions, through long-term secured and
unsecured borrowings, the disposition of properties, and the issuance of
additional debt or equity securities of United Dominion. We believe that our net
cash provided by operations will continue to be adequate to meet both operating
requirements and the payment of dividends by United Dominion in accordance with
REIT requirements in both the short- and long-term. Likewise, the budgeted
expenditures for improvements and renovations of certain properties are expected
to be funded from property operations.
United Dominion filed a shelf registration statement in December 1999
providing for the issuance of up to an aggregate of $700 million in common
shares, preferred shares, and debt securities to facilitate future financing
activities in the public capital markets. Under this shelf registration
statement, United Dominion sold 3.0 million shares of common stock at a price of
$14.91 per share in March 2002 and issued $200 million of 6.50% senior unsecured
notes due June 2009 in June 2002. In December 2002, United Dominion replaced its
existing shelf with a new shelf registration statement providing for the
issuance of up to an aggregate of $1 billion in debt securities, preferred
stock, and common stock and, as a result, the previous shelf registration will
no longer be used for our securities offerings. In January 2003, coinciding with
our inclusion in the S&P MidCap 400 Index, United Dominion sold 2.0 million
shares of common stock at a public offering price of $15.71 per share under the
new shelf registration statement. We received net proceeds from this offering of
approximately $31 million, which will be used to repay debt and for general
corporate purposes. In February 2003, United Dominion sold $150 million of 4.50%
medium-term notes due in March 2008 under a new $300 million medium-term note
program. The net proceeds from the issuance of approximately $149 million are
anticipated to be used to repay amounts outstanding on United Dominion's $375
million unsecured revolving credit facility. Access to capital markets is
dependent on market conditions at the time of issuance.
Future Capital Needs
Future development expenditures are expected to be funded primarily
through joint ventures or with proceeds from the sale of property and, to a
lesser extent, cash flows provided by operating activities. Acquisition activity
in strategic markets is expected to be largely financed through the issuance of
equity and debt securities, the issuance of operating partnership units, the
assumption of secured debt, and by the reinvestment of proceeds from the sale of
property in non-strategic markets.
During 2003, United Dominion has approximately $19.5 million of secured
debt and $115.1 million of unsecured debt maturing that we anticipate repaying
using proceeds from mortgage refinancing activity, borrowings under secured or
unsecured credit facilities, or the issuance of new unsecured debt securities.
Critical Accounting Policies and Estimates
Our critical accounting policies are those having the most impact on
the reporting of our financial condition and results and those requiring
significant judgments and estimates. These policies include those related to (1)
capital expenditures, (2) impairment of long-lived assets, and (3) derivatives
and hedging activities. With respect to these critical accounting policies,
management believes that the application of judgments and assessments is
consistently applied and produces financial information that fairly depicts the
results of operations for all periods presented.
9
Capital Expenditures
In conformity with accounting principles generally accepted in the
United States, United Dominion capitalizes those expenditures related to
acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. Expenditures
necessary to maintain an existing property in ordinary operating condition are
expensed as incurred.
During 2002, $42.8 million or $563 per home was spent on capital
expenditures for all of United Dominion's communities excluding development and
commercial properties. These capital improvements included turnover related
expenditures for floor coverings and appliances, other recurring capital
expenditures such as HVAC equipment, roofs, landscaping, siding, parking lots,
and other non-revenue enhancing capital expenditures, which aggregated $32.3
million or $425 per home. In addition, revenue enhancing capital expenditures,
including water sub-metering, the initial installation of microwaves or
washer-dryers, and extensive interior upgrades totaled $9.4 million or $124 per
home and major renovations totaled $1.1 million or $14 per home for the year
ended December 31, 2002.
The following table outlines capital expenditures and repairs and
maintenance costs for United Dominion's total portfolio, excluding real estate
under development and commercial properties for the periods presented (dollars
in thousands):
Year ended December 31, Year ended December 31, (per home)
--------------------------- ----------------------------------
2002 2001 % Change 2002 2001 % Change
---- ---- -------- ---- ---- --------
Turnover capital expenditures .................... $16,474 $16,776 (1.8)% $ 216 $ 222 (2.7)%
Other recurring capital expenditures ............. 15,867 14,759 7.5% 209 196 6.6%
------- ------- ----- ------ ------ -----
Total recurring capital expenditures ....... 32,341 31,535 2.6% 425 418 1.7%
Revenue enhancing improvements ................... 9,405 17,967 (47.7)% 124 238 (47.9)%
Major renovations ................................ 1,081 3,594 (69.9)% 14 48 (70.8)%
------- ------- ----- ------ ------ -----
Total capital improvements ................. $42,827 $53,096 (19.3)% $ 563 $ 704 (20.0)%
======= ======= ===== ====== ====== =====
Repairs and maintenance .......................... 40,078 36,197 10.7% 527 480 9.8%
------- ------- ----- ------ ------ -----
Total expenditures ......................... $82,905 $89,293 (7.2)% $1,090 $1,184 (7.9)%
======= ======= ===== ====== ====== =====
Total capital improvements decreased $10.3 million or $141 per home in
2002 compared to 2001 as challenging economic conditions negatively impacted our
potential to generate investment returns. United Dominion will continue to
selectively add revenue enhancing improvements which we believe will provide a
return on investment substantially in excess of United Dominion's cost of
capital. Recurring capital expenditures during 2003 are currently expected to be
approximately $435 per home.
Impairment of Long-Lived Assets
United Dominion records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by the future
operation and disposition of those assets are less than the net book value of
those assets. Our cash flow estimates are based upon historical results adjusted
to reflect our best estimate of future market and operating conditions and our
estimated holding periods. The net book value of impaired assets is reduced to
fair market value. Our estimates of fair market value represent our best
estimate based upon industry trends and reference to market rates and
transactions.
We review the carrying value of our portfolio of assets on a regular
basis. During 2002, United Dominion pursued its strategy of exiting markets
where long-term growth prospects are limited. As a result, 25 apartment
communities were placed under contract and two of these assets were ultimately
sold at net selling prices below their net book values. Accordingly, United
Dominion recorded an aggregate $2.3 million impairment loss for the write down
of a portfolio of apartment communities in Memphis, Tennessee. In 2001, in
connection with management's analysis of the carrying value of all undeveloped
land parcels, United Dominion recognized an aggregate $2.8 million impairment
loss on seven undeveloped sites in selected markets. An impairment loss was
indicated as a result of the net book value of the assets being greater than the
estimated fair market value less the cost of disposal.
10
Derivatives and Hedging Activities
United Dominion uses derivative financial instruments in the normal
course of business to reduce its exposure to fluctuations in interest rates. As
of December 31, 2002, United Dominion had 13 interest rate swap agreements with
a notional value aggregating $232 million that are used to fix the interest rate
on a portion of our variable rate debt. These derivatives qualify for hedge
accounting as discussed in Note 1 to our consolidated financial statements.
While we intend to continue to meet the conditions for hedge accounting, if a
particular interest rate swap does not qualify as highly effective, any change
in the fair value of the derivative used as a hedge would be reflected in
current earnings. Furthermore, should any change in management strategy, or any
other circumstance, cause an existing highly effective hedge to become
ineffective, the accumulated loss or gain in the value of the derivative
instrument since its inception would be immediately reclassified from the
shareholders' equity section of the balance sheet to current earnings.
Interest rate swaps, where United Dominion effectively makes fixed rate
payments and receives variable rate payments to eliminate its variable rate
exposure, are entered into to manage the interest rate risk in our existing
balance sheet mix. These instruments are valued using the market standard
methodology of netting the discounted future variable cash receipts and the
discounted expected fixed cash payments. The variable cash flow streams are
based on an expectation of future interest rates derived from observed market
interest rate curves. We have not changed our methods of calculating these fair
values or developing the underlying assumptions. The values of these derivatives
will change over time as cash receipts and payments are made and as market
conditions change. Any event that impacts the level of actual and expected
future interest rates will impact our swap valuations. The fair value of our
existing swap portfolio is likely to fluctuate materially from year to year
based on changing levels of interest rates and shortening swap terms to
maturity. Information about the fair values, notional amounts, and contractual
terms of United Dominion's interest rate swaps can be found in Note 8 to our
consolidated financial statements and the section titled "Interest Rate Risk"
below.
Potential losses are limited to counterparty risk in situations where
United Dominion is owed money; that is, when United Dominion holds contracts
with positive fair values. We do not expect any losses from counterparties
failing to meet their obligations as the counterparties are highly rated credit
quality U.S. financial institutions and management believes that the likelihood
of realizing material losses from counterparty non-performance is remote. At
December 31, 2002, United Dominion had unrealized losses totaling $9.6 million
on derivative transactions, which if terminated, would require a cash outlay.
United Dominion presently has no intention to terminate these contracts. There
are no credit concerns related to our obligations and we expect to meet those
obligations without default.
The following discussion explains the changes in net cash provided by
operating activities and net cash used in investing and financing activities
that are presented in United Dominion's Consolidated Statements of Cash Flows.
Operating Activities
For the year ended December 31, 2002, United Dominion's cash flow
provided by operating activities was $226.7 million compared to $224.4 million
for 2001. During 2002, cash flow from operating activities resulted primarily
from increased rental revenues from a larger portfolio and decreased interest
expense that were partially offset by increased rental expenses, lower
collections on escrow accounts and receivables, and increased payments of
accrued incentive compensation.
Investing Activities
For the year ended December 31, 2002, net cash used in investing
activities was $65.1 million compared to $64.1 million for 2001. Changes in the
level of investing activities from period to period reflects United Dominion's
strategy as it relates to its acquisition, capital expenditure, development, and
disposition programs, as well as the impact of the capital market environment on
these activities.
Acquisitions
During the year ended December 31, 2002, United Dominion acquired nine
communities with 3,041 apartment homes and one parcel of land for approximately
$267 million. In addition, in June 2002, United
11
Dominion purchased, for approximately $52 million, the remaining two apartment
communities with 644 apartment homes that were part of an unconsolidated
development joint venture in which United Dominion owned a 25% interest and
served as the managing partner. In August 2002, United Dominion purchased the
outside partnership interest in two properties in California containing 926
apartment homes for approximately $17 million.
During 2003, we plan to continue to channel new investments to those
markets that are projected to provide the best investment returns for us over
the next ten years. Markets will be targeted based upon defined criteria
including past performance, expected job growth, current and anticipated housing
supply and demand, and the ability to attract and support household formation.
Real Estate Under Development
Development activity is focused in core markets that have strong
operations in place. For the year ended December 31, 2002, United Dominion
invested approximately $22.8 million in development projects, down $30.8 million
from its 2001 level of $53.6 million.
The following projects were under development at December 31, 2002:
Number of Completed Cost to Estimated Expected
Apartment Apartment Date Budgeted Cost Cost Completion
Location Homes Homes (In thousands) (In thousands) Per Home Date
-------- ----- ----- -------------- -------------- -------- ----
The Mandolin II ........ Dallas, TX 178 -- $5,400 $13,300 $74,700 4Q03
2000 Post III .......... San Francisco, CA 24 -- 2,100 6,600 275,000 3Q04
Rancho Cucamonga ....... Los Angeles, CA 414 -- 13,800 60,400 145,900 4Q05
--- -- ------- ------- --------
616 -- $21,300 $80,300 $130,400
=== == ======= ======= ========
In addition, United Dominion owns seven parcels of land that it
continues to hold for future development that had a carrying value at December
31, 2002 of $9.4 million. Six of the seven parcels represent additional phases
to existing communities as United Dominion plans to add apartment homes adjacent
to currently owned communities that are in improving markets.
The following projects were completed during the year ended December
31, 2002:
Number of Development
Apartment Cost Cost Per Date % Leased
Location Homes (In thousands) Home Completed at 12/31/02
-------- ----- -------------- ---- --------- -----------
Greensview II .......... Denver, CO 192 $16,900 $88,000 3/02 72.4%
The Meridian II ........ Dallas, TX 270 14,800 54,800 6/02 95.6%
--- ------- -------
462 $31,700 $68,600
=== ======= =======
Disposition of Investments
For the year ended December 31, 2002, United Dominion sold 25
communities with a total of 6,990 apartment homes, one commercial property, and
one parcel of land for an aggregate sales price of approximately $319 million
and recognized gains for financial reporting purposes of $31.5 million. Proceeds
from the sales were applied primarily to acquire communities and reduce debt. In
addition, during the first quarter of 2002, $3.1 million in proceeds was
received on the condemnation of 96 units of a community in Fresno, California
that resulted in a gain of $1.2 million. For the year ended December 31, 2001,
United Dominion sold nine communities with 1,889 apartment homes and five
parcels of land for an aggregate sales price of approximately $141.3 million and
recognized gains for financial reporting purposes of $24.7 million. Proceeds
from the sales were used primarily to repurchase United Dominion's 9.25% Series
A Cumulative Redeemable Preferred Stock during the second quarter of 2001, and
to a lesser extent, to reduce long-term debt, repurchase common shares, and to
complete Section 1031 exchanges to defer taxable gains.
During 2003, United Dominion plans to continue to pursue its strategy
of exiting markets where long-term growth prospects are limited and redeploying
capital into markets that would enhance future growth rates and economies of
scale. We intend to use proceeds from 2003 dispositions to acquire communities,
fund development activity, and reduce debt.
12
Development Joint Ventures
In June 2000, United Dominion completed the formation of a joint
venture that would invest approximately $101 million to develop five apartment
communities with a total of 1,438 apartment homes. United Dominion owned a 25%
interest in the joint venture and served as the managing partner of the joint
venture as well as the developer, general contractor, and property manager. For
the years ended December 31, 2002, 2001, and 2000, United Dominion recognized
fee income of approximately $0.6 million, $2.6 million, and $3.0 million,
respectively, for general contracting, developer, and management services
provided by United Dominion to the joint venture. In December 2001, United
Dominion purchased three of the five apartment communities for a total aggregate
cost of approximately $61 million. In June 2002, United Dominion purchased the
remaining two communities for a total aggregate cost of approximately $52
million.
In September 2002, United Dominion signed a development joint venture
agreement with AEGON USA Realty Advisors, Inc. in which United Dominion serves
as the managing member. The joint venture is expected to develop approximately
eight to ten garden style apartment communities over the next three to five
years, with a total development cost of up to $210 million. The joint venture
will obtain bank construction financing for 65% to 80% of total costs. The joint
venture will provide equity contributions for the balance of the costs with
AEGON providing 80% and United Dominion providing 20%. United Dominion will
serve as the developer, general contractor, and property manager for the joint
venture, and will guarantee those project development costs, excluding financing
costs (including fees and interest), which exceed the defined project cost
budgeted amounts for each respective project, as they come to fruition. As of
December 31, 2002, the joint venture had not commenced operations.
Financing Activities
Net cash used in financing activities during 2002 was $163.1 million
compared to $166.0 million for 2001. As part of the plan to improve United
Dominion's balance sheet position, we utilized proceeds from dispositions,
equity and debt offerings, and refinancings to extend maturities, pay down
existing debt, and purchase new properties.
The following is a summary of our financing activities for the year
ended December 31, 2002:
o Borrowed an additional $253.6 million under our existing
Fannie Mae credit facilities and $70.7 million under a new $72
million Freddie Mac revolving credit facility.
o Repaid $305.8 million of secured debt and $210.4 million of
unsecured debt (includes tender offer and prepayment penalties
referred to below), assumed $41.6 million of secured debt in
connection with the acquisition of properties, and repaid
$35.9 million of secured debt in connection with the
disposition of properties.
o Sold 3.0 million common shares at a price of $14.91 per share
in March 2002. The net proceeds of $42.3 million were used to
acquire apartment communities.
o Refinanced secured debt during the first quarter of 2002 using
proceeds from the new Fannie Mae and Freddie Mac credit
facilities and incurred prepayment penalties of $15.8 million
on the refinancing of these mortgages, while freeing $8.2
million of cash previously escrowed with former lenders.
Management believes that the net present value of these
refinancing transactions ranges from approximately $17 million
to $20 million.
o Issued $200 million of 6.50% senior unsecured notes due in
June 2009 in June 2002. The net proceeds from the issuance of
$198.5 million were used to reduce outstanding debt under our
$375 million unsecured revolving credit facility.
13
o Repurchased the following unsecured debt during the third and
fourth quarters of 2002 (dollars in thousands):
Purchase Premium
Issuance (in order of maturity) Price Paid
------------------------------- ----- ----
8.63% Notes due March 2003 .............................................. $ 25 $ 1
7.67% Medium-Term Notes due January 2004 ................................ 6,925 371
7.73% Medium-Term Notes due April 2005 .................................. 1,300 96
7.95% Medium-Term Notes due July 2006 ................................... 17,805 1,771
7.25% Notes due January 2007 ............................................ 12,755 900
8.50% Monthly Income Notes due November 2008 ............................ 28,180 3,382
8.50% Debentures due September 2024 ..................................... 70,802 11,335
--------- --------
$ 137,792 $17,856
========= ========
Management believes that these redemptions will generate a net
present value savings of approximately $1 million to $3
million.
o Repurchased 914,000 common shares at an average price of
$14.16. As of December 31, 2002, approximately 2.3 million
common shares remained available for repurchase under the
common share repurchase program.
o Filed with the Securities and Exchange Commission in December
2002 a new shelf registration statement that provides for the
issuance of up to $1 billion aggregate amount of debt
securities, preferred stock, and common stock from time to
time in one or more offerings to facilitate future financing
activities in the public capital markets. The new $1 billion
shelf registration statement replaces the $294 million
remaining on our previous $700 million shelf registration
statement filed in December 1999.
Credit Facilities
United Dominion has four secured revolving credit facilities with
Fannie Mae with an aggregate commitment of $860 million and one with Freddie Mac
for $72 million. As of December 31, 2002, $676.3 million was outstanding under
the Fannie Mae credit facilities leaving $183.7 million of unused capacity. The
Fannie Mae credit facilities are for an initial term of ten years, bear interest
at floating and fixed rates, and can be extended for an additional five years at
United Dominion's discretion. As of December 31, 2002, $70.7 million had been
funded under the Freddie Mac credit facility leaving $1.3 million of unused
capacity. The Freddie Mac credit facility is for an initial term of five years
with an option by United Dominion to extend for an additional four-year term at
the then market rate.
As of December 31, 2002, the aggregate borrowings under both the Fannie
Mae and Freddie Mac credit facilities was $747 million. We have $305.9 million
of the funded balance fixed at a weighted average interest rate of 6.4%. The
remaining balance on these facilities is currently at a weighted average
variable rate of 2.0%.
United Dominion has a $375 million three-year unsecured bank revolving
credit facility that matures in August 2003. As of December 31, 2002, $175.8
million was outstanding under the bank credit facility leaving $199.2 million of
unused capacity. Under the bank credit facility, United Dominion may borrow at a
rate of LIBOR plus 1.1%, and pays an annual facility fee equal to 0.25% of the
commitment.
The Fannie Mae and Freddie Mac credit facilities and the bank revolving
credit facility are subject to customary financial covenants and limitations. As
of December 31, 2002, management believes that United Dominion is in compliance
with all covenants and limitations.
Derivative Instruments
As part of United Dominion's overall interest rate risk management
strategy, we use derivatives as a means to fix the interest rates of variable
rate debt obligations or to hedge anticipated financing transactions. United
Dominion's derivative transactions used for interest rate risk management
include various interest rate swaps with indices that relate to the pricing of
specific financial instruments of United Dominion. United Dominion believes that
it has appropriately controlled its interest rate risk through the use of
derivative instruments. During 2002, the
14
fair value of United Dominion's derivative instruments has improved from an
unfavorable value position of $14.9 million at December 31, 2001 to an
unfavorable value position of $9.6 million at December 31, 2002. This decrease
is primarily due to the normal progression of the fair market value of
derivative instruments to get closer to zero as they near the end of their terms
(see Note 8 to the consolidated financial statements).
Interest Rate Risk
United Dominion is exposed to interest rate risk associated with
variable rate notes payable and maturing debt that has to be refinanced. United
Dominion does not hold financial instruments for trading or other speculative
purposes, but rather issues these financial instruments to finance its portfolio
of real estate assets. United Dominion's interest rate sensitivity position is
managed by our finance department. Interest rate sensitivity is the relationship
between changes in market interest rates and the fair value of market rate
sensitive assets and liabilities. United Dominion's earnings are affected as
changes in short-term interest rates impact its cost of variable rate debt and
maturing fixed rate debt. A large portion of United Dominion's market risk is
exposure to short-term interest rates from variable rate borrowings outstanding
under the unhedged portion of its Fannie Mae credit facilities and its bank
revolving credit facility, which totaled $370.5 million and $70.7 million,
respectively, at December 31, 2002. The impact on United Dominion's financial
statements of refinancing fixed rate debt that matured during 2002 was
immaterial.
At December 31, 2002, the notional value of United Dominion's
derivative products for the purpose of managing interest rate risk was $232
million, representing interest rate swaps under which United Dominion pays a
fixed rate of interest and receives a variable rate. These agreements
effectively fix $232 million of United Dominion's variable rate notes payable to
a weighted average fixed rate of 7.72%. At December 31, 2002, the fair market
value of the interest rate swaps was an unfavorable value position of $9.6
million. If interest rates were 100 basis points more or less at December 31,
2002, the fair market value of the interest rate swaps would have increased or
decreased approximately $1.9 million and $2.0 million, respectively.
If market interest rates for variable rate debt average 100 basis
points more in 2003 than they did during 2002, United Dominion's interest
expense, after considering the effects of its interest rate swap agreements,
would increase, and income before taxes would decrease by $5.3 million.
