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, 2001. 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.
YEARS ENDED DECEMBER 31,
2001 2000 1999 1998
---------------------------------------------------------
In thousands, except per share data and apartment homes owned
OPERATING DATA (a)
Rental income $ 561,958 $ 572,205 $ 572,798 $ 438,780
Income before gains on sales of investments,
minority interests, discontinued operations and
extraordinary item 32,125 33,541 46,838 34,940
Gains on sales of investments 24,748 31,450 37,995 26,672
Net income from discontinued operations, net of
minority interests 11,703 14,153 12,467 12,006
Extraordinary item-early extinguishment of debt (3,471) 831 927 (138)
Net income 61,828 76,615 93,622 72,332
Distributions to preferred shareholders 31,190 36,891 37,714 23,593
Net income available to common shareholders 27,142 42,653 55,908 48,739
Common distributions declared 108,956 110,225 109,607 107,758
Weighted average number of common shares outstanding-basic 100,339 103,072 103,604 99,966
Weighted average number of common shares outstanding-diluted 101,037 103,208 103,639 100,062
Weighted average number of common shares, OP Units
and common share equivalents-diluted 120,728 123,005 124,127 103,793
Per share:
Basic earnings per share $ 0.27 $ 0.41 $ 0.54 $ 0.49
Diluted earnings per share 0.27 0.41 0.54 0.49
Common distributions declared 1.08 1.07 1.06 1.05
BALANCE SHEET DATA (a)
Real estate owned, at carrying value $ 3,907,667 $ 3,836,320 $ 3,953,045 $ 3,952,752
Accumulated depreciation 646,366 509,405 395,864 316,630
Total real estate owned, net of accumulated depreciation 3,261,301 3,326,915 3,557,181 3,636,122
Total assets 3,348,091 3,453,957 3,688,317 3,762,940
Secured debt 974,177 866,115 1,000,136 1,072,185
Unsecured debt 1,090,020 1,126,215 1,127,169 1,045,564
Total debt 2,064,197 1,992,330 2,127,305 2,117,749
Shareholders' equity 1,042,725 1,218,892 1,310,212 1,374,121
Number of common shares outstanding 103,133 102,219 102,741 103,639
OTHER DATA (a)
CASH FLOW DATA
Net cash provided by operating activities $ 224,411 $ 224,160 $ 190,602 $ 140,597
Net cash (used in)/provided by investing activities (64,055) 58,705 (103,836) (263,864)
Net cash (used in)/provided by financing activities (166,020) (280,238) (105,169) 148,875
FUNDS FROM OPERATIONS (b)
Net income $ 61,828 $ 76,615 $ 93,622 $ 72,332
Adjustments:
Distributions to preferred shareholders (31,190) (36,891) (37,714) (23,593)
Real estate depreciation, net of other
partnerships' interest 150,206 151,520 120,543 99,588
Gains on sales of depreciable property, net
of other partnerships' interest (24,007) (30,300) (37,995) (26,672)
Minority interests of unitholders in operating partnership 1,967 2,885 4,434 1,430
Real estate depreciation related to unconsolidated entities
Extraordinary item-early extinguishment 1,105 251 181 24
of debt, net of minority interest 3,471 (831) (927) 138
---------------------------------------------------------
Funds from operations-basic $ 163,380 $ 163,249 $ 142,144 $ 123,247
=========================================================
Adjustment:
Distributions to preferred shareholders-Series D (Convertible) 15,428 15,300 15,154 986
---------------------------------------------------------
Funds from operations-diluted $ 178,808 $ 178,549 $ 157,298 $ 124,233
=========================================================
Adjustment:
Recurring capital expenditures (31,535) (24,794) (43,528) (25,019)
---------------------------------------------------------
ADJUSTED FUNDS FROM OPERATIONS-DILUTED (c) $ 147,273 $ 153,755 $ 113,770 $ 99,214
=========================================================
APARTMENT HOMES OWNED
Total apartment homes owned at December 31 77,567 77,219 82,154 86,893
Weighted average number of apartment homes owned
during the year 76,487 80,253 85,926 70,724
1997
-----------
In thousands, except per share data and apartment homes owned
OPERATING DATA (a)
Rental income $ 362,294
Income before gains on sales of investments,
minority interests, discontinued operations and
extraordinary item 48,125
Gains on sales of investments 12,664
Net income from discontinued operations, net of
minority interests 9,688
Extraordinary item-early extinguishment of debt (50)
Net income 70,149
Distributions to preferred shareholders 17,345
Net income available to common shareholders 52,804
Common distributions declared 88,587
Weighted average number of common shares outstanding-basic 87,145
Weighted average number of common shares outstanding-diluted 87,339
Weighted average number of common shares, OP Units
and common share equivalents-diluted 87,656
Per share:
Basic earnings per share $ 0.61
Diluted earnings per share 0.60
Common distributions declared 1.01
BALANCE SHEET DATA (a)
Real estate owned, at carrying value $ 2,517,398
Accumulated depreciation 245,367
Total real estate owned, net of accumulated depreciation 2,272,031
Total assets 2,313,725
Secured debt 417,325
Unsecured debt 738,901
Total debt 1,156,226
Shareholders' equity 1,058,357
Number of common shares outstanding 89,168
OTHER DATA (a)
CASH FLOW DATA
Net cash provided by operating activities $ 137,903
Net cash (used in)/provided by investing activities (342,273)
Net cash (used in)/provided by financing activities 191,391
FUNDS FROM OPERATIONS (b)
Net income $ 70,149
Adjustments:
Distributions to preferred shareholders (17,345)
Real estate depreciation, net of other
partnerships' interest 76,688
Gains on sales of depreciable property, net
of other partnerships' interest (12,664)
Minority interests of unitholders in operating partnership 278
Real estate depreciation related to unconsolidated entities
Extraordinary item-early extinguishment --
of debt, net of minority interest 50
-----------
Funds from operations-basic $ 117,156
===========
Adjustment:
Distributions to preferred shareholders-Series D (Convertible) --
-----------
Funds from operations-diluted $ 117,156
===========
Adjustment:
Recurring capital expenditures (24,490)
-----------
ADJUSTED FUNDS FROM OPERATIONS-DILUTED (c) $ 92,666
===========
APARTMENT HOMES OWNED
Total apartment homes owned at December 31 62,789
Weighted average number of apartment homes owned
during the year 58,038
(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.
6
(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 and cash flows 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 our 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.
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 1993, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include, without limitation, statements
concerning property acquisitions and dispositions, development activity
and capital expenditures, capital raising activities, rent growth,
occupancy and rental expense growth. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates" and
variations of such words and similar expressions are intended to identify
such forward-looking statements. Such statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievement of United Dominion Realty Trust, Inc. (United
Dominion) to be materially different from the results of operations or
plans expressed or implied by such forward-looking statements. Such
factors include, among other things, unanticipated adverse business
developments affecting United Dominion, or its properties, adverse changes
in the real estate markets and general and local economies and business
conditions. Although United Dominion believes that the assumptions
underlying the forward-looking statements contained herein are reasonable,
any of the assumptions could be inaccurate, and therefore there can be no
assurance that such statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by United Dominion
or any other person that the results or conditions described in such
statements or the objectives and plans of United Dominion will be
achieved.
BUSINESS OVERVIEW
United Dominion is a real estate investment trust (REIT) that owns,
acquires, renovates, develops and manages middle market apartment
communities nationwide. From 1996 through 1999, United Dominion acquired
other REITs, private portfolios and individual communities to create a
national platform. Following this significant acquisition period, the
Company upgraded the quality of the portfolio and invested in
infrastructure and technology to catch up with the rapid growth of its
portfolio of assets. During 2001, United Dominion continued to refine its
strategy with the goal of enhancing long-term earnings growth on a
sustained basis by focusing on operational issues that management believes
will produce above-average net operating income growth, steadily increase
cash flow per apartment home and strengthen the capital structure of the
Company. The Company's strategy includes the following key initiatives:
- Own and operate middle market apartment homes across a
geographically diverse platform by enhancing United Dominion's
presence in 25 - 30 core markets to enable the Company to
capitalize on operating efficiencies.
- As local market cycles create opportunities, exit current
markets where long-term growth is below the national average
(the "non-core markets").
- Employ a strict capital allocation discipline throughout all
decision-making processes to enhance performance, improve the
strength of the Company's balance sheet and increase financial
flexibility.
7
- Lead, manage, measure and reward associates based upon
performance specifically tied to key financial and investment
indicators, including the growth of funds from operations,
adjusted funds from operations and the common share price.
Over the long-term, these key initiatives will better position
United Dominion to serve its customers, increase profitability and
capitalize on changes in the marketplace. At December 31, 2001, United
Dominion owned 274 communities with 77,567 apartment homes nationwide.
The following table summarizes United Dominion's apartment market
information by major geographic market (excluding real estate under
development):
YEAR ENDED
AS OF DECEMBER 31, 2001 DECEMBER 31, 2001
---------------------------------------- CARRYING ---------------------------
NUMBER OF NUMBER OF PERCENTAGE VALUE AVERAGE AVERAGE
APARTMENT APARTMENT OF CARRYING (IN PHYSICAL MONTHLY
COMMUNITIES HOMES VALUE THOUSANDS) OCCUPANCY RENTAL RATES
----------- ---------- ----------- ----------- --------- ------------
Dallas, TX 16 5,177 6.7% $ 255,437 95.0% $ 678
Houston, TX 22 5,722 5.9% 227,217 94.0% 623
Phoenix, AZ 12 3,854 5.9% 225,997 93.6% 715
Orlando, FL 14 4,140 5.3% 202,676 92.9% 746
San Antonio, TX 12 3,827 5.0% 190,182 91.6% 677
Raleigh, NC 10 3,283 4.3% 166,411 91.7% 719
Tampa, FL 10 3,372 4.0% 151,867 94.1% 694
Fort Worth, TX 11 3,561 3.9% 148,888 96.6% 638
Columbus, OH 6 2,527 3.9% 148,012 93.4% 691
San Francisco, CA 4 980 3.7% 140,995 97.3% 1,767
Charlotte, NC 10 2,710 3.5% 136,303 89.2% 703
Nashville, TN 8 2,220 3.1% 119,805 94.2% 688
Greensboro, NC 8 2,122 2.7% 103,703 91.0% 642
Monterey Peninsula, CA 9 1,706 2.5% 97,304 95.4% 859
Memphis, TN 6 1,956 2.5% 96,909 92.3% 633
Richmond, VA 8 2,372 2.5% 96,117 95.6% 711
Southern California 5 1,414 2.4% 90,989 95.8% 903
Wilmington, NC 6 1,869 2.3% 89,015 92.6% 661
Metropolitan DC 5 1,291 1.9% 74,599 97.9% 845
Atlanta, GA 6 1,426 1.9% 71,202 93.3% 741
Baltimore, MD 6 1,291 1.7% 67,102 97.1% 817
Columbia, SC 6 1,584 1.6% 62,230 95.0% 586
Jacksonville, FL 3 1,157 1.5% 58,329 92.9% 669
Norfolk, VA 6 1,437 1.4% 54,095 95.4% 665
Lansing, MI 4 1,226 1.3% 48,668 92.4% 661
Seattle, WA 3 628 0.9% 34,031 94.9% 742
Other Western 6 2,594 3.2% 127,729 96.3% 703
Other Florida 8 2,073 2.6% 101,208 91.3% 722
Other Southwestern 9 2,212 2.6% 98,136 93.4% 589
Other Midwestern 10 2,122 2.5% 93,803 93.0% 629
Other Pacific 7 1,757 2.3% 87,156 93.6% 706
Other North Carolina 8 1,893 1.9% 74,453 95.1% 566
Other Mid-Atlantic 5 928 1.1% 42,397 96.6% 770
Other Southeastern 3 764 1.0% 37,428 94.8% 586
Other Northeastern 2 372 0.5% 18,119 96.4% 672
----------- ---------- ----------- ----------- --------- ------------
TOTAL APARTMENTS 274 77,567 100.0% $3,838,512 93.9% $ 703
=========== ========== =========== =========== ========= ============
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 sales of real estate have been used for both investing and financing
activities.
United Dominion expects to meet its short-term liquidity requirements
generally through net cash provided by operations and borrowings under credit
arrangements. The Company expects 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 debt securities or additional equity securities of the Company. The Company
believes that its net cash provided by operations will continue to be adequate
to meet both operating requirements and the payment of dividends by the Company
in accordance with REIT requirements in both the short- and long-term. 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 $700 million in common shares, preferred
shares and debt securities to facilitate future financing activities in the
public capital markets. In March 2000, United Dominion utilized this shelf
registration statement to sell $100 million of senior unsecured notes due March
2003 at an interest rate of 8.625%. In December 2001, United Dominion completed
an offering to the public of 4.1 million shares of common stock at a price of
$14.40 per share. As of December 31, 2001, $541 million of equity and debt
securities remain available for use under the shelf registration, although
access to capital markets is dependent on market conditions at the time of
issuance. Subsequent to December 31, 2001, the underwriters who sold the
Company's stock in December 2001 exercised their over-allotment option for
166,800 shares of common stock at a price of $14.40 per share.
In September 2001, Moody's Investors Service lowered its rating on the
securities of the Company to Baa3 from Baa2, placing its rating on par with that
of Standard & Poors, which had lowered its rating in 2000. This revision did not
trigger a material increase in the borrowing rate under the Company's $375
million three-year unsecured revolving bank credit facility or the Company's
secured revolving Fannie Mae credit facilities (see discussion under "Credit
Facilities"), and United Dominion's debt rating remains "investment grade."
Management does not anticipate that this revision will prevent the Company from
accessing the public or private markets for either unsecured or secured
financing.
FUTURE CAPITAL NEEDS
Future development expenditures are expected to be funded primarily
through joint ventures or from proceeds from the sale of properties, and to a
lesser extent, cash flow provided by operating activities. Acquisition activity
in strategic markets is expected to be largely financed by the reinvestment of
proceeds from the sale of property in non-strategic markets.
During 2002, United Dominion has approximately $108.6 million of
maturing debt which the Company anticipates repaying using proceeds from
mortgage refinancing activity or borrowings under unsecured or secured credit
facilities.
9
CRITICAL ACCOUNTING POLICIES
Capital Expenditures
United Dominion capitalizes those expenditures related to acquiring new
assets, materially enhancing the value of an existing asset, or substantially
extending the useful life of an existing asset. Expenditures necessary to
maintain an existing property in ordinary operating condition are expensed as
incurred.
During 2001, $53.1 million or $704 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 $31.5
million or $418 per home. In addition, revenue enhancing capital expenditures,
including water sub-metering, gating and access systems, the addition of
microwaves, washer-dryers, interior upgrades and new business and fitness
centers totaled $21.6 million or $286 per home for the year ended December 31,
2001.
The following table outlines capital expenditures and repair and
maintenance costs for the Company's total portfolio, excluding real estate under
development and commercial properties for the periods presented (dollars in
thousands):
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, (PER UNIT)
----------------------------------- ------------------------------------
2001 2000 % CHANGE 2001 2000 % CHANGE
------- ------- -------- ------- ---- --------
Turnover capital expenditures $16,776 $14,109 18.9% $ 222 $177 25.4%
Other recurring capital expenditures 14,759 10,685 38.1% 196 134 46.3%
------- ------- ---- ------- ---- ----
Total recurring capital expenditures 31,535 24,794 27.2% 418 311 34.4%
Revenue enhancing improvements 21,561 16,702 29.1% 286 210 36.2%
------- ------- ---- ------- ---- ----
Total capital improvements $53,096 $41,496 28.0% $ 704 $521 35.1%
======= ======= ==== ======= ==== ====
Repair and maintenance 36,197 36,185 0.0% 480 454 5.7%
------- ------- ---- ------- ---- ----
Total expenditures $89,293 $77,681 14.9% $1,184 $975 21.4%
======= ======= ==== ====== ==== ====
Total capital improvements increased $11.6 million or $183 per home in
2001 compared to the same period in 2000. United Dominion will continue to
selectively add revenue enhancing improvements that the Company believes will
provide a return on investment substantially in excess of United Dominion's cost
of capital. Capital expenditures during 2002 are currently expected to be at
approximately the same level as those experienced in 2001.
Revenue Recognition
United Dominion's apartment homes are leased under operating leases
with terms generally of one year or less. The Company's revenue recognition
policy approximates a straight-line rent policy; however, United Dominion's
revenue recognition policy results in slightly lower revenues in periods of
increasing concessions and slightly higher revenues during periods of decreasing
concessions. Rental concessions are recognized when incurred rather than using
the straight-line rent methodology. During 2001, 2000 and 1999, the Company has
experienced increased rental concessions.
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, 2001, United Dominion had 16 interest rate swap agreements with
a notional value aggregating $282 million that are used to fix the interest rate
on a portion of the Company's 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, the change in the fair value of the derivatives used as hedges would
be reflected in earnings.
10
Interest rate swaps, where the Company 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 the Company's
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. Information about the fair values, notional amounts, and
contractual terms of the Company's interest rate swaps can be found in Note 7 to
our consolidated financial statements and the section titled "Interest Rate
Risk" that follows.
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. The Company does 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, 2001, the Company had unrealized
losses totaling $14.9 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 the Company's
obligations and it expects to meet those obligations without default (see Note 7
- - Financial Instruments).
The following discussion explains the changes in net cash provided by
operating activities and net cash used in investing and financing activities
which are presented in United Dominion's Consolidated Statements of Cash Flows.
OPERATING ACTIVITIES
For the year ended December 31, 2001, United Dominion's cash flow from
operating activities was $224.4 million compared to $224.2 million for 2000.
During 2001, cash flow from operating activities resulted primarily from a
change in the level of operating assets as a result of collections on escrow
accounts and joint venture receivables offset by a decline in revenues generated
from a smaller portfolio of assets.
INVESTING ACTIVITIES
For the year ended December 31, 2001, net cash used in investing
activities was $64.1 million compared to net cash provided by investing
activities of $58.7 million for 2000. Changes in the level of investing
activities from period to period reflects United Dominion's strategy as it
relates to its acquisition, capital expenditure, development and disposition
programs, as well as the impact of the capital market environment on these
activities.
REAL ESTATE UNDER DEVELOPMENT
Development activity is focused in core markets that have strong
operations managers in place. For the year ended December 31, 2001, United
Dominion invested approximately $53.6 million in real estate projects, down
$30.8 million from its 2000 level of $84.4 million.