Comparatively, if market interest rates for variable rate debt had averaged 100
basis points more in 2002 than in 2001, United Dominion's interest expense,
after considering the effects of its interest rate swap agreements, would have
increased, and income before taxes would have decreased by $5.2 million. If
market rates for fixed rate debt were 100 basis points higher at December 31,
2002, the fair value of fixed rate debt would have decreased from $1.38 billion
to $1.33 billion. If market interest rates for fixed rate debt were 100 basis
points lower at December 31, 2002, the fair value of fixed rate debt would have
increased from $1.38 billion to $1.45 billion.
These amounts are determined by considering the impact of hypothetical
interest rates on United Dominion's borrowing cost and interest rate swap
agreements. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no change in United Dominion's financial structure.
Results of Operations
Effective January 1, 2002, United Dominion adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. SFAS No. 144 extends the reporting requirements of
discontinued operations to include the components of an entity that have either
been disposed of or are classified as held for disposition (see Note 3 to the
consolidated financial statements). During 2002, United Dominion sold 25
communities, one commercial property, and one parcel of land and, at December
31, 2002, had five properties classified as real estate held for disposition.
Accordingly, the operating results of these properties have been reclassified as
discontinued operations in the Consolidated Statements of Operations for each of
the three years in the period ended December 31, 2002. The following discussion
includes the results of both continuing and discontinued operations for the
periods presented.
15
Net Income Available to Common Shareholders
2002-vs-2001
Net income available to common shareholders was $25.8 million ($0.24
per share) for the year ended December 31, 2002, compared to $27.1 million
($0.27 per share) for the prior year. The decrease in net income available to
common shareholders resulted primarily from charges for prepayment penalties and
premiums paid in connection with the refinancing of mortgage debt and the
repurchase of unsecured debt, aggregating $37.0 million. These charges were
partially offset by higher gains recognized on the sales of depreciable property
during 2002 compared to 2001, most of which are included in income from
discontinued operations (see Note 3 to the consolidated financial statements),
and non-recurring charges in 2001 (see discussion that follows under
"Restructuring Charges" and "Impairment Loss on Real Estate and Investments").
In addition, consolidated property operations generated $9.0 million more in
rental income during 2002 compared to 2001 as a result of the continued lease-up
and stabilization of development communities, and interest expense decreased
$11.4 million due to refinancing activities.
2001-vs-2000
Net income available to common shareholders was $27.1 million ($0.27
per share) for the year ended December 31, 2001, compared to $42.7 million
($0.41 per share) for 2000, representing a decrease of $15.6 million ($0.14 per
share). Excluding non-recurring charges (see discussion that follows under
"Restructuring Charges" and "Impairment Loss on Real Estate and Investments")
and the loss on early debt retirement, net income available to common
shareholders was $41.5 million ($0.41 per share) for the year ended December 31,
2001, compared to $45.5 million ($0.44 per share) for 2000, representing a
decrease of $4.0 million ($0.04 per share). Excluding non-recurring charges and
the loss on early debt retirement, the decrease for the period was primarily due
to the overall decrease in United Dominion's portfolio of assets that generated
rental income of $618.6 million, representing a decrease of $8.0 million from
2000. In addition, United Dominion recognized lower gains on the sale of land
and depreciable property during 2001 and incurred the write-off of unamortized
original issuance costs associated with its 9.25% Series A Cumulative Redeemable
Preferred Stock during the second quarter of 2001. This decrease was moderated,
in part, by a decrease in rental expenses of $4.2 million to $246.2 million and
lower interest costs of $144.4 million during 2001 compared to $156.0 million in
2000.
Apartment Community Operations
United Dominion's net income is primarily generated from the operation
of its apartment communities. The following table summarizes the operating
performance of United Dominion's total apartment portfolio for each of the
periods presented (dollars in thousands):
Year Ended December 31, Year Ended December 31,
----------------------------------------- -------------------------------------
2002 2001 % Change 2001 2000 % Change
---- ---- -------- ---- ---- --------
Property rental income $ 627,625 $ 617,690 1.6% $ 617,690 $ 625,481 (1.2)%
Property operating expense* (233,071) (227,820) 2.3% (227,820) (230,489) (1.2)%
---------- --------- ----- --------- --------- ----
Property operating income $ 394,554 $ 389,870 1.2% $ 389,870 $ 394,992 (1.3)%
========= ========= ===== ========= ========= ====
Weighted average number of homes 76,567 76,487 0.1% 76,487 80,253 (4.7)%
Physical occupancy** 93.0% 93.9% (0.9)% 93.9% 94.2% (0.3)%
- ------
* Excludes depreciation, amortization, and property management expenses.
** Based upon weighted average homes.
The increase in property operating income provided by the same
communities, development communities, and acquisition communities since December
31, 2001 is primarily due to the continued lease-up and stabilization of
development communities.
2002-vs-2001
Same Communities
United Dominion's same communities (those communities acquired,
developed, and stabilized prior to January 1, 2001 and held on January 1, 2002,
which consisted of 66,416 apartment homes at December 31, 2002) provided 87% of
our property operating income for the year ended December 31, 2002.
16
In 2002, same community property operating income decreased 0.8% or
$2.8 million compared to the prior year. The overall decrease in property
operating income was primarily driven by a 17.1% or $5.6 million increase in
vacancy loss and a 37.1% or $4.5 million increase in concessions. These
decreases in income were partially offset by a 32.8% or $3.4 million increase in
sub-meter, trash, and vacant utility reimbursements, a 0.3% or $1.7 million
increase in rental rates and a 13.0% or $2.6 million increase in other income.
Physical occupancy declined 0.8% to 93.3% in 2002 compared to 2001.
For 2002, property operating expenses at these same communities
increased 0.9% or $1.7 million compared to 2001. This increase in property
operating expenses was primarily driven by a 10.6% or $3.3 million increase in
repairs and maintenance costs and a 3.4% or $1.6 million increase in real estate
taxes, both of which were partially offset by a 5.1% or $1.7 million decrease in
utilities expense, a 40.2% or $0.9 million decrease in incentive compensation
expense, and a 9.5% or $1.0 million decrease in insurance costs.
As a result of the percentage changes in property rental income and
property operating expenses, the operating margin (property operating income
divided by property rental income) decreased 0.4% to 63.3%.
Non-Mature Communities
The remaining 13% of United Dominion's property operating income during
2002 was generated from its non-mature communities (those communities acquired
or developed during 2001 and 2002, sold properties, and those properties
classified as real estate held for disposition). The 16 communities with 4,989
apartment homes acquired by United Dominion during 2001 and 2002 provided $19.6
million of property operating income. In addition, United Dominion's development
communities, which included 1,238 apartment homes constructed since January 1,
2001, provided $6.7 million of property operating income during 2002. The 25
communities with 6,990 apartment homes sold during 2002 provided $18.1 million
of property operating income, the two communities with 363 apartment homes
classified as real estate held for disposition provided $1.9 million of property
operating income, and other non-mature communities provided $4.6 million of
property operating income for the year ended December 31, 2002.
2001-vs-2000
Same Communities
United Dominion's same communities (those communities acquired,
developed, or stabilized prior to January 1, 2000 and held on January 1, 2001,
which consisted of 72,997 apartment homes at December 31, 2001) provided 95% of
United Dominion's property operating income for the year ended December 31,
2001.
In 2001, property operating income for the same communities increased
2.3% or $8.5 million compared to 2000. The growth in property operating income
resulted from a $17.8 million or 3.1% increase in property rental income over
the same period in the prior year. The increase was driven by a $22.9 million or
3.9% increase in rental rates. The increased rental rates were partially offset
by higher concessions and an increase in bad debt expense. Physical occupancy
decreased 0.2% to 94.0% in 2001 compared to 2000.
For 2001, property operating expenses at these same communities
increased $9.3 million or 4.5% compared to 2000. The increase in property
operating expenses resulted primarily from a $3.6 million or 11.1% increase in
utility costs experienced by United Dominion as a result of the increase in
prices for natural gas and overall increases in electricity costs. In addition,
United Dominion experienced a $2.4 million or 7.3% increase in repairs and
maintenance, a $1.6 million or 3.1% increase in taxes, and a $1.2 million or
2.1% increase in personnel costs compared to 2000.
As a result of the percentage changes in property rental income and
property operating expenses, the operating margin (property operating income
divided by property rental income) decreased 0.5% to 63.2%.
Non-Mature Communities
The remaining 5% of United Dominion's property operating income during
2001 was generated from its non-mature communities (those communities acquired
or developed during 2000 and 2001 and sold properties). The six communities with
1,571 apartment homes acquired by United Dominion during 2000 and 2001 provided
an additional $3.8 million of property operating income during 2001. In
addition, United Dominion's development communities, which included 2,022
apartment homes constructed since January 1, 2000, provided an additional $9.5
17
million of property operating income for the year ended December 31, 2001, and
the nine communities with 1,889 apartment homes sold in 2001 provided $2.5
million of property operating income during 2001.
Real Estate Depreciation
During the year ended December 31, 2002, real estate depreciation on
both continuing and discontinued operations increased $7.3 million or 4.8%
compared to 2001. The increase in depreciation expense was attributable to the
overall increase in the weighted average number of apartment homes as well as
the impact of completed development communities, acquisitions, and capital
expenditures.
During the year ended December 31, 2001, real estate depreciation on
both continuing and discontinued operations decreased $1.1 million or 0.8%
compared to 2000. The decrease in depreciation expense was attributable to the
overall decrease in the weighted average number of apartment homes partially
offset by the impact of completed development communities, acquisitions, and
capital expenditures.
Interest Expense
For the year ended December 31, 2002, interest expense on both
continuing and discontinued operations decreased $11.4 million or 7.9% from 2001
primarily due to debt refinancings and decreasing interest rates that were
partially offset by the overall increase in the weighted average level of debt
outstanding. For the year ended December 31, 2002, the weighted average amount
of debt outstanding increased 2.0% or $40.4 million from 2001 levels and the
weighted average interest rate decreased from 7.1% to 6.1% for 2002. The
weighted average amount of debt employed during 2002 is higher than 2001 as we
borrowed additional funds to acquire apartment communities. The decrease in the
average interest rate during 2002 reflects the ability of United Dominion to
take advantage of declining interest rates through refinancing and the
utilization of variable rate debt.
For the year ended December 31, 2001, interest expense decreased $11.7
million from the corresponding amount in 2000 primarily due to decreasing
interest rates and, to a lesser extent, the overall decrease in the level of
debt outstanding. For the year ended December 31, 2001, the weighted average
amount of debt outstanding decreased 2.9% or $60.2 million from 2000 levels and
the weighted average interest rate decreased from 7.6% in 2000 to 7.1% in 2001.
The weighted average amount of debt employed during 2001 is lower as a portion
of disposition proceeds was used to repay outstanding debt. The decrease in the
average interest rate during 2001 reflects the ability of United Dominion to
take advantage of declining interest rates through refinancing and the
utilization of variable rate debt.
Restructuring Charge
In 2001, management undertook a comprehensive review of the
organizational structure of United Dominion and its operations subsequent to the
appointment of a new senior management team and CEO. As a result, we recorded
$4.5 million of expense related to the termination of approximately 10% of
United Dominion's workforce in operations and at the corporate headquarters. In
addition, United Dominion recognized expense in the aggregate of $0.9 million
related to relocation costs associated with the new executive offices in
Colorado and other miscellaneous costs.
Impairment Loss on Real Estate and Investments
In 2002, United Dominion pursued its strategy of exiting markets where
long-term growth prospects are limited and the redeployment of capital would
enhance future growth rates and economies of scale. During 2002, United Dominion
sold 25 apartment communities with a total of 6,990 apartment homes, one
commercial property, and one parcel of land with an aggregate net book value of
approximately $285 million. Although these sales resulted in an aggregate net
gain of $31.5 million, certain of these assets were sold at net selling prices
below their net book values. As a result, United Dominion recorded an aggregate
$2.3 million impairment loss during 2002 for the write down of a portfolio of
apartment communities in Memphis, Tennessee.
In 2001, in connection with the evaluation of United Dominion's real
estate assets and operations, senior management determined that it was in our
best interest to dispose of a majority of United Dominion's undeveloped tracts
of land at an accelerated pace and redeploy the proceeds elsewhere. This
represented a change from prior management in the holding period of these assets
and their respective values. Prior management had purchased these tracts of land
in 1999 and 2000 with the intent to build apartment communities on them. To
accelerate the
18
disposition of these undeveloped land sites, we recorded an aggregate $2.8
million impairment loss during the first quarter of 2001 for the write down of
seven undeveloped sites in selected markets. The $2.8 million charge represented
the discount necessary to dispose of these assets in a short time frame coupled
with decreases in market value in 2001 for these properties. In addition, United
Dominion recognized a $0.4 million charge for the write down of its investment
in an online apartment leasing company.
During the fourth quarter of 2001, Realeum, Inc., a property management
software venture in which United Dominion made significant investments prior to
2001, successfully completed an equity offering in which it raised approximately
$15 million of new capital in exchange for a 45.6% ownership stake. As a result
of the equity offering, the market value of United Dominion's ownership stake
was established at approximately $1.3 million, and its $3.5 million aggregate
investment was adjusted to $1.3 million.
General and Administrative
For the year ended December 31, 2002, general and administrative
expenses decreased $2.4 million or 11.0% compared to 2001. The decrease was
primarily due to reduced personnel costs and state and local taxes that were
partially offset by increased third-party consulting expenses.
For the year ended December 31, 2001, general and administrative
expenses increased $6.0 million or 38.2% compared to 2000. The increase was
primarily due to an increase in costs related to incentive compensation,
employee benefits, and state and local taxes.
Gains on Sales of Land and Depreciable Property
For the years ended December 31, 2002 and 2001, United Dominion
recognized gains for financial reporting purposes of $32.7 million and $24.7
million, respectively. Changes in the level of gains recognized from period to
period reflect the changing level of United Dominion's divestiture activity from
period to period, as well as the extent of gains related to specific properties
sold.
Inflation
United Dominion believes that the direct effects of inflation on our
operations have been immaterial. Substantially all of United Dominion's leases
are for a term of one year or less which generally minimizes our risk from the
adverse effects of inflation.
Factors Affecting Our Business Prospects
There are may factors that affect our business and the results of our
operations, some of which are beyond our control. These factors include:
o Unfavorable changes in apartment market and economic
conditions that could adversely affect occupancy levels and
rental rates.
o The failure of acquisitions to achieve anticipated results.
o Possible difficulty in selling apartment communities.
o Competitive factors that may limit our ability to lease
apartment homes or increase or maintain rents.
o Insufficient cash flow that could affect our debt financing
and create refinancing risk.
o Failure to generate sufficient revenue, which could impair
our debt service payments and distributions to shareholders.
o Development and construction risks that may impact our
profitability.
o Our failure to succeed in new markets.
o Changing interest rates, which could increase interest costs
and affect the market price of our securities.
o Potential liability for environmental contamination, which
could result in substantial costs.
o The imposition of federal taxes if we fail to qualify as a
REIT in any taxable year.
19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
UNITED DOMINION REALTY TRUST, INC.
Page
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Ernst & Young LLP, Independent Auditors ....................................................... 21
Consolidated Balance Sheets at December 31, 2002 and 2001 ............................................... 22
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 2002 ................................................................................. 23
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2002 ................................................................................. 24
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended
December 31, 2002 ................................................................................. 25
Notes to Consolidated Financial Statements .............................................................. 27
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III--Summary of Real Estate Owned .............................................................. 48
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
20
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
United Dominion Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of United
Dominion Realty Trust, Inc. (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2002.
Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Dominion Realty Trust, Inc. at December 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 15 to the consolidated financial statements, in
2003, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Correction." As discussed in Note 2 to the
consolidated financial statements, in 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." As discussed in Note 1 to the
consolidated financial statements, in 2001 the Company changed its method of
accounting for derivative financial instruments.
ERNST & YOUNG LLP
Richmond, Virginia
January 27, 2003,
except for Note 14, as to which the date is
February 27, 2003, and
except for Note 15, as to which the date is
May 12, 2003
21
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
December 31,
------------------
2002 2001
---- ----
ASSETS
Real estate owned (Note 2):
Real estate held for investment .............................................................. $ 3,908,746 $ 3,858,579
Less: accumulated depreciation ......................................................... (742,876) (646,366)
----------- -----------
3,165,870 3,212,213
Real estate under development ................................................................ 30,624 40,240
Real estate held for disposition (net of accumulated depreciation of $5,857 and $0) (Note 3) . 22,256 8,848
----------- -----------
Total real estate owned, net of accumulated depreciation ..................................... 3,218,750 3,261,301
Cash and cash equivalents .......................................................................... 3,152 4,641
Restricted cash .................................................................................... 11,773 26,830
Deferred financing costs, net ...................................................................... 17,548 15,802
Investment in unconsolidated development joint venture (Note 4) .................................... -- 3,355
Other assets ....................................................................................... 24,913 36,162
----------- -----------
Total assets ................................................................................. $ 3,276,136 $ 3,348,091
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt (Note 5) .............................................................................. $ 1,015,740 $ 974,177
Unsecured debt (Note 6) ............................................................................ 1,041,900 1,090,020
Real estate taxes payable .......................................................................... 29,743 28,099
Accrued interest payable ........................................................................... 11,908 16,779
Security deposits and prepaid rent ................................................................. 21,379 20,481
Distributions payable .............................................................................. 35,141 33,457
Accounts payable, accrued expenses, and other liabilities .......................................... 49,634 66,688
Real estate held for disposition liabilities ....................................................... 204 --
----------- -----------
Total liabilities ............................................................................ 2,205,649 2,229,701
Minority interests ................................................................................. 69,216 75,665
Shareholders' equity (Note 7):
Preferred stock, no par value; $25 liquidation preference, 25,000,000
shares authorized;
5,416,009 shares 8.60% Series B Cumulative
Redeemable issued and outstanding (5,416,009 in 2001) ............................... 135,400 135,400
8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding
(8,000,000 in 2001) ................................................................. 175,000 175,000
Common stock, $1 par value; 150,000,000 shares authorized 106,605,259 shares issued and
outstanding (103,133,279 in 2001) ......................................................... 106,605 103,133
Additional paid-in capital ................................................................... 1,140,786 1,098,029
Distributions in excess of net income ........................................................ (541,428) (448,345)
Deferred compensation--unearned restricted stock awards ...................................... (2,504) (1,312)
Notes receivable from officer-shareholders ................................................... (2,630) (4,309)
Accumulated other comprehensive loss, net (Note 8) ........................................... (9,958) (14,871)
----------- -----------
Total shareholders' equity ............................................................. 1,001,271 1,042,725
----------- -----------
Total liabilities and shareholders' equity ................................................... $ 3,276,136 $ 3,348,091
=========== ===========
See accompanying notes to consolidated financial statements.
22
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years ended December 31,
--------------------------------
2002* 2001* 2000*
----- ----- -----
Revenues
Rental income ........................................................................ $ 594,314 $ 565,322 $ 575,657
Non-property income .................................................................. 1,806 4,593 5,326
--------- --------- ---------
Total revenues ................................................................. 596,120 569,915 580,983
Expenses
Rental expenses:
Real estate taxes and insurance ................................................ 64,495 60,054 62,706
Personnel ...................................................................... 60,580 57,443 60,020
Utilities ...................................................................... 34,529 34,905 33,765
Repairs and maintenance ........................................................ 37,909 33,517 33,115
Administrative and marketing ................................................... 21,876 20,583 21,358
Property management ............................................................ 17,240 17,107 18,392
Other operating expenses ....................................................... 1,203 1,391 1,421
Real estate depreciation ................................................................... 152,169 137,597 141,797
Interest ................................................................................... 130,956 139,695 151,711
Loss/(gain) on early debt retirement ....................................................... 35,990 3,475 (831)
Severance costs and other organizational charges ........................................... -- 5,404 1,020
Litigation settlement charges .............................................................. -- -- 2,700
Impairment loss on real estate and investments ............................................. -- 4,661 --
General and administrative ................................................................. 19,343 21,730 15,724
Other depreciation and amortization ........................................................ 4,096 3,333 4,239
--------- --------- ---------
Total expenses ................................................................. 580,386 540,895 547,137
--------- --------- ---------
Income before gains on sales of investments, minority interests, and discontinued operations 15,734 29,020 33,846
Gains on sales of land and depreciable property ............................................ 1,248 24,748 31,450
--------- --------- ---------
Income before minority interests and discontinued operations ............................... 16,982 53,768 65,296
Minority interests of outside partnerships ................................................. (1,414) (2,225) (1,501)
Minority interests of unitholders in operating partnerships ................................ 724 (1,139) (1,822)
--------- --------- ---------
Income before discontinued operations ...................................................... 16,292 50,404 61,973
Income from discontinued operations, net of minority interests (Note 3) .................... 36,937 11,424 14,642
--------- --------- ---------
Net income ................................................................................. 53,229 61,828 76,615
Distributions to preferred shareholders--Series A and B .................................... (11,645) (15,762) (21,591)
Distributions to preferred shareholders--Series D (Convertible) ............................ (15,779) (15,428) (15,300)
(Premium)/discount on preferred share repurchases .......................................... -- (3,496) 2,929
--------- --------- ---------
Net income available to common shareholders ................................................ $ 25,805 $ 27,142 $ 42,653
========= ========= =========
Earnings/(loss) per common share--basic and diluted:
(Loss)/income before discontinued operations, net of minority interests ............... $ (0.11) $ 0.16 $ 0.27
Income from discontinued operations, net of minority interests ....................... $ 0.35 $ 0.11 $ 0.14
Net income available to common shareholders .......................................... $ 0.24 $ 0.27 $ 0.41
========= ========= =========
Common distributions declared per share .................................................... $ 1.11 $ 1.08 $ 1.07
========= ========= =========
Weighted average number of common shares outstanding--basic ................................ 106,078 100,339 103,072
Weighted average number of common shares outstanding--diluted .............................. 106,952 101,037 103,208
*Amounts reclassified from prior presentation. See Note 15.
See accompanying notes to consolidated financial statements.
23
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
------------------------------
2002 2001 2000
---- ---- ----
Operating Activities
Net income ......................................................................... $ 53,229 $ 61,828 $ 76,615
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 163,328 155,327 157,361
Impairment loss on real estate and investments ............................... -- 5,436 --
Gains on sales of land and depreciable property .............................. (32,698) (24,748) (31,450)
Minority interests ........................................................... 3,122 4,192 4,386
(Gain)/loss on early debt retirement ......................................... 36,965 3,471 (831)
Amortization of deferred financing costs and other ........................... 5,256 965 2,551
Changes in operating assets and liabilities:
Decrease in operating liabilities ...................................... (15,265) (3,188) (2,333)
Decrease in operating assets ........................................... 12,763 21,128 17,861
--------- --------- ---------
Net cash provided by operating activities ................................................ 226,700 224,411 224,160
Investing Activities
Proceeds from sales of real estate investments, net ................................ 284,834 109,713 160,257
Proceeds received for excess expenditures over investment contribution in
development joint venture ........................................................ -- -- 30,176
Acquisition of real estate assets, net of liabilities assumed ...................... (282,600) (74,372) (4,635)
Development of real estate assets .................................................. (22,763) (53,607) (84,431)
Capital expenditures and other major improvements--real estate assets, net of escrow
reimbursement .................................................................... (42,827) (53,096) (41,496)
Capital expenditures-non-real estate assets ........................................ (1,706) (1,442) (1,166)
Other investing activities ......................................................... -- 8,749 --
--------- --------- ---------
Net cash (used in)/provided by investing activities ...................................... (65,062) (64,055) 58,705
Financing Activities
Proceeds from the issuance of secured debt ......................................... 324,282 225,171 67,285
Scheduled principal payments on secured debt ....................................... (11,176) (55,130) (62,575)
Non-scheduled principal payments and prepayment penalties on secured debt .......... (294,662) (52,182) (100,793)
Proceeds from the issuance of unsecured debt ....................................... 198,476 -- 248,035
Payments and prepayment premiums on unsecured debt ................................. (210,413) (21,307) (214,984)
Net repayment of revolving bank debt ............................................... (54,400) (14,200) (33,200)
Payment of financing costs ......................................................... (5,510) (4,807) (5,648)
Proceeds from the issuance of common stock ......................................... 60,252 66,319 7,660
Proceeds from the issuance of performance shares ................................... -- 1,236 --
Distributions paid to minority interests ........................................... (8,926) (12,868) (10,272)
Cash paid to buy out minority interests ............................................ -- (4,267) (341)
Distributions paid to preferred shareholders ....................................... (27,424) (34,308) (36,909)
Distributions paid to common shareholders .......................................... (117,116) (108,511) (110,098)
Repurchases of common and preferred stock .......................................... (16,510) (151,166) (28,398)
--------- --------- ---------
Net cash used in financing activities .................................................... (163,127) (166,020) (280,238)
Net (decrease)/increase in cash and cash equivalents ..................................... (1,489) (5,664) 2,627
Cash and cash equivalents, beginning of year ............................................. 4,641 10,305 7,678
--------- --------- ---------
Cash and cash equivalents, end of year ................................................... $ 3,152 $ 4,641 $ 10,305
========= ========= =========
Supplemental Information:
Interest paid during the period .................................................... $ 135,223 $ 148,863 $ 152,434
Issuance of restricted stock awards ................................................ 2,904 1,363 830
Non-cash transactions:
Secured debt assumed with the acquisition of properties ...................... 41,636 18,230 10,130
Reduction in secured debt from the disposition of properties ................. 35,885 28,315 45,088
Conversion of operating partnership minority interests to common stock
(92,159 shares in 2002, 74,271 shares in 2001, and 19,156 shares in 2000) .. 1,252 643 247
See accompanying notes to consolidated financial statements.
24
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except for share data)
Preferred Stock Common Stock Distributions
-------------------- --------------------- Paid-in in Excess of
Shares Amount Shares Amount Capital Net Income
------ ------ ------ ------ ------- ----------
Balance, December 31, 1999 ......................... 18,114,860 $427,872 102,740,777 $102,741 $1,083,687 $(296,030)
Comprehensive Income
Net income ...................................... 76,615
---------
Comprehensive income ............................ 76,615
---------
Issuance of common shares to employees, officers,
and director-shareholders ..................... 5,000 5 158
Issuance of common shares through dividend
reinvestment and stock purchase plan .......... 767,513 767 6,538
Purchase of common and preferred stock .......... (706,631) (17,666) (1,398,866) (1,399) (9,333)
Issuance of restricted stock awards ............. 85,670 86 744
Adjustment for cash purchase and conversion of
minority interests of unitholders in
operating partnerships ........................ 19,156 19 (407)
Principal repayments on notes receivable from
officer-shareholders ..........................
Common stock distributions declared ($1.07 per
share) ........................................ (110,225)
Preferred stock distributions declared--Series A
($2.31 per share) ............................. (9,473)
Preferred stock distributions declared--Series B
($2.15 per share) ............................. (12,118)
Preferred stock distributions declared--Series D
($1.91 per share) ............................. (15,300)
Amortization of deferred compensation ...........
---------- -------- ----------- -------- ---------- ---------
Balance, December 31, 2000 ......................... 17,408,229 $410,206 102,219,250 $102,219 $1,081,387 $(366,531)
========== ======== =========== ======== ========== =========
Comprehensive Income
Net income ...................................... 61,828
Other comprehensive income:
Cumulative effect of a change in accounting
principle ....................................
Unrealized loss on derivative financial
instruments ..................................
------
Comprehensive income ............................ 61,828
------
Issuance of common shares to employees, officers,
and director-shareholders ..................... 257,158 258 2,318
Issuance of common shares through dividend
reinvestment and stock purchase plan .......... 332,243 332 4,054
Issuance of common shares through public offering 4,100,000 4,100 52,316
Purchase of common and preferred stock .......... (91,900) (2,298) (3,962,076) (3,962) (47,362)
Redemption of Series A preferred stock .......... (3,900,320) (97,508) 3,496 (3,496)
Issuance of restricted stock awards ............. 112,443 112 1,251
Adjustment for cash purchase and conversion of
minority interests of unitholders in
operating partnerships ........................ 74,271 74 569
Principal repayments on notes receivable from
officer-shareholders
Common stock distributions declared ($1.08 per
share) ........................................ (108,956)
Preferred stock distributions declared--Series A
($1.05 per share) ............................. (4,111)
Preferred stock distributions declared--Series B
($2.15 per share) ............................. (11,651)
Preferred stock distributions declared--Series D
($1.93 per share) ............................. (15,428)
Amortization of deferred compensation ...........
---------- -------- ----------- -------- ---------- ---------
Balance, December 31, 2001 ......................... 13,416,009 $310,400 103,133,279 $103,133 $1,098,029 $(448,345)
========== ======== =========== ======== ========== =========
Deferred
Compensation - Accumulated
Unearned Notes Receivable Other
Restricted from Officer - Comprehensive
Stock Awards Shareholders Loss Total
------------ ------------ ------------ -----
Balance, December 31, 1999 .................................. $ (305) $(7,753) $ -- $1,310,212
Comprehensive Income
Net income ............................................... 76,615
----------
Comprehensive income ..................................... 76,615
----------
Issuance of common shares to employees, officers,
and director-shareholders .............................. 163
Issuance of common shares through dividend
reinvestment and stock purchase plan ................... 7,305
Purchase of common and preferred stock ................... (28,398)
Issuance of restricted stock awards ...................... (830) --
Adjustment for cash purchase and conversion of
minority interests of unitholders in
operating partnerships ................................. (388)
Principal repayments on notes receivable from
officer-shareholders ................................... 192 192
Common stock distributions declared ($1.07 per
share) ................................................. (110,225)
Preferred stock distributions declared--Series A
($2.31 per share) ...................................... (9,473)
Preferred stock distributions declared--Series B
($2.15 per share) ...................................... (12,118)
Preferred stock distributions declared--Series D
($1.91 per share) ...................................... (15,300)
Amortization of deferred compensation .................... 307 307
------- ------- -------- ----------
Balance, December 31, 2000 .................................. $ (828) $(7,561) $ -- $1,218,892
======= ======= ======== ==========
Comprehensive Income
Net income ............................................... 61,828
Other comprehensive income:
Cumulative effect of a change in accounting
principle ............................................. (3,848) (3,848)
Unrealized loss on derivative financial
instruments ........................................... (11,023) (11,023)
------- -------
Comprehensive income ..................................... (14,871) 46,957
------- -------
Issuance of common shares to employees, officers,
and director-shareholders .............................. 2,576
Issuance of common shares through dividend
reinvestment and stock purchase plan ................... 4,386
Issuance of common shares through public offering ........ 56,416
Purchase of common and preferred stock ................... (53,622)
Redemption of Series A preferred stock ................... (97,508)
Issuance of restricted stock awards ...................... (1,363) --
Adjustment for cash purchase and conversion of
minority interests of unitholders in
operating partnerships ................................. 643
Principal repayments on notes receivable from
officer-shareholders ................................... 3,252 3,252
Common stock distributions declared ($1.08 per
share) ................................................. (108,956)
Preferred stock distributions declared--Series A
($1.05 per share) ...................................... (4,111)
Preferred stock distributions declared--Series B
($2.15 per share) ...................................... (11,651)
Preferred stock distributions declared--Series D
($1.93 per share) ...................................... (15,428)
Amortization of deferred compensation .................... 879 879
------- ------- -------- ----------
Balance, December 31, 2001 .................................. $(1,312) $(4,309) $(14,871) $1,042,725
======= ======= ======== ==========
25
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(Continued)
(In thousands, except for share data)
Preferred Stock Common Stock Distributions
------------------ ----------------------- Paid-in in Excess of
Shares Amount Shares Amount Capital Net Income
------ ------ ------ ------ ------- ----------
Comprehensive Income
Net income ............................... 53,229
Other comprehensive income:
Unrealized gain on derivative
financial instruments (Note 8) ........
------
Comprehensive income ..................... 53,229
------
Issuance of common shares to employees,
officers, and director-shareholders .... 1,000,592 1,001 10,782
Issuance of common shares through
dividend reinvestment and stock
purchase plan .......................... 152,343 152 2,347
Issuance of common shares through public
offering ............................... 3,166,800 3,167 41,139
Purchase of common stock ................. (1,145,412) (1,146) (15,369)
Issuance of restricted stock awards ...... 205,498 205 2,699
Adjustment for cash purchase and
conversion of minority interests of
unitholders in operating partnerships .. 92,159 93 1,159
Principal repayments on notes receivable
from officer-shareholders ..............
Common stock distributions declared
($1.11 per share) ...................... (118,888)
Preferred stock distributions
declared--Series B ($2.15 per share) ... (11,645)
Preferred stock distributions
declared--Series D ($1.98 per share) ... (15,779)
Amortization of deferred compensation ....
---------- -------- ----------- -------- ---------- ---------
Balance, December 31, 2002 .................. 13,416,009 $310,400 106,605,259 $106,605 $1,140,786 $(541,428)
========== ======== =========== ======== ========== =========
[WIDE TABLE CONTINUED]
Deferred
Compensation - Accumulated
Unearned Notes Receivable Other
Restricted from Officer - Comprehensive
Stock Awards Shareholders Loss Total
------------ ------------ ------------ -----
Comprehensive Income
Net income ................................ 53,229
Other comprehensive income:
Unrealized gain on derivative
financial instruments (Note 8) ......... 4,913 4,913
------- ---------
Comprehensive income ...................... 4,913 58,142
------- ---------
Issuance of common shares to employees,
officers, and director-shareholders ..... 11,783
Issuance of common shares through
dividend reinvestment and stock
purchase plan ........................... 2,499
Issuance of common shares through public
offering ................................ 44,306
Purchase of common stock .................. (16,515)
Issuance of restricted stock awards ....... (2,904) --
Adjustment for cash purchase and
conversion of minority interests of
unitholders in operating partnerships ... 1,252
Principal repayments on notes receivable
from officer-shareholders ............... 1,679 1,679
Common stock distributions declared
($1.11 per share) ....................... (118,888)
Preferred stock distributions
declared--Series B ($2.15 per share) .... (11,645)
Preferred stock distributions
declared--Series D ($1.98 per share) .... (15,779)
Amortization of deferred compensation ..... 1,712 1,712
------- ------- ------- ----------
Balance, December 31, 2002 ................... $(2,504) $(2,630) $(9,958) $1,001,271
======= ======= ======= ==========
See accompanying notes to consolidated financial statements.
26
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and formation
United Dominion Realty Trust, Inc., a Virginia corporation, was formed
in 1972. United Dominion operates within one defined business segment with
activities related to the ownership, management, development, acquisition,
renovation, and disposition of multifamily apartment communities nationwide. At
December 31, 2002, United Dominion owned 260 communities with 74,480 completed
apartment homes and had three communities with 616 apartment homes under
development.
Basis of presentation
The accompanying consolidated financial statements include the accounts
of United Dominion and its subsidiaries, including United Dominion Realty, L.P.
(the "Operating Partnership"), and Heritage Communities, L.P. (the "Heritage
OP"), (collectively, "United Dominion"). As of December 31, 2002, there were
100,984,826 units in the Operating Partnership outstanding, of which 94,616,256
units or 93.7% were owned by United Dominion and 6,368,570 units or 6.3% were
owned by non-affiliated limited partners. As of December 31, 2002, there were
3,492,889 units in the Heritage OP outstanding, of which 3,115,471 units or
89.2% were owned by United Dominion and 377,418 units or 10.8% were owned by
non-affiliated limited partners. The consolidated financial statements of United
Dominion include the minority interests of the unitholders in the operating
partnerships. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Income taxes
United Dominion is operated as, and elects to be taxed as, a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). Generally, a REIT complies with the provisions of the Code
if it meets certain requirements concerning its income and assets, as well as if
it distributes at least 90% (95% prior to 2001) of its REIT taxable income to
its shareholders and will not be subject to U.S. federal income taxes if it
distributes at least 100% of its income. Accordingly, no provision has been made
for federal income taxes. However, United Dominion is subject to certain state
and local excise or franchise taxes, for which provision has been made.
The differences between net income available to common shareholders for
financial reporting purposes and taxable income before dividend deductions
relate primarily to temporary differences, principally real estate depreciation
and the tax deferral of certain gains on property sales. The differences in
depreciation result from differences in the book and tax basis of certain real
estate assets and the differences in the methods of depreciation and lives of
the real estate assets.
The following table reconciles United Dominion's net income to REIT
taxable income for the three years ended December 31, 2002 (dollars in
thousands):
2002 2001 2000
---- ---- ----
Net income ..................................... $ 53,229 $ 61,828 $ 76,615
Minority interest expense ...................... (1,137) (1,442) (2,851)
Depreciation and amortization expense .......... 49,513 45,327 62,828
(Loss)/gain on the disposition of properties ... (186) 343 10,120
Revenue recognition timing differences ......... 1,272 589 780
Impairment loss, not deductible for tax ........ -- 2,788 --
Investment loss, not deductible for tax ........ -- 2,648 --
Other expense timing differences ............... (3,914) 2,787 (2,414)
-------- -------- --------
REIT taxable income before dividends ........... $ 98,777 $114,868 $145,078
======== ======== ========
Dividend deduction ............................. $111,965 $140,146 $147,116
======== ======== ========
27
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
For income tax purposes, distributions paid to common shareholders
consist of ordinary income, capital gains and return of capital, or a
combination thereof. For the three years ended December 31, 2002, distributions
declared per common share were taxable as follows:
2002 2001 2000
---- ---- ----
Ordinary income ............................. $0.55 $0.74 $0.81
Long-term capital gain ...................... 0.14 0.11 0.15
Unrecaptured section 1250 gain .............. 0.11 0.07 0.11
Return of capital ........................... 0.31 0.16 --
------ ------ ------
$1.11 $1.08 $1.07
===== ===== =====
Use of estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications have been made to amounts in prior years'
financial statements to conform with current year presentation.
Real estate
Real estate assets held for investment are carried at historical cost
less accumulated depreciation and any recorded impairment losses.
Expenditures for ordinary repairs and maintenance costs are charged to
expense as incurred. Expenditures for improvements, renovations, and
replacements related to the acquisition and improvement of real estate assets
are capitalized at cost and depreciated over their estimated useful lives if the
value of the existing asset will be materially enhanced or the life of the
related asset will be substantially extended beyond the original life
expectancy.
United Dominion recognizes impairment losses on long-lived assets used
in operations when there is an event or change in circumstance that indicates an
impairment in the value of an asset and the undiscounted future cash flows are
not sufficient to recover the asset's carrying value. If such indicators of
impairment are present, an impairment loss is recognized based on the excess of
the carrying amount of the asset over its fair value.
For long-lived assets to be disposed of, impairment losses are
recognized when the fair value of the asset less estimated cost to sell is less
than the carrying value of the asset. Properties classified as real estate held
for disposition generally represent properties that are under contract for sale.
Real estate held for disposition is carried at the lower of cost, net of
accumulated depreciation, or fair value, less the cost to dispose, determined on
an asset by asset basis. Expenditures for ordinary repairs and maintenance costs
on held for disposition properties are charged to expense as incurred.
Expenditures for improvements, renovations, and replacements related to held for
disposition properties are capitalized at cost. Depreciation is not recorded on
real estate held for disposition.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which is 35 years for buildings, 10 to 35
years for major improvements, and 3 to 10 years for furniture, fixtures,
equipment, and other assets.
All development projects and related carrying costs are capitalized and
reported on the Consolidated Balance Sheet as "Real estate under development."
As each building in a project is completed and becomes available for lease-up,
the total cost of the building is transferred to real estate held for investment
and the assets are depreciated over their estimated useful lives. The cost of
development projects includes interest, real estate taxes, insurance, and
allocated development overhead during the construction period.
Interest, real estate taxes, and incremental labor and support costs
for personnel working directly on the development site are capitalized as part
of the real estate under development to the extent that such charges do not
cause the carrying value of the
28
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
asset to exceed its net realizable value. During 2002, 2001, and 2000, total
interest capitalized was $0.9 million, $2.9 million, and $3.6 million,
respectively.
Cash and cash equivalents
Cash and cash equivalents include all cash and liquid investments with
maturities of three months or less when purchased.
Restricted cash
Restricted cash consists of escrow deposits held by lenders for real
estate taxes, insurance and replacement reserves, and security deposits.
Deferred financing costs
Deferred financing costs include fees and other external costs incurred
to obtain debt financings and are generally amortized on a straight-line basis,
which approximates the effective interest method, over a period not to exceed
the term of the related debt. Unamortized financing costs are written-off when
debt is retired before its maturity date. During 2002, 2001, and 2000,
amortization expense was $4.5 million, $3.6 million, and $5.0 million,
respectively.
Investments in unconsolidated development joint ventures
Investments in unconsolidated joint ventures are accounted for using
the equity method when major business decisions require approval by the other
partners and United Dominion does not have control of the assets. Investments
are recorded at cost and subsequently adjusted for equity in net income (loss)
and cash contributions and distributions. United Dominion eliminates
intercompany profits on sales of services that are provided to the venture.
Differences between the carrying value of investments and the underlying equity
in net assets of the investee are due to capitalized interest on the investment
balance and capitalized development and leasing costs that are recovered by
United Dominion through fees during construction (see Note 4--Investment in
Unconsolidated Development Joint Venture).
Revenue recognition
United Dominion's apartment homes are leased under operating leases
with terms generally of one year or less. Rental income is recognized after it
is earned and collectibility is reasonably assured.
Advertising costs
All advertising costs are expensed as incurred and reported on the
Consolidated Statements of Operations within the line item "Administrative and
marketing." During 2002, 2001, and 2000, total advertising expense was $11.0
million, $9.6 million, and $9.3 million, respectively.
Interest rate swap agreements
Statements of Financial Accounting Standards No. 133 and 138,
"Accounting for Certain Derivative Instruments and Hedging Activities" became
effective on January 1, 2001. The accounting standards require companies to
carry all derivative instruments, including certain embedded derivatives, in the
Consolidated Balance Sheet at fair value. The accounting for changes in the fair
value of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and on the type of hedging
relationship. For those derivative instruments that are designated and qualify
as hedging instruments, a company must designate the hedging instrument, based
on the exposure being hedged, as either a fair value hedge, cash flow hedge, or
a hedge of a net investment in a foreign operation. At December 31, 2002 and
2001, all of United Dominion's derivative financial instruments are interest
rate swap agreements that are designated as cash flow hedges of debt with
variable interest rate features and are qualifying hedges for financial
reporting purposes. For derivative instruments that qualify as cash flow hedges,
the effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income and reclassified into
earnings during the same period or periods during which the hedged transaction
affects earnings. The remaining gain or loss on the derivative instrument in
excess of the cumulative change in the present value of future cash flows of the
hedged item, if any, is recognized in current earnings during the period of
change. The adoption of
29
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Statements 133 and 138 on January 1, 2001, resulted in a cumulative effect of an
accounting change of a $3.8 million loss, all of which was recorded directly to
other comprehensive income.