11
The following projects, representing additional phases to existing
communities, were under development at December 31, 2001:
NUMBER OF COMPLETED COST TO BUDGETED ESTIMATED EXPECTED
APARTMENT APARTMENT DATE COST COST COMPLETION
LOCATION HOMES HOMES (IN THOUSANDS) (IN THOUSANDS) PER HOME DATE
---------- --------- --------- -------------- -------------- -------- ----------
Greensview II Denver, CO 192 168 $15,400 $16,700 $87,000 1Q02
Meridian II Dallas, TX 270 86 12,000 17,400 64,400 2Q02
--- --- ------- ------- -------
Total 462 254 $27,400 $34,100 $73,800
=== === ======= ======= =======
In addition, United Dominion owns nine parcels of land that it
continues to hold for future development that had a carrying value at December
31, 2001 of $12.8 million. Eight of the nine 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 complete at December 31, 2001:
NUMBER OF DEVELOPMENT % LEASED
APARTMENT COST COST PER DATE AT
LOCATION HOMES (IN THOUSANDS) HOME COMPLETED 12/31/01
------------- --------- -------------- -------- --------- --------
NEW COMMUNITIES:
Red Stone Ranch Austin, TX 324 $19,400 $59,900 7/01 76.9%
Dominion Place
at Kildaire Farm Raleigh, NC 332 23,600 71,100 12/01 49.0%
--- ------- -------
656 43,000 65,500
--- ------- -------
ADDITIONAL PHASES:
Manor at England Run III Fredericksburg, VA 120 8,500 70,800 9/01 99.2%
--- ------- -------
Total 776 $51,500 $66,400
=== ======= =======
DEVELOPMENT JOINT VENTURE
On June 21, 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 owns a 25%
interest in the joint venture and serves as the managing partner of the joint
venture as well as the developer, general contractor and property manager. Upon
closing of the venture, United Dominion contributed the projects in return for
its equity interest of approximately $8 million in the venture and was
reimbursed for approximately $35 million of development outlays that were
incurred prior to the formation of the joint venture.
For the years ended December 31, 2001 and 2000, United Dominion
recognized fee income of approximately $2.6 million and $3.0 million,
respectively, for general contracting, developer and management services
provided by the Company to the joint venture.
As of December 31, 2001, all five joint venture properties were
complete as follows:
NUMBER OF DEVELOPMENT
APARTMENT COST COST PER DATE % LEASED
LOCATION HOMES (IN THOUSANDS) HOME COMPLETED AT 12/31/01
------------ --------- -------------- -------- --------- -----------
Meridian I Dallas, TX 250 $16,400 $65,600 6/00 94.4%
Parke 33 Lakeland, FL 264 17,100 64,800 2/01 92.0%
Sierra Canyon Phoenix, AZ 236 15,400 65,300 3/01 97.9%
Oaks at Weston Raleigh, NC 380 28,000 73,700 3/01 82.9%
Mandolin Dallas, TX 308 21,100 68,500 9/01 99.4%
----- ------- -------
Total 1,438 $98,000 $68,200
===== ======= =======
12
On December 28, 2001, United Dominion purchased three of the five
apartment communities for a total aggregate cost of $61.3 million. The three
communities purchased were Meridian I, Sierra Canyon and Mandolin. The Company
has the option, but not the obligation, to purchase the remaining two properties
for fair value through December 31, 2006. If neither the Company nor the joint
venture partner elects to purchase these properties prior to December 2006, the
joint venture will then dispose of the assets to a third party at the then
market price.
DISPOSITION OF INVESTMENTS
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 the Company'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 in order
to defer taxable gains. During 2000, United Dominion sold 26 communities with
5,835 apartment homes, one commercial property and a parcel of land for an
aggregate sales price of approximately $214.5 million and recognized gains for
financial reporting purposes of $31.5 million.
During 2002, United Dominion plans to dispose of selected communities
in non-core markets or with inferior locations, significant capital expense
requirements without the potential of a corresponding increase in rent or
insufficient growth potential. Proceeds from 2002 dispositions, expected to be
at levels above that of 2001, are planned to be used to acquire communities,
fund development activity and to reduce debt.
ACQUISITIONS
During the year ended December 31, 2001, United Dominion acquired five
communities with 1,304 apartment homes and one parcel of land at a total cost
(including closing costs) of approximately $92.6 million which included the use
of tax free exchange funds.
During 2002, management plans to continue to channel new investments to
those markets that are projected to provide the best investment returns for the
Company over the next ten years. Markets will be targeted based upon refined
criteria including past performance, expected job growth, current and
anticipated housing supply and demand and the ability to attract and support
household formation.
FINANCING ACTIVITIES
Net cash used in financing activities during 2001 was $166.0 million
compared to $280.2 million for 2000, a decrease of $114.2 million. As part of
the plan to improve the Company's balance sheet, United Dominion used proceeds
from its disposition program and borrowings under its credit facilities to pay
down secured and unsecured debt, to repurchase shares of common and preferred
stock and to complete Section 1031 exchanges in order to defer taxable gains.
In June 2001, the Company completed the redemption of all of the
outstanding shares of its 9.25% Series A Cumulative Redeemable Preferred Stock
at $25 per share plus accrued dividends utilizing proceeds from asset sales and
a new secured credit facility. For the year ended December 31, 2001, United
Dominion repurchased 17,600 Series B preferred shares at an average price of
$24.42 per share and 3,768,704 common shares and operating partnership units at
an average price of $13.21. As of December 31, 2001, approximately 3.2 million
common shares and $13.6 million of Series B preferred shares remained available
for purchase under the existing authorization for the share repurchase program.
In August 2001, United Dominion closed on a $200 million credit
facility with ARCS Commercial Mortgage Co., L.P. ARCS is a Fannie Mae DUS
Lender. The initial funding on the facility was $139 million. The adjustable
rate loan was provided through Fannie Mae DMBS for a five-year term based on
three month LIBOR, with an initial interest rate of 3.99%. The Company has the
option to extend the facility for an additional five years. The proceeds of the
loan were used principally to redeem the Company's 9.25% Series A Cumulative
Redeemable
13
Preferred Stock and reduce unsecured debt. The balance of the loan proceeds was
used to refinance maturing secured loans.
In December 2001, United Dominion closed on a $400 million Fannie Mae
revolving credit facility through ARCS Commercial Mortgage Co., L.P. The
facility provides for an initial term of ten years with an option by the Company
to extend the term an additional five years at the then market rate. The Company
has the option of variable or fixed rate tranches. The facility will be funded
over the next several months and will be used primarily for the refinancing of
existing debt on approximately 30 properties. Although the Company expects to
pay prepayment penalties of approximately $23 million, the Company estimates,
based upon certain assumptions as to the timing of the refinancings and
underlying interest rates, that the positive net present value of the
refinancings will range from approximately $17 million to $20 million.
Also in December 2001, United Dominion completed an offering to the
public of 4.1 million shares of common stock at a price of $14.40 per share. The
proceeds were used to purchase apartment communities.
For the year ended December 31, 2001, the Company repaid $107.3 million
of secured debt and $21.3 million of unsecured debt, assumed $18.2 million of
secured debt in connection with the acquisition of properties and was relieved
of $28.3 million of secured debt in connection with the disposition of
properties.
CREDIT FACILITIES
United Dominion has four secured revolving credit facilities with the
Federal National Mortgage Association (the "FNMA Credit Facilities") with an
aggregate commitment of $860 million. As of December 31, 2001, $422.7 million
was outstanding under the FNMA Credit Facilities leaving $437.3 million of
unused capacity. The FNMA Credit Facilities are for an initial term of five or
ten years, bear interest at a floating rate and can be extended for an
additional five years at United Dominion's discretion (see Note 4 - Secured
Debt).
United Dominion has a $375 million three-year unsecured revolving
credit facility (the "Bank Credit Facility") that matures August 2003. As of
December 31, 2001, $230.2 million was outstanding under the Bank Credit Facility
leaving $144.8 million of unused capacity. Under the Bank Credit Facility, the
Company may borrow at a rate of LIBOR plus 110 basis points for LIBOR-based
borrowings and pays a facility fee, which is equal to 0.25% of the commitment
(see Note 5 - Unsecured Debt).
The FNMA Credit Facilities and the Bank Credit Facility are subject to
customary financial covenants and limitations.
DERIVATIVE INSTRUMENTS
As part of United Dominion's overall interest rate risk management
strategy, the Company uses derivatives as a means to fix the interest rates of
variable rate debt obligations or to hedge anticipated financing transactions.
The Company's derivative transactions used for interest rate risk management
include various interest rate swaps with indices that relate to the pricing of
specific financial instruments of United Dominion. The Company believes that it
has appropriately controlled its interest rate risk through the use of its
derivative instruments. Due to the decline in interest rates in 2001, the fair
value of the Company's derivative instruments has declined from an unfavorable
value position of $3.8 million at December 31, 2000 to an unfavorable value
position of $14.9 million at December 31, 2001 (see Note 7 - Financial
Instruments).
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 the Company's 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
14
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 FNMA Credit Facilities and its
Bank Credit Facility, which totaled $405.7 million and $75.2 million,
respectively, at December 31, 2001. The impact on United Dominion's financial
statements of refinancing fixed rate debt that matured during 2001 was not
material. As permitted by the terms of the Company's FNMA Credit Facilities,
management intends to convert a significant portion of those borrowings from
variable rates to fixed rates in 2002.
At December 31, 2001, the notional value of United Dominion's
derivative products for the purpose of managing interest rate risk was $282
million, representing interest rate swaps under which United Dominion pays a
fixed rate of interest and receives a variable rate. These agreements
effectively fix $282 million of United Dominion's variable rate notes payable to
a weighted average fixed rate of 7.20%. At December 31, 2001, the fair market
value of the interest rate swaps in an unfavorable value position to United
Dominion was $14.9 million. If interest rates were 100 basis points more or less
at December 31, 2001, the fair market value of the interest rate swaps would
have increased or decreased approximately $4.9 million and $5.0 million,
respectively.
If market interest rates for variable rate debt average 100 basis
points more in 2002 than they did during 2001, United Dominion's interest
expense, after considering the effects of its interest rate swap agreements,
would increase, and income before taxes would decrease by $5.2 million.
Comparatively, if market interest rates for variable rate debt had averaged 100
basis points more in 2001 than in 2000, 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 $3.8 million. If
market rates for fixed rate debt were 100 basis points higher at December 31,
2001, the fair value of fixed rate debt would have decreased from $1.32 billion
to $1.28 billion. If market interest rates for fixed rate debt were 100 basis
points lower at December 31, 2001, the fair value of fixed rate debt would have
increased from $1.32 billion to $1.38 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, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 extends the reporting requirements of discontinued operations
to include components of an entity that have either been disposed of or are
classified as held for sale. Through November 27, 2002, the Company sold or
classified certain properties as held for disposition (see Note 13, "Income
from Discontinued Operations"). 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, 2001
included herein.
The following discussion includes the results of both continuing and
discontinued operations for the periods presented.
Net Income Available to Common Shareholders
2001-vs-2000
Net income available to common shareholders was $27.1 million ($.27 per
share) for the year ended December 31, 2001 compared to $42.7 million ($.41 per
share) for 2000, representing a decrease of $15.6 million ($.14 per share).
Excluding non-recurring charges (see discussion that follows under
"Restructuring Charges" and "Impairment Loss on Real Estate and Investments")
and extraordinary items, net income available to common shareholders was $41.5
million ($.41 per share) for the year ended December 31, 2001 compared to $45.5
million ($.44 per share) for 2000, representing a decrease of $4.0 million ($.04
per share). Excluding non-recurring charges and extraordinary items, the
decrease for the period was primarily due to the overall decrease in the
Company's total portfolio of assets that generated rental income of $618.6
million, representing a decrease of $8.0 million from 2000. In addition, the
Company recognized lower gains on the sale of investments during 2001 and
incurred the write-off of unamortized original issuance costs associated with
the redemption of the Company's 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.
15
2000-vs-1999
Net income available to common shareholders was $42.7 million ($.41 per
share) for the year ended December 31, 2000 compared to $55.9 million ($.54 per
share) for 1999, representing a decrease of $13.2 million ($.13 per share). The
decrease was primarily due to the following factors: (i) property operating
income growth generated from the performance of the portfolio during 2000 was
offset by the decrease in the size of the portfolio due to the disposition
program; (ii) United Dominion recognized $31.5 million ($.31 per share) of gains
on the sales of investments in 2000 compared to $38.0 million ($.37 per share)
for the comparable period in 1999 and; (iii) real estate depreciation increased
significantly in 2000 as a result of the recognition of catch-up depreciation
expense on communities transferred from real estate held for disposition to real
estate held for investment during the second quarter of 2000 and, to a lesser
extent, the impact of completed development communities, acquisitions and
capital expenditures (see Note 2 - Real Estate Owned).
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 for United Dominion's total apartment portfolio for each of the
periods presented (dollars in thousands):
Year Ended December 31, Year Ended December 31,
-------------------------------------- --------------------------------------
2001 2000 % Change 2000 1999 % Change
-------------------------------------- --------------------------------------
Property rental income(1) $618,081 $625,845 -1.2% $625,845 $609,064 2.8%
Property rental expense (excluding
depreciation and amortization) (228,211) (230,853) -1.1% (230,853) (227,097) 1.7%
-------------------------------------- --------------------------------------
Property operating income $389,870 $394,992 -1.3% $394,992 $381,967 3.4%
====================================== ======================================
Weighted average number of homes 76,487 80,253 -4.7% 80,253 85,926 -6.6%
Physical occupancy 93.9% 94.2% -0.3% 94.2% 92.6% 1.6%
(1) Includes both continuing and discontinued operations.
The decrease in property operating income provided by the Company's
apartment community operations is due to the disposition of 7,724 apartment
homes during 2000 and 2001. As a result of these dispositions, the weighted
average number of apartment homes declined 4.7% from 2000 to 2001.
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 weighted average apartment homes) provided 95% of the
Company'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 the same period in 2000. The growth in property
operating income resulted from a $17.5 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 $9.0 million or 4.4%. The increase in property operating expenses
resulted primarily from a $3.3 million or 10.6% increase in utility costs
experienced by the Company as a result of the increase in prices for natural gas
and overall increases in electricity costs. In addition, the Company experienced
a $3.0 million or 9.4% increase in repair and maintenance, a $1.6 million or
3.1% increase in taxes and a $1.2 million or 2.1% increase in personnel 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 0.5% to 63.2%.
16
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). United Dominion's development communities,
which included 2,022 apartment homes constructed since January 1, 2000, provided
an additional $9.5 million of property operating income for the year ended
December 31, 2001. In addition, 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.
2000-vs-1999
Same Communities
United Dominion's same communities (those communities acquired,
developed or stabilized prior to January 1, 1999 and held on January 1, 2000
which consisted of 76,267 weighted average apartment homes) provided 94% of its
property operating income for the year ended December 31, 2000.
In 2000, property operating income for the same communities increased
4.2% or $15.2 million compared to 1999. The growth in property operating income
resulted from a $26.8 million or 4.8% increase in property rental income which
was driven by a $17.1 million or 2.9% increase in rental rates coupled with a
$5.8 million or 1.2% increase in physical occupancy. The increase in rental
rates and occupancy was partially offset by higher concessions and bad debt
expense.
For 2000, property operating expenses at these same communities
increased $11.6 million or 5.6%. The increase in property operating expenses was
due to (i) a $2.6 million or 5.3% increase in real estate taxes related to the
$1.4 billion of real estate acquired in 1998 which had undergone reassessment;
(ii) a $4.1 million or 76.3% increase in property insurance costs attributable
to a combination of the Company's loss history plus overall increases in market
rates; (iii) a $3.1 million or 5.3% increase in personnel costs due to higher
salaries and benefit costs and; (iv) a $1.9 million or 6.1% increase in
utilities expense. These increases were offset by a $1.3 million or 3.7%
decrease in repair and maintenance expense.
As a result of the increase in property rental income and increase in
property operating expenses, the operating margin decreased 0.4% to 63.1%.
Non-Mature Communities
The remaining 6% of United Dominion's property operating income during
2000 was generated from its non-mature communities (those communities acquired
or developed during 1999 and 2000). United Dominion's development communities,
which included 2,470 apartment homes constructed since January 1, 1999, provided
an additional $12.3 million of property operating income for the year ended
December 31, 2000. In addition, the six communities with 1,497 apartment homes
acquired by United Dominion during 1999 and 2000 provided an additional $7.6
million of property operating income during 2000.
REAL ESTATE DEPRECIATION
During the year ended December 31, 2001, real estate depreciation on
continuing and discontinued operations decreased $1.1 million or 0.8% compared
to 2000. The decrease in depreciation expense is attributable to the overall
decrease in the weighted average number of apartment homes partially offset by
the impact of completed development communities, acquisitions and capital
expenditures.
During the year ended December 31, 2000, real estate depreciation on
continuing and discontinued operations increased $31.3 million or 25.7% over
1999. This increase was primarily attributable to (i) the recapture of
approximately $10 million in depreciation expense on communities transferred
from real estate held for disposition to real estate held for investment during
the second quarter of 2000 and approximately $5 million of additional
depreciation expense recognized on these assets during 2000 after they were
reclassified into real estate held for investment; (ii) over $150 million in
development completions in late 1999 and 2000 and; (iii) the effect of
17
approximately $200 million in acquisitions and capital improvements in 1999 and
2000 (see Note 2 - Real Estate Owned).
INTEREST EXPENSE
During 2001, interest expense on continuing and discontinued operations
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
weighted average 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 the Company to take advantage of declining interest rates through
refinancing and the utilization of variable rate debt.
During 2000, interest expense on continuing and discontinued operations
increased $2.3 million over 1999 as the weighted average amount of debt
outstanding decreased 6.0% or $124.7 million from 1999 levels ($2.1 billion in
2000 versus $2.2 billion in 1999) and the weighted average interest rate
increased from 7.4% in 1999 to 7.6% in 2000. The weighted average amount of debt
employed during 2000 was lower as disposition proceeds were used to repay
outstanding debt. The increase in the average interest rate during 2000 reflects
the reliance on short-term bank borrowings that had higher interest rates when
compared to the prior year. For 2001, 2000 and 1999, total interest capitalized
was $2.9 million, $3.6 million and $5.2 million, respectively.
RESTRUCTURING CHARGE
During the quarter ended March 31, 2001, United Dominion undertook a
comprehensive review of the organizational structure of the Company and its
operations subsequent to the appointment of a new senior management team and
CEO. As a result, the Company recorded $4.5 million of expense related to the
termination of approximately 10% of United Dominion's workforce (ultimately
approximately 230 full-time equivalent positions) in operations and at the
corporate headquarters. These reductions will impact both personnel and general
and administrative expenses. As of December 31, 2001, all of the accrued charge
has been paid. In addition, United Dominion recognized expense in the aggregate
of $0.9 million related to relocation costs associated with the new executive
offices in Denver and other miscellaneous costs. All charges came under
consideration subsequent to the appointment of the Company's new CEO in February
2001 and were approved by management and the Board of Directors in March 2001
(see Note 9 - Restructuring Charges).
IMPAIRMENT LOSS ON REAL ESTATE AND INVESTMENTS
In connection with the evaluation of the Company's real estate assets
and operations during the first quarter of 2001, management determined that it
was in the Company's best interest to dispose of a majority of its undeveloped
tracts of land at an accelerated pace and redeploy the proceeds elsewhere. This
represented a change from prior management in the holding period of these assets
and their respective values. Prior management had purchased these tracts of land
in 1999 and 2000 with the intent to build apartment communities on them. In
order to accelerate the disposition of these undeveloped land sites, the Company
recorded an aggregate $2.8 million impairment loss during the first quarter for
the write-down of seven undeveloped sites in selected markets. The $2.8 million
charge represents the discount necessary to dispose of these assets in a short
time frame coupled with decreases in market value in 2001 for these properties
(see Note 2 - Real Estate Owned). In addition, the Company recognized a $0.4
million charge for the write-down of United Dominion's investment in an online
apartment leasing company.
During the fourth quarter of 2001, Realeum, Inc., a technology venture
through which the Company and two other multifamily REIT entities have been
co-developing a web-based property management system, successfully completed a
secondary equity offering in which it raised approximately $15 million of new
capital in exchange for a 45.6% ownership stake. The additional capital provides
Realeum more flexibility as it rolls the product out for beta testing and
continues its marketing and system enhancement processes. As a result of the
equity offering, the market value of the Company's ownership stake was
established at approximately $1.3 million.
18
Although management believes the potential revenue enhancements and cost
efficiencies to be derived from an implementation of the system would enable
United Dominion to recover its full investment in Realeum, the Company has
elected to adopt a more conservative accounting treatment that requires a
write-down of this investment to market value. As a result, the Company's $3.5
million aggregate investment was adjusted to $1.3 million.
GENERAL AND ADMINISTRATIVE
For the year ended December 31, 2001, general and administrative
expenses increased $6.0 million or 38.2% over 2000. The increase was primarily
due to an increase in incentive compensation expense and adjustments to the
Company's accruals for various employee benefits and state and local taxes.
During the year ended December 31, 2000, general and administrative
expenses increased $1.9 million or 13.5% over 1999, reflecting a full year's
impact of United Dominion's investment in professional staff, technology and
scaleable accounting and information systems and the effect of additional
franchise taxes in Tennessee as a result of a change in the state law regarding
franchise taxes.
GAINS ON SALES OF INVESTMENTS
For the years ended December 31, 2001 and 2000, United Dominion
recognized gains for financial reporting purposes of $24.7 million and $31.5
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 the
Company's operations have been inconsequential. Substantially all of the
Company's leases are for a term of one year or less which generally minimizes
United Dominion's risk from the adverse effects of inflation.
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, 2001 and 2000............................. 22
Consolidated Statements of Operations for each of
the three years in the period ended December 31, 2001................................. 23
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31, 2001................................. 24
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December 31, 2001......................... 25
Notes to Consolidated Financial Statements............................................ 26
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III - Summary of Real Estate Owned........................................... 47
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, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
Our audits also included the financial statement schedule listed in the Index at
Item 14(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, 2001 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2001, 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 1 to the consolidated financial statements, in 2001
the Company changed its method of accounting for derivative financial
instruments. Also, as discussed in Note 13 to the consolidated financial
statements, in 2002, the Company adopted the provisions of Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."
ERNST & YOUNG LLP
Richmond, Virginia
January 31, 2002, except for Notes 13 and 14, as to which the date is November
27, 2002
21
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA )
DECEMBER 31,
----------------------------
2001 2000
---- ----
ASSETS
Real estate owned:
Real estate held for investment (Note 2) $ 3,858,579 $ 3,758,974
Less: accumulated depreciation (646,366) (506,871)
----------- -----------
3,212,213 3,252,103
Real estate under development 40,240 60,366
Real estate held for disposition (net of accumulated depreciation of $0
and $2,534) (Note 2) 8,848 14,446
----------- -----------
Total real estate owned, net of accumulated depreciation 3,261,301 3,326,915
Cash and cash equivalents 4,641 10,305
Restricted cash 26,830 44,943
Deferred financing costs, net 15,802 14,271
Investment in unconsolidated development joint venture (Note 3) 3,355 8,088
Other assets 36,162 49,435
----------- -----------
Total assets $ 3,348,091 $ 3,453,957
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt (Note 4) $ 974,177 $ 866,115
Unsecured debt (Note 5) 1,090,020 1,126,215
Real estate taxes payable 28,099 30,554
Accrued interest payable 16,779 18,059
Security deposits and prepaid rent 20,481 22,524
Distributions payable 33,457 36,128
Accounts payable, accrued expenses and other liabilities 66,688 47,144
----------- -----------
Total liabilities 2,229,701 2,146,739
Minority interests 75,665 88,326
Shareholders' equity: (Note 6)
Preferred stock, no par value; $25 liquidation preference,
25,000,000 shares authorized;
0 shares 9.25% Series A Cumulative Redeemable issued and outstanding
(3,969,120 in 2000) -- 99,228
5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding
(5,439,109 in 2000) 135,400 135,978
8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued
and outstanding (8,000,000 in 2000) 175,000 175,000
Common stock, $1 par value; 150,000,000 shares authorized
103,133,279 shares issued and outstanding (102,219,250 in 2000) 103,133 102,219
Additional paid-in capital 1,098,029 1,081,387
Distributions in excess of net income (448,345) (366,531)
Deferred compensation - unearned restricted stock awards (1,312) (828)
Notes receivable from officer-shareholders (4,309) (7,561)
Accumulated other comprehensive loss, net (Note 7) (14,871) --
----------- -----------
Total shareholders' equity 1,042,725 1,218,892
----------- -----------
Total liabilities and shareholders' equity $ 3,348,091 $ 3,453,957
=========== ===========
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,
---------------------------------------
2001(1) 2000(1) 1999(1)
-------- -------- --------
REVENUES
Rental income $ 561,958 $ 572,205 $ 572,798
Non-property income 4,593 5,326 1,942
--------- --------- ---------
Total revenues 566,551 577,531 574,740
EXPENSES
Rental expenses:
Real estate taxes and insurance 59,340 62,009 57,297
Personnel 56,909 59,452 61,058
Utilities 34,479 33,417 33,920
Repairs and maintenance 33,227 32,913 37,438
Administrative and marketing 20,333 21,139 23,045
Property management 17,107 18,392 18,474
Other operating expenses 1,477 1,426 1,539
Real estate depreciation 137,551 140,674 110,972
Interest 138,895 150,896 148,280
Severance costs and other organizational charges 5,404 1,020 --
Litigation settlement charges -- 2,700 --
Impairment loss on real estate and investments 4,661 -- 17,694
General and administrative 21,730 15,724 13,850
Other depreciation and amortization 3,313 4,228 4,335
--------- --------- ---------
Total expenses 534,426 543,990 527,902
--------- --------- ---------
Income before gains on sales of investments, minority
interests, discontinued operations and extraordinary
item 32,125 33,541 46,838
Gains on sales of land and depreciable property 24,748 31,450 37,995
--------- --------- ---------
Income before minority interests, discontinued operations
and extraordinary item 56,873 64,991 84,833
Minority interests of unitholders in outside partnerships .. (2,225) (1,501) (1,245)
Minority interests of unitholders in operating partnerships (1,052) (1,859) (3,360)
--------- --------- ---------
Income before discontinued operations and extraordinary
item 53,596 61,631 80,228
Income from discontinued operations, net of minority
interests (Note 13) 11,703 14,153 12,467
--------- --------- ---------
Income before extraordinary item 65,299 75,784 92,695
Extraordinary item - early extinguishment of debt (3,471) 831 927
--------- --------- ---------
Net income 61,828 76,615 93,622
Distributions to preferred shareholders - Series A and B (15,762) (21,591) (22,560)
Distributions to preferred shareholders - Series D
(Convertible) (15,428) (15,300) (15,154)
(Premium)/discount on preferred share repurchases (3,496) 2,929 --
--------- --------- ---------
Net income available to common shareholders $ 27,142 $ 42,653 $ 55,908
========= ========= =========
Earnings (loss) per common share - basic:
Income before discontinued operations and
extraordinary item, net of minority interests $ 0.19 $ 0.27 $ 0.41
Income from discontinued operations, net of minority
interests $ 0.12 $ 0.14 $ 0.12
Extraordinary item, net of minority interests $ (0.03) $ 0.01 $ 0.01
Net income available to common shareholders $ 0.27 $ 0.41 $ 0.54
Earnings (loss) per common share - diluted:
Income before discontinued operations and extraordinary
item, net of minority interests $ 0.19 $ 0.27 $ 0.41
Income from discontinued operations, net of minority
interests $ 0.12 $ 0.14 $ 0.12
Extraordinary item, net of minority interests $ (0.03) $ 0.01 $ 0.01
Net income available to common shareholders $ 0.27 $ 0.41 $ 0.54
Common distributions declared per share $ 1.08 $ 1.07 $ 1.06
Weighted average number of common shares outstanding-basic 100,339 103,072 103,604
Weighted average number of common shares outstanding-diluted 101,037 103,208 103,639
(1) Reclassified as described in Note 13.
See accompanying notes to consolidated financial statements.
23
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 61,828 $ 76,615 $ 93,622
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 155,327 157,361 126,152
Impairment loss on real estate and investments 5,436 -- 19,300
Gains on sales of investments (24,748) (31,450) (37,995)
Minority interests 4,192 4,386 5,679
Extraordinary item-early extinguishment of debt 3,471 (831) (927)
Amortization of deferred financing costs and other 965 2,551 5,184
Changes in operating assets and liabilities:
Decrease in operating liabilities (3,188) (2,333) (4,777)
Decrease/(increase) in operating assets 21,128 17,861 (15,636)
--------- --------- ---------
Net cash provided by operating activities 224,411 224,160 190,602
INVESTING ACTIVITIES
Proceeds from sales of real estate investments, net 109,713 160,257 161,140
Proceeds received for excess expenditures over investment contribution
in development joint venture -- 30,176 --
Acquisition of real estate assets, net of liabilities assumed (74,372) (4,635) (69,969)
Development of real estate assets and other major improvements (53,607) (84,431) (121,073)
Capital expenditures-real estate assets, net of escrow reimbursement (53,096) (41,496) (67,004)
Capital expenditures-non-real estate assets (1,442) (1,166) (8,062)
Other investing activities 8,749 -- 1,132
--------- --------- ---------
Net cash (used in)/provided by investing activities (64,055) 58,705 (103,836)
FINANCING ACTIVITIES
Proceeds from the issuance of secured notes payable 225,171 67,285 201,861
Scheduled principal payments on secured notes payable (55,130) (62,575) (19,100)
Non-scheduled principal payments on secured notes payable (52,182) (100,793) (184,993)
Proceeds from the issuance of unsecured notes payable -- 248,035 197,345
Payments on unsecured notes payable (21,307) (214,984) (151,117)
Net (repayment)/borrowing of short-term bank debt (14,200) (33,200) 37,600
Payment of financing costs (4,807) (5,648) (6,719)
Proceeds from the issuance of common stock 66,319 7,660 17,250
Proceeds from the issuance of out-performance partnership shares 1,236 -- --
Distributions paid to minority interests (12,868) (10,272) (9,200)
Distributions paid to preferred shareholders (34,308) (36,909) (34,958)
Distributions paid to common shareholders (108,511) (110,098) (109,608)
Repurchases of operating partnership units and other minority interests (4,267) (341) (11,967)
Repurchases of common and preferred stock (151,166) (28,398) (31,563)
--------- --------- ---------
Net cash used in financing activities (166,020) (280,238) (105,169)
Net (decrease)/increase in cash and cash equivalents (5,664) 2,627 (18,403)
Cash and cash equivalents, beginning of year 10,305 7,678 26,081
--------- --------- ---------
Cash and cash equivalents, end of year $ 4,641 $ 10,305 $ 7,678
========= ========= =========
SUPPLEMENTAL INFORMATION:
Interest paid during the period $ 148,863 $ 152,434 $ 162,236
Conversion of operating partnership units to common stock 74 247 3,947
Issuance of restricted stock awards 1,363 830 460
Non-cash transactions:
Secured debt assumed with the acquisition of properties 18,230 10,130 5,750
Reduction in secured debt from the disposition of properties 28,315 45,088 75,566
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 PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
BALANCE, DECEMBER 31, 1998 18,200,000 $ 430,000 103,639,117 $ 103,639 $ 1,090,432
Comprehensive Income
Net income
--------------------------------------------------------------
Comprehensive income
--------------------------------------------------------------
Issuance of common shares to employees,
officers and director-shareholders 71,998 72 665
Issuance of common shares through dividend reinvestment
and stock purchase plan 1,597,841 1,598 15,049
Purchase of common and preferred stock (85,140) (2,128) (2,687,984) (2,688) (26,746)
Issuance of restricted stock awards 46,000 46 414
Adjustment for cash purchase and conversion of minority
interests of unitholders in operating partnerships 73,805 74 3,873
Principal repayments on notes receivable
from officer-shareholders
Notes issued for common shares
Common stock distributions declared ($1.06 per share)
Preferred stock distributions declared
Series A ($2.31 per share)
Preferred stock distributions declared
Series B ($2.15 per share)
Preferred stock distributions declared
Series D ($1.89 per share)
Amortization of deferred compensation
--------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 18,114,860 $ 427,872 102,740,777 $ 102,741 $ 1,083,687
==============================================================
Comprehensive Income
Net income
--------------------------------------------------------------
Comprehensive income
--------------------------------------------------------------
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)
Preferred stock distributions declared
Series A ($2.31 per share)
Preferred stock distributions declared
Series B ($2.15 per share)
Preferred stock distributions declared
Series D ($1.91 per share)
Amortization of deferred compensation
--------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 17,408,229 $ 410,206 102,219,250 $ 102,219 $ 1,081,387
==============================================================
Comprehensive Income
Net income
Other comprehensive income:
Cumulative effect of a change in accounting principle
(Note 7)
Unrealized loss on derivative financial instruments
(Note 7)
--------------------------------------------------------------
Comprehensive income
--------------------------------------------------------------
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
Issuance of restricted stock awards 112,433 112 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)
Preferred stock distributions declared
Series A ($1.05 per share)
Preferred stock distributions declared
Series B ($2.15 per share)
Preferred stock distributions declared
Series D ($1.93 per share)
Amortization of deferred compensation
--------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 13,416,009 $ 310,400 103,133,279 $ 103,133 $ 1,098,029
==============================================================
DEFERRED
DISTRIBUTIONS COMPENSATION- NOTES ACCUMULATED
IN UNEARNED RECEIVABLE OTHER
EXCESS OF RESTRICTED FROM OFFICER- COMPREHENSIVE
NET INCOME STOCK AWARDS SHAREHOLDERS LOSS TOTAL
BALANCE, DECEMBER 31, 1998 $(242,331) $ - $ (7,619) $ - $1,374,121
Comprehensive Income
Net income 93,622 93,622
-------------------------------------------------------------------
Comprehensive income 93,622 - 93,622
-------------------------------------------------------------------
Issuance of common shares to employees,
officers and director-shareholders 737
Issuance of common shares through dividend reinvestment
and stock purchase plan 16,647
Purchase of common and preferred stock (31,562)
Issuance of restricted stock awards (460) -
Adjustment for cash purchase and conversion of minority
interests of unitholders in operating partnerships 3,947
Principal repayments on notes receivable
from officer-shareholders 139 139
Notes issued for common shares (273) (273)
Common stock distributions declared ($1.06 per share) (109,607) (109,607)
Preferred stock distributions declared
Series A ($2.31 per share) (9,688) (9,688)
Preferred stock distributions declared
Series B ($2.15 per share) (12,872) (12,872)
Preferred stock distributions declared
Series D ($1.89 per share) (15,154) (15,154)
Amortization of deferred compensation 155 155
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $(296,030) $ (305) $ (7,753) $ - $1,310,212
===================================================================
Comprehensive Income
Net income 76,615 76,615
-------------------------------------------------------------------
Comprehensive income 76,615 - 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) (110,225)
Preferred stock distributions declared
Series A ($2.31 per share) (9,473) (9,473)
Preferred stock distributions declared
Series B ($2.15 per share) (12,118) (12,118)
Preferred stock distributions declared
Series D ($1.91 per share) (15,300) (15,300)
Amortization of deferred compensation 307 307
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $(366,531) $ (828) $ (7,561) $ - $1,218,892
===================================================================
Comprehensive Income
Net income 61,828 61,828
Other comprehensive income:
Cumulative effect of a change in accounting principle
(Note 7) (3,848) (3,848)
Unrealized loss on derivative financial instruments
(Note 7) (11,023) (11,023)
-------------------------------------------------------------------
Comprehensive income 61,828 (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 (3,496) (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) (108,956)
Preferred stock distributions declared
Series A ($1.05 per share) (4,111) (4,111)
Preferred stock distributions declared
Series B ($2.15 per share) (11,651) (11,651)
Preferred stock distributions declared
Series D ($1.93 per share) (15,428) (15,428)
Amortization of deferred compensation 879 879
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $(448,345) $(1,312) $ (4,309) $(14,871) $1,042,725
===================================================================
See accompanying notes to consolidated financial statements.