As part of United Dominion's overall interest rate risk management
strategy, we use derivative financial instruments as a means to artificially fix
variable rate debt or to hedge anticipated financing transactions. United
Dominion's derivative transactions used for interest rate risk management
include various interest rate swaps with indices that relate to the pricing of
specific financial instruments of United Dominion. Because of the close
correlation between the hedging instrument and the underlying cash flow exposure
being hedged, fluctuations in the value of the derivative instruments are
generally offset by changes in the cash flow of the underlying exposures. As a
result, United Dominion believes that it has appropriately controlled the risk
so that derivatives used for interest rate risk management will not have a
material unintended effect on consolidated earnings. United Dominion does not
enter into derivative financial instruments for trading purposes.
The fair value of United Dominion's derivative instruments is reported
on balance sheet at their current fair value. Estimated fair values for interest
rate swaps rely on prevailing market interest rates. These fair value amounts
should not be viewed in isolation, but rather in relation to the values of the
underlying hedged transactions and investments and to the overall reduction in
exposure to adverse fluctuations in interest rates. Each interest rate swap
agreement is designated with all or a portion of the principal balance and term
of a specific debt obligation. The interest rate swaps involve the periodic
exchange of payments over the life of the related agreements. Amounts received
or paid on the interest rate swaps are recorded on an accrual basis as an
adjustment to the related interest expense of the outstanding debt based on the
accrual method of accounting. The related amounts payable to and receivable from
counterparties are included in other liabilities and other assets, respectively.
Prior to the adoption of Statements 133 and 138 on January 1, 2001,
United Dominion also used interest rate swap contracts for hedging purposes. For
interest rate swaps, the net amounts paid or received and net amounts accrued
through the end of the accounting period were included in interest expense. The
fair value of the interest rate swap contracts were not recorded on the
Consolidated Balance Sheet and unrealized gains or losses were not recognized in
the Consolidated Statements of Operations. Gains and losses on any contracts
terminated early were deferred and amortized to income over the remaining
average life of the terminated contract.
Comprehensive income
Comprehensive income, which is defined as all changes in equity during
each period except for those resulting from investments by or distributions to
shareholders, is displayed in the accompanying Statements of Shareholders'
Equity. Other comprehensive income consists of gains or losses from derivative
financial instruments.
Stock-based compensation
United Dominion has elected to follow the intrinsic value method under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement 123, "Accounting
for Stock-Based Compensation," requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of United Dominion's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
cost has been recognized.
Minority interests in operating partnerships
Interests in operating partnerships held by limited partners are
represented by operating partnership units ("OP Units"). The operating
partnerships' income is allocated to holders of OP Units based upon net income
available to common shareholders and the weighted average number of OP Units
outstanding to total common shares plus OP Units outstanding during the period.
Capital contributions, distributions, and profits and losses are allocated to
minority interests in accordance with the terms of the individual partnership
agreements. OP Units can be exchanged for cash or shares of United Dominion's
common stock on a one-for-one basis, at the option of United Dominion. OP Units,
as a percentage of total OP Units and shares outstanding, was 6.2% at December
31, 2002 and 6.8% at December 31, 2001 and 2000.
Minority interests in other partnerships
United Dominion has limited partners in certain real estate
partnerships acquired in certain merger transactions. Net income for these
partnerships is allocated based on the percentage interest owned by these
limited partners in each respective real estate partnership.
30
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Earnings per share
Basic earnings per common share is computed based upon the weighted
average number of common shares outstanding during the year. Diluted earnings
per common share is computed based upon common shares outstanding plus the
effect of dilutive stock options and other potentially dilutive common stock
equivalents. The dilutive effect of stock options and other potentially dilutive
common stock equivalents is determined using the treasury stock method based on
United Dominion's average stock price.
The following table sets forth the computation of basic and diluted
earnings per share (dollars in thousands, except per share amounts):
2002 2001 2000
---- ---- ----
Numerator for basic and diluted earnings per share--net income available to
common shareholders .................................................... $ 25,805 $ 27,142 $ 42,653
Denominator:
Denominator for basic earnings per share--weighted average common shares
outstanding ............................................................ 106,078 100,339 103,072
Effect of dilutive securities:
Employee stock options and non-vested restricted stock awards ............. 874 698 136
-------- -------- --------
Denominator for dilutive earnings per share ............................... 106,952 101,037 103,208
======== ======== ========
Basic earnings per share .................................................. $ 0.24 $ 0.27 $ 0.41
======== ======== ========
Diluted earnings per share ................................................ $ 0.24 $ 0.27 $ 0.41
======== ======== ========
The effect of the conversion of the operating partnership units and
convertible preferred stock is not dilutive and is therefore not included as a
dilutive security in the earnings per share computation. The weighted average
effect of the conversion of the operating partnership units for the years ended
December 31, 2002, 2001, and 2000 was 6,999,384 shares, 7,281,835 shares, and
7,489,435 shares, respectively. The weighted average effect of the conversion of
the convertible preferred stock for the years ended December 31, 2002, 2001, and
2000 was 12,307,692 shares.
Impact of recently issued accounting standards
In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This statement requires that a liability
for the fair value of a guarantee be recognized at the time the obligation is
undertaken. The statement also requires that the liability be measured over the
term of the related guarantee. This statement is effective for all guarantees
entered into subsequent to December 31, 2002. For all guarantees entered into
prior to December 31, 2002, there is to be no change in accounting; however,
disclosure of management's estimate of its future obligation under the guarantee
is to be made. As of December 31, 2002, management estimates that its likelihood
of funding its guarantor obligations is remote and the impact to United Dominion
would be immaterial.
In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities." This statement refines the identification process
of variable interest entities and how an entity assesses its interests in a
variable interest entity to decide whether to consolidate that entity. United
Dominion, from time to time, enters into partnership and joint venture
arrangements, which may be required to be consolidated under this statement.
United Dominion is currently assessing the impact that this statement will have
on its consolidated financial statements.
31
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
2. REAL ESTATE OWNED
United Dominion operates in 57 markets dispersed throughout 20 states.
At December 31, 2002, our largest apartment market was Dallas, Texas, where we
owned 6.6% of our apartment homes, based upon carrying value. Excluding Dallas,
United Dominion did not own more than 5.9% of its apartment homes in any one
market, based upon carrying value.
The following table summarizes real estate held for investment at
December 31, (dollars in thousands):
2002 2001
---- ----
Land and land improvements ................... $ 718,109 $ 695,923
Buildings and improvements ................... 2,980,689 2,945,741
Furniture, fixtures, and equipment ........... 209,696 216,637
Construction in progress ..................... 252 278
----------- -----------
Real estate held for investment .............. 3,908,746 3,858,579
Accumulated depreciation ..................... (742,876) (646,366)
----------- -----------
Real estate held for investment, net ......... $ 3,165,870 $ 3,212,213
=========== ===========
The following is a reconciliation of the carrying amount of real estate
held for investment at December 31, (dollars in thousands):
2002 2001 2000
---- ---- ----
Balance at beginning of year ................ $ 3,858,579 $ 3,758,974 $ 3,577,848
Real estate acquired ........................ 323,989 91,093 14,898
Capital expenditures ........................ 51,066 58,402 46,299
Transfers from development .................. 29,816 51,561 68,025
Transfers (to)/from held for disposition, net (354,704) (98,663) 58,068
Impairment loss on real estate .............. -- (2,788) --
Disposal of fully depreciated assets ........ -- -- (6,164)
----------- ----------- -----------
Balance at end of year ...................... $ 3,908,746 $ 3,858,579 $ 3,758,974
=========== =========== ===========
The following is a reconciliation of accumulated depreciation for real
estate held for investment at December 31, (dollars in thousands):
2002 2001 2000
---- ---- ----
Balance at beginning of year ......... $ 646,366 $ 506,871 $ 373,164
Depreciation expense for the year* ... 160,332 153,113 154,419
Transfers to held for disposition, net (63,822) (13,618) (14,548)
Disposal of fully depreciated assets . -- -- (6,164)
--------- --------- ---------
Balance at end of year ............... $ 742,876 $ 646,366 $ 506,871
========= ========= =========
- -----------
* Includes $1,176, $1,268, and $1,425 for 2002, 2001, and 2000,
respectively, related to depreciation on non-real estate assets located at
United Dominion's apartment communities, classified as "Other depreciation
and amortization" on the Consolidated Statements of Operations.
32
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
The following is a summary of real estate held for investment by major
geographic markets (in order of carrying value, excluding real estate held for
disposition and real estate under development) at December 31, 2002 (dollars in
thousands):
Number of Initial
Apartment Acquisition Carrying Accumulated
Communities Cost Value Depreciation Encumbrances
----------- ---- ----- ------------ ------------
Dallas, TX .......................................... 15 $ 225,658 $ 262,197 $44,093 $ 50,188
Houston, TX ......................................... 22 178,188 231,886 43,338 57,954
Phoenix, AZ ......................................... 11 181,480 216,888 36,248 61,371
Orlando, FL ......................................... 14 167,524 205,970 51,337 92,000
Raleigh, NC ......................................... 11 179,935 203,887 42,345 58,593
Metropolitan DC ..................................... 7 148,403 165,606 15,711 70,676
Arlington, TX ....................................... 10 142,462 158,031 27,474 39,056
Tampa, FL ........................................... 10 132,927 153,925 33,972 57,405
Columbus, OH ........................................ 6 111,315 149,247 20,425 56,576
San Francisco, CA ................................... 4 136,504 141,245 14,625 21,112
Charlotte, NC ....................................... 10 109,961 139,050 37,295 12,043
Southern California ................................. 5 107,816 130,459 11,270 11,484
Nashville, TN ....................................... 8 83,987 120,572 25,088 --
Greensboro, NC ...................................... 8 85,362 104,653 23,258 --
Monterey Peninsula, CA .............................. 9 95,091 98,264 11,478 2,581
Richmond, VA ........................................ 8 74,856 97,759 35,060 66,657
Wilmington, NC ...................................... 6 64,213 91,247 23,812 --
Baltimore, MD ....................................... 7 80,141 89,345 18,775 28,410
Atlanta, GA ......................................... 6 57,669 72,547 19,544 30,446
Columbia, SC ........................................ 6 52,795 62,716 19,781 5,000
Jacksonville, FL .................................... 3 44,787 58,974 16,654 23,202
Norfolk, VA ......................................... 6 42,741 54,727 20,186 7,359
Lansing, MI ......................................... 4 50,237 50,185 6,117 31,570
Seattle, WA ......................................... 3 31,953 34,291 5,006 25,830
Other Western ....................................... 6 151,123 157,164 15,729 46,720
Other Pacific ....................................... 8 122,608 124,176 14,036 55,177
Other Southwestern .................................. 8 102,997 110,066 16,669 9,765
Other Florida ....................................... 8 77,476 107,797 22,579 --
Other Midwestern .................................... 10 88,281 95,627 12,704 26,320
Other North Carolina ................................ 8 61,677 75,865 25,722 11,550
Other Southeastern .................................. 4 56,716 69,273 15,050 35,021
Other Mid-Atlantic .................................. 5 37,618 42,835 10,703 12,542
Other Northeastern .................................. 2 14,732 18,253 5,113 5,167
Richmond Corporate .................................. - 6,597 7,325 670 3,965
Commercial .......................................... - 6,624 6,694 1,009 --
--- ---------- ---------- -------- ----------
258 $3,312,454 $3,908,746 $742,876 $1,015,740
=== ========== ========== ======== ==========
33
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
The following is a summary of real estate held for disposition by major
category at December 31, 2002 (dollars in thousands):
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
---------- ----------- -------- ------------ ------------
Apartments ........ 2 $13,049 $17,943 $ 4,351 $--
Commercial ........ 1 2,682 3,329 1,506 --
Land .............. 2 7,897 6,841 -- --
------- ------- ------- ----
$23,628 $28,113 $ 5,857 $--
======= ======= ======= ====
The following is a summary of real estate under development by major
category at December 31, 2002 (dollars in thousands):
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
---------- ----------- ---------- ------------ ------------
Apartments ............... 3 $ 21,269 $ 21,269 $ -- $ --
Land ..................... 7 9,355 9,355 -- --
---------- ---------- ---------- ---------
$ 30,624 $ 30,624 $ -- $ --
========== ========== ========== ==========
Total Real Estate Owned .. $3,366,706 $3,967,483 $ 748,733 $1,015,740
========== ========== ========== ==========
United Dominion is pursuing its strategy of exiting markets where
long-term growth prospects are limited and the redeployment of capital would
enhance future growth rates and economies of scale. During the first quarter of
2002, United Dominion placed nine assets, with an aggregate net book value of
$89.3 million, under contract for sale and reclassified them as real estate held
for disposition. These sales closed in the second quarter of 2002 and resulted
in our withdrawal from Naples, Florida; Tucson, Arizona; Las Vegas, Nevada; and
substantially all of Memphis, Tennessee. Although these sales resulted in an
aggregate net gain of $11.5 million, certain of these assets were sold at net
selling prices below their net book values at March 31, 2002. As a result,
United Dominion recorded an aggregate $2.3 million impairment loss during the
first quarter for the write down of a portfolio of five apartment communities in
Memphis, Tennessee.
During the first quarter of 2001, management performed an analysis of
the carrying value of all undeveloped land parcels in connection with United
Dominion's plans to accelerate the disposition of these sites. As a result, an
aggregate $2.8 million impairment loss was recognized on seven undeveloped sites
in selected markets. An impairment loss was indicated as a result of the net
book value of the assets being greater than the estimated fair market value less
the cost of disposal.
During the second quarter of 2000, management transferred approximately
$197 million of assets from real estate held for disposition to real estate held
for investment and, as a result, approximately $10 million in depreciation
expense was recognized on the communities transferred in order to reflect
depreciation on these properties while they were classified in real estate held
for disposition. Furthermore, approximately $5 million of additional
depreciation expense was recognized on these assets during 2000 subsequent to
their transfer to real estate held for investment. Depreciation expense in 2000
was further increased by the impact of over $150 million in development
completions in late 1999 and 2000 and approximately $200 million in acquisitions
and capital improvements in 1999 and 2000.
3. INCOME FROM DISCONTINUED OPERATIONS
United Dominion adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," as of January 1, 2002. SFAS No. 144 requires,
among other things, that the primary assets and liabilities and the results of
operations of United Dominion's real properties which have been sold during
2002, or are held for disposition at December 31, 2002, be classified as
discontinued operations and segregated in United Dominion's Consolidated
Statements of Operations and Balance Sheets. Properties classified as real
estate held for disposition generally represent properties that are under
contract for sale and are expected to close within the next twelve months.
United Dominion's adoption of SFAS No. 144 resulted in the presentation of the
net operating results of those properties sold or transferred to held for
disposition from January 1, 2002 through December 31, 2002, as discontinued
operations for all periods presented. The adoption of SFAS No. 144 did not have
an impact on net income available to common shareholders. SFAS No. 144 only
resulted in the reclassification of the operating results of the properties sold
or transferred to held for disposition during 2002 within the Consolidated
Statements of Operations for the years ended December 31, 2002, 2001, and 2000.
During 2002, United Dominion sold 25 communities with a total of 6,990
apartment homes, one parcel of land, and one commercial property with 143,000
square feet. At December 31, 2002, United Dominion had two communities with 363
34
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
apartment homes with a net book value of $13.6 million, two parcels of land with
a net book value of $6.9 million, and one commercial property with a net book
value of $1.8 million included in real estate held for disposition. The results
of operations for these properties are classified on the Consolidated Statements
of Operations in the line item entitled "Income from discontinued operations,
net of minority interests."
The following is a summary of income from discontinued operations for
the years ended December 31, (dollars in thousands):
2002 2001 2000
-------- -------- --------
Rental income ....................................................... $ 34,559 $ 54,217 $ 51,612
Rental expenses ..................................................... 14,312 22,028 20,248
Real estate depreciation ............................................ 6,986 14,248 11,198
Interest ............................................................ 1,985 4,684 4,329
(Gain)/loss on early debt retirement ................................ 975 (4) --
Impairment loss on real estate and investments ...................... 2,301 775 --
Other expenses ...................................................... 80 234 132
-------- -------- --------
26,639 41,965 35,907
Income before gains on sales of investments and minority interests .. 7,920 12,252 15,705
Gains on sales of depreciable property .............................. 31,450 -- --
-------- -------- --------
Income before minority interests .................................... 39,370 12,252 15,705
Minority interests on income from discontinued operations ........... (2,433) (828) (1,063)
-------- -------- --------
Income from discontinued operations, net of minority interests ...... $ 36,937 $ 11,424 $ 14,642
======== ======== ========
4. INVESTMENT IN UNCONSOLIDATED DEVELOPMENT JOINT VENTURE
In June 2000, United Dominion completed the formation of a joint
venture that would invest approximately $101 million to develop five apartment
communities with a total of 1,438 apartment homes. United Dominion owned a 25%
interest in the joint venture and served as the managing partner. Prior to
establishing the joint venture, United Dominion commenced construction on all
five of the projects. Upon closing of the venture in June 2000, United Dominion
contributed the projects in return for its equity interest of approximately $8
million in the venture and was reimbursed for approximately $35 million of
development outlays that were incurred prior to closing the joint venture. We
recognized fee income for services provided by United Dominion to the joint
venture, to the extent of the outside partner's interest, of approximately $0.6
million, $2.6 million, and $3.0 million for the years ended December 31, 2002,
2001, and 2000, respectively. In December 2001, United Dominion purchased three
of the five apartment communities with 794 apartment homes for a total aggregate
cost of approximately $61 million. In June 2002, United Dominion purchased the
remaining two apartment communities with 644 apartment homes for approximately
$52 million. United Dominion's interest in the gains on the sale of these
properties by the joint venture to United Dominion was recorded as a reduction
of its basis in the assets and; therefore, is not reflected in the Consolidated
Statements of Operations.
The following is a summary of the operating results of the joint
venture as of December 31, (dollars in thousands):
2002 2001 2000
-------- -------- --------
Rental income .............................. $ 2,774 $ 9,841 $ 1,930
Expenses:
Depreciation and amortization .............. 1,101 3,684 268
Mortgage interest .......................... 1,114 3,826 1,557
Operating and other expenses ............... 1,958 4,260 549
-------- -------- --------
Total expenses ....................... 4,173 11,770 2,374
-------- -------- --------
Loss before gains on sales of investments .. (1,399) (1,929) (444)
Gains on sales of depreciable property ..... 7,588 913 --
-------- -------- --------
Net income/(loss) .......................... $ 6,189 $ (1,016) $ (444)
======== ======== ========
35
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
5. SECURED DEBT
Secured debt on continuing and discontinued operations, which encumbers
$1.5 billion or 38.3% of United Dominion's real estate owned ($2.4 billion or
61.7% of United Dominion's real estate owned is unencumbered) consists of the
following at December 31, 2002 (dollars in thousands):
Weighted Weighted Number of
Average Average Communities
Principal Outstanding Interest Rate Years to Maturity Encumbered
----------------------- ------------- ----------------- ----------
2002 2001 2002 2002 2002
---------- ---------- ---- ---- ----
Fixed Rate Debt
Mortgage notes payable (a) .............. $ 187,927 $ 450,643 7.55% 6.6 13
Tax-exempt secured notes payable ........ 61,278 65,806 6.68% 11.6 8
Fannie Mae credit facilities ............ 288,875 -- 6.40% 8.0 9
Fannie Mae credit facilities--swapped ... 17,000 17,000 6.74% 14.8 --
---------- ---------- ---- ---- ---
Total fixed rate secured debt ..... 555,080 533,449 6.83% 8.2 30
Variable Rate Debt
Mortgage notes payable .................. 11,752 15,082 4.72% 7.3 3
Tax-exempt secured notes payable ........ 7,770 19,915 1.50% 25.2 1
Fannie Mae credit facilities ............ 370,469 405,731 1.98% 14.1 51
Freddie Mac credit facility ............. 70,669 -- 1.79% 8.1 8
---------- ---------- ---- ---- ---
Total variable rate secured debt .. 460,660 440,728 2.01% 13.2 63
---------- ---------- ---- ---- ---
Total Secured Debt ...................... $1,015,740 $ 974,177 4.65% 10.4 93
========== ========== ==== ==== ===
- ----------
(a) Includes fair value adjustments aggregating $2.2 million in 2002 and
$7.9 million in 2001, recorded in connection with the assumption of
debt associated with two acquisitions consummated in 1998.
Fixed Rate Debt
Mortgage notes payable. Fixed rate mortgage notes payable are generally
due in monthly installments of principal and interest and mature at various
dates from January 2004 through June 2034 and carry interest rates ranging from
6.66% to 8.50%.
Tax-exempt secured notes payable. Fixed rate mortgage notes payable
that secure tax-exempt housing bond issues mature at various dates through
November 2025 and carry interest rates ranging from 6.09% to 7.90%. Interest on
these notes is generally payable in semi-annual installments.
Secured credit facilities. At December 31, 2002, United Dominion's
fixed rate secured credit facilities consisted of $305.9 million of the $676.3
million outstanding on an $860 million aggregate commitment under four revolving
secured credit facilities with Fannie Mae. The Fannie Mae credit facilities are
for an initial term of ten years, bear interest at floating and fixed rates, and
can be extended for an additional five years at United Dominion's discretion. In
order to limit a portion of its interest rate exposure, United Dominion has two
interest rate swap agreements associated with the Fannie Mae credit facilities.