25
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
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, 2001, United Dominion owned 274 communities with 77,567 completed
apartment homes and had two additional phases to existing communities with 462
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, 2001, there were
74,962,675 units in the Operating Partnership outstanding, of which 68,509,601
units or 91.4% were owned by United Dominion and 6,453,074 units or 8.6% were
owned by non-affiliated limited partners. As of December 31, 2001, there were
3,492,889 units in the Heritage OP outstanding, of which 3,108,001 units or
89.0% were owned by United Dominion and 384,888 units or 11.0% 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
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 temporary
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 the Company's net income to REIT taxable
income for the three years ended December 31, 2001 (dollars in thousands):
2001 2000 1999
--------- --------- ---------
Net income $ 61,828 $ 76,615 $ 93,622
Minority interest expense, less than distributions (1,442) (2,851) (181)
Depreciation and amortization expense 45,327 62,828 27,573
Gain on the disposition of properties 343 10,120 (24,654)
Revenue recognition timing differences 589 780 1,060
Impairment loss, not deductible for tax 2,788 -- 18,300
Investment loss, not deductible for tax 2,648 -- 1,000
Other expense timing differences 2,787 (2,414) (4,034)
--------- --------- ---------
REIT taxable income before dividends $ 114,868 $ 145,078 $ 112,686
========= ========= =========
Dividends paid $ 140,146 $ 147,116 $ 147,321
========= ========= =========
26
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
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, 2001, distributions paid per
common share were taxable as follows:
2001 2000 1999
---- ---- ----
Ordinary income $0.74 $0.81 $0.62
Long-term capital gain 0.11 0.15 0.13
Unrecaptured section 1250 gain 0.07 0.11 --
Return of capital 0.16 -- 0.31
----- ----- -----
$1.08 $1.07 $1.06
===== ===== =====
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and liquid investments with
maturities of three months or less when purchased.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURE
The Company accounts for investments in unconsolidated joint ventures
using the equity method when major business decisions require approval by the
other partners and the Company 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 the
Company through fees during construction (see Note 3 - Investment in
Unconsolidated Joint Venture).
REAL ESTATE
Real estate assets held for investment are carried at historical cost less
accumulated depreciation and any recorded impairment losses.
Expenditures for ordinary repair 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. Prior to 2000, properties were classified as real
27
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
estate held for disposition when management had committed to sell and was
actively marketing the property, and United Dominion expected to dispose of
these properties within the next twelve months. Beginning in 2000, 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
repair 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 and gains (losses) from
initial and subsequent adjustments to the carrying value of the assets, if any,
are recorded as a separate component of income from continuing operations.
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"
until such time as the development project is completed. Upon completion, the
total cost of the building and associated land 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 asset to exceed its net realizable value. During 2001,
2000 and 1999, total interest capitalized was $2.9 million, $3.6 million and
$5.2 million, respectively.
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.
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 2001, 2000 and 1999,
amortization expense was $3.6 million, $5.0 million and $4.0 million,
respectively.
ADVERTISING COSTS
All costs are expensed as incurred. During 2001, 2000 and 1999, total
advertising expense was $9.6 million, $9.3 million and $9.7 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
28
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
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, 2001, all of the Company'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 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, the Company uses derivative financial instruments as a means to
artificially fix variable rate debt or to hedge anticipated financing
transactions. The Company's derivative transactions used for interest rate risk
management include various interest rate swaps with indices that relate to the
pricing of specific financial instruments of United Dominion. Because of the
close correlation between the hedging instrument and the underlying 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. The Company does not enter
into derivative financial instruments for trading purposes.
The fair value of the Company's derivative instruments is reported on
balance sheet at their current fair value. Estimated fair values for interest
rate swaps rely on prevailing market interest rates. These fair value amounts
should not be viewed in isolation, but rather in relation to the values of the
underlying 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.
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
earning per share (dollars in thousands, except per share amounts):
29
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
2001 2000 1999
---- ---- ----
Numerator for basic and diluted earnings
per share - net income available to common
shareholders $ 27,142 $ 42,653 $ 55,908
Denominator:
Denominator for basic earnings per share -
weighted average shares 100,339 103,072 103,604
Effect of dilutive securities:
Employee stock options and awards 698 136 35
-------- -------- --------
Denominator for dilutive earnings per share 101,037 103,208 103,639
======== ======== ========
Basic earnings per share $ 0.27 $ 0.41 $ 0.54
======== ======== ========
Diluted earnings per share $ 0.27 $ 0.41 $ 0.54
======== ======== ========
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, 2001, 2000 and 1999 was 7,281,835 shares, 7,489,435 shares and
8,180,409 shares, respectively. The weighted average effect of the conversion of
the convertible preferred stock for the years ended December 31, 2001, 2000 and
1999 was 12,307,692 shares.
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 were 6.8% at December
31, 2001 and 2000 and 7.3% at December 31, 1999.
MINORITY INTERESTS IN OTHER PARTNERSHIPS
United Dominion has limited partners in certain real estate partnerships
acquired as part of the acquisition of American Apartment Communities II on
December 7, 1998. Net income for these partnerships is allocated based on the
percentage interest owned by these limited partners in each respective real
estate partnership.
STOCK BASED COMPENSATION
United Dominion has elected to follow 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2002, the FASB rescinded Statement 4, "Reporting Gains and
Losses from Extinguishment Debt" (SFAS No. 4). The rescission of SFAS No. 4
will be applied in accordance with the guidance of the FASB, but once applied,
United Dominion will be required to reclassify prior period items that do not
meet the extraordinary classification criteria in APB 30. The Company from time
to time incurs such charges and is currently assessing the impact that these
statements will have on the consolidated financial position or results of
operations of United Dominion.
2. REAL ESTATE OWNED
30
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
United Dominion operates in 62 markets dispersed throughout 21 states. At
December 31, 2001, the Company's largest apartment market was Dallas, Texas,
where it owned 6.7% of its 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):
2001 2000
---- ----
Land and land improvements $ 695,923 $ 668,003
Buildings and improvements 2,945,741 2,902,386
Furniture, fixtures and equipment 216,637 188,321
Construction in progress 278 264
----------- -----------
Real estate held for investment 3,858,579 3,758,974
Accumulated depreciation (646,366) (506,871)
----------- -----------
Real estate held for investment, net $ 3,212,213 $ 3,252,103
=========== ===========
The following is a summary of real estate held for investment by major
market (in order of carrying value and excluding real estate under development)
at December 31, 2001 (dollars in thousands):
NUMBER OF INITIAL
APARTMENT ACQUISITION CARRYING ACCUMULATED
COMMUNITIES COST VALUE DEPRECIATION ENCUMBRANCES
----------- ---- ----- ------------ ------------
Dallas, TX 16 $ 221,734 $ 255,437 $ 34,449 $ 40,850
Houston, TX 22 178,188 227,217 33,007 27,336
Phoenix, AZ 12 189,273 225,997 28,374 56,893
Orlando, FL 14 167,524 202,676 42,242 89,823
San Antonio, TX 12 171,241 190,182 25,794 37,072
Raleigh, NC 10 146,686 166,411 34,675 57,754
Tampa, FL 10 132,927 151,867 27,829 57,315
Fort Worth, TX 11 134,671 148,888 23,580 22,786
Columbus, OH 6 111,315 148,012 13,661 43,897
San Francisco, CA 4 136,504 140,995 10,769 21,423
Charlotte, NC 10 109,961 136,303 31,512 12,159
Nashville, TN 8 83,987 119,805 20,254 --
Greensboro, NC 8 85,362 103,703 19,438 --
Monterey Peninsula, CA 9 95,091 97,304 8,394 44,416
Memphis, TN 6 88,467 96,909 15,546 27,092
Richmond, VA 8 74,856 96,117 30,537 66,657
Southern California 5 87,442 90,989 8,512 11,627
Wilmington, NC 6 64,213 89,015 20,305 --
Metropolitan DC 5 57,334 74,599 12,813 38,011
Atlanta, GA 6 57,669 71,202 16,377 19,113
Baltimore, MD 6 58,846 67,102 16,014 29,011
Columbia, SC 6 52,795 62,230 17,337 5,000
Jacksonville, FL 3 44,787 58,329 13,959 23,202
Norfolk, VA 6 42,741 54,095 17,879 7,359
Lansing, MI 4 50,237 48,668 4,397 24,889
Seattle, WA 3 31,953 34,031 3,775 13,311
Other Western 6 122,225 127,729 13,159 42,239
Other Florida 8 69,719 101,208 20,574 --
31
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
NUMBER OF INITIAL
APARTMENT ACQUISITION CARRYING ACCUMULATED
COMMUNITIES COST VALUE DEPRECIATION ENCUMBRANCES
----------- ---- ----- ------------ ------------
Other Southwestern 9 90,295 98,136 13,479 19,102
Other Midwestern 10 88,281 93,803 9,149 36,148
Other Pacific 7 86,601 87,156 9,578 45,605
Other North Carolina 8 61,677 74,453 22,659 9,876
Other Mid-Atlantic 5 37,618 42,397 9,123 12,542
Other Southeastern 3 28,691 37,428 8,699 19,285
Other Northeastern 2 14,732 18,119 4,485 5,167
Commercial 10,482 12,448 3,657 3,221
Richmond Corporate 6,597 7,619 375 3,996
------ ---------- ---------- ---------- ----------
274 $3,292,722 $3,858,579 $ 646,366 $ 974,177
====== ========== ========== ========== ==========
At December 31, 2001, real estate held for disposition included four
parcels of land with an initial acquisition cost of $9.9 million and a carrying
value of $8.8 million.
The management of United Dominion periodically reviews its divestiture
program, which is designed to better position the Company for achieving more
consistent earnings growth and increasing shareholder value over the long-term.
The factors considered in these reviews include the age, quality and projected
operating income of communities that might be sold, the expected market value
for the communities, the estimated timing for completion of sales and the pro
forma effect of sales upon United Dominion's earnings and financial position.
During the first quarter of 2001, management performed an analysis of the
carrying value of all undeveloped land parcels in connection with the Company's
plans to accelerate the disposition of these sites. As a result, an aggregate
$2.8 million impairment loss was recognized on seven undeveloped sites in
selected markets. An impairment loss was indicated as a result of the net book
value of the assets being greater than the estimated fair market value less the
cost of disposal.
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 inflated 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.
For the year ended December 31, 1999, United Dominion recognized $18.3
million in impairment losses on its real estate owned. Through the review and
analysis of communities targeted for strategic disposition, an aggregate $14.8
million impairment loss was recognized on assets held for disposition. An
impairment loss was indicated as a result of the net book value of the assets
held for disposition being greater than the estimated fair market value less the
cost of disposal. In addition, United Dominion recorded a $3.5 million
impairment loss on three communities acquired in the ASR merger in 1998 which
were classified in real estate held for investment. An impairment loss was
indicated as the sum of the estimated future cash flows from the assets were
deemed to be less than the carrying amounts.
The following is a reconciliation of the carrying amount of real estate
held for investment at December 31, (dollars in thousands):
2001 2000 1999
---- ---- ----
Balance at beginning of year $ 3,758,974 $ 3,577,848 $ 3,643,245
Real estate acquired 91,093 14,898 75,719
Capital expenditures 58,402 46,299 72,096
32
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
2001 2000 1999
---- ---- ----
Transfers from development 51,561 68,025 116,787
Transfers (to) from held for disposition, net (98,663) 58,068 (326,499)
Impairment loss on real estate (2,788) -- (3,500)
Disposal of fully depreciated assets -- (6,164) --
----------- ----------- -----------
Balance at end of year $ 3,858,579 $ 3,758,974 $ 3,577,848
=========== =========== ===========
The following is a reconciliation of accumulated depreciation for real
estate held for investment at December 31, (dollars in thousands):
2001 2000 1999
---- ---- ----
Balance at beginning of year $ 506,871 $ 373,164 $ 280,663
Depreciation expense for the year* 153,113 154,419 122,884
Transfers to held for disposition, net (13,618) (14,548) (30,383)
Disposal of fully depreciated assets -- (6,164) --
--------- --------- ---------
Balance at end of year $ 646,366 $ 506,871 $ 373,164
========= ========= =========
- ----------
* Includes $1,268, $1,425 and $1,157 for 2001, 2000 and 1999, respectively,
related to depreciation on non-real estate assets located at the Company's
apartment communities, classified as "Other depreciation and amortization" in
the Consolidated Statements of Operations.
3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
At December 31, 2001, United Dominion's investment in an unconsolidated
joint venture ("the venture") consisted of a 25% partnership interest in a
development joint venture in which the Company is serving as the managing
partner. No gain or loss was recognized on the Company's contribution to the
development joint venture. The venture was created to develop five apartment
communities with a total of 1,438 homes for an aggregate total cost of
approximately $101 million. Upon closing of the venture in June 2000, United
Dominion contributed the projects in return for its equity interest of
approximately $8 million in the venture and was reimbursed for approximately $35
million of development outlays that were incurred prior to closing the joint
venture. United Dominion serves as the developer, general contractor and
property manager for the venture and recognized fee income for services provided
by the Company to the joint venture, to the extent of the outside partner's
interest, of approximately $2.6 million and $3.0 million for the years ended
December 31, 2001 and 2000, respectively. As of September 2001, construction of
all five of the joint venture properties was complete.
On December 28, 2001, United Dominion purchased three of the five
apartment communities for a total aggregate cost of $61.3 million. The three
communities purchased were Mandolin, a 308 home community located in Dallas,
Texas, Meridian, a 250 home community located in Dallas, Texas and Sierra
Canyon, a 236 home community located in Phoenix, Arizona. The Company has the
option, but not the obligation, to purchase the remaining two communities for
fair value through December 31, 2006. If neither the Company nor the joint
venture partner elects to purchase these properties, the joint venture will then
dispose of the assets to a third party at the then market price. Although the
legal termination date of the joint venture is December 2006, the Company does
not anticipate that the venture's useful life will exceed three years.
33
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
The following is a summary of the financial position of the joint venture
as of December 31, (dollars in thousands):
2001 2000
---- ----
Assets:
Real estate, net $44,290 $85,644
Other assets 930 6,507
------- -------
Total assets $45,220 $92,151
======= =======
Liabilities and partners' equity:
Mortgage notes payable (a) $30,488 $49,785
Other liabilities 1,720 11,436
Partners' equity 13,012 30,930
------- -------
Total liabilities and partners' equity $45,220 $92,151
======= =======
- ----------
(a) Non-recourse to United Dominion with an interest rate of LIBOR plus 250
basis points and a maturity of December 2003.
The following is a summary of the operating results of the joint venture
as of December 31, (dollars in thousands):
2001 2000
---- ----
Rental income $ 9,841 $ 1,930
Expenses:
Depreciation and amortization 3,684 268
Mortgage interest 3,826 1,557
Operating and other expenses 4,260 549
-------- --------
Total expenses 11,770 2,374
-------- --------
Income before gains on sales of investments (1,929) (444)
Gains on sales of depreciable property 913 --
-------- --------
Net loss $ (1,016) $ (444)
======== ========
4. SECURED DEBT
Secured debt, which encumbers $1.6 billion or 41.0% of United Dominion's
real estate owned, ($2.3 billion or 59.0% of United Dominion's real estate owned
is unencumbered) consists of the following at December 31, 2001 (dollars in
thousands):
WEIGHTED
WEIGHTED AVERAGE NUMBER OF
AVERAGE YEARS TO COMMUNITIES
PRINCIPAL OUTSTANDING INTEREST RATE MATURITY ENCUMBERED
--------------------- ------------- -------- ----------
2001 2000 2001 2001 2001
---- ---- ---- ---- ----
FIXED RATE DEBT
Mortgage notes payable (a) $450,643 $513,962 7.79% 4.9 67
Tax-exempt secured notes payable 65,806 79,756 6.73% 12.1 9
Secured credit facilities 17,000 17,000 7.04% 12.1 --
--------------------------------------------------------------------
Total fixed rate secured debt 533,449 610,718 7.64% 6.0 76
VARIABLE RATE DEBT
Secured credit facilities 405,731 216,960 3.56% 11.6 31
Tax-exempt secured notes payable 19,915 19,916 1.38% 23.5 3
Mortgage notes payable 15,082 18,521 3.71% 6.7 4
34
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
WEIGHTED
WEIGHTED AVERAGE NUMBER OF
AVERAGE YEARS TO COMMUNITIES
PRINCIPAL OUTSTANDING INTEREST RATE MATURITY ENCUMBERED
--------------------- ------------- -------- ----------
2001 2000 2001 2001 2001
---- ---- ---- ---- ----
Total variable rate secured debt 440,728 255,397 3.46% 11.9 38
------- ------- ---- ---- --
TOTAL SECURED DEBT $974,177 $866,115 5.75% 8.7 114
======== ======== ==== === ===
- ----------
(a) Includes fair value adjustments aggregating $7.9 million in 2001 and $10.2
million in 2000 that were 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 February 2002 through June 2034 and carry interest rates ranging from
6.66% to 9.58%.
Tax-exempt secured notes payable. Fixed rate mortgage notes payable which
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, 2001, United Dominion's fixed
rate secured credit facilities consisted of $17.0 million of the $422.7 million
outstanding under four revolving secured credit facilities with the Federal
National Mortgage Association (the "FNMA Credit Facilities"). The FNMA Credit
Facilities are for an initial term of five or ten years, bear interest at a
floating rate 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 FNMA 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
7.04%.
VARIABLE RATE DEBT
Secured credit facilities. At December 31, 2001, United Dominion's
variable rate secured credit facilities consisted of $405.7 million of the
$422.7 million outstanding on the FNMA Credit Facilities. At December 31, 2001,
the variable rate FNMA Credit Facilities had a weighted average floating rate of
interest of 3.56%.
Tax-exempt secured notes payable. Variable rate mortgage notes payable
which secure tax-exempt housing bond issues mature at various dates from
December 2002 to October 2028. At December 31, 2001, these notes had interest
rates ranging from 1.15% to 1.65%. Interest on these notes is generally payable
in semi-annual installments.
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 2002 through September 2027. At December 31, 2001, these
notes had interest rates ranging from 3.33% to 4.52%.
The aggregate maturities of secured debt for the fifteen years subsequent
to December 31, 2001 are as follows (dollars in thousands):
FIXED VARIABLE
--------------------------------------- ----------------------------------------
MORTGAGE TAX-EXEMPT SECURED SECURED TAX-EXEMPT MORTGAGE
YEAR NOTES BONDS NOTES NOTES NOTES NOTES TOTAL
---- ----- ----- ----- ----- ----- ----- -----
2002 $ 47,409 $ 833 -- -- $ 2,200 $ 3,168 $ 53,610
2003 25,381 13,326 -- -- -- 370 39,077
2004 119,467 9,422 -- -- -- 392 129,281
2005 119,297 875 -- -- -- 5,139 125,311
2006 42,061 935 -- -- -- 3,795 46,791
2007 17,335 632 -- -- -- 95 18,062
2008 2,949 5,455 -- -- -- 102 8,506
2009 25,607 581 -- -- -- 108 26,296
35
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
FIXED VARIABLE
----- --------
MORTGAGE TAX-EXEMPT SECURED SECURED TAX-EXEMPT MORTGAGE
YEAR NOTES BONDS NOTES NOTES NOTES NOTES TOTAL
---- ----- ----- ----- ----- ----- ----- -----
2010 26,598 628 -- -- -- 116 27,342
2011 824 673 -- $138,875 -- 123 140,495
2012 889 725 -- -- -- 132 1,746
2013 960 3,850 -- -- -- 141 4,951
2014 1,036 838 $ 17,000 183,000 -- 150 202,024
2015 1,119 13,354 -- 52,956 -- 160 67,589
2016 2,942 583 -- 30,900 -- 171 34,596
Thereafter 16,769 13,096 -- -- 17,715 920 48,500
-------- -------- -------- -------- -------- -------- --------
$450,643 $ 65,806 $ 17,000 $405,731 $ 19,915 $ 15,082 $974,177
======== ======== ======== ======== ======== ======== ========
For the years ended December 31, 2001 and 2000, United Dominion recognized
$3.5 million ($.03 per share) in extraordinary losses and $831 thousand ($.01
per share) in extraordinary gains related to the write-off of deferred financing
costs and prepayment penalties.
5. UNSECURED DEBT
A summary of unsecured debt at December 31, 2001 and 2000 is as follows
(dollars in thousands):
2001 2000
---- ----
COMMERCIAL BANKS
Borrowings outstanding under an
unsecured credit facility due August 2003 (a) $ 230,200 $ 244,400
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 48,750
7.65% Medium-Term Notes due January 2003 (c) 10,000 10,000
7.22% Medium-Term Notes due February 2003 11,815 11,900
5.05% City of Portland, OR Bonds due October 2003 7,345 7,345
8.63% Notes due March 2003 78,030 79,030
7.98% Notes due March 2002 - 2003 (d) 14,857 22,285
7.67% Medium-Term Notes due January 2004 53,510 54,000
7.73% Medium-Term Notes due April 2005 22,400 22,400
7.02% Medium-Term Notes due November 2005 49,760 50,000
7.95% Medium-Term Notes due July 2006 103,179 107,398
7.07% Medium-Term Notes due November 2006 25,000 25,000
7.25% Notes due January 2007 105,020 110,080
ABAG Tax-Exempt Bonds due August 2008 46,700 46,700
8.50% Monthly Income Notes due November 2008 57,400 57,400
8.50% Debentures due September 2024 (e) 124,920 125,500
Other (f) 3,134 4,027
---------- ----------
759,820 781,815
---------- ----------
TOTAL UNSECURED DEBT $1,090,020 $1,126,215
========== ==========
(a) As of December 31, 2001 and 2000, United Dominion had eight interest rate
swap agreements associated with commercial bank borrowings with an
aggregate notional value of $155 million under which United Dominion pays
a fixed rate of interest and receives a variable rate of interest on the
notional amounts. The interest rate swaps effectively change United
Dominion's interest rate exposure on the $155 million of borrowings from a
variable rate to a weighted average fixed rate of approximately 6.98%. The
weighted average interest rate of the total $230.2 million in commercial
borrowings, after giving effect to swap agreements, was 6.1% and 7.5% at
December 31, 2001 and 2000, respectively.
(b) As of December 31, 2001, 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
36
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
Dominion pays a fixed rate of interest and receives a variable rate of
interest on the notional amounts. The interest rate swaps effectively
change United Dominion's interest rate exposure on these borrowings from a
variable rate to a weighted average fixed rate of approximately 7.53%.
(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
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,
one of which was paid in 2001.
(e) Includes an investor put feature which grants a one-time option to redeem
the debentures in September 2004.
(f) Includes $3.0 million and $3.8 million at December 31, 2001 and 2000,
respectively, of deferred gains from the termination of interest rate risk
management agreements.
Information concerning short-term bank borrowings is summarized in the
table that follows (dollars in thousands):
2001 2000 1999
---- ---- ----
Total revolving credit facilities at December 31 $375,000 $375,000 $310,000
Borrowings outstanding at December 31 230,200 244,400 277,600
Weighted average daily borrowings during the year 248,367 195,128 223,629
Maximum daily borrowings during the year 347,200 308,000 283,000
Weighted average interest rate during the year 5.2% 7.3% 5.8%
Weighted average interest rate at December 31 3.2% 7.7% 6.7%
Weighted average interest rate at December 31,
after giving effect to swap agreements 6.1% 7.5% 6.8%
United Dominion has a $375 million three-year unsecured revolving credit
facility (the "Bank Credit Facility") which matures August 2003. As of December
31, 2001, $230.2 million was outstanding under the Bank Credit Facility. The
Company may borrow at a rate of LIBOR plus 110 basis points for LIBOR-based
borrowings under the Bank Credit Facility. In addition, the Company 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.
6. 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, the 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
sales 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 and 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. The
Company 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 (the "Option Shares"). The Company has the right to
purchase 2 million shares of the Option Shares in accordance with a
predetermined schedule, provided that the volume weighted average price of the
Company's 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
37
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
which the Option Shares repurchase date occurs, together with all accrued and
unpaid dividends to and including the repurchase date:
OPTION SHARE REPURCHASE DATE OCCURS
DURING PERIOD: REPURCHASE PRICE
- ----------------------------------------------- ----------------
January 1, 2002 to June 30, 2002 102.0%
July 1, 2002 to December 31, 2002 101.5%
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
the 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, the Company completed the redemption of all of its
outstanding 9.25% Series A Cumulative Redeemable Preferred Stock at $25 per
share plus accrued dividends.
OFFICERS' STOCK PURCHASE AND LOAN PLAN
Under the Officer Stock Purchase and Loan Plan (the "Loan Plan"), certain
officers have purchased common stock at the then current market price with
financing provided by United Dominion at an interest rate of 7%. The underlying
notes, totaling $4.3 million, mature between December 2002 and October 2005. A
total of 602,000 shares have been issued and 813,000 shares are available for
future issuance under the Loan Plan.
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, 2001, 9,437,717 shares of
common stock had been issued under the Stock Purchase Plan. Shares in the amount
of 4,562,283 were reserved for further issuance under the Stock Purchase Plan at
December 31, 2001. During 2001, 332,243 shares were issued under the Stock
Purchase Plan for a total consideration of approximately $4.4 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, 2001, 244,103 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 the Company's
38
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
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 the Company's common stock.
7. FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments were
determined by United Dominion using available market information and appropriate
valuation methodologies. Considerable judgement 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, 2001 and 2000, are
summarized as follows (dollars in thousands):
2001 2000
----------------------------- ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Secured debt $ 974,177 $ 1,013,136 $ 866,115 $ 887,430
Unsecured debt 1,090,020 1,109,380 1,126,215 1,130,100
Interest rate swap agreements -- (14,931) -- (3,847)
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, 2001 and 2000. 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,
2001 and 2000.
39
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the fair values of the Company's derivative
financial instruments outstanding, based on external market quotations, as of
December 31, 2001 (dollars in thousands):
NOTIONAL FIXED TYPE OF EFFECTIVE CONTRACT FAIR
AMOUNT RATE CONTRACT DATE MATURITY VALUE
----------------------------------------------------------------------------------------
SECURED DEBT:
FNMA
$ 7,000 6.78% Swap 06/30/99 06/30/04 $ (396)
10,000 7.22% Swap 12/01/99 04/01/04 (626)
-------------- ---------- ------------
17,000 7.04% (1,022)
UNSECURED DEBT:
BANK CREDIT FACILITY
5,000 7.32% Swap 06/26/95 07/01/04 (315)
10,000 7.14% Swap 10/18/95 10/03/02 (386)
5,000 6.98% Swap 11/21/95 10/03/02 (185)
25,000 7.39% Swap 11/01/00 08/01/03 (1,461)
25,000 7.39% Swap 11/01/00 08/01/03 (1,461)
25,000 7.21% Swap 12/01/00 08/01/03 (1,330)
25,000 7.21% Swap 12/04/00 08/01/03 (1,330)
35,000 5.98% Swap 03/13/01 04/01/03 (1,100)
-------------- ---------- ------------
155,000 6.98% (7,568)
BANK TERM LOAN
25,000 7.49% Swap 11/15/00 05/15/03 (1,295)
20,000 7.49% Swap 11/15/00 05/15/03 (1,037)
23,500 7.62% Swap 11/15/00 05/15/04 (1,568)
23,000 7.62% Swap 11/15/00 05/15/04 (1,535)
8,500 7.26% Swap 12/04/00 05/15/03 (426)
-------------- ---------- ------------
100,000 7.53% (5,861)
MEDIUM-TERM NOTES
10,000 7.65% Swap 01/26/99 01/27/03 (480)
-------------- ------------
$ 282,000 $ (14,931)
============== ============
For the year ended December 31, 2001, the Company recognized $11.0 million
of unrealized losses in accumulated other comprehensive income, a $60.0 thousand
loss in net income related to the ineffective portion of the Company's hedging
instruments and a $3.8 million loss as a cumulative effect of a change in
accounting principle. In addition, United Dominion recognized $14.9 million of
derivative financial instrument liabilities on the Consolidated Balance Sheet.
As of December 31, 2001, United Dominion expects to reclassify $9.4
million of net losses on derivative instruments from accumulated other
comprehensive income to earnings (interest expense) 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
40
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
value of the derivative instruments that are favorable to United Dominion at
December 31, 2001, of which the Company has 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.
8. 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, 2001, 2000 and 1999 were
$0.7 million, $1.3 million and $2.2 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 Company's 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 2001, 2000 and 1999:
2001 2000 1999
-------- -------- --------
Risk free interest rate 3.2% 5.2% 6.7%
Dividend yield 9.1% 7.2% 6.9%
Volatility factor 0.171 0.164 0.144
Weighted average expected life (years) 3 7 9
The weighted average fair value of options granted during 2001, 2000 and
1999 was $0.46, $0.65 and $0.76 per option, respectively.
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):
2001 2000 1999
---------- ---------- ----------
Net income available to common shareholders
As reported $ 27,142 $ 42,653 $ 55,908
Pro forma 26,693 41,705 54,847
41
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
Earnings per common share - diluted
As reported $ 0.27 $ 0.41 $ 0.54
Pro forma 0.26 0.40 0.53
A summary of United Dominion's stock option activity during the three
years ended December 31, 2001 is provided in the following table:
NUMBER WEIGHTED AVERAGE RANGE OF
OUTSTANDING EXERCISE PRICE EXERCISE PRICES
----------- ---------------- ---------------
Balance, December 31, 1998 3,359,013 $ 12.89 $7.44 - $15.38
Granted 1,192,333 10.02 9.63 - 11.19
Exercised (46,998) 9.87 9.19 - 10.25
Forfeited (288,756) 13.46 10.88 - 15.38
---------- -------------- --------------
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 (1,200,802) 11.52 9.63 - 15.38
---------- -------------- --------------
Balance, December 31, 2001 4,225,219 $ 11.90 $9.63 - $15.38
========== ============== ==============
Exercisable at December 31,
1999 2,042,505 $ 13.28 $9.19 - $15.38
2000 2,692,997 12.35 9.19 - 15.38
2001 1,968,265 12.38 9.63 - 15.38
The weighted average remaining contractual life on all options outstanding
is 9 years. 1,032,002 of share options had exercise prices between $13.50 and
$15.38, 1,509,272 of share options had exercise prices between $11.15 and $13.13
and 1,683,945 of share options had exercise prices between $9.63 and $10.94.
At December 31, 2001, stock-based awards for 3,278,500 shares of common
stock 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. At December 31, 2000 and 1999, options for 3,684,595 and
4,028,539 shares of common stock, respectively, were available for future grants
under the 1985 Stock Option Plan.
9. RESTRUCTURING CHARGES
During the first quarter of 2001, United Dominion announced the
appointment of a new chief executive officer and senior management structure.
The new management team began a comprehensive review of the organizational
structure of the Company and its operations. As a result of this review, the
Company recorded a charge of $5.4 million related to workforce reductions and
other miscellaneous costs. These charges are included in the Consolidated
Statements of Operations within the line item "Severance costs and other
organizational charges." All charges came under consideration subsequent to the
appointment of the Company's new CEO in February 2001 and were approved by
management and the Board of Directors in March 2001. 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.
42
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
Employee termination benefits included severance packages and related benefits
and outplacement services for employees terminated. As of December 31, 2001,
approximately 230 employees have been terminated.
In connection with senior management's review of the Company during the
first quarter, United Dominion also recognized $0.4 million related to
relocation costs associated with the new executive offices in Denver and $0.5
million related to other miscellaneous costs.
10. COMMITMENTS AND CONTINGENCIES
LAND AND OTHER 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 land and other leases at December 31, 2001 are as
follows (dollars in thousands):
2002 $ 1,792
2003 1,594
2004 1,530
2005 1,386
2006 1,210
Thereafter 24,128
-------
TOTAL $31,640
=======
United Dominion incurred $2.3 million, $2.6 million and $2.8 million, of
rent expense for the years ended December 31, 2001, 2000 and 1999, respectively.
CONTINGENCIES
In May 2001, the shareholders of United Dominion approved the
Out-Performance Program (the "Program") pursuant to which executives and other
key officers of the Company were given the opportunity to invest in the Company
by purchasing performance shares ("Out-Performance Partnership Shares" or
"OPPSs") of the Operating Partnership for an initial investment of $1.27
million. To begin the Program, the Company's performance will be measured over a
28 month period beginning February 2001. The Program is designed to provide
participants with the possibility of substantial returns on their investment if
the Company's total return, defined as dividend income plus share price
appreciation, on its common stock during the measurement period exceeds the
greater of industry average (defined as the total cumulative return of the
Morgan Stanley REIT Index over the same period) or a 30% total return (12%
annualized) (the "minimum return"). At the conclusion of the measurement period,
if United Dominion's total return satisfies these criteria, the holders of the
OPPSs will receive distributions and allocations of income and loss from the
Operating Partnership equal to the distributions and allocations that would be
received on the number of interests in the Operating Partnership ("OP Units")
obtained by: (i) determining the amount by which the cumulative total return of
the Company's common stock over the measurement period exceeds the greater of
the cumulative total return of the peer group index (the Morgan Stanley REIT
Index) or the minimum return (such being the "excess return"); (ii) multiplying
4% of the excess return by the Company's market capitalization (defined as the
average number of shares outstanding over the 28 month period multiplied by the
daily closing price of the Company's common stock); and (iii) dividing the
number obtained in (ii) by the market value of one share of the Company common
stock on the valuation date, as the weighted average price per day of the common
stock for the 20 trading days immediately preceding the valuation date. If, on
the valuation date, the cumulative total return of United Dominion's common
stock does not meet the minimum return or the total return of the peer group and
there is no excess return, then the holders of the OPPSs will forfeit their
entire initial investment of $1.27 million. The OPPSs, unlike United Dominion's
other OP Units, are not convertible into common stock except upon a change of
control of the Company. 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, 2001, 370,718 OPPSs
would have been issued. However, since the ultimate determination of OPPSs
43
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
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.
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.
COMMITMENTS
United Dominion is committed to completing its real estate currently under
development, which has an estimated cost to complete of $6.7 million at December
31, 2001.
11. 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 have 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 2001, 2000 or 1999.
12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA
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)(d) $ 141,374 $ 139,306 $ 139,774 $ 141,504
Income before gains on sales of investments,
minority interests, discontinued operations
and extraordinary item (367) 10,615 11,382 10,495
Gains on the sales of investments 4,102 20,646 -- --
Net (loss) income available to common shareholders (3,308) 20,136 6,778 3,536
Earnings 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 the Company's 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 the Company's investment in a web-based property management
and leasing system.
(c) Rental income for the first and second quarters are restated to include
water sub-metering and gas reimbursements previously classified as a
reduction in rental expense.
(d) Represents income from continuing operations.
44
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
Summarized consolidated quarterly financial data for the year ended
December 31, 2000 is as follows (dollars in thousands, except per share
amounts):
THREE MONTHS ENDED
---------------------------------------------------------------------
MARCH 31 JUNE 30 (a) SEPTEMBER 30 (b) DECEMBER 31
-------- ----------- ---------------- -----------
Rental income (c)(d) $143,004 $144,068 $143,378 $141,755
Income before gains on sales of investments,
minority interests, discontinued operations
and extraordinary item 12,861 4,308 6,471 9,901
Gains on the sales of investments 2,533 5,928 11,261 11,728
Net income available to common shareholders 9,172 6,233 11,161 16,087
Earnings per common share:
Basic $ 0.09 $ 0.06 $ 0.11 $ 0.16
Diluted 0.09 0.06 0.11 0.16
- ----------
(a) The second quarter of 2000 includes $9.9 million of catch-up depreciation
expense related to the transfer of properties from real estate held for
disposition to real estate held for investment.
(b) The third quarter of 2000 includes a $2.7 million charge related to water
usage billing litigation and a $1.0 million charge for changes to
executive employment agreements.
(c) Rental income has been restated to include water sub-metering and gas
reimbursements previously classified as a reduction in rental expense.
(d) Represents income from continuing operations.
13. INCOME FROM DISCONTINUED OPERATIONS
United Dominion adopted Statement of Financial Accounting Standard 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 or transferred into held for disposition from
January 1, 2002 through November 27, 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.
From January 1, 2002 through November 27, 2002, United Dominion had sold
23 communities with a total of 6,564 apartment homes and one commercial property
with 143,000 square feet. As of November 27, 2002, United Dominion had eight
communities with 1,475 apartment homes and four parcels of land included in real
estate held for disposition.
The Company's adoption of SFAS No. 144 resulted in the presentation of the
net operating results of these properties sold or transferred to held for
disposition from January 1, 2002 through November 27, 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, from January 1, 2002 through November
27, 2002 within the consolidated statements of operations for the years ended
December 31, 2001, 2000 and 1999.
45
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
The following is a summary of income from discontinued operations for the
year ended December 31, 2001, 2000 and 1999 (dollars in thousands):
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------------------------------
2001 2000 1999
-------- -------- --------
Rental income $ 57,533 $ 55,063 $ 52,305
Rental expenses 24,195 22,282 20,846
Other expenses 19,945 17,602 16,312
Impairment loss on real estate and investments 775 -- 1,606
-------- -------- --------
44,915 39,884 38,764
Income before gains on sales of investments,
minority interests and extraordinary items 12,618 15,179 13,541
-------- -------- --------
Minority interests on income from discontinued operations (915) (1,026) (1,074)
-------- -------- --------
Income from discontinued operations, net of minority interests $ 11,703 $ 14,153 $ 12,467
======== ======== ========
14. SUBSEQUENT EVENTS
During the first quarter of 2002, the Company borrowed an additional
$253.6 million under its existing Fannie Mae credit facilities and $70.7 million
under a new $72 million Freddie Mac revolving facility.