These agreements have an aggregate notional value of $17.0 million under which
United Dominion pays a fixed rate of interest and receives a variable rate on
the notional amount. The interest rate swap agreements effectively change United
Dominion's interest rate exposure on $17.0 million of secured debt from a
variable rate to a weighted average fixed rate of 6.74%.
Variable Rate Debt
Mortgage notes payable. Variable rate mortgage notes payable are
generally due in monthly installments of principal and interest and mature at
various dates from January 2005 through September 2027. At December 31, 2002,
these notes had interest rates ranging from 4.18% to 5.23%.
Tax-exempt secured notes payable. Variable rate mortgage notes payable
which secure tax-exempt housing bond issues mature in July 2028. At December 31,
2002, this note had an interest rate of 1.50%. Interest on this note is payable
in semi-annual installments.
Secured credit facilities. At December 31, 2002, United Dominion's
variable rate secured credit facilities consisted of $370.5 million outstanding
on the Fannie Mae credit facilities and $70.7 million outstanding on the Freddie
Mac credit facility. At December 31, 2002, the variable rate Fannie Mae credit
facilities had a weighted average floating rate of interest of 1.98% and the
Freddie Mac credit facility had a weighted average floating rate of interest of
1.79%.
36
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
The aggregate maturities of secured debt for the fifteen years
subsequent to December 31, 2002 are as follows (dollars in thousands):
Fixed Variable
Mortgage Tax-Exempt Credit Mortgage Tax-Exempt Credit
Year Notes Notes Facilities Notes Notes Facilities Total
---- ----- ----- ---------- ----- ----- ---------- -----
2003 $ 5,854 $13,213 -- $ 438 -- -- $ 19,505
2004 54,096 5,820 -- 460 -- -- 60,376
2005 18,720 873 -- 4,998 -- -- 24,591
2006 30,457 933 -- 3,847 -- -- 35,237
2007 6,797 630 -- 148 -- -- 7,575
2008 1,364 5,453 -- 154 -- -- 6,971
2009 23,754 579 -- 161 -- -- 24,494
2010 26,485 626 $138,875 169 -- -- 166,155
2011 704 671 50,000 177 -- $70,669 122,221
2012 761 723 100,000 185 -- -- 101,669
2013 823 3,847 -- 194 -- -- 4,864
2014 891 835 -- 202 -- -- 1,928
2015 963 13,350 -- 212 -- 52,956 67,481
2016 1,042 579 -- 222 -- 134,513 136,356
2017 1,127 626 -- 185 -- -- 1,938
Thereafter 14,089 12,520 17,000 -- $7,770 183,000 234,379
-------- ------- -------- ------- ------ -------- ----------
$187,927 $61,278 $305,875 $11,752 $7,770 $441,138 $1,015,740
======== ======= ======== ======= ====== ======== ==========
For the year ended December 31, 2002, United Dominion recognized $18.4
million of expenses as a result of prepayment penalties incurred from the
refinancing of certain secured loans, using proceeds from the Fannie Mae and
Freddie Mac credit facilities and the early payoff of loans on the sale of
properties. For the year ended December 31, 2001, United Dominion recognized
$3.2 million of expenses related to prepayment penalties for the early payoff of
loans on the sale of properties. These prepayment penalties were funded by
proceeds of the new credit facilities, proceeds from the related asset sales,
and from the release of cash escrows retained by former lenders of $14.0 million
and $10.3 million for the years ended December 31, 2002 and 2001, respectively.
37
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
6. UNSECURED DEBT
A summary of unsecured debt at December 31, 2002 and 2001 is as follows
(dollars in thousands):
2002 2001
---- ----
Commercial Banks
Borrowings outstanding under an unsecured credit facility due
August 2003 (a) .............................................. $ 175,800 $ 230,200
Borrowings outstanding under an unsecured term loan due
May 2004--2005 (b) ........................................... 100,000 100,000
Senior Unsecured Notes--Other
7.60% Medium-Term Notes due January 2002 ........................ -- 46,750
7.65% Medium-Term Notes due January 2003 (c) .................... 10,000 10,000
7.22% Medium-Term Notes due February 2003 ....................... 11,815 11,815
8.63% Notes due March 2003 ...................................... 78,005 78,030
7.98% Notes due March 2002-2003 (d) ............................. 7,428 14,857
5.05% City of Portland, OR Bonds due October 2003 ............... 7,345 7,345
7.67% Medium-Term Notes due January 2004 ........................ 46,585 53,510
7.73% Medium-Term Notes due April 2005 .......................... 21,100 22,400
7.02% Medium-Term Notes due November 2005 ....................... 49,760 49,760
7.95% Medium-Term Notes due July 2006 ........................... 85,374 103,179
7.07% Medium-Term Notes due November 2006 ....................... 25,000 25,000
7.25% Notes due January 2007 .................................... 92,265 105,020
ABAG Tax-Exempt Bonds due August 2008 ........................... 46,700 46,700
8.50% Monthly Income Notes due November 2008 .................... 29,081 57,400
6.50% Notes due June 2009 (e) ................................... 200,000 --
8.50% Debentures due September 2024 (f) ......................... 54,118 124,920
Other (g) ....................................................... 1,524 3,134
---------- ----------
766,100 759,820
---------- ----------
Total Unsecured Debt ............................................ $1,041,900 $1,090,020
========== ==========
- ----------
(a) United Dominion has a $375 million three-year unsecured bank revolving
credit facility that matures in August 2003. As of December 31, 2002,
$175.8 million was outstanding under the bank credit facility leaving
$199.2 million of unused capacity. Under the bank credit facility,
United Dominion may borrow at a rate of LIBOR plus 1.1% and pays a
facility fee, which is equal to 0.25% of the commitment. The bank
credit facility is subject to customary financial covenants and
limitations. As of December 31, 2002, management believes that United
Dominion is in compliance with all covenants and limitations.
The following is a summary of short-term bank borrowings under United
Dominion's bank credit facility at December 31, (dollars in thousands):
2002 2001 2000
---- ---- ----
Total revolving credit facilities at December 31 ...................................... $375,000 $375,000 $375,000
Borrowings outstanding at December 31 ................................................. 175,800 230,200 244,400
Weighted average daily borrowings during the year ..................................... 156,493 248,367 195,128
Maximum daily borrowings during the year .............................................. 311,600 347,200 308,000
Weighted average interest rate during the year ........................................ 2.9% 5.2% 7.3%
Weighted average interest rate at December 31 ......................................... 2.5% 3.2% 7.7%
Weighted average interest rate at December 31--after giving effect to swap agreements . 5.6% 6.1% 7.5%
At December 31, 2002, United Dominion had five interest rate swap
agreements associated with commercial bank borrowings with an aggregate
notional value of $105 million under which United Dominion paid a fixed
rate of interest and received a variable rate of interest on the notional
amounts. The interest rate swaps, which mature in August 2003 and July
2004, effectively change United Dominion's interest rate exposure on the
$105 million of borrowings from a variable rate to a weighted average
fixed rate of approximately 7.47%. At December 31, 2002, 2001, and 2000,
the weighted average interest rate of commercial borrowings, after giving
effect to swap agreements, was 5.6%, 6.1%, and 7.5%, respectively.
38
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(b) As of December 31, 2002, United Dominion had five interest rate swap
agreements associated with borrowings under the term loan with an
aggregate notional value of $100 million under which United Dominion
pays a fixed rate of interest and receives a variable rate of interest
on the notional amounts. The interest rate swaps, which mature in May
2003 and May 2004, effectively change United Dominion's interest rate
exposure on these borrowings from a variable rate to a weighted average
fixed rate of approximately 8.17%.
(c) United Dominion has one interest rate swap agreement associated with
these unsecured notes with an aggregate notional value of $10 million
under which United Dominion pays a fixed rate of interest and receives
a variable rate on the notional amount. The interest rate swap
agreement, which matures in January 2003, effectively changes United
Dominion's interest rate exposure on the $10 million from a variable
rate to a fixed rate of 7.65%.
(d) Payable annually in three equal principal installments of $7.4 million.
(e) In June 2002, United Dominion issued $200 million of 6.50% senior
unsecured notes due in June 2009. The net proceeds of $198.5 million
from the sale were used to reduce outstanding debt under United
Dominion's $375 million unsecured revolving credit facility.
(f) Includes an investor put feature that grants a one-time option to
redeem the debentures in September 2004.
(g) Includes $1.5 million and $3.0 million at December 31, 2002 and 2001,
respectively, of deferred gains from the termination of interest rate
risk management agreements.
For the year ended December 31, 2002, United Dominion recognized $18.6
million of expenses as a result of premiums paid for the redemption of certain
higher coupon notes and debentures and the write-off of deferred financing
costs. For the year ended December 31, 2001, United Dominion recognized $0.3
million of expenses related to the write-off of deferred financing costs and the
repurchase of certain notes.
7. SHAREHOLDERS' EQUITY
Preferred Stock
The Series B Cumulative Redeemable Preferred Stock (Series B) has no
stated par value and a liquidation preference of $25 per share. With no voting
rights and no stated maturity, Series B is not subject to any sinking fund or
mandatory redemption and is not convertible into any other securities of United
Dominion. The Series B is not redeemable prior to May 29, 2007. On or after this
date, the Series B may be redeemed for cash at the option of United Dominion, in
whole or in part, at a redemption price of $25 per share plus accrued and unpaid
dividends. The redemption price is payable solely out of the sale proceeds of
other capital stock of United Dominion. All dividends due and payable on the
Series B have been accrued or paid as of the end of each fiscal year.
The Series D Convertible Redeemable Preferred Stock (Series D) has no
stated par value and a liquidation preference of $25 per share. The Series D has
no voting rights, no stated maturity, is not subject to any sinking fund or
mandatory redemption, and is convertible into 1.5385 shares of common stock at
the option of the holder of the Series D at any time at $16.25 per share. United
Dominion has the right to cause the holder of the Series D to convert the Series
D to common shares at $16.25 based on twenty trading days at or above $17.06 for
the life of the security. United Dominion has the right to purchase 2 million
shares of the Series D in accordance with a predetermined schedule, provided
that the volume weighted average price of our common shares is $16.25 for a
twenty day trading period. The repurchase price payable will be computed in
accordance with the table below, expressed as a percentage of the liquidation
preference, determined by the period in which the Series D repurchase date
occurs, together with all accrued and unpaid dividends to and including the
repurchase date:
Series D Repurchase
Date Occurs During Period Repurchase Price
------------------------- ----------------
January 1, 2003 to June 30, 2003 101.0%
July 1, 2003 to December 6, 2003 100.5%
After December 7, 2003, United Dominion may, at its option, redeem at
any time all or part of the Series D at a price per share of $25, payable in
cash, plus all accrued and unpaid dividends, provided that the current market
price of our common stock at least equals the conversion price, initially set at
$16.25 per share. The redemption is payable solely out of the sale proceeds of
other capital stock. In addition, United Dominion may not redeem, in any
consecutive twelve-month period, a number of shares of Series D having an
aggregate liquidation preference of more than $100 million.
On June 15, 2001, United Dominion completed the redemption of all of
its outstanding 9.25% Series A Cumulative Redeemable Preferred Stock at $25 per
share plus accrued dividends.
39
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Officers' Stock Purchase and Loan Plan
As of December 31, 2002, United Dominion has $2.6 million of notes
receivable from certain officers and directors of United Dominion (original
principal balances of $3.0 million), at an interest rate of 7.0% that mature
between June 2004 and October 2005. The purpose of the loans was for the
borrowers to purchase shares of United Dominion's common stock pursuant to
United Dominion's 1991 Stock Purchase and Loan Plan. The loans are evidenced by
promissory notes between the borrowers and United Dominion and are secured by a
pledge of the shares of common stock (241,750 shares with a market value of $4.0
million at December 31, 2002). The notes require that dividends received on the
shares be applied towards payment of the notes.
In addition, United Dominion entered into a Servicing and Purchase
Agreement (the "Servicing Agreement") with Sun Trust Bank (the "Bank") whereby
United Dominion has agreed to act as servicing agent for and to purchase certain
loans made by the Bank to officers and directors of United Dominion (the
"Borrowers") to finance the purchase of shares of United Dominion's common
stock. The loans are evidenced by promissory notes ("Notes") between each
Borrower and the Bank. The Servicing Agreement provides that the Bank can
require United Dominion to purchase the Notes upon an event of default by the
Borrower or United Dominion under the Servicing Agreement and at certain other
times during the term of the Servicing Agreement. The aggregate outstanding
principal balance of the Notes as of December 31, 2002 was $11.1 million
(original principal balance was $11.7 million), and all of the Notes mature
during 2004. Because certain of the Borrowers elected floating rate loans and
others elected fixed rate loans, the interest rates on these loans as of
December 31, 2002 ranged from 3.63% to 7.68%. Each Borrower entered into a
Participation Agreement with United Dominion that requires that all cash
dividends received on the shares (1,037,998 shares at December 31, 2002 with a
closing market value of $17.0 million) be applied towards payment of the Notes.
Based upon the fact that 100% of all cash dividend payments are paid to amortize
the Notes and that the Notes are recourse to the Borrowers, United Dominion
believes that its exposure to liability under the Notes is remote.
Dividend Reinvestment and Stock Purchase Plan
United Dominion's Dividend Reinvestment and Stock Purchase Plan (the
"Stock Purchase Plan") allows common and preferred shareholders the opportunity
to purchase, through the reinvestment of cash dividends, additional shares of
United Dominion's common stock. As of December 31, 2002, 9,590,060 shares of
common stock had been issued under the Stock Purchase Plan. Shares in the amount
of 4,409,940 were reserved for further issuance under the Stock Purchase Plan at
December 31, 2002. During 2002, 152,343 shares were issued under the Stock
Purchase Plan for a total consideration of approximately $2.5 million.
Restricted Stock Awards
United Dominion's 1999 Long-Term Incentive Plan ("LTIP") authorizes the
granting of restricted stock awards to employees, officers, and directors of
United Dominion. The total restricted stock awards under the LTIP may not exceed
15% of the total number of available shares, or 600,000. Deferred compensation
expense is recorded over the vesting period and is based upon the value of the
common stock on the date of issuance. As of December 31, 2002, 440,601 shares of
restricted stock have been issued under the LTIP.
Shareholder Rights Plan
United Dominion's 1998 Shareholder Rights Plan is intended to protect
long-term interests of shareholders in the event of an unsolicited, coercive, or
unfair attempt to take over the company. The plan authorized a dividend of one
Preferred Share Purchase Right (the "Rights) on each share of common stock
outstanding. Each Right, which is not currently exercisable, will entitle the
holder to purchase 1/1,000 of a share of a new series of United Dominion's
preferred stock, to be designated as Series C Junior Participating Cumulative
Preferred Stock, at a price to be determined upon the occurrence of the event,
and for which the holder must be paid $45 should the take over occur. Under the
Plan, the rights will be exercisable if a person or group acquires more than 15%
of United Dominion's common stock, or announces a tender offer that would result
in the ownership of 15% of United Dominion's common stock.
40
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
8. FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments were
determined by United Dominion using available market information and appropriate
valuation methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts United Dominion would
realize on the disposition of the financial instruments. The use of different
market assumptions or estimation methodologies may have a material effect on the
estimated fair value amounts. The carrying amounts and estimated fair value of
United Dominion's financial instruments at December 31, 2002 and 2001, are
summarized as follows (dollars in thousands):
2002 2001
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Secured debt ................... $ 1,015,740 $ 1,051,182 $ 974,177 $ 1,013,136
Unsecured debt ................. 1,041,900 1,106,362 1,090,020 1,109,380
Interest rate swap agreements .. (9,636) (9,636) (14,931) (14,931)
The following methods and assumptions were used by United Dominion in
estimating the fair values set forth above.
Cash and cash equivalents
The carrying amount of cash and cash equivalents approximates fair
value.
Secured and unsecured debt
Estimated fair value is based on mortgage rates, tax-exempt bond rates,
and corporate unsecured debt rates believed to be available to United Dominion
for the issuance of debt with similar terms and remaining lives. The carrying
amount of United Dominion's variable rate secured debt approximates fair value
at December 31, 2002 and 2001. The carrying amounts of United Dominion's
borrowings under variable rate unsecured debt arrangements, short-term revolving
credit agreements, and lines of credit approximate their fair values at December
31, 2002 and 2001.
Derivative financial instruments
The following table presents the fair values of United Dominion's
derivative financial instruments outstanding, based on external market
quotations, as of December 31, 2002 (dollars in thousands):
Notional Fixed Type of Effective Contract Fair
Amount Rate Contract Date Maturity Value
- --------------------------------------------------------------------------------------------------------------------------
Secured Debt:
FNMA
$7,000 6.48% Swap 06/30/99 06/30/04 $(511)
10,000 6.92% Swap 12/01/99 04/01/04 (664)
- ---------------- --------------- ---------
17,000 6.74% (1,175)
Unsecured Debt:
Bank Credit Facility
5,000 8.85% Swap 06/26/95 07/01/04 (377)
25,000 7.49% Swap 11/01/00 08/01/03 (845)
25,000 7.49% Swap 11/01/00 08/01/03 (845)
25,000 7.31% Swap 12/01/00 08/01/03 (815)
25,000 7.31% Swap 12/04/00 08/01/03 (815)
- ---------------- --------------- ---------
105,000 7.47% (3,697)
Bank Term Loan
25,000 7.64% Swap 11/15/00 05/15/03 (531)
20,000 7.64% Swap 11/15/00 05/15/03 (425)
23,500 8.82% Swap 11/15/00 05/15/04 (1,696)
23,000 8.82% Swap 11/15/00 05/15/04 (1,660)
8,500 7.41% Swap 12/04/00 05/15/03 (172)
- ---------------- --------------- ---------
100,000 8.17% (4,484)
Medium-Term Notes
10,000 7.65% Swap 01/26/99 01/27/03 (280)
- ---------------- ---------
$232,000 $(9,636)
================ =========
41
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
For the year ended December 31, 2002, United Dominion recognized $4.9
million of net unrealized gains in comprehensive income and a $0.05 million gain
in net income related to the ineffective portion of United Dominion's hedging
instruments. In addition, United Dominion has recognized $9.6 million of
derivative financial instrument liabilities on the Consolidated Balance Sheet.
As of December 31, 2002, United Dominion expects to reclassify $7.7
million of net losses on derivative instruments from accumulated other
comprehensive loss to earnings (interest expense which, combined with the
interest paid on the underlying debt, results in interest expense at the fixed
rates shown above) during the next twelve months on the related hedged
transactions.
Risk of counterparty non-performance
United Dominion has not obtained collateral or other security to
support financial instruments. In the event of non-performance by the
counterparty, United Dominion's credit loss on its derivative instruments is
limited to the value of the derivative instruments that are favorable to United
Dominion at December 31, 2002, of which we have none. However, such
non-performance is not anticipated as the counterparties are highly rated credit
quality U.S. financial institutions and management believes that the likelihood
of realizing material losses from counterparty non-performance is remote.
9. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The United Dominion Realty Trust, Inc. Profit Sharing Plan (the "Plan")
is a defined contribution plan covering all eligible full-time employees. Under
the Plan, United Dominion makes discretionary profit sharing and matching
contributions to the Plan as determined by the Compensation Committee of the
Board of Directors. Aggregate provisions for contributions, both matching and
discretionary, which are included in United Dominion's Consolidated Statements
of Operations for the three years ended December 31, 2002, 2001, and 2000 were
$0.9 million, $0.7 million, and $1.3 million, respectively.
Stock Option Plan
In May 2001, the shareholders of United Dominion approved the 1999
Long-Term Incentive Plan (the "LTIP"), which supersedes the 1985 Stock Option
Plan. With the approval of the LTIP, no additional grants will be made under the
1985 Stock Option Plan. The LTIP authorizes the granting of awards which may
take the form of options to purchase shares of common stock, stock appreciation
rights, restricted stock, dividend equivalents, other stock-based awards, any
other right or interest relating to common stock or cash. The Board of Directors
reserved 4 million shares for issuance upon the grant or exercise of awards
under the LTIP. Of the 4 million shares reserved, 3.4 million shares are for
stock-based awards, such as stock options, with the remaining 600,000 shares
reserved for restricted stock awards. The LTIP generally provides, among other
things, that options are granted at exercise prices not lower than the market
value of the shares on the date of grant and that options granted must be
exercised within ten years. The maximum number of shares of stock that may be
issued subject to incentive stock options is 10 million shares. Shares under
options that expire or are cancelable are available for subsequent grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"), and has been determined as if United Dominion had accounted for its
employee stock options under the fair value method of accounting as defined in
SFAS No. 123.
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 2002, 2001, and 2000:
2002 2001 2000
---- ---- ----
Risk free interest rate ................. 4.1% 3.2% 5.2%
Dividend yield .......................... 7.7% 9.1% 7.2%
Volatility factor ....................... 0.177 0.171 0.164
Weighted average expected life (years) .. 4 3 7
The weighted average fair value of options granted during 2002, 2001,
and 2000 was $0.84, $0.46, and $0.65 per option, respectively.
42
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
For purposes of the pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. United
Dominion's pro forma information is as follows (dollars in thousands, except per
share amounts):
2002 2001 2000
---- ---- ----
Net income available to common shareholders, as reported ............................. $ 25,805 $ 27,142 $ 42,653
Deduct:
Total stock option compensation expense determined under the fair value method for all
awards, net of related tax effects ................................................ 380 449 948
---------- ---------- ----------
Pro forma net income ................................................................. $ 25,425 $ 26,693 $ 41,705
========== ========== ==========
Earnings per common share--basic
As reported .................................................................... $ 0.24 $ 0.27 $ 0.41
Pro forma ...................................................................... 0.24 0.27 0.40
Earnings per common share--diluted
As reported .................................................................... $ 0.24 $ 0.27 $ 0.41
Pro forma ...................................................................... 0.24 0.26 0.40
A summary of United Dominion's stock option activity during the three
years ended December 31, 2002 is provided in the following table:
Number Weighted Average Range of
Outstanding Exercise Price Exercise Prices
----------- --------------- ---------------
Balance, December 31, 1999 4,215,592 $12.09 $9.19 - $15.38
Granted 653,300 9.91 9.88 - 10.75
Exercised (11,584) 9.19 9.19
Forfeited (364,363) 12.95 9.63 - 15.25
-------- ----- --------------
Balance, December 31, 2000 4,492,945 $11.71 $9.19 - $15.38
Granted 1,289,484 11.96 10.81 - 14.20
Exercised (356,408) 11.02 9.19 - 14.25
Forfeited (813,649) 11.52 9.63 - 15.38
-------- ----- --------------
Balance, December 31, 2001 4,612,372 $11.90 $9.63 - $15.38
Granted 129,150 14.26 14.15 - 14.88
Exercised (1,000,592) 11.68 9.63 - 15.38
Forfeited (87,999) 11.04 9.63 - 15.25
-------- ----- --------------
Balance, December 31, 2002 3,652,931 $12.01 9.63 - 15.38
========= ====== ==============
Exercisable at December 31,
2000 2,692,997 12.35 9.19 - 15.38
2001 1,968,265 12.38 9.63 - 15.38
2002 2,793,811 11.97 9.63 - 15.38
The weighted average remaining contractual life on all options
outstanding is 6.2 years. 1,141,644 of share options had exercise prices between
$13.13 and $15.38, 1,086,000 of share options had exercise prices between $11.15
and $12.40, and 1,425,287 of share options had exercise prices between $9.63 and
$10.88.
At December 31, 2002 and 2001, stock-based awards for 3,149,350 and
3,278,500 shares of common stock, respectively, were available for future grants
under the 1999 LTIP's existing authorization and no option shares were available
for future grants under the 1985 Stock Option Plan.
43
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
10. RESTRUCTURING CHARGES
During the first quarter of 2001, United Dominion announced the
appointment of a new chief executive officer and senior management structure.
The new management team began a comprehensive review of the organizational
structure of United Dominion and its operations. As a result of this review,
United Dominion recorded a charge of $5.4 million related to workforce
reductions and other miscellaneous costs. These charges are included in the
Consolidated Statements of Operations within the line item "Severance costs and
other organizational charges." All charges came under consideration subsequent
to the appointment of United Dominion's new CEO in February 2001 and were
approved by management and the Board of Directors in March 2001. All of the $5.4
million charge was paid during 2001.
The planned workforce reductions resulted in a charge of $4.5 million
during the first quarter of 2001 and in the planned termination of approximately
200 full-time equivalent positions, or 10% of total staffing in corporate
functions, including senior management and general and administrative functions,
and in apartment operations. Employee termination benefits included severance
packages and related benefits and outplacement services for employees
terminated. United Dominion also recognized $0.4 million related to relocation
costs associated with the new executive offices in Denver and $0.5 million
related to other miscellaneous costs.
In addition, management performed an analysis of the carrying value of
all undeveloped land parcels in connection with United Dominion's plans to
accelerate the disposition of these sites. As a result, an aggregate $2.8
million impairment loss was recognized on seven undeveloped sites in selected
markets. An impairment loss was indicated as a result of the net book value of
the assets being greater than the estimated fair market value less the cost of
disposal. United Dominion also recognized a $0.4 million charge for the write
down of its investment in an online apartment leasing company.
11. COMMITMENTS AND CONTINGENCIES
Commitments
Real Estate Under Development
United Dominion is committed to completing its real estate currently
under development, which has an estimated cost to complete of $59.0 million at
December 31, 2002.
Ground and Operating Leases
United Dominion is party to several ground leases relating to operating
communities. In addition, United Dominion is party to various other operating
leases related to the operation of its regional offices. Future minimum lease
payments for non-cancelable ground and operating leases at December 31, 2002 are
as follows (dollars in thousands):
Ground Leases Operating Leases
------------- ----------------
2003 ..................... $1,022 $ 526
2004 ..................... 1,022 485
2005 ..................... 1,022 311
2006 ..................... 1,022 102
2007 ..................... 1,022 59
Thereafter ............... 23,105 4
------- ------
Total .............. $28,215 $1,487
======= ======
United Dominion incurred $2.0 million, $2.3 million, and $2.6 million
of rent expense for the years ended December 31, 2002, 2001, and 2000,
respectively.
44
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Contingencies
Out-Performance Program
In May 2001, the shareholders of United Dominion approved the
Out-Performance Program (the "Program") pursuant to which executives and other
key officers of United Dominion were given the opportunity to invest in United
Dominion by purchasing performance shares ("Out-Performance Partnership Shares"
or "OPPSs") of the Operating Partnership for an initial investment of $1.27
million (the full market value of the OPPSs at inception, as determined by an
independent investment banking firm). The Program measures United Dominion's
performance over a 28-month period beginning February 2001.
The Program is designed to provide participants with the possibility of
substantial returns on their investment if United Dominion's total return,
considering the reinvestment of dividend income as well as share price
appreciation, on its common stock during the measurement period exceeds the
greater of (a) industry average (defined as the total cumulative return of the
Morgan Stanley REIT Index over the same period) or (b) a 30% total return (12%
annualized) (the "minimum return").
At the conclusion of the measurement period, if United Dominion's total
return satisfies these criteria, the holders of the OPPSs will receive
distributions and allocations of income and loss from the Operating Partnership
equal to the distributions and allocations that would be received on the number
of interests in the Operating Partnership ("OP Units") obtained by:
i. determining the amount by which the cumulative total return of
United Dominion's common stock over the measurement period
exceeds the greater of the cumulative total return of the peer
group index (the Morgan Stanley REIT Index) or the minimum
return (such being the "excess return");
ii. multiplying 4% of the excess return by United Dominion's
market capitalization (defined as the average number of shares
and OP Units outstanding over the 28-month period multiplied
by the daily closing price of United Dominion's common stock)
up to a maximum of 2% of market capitalization; and
iii. dividing the number obtained in (ii) by the market value of
one share of United Dominion common stock on the valuation
date, determined by the volume-weighted average price of the
common stock for the 20 trading days immediately preceding the
valuation date.
If, on the valuation date, the cumulative total return of United
Dominion's common stock does not meet the minimum return or the total return of
the peer group and there is no excess return, then the holders of the OPPSs will
forfeit their entire initial investment of $1.27 million. The OPPSs, unlike
United Dominion's other OP Units, are not convertible into common stock except
upon a change of control of United Dominion or upon the death of the
participant. It is this feature, combined with the fact that management paid
market value for the shares, that we believe makes this program better than
previous programs, such as stock options, that were likewise designed to
motivate and retain executives and key management. It ensures that management's
goals are perpetually aligned with the shareholders since the OP Units can not
be conveyed or disposed of except as outlined previously. Accordingly, the
contingently issuable OPPSs are not included in common stock and common stock
equivalents in the calculation of earnings per share. Based upon results through
December 31, 2002, 1,578,534 OPPSs would have been issued had the Program
terminated on that date. However, since the ultimate determination of OPPSs to
be issued will not occur until June 2003, and the number of OPPSs is
determinable only upon future events, the financial statements do not reflect
any additional impact for these events.
Legal Matters
United Dominion and its subsidiaries are engaged in various litigations
and have a number of unresolved claims pending. The ultimate liability in
respect of such litigations and claims cannot be determined at this time. United
Dominion is of the opinion that such liability, to the extent not provided for
through insurance or otherwise, is not likely to be material in relation to the
consolidated financial statements of United Dominion.
45
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
12. INDUSTRY SEGMENTS
United Dominion owns and operates multifamily apartment communities
throughout the United States that generate rental and other property related
income through the leasing of apartment units to a diverse base of tenants.
United Dominion separately evaluates the performance of each of its apartment
communities. However, because each of the apartment communities has similar
economic characteristics, facilities, services, and tenants, the apartment
communities have been aggregated into a single apartment communities segment.
All segment disclosure is included in or can be derived from United Dominion's
consolidated financial statements.
There are no tenants that contributed 10% or more of United Dominion's
total revenues during 2002, 2001, or 2000.
13. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA
Summarized consolidated quarterly financial data for the year ended
December 31, 2002 is as follows (dollars in thousands, except per share
amounts):
Three Months Ended
------------------
March 31(a) June 30 September 30(b) December 31(c)
----------- ------- --------------- --------------
Rental income (d) .......................................................... $145,290 $147,255 $149,641 $152,128
Income/(loss) before gains on sales of investments, minority interests, and
discontinued operations ................................................. (4,129) 14,269 (487) 6,079
Gains on the sales of land and depreciable property ........................ 1,248 -- -- --
Income from discontinued operations, net of minority interests ............. 1,026 13,828 20,810 1,273
Net income/(loss) available to common shareholders ......................... (8,538) 20,513 13,602 227
Earnings/(loss) per common share:
Basic ...................................................................... $ (0.08) $ 0.19 $ 0.13 $ 0.00
Diluted .................................................................... (0.08) 0.19 0.13 0.00
- ----------
(a) The first quarter of 2002 includes $15.8 million of expense associated
with the refinancing of certain mortgages using proceeds from the new
Fannie Mae and Freddie Mac credit facilities.
(b) The third quarter of 2002 includes $12.6 million of expense due to
premiums paid for the redemption of certain higher coupon bonds.
(c) The fourth quarter of 2002 includes $5.2 million of expense due to
premiums paid for the redemption of certain higher coupon bonds.
(d) Represents income from continuing operations.
Summarized consolidated quarterly financial data for the year ended
December 31, 2001 is as follows (dollars in thousands, except per share
amounts):
Three Months Ended
------------------
March 31(a) June 30 September 30 December 31(b)
----------- ------- ------------ --------------
Rental income (c) .......................................................... $142,187 $140,127 $140,671 $142,337
Income/(loss) before gains on sales of investments, minority interests, and
discontinued operations ................................................. (627) 7,324 14,664 7,655
Gains on the sales of land and depreciable property ........................ 4,102 20,646 -- --
Income/(loss) from discontinued operations, net of minority interests ...... 2,811 5,627 (243) 3,229
Net income/(loss) available to common shareholders ......................... (3,308) 20,136 6,778 3,536
Earnings/(loss) per common share:
Basic ...................................................................... $ (0.03) $ 0.20 $ 0.07 $ 0.04
Diluted .................................................................... (0.03) 0.20 0.07 0.04
- ----------
(a) The first quarter of 2001 includes $8.6 million of non-recurring
charges related to workforce reductions, other severance costs,
executive relocation costs, and the write down of land and our
investment in an online apartment leasing company.
(b) The fourth quarter of 2001 includes a $2.2 million charge related to
the write down of our investment in a web-based property management and
leasing system.
(c) Represents income from continuing operations.
46
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
14. SUBSEQUENT EVENTS
On January 30, 2003, United Dominion completed the sale of 2.0 million
shares of common stock at a public offering price of $15.71 per share, resulting
in net proceeds to United Dominion of approximately $31 million. The proceeds
will be used to repay debt and for general corporate purposes.
On February 27, 2003, United Dominion completed the sale of $150
million of 4.50% medium-term notes due in March 2008 under a new $300 million
medium-term note program. The net proceeds from the issuance of approximately
$149 million are anticipated to be used to repay amounts outstanding on United
Dominion's $375 million unsecured revolving credit facility.
15. ADOPTION OF SFAS 145 AND OTHER EVENTS
On January 1, 2003, United Dominion adopted Statement of Financial
Accounting Standards No. 145, "Rescission of FASB Statement No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Correction" (SFAS 145). The
provisions of SFAS 145 related to the rescission of SFAS No. 4 require United
Dominion to reclassify prior period items that do not meet the extraordinary
classification into continuing operations. During the three years ended December
31, 2002, the Company has incurred such expenses and in compliance with SFAS 145
has reported those expenses as a component of continuing operations for each
period presented.
Subsequent to March 31, 2003, United Dominion sold 3.1 million shares
of its common stock in a public offering and received approximately $50.9
million in net proceeds from the offering.
47
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Preston Oaks $ -- $1,784 $ 6,416 $ 8,200 $ 841 $1,949 $ 7,092
Rock Creek -- 4,077 15,823 19,900 4,771 4,652 20,019
Windridge -- 3,414 14,027 17,441 3,272 4,056 16,657
Catalina -- 1,543 5,632 7,175 907 1,678 6,404
Wimbledon Court -- 1,809 10,930 12,739 2,316 2,847 12,208
Lakeridge -- 1,631 5,669 7,300 1,261 1,826 6,735
Summergate -- 1,171 3,929 5,100 875 1,406 4,569
Oak Forest 23,540 5,631 23,294 28,925 10,805 6,378 33,352
Oaks Of Lewisville 12,265 3,727 13,563 17,290 3,946 4,540 16,696
Kelly Crossing -- 2,497 9,156 11,653 1,724 2,986 10,391
Highlands Of Preston -- 2,151 8,168 10,319 1,838 2,492 9,665
The Summit 8,575 1,932 9,041 10,973 1,513 2,333 10,153
Springfield 5,808 3,075 6,823 9,898 1,160 3,275 7,783
Meridian -- 6,013 29,094 35,107 864 6,380 29,591
Mandolin I -- 2,663 20,975 23,638 446 2,783 21,301
DALLAS, TX 50,188 43,118 182,540 225,658 36,539 49,581 212,616
Woodtrail -- 1,543 5,457 7,000 2,556 1,740 7,816
Park Trails -- 1,145 4,105 5,250 1,004 1,248 5,006
Green Oaks -- 5,314 19,626 24,940 3,291 5,940 22,291
Sky Hawk -- 2,298 7,158 9,456 2,005 2,718 8,743
South Grand At Pecan Grove 19,509 4,058 14,756 18,814 4,880 4,857 18,837
Breakers -- 1,527 5,298 6,825 2,329 1,920 7,234
Braesridge 10,255 3,048 10,962 14,010 2,511 3,493 13,028
Skylar Pointe -- 3,604 11,593 15,197 4,315 3,728 15,784
Stone Canyon -- 899 -- 899 9,439 1,324 9,014
Briar Park -- 329 2,794 3,123 242 351 3,014
Chelsea Park 5,390 1,991 5,788 7,779 2,161 2,442 7,498
Clear Lake Falls -- 1,090 4,535 5,625 -- 1,163 4,462
Country Club Place 4,900 499 6,520 7,019 1,068 666 7,421
Arbor Ridge 5,531 1,689 6,684 8,373 629 2,069 6,933
London Park 6,125 2,019 6,667 8,686 1,986 2,455 8,217
Marymont -- 1,151 4,155 5,306 858 1,174 4,990
Nantucket Square -- 1,068 4,833 5,901 (392) 1,075 4,434