In March 2002, the Company completed the sale of 3.0 million common shares
at a price of $14.91 per share. The net proceeds of $198.3 million from the
issuance were used to reduce outstanding debt under the $375 million unsecured
revolving credit facility.
In June 2002, the Company issued $200 million of 6.5% senior unsecured
notes due in June 2009. The net proceeds of $198.3 million from the issuance
were used to reduce outstanding debt under our $375 million unsecured revolving
credit facility.
In September 2002, the Company launched tender offers to purchase $124.9
million of United Dominion's 8.50% debentures maturing in 2024 and $103.1
million of our 7.95% notes maturing in 2006. Upon completion of the tender
offers, which expired September 30,2002 $70.6 million of the 8.5% debentures and
$12.6 million of the 7.95% notes had been repurchased. In addition, premiums of
$12.6 million were paid during the third quarter of 2002 for the redemption of
higher coupon bonds. Management projects a net present value of approximately $1
to $2 million on these redemptions.
As of November 27, 2002, the Company has repaid $294.8 million of secured
debt, assumed $41.6 million of secured debt in connection with the acquisition
of properties and was relieved of $31.1 million of secured debt in connection
with the disposition of properties. The Company incurred charges of
approximately $15.8 million in the first quarter of 2002 associated with the
refinancings. Management believes that the net present value of these
refinancing transactions ranges from approximately $17 to $20 million.
As of November 27, 2002, the Company had purchased nine communities with
3,041 apartment homes for approximately $254 million. In addition, in June 2002,
the Company 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, the Company
purchased the 36% outside partnership interest in two properties in California
containing 926 apartment homes for $17.3 million.
46
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
----------------------------------------------------------------------------------------------
Woodtrail $ -- $ 1,543 $ 5,457 $ 7,000 $ 2,337
Park Trails -- 1,145 4,105 5,250 848
Green Oaks -- 5,314 19,626 24,940 2,767
Sky Hawk -- 2,298 7,158 9,456 1,935
South Grand At Pecan Grove -- 4,058 14,756 18,814 4,306
Breakers -- 1,527 5,298 6,825 2,142
Braesridge -- 3,048 10,962 14,010 1,837
Skylar Pointe -- 3,604 11,592 15,197 4,018
Stone Canyon -- 900 -- 900 9,447
Briar Park 1,352 329 2,794 3,123 172
Chelsea Park 3,141 1,991 5,788 7,779 1,929
Clear Lake Falls 2,973 1,090 4,534 5,624 (163)
Country Club Place 3,379 499 6,520 7,019 911
Arbor Ridge 3,635 1,689 6,684 8,373 296
London Park 4,370 2,018 6,667 8,686 1,687
Marymont -- 1,151 4,155 5,306 716
Nantucket Square 2,619 1,068 4,833 5,901 (530)
Riverway 1,144 523 2,828 3,352 194
Riviera Pines 3,162 1,414 6,454 7,868 923
The Gallery 1,561 769 3,358 4,127 226
Towne Lake -- 1,334 5,309 6,643 1,243
The Legend at Park 10 -- 1,995 -- 1,995 11,786
HOUSTON, TX 27,336 39,307 138,881 178,188 49,029
Preston Oaks -- 1,784 6,416 8,200 719
Preston Trace -- 2,196 8,305 10,500 915
Rock Creek -- 4,077 15,823 19,900 4,463
Windridge -- 3,414 14,027 17,442 2,957
Catalina -- 1,543 5,632 7,175 794
Wimbledon Court -- 1,809 10,930 12,739 2,174
Lakeridge -- 1,631 5,669 7,300 1,042
Summergate -- 1,171 3,929 5,100 835
Oak Forest 23,540 5,631 23,294 28,925 10,503
Oaks Of Lewisville 12,265 3,727 13,563 17,290 3,624
Kelly Crossing -- 2,497 9,156 11,653 1,567
Highlands Of Preston -- 2,151 8,168 10,319 1,745
The Summit -- 1,932 9,041 10,973 1,283
Springfield 5,045 3,075 6,823 9,898 1,082
Meridian I -- 2,160 18,523 20,683 --
Mandolin I -- 2,663 20,975 23,638 --
DALLAS, TX 40,850 41,460 180,274 221,734 33,704
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
--------------------------------------------------------------------------------------------
Woodtrail $ 1,752 $ 7,585 $ 9,337 $ 2,069 1978 12/31/96
Park Trails 1,212 4,887 6,098 1,087 1983 12/31/96
Green Oaks 5,821 21,886 27,707 4,227 1985 06/25/97
Sky Hawk 2,712 8,679 11,391 2,000 1984 05/08/97
South Grand At Pecan Grove 4,819 18,301 23,120 3,526 1985 09/26/97
Breakers 1,885 7,083 8,968 1,532 1985 09/26/97
Braesridge 3,378 12,469 15,847 2,403 1982 09/26/97
Skylar Pointe 3,706 15,509 19,215 3,132 1979 11/20/97
Stone Canyon 1,289 9,058 10,347 920 1998 12/17/97
Briar Park 346 2,949 3,295 411 1987 03/27/98
Chelsea Park 2,412 7,296 9,708 1,247 1983 03/27/98
Clear Lake Falls 1,127 4,335 5,462 645 1980 03/27/98
Country Club Place 646 7,284 7,929 1,162 1985 03/27/98
Arbor Ridge 2,043 6,626 8,669 1,222 1983 03/27/98
London Park 2,434 7,939 10,373 1,448 1983 03/27/98
Marymont 1,164 4,858 6,022 699 1983 03/27/98
Nantucket Square 1,075 4,297 5,371 586 1983 03/27/98
Riverway 551 2,995 3,546 514 1985 03/27/98
Riviera Pines 1,439 7,352 8,791 910 1979 03/27/98
The Gallery 791 3,562 4,353 431 1968 03/27/98
Towne Lake 1,576 6,310 7,886 1,157 1984 03/27/98
The Legend at Park 10 3,895 9,885 13,781 1,679 1998 05/19/98
HOUSTON, TX 46,073 181,144 227,217 33,007
Preston Oaks 1,926 6,993 8,919 1,438 1980 12/31/96
Preston Trace 2,385 9,029 11,415 1,773 1984 12/31/96
Rock Creek 4,577 19,786 24,363 4,248 1979 12/31/96
Windridge 4,037 16,362 20,399 3,577 1980 12/31/96
Catalina 1,654 6,314 7,969 1,300 1982 12/31/96
Wimbledon Court 2,828 12,086 14,914 2,328 1983 12/31/96
Lakeridge 1,813 6,529 8,342 1,443 1984 12/31/96
Summergate 1,399 4,536 5,935 1,000 1984 12/31/96
Oak Forest 6,368 33,059 39,428 6,832 1996/98 12/31/96
Oaks Of Lewisville 4,501 16,414 20,914 3,832 1983 03/27/97
Kelly Crossing 2,981 10,239 13,220 2,045 1984 06/18/97
Highlands Of Preston 2,472 9,591 12,063 1,633 1985 03/27/98
The Summit 2,319 9,938 12,257 1,624 1983 03/27/98
Springfield 3,266 7,714 10,980 1,353 1985 03/27/98
Meridian I 2,160 18,523 20,683 23 2000 12/28/01
Mandolin I 2,663 20,975 23,638 -- 2001 12/28/01
DALLAS, TX 47,349 208,089 255,437 34,449
47
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
-------------------------------------------------------------------------------------------------------
Fisherman's Village $ -- $ 2,387 $ 7,459 $ 9,846 $ 3,472
Seabrook -- 1,846 4,155 6,001 2,749
Dover Village -- 2,895 6,456 9,351 3,693
Lakeside North 12,440 1,533 11,076 12,609 4,691
Regatta Shore -- 757 6,607 7,364 2,666
Alafaya Woods 8,725 1,653 9,042 10,695 2,181
Vinyards 8,640 1,840 11,572 13,412 2,975
Andover Place 13,320 3,692 7,757 11,449 3,163
Los Altos 12,199 2,804 12,348 15,152 2,734
Lotus Landing -- 2,185 8,639 10,823 1,949
Seville On The Green -- 1,283 6,498 7,781 1,849
Arbors @ Lee Vista 13,383 3,976 16,920 20,896 1,718
Heron Lake 6,171 1,447 9,288 10,734 1,025
Ashton @ Waterford 14,945 3,872 17,538 21,410 289
ORLANDO, FL 89,823 32,168 135,356 167,524 35,152
Paradise Falls -- 1,623 6,171 7,794 2,942
Vista Point -- 1,587 5,613 7,200 1,409
Sierra Palms -- 4,639 17,361 22,000 515
Northpark Village -- 1,519 13,537 15,056 1,706
Stonegate 3,603 735 7,940 8,675 767
Finisterra -- 1,274 26,392 27,666 542
La Privada 15,336 7,303 18,508 25,811 1,915
Terracina 22,413 3,757 34,781 38,538 6,395
Woodland Park -- 3,017 6,706 9,723 985
Sierra Foothills 12,691 2,728 -- 2,728 18,869
Tower Apartments 2,850 3,333 5,975 9,309 679
Sierra Canyon -- 1,810 12,964 14,773 --
PHOENIX, AZ 56,893 33,326 155,947 189,273 36,724
Promontory Pointe -- 7,548 28,052 35,600 2,689
The Bluffs -- 1,901 6,899 8,800 1,470
Ashley Oaks -- 4,591 16,809 21,400 812
Sunflower -- 2,209 7,891 10,100 750
Escalante 3,816 2,702 24,033 26,735 2,183
Cimarron City 3,062 488 4,535 5,023 1,122
Kenton 7,187 2,345 8,917 11,262 1,835
Peppermill 4,221 773 6,873 7,647 2,329
Sunset Canyon 8,655 3,201 10,670 13,871 3,984
Audubon 4,499 771 6,124 6,895 2,262
Grand Cypress 5,631 749 8,609 9,359 993
Inn @ Los Patios -- 3,005 11,545 14,550 (1,489)
SAN ANTONIO, TX 37,072 30,284 140,957 171,241 18,940
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
-------------------------------------------------------------------------------------------------------
Fisherman's Village $ 3,116 $ 10,202 $ 13,318 $ 3,363 1984 12/29/95
Seabrook 2,256 6,494 8,750 2,420 1984 02/20/96
Dover Village 3,365 9,678 13,044 3,999 1981 03/31/93
Lakeside North 2,238 15,061 17,299 4,700 1984 04/14/94
Regatta Shore 1,505 8,525 10,030 3,122 1988 06/30/94
Alafaya Woods 2,106 10,770 12,876 3,509 1988/90 10/21/94
Vinyards 2,416 13,971 16,387 4,445 1984/86 10/31/94
Andover Place 4,501 10,111 14,612 3,233 1988 09/29/95 & 09/30/96
Los Altos 3,315 14,571 17,886 3,285 1990 10/31/96
Lotus Landing 2,405 10,367 12,773 1,917 1985 07/01/97
Seville On The Green 1,455 8,174 9,629 1,538 1986 10/21/97
Arbors @ Lee Vista 4,372 18,242 22,614 2,910 1991 12/31/97
Heron Lake 1,615 10,144 11,760 1,581 1989 03/27/98
Ashton @ Waterford 3,892 17,807 21,699 2,219 2000 05/28/98
ORLANDO, FL 38,558 164,118 202,676 42,242
Paradise Falls 1,832 8,903 10,735 1,764 1986 12/31/96
Vista Point 1,717 6,891 8,609 1,512 1986 12/31/96
Sierra Palms 4,745 17,770 22,515 3,241 1996 12/31/96
Northpark Village 1,832 14,930 16,762 2,517 1983 03/27/98
Stonegate 905 8,536 9,442 1,365 1978 03/27/98
Finisterra 1,339 26,869 28,208 3,601 1997 03/27/98
La Privada 7,841 19,885 27,726 3,002 1987 03/27/98
Terracina 4,550 40,383 44,933 6,272 1984 05/28/98
Woodland Park 3,224 7,484 10,709 1,405 1979 06/09/98
Sierra Foothills 4,840 16,757 21,597 2,927 1998 02/18/98
Tower Apartments 3,713 6,274 9,988 769 1980 01/18/01
Sierra Canyon 1,810 12,964 14,773 -- 2001 12/28/01
PHOENIX, AZ 38,350 187,647 225,997 28,374
Promontory Pointe 7,824 30,465 38,289 5,970 1997 12/31/96
The Bluffs 2,098 8,172 10,270 2,091 1978 12/31/96
Ashley Oaks 4,725 17,486 22,212 3,175 1993 12/31/96
Sunflower 2,341 8,509 10,850 1,738 1980 12/31/96
Escalante 2,776 26,143 28,919 2,287 1986/2000 04/16/98
Cimarron City 585 5,560 6,145 774 1983 04/16/98
Kenton 2,458 10,640 13,097 1,600 1983 04/16/98
Peppermill 939 9,036 9,976 1,504 1984 04/16/98
Sunset Canyon 3,598 14,258 17,855 2,640 1984 04/16/98
Audubon 1,025 8,133 9,157 1,522 1985 04/16/98
Grand Cypress 816 9,536 10,352 1,338 1995 04/16/98
Inn @ Los Patios 3,005 10,055 13,061 1,153 1990 08/15/98
SAN ANTONIO, TX 32,190 157,992 190,182 25,794
48
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
----------------------------------------------------------------------------------------------
Bay Cove $ -- $ 2,929 $ 6,578 $ 9,507 $ 3,247
Summit West -- 2,177 4,710 6,886 2,485
Pinebrook -- 1,780 2,458 4,239 3,010
Lakewood Place 10,300 1,395 10,647 12,042 1,406
Hunters Ridge 10,232 2,462 10,942 13,404 1,510
Bay Meadow -- 2,893 9,254 12,146 2,598
Cambridge -- 1,791 7,166 8,957 1,477
Laurel Oaks -- 1,362 6,542 7,904 1,234
Parker's Landing 30,465 10,178 37,869 48,047 1,361
Sugar Mill Creek 6,319 2,242 7,553 9,794 613
TAMPA, FL 57,315 29,207 103,719 132,927 18,941
Autumnwood -- 2,412 8,688 11,100 1,245
Cobblestone -- 2,925 10,528 13,453 2,990
Pavillion -- 4,428 19,033 23,461 1,584
Oak Park 16,236 3,966 22,228 26,194 (16)
Southern Oaks -- 1,565 5,335 6,900 839
Hunter's Ridge -- 1,613 5,837 7,450 866
Parc Plaza -- 1,684 5,279 6,963 1,476
Summit Ridge -- 1,726 6,308 8,034 1,497
Greenwood Creek 4,645 1,958 8,551 10,509 1,577
Derby Park 52 3,121 11,765 14,886 1,232
Aspen Court 1,852 777 4,945 5,722 926
FORT WORTH, TX 22,786 26,175 108,496 134,671 14,217
2000 Post Street -- 9,861 44,578 54,438 634
Birch Creek 7,653 4,365 16,696 21,061 1,326
Highlands Of Marin -- 5,996 24,868 30,864 904
Marina Playa 13,770 6,224 23,916 30,141 1,627
SAN FRANCISCO, CA 21,423 26,446 110,058 136,504 4,491
Dominion On Spring Forest -- 1,258 8,586 9,844 3,528
Dominion Park Green -- 500 4,322 4,822 1,567
Dominion On Lake Lynn 16,250 3,622 12,405 16,027 3,296
Dominion Courtney Place -- 1,115 5,119 6,234 2,958
Dominion Walnut Ridge 9,515 1,791 11,969 13,760 2,217
Dominion Walnut Creek 17,050 3,170 21,717 24,888 3,319
Dominion Ramsgate -- 908 6,819 7,727 882
Copper Mill -- 1,548 16,067 17,615 974
Trinity Park 14,939 4,580 17,576 22,155 983
Meadows at Kildaire -- 2,846 20,768 23,614 --
RALEIGH, NC 57,754 21,337 125,349 146,686 19,725
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
--------------------------------------------------------------------------------------------
Bay Cove $ 3,288 $ 9,466 $ 12,754 $ 3,992 1972 12/16/92
Summit West 2,458 6,914 9,371 2,997 1972 12/16/92
Pinebrook 2,004 5,245 7,249 2,665 1977 09/28/93
Lakewood Place 1,628 11,820 13,448 3,498 1986 03/10/94
Hunters Ridge 2,965 11,949 14,914 3,286 1992 06/30/95
Bay Meadow 3,437 11,307 14,744 2,637 1985 12/09/96
Cambridge 2,090 8,344 10,434 1,755 1985 06/06/97
Laurel Oaks 1,539 7,599 9,138 1,553 1986 07/01/97
Parker's Landing 9,272 40,136 49,408 4,478 1991 12/07/98
Sugar Mill Creek 2,385 8,022 10,407 966 1988 12/07/98
TAMPA, FL 31,065 120,802 151,867 27,829
Autumnwood 2,723 9,622 12,345 1,999 1984 12/31/96
Cobblestone 3,154 13,289 16,443 2,667 1984 12/31/96
Pavillion 4,750 20,296 25,045 3,828 1979 12/31/96
Oak Park 5,509 20,669 26,178 4,652 1982/98 12/31/96
Southern Oaks 1,621 6,117 7,739 1,344 1982 12/31/96
Hunter's Ridge 1,822 6,494 8,316 1,413 1992 12/31/96
Parc Plaza 2,136 6,303 8,439 1,410 1986 10/30/97
Summit Ridge 2,198 7,333 9,531 1,456 1983 03/27/98
Greenwood Creek 2,298 9,788 12,086 1,624 1984 03/27/98
Derby Park 3,750 12,368 16,118 2,229 1984 03/27/98
Aspen Court 1,094 5,554 6,648 958 1986 03/27/98
FORT WORTH, TX 31,056 117,832 148,888 23,580
2000 Post Street 9,919 45,154 55,073 3,780 1987 12/07/98
Birch Creek 4,607 17,780 22,387 1,839 1968 12/07/98
Highlands Of Marin 6,078 25,690 31,768 2,452 1991 12/07/98
Marina Playa 6,455 25,313 31,768 2,697 1971 12/07/98
SAN FRANCISCO, CA 27,059 113,936 140,995 10,769
Dominion On Spring Forest 1,710 11,662 13,372 5,482 1978/81 05/21/91
Dominion Park Green 701 5,688 6,389 2,454 1987 09/27/91
Dominion On Lake Lynn 4,136 15,188 19,324 4,324 1986 12/01/92
Dominion Courtney Place 1,442 7,750 9,192 2,789 1979/81 07/08/93
Dominion Walnut Ridge 2,171 13,806 15,977 4,163 1982/84 03/04/94
Dominion Walnut Creek 3,720 24,487 28,207 6,933 1985/86 05/17/94
Dominion Ramsgate 1,030 7,578 8,608 1,625 1988 08/15/96
Copper Mill 1,813 16,775 18,589 3,090 1997 12/31/96
Trinity Park 4,620 18,518 23,138 3,333 1987 02/28/97
Meadows at Kildaire 6,863 16,752 23,614 482 2000 05/25/00
RALEIGH, NC 28,207 138,204 166,411 34,675
49
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
------------------------------------------------------------------------------------------------------
Dominion Olde West $ -- $ 1,965 $ 12,204 $ 14,169 $ 1,950
Dominion Creekwood -- -- -- -- 1,052
Dominion Laurel Springs -- 464 3,120 3,584 1,139
Dominion English Hills 20,044 1,979 11,524 13,503 5,129
Dominion Gayton Crossing 10,400 826 5,148 5,974 6,302
Dominion West End 16,493 2,059 15,049 17,108 2,697
Courthouse Green 8,085 732 4,702 5,434 2,202
Waterside At Ironbridge 11,635 1,844 13,239 15,082 791
RICHMOND, VA 66,657 9,870 64,986 74,856 21,262
Boronda Manor 5,101 1,946 8,982 10,928 246
Garden Court 2,382 888 4,188 5,076 142
Harding Park Townhomes 1,215 549 2,051 2,601 61
Cambridge Court 7,501 3,039 12,883 15,922 511
Laurel Tree 2,993 1,304 5,115 6,419 138
Pine Grove 3,313 1,383 5,784 7,167 92
The Pointe At Harden Ranch 14,081 6,388 23,854 30,242 607
The Pointe At Northridge 4,718 2,044 8,028 10,072 263
The Pointe At Westlake 3,111 1,329 5,334 6,663 153
MONTEREY PENINSULA, CA 44,416 18,870 76,220 95,091 2,213
Sycamore Ridge -- 4,068 15,433 19,501 1,016
Heritage Green -- 2,990 11,392 14,382 9,318
Alexander Court -- 1,573 -- 1,573 21,413
Governour's Square 28,730 7,513 28,695 36,208 2,571
Hickory Creek -- 3,421 13,539 16,961 826
Britton Woods 15,168 3,477 19,213 22,690 1,553
COLUMBUS, OH 43,897 23,042 88,272 111,315 36,697
The Highlands -- 321 2,830 3,152 2,707
Emerald Bay -- 626 4,723 5,349 3,614
Dominion Peppertree -- 1,546 7,699 9,245 1,652
Dominion Crown Point -- 2,122 22,339 24,461 2,098
Dominion Harris Pond -- 887 6,728 7,615 1,349
Dominion Mallard Creek -- 699 6,488 7,187 702
Chateau Village -- 1,047 6,980 8,026 2,322
Dominion At Sharon -- 667 4,856 5,523 1,021
Providence Court -- -- 22,048 22,048 9,526
Stoney Pointe 12,159 1,500 15,856 17,355 1,352
CHARLOTTE, NC 12,159 9,415 100,546 109,961 26,342
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
------------------------------------------------------------------------------------------------------
Dominion Olde West $ 2,380 $ 13,738 $ 16,119 $ 6,449 1978/82/84/85/87 12/31/84 & 8/27/91
Dominion Creekwood 49 1,003 1,052 147 1984 08/27/91
Dominion Laurel Springs 633 4,090 4,723 1,833 1972 09/06/91
Dominion English Hills 2,806 15,827 18,633 6,986 1969/76 12/06/91
Dominion Gayton Crossing 1,165 11,111 12,276 5,113 1973 09/28/95
Dominion West End 2,647 17,159 19,806 4,375 1989 12/28/95
Courthouse Green 1,079 6,557 7,636 3,433 1974/78 12/31/84
Waterside At Ironbridge 1,972 13,901 15,873 2,202 1987 09/30/97
RICHMOND, VA 12,731 83,386 96,117 30,537
Boronda Manor 1,966 9,208 11,174 948 1979 12/07/98
Garden Court 892 4,326 5,218 460 1973 12/07/98
Harding Park Townhomes 559 2,103 2,662 222 1984 12/07/98
Cambridge Court 3,096 13,337 16,433 1,493 1974 12/07/98
Laurel Tree 1,314 5,244 6,558 597 1977 12/07/98
Pine Grove 1,388 5,871 7,259 582 1963 12/07/98
The Pointe At Harden Ranch 6,412 24,437 30,849 2,601 1986 12/07/98
The Pointe At Northridge 2,060 8,274 10,335 895 1979 12/07/98
The Pointe At Westlake 1,331 5,485 6,816 596 1975 12/07/98
MONTEREY PENINSULA, CA 19,020 78,285 97,304 8,394
Sycamore Ridge 4,215 16,302 20,517 2,168 1997 07/02/98
Heritage Green 3,098 20,602 23,700 2,693 1998 07/02/98
Alexander Court 6,190 16,797 22,986 2,329 1999 07/02/98
Governour's Square 7,763 31,015 38,778 3,592 1967 12/07/98
Hickory Creek 3,492 14,295 17,787 1,694 1988 12/07/98
Britton Woods 3,979 20,264 24,243 1,185 1991 04/20/01
COLUMBUS, OH 28,736 119,276 148,012 13,661
The Highlands 693 5,165 5,858 3,539 1970 01/17/84
Emerald Bay 1,207 7,756 8,963 4,087 1972 02/06/90
Dominion Peppertree 1,860 9,038 10,898 3,092 1987 12/14/93
Dominion Crown Point 3,893 22,665 26,558 4,713 1987/2000 07/01/94
Dominion Harris Pond 1,228 7,736 8,964 2,261 1987 07/01/94
Dominion Mallard Creek 777 7,112 7,889 1,923 1989 08/16/94
Chateau Village 1,432 8,916 10,348 2,458 1974 08/15/96
Dominion At Sharon 903 5,641 6,545 1,321 1984 08/15/96
Providence Court 7,489 24,085 31,574 4,884 1997 09/30/97
Stoney Pointe 1,754 16,953 18,707 3,235 1991 02/28/97
CHARLOTTE, NC 21,236 115,068 136,303 31,512
50
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
------------------------------------------------------------------------------------------------------
Legacy Hill $ -- $ 1,148 $ 5,868 $ 7,015 $ 2,872
Hickory Run -- 1,469 11,584 13,053 1,872
Carrington Hills -- 2,117 -- 2,117 24,643
Brookridge -- 708 5,461 6,169 1,277
Club At Hickory Hollow -- 2,140 15,231 17,371 2,045
Breckenridge -- 766 7,714 8,480 860
Williamsburg -- 1,376 10,931 12,307 1,627
Colonnade -- 1,460 16,015 17,475 622
NASHVILLE, TN -- 11,183 72,804 83,987 35,818
Pine Avenue 11,627 2,158 8,888 11,046 262
The Grand Resort -- 8,884 35,707 44,591 808
Grand Terrace -- 2,144 6,595 8,739 1,182
Windward Point -- 1,768 7,118 8,886 316
Rancho Vallecitos -- 3,303 10,877 14,180 980
SOUTHERN CALIFORNIA 11,627 18,258 69,184 87,442 3,547
Beechwood -- 1,409 6,087 7,496 1,041
Steeplechase -- 3,208 11,514 14,722 12,397
Northwinds -- 1,558 11,736 13,293 1,075
Deerwood Crossings -- 1,540 7,989 9,529 1,202
Dutch Village -- 1,198 4,826 6,024 739
Lake Brandt -- 1,547 13,489 15,036 861
Park Forest -- 680 5,770 6,450 602
Deep River Pointe -- 1,671 11,140 12,811 423
GREENSBORO, NC -- 12,810 72,552 85,362 18,341
Dominion Middle Ridge 14,198 3,311 13,283 16,595 1,061
Dominion Lake Ridge 9,142 2,366 8,386 10,753 1,085
Knolls At Newgate -- 1,726 3,530 5,256 1,717
Greens At Falls Run -- 2,731 5,300 8,031 860
Manor At England Run 14,671 3,195 13,505 16,700 12,544
METROPOLITAN DC 38,011 13,329 44,005 57,334 17,266
Cape Harbor -- 1,892 18,113 20,005 1,039
Mill Creek -- 1,404 4,489 5,894 13,497
The Creek -- 418 2,506 2,924 1,737
Forest Hills -- 1,028 5,420 6,448 2,066
Clear Run -- 875 8,741 9,615 5,370
Crosswinds -- 1,096 18,230 19,326 1,094
WILMINGTON, NC -- 6,713 57,500 64,213 24,802
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
----------------------------------------------------------------------------------------------
Legacy Hill $ 1,431 $ 8,457 $ 9,887 $ 2,681 1977 11/06/95
Hickory Run 1,726 13,198 14,924 3,223 1989 12/29/95
Carrington Hills 3,718 23,043 26,761 3,520 1999 12/06/95
Brookridge 928 6,518 7,445 1,795 1986 03/28/96
Club At Hickory Hollow 2,697 16,719 19,416 3,468 1987 02/21/97
Breckenridge 980 8,359 9,340 1,623 1986 03/27/97
Williamsburg 1,641 12,293 13,934 2,021 1986 05/20/98
Colonnade 1,609 16,488 18,097 1,923 1998 01/07/99
NASHVILLE, TN 14,729 105,076 119,805 20,254
Pine Avenue 2,168 9,140 11,308 935 1987 12/07/98
The Grand Resort 8,946 36,453 45,399 4,082 1971 12/07/98
Grand Terrace 2,226 7,695 9,921 783 1986 06/30/99
Windward Point 1,804 7,398 9,202 773 1983 12/07/98
Rancho Vallecitos 3,393 11,767 15,160 1,938 1988 10/13/99
SOUTHERN CALIFORNIA 18,537 72,452 90,989 8,512
Beechwood 1,665 6,872 8,537 2,318 1985 12/22/93
Steeplechase 3,871 23,248 27,119 4,377 1990/97 03/07/96
Northwinds 1,743 12,625 14,368 2,725 1989/97 08/15/96
Deerwood Crossings 1,671 9,060 10,731 2,258 1973 08/15/96
Dutch Village 1,282 5,481 6,763 1,438 1970 08/15/96
Lake Brandt 1,809 14,089 15,898 3,112 1995 08/15/96
Park Forest 864 6,188 7,052 1,266 1987 09/26/96
Deep River Pointe 1,804 11,430 13,234 1,944 1997 10/01/97
GREENSBORO, NC 14,709 88,994 103,703 19,438
Dominion Middle Ridge 3,423 14,232 17,655 3,002 1990 06/25/96
Dominion Lake Ridge 2,511 9,326 11,837 2,180 1987 02/23/96
Knolls At Newgate 1,846 5,126 6,972 1,872 1972 07/01/94
Greens At Falls Run 2,877 6,014 8,891 1,584 1989 05/04/95
Manor At England Run 4,821 24,423 29,244 4,175 1990/2000 05/04/95
METROPOLITAN DC 15,478 59,121 74,599 12,813
Cape Harbor 2,254 18,790 21,043 4,070 1996 08/15/96
Mill Creek 1,911 17,480 19,391 4,058 1986/98 09/30/91
The Creek 489 4,172 4,661 1,945 1973 06/30/92
Forest Hills 1,202 7,313 8,514 2,857 1964/69 06/30/92
Clear Run 1,281 13,705 14,986 3,690 1987/89 07/22/94
Crosswinds 1,210 19,210 20,420 3,684 1990 02/28/97
WILMINGTON, NC 8,346 80,669 89,015 20,305
51
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
--------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
-------------------------------------------------------------------------------------------
Gatewater Landing $ -- $ 2,078 $ 6,085 $ 8,163 $ 1,296
Dominion Kings Place 4,430 1,565 7,007 8,572 914
Dominion At Eden Brook 7,565 2,361 9,384 11,745 1,338
Dominion Great Oaks 11,446 2,919 9,100 12,019 3,483
Dominion Constant Freindship -- 903 4,669 5,572 767
Lakeside Mill 5,570 2,666 10,109 12,775 458
BALTIMORE, MD 29,011 12,493 46,353 58,846 8,256
Stanford Village -- 885 2,808 3,692 1,347
Griffin Crossing -- 1,510 7,544 9,054 1,671
Gwinnett Square 8,851 1,924 7,376 9,301 1,730
Dunwoody Pointe 5,465 2,763 6,903 9,666 4,500
Riverwood 4,797 2,986 11,088 14,074 3,807
Waterford Place -- 1,579 10,303 11,882 478
ATLANTA, GA 19,113 11,647 46,022 57,669 13,533
Briar Club -- 1,214 6,929 8,143 2,290
Hunters Trace -- 888 6,677 7,565 1,555
Cinnamon Trails -- 1,887 7,645 9,531 30
The Trails at Mt. Moriah 17,147 5,931 22,095 28,026 2,899
The Trails at Kirby Parkway 9,945 4,457 12,300 16,757 825
Dogwood Creek -- 2,772 15,674 18,446 842
MEMPHIS, TN 27,092 17,149 71,319 88,467 8,441
Forest Lake At Oyster Point -- 780 8,862 9,642 1,960
Woodscape -- 799 7,210 8,008 2,486
Eastwind -- 155 5,317 5,472 1,343
Dominion Waterside At Lynnhaven -- 1,824 4,107 5,931 1,261
Heather Lake -- 617 3,401 4,017 3,562
Dominion Yorkshire Downs 7,359 1,089 8,582 9,671 742
NORFOLK, VA 7,359 5,263 37,477 42,741 11,354
Gable Hill -- 825 5,307 6,132 1,511
St. Andrews Commons -- 1,429 9,371 10,800 1,762
Forestbrook 5,000 396 2,902 3,298 1,925
Waterford -- 958 6,948 7,906 1,526
Hampton Greene -- 1,363 10,118 11,481 1,458
Rivergate -- 1,123 12,056 13,178 1,252
COLUMBIA, SC 5,000 6,093 46,703 52,795 9,435
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
-----------------------------------------------------------------------------------------
Gatewater Landing $ 2,182 $ 7,277 $ 9,459 $ 2,729 1970 12/16/92
Dominion Kings Place 1,653 7,832 9,485 2,595 1983 12/29/92
Dominion At Eden Brook 2,465 10,618 13,083 3,529 1984 12/29/92
Dominion Great Oaks 4,278 11,224 15,502 4,010 1974 07/01/94
Dominion Constant Freindship 1,043 5,296 6,339 1,426 1990 05/04/95
Lakeside Mill 2,674 10,560 13,233 1,725 1989 12/10/99
BALTIMORE, MD 14,297 52,806 67,102 16,014
Stanford Village 1,182 3,858 5,040 2,088 1985 09/26/89
Griffin Crossing 1,869 8,857 10,725 2,798 1987/89 06/08/94
Gwinnett Square 2,200 8,831 11,030 2,379 1985 03/29/95
Dunwoody Pointe 3,324 10,842 14,167 3,562 1980 10/24/95
Riverwood 3,429 14,452 17,880 4,067 1980 06/26/96
Waterford Place 1,649 10,711 12,360 1,482 1985 04/15/98
ATLANTA, GA 13,652 57,550 71,202 16,377
Briar Club 1,564 8,869 10,433 2,754 1987 10/14/94
Hunters Trace 1,186 7,934 9,120 2,412 1986 10/14/94
Cinnamon Trails 2,089 7,473 9,561 1,272 1989 01/09/98
The Trails at Mt. Moriah 6,477 24,447 30,924 4,379 1990 01/09/98
The Trails at Kirby Parkway 4,650 12,932 17,582 2,022 1990 01/09/98
Dogwood Creek 2,986 16,302 19,287 2,707 1997 02/06/98
MEMPHIS, TN 18,951 77,957 96,909 15,546
Forest Lake At Oyster Point 1,167 10,435 11,602 2,938 1986 08/15/95
Woodscape 1,800 8,694 10,494 4,416 1974/76 12/29/87
Eastwind 378 6,436 6,814 2,863 1970 04/04/88
Dominion Waterside At Lynnhaven 2,033 5,158 7,191 1,442 1966 08/15/96
Heather Lake 1,016 6,564 7,580 4,728 1972/74 03/01/80
Dominion Yorkshire Downs 1,250 9,163 10,413 1,492 1987 12/23/97
NORFOLK, VA 7,644 46,451 54,095 17,879
Gable Hill 1,189 6,455 7,643 2,900 1985 12/04/89
St. Andrews Commons 1,877 10,685 12,562 3,788 1986 05/20/93
Forestbrook 654 4,569 5,223 2,176 1974 07/01/93
Waterford 1,264 8,167 9,432 2,527 1985 07/01/94
Hampton Greene 1,895 11,045 12,940 3,202 1990 08/19/94
Rivergate 1,437 12,993 14,430 2,744 1989 08/15/96
COLUMBIA, SC 8,316 53,913 62,230 17,337
52
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
-------------------------------------------------------------------------------------------
2900 Place $ -- $ 1,819 $ 5,593 $ 7,412 $ 264
Brandywine Creek 11,999 4,666 17,514 22,180 (2,417)
Lakewood 3,171 1,113 3,878 4,991 231
Nemoke Trail 9,719 3,431 12,223 15,654 353
LANSING, MI 24,889 11,029 39,208 50,237 (1,569)
Greentree 12,455 1,634 11,227 12,861 3,938
Westland 10,747 1,835 14,865 16,699 3,846
Antlers -- 4,034 11,193 15,227 5,758
JACKSONVILLE, FL 23,202 7,503 37,285 44,787 13,542
Arbor Terrace 4,124 1,453 11,995 13,448 571
Crowne Pointe 4,765 2,486 6,437 8,924 1,065
Hilltop 4,422 2,174 7,408 9,582 441
SEATTLE, WA 13,311 6,114 25,840 31,953 2,077
Sunset Point, Las Vegas, NV -- 4,295 15,705 20,000 1,301
Greensview, Aurora, CO -- 2,974 12,490 15,464 617
Mountain View, Aurora, CO -- 6,402 21,569 27,971 1,473
Foothills Tennis Village,
Roseville, CA 11,339 3,618 14,542 18,160 516
Woodlake Village, Sacramento, CA 30,900 6,772 26,967 33,739 1,339
Silk Oak, Fresno, CA -- 2,325 4,566 6,891 259
OTHER WESTERN 42,239 26,385 95,839 122,225 5,504
Mallards Of Wedgewood, Lakeland, FL -- 959 6,865 7,824 1,746
Brantley Pines, Ft. Myers, FL -- 1,893 8,248 10,141 4,982
Santa Barbara, Naples, FL -- 1,134 8,020 9,154 1,728
Ashlar, Ft. Myers, FL -- 3,952 11,718 15,670 16,489
The Groves, Port Orange, FL -- 790 4,767 5,557 1,779