Riverway -- 523 2,828 3,351 256 553 3,054
Riviera Pines 6,244 1,414 6,454 7,868 1,056 1,470 7,454
The Gallery -- 769 3,359 4,128 261 794 3,595
Towne Lake -- 1,334 5,309 6,643 1,495 1,609 6,529
The Legend at Park 10 -- 1,995 -- 1,995 11,748 3,926 9,817
HOUSTON, TX 57,954 39,307 138,881 178,188 53,698 46,715 185,171
Vista Point -- 1,587 5,613 7,200 1,493 1,727 6,966
Sierra Palms -- 4,639 17,361 22,000 582 4,748 17,834
Northpark Village -- 1,519 13,537 15,056 1,857 1,876 15,037
Stonegate 5,180 735 7,940 8,675 1,067 905 8,837
Finisterra -- 1,274 26,392 27,666 615 1,341 26,940
La Privada 15,400 7,303 18,508 25,811 2,122 7,845 20,088
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Preston Oaks $9,041 $1,750 1980 12/31/96
Rock Creek 24,671 5,312 1979 12/31/96
Windridge 20,713 4,432 1980 12/31/96
Catalina 8,082 1,586 1982 12/31/96
Wimbledon Court 15,055 2,858 1983 12/31/96
Lakeridge 8,561 1,784 1984 12/31/96
Summergate 5,975 1,234 1984 12/31/96
Oak Forest 39,730 8,462 1996/98 12/31/96
Oaks Of Lewisville 21,236 4,736 1983 03/27/97
Kelly Crossing 13,377 2,563 1984 06/18/97
Highlands Of Preston 12,157 2,148 1985 03/27/98
The Summit 12,486 2,136 1983 03/27/98
Springfield 11,058 1,767 1985 03/27/98
Meridian 35,971 1,948 2000/02 01/27/98 & 12/28/01
Mandolin I 24,084 1,377 2001 12/28/01
DALLAS, TX 262,197 44,093
Woodtrail 9,556 2,562 1978 12/31/96
Park Trails 6,254 1,344 1983 12/31/96
Green Oaks 28,231 5,275 1985 06/25/97
Sky Hawk 11,461 2,524 1984 05/08/97
South Grand At Pecan Grove 23,694 4,605 1985 09/26/97
Breakers 9,154 1,976 1985 09/26/97
Braesridge 16,521 3,081 1982 09/26/97
Skylar Pointe 19,512 4,084 1979 11/20/97
Stone Canyon 10,338 1,426 1998 12/17/97
Briar Park 3,365 538 1987 03/27/98
Chelsea Park 9,940 1,716 1983 03/27/98
Clear Lake Falls 5,625 844 1980 03/27/98
Country Club Place 8,087 1,538 1985 03/27/98
Arbor Ridge 9,002 1,622 1983 03/27/98
London Park 10,672 1,958 1983 03/27/98
Marymont 6,164 931 1983 03/27/98
Nantucket Square 5,509 765 1983 03/27/98
Riverway 3,607 670 1985 03/27/98
Riviera Pines 8,924 1,235 1979 03/27/98
The Gallery 4,389 579 1968 03/27/98
Towne Lake 8,138 1,542 1984 03/27/98
The Legend at Park 10 13,743 2,523 1998 05/19/98
HOUSTON, TX 231,886 43,338
Vista Point 8,693 1,844 1986 12/31/96
Sierra Palms 22,582 3,859 1996 12/31/96
Northpark Village 16,913 3,254 1983 03/27/98
Stonegate 9,742 1,785 1978 03/27/98
Finisterra 28,281 4,619 1997 03/27/98
La Privada 27,933 3,914 1987 03/27/98
48
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Terracina 22,413 3,757 34,781 38,538 6,771 4,582 40,727
Woodland Park -- 3,017 6,706 9,723 1,030 3,226 7,527
Sierra Foothills 12,691 2,728 -- 2,728 18,771 4,842 16,657
Villagio at McCormick Ranch 5,687 3,333 5,976 9,309 860 3,720 6,449
Sierra Canyon -- 1,810 12,964 14,774 240 1,821 13,193
PHOENIX, AZ 61,371 31,702 149,778 181,480 35,408 36,633 180,255
Fisherman's Village -- 2,387 7,459 9,846 3,624 3,144 10,326
Seabrook -- 1,846 4,155 6,001 2,816 2,268 6,549
Dover Village -- 2,895 6,456 9,351 3,891 3,441 9,801
Lakeside North 12,440 1,533 11,076 12,609 5,093 2,263 15,439
Regatta Shore -- 757 6,607 7,364 3,947 1,535 9,776
Alafaya Woods 8,725 1,653 9,042 10,695 2,297 2,111 10,881
Vinyards 8,475 1,840 11,572 13,412 3,309 2,424 14,297
Andover Place 13,230 3,692 7,757 11,449 3,273 4,503 10,219
Los Altos 12,199 2,804 12,348 15,152 2,879 3,347 14,684
Lotus Landing -- 2,185 8,638 10,823 2,061 2,414 10,470
Seville On The Green -- 1,283 6,498 7,781 1,918 1,456 8,243
Arbors @ Lee Vista 13,383 3,976 16,920 20,896 1,869 4,386 18,379
Heron Lake 8,603 1,447 9,288 10,735 1,276 1,619 10,392
Ashton @ Waterford 14,945 3,872 17,538 21,410 193 3,911 17,692
ORLANDO, FL 92,000 32,170 135,354 167,524 38,446 38,822 167,148
Dominion On Spring Forest -- 1,257 8,586 9,843 4,013 1,717 12,139
Dominion Park Green -- 500 4,322 4,822 1,825 716 5,931
Dominion On Lake Lynn 16,250 3,622 12,405 16,027 3,582 4,152 15,457
Dominion Courtney Place -- 1,115 5,119 6,234 3,337 1,450 8,121
Dominion Walnut Ridge 9,515 1,791 11,969 13,760 2,303 2,176 13,887
Dominion Walnut Creek 17,050 3,170 21,717 24,887 3,691 3,730 24,848
Dominion Ramsgate -- 908 6,819 7,727 957 1,041 7,643
Copper Mill -- 1,548 16,067 17,615 1,094 1,828 16,881
Trinity Park 15,778 4,580 17,576 22,156 1,236 4,631 18,761
Meadows at Kildaire -- 2,846 20,768 23,614 1,768 6,875 18,507
Oaks at Weston -- 9,944 23,306 33,250 146 9,945 23,451
RALEIGH, NC 58,593 31,281 148,654 179,935 23,952 38,261 165,626
Dominion Middle Ridge 14,198 3,311 13,283 16,594 1,133 3,423 14,304
Dominion Lake Ridge 9,142 2,366 8,387 10,753 1,124 2,524 9,353
Presidential Greens 20,153 11,238 18,790 30,028 159 11,238 18,949
Taylor Place -- 6,418 13,411 19,829 823 6,456 14,196
Ridgewood Apartments 12,512 5,612 20,086 25,699 303 5,613 20,389
Ridgewood Townhomes -- 4,507 16,263 20,771 37 4,507 16,301
Greens At Falls Run -- 2,731 5,300 8,031 925 2,878 6,078
Manor At England Run 14,671 3,195 13,505 16,700 12,697 4,869 24,528
METROPOLITAN DC 70,676 39,378 109,025 148,403 17,203 41,508 124,098
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Terracina 45,309 8,346 1984 05/28/98
Woodland Park 10,753 1,873 1979 06/09/98
Sierra Foothills 21,499 4,406 1998 02/18/98
Villagio at McCormick Ranch 10,169 1,470 1980 01/18/01
Sierra Canyon 15,014 878 2001 12/28/01
PHOENIX, AZ 216,888 36,248
Fisherman's Village 13,470 3,951 1984 12/29/95
Seabrook 8,817 2,848 1984 02/20/96
Dover Village 13,242 4,651 1981 03/31/93
Lakeside North 17,702 5,573 1984 04/14/94
Regatta Shore 11,311 3,602 1988 06/30/94
Alafaya Woods 12,992 4,008 1988/90 10/21/94
Vinyards 16,721 5,162 1984/86 10/31/94
Andover Place 14,722 3,864 1988 09/29/95 & 09/30/96
Los Altos 18,031 4,046 1990 10/31/96
Lotus Landing 12,884 2,419 1985 07/01/97
Seville On The Green 9,699 1,955 1986 10/21/97
Arbors @ Lee Vista 22,765 3,719 1991 12/31/97
Heron Lake 12,011 2,096 1989 03/27/98
Ashton @ Waterford 21,603 3,443 2000 05/28/98
ORLANDO, FL 205,970 51,337
Dominion On Spring Forest 13,856 6,104 1978/81 05/21/91
Dominion Park Green 6,647 2,726 1987 09/27/91
Dominion On Lake Lynn 19,609 5,018 1986 12/01/92
Dominion Courtney Place 9,571 3,290 1979/81 07/08/93
Dominion Walnut Ridge 16,063 4,744 1982/84 03/04/94
Dominion Walnut Creek 28,578 7,992 1985/86 05/17/94
Dominion Ramsgate 8,684 1,976 1988 08/15/96
Copper Mill 18,709 3,660 1997 12/31/96
Trinity Park 23,392 4,005 1987 02/28/97
Meadows at Kildaire 25,382 2,042 2000 05/25/00
Oaks at Weston 33,396 788 2001 06/28/02
RALEIGH, NC 203,887 42,345
Dominion Middle Ridge 17,727 3,593 1990 06/25/96
Dominion Lake Ridge 11,877 2,599 1987 02/23/96
Presidential Greens 30,187 738 1938 05/15/02
Taylor Place 20,652 621 1962 04/17/02
Ridgewood Apartments 26,002 431 1988 08/26/02
Ridgewood Townhomes 20,808 340 1983 08/26/02
Greens At Falls Run 8,956 1,845 1989 05/04/95
Manor At England Run 29,397 5,544 1990 05/04/95
METROPOLITAN DC 165,606 15,711
49
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Autumnwood -- 2,412 8,688 11,100 1,465 2,737 9,828
Cobblestone -- 2,925 10,528 13,453 3,134 3,182 13,405
Pavillion -- 4,428 19,033 23,461 1,833 4,771 20,523
Oak Park 16,236 3,966 22,228 26,194 758 5,549 21,403
Parc Plaza -- 1,684 5,279 6,963 1,610 2,163 6,410
Summit Ridge 7,700 1,726 6,308 8,034 1,648 2,214 7,468
Greenwood Creek -- 1,958 8,551 10,509 1,678 2,302 9,885
Derby Park 11,130 3,121 11,765 14,886 1,623 3,762 12,747
Aspen Court 3,990 776 4,945 5,721 1,017 1,099 5,639
The Cliffs -- 3,484 18,657 22,141 803 3,655 19,289
ARLINGTON, TX 39,056 26,480 115,982 142,462 15,569 31,434 126,597
Bay Cove -- 2,929 6,578 9,507 3,678 3,334 9,851
Summit West -- 2,176 4,710 6,886 2,572 2,470 6,988
Pinebrook -- 1,780 2,458 4,238 3,217 2,010 5,445
Lakewood Place 10,300 1,395 10,647 12,042 1,517 1,633 11,926
Hunters Ridge 10,232 2,462 10,942 13,404 1,956 2,993 12,367
Bay Meadow -- 2,893 9,254 12,147 2,727 3,437 11,437
Cambridge -- 1,791 7,166 8,957 1,605 2,106 8,456
Laurel Oaks -- 1,362 6,542 7,904 1,303 1,544 7,663
Parker's Landing 29,453 10,178 37,869 48,047 1,658 9,298 40,407
Sugar Mill Creek 7,420 2,242 7,553 9,795 765 2,385 8,175
TAMPA, FL 57,405 29,208 103,719 132,927 20,998 31,210 122,715
Sycamore Ridge 13,160 4,068 15,433 19,501 1,238 4,226 16,513
Heritage Green -- 2,990 11,392 14,382 9,405 3,134 20,653
Alexander Court -- 1,573 -- 1,573 21,370 6,218 16,725
Governour's Square 28,459 7,513 28,695 36,208 3,053 7,825 31,436
Hickory Creek -- 3,421 13,539 16,960 984 3,493 14,451
Britton Woods 14,957 3,477 19,214 22,691 1,882 4,030 20,543
COLUMBUS, OH 56,576 23,042 88,273 111,315 37,932 28,926 120,321
2000 Post Street -- 9,861 44,578 54,439 690 9,926 45,203
Birch Creek 7,630 4,365 16,696 21,061 1,367 4,614 17,814
Highlands Of Marin -- 5,996 24,868 30,864 919 6,079 25,704
Marina Playa 13,482 6,224 23,916 30,140 1,765 6,461 25,444
SAN FRANCISCO, CA 21,112 26,446 110,058 136,504 4,741 27,080 114,165
The Highlands -- 321 2,830 3,151 2,871 709 5,313
Emerald Bay -- 626 4,723 5,349 4,850 1,267 8,932
Dominion Peppertree -- 1,546 7,699 9,245 1,797 1,807 9,235
Dominion Crown Point -- 2,122 22,339 24,461 2,213 3,897 22,777
Dominion Harris Pond -- 887 6,728 7,615 1,436 1,231 7,820
Dominion Mallard Creek -- 699 6,488 7,187 982 796 7,373
Chateau Village -- 1,046 6,979 8,025 2,538 1,467 9,096
Dominion At Sharon -- 667 4,856 5,523 1,098 908 5,713
Providence Court -- 1 22,048 22,049 9,760 7,519 24,290
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Autumnwood 12,565 2,455 1984 12/31/96
Cobblestone 16,587 3,354 1984 12/31/96
Pavillion 25,294 4,710 1979 12/31/96
Oak Park 26,952 5,730 1982/98 12/31/96
Parc Plaza 8,573 1,829 1986 10/30/97
Summit Ridge 9,682 1,883 1983 03/27/98
Greenwood Creek 12,187 2,160 1984 03/27/98
Derby Park 16,509 2,926 1984 03/27/98
Aspen Court 6,738 1,272 1986 03/27/98
The Cliffs 22,944 1,155 1992 01/29/02
ARLINGTON, TX 158,031 27,474
Bay Cove 13,185 4,690 1972 12/16/92
Summit West 9,458 3,482 1972 12/16/92
Pinebrook 7,455 3,081 1977 09/28/93
Lakewood Place 13,559 3,991 1986 03/10/94
Hunters Ridge 15,360 3,864 1992 06/30/95
Bay Meadow 14,874 3,275 1985 12/09/96
Cambridge 10,562 2,205 1985 06/06/97
Laurel Oaks 9,207 1,958 1986 07/01/97
Parker's Landing 49,705 6,102 1991 12/07/98
Sugar Mill Creek 10,560 1,324 1988 12/07/98
TAMPA, FL 153,925 33,972
Sycamore Ridge 20,739 2,840 1997 07/02/98
Heritage Green 23,787 3,613 1998 07/02/98
Alexander Court 22,943 3,598 1999 07/02/98
Governour's Square 39,261 5,032 1967 12/07/98
Hickory Creek 17,944 2,329 1988 12/07/98
Britton Woods 24,573 3,013 1991 04/20/01
COLUMBUS, OH 149,247 20,425
2000 Post Street 55,129 5,055 1987 12/07/98
Birch Creek 22,428 2,520 1968 12/07/98
Highlands Of Marin 31,783 3,334 1991 12/07/98
Marina Playa 31,905 3,716 1971 12/07/98
SAN FRANCISCO, CA 141,245 14,625
The Highlands 6,022 3,754 1970 01/17/84
Emerald Bay 10,199 4,473 1972 02/06/90
Dominion Peppertree 11,042 3,526 1987 12/14/93
Dominion Crown Point 26,674 6,336 1987/2000 07/01/94
Dominion Harris Pond 9,051 2,604 1987 07/01/94
Dominion Mallard Creek 8,169 2,188 1989 08/16/94
Chateau Village 10,563 2,998 1974 08/15/96
Dominion At Sharon 6,621 1,615 1984 08/15/96
Providence Court 31,809 5,887 1997 09/30/97
50
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Stoney Pointe 12,043 1,500 15,856 17,356 1,544 1,770 17,130
CHARLOTTE, NC 12,043 9,415 100,546 109,961 29,089 21,371 117,679
Pine Avenue 11,484 2,158 8,888 11,046 2,635 2,827 10,854
The Grand Resort -- 8,884 35,707 44,591 17,337 11,775 50,153
Grand Terrace -- 2,144 6,595 8,739 1,237 2,227 7,749
Windemere at Sycamore
Highland -- 5,810 23,450 29,260 86 5,809 23,537
Rancho Vallecitos -- 3,303 10,877 14,180 1,348 3,402 12,126
SOUTHERN CALIFORNIA 11,484 22,299 85,517 107,816 22,643 26,040 104,419
Legacy Hill -- 1,148 5,868 7,016 3,062 1,446 8,632
Hickory Run -- 1,469 11,584 13,053 1,997 1,729 13,321
Carrington Hills -- 2,117 -- 2,117 24,677 3,736 23,058
Brookridge -- 707 5,461 6,168 1,340 939 6,569
Club At Hickory Hollow -- 2,140 15,231 17,371 2,195 2,702 16,864
Breckenridge -- 766 7,714 8,480 913 952 8,441
Williamsburg -- 1,376 10,931 12,307 1,715 1,642 12,380
Colonnade -- 1,460 16,015 17,475 686 1,609 16,552
NASHVILLE, TN -- 11,183 72,804 83,987 36,585 14,755 105,817
Beechwood -- 1,409 6,087 7,496 1,099 1,674 6,921
Steeplechase -- 3,208 11,514 14,722 12,697 3,925 23,494
Northwinds -- 1,558 11,736 13,294 1,178 1,749 12,723
Deerwood Crossings -- 1,540 7,989 9,529 1,378 1,686 9,221
Dutch Village -- 1,198 4,826 6,024 854 1,287 5,591
Lake Brandt -- 1,547 13,489 15,036 932 1,824 14,144
Park Forest -- 680 5,770 6,450 677 864 6,263
Deep River Pointe -- 1,671 11,140 12,811 476 1,814 11,473
GREENSBORO, NC -- 12,811 72,551 85,362 19,291 14,823 89,830
Boronda Manor 296 1,946 8,982 10,928 331 1,970 9,289
Garden Court 139 888 4,188 5,076 226 895 4,407
Harding Park Townhomes 71 550 2,051 2,601 102 573 2,130
Cambridge Court 436 3,039 12,883 15,922 684 3,121 13,485
Laurel Tree 175 1,304 5,115 6,419 222 1,318 5,323
Pine Grove 194 1,383 5,784 7,167 224 1,391 6,000
The Pointe At Harden Ranch 815 6,388 23,854 30,242 800 6,424 24,618
The Pointe At Northridge 274 2,044 8,029 10,073 366 2,085 8,354
The Pointe At Westlake 181 1,329 5,334 6,663 218 1,348 5,533
MONTEREY PENINSULA, CA 2,581 18,871 76,220 95,091 3,173 19,125 79,139
Dominion Olde West -- 1,965 12,204 14,169 2,482 2,382 14,269
Dominion Creekwood -- -- -- -- 1,164 50 1,114
Dominion Laurel Springs -- 465 3,120 3,585 1,365 639 4,311
Dominion English Hills 20,044 1,979 11,524 13,503 5,440 2,816 16,127
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Stoney Pointe 18,900 3,914 1991 02/28/97
CHARLOTTE, NC 139,050 37,295
Pine Avenue 13,681 1,325 1987 12/07/98
The Grand Resort 61,928 5,822 1971 12/07/98
Grand Terrace 9,976 1,179 1986 06/30/99
Windemere at Sycamore Highland 29,346 158 2001 11/21/02
Rancho Vallecitos 15,528 2,786 1988 10/13/99
SOUTHERN CALIFORNIA 130,459 11,270
Legacy Hill 10,078 3,136 1977 11/06/95
Hickory Run 15,050 3,765 1989 12/29/95
Carrington Hills 26,794 4,739 1999 12/06/95
Brookridge 7,508 2,077 1986 03/28/96
Club At Hickory Hollow 19,566 4,205 1987 02/21/97
Breckenridge 9,393 1,976 1986 03/27/97
Williamsburg 14,022 2,596 1986 05/20/98
Colonnade 18,161 2,594 1998 01/07/99
NASHVILLE, TN 120,572 25,088
Beechwood 8,595 2,618 1985 12/22/93
Steeplechase 27,419 5,332 1990/97 03/07/96
Northwinds 14,472 3,282 1989/97 08/15/96
Deerwood Crossings 10,907 2,680 1973 08/15/96
Dutch Village 6,878 1,725 1970 08/15/96
Lake Brandt 15,968 3,671 1995 08/15/96
Park Forest 7,127 1,542 1987 09/26/96
Deep River Pointe 13,287 2,408 1997 10/01/97
GREENSBORO, NC 104,653 23,258
Boronda Manor 11,259 1,308 1979 12/07/98
Garden Court 5,302 640 1973 12/07/98
Harding Park Townhomes 2,703 302 1984 12/07/98
Cambridge Court 16,606 2,049 1974 12/07/98
Laurel Tree 6,641 819 1977 12/07/98
Pine Grove 7,391 794 1963 12/07/98
The Pointe At Harden Ranch 31,042 3,525 1986 12/07/98
The Pointe At Northridge 10,439 1,225 1979 12/07/98
The Pointe At Westlake 6,881 816 1975 12/07/98
MONTEREY PENINSULA, CA 98,264 11,478
Dominion Olde West 16,651 7,082 1978/82/84/85/87 12/31/84 & 8/27/91
Dominion Creekwood 1,164 260 1984 08/27/91
Dominion Laurel Springs 4,950 2,051 1972 09/06/91
Dominion English Hills 18,943 7,813 1969/76 12/06/91
51
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Dominion Gayton Crossing 10,400 826 5,148 5,974 6,354 1,165 11,163
Dominion West End 16,493 2,059 15,049 17,108 2,848 2,701 17,255
Courthouse Green 8,085 732 4,702 5,434 2,350 1,101 6,683
Waterside At Ironbridge 11,635 1,844 13,239 15,083 900 2,008 13,975
RICHMOND, VA 66,657 9,870 64,986 74,856 22,903 12,862 84,897
Cape Harbor -- 1,892 18,113 20,005 1,596 2,271 19,330
Mill Creek -- 1,404 4,489 5,893 13,823 1,941 17,775
The Creek -- 418 2,506 2,924 1,833 489 4,268
Forest Hills -- 1,028 5,421 6,449 2,511 1,208 7,752
Clear Run -- 875 8,741 9,616 5,945 1,281 14,280
Crosswinds -- 1,096 18,230 19,326 1,326 1,215 19,437
WILMINGTON, NC -- 6,713 57,500 64,213 27,034 8,405 82,842
Gatewater Landing -- 2,078 6,085 8,163 1,465 2,184 7,444
Dominion Kings Place 4,325 1,565 7,007 8,572 953 1,653 7,872
Dominion At Eden Brook 7,390 2,361 9,384 11,745 1,406 2,466 10,685
Dominion Great Oaks 11,446 2,920 9,100 12,020 3,889 4,281 11,628
Dominion Constant Friendship -- 903 4,669 5,572 845 1,049 5,368
Lakeside Mill 5,249 2,666 10,109 12,775 615 2,694 10,696
Tamar Meadow -- 4,145 17,149 21,294 31 4,145 17,180
BALTIMORE, MD 28,410 16,638 63,503 80,141 9,204 18,472 70,873
Stanford Village -- 885 2,808 3,693 1,426 1,197 3,922
Griffin Crossing -- 1,510 7,544 9,054 1,786 1,873 8,967
Gwinnett Square 8,851 1,924 7,376 9,300 2,121 2,204 9,217
Dunwoody Pointe 9,870 2,763 6,903 9,666 4,900 3,342 11,224
Riverwood 11,725 2,986 11,088 14,074 4,093 3,485 14,682
Waterford Place -- 1,579 10,303 11,882 552 1,668 10,766
ATLANTA, GA 30,446 11,647 46,022 57,669 14,878 13,769 58,778
Gable Hill -- 825 5,307 6,132 1,592 1,194 6,530
St. Andrews Commons -- 1,429 9,371 10,800 1,893 1,882 10,811
Forestbrook 5,000 395 2,902 3,297 1,879 555 4,621
Waterford -- 958 6,948 7,906 1,672 1,292 8,286
Hampton Greene -- 1,363 10,118 11,481 1,559 1,901 11,139
Rivergate -- 1,123 12,056 13,179 1,326 1,439 13,066
COLUMBIA, SC 5,000 6,093 46,702 52,795 9,921 8,263 54,453
Greentree 12,455 1,634 11,227 12,861 4,244 2,349 14,756
Westland 10,747 1,834 14,865 16,699 4,042 2,668 18,073
Antlers -- 4,034 11,193 15,227 5,901 4,907 16,221
JACKSONVILLE, FL 23,202 7,502 37,285 44,787 14,187 9,924 49,050
Forest Lake At Oyster Point -- 780 8,862 9,642 2,061 1,187 10,516
Woodscape -- 799 7,209 8,008 2,591 1,803 8,796
Eastwind -- 155 5,317 5,472 1,477 403 6,546
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Dominion Gayton Crossing 12,328 6,119 1973 09/28/95
Dominion West End 19,956 5,137 1989 12/28/95
Courthouse Green 7,784 3,838 1974/78 12/31/84
Waterside At Ironbridge 15,983 2,760 1987 09/30/97
RICHMOND, VA 97,759 35,060
Cape Harbor 21,601 4,755 1996 08/15/96
Mill Creek 19,716 4,848 1986/98 09/30/91
The Creek 4,757 2,206 1973 06/30/92
Forest Hills 8,960 3,271 1964/69 06/30/92
Clear Run 15,561 4,299 1987/89 07/22/94
Crosswinds 20,652 4,433 1990 02/28/97
WILMINGTON, NC 91,247 23,812
Gatewater Landing 9,628 3,046 1970 12/16/92
Dominion Kings Place 9,525 2,898 1983 12/29/92
Dominion At Eden Brook 13,151 3,944 1984 12/29/92
Dominion Great Oaks 15,909 4,595 1974 07/01/94
Dominion Constant Friendship 6,417 1,670 1990 05/04/95
Lakeside Mill 13,390 2,511 1989 12/10/99
Tamar Meadow 21,325 111 1990 11/22/02
BALTIMORE, MD 89,345 18,775
Stanford Village 5,119 2,275 1985 09/26/89
Griffin Crossing 10,840 3,224 1987/89 06/08/94
Gwinnett Square 11,421 2,842 1985 03/29/95
Dunwoody Pointe 14,566 4,304 1980 10/24/95
Riverwood 18,167 4,981 1980 06/26/96
Waterford Place 12,434 1,918 1985 04/15/98
ATLANTA, GA 72,547 19,544
Gable Hill 7,724 3,161 1985 12/04/89
St. Andrews Commons 12,693 4,281 1986 05/20/93
Forestbrook 5,176 2,457 1974 07/01/93
Waterford 9,578 2,897 1985 07/01/94
Hampton Greene 13,040 3,679 1990 08/19/94
Rivergate 14,505 3,306 1989 08/15/96
COLUMBIA, SC 62,716 19,781
Greentree 17,105 5,314 1986 07/22/94
Westland 20,741 5,747 1990 05/09/96
Antlers 21,128 5,593 1985 05/28/96
JACKSONVILLE, FL 58,974 16,654
Forest Lake At Oyster Point 11,703 3,483 1986 08/15/95
Woodscape 10,599 4,899 1974/76 12/29/87
Eastwind 6,949 3,148 1970 04/04/88
52
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Dominion Waterside At Lynnhaven -- 1,824 4,107 5,931 1,363 2,033 5,261
Heather Lake -- 617 3,400 4,017 3,661 1,020 6,658
Dominion Yorkshire Downs 7,359 1,089 8,582 9,671 833 1,260 9,244
NORFOLK, VA 7,359 5,264 37,477 42,741 11,986 7,706 47,021
2900 Place -- 1,819 5,593 7,412 467 1,825 6,054
Brandywine Creek 14,140 4,666 17,514 22,180 (1,889) 4,755 15,536
Lakewood 4,130 1,113 3,878 4,991 563 1,232 4,322
Nemoke Trail 13,300 3,431 12,223 15,654 807 3,495 12,966
LANSING, MI 31,570 11,029 39,208 50,237 (52) 11,307 38,878
Arbor Terrace 9,800 1,453 11,995 13,448 645 1,499 12,594
Crowne Pointe 8,330 2,486 6,437 8,923 1,192 2,523 7,592
Hilltop 7,700 2,174 7,408 9,582 501 2,316 7,767
SEATTLE, WA 25,830 6,113 25,840 31,953 2,338 6,338 27,953
Greensview, Aurora, CO -- 6,450 24,405 30,855 2,234 6,010 27,079
Mountain View, Aurora, CO -- 6,402 21,569 27,971 2,097 6,369 23,699
The Reflections, Aurora, CO -- 6,305 27,202 33,507 783 6,411 27,879
Foothills Tennis Village, Roseville, CA 15,820 3,618 14,542 18,160 679 3,731 15,108
Woodlake Village, Sacramento, CA 30,900 6,772 26,967 33,739 1,624 7,020 28,343
Silk Oak, Fresno, CA -- 2,325 4,566 6,891 (1,376) 1,731 3,784
OTHER WESTERN 46,720 31,872 119,251 151,123 6,041 31,272 125,892
Lancaster Commons, Salem, OR 7,910 2,485 7,451 9,936 448 2,509 7,875
Tualatin Heights, Tualatin, OR 10,090 3,273 9,134 12,407 792 3,376 9,823
University Park, Portland, OR -- 3,007 8,191 11,198 420 3,020 8,598
Evergreen Park, Vancouver, WA 5,127 3,878 9,973 13,851 894 3,916 10,829
Aspen Creek, Puyallup, WA 6,746 1,178 9,116 10,294 326 1,268 9,352
Beaumont, Tacoma, WA 10,640 2,339 12,559 14,898 511 2,393 13,016
Stonehaven, Federal Way, WA 8,660 6,471 29,536 36,007 312 6,479 29,840
Campus Commons, Pullman, WA 6,004 1,144 12,873 14,017 (2,135) 1,256 10,626
OTHER PACIFIC 55,177 23,775 98,833 122,608 1,568 24,217 99,959
Sunflower, San Antonio, TX -- 2,209 7,891 10,100 953 2,350 8,703
Inn @ Los Patios, San Antonio, TX -- 3,005 11,545 14,550 (1,490) 3,005 10,055
Pecan Grove, Austin, TX -- 1,407 5,293 6,700 621 1,478 5,843
Anderson Mill, Austin, TX 9,765 3,135 11,170 14,305 3,667 3,498 14,474
Red Stone Ranch, Cedar Park, TX -- 1,897 17,526 19,423 209 5,386 14,246
Barton Creek Landing, Austin, TX -- 3,151 14,269 17,420 491 3,151 14,760
Turtle Creek, Little Rock, AR -- 1,913 7,087 9,000 1,064 2,207 7,857
Shadow Lake, Little Rock, AR -- 2,523 8,976 11,499 1,554 2,851 10,202
OTHER SOUTHWESTERN 9,765 19,240 83,757 102,997 7,069 23,926 86,140
Mallards Of Wedgewood, Lakeland, FL -- 959 6,865 7,824 2,025 1,252 8,597
Parke 33, Lakeland, FL -- 3,857 13,055 16,912 (155) 3,838 12,919
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Dominion Waterside At Lynnhaven 7,294 1,761 1966 08/15/96
Heather Lake 7,678 5,002 1972/74 03/01/80
Dominion Yorkshire Downs 10,504 1,893 1987 12/23/97
NORFOLK, VA 54,727 20,186
2900 Place 7,879 890 1966 12/07/98
Brandywine Creek 20,291 2,505 1974 12/07/98
Lakewood 5,554 714 1974 12/07/98
Nemoke Trail 16,461 2,008 1978 12/07/98
LANSING, MI 50,185 6,117
Arbor Terrace 14,093 2,454 1996 03/27/98
Crowne Pointe 10,115 1,325 1987 12/07/98
Hilltop 10,083 1,227 1985 12/07/98
SEATTLE, WA 34,291 5,006
Greensview, Aurora, CO 33,089 3,291 1987/2002 12/07/98
Mountain View, Aurora, CO 30,068 3,785 1973 12/07/98
The Reflections, Aurora, CO 34,290 1,145 1981/96 04/30/02
Foothills Tennis Village, Roseville, CA 18,839 2,192 1988 12/07/98
Woodlake Village, Sacramento, CA 35,363 4,431 1979 12/07/98
Silk Oak, Fresno, CA 5,515 885 1985 12/07/98
OTHER WESTERN 157,164 15,729
Lancaster Commons, Salem, OR 10,384 1,374 1992 12/07/98
Tualatin Heights, Tualatin, OR 13,199 1,710 1989 12/07/98
University Park, Portland, OR 11,618 1,329 1987 03/27/98
Evergreen Park, Vancouver, WA 14,745 1,945 1988 03/27/98
Aspen Creek, Puyallup, WA 10,620 1,401 1996 12/07/98
Beaumont, Tacoma, WA 15,409 2,734 1996 06/14/00
Stonehaven, Federal Way, WA 36,319 1,109 1989/90 05/28/02
Campus Commons, Pullman, WA 11,882 2,434 1972 03/27/98
OTHER PACIFIC 124,176 14,036
Sunflower, San Antonio, TX 11,053 2,110 1980 12/31/96
Inn @ Los Patios, San Antonio, TX 13,060 1,486 1990 08/15/98
Pecan Grove, Austin, TX 7,321 1,256 1984 12/31/96
Anderson Mill, Austin, TX 17,972 4,385 1984 03/27/97
Red Stone Ranch, Cedar Park, TX 19,632 1,995 2000 06/14/00
Barton Creek Landing, Austin, TX 17,911 694 1986 03/28/02
Turtle Creek, Little Rock, AR 10,064 2,025 1985 12/31/96
Shadow Lake, Little Rock, AR 13,053 2,718 1984 12/31/96
OTHER SOUTHWESTERN 110,066 16,669
Mallards Of Wedgewood, Lakeland, FL 9,849 2,801 1985 07/27/95
Parke 33, Lakeland, FL 16,757 437 2001 06/28/02
53
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
Brantley Pines, Ft. Myers, FL -- 1,893 8,248 10,141 5,081 844 14,378
Ashlar, Ft. Myers, FL -- 3,952 11,718 15,670 16,456 7,594 24,532
The Groves, Port Orange, FL -- 790 4,767 5,557 1,862 1,444 5,975
Lakeside, Port Orange, FL -- 2,404 6,420 8,824 1,411 2,586 7,649
Mallards Of Brandywine, Deland, FL -- 766 5,408 6,174 1,283 990 6,467
LakePointe, Melbourne, FL -- 1,434 4,940 6,374 2,358 1,782 6,950
OTHER FLORIDA -- 16,055 61,421 77,476 30,321 20,330 87,467
Washington Park, Centerville, OH -- 2,012 7,565 9,577 1,095 2,150 8,522
Fountainhead, Dayton, OH -- 391 1,420 1,811 195 391 1,615
Jamestown Of Toledo, Toledo, OH 5,110 1,800 7,054 8,854 903 1,892 7,865
Sunset Village, Flint, MI -- 797 1,829 2,626 432 869 2,189
American Heritage, Waterford, MI 3,640 1,021 3,958 4,979 256 1,031 4,204
Ashton Pines, Waterford, MI -- 1,822 8,014 9,836 572 1,848 8,560
Kings Gate, Sterling Heights, MI 4,620 1,181 4,828 6,009 390 1,241 5,158
Lancaster Lake, Clarkson, MI 12,950 4,238 14,663 18,901 985 4,334 15,552
International Village, Speedway, IN -- 3,934 11,479 15,413 1,584 4,005 12,992
Regency Park South, Indianapolis, IN -- 2,643 7,632 10,275 934 2,727 8,482
OTHER MIDWESTERN 26,320 19,839 68,442 88,281 7,346 20,488 75,139
Colony Village, New Bern, NC -- 346 3,037 3,383 2,120 573 4,930
Brynn Marr, Jacksonville, NC -- 433 3,822 4,255 2,727 730 6,252
Liberty Crossing, Jacksonville, NC -- 840 3,873 4,713 3,068 1,440 6,341
Bramblewood, Goldsboro, NC -- 402 3,151 3,553 1,636 588 4,601
Cumberland Trace, Fayetteville, NC -- 632 7,896 8,528 1,014 704 8,838
Village At Cliffdale, Fayetteville, NC 11,550 941 15,498 16,439 1,437 1,175 16,701
Morganton Place, Fayetteville, NC -- 819 13,217 14,036 696 887 13,845
Woodberry, Asheville, NC -- 389 6,381 6,770 1,490 992 7,268
OTHER NORTH CAROLINA 11,550 4,802 56,875 61,677 14,188 7,089 68,776
Jamestown Of St. Matthews, St. Matthews,
KY 11,970 3,866 14,422 18,288 1,312 3,975 15,625
Patriot Place, Florence, SC -- 212 1,601 1,813 5,802 1,506 6,109
River Place, Macon, GA 6,142 1,097 7,492 8,589 2,233 1,803 9,019
The Trails At Mount Moriah, Memphis, TN 16,909 5,931 22,095 28,026 3,210 6,489 24,747
OTHER SOUTHEASTERN 35,021 11,106 45,610 56,716 12,557 13,773 55,500
Greens At Hollymead, Charlottesville, VA -- 965 5,250 6,215 717 1,058 5,874
Brittingham Square, Salisbury, MD -- 650 4,962 5,612 710 815 5,507
Greens At Schumaker Pond, Salisbury, MD -- 710 6,118 6,828 961 871 6,918
Greens At Cross Court, Easton, MD -- 1,182 4,544 5,726 1,112 1,368 5,470
Greens At Hilton Run, Lexington Park, MD 12,542 2,754 10,483 13,237 1,717 3,087 11,867
OTHER MID-ATLANTIC 12,542 6,261 31,357 37,618 5,217 7,199 35,636
Dover Country, Dover, DE -- 2,008 6,365 8,373 2,731 2,362 8,742
Greens At Cedar Chase, Dover, DE 5,167 1,528 4,830 6,358 791 1,722 5,427
OTHER NORTHEASTERN 5,167 3,537 11,195 14,732 3,521 4,084 14,169
---------- -------- ---------- ---------- -------- -------- ----------
TOTAL APARTMENTS $1,011,775 $614,067 $2,685,166 $3,299,233 $595,494 $715,708 $3,179,019
========== ======== ========== ========== ======== ======== ==========
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
Brantley Pines, Ft. Myers, FL 15,222 6,030 1986 08/11/94
Ashlar, Ft. Myers, FL 32,126 4,346 1999/2000 12/24/97
The Groves, Port Orange, FL 7,419 2,202 1989 12/13/95
Lakeside, Port Orange, FL 10,235 1,929 1985 07/01/97
Mallards Of Brandywine, Deland, FL 7,457 1,734 1985 07/01/97
LakePointe, Melbourne, FL 8,732 3,100 1984 09/24/93
OTHER FLORIDA 107,797 22,579
Washington Park, Centerville, OH 10,672 1,526 1998 12/07/98
Fountainhead, Dayton, OH 2,006 298 1966 12/07/98
Jamestown Of Toledo, Toledo, OH 9,757 1,286 1965 12/07/98
Sunset Village, Flint, MI 3,058 507 1940 12/07/98
American Heritage, Waterford, MI 5,235 659 1968 12/07/98
Ashton Pines, Waterford, MI 10,408 1,247 1987 12/07/98
Kings Gate, Sterling Heights, MI 6,399 767 1973 12/07/98
Lancaster Lake, Clarkson, MI 19,886 2,360 1988 12/07/98
International Village, Speedway, IN 16,997 2,503 1968 12/07/98
Regency Park South, Indianapolis, IN 11,209 1,551 1968 12/07/98
OTHER MIDWESTERN 95,627 12,704
Colony Village, New Bern, NC 5,503 3,260 1972/74 12/31/84
Brynn Marr, Jacksonville, NC 6,982 4,025 1973/77 12/31/84
Liberty Crossing, Jacksonville, NC 7,781 4,025 1972/74 11/30/90
Bramblewood, Goldsboro, NC 5,189 2,998 1980/82 12/31/84
Cumberland Trace, Fayetteville, NC 9,542 2,257 1973 08/15/96
Village At Cliffdale, Fayetteville, NC 17,876 3,998 1992 08/15/96
Morganton Place, Fayetteville, NC 14,732 3,107 1994 08/15/96
Woodberry, Asheville, NC 8,260 2,052 1987 08/15/96
OTHER NORTH CAROLINA 75,865 25,722
Jamestown Of St. Matthews, St. Matthews,
KY 19,600 2,438 1968 12/07/98
Patriot Place, Florence, SC 7,615 4,075 1974 10/23/85
River Place, Macon, GA 10,822 3,552 1988 04/08/94
The Trails At Mount Moriah, Memphis, TN 31,236 4,985 1990 01/09/98
OTHER SOUTHEASTERN 69,273 15,050
Greens At Hollymead, Charlottesville, VA 6,932 1,737 1990 05/04/95
Brittingham Square, Salisbury, MD 6,322 1,670 1991 05/04/95
Greens At Schumaker Pond, Salisbury, MD 7,789 2,079 1988 05/04/95
Greens At Cross Court, Easton, MD 6,838 1,703 1987 05/04/95
Greens At Hilton Run, Lexington Park, MD 14,954 3,514 1988 05/04/95
OTHER MID-ATLANTIC 42,835 10,703
Dover Country, Dover, DE 11,104 3,381 1970 07/01/94
Greens At Cedar Chase, Dover, DE 7,149 1,732 1988 05/04/95
OTHER NORTHEASTERN 18,253 5,113
---------- --------
TOTAL APARTMENTS $3,894,727 $741,197
========== ========
54
Schedule III
Summary of Real Estate Owned
(in thousands)
Cost of
Improvements Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
-------------------------- Total Subsequent --------------------------
Land and Buildings Initial to Acquisition Land and Buildings
Land and Acquisition (Net of Land and
Encumbrances Improvements Improvements Costs Disposals) Improvements Improvements
------------ ------------ ------------ ----------- ------------ ------------ ------------
REAL ESTATE HELD FOR DISPOSITION
Apartments
Knolls At Newgate $ -- $ 1,726 $ 3,530 $ 5,256 $ 1,871 $ 1,871 $ 5,256
Paradise Falls -- 1,622 6,171 7,793 3,023 1,845 8,971
---------- -------- ---------- ---------- -------- -------- ----------
Total Apartments -- 3,348 9,701 13,049 4,894 3,716 14,227
Commercial
Gloucester Exchange -- 404 2,278 2,682 647 609 2,720
Land
Fossil Creek -- 4,008 -- 4,008 (289) 3,719 --
Villa Toscana -- 3,889 -- 3,889 (767) 3,122 --
---------- -------- ---------- ---------- -------- -------- ----------
Total Land -- 7,897 -- 7,897 (1,056) 6,841 --
---------- -------- ---------- ---------- -------- -------- ----------
$ -- $ 11,649 $ 11,979 $ 23,628 $ 4,485 $ 11,166 $ 16,947
---------- -------- ---------- ---------- -------- -------- ----------
REAL ESTATE UNDER
DEVELOPMENT
Apartments
Mandolin II, Dallas, TX $ -- $ 1,160 $ 4,236 $ 5,396 $ -- $ 1,160 $ 4,236
Rancho Cucamonga, Los Angeles, CA -- 13,557 249 13,806 -- 13,557 249
2000 Post III, San Francisco, CA -- 1,756 311 2,067 -- 1,756 311
---------- -------- ---------- ---------- -------- -------- ----------
Total Apartments -- 16,473 4,796 21,269 -- 16,473 4,796
Land
Copper Mill II -- 833 -- 833 -- 833 --
Parker's Landing Phase II -- 1,167 -- 1,167 -- 1,167 --
Parke 33 II -- 1,732 -- 1,732 -- 1,732 --
Wimbledon Court II -- 602 -- 602 -- 602 --
Coit Road -- 2,806 -- 2,806 -- 2,806 --
Coit Road II -- 1,995 -- 1,995 -- 1,995 --
Mountain View Phase II -- 220 -- 220 -- 220 --
---------- -------- ---------- ---------- -------- -------- ----------
Total Land -- 9,355 -- 9,355 -- 9,355 --
---------- -------- ---------- ---------- -------- -------- ----------
$ -- $ 25,828 $ 4,796 $ 30,624 $ -- $ 25,828 $ 4,796
---------- -------- ---------- ---------- -------- -------- ----------
COMMERCIAL HELD FOR
INVESTMENT
Hanover Village $ -- $ 1,624 $ -- $ 1,624 $ -- $ 1,104 $ 520
Pacific South Center -- 1,000 4,000 5,000 70 1,020 4,050
---------- -------- ---------- ---------- -------- -------- ----------
Total Commercial -- 2,624 4,000 6,624 70 2,124 4,570
Richmond--Corporate 3,965 245 6,352 6,597 728 277 7,048
---------- -------- ---------- ---------- -------- -------- ----------
$ 3,965 $ 2,869 $ 10,352 $ 13,221 $ 798 $ 2,401 $ 11,618
---------- -------- ---------- ---------- -------- -------- ----------
TOTAL REAL ESTATE OWNED $1,015,740 $654,413 $2,712,293 $3,366,706 $600,777 $755,103 $3,212,380
========== ======== ========== ========== ======== ======== ==========
[WIDE TABLE CONTINUED]
Total
Carrying Accumulated Date of Date
Value (A) Depreciation (B) Construction Acquired
--------- ---------------- ------------ --------
REAL ESTATE HELD FOR DISPOSITION
Apartments
Knolls At Newgate $ 7,127 $ 2,147 1972 07/01/94
Paradise Falls 10,816 2,204 1986 12/31/96
---------- --------
Total Apartments 17,943 4,351
Commercial
Gloucester Exchange 3,329 1,506 1974 11/12/87
Land
Fossil Creek 3,719 --
Villa Toscana 3,122 --
---------- --------
Total Land 6,841 --
---------- --------
$ 28,113 $ 5,857
---------- --------
REAL ESTATE UNDER
DEVELOPMENT
Apartments
Mandolin II, Dallas, TX $ 5,396 $ --
Rancho Cucamonga, Los Angeles, CA 13,806 --
2000 Post III, San Francisco, CA 2,067 --
---------- --------
Total Apartments 21,269 --
Land
Copper Mill II 833 --
Parker's Landing Phase II 1,167 --
Parke 33 II 1,732 --
Wimbledon Court II 602 --
Coit Road 2,806 --
Coit Road II 1,995 --
Mountain View Phase II 220 --
---------- --------
Total Land 9,355 --
---------- --------
$ 30,624 $ --
---------- --------
COMMERCIAL HELD FOR
INVESTMENT
Hanover Village $ 1,624 $463 -- 06/30/86
Pacific South Center 5,070 546 1965 08/28/86
---------- --------
Total Commercial 6,694 1,009
Richmond--Corporate 7,325 670 1999 11/30/99
---------- --------
$ 14,019 $ 1,679
---------- --------
TOTAL REAL ESTATE OWNED $3,967,483 $748,733
========== ========
(A) The aggregate cost for federal income tax purposes was approximately
$3.3 billion at December 31, 2002.
(B) The depreciable life for buildings is 35 years.
55
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
(Dollars in thousands)
Years ended December 31,
------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income before discontinued operations ......................... $ 16,292 $ 50,404 $ 61,973 $ 80,969 $ 60,115
Add:
Portion of rents representative of the interest factor .. 691 794 866 928 569
Minority interests ...................................... 690 3,364 3,323 4,675 1,541
Loss on equity investment in joint venture .............. -- 254 111 -- --
Interest on indebtedness from continuing operations ..... 130,956 139,695 151,711 149,109 101,955
-------- -------- -------- -------- --------
Earnings ............................................. $148,629 $194,511 $217,984 $235,681 $164,180
======== ======== ======== ======== ========
Fixed charges and preferred stock dividend:
Interest on indebtedness from continuing operations ..... $130,956 $139,695 $151,711 $149,109 $101,955
Capitalized interest .................................... 931 2,925 3,650 5,153 3,360
Portion of rents representative of the interest factor .. 691 794 866 928 569
-------- -------- -------- -------- --------
Fixed charges ........................................ 132,578 143,414 156,227 155,190 105,884
-------- -------- -------- -------- --------
Add:
Preferred stock dividend ................................ 27,424 31,190 36,891 37,714 23,593
-------- -------- -------- -------- --------
Combined fixed charges and preferred stock dividend .. $160,002 $174,604 $193,118 $192,904 $129,477
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ............................ 1.12x 1.36x 1.40x 1.52x 1.55x
Ratio of earnings to combined fixed charges and preferred stock
dividend ................................................... 0.93x 1.11x 1.13x 1.22x 1.27x
For the year ended December 31, 2002, the ratio of earnings to combined fixed
charges and preferred stock dividend was deficient of achieving a 1:1 ratio by
$11,373.
56