Lakeside, Port Orange, FL -- 2,404 6,420 8,824 1,345
Mallards Of Brandywine, Deland, FL -- 766 5,408 6,174 1,177
LakePointe, Melbourne, FL -- 1,434 4,940 6,375 2,244
OTHER FLORIDA -- 13,333 56,385 69,719 31,490
Lancaster Commons, Salem, OR 6,268 2,485 7,451 9,936 387
Tualatin Heights, Tualatin, OR 8,608 3,273 9,134 12,407 711
University Park, Portland, OR -- 3,007 8,191 11,199 361
Evergreen Park, Vancouver, WA 5,174 3,878 9,973 13,851 643
Aspen Creek, Puyallup, WA 6,832 1,178 9,116 10,294 260
Beaumont, Tacoma, WA 9,817 2,339 12,559 14,898 446
Campus Commons, Pullman, WA 8,907 1,143 12,873 14,016 (2,254)
OTHER PACIFIC 45,605 17,304 69,298 86,601 555
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
------------------------------------------------------------------------------------------
2900 Place $ 1,823 $ 5,853 $ 7,676 $ 621 1966 12/07/98
Brandywine Creek 4,748 15,015 19,763 1,821 1974 12/07/98
Lakewood 1,231 3,991 5,222 502 1974 12/07/98
Nemoke Trail 3,495 12,512 16,007 1,453 1978 12/07/98
LANSING, MI 11,298 37,370 48,668 4,397
Greentree 2,343 14,456 16,799 4,554 1986 07/22/94
Westland 2,668 17,877 20,546 4,737 1990 05/09/96
Antlers 4,903 16,082 20,985 4,668 1985 05/28/96
JACKSONVILLE, FL 9,914 48,415 58,329 13,959
Arbor Terrace 1,482 12,537 14,019 1,903 1996 03/27/98
Crowne Pointe 2,520 7,469 9,989 968 1987 12/07/98
Hilltop 2,313 7,710 10,023 905 1985 12/07/98
SEATTLE, WA 6,315 27,716 34,031 3,775
Sunset Point, Las Vegas, NV 4,450 16,851 21,301 3,113 1990 12/31/96
Greensview, Aurora, CO 2,452 13,629 16,081 1,610 1987 12/07/98
Mountain View, Aurora, CO 6,350 23,095 29,445 2,756 1973 12/07/98
Foothills Tennis Village,
Roseville, CA 3,709 14,966 18,675 1,596 1988 12/07/98
Woodlake Village, Sacramento, CA 6,981 28,097 35,078 3,209 1979 12/07/98
Silk Oak, Fresno, CA 2,368 4,782 7,150 875 1985 12/07/98
OTHER WESTERN 26,310 101,419 127,729 13,159
Mallards Of Wedgewood, Lakeland, FL 1,252 8,318 9,570 2,378 1985 07/27/95
Brantley Pines, Ft. Myers, FL 835 14,287 15,122 4,983 1986 08/11/94
Santa Barbara, Naples, FL 1,740 9,142 10,882 2,920 1987 09/01/94
Ashlar, Ft. Myers, FL 7,592 24,567 32,159 2,797 1999/2000 12/24/97
The Groves, Port Orange, FL 1,444 5,892 7,336 1,891 1989 12/13/95
Lakeside, Port Orange, FL 2,585 7,585 10,169 1,537 1985 07/01/97
Mallards Of Brandywine, Deland, FL 990 6,361 7,351 1,369 1985 07/01/97
LakePointe, Melbourne, FL 1,778 6,841 8,619 2,699 1984 09/24/93
OTHER FLORIDA 18,216 82,992 101,208 20,574
Lancaster Commons, Salem, OR 2,507 7,816 10,323 1,020 1992 12/07/98
Tualatin Heights, Tualatin, OR 3,370 9,748 13,118 1,269 1989 12/07/98
University Park, Portland, OR 3,020 8,540 11,560 997 1987 03/27/98
Evergreen Park, Vancouver, WA 3,915 10,579 14,494 1,460 1988 03/27/98
Aspen Creek, Puyallup, WA 1,264 9,290 10,554 1,038 1996 12/07/98
Beaumont, Tacoma, WA 2,389 12,955 15,344 1,881 1996 06/14/00
Campus Commons, Pullman, WA 1,224 10,538 11,763 1,913 1972 03/27/98
OTHER PACIFIC 17,688 69,468 87,156 9,578
53
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
---------------------------- TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
--------------------------------------------------------------------------------------------
Washing Park, Centerville, OH $ -- $ 2,012 $ 7,565 $ 9,577 $ 1,030
Fountainhead, Dayton, OH 1,485 391 1,420 1,811 134
Jamestown Of Toledo, Toledo, OH 5,764 1,800 7,054 8,854 640
Sunset Village, Flint, MI -- 797 1,829 2,626 199
American Heritage, Waterford, MI 3,097 1,021 3,958 4,979 122
Ashton Pines, Waterford, MI -- 1,822 8,014 9,836 498
Kings Gate, Sterling Heights, MI 3,767 1,181 4,828 6,009 196
Lancaster Lake, Clarkston, MI 11,957 4,238 14,663 18,901 793
International Village, Speedway, IN 10,078 3,934 11,479 15,413 1,185
Regency Park South, Indianapolis, IN -- 2,643 7,632 10,275 725
OTHER MIDWESTERN 36,148 19,839 68,442 88,281 5,522
Colony Village, New Bern, NC -- 346 3,037 3,383 1,968
Brynn Marr, Jacksonville, NC -- 433 3,822 4,254 2,589
Liberty Crossing, Jacksonville, NC -- 840 3,873 4,713 2,898
Bramblewood, Goldsboro, NC -- 402 3,151 3,552 1,556
Cumberland Trace, Fayetteville, NC -- 632 7,896 8,528 835
Village At Cliffdale,
Fayetteville, NC 9,876 941 15,498 16,440 1,196
Morganton Place, Fayetteville, NC -- 819 13,217 14,036 616
Woodberry, Asheville, NC -- 389 6,381 6,770 1,118
OTHER NORTH CAROLINA 9,876 4,802 56,874 61,677 12,776
Pecan Grove, Austin, TX -- 1,407 5,293 6,700 470
Anderson Mill, Austin, TX 9,765 3,135 11,170 14,305 3,232
Red Stone Ranch, Cedar Park, TX -- 1,897 17,526 19,422 --
Turtle Creek, Little Rock, AR -- 1,913 7,087 9,000 995
Shadow Lake, Little Rock, AR -- 2,524 8,976 11,500 1,433
Desert Springs, Tuscan, AZ 4,382 1,118 7,094 8,213 685
Posada Del Rio, Tuscan, AZ -- 844 4,288 5,132 (329)
Alvarado, Albuquerque, NM -- 1,930 5,970 7,900 700
Dorado Heights, Albuquerque, NM 4,955 1,568 6,555 8,123 654
OTHER SOUTHWESTERN 19,102 16,335 73,960 90,295 7,841
Greens At Hollymead,
Charlottesville, VA -- 965 5,250 6,215 679
Brittingham Square, Salisbury, MD -- 650 4,962 5,612 666
Greens At Schumaker Pond,
Salisbury, MD -- 710 6,118 6,827 927
Greens At Cross Court, Easton, MD -- 1,182 4,544 5,726 1,052
Greens At Hilton Run, Lexington
Park, MD 12,542 2,754 10,483 13,237 1,454
OTHER MID-ATLANTIC 12,542 6,262 31,357 37,618 4,778
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
------------------------------------------------------------------------------------------
Washing Park, Centerville, OH $ 2,115 $ 8,491 $ 10,607 $ 1,162 1998 12/07/98
Fountainhead, Dayton, OH 391 1,555 1,945 201 1966 12/07/98
Jamestown Of Toledo, Toledo, OH 1,892 7,603 9,494 919 1965 12/07/98
Sunset Village, Flint, MI 814 2,011 2,825 350 1940 12/07/98
American Heritage, Waterford, MI 1,031 4,070 5,101 476 1968 12/07/98
Ashton Pines, Waterford, MI 1,846 8,489 10,334 889 1987 12/07/98
Kings Gate, Sterling Heights, MI 1,218 4,987 6,205 551 1973 12/07/98
Lancaster Lake, Clarkston, MI 4,316 15,378 19,693 1,724 1988 12/07/98
International Village, Speedway, IN 3,999 12,599 16,598 1,754 1968 12/07/98
Regency Park South, Indianapolis, IN 2,713 8,287 11,000 1,123 1968 12/07/98
OTHER MIDWESTERN 20,332 73,471 93,803 9,149
Colony Village, New Bern, NC 560 4,791 5,351 3,026 1972/74 12/31/84
Brynn Marr, Jacksonville, NC 724 6,120 6,844 3,681 1973/77 12/31/84
Liberty Crossing, Jacksonville, NC 1,419 6,192 7,611 3,680 1972/74 11/30/90
Bramblewood, Goldsboro, NC 588 4,521 5,109 2,813 1980/82 12/31/84
Cumberland Trace, Fayetteville, NC 668 8,694 9,362 1,845 1973 08/15/96
Village At Cliffdale,
Fayetteville, NC 1,123 16,513 17,636 3,309 1992 08/15/96
Morganton Place, Fayetteville, NC 887 13,765 14,652 2,632 1994 08/15/96
Woodberry, Asheville, NC 655 7,233 7,888 1,674 1987 08/15/96
OTHER NORTH CAROLINA 6,623 67,830 74,453 22,659
Pecan Grove, Austin, TX 1,464 5,706 7,170 1,008 1984 12/31/96
Anderson Mill, Austin, TX 3,478 14,059 17,537 3,552 1984 03/27/97
Red Stone Ranch, Cedar Park, TX 5,380 14,043 19,422 744 2000 06/14/00
Turtle Creek, Little Rock, AR 2,189 7,806 9,995 1,664 1985 12/31/96
Shadow Lake, Little Rock, AR 2,850 10,082 12,933 2,218 1984 12/31/96
Desert Springs, Tuscan, AZ 1,136 7,762 8,898 1,145 1985 03/27/98
Posada Del Rio, Tuscan, AZ 942 3,861 4,803 730 1980 03/27/98
Alvarado, Albuquerque, NM 1,978 6,622 8,600 1,340 1984 12/31/96
Dorado Heights, Albuquerque, NM 1,627 7,150 8,777 1,078 1986 03/27/98
OTHER SOUTHWESTERN 21,044 77,092 98,136 13,479
Greens At Hollymead,
Charlottesville, VA 1,058 5,837 6,895 1,491 1990 05/04/95
Brittingham Square, Salisbury, MD 814 5,465 6,279 1,431 1991 05/04/95
Greens At Schumaker Pond,
Salisbury, MD 871 6,883 7,754 1,780 1988 05/04/95
Greens At Cross Court, Easton, MD 1,363 5,416 6,779 1,445 1987 05/04/95
Greens At Hilton Run, Lexington
Park, MD 3,083 11,608 14,691 2,976 1988 05/04/95
OTHER MID-ATLANTIC 7,188 35,208 42,397 9,123
54
SCHEDULE III
SUMMARY OF REAL ESTATE OWNED
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
------------------------------ TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
-------------------------------------------------------------------------------------------
Jamestown Of St. Matthews, St
Matthews, KY $ 10,943 $ 3,866 $ 14,422 $ 18,288 $ 922
Patriot Place, Florence, SC 2,200 213 1,601 1,813 5,744
River Place, Macon, GA 6,142 1,097 7,492 8,590 2,071
OTHER SOUTHEASTERN 19,285 5,175 23,516 28,691 8,737
Dover Country, Dover, DE -- 2,008 6,365 8,373 2,636
Greens At Cedar Chase, Dover, DE 5,167 1,529 4,831 6,359 751
OTHER NORTHEASTERN 5,167 3,537 11,196 14,732 3,386
-------------------------------------------------------------------------------------------
TOTAL APARTMENTS $ 966,960 $ 593,463 $2,682,180 $3,275,643 $ 562,869
===========================================================================================
REAL ESTATE UNDER DEVELOPMENT
ADDITIONS TO EXISTING COMMUNITIES
Greensview II, Aurora, CO $ -- $ 3,476 $ 11,915 $ 15,391 $ --
Meridian II, Carrollton, TX -- 2,370 9,600 11,970 --
Copper Mill II -- 831 -- 831 --
Parkers Landing II -- 1,116 -- 1,116 --
Parke 33 Apartments II -- 1,646 -- 1,646 --
Wimbledon Court II -- 667 -- 667 --
Coit Road -- 2,849 -- 2,849 --
Mandolin II -- 1,351 -- 1,351 --
Coit Road II -- 1,861 -- 1,861 --
Kenton Place II -- 483 -- 483 --
Mountain View II -- 220 -- 220 --
2000 Post III -- 1,855 -- 1,855 --
LAND HELD FOR FUTURE DEVELOPMENT -- 12,879 -- 12,879 --
-------------------------------------------------------------------------------------------
$ -- $ 18,725 $ 21,515 $ 40,240 $ --
-------------------------------------------------------------------------------------------
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
----------------------------------------------------------------------------------------------
Jamestown Of St. Matthews, St
Matthews, KY $ 3,975 $ 15,235 $ 19,210 $ 1,754 1968 12/07/98
Patriot Place, Florence, SC 1,506 6,052 7,557 3,852 1974 10/23/85
River Place, Macon, GA 1,796 8,864 10,660 3,093 1988 04/08/94
OTHER SOUTHEASTERN 7,276 30,151 37,428 8,699
Dover Country, Dover, DE 2,359 8,650 11,009 2,990 1970 07/01/94
Greens At Cedar Chase, Dover, DE 1,722 5,388 7,110 1,495 1988 05/04/95
OTHER NORTHEASTERN 4,082 14,037 18,119 4,485
-------------------------------------------------------------------
TOTAL APARTMENTS $ 692,575 $3,145,937 $3,838,512 $ 642,334
===================================================================
REAL ESTATE UNDER DEVELOPMENT
ADDITIONS TO EXISTING COMMUNITIES
Greensview II, Aurora, CO $ 3,476 $ 11,915 $ 15,391 $ -- 2000 12/07/98
Meridian II, Carrollton, TX 2,370 9,600 11,970 -- 2000 01/27/98
Copper Mill II 831 -- 831 --
Parkers Landing II 1,116 -- 1,116 --
Parke 33 Apartments II 1,646 -- 1,646 --
Wimbledon Court II 667 -- 667 --
Coit Road 2,849 -- 2,849 --
Mandolin II 1,351 -- 1,351 --
Coit Road II 1,861 -- 1,861 --
Kenton Place II 483 -- 483 --
Mountain View II 220 -- 220 --
2000 Post III 1,855 -- 1,855 --
LAND HELD FOR FUTURE DEVELOPMENT 12,879 -- 12,879 --
-------------------------------------------------------------------
$ 18,725 $ 21,515 $ 40,240 $ --
-------------------------------------------------------------------
55
SCHEDULE III
SUMMARY OF REAL ESTATE
(IN THOUSANDS)
INITIAL COSTS IMPROVEMENTS
------------------------------ TOTAL CAPITALIZED
LAND AND BUILDINGS INITIAL SUBSEQUENT
LAND AND ACQUISITION TO ACQUISITION
ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS (a) (NET OF DISPOSALS)
-------------------------------------------------------------------------------------------
LAND HELD FOR DISPOSITION
Copperfield $ -- $ 1,620 $ -- $ 1,620 $ --
Copperfield II -- 1,144 -- 1,144 --
Palazzo -- 3,251 -- 3,251 (767)
Fossil Creek -- 3,889 -- 3,889 (289)
COMMERCIAL PROPERTY
Hanover Village -- 1,624 -- 1,624 --
Gloucester Exchange -- 403 2,279 2,682 646
Tri-County -- 276 900 1,176 1,310
Pacific South Center 3,221 1,000 4,000 5,000 10
Richmond Corporate 3,996 245 6,352 6,597 1,022
-------------------------------------------------------------------------------------------
$ 7,217 $ 13,452 $ 13,531 $ 26,983 $ 1,932
===========================================================================================
TOTAL REAL ESTATE -------------------------------------------------------------------------------------------
OWNED $ 974,177 $ 625,640 $2,717,226 $3,342,866 $ 564,801
===========================================================================================
GROSS AMOUNT AT
WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------- TOTAL
LAND AND BUILDINGS CARRYING ACCUMULATED
LAND AND VALUE DEPRECIATION DATE OF DATE
IMPROVEMENTS IMPROVEMENTS (b) (c) CONSTRUCTION ACQUIRED
-----------------------------------------------------------------------------------------------------
LAND HELD FOR DISPOSITION
Copperfield $ 1,620 $ -- $ 1,620 $ -- $
Copperfield II 1,144 -- 1,144 --
Palazzo 2,484 -- 2,484 --
Fossil Creek 3,600 -- 3,600 --
COMMERCIAL PROPERTY
Hanover Village 1,104 520 1,624 450 -- 06/30/86
Gloucester Exchange 608 2,720 3,328 1,419 1974 11/12/87
Tri-County 364 2,122 2,486 1,362 1976/79 01/21/81
Pacific South Center 1,000 4,010 5,010 426 1965 08/28/86
Richmond Corporate 273 7,346 7,619 375 1999 11/30/99
---------------------------------------------------------------------
$ 12,197 $ 16,718 $ 28,915 $ 4,032
=====================================================================
TOTAL REAL ESTATE ---------------------------------------------------------------------
OWNED $ 723,497 $3,184,170 $3,907,667 $ 646,366
=====================================================================
a Includes a purchase price adjustment of $8.5 million.
b The aggregate cost for federal income tax purposes was approximately $3.1
billion at December 31, 2001.
c The depreciable life for all buildings is 35 years.
56