UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-10524 ------- UNITED DOMINION REALTY TRUST, INC. ---------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-0857512 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 10 South Sixth Street, Richmond, Virginia 23219-3802 - ------------------------------------------------------------------------------ (Address of principal executive offices - zip code) (804) 780-2691 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: <TABLE> <CAPTION> Title of each class Name of exchange on which registered - ------------------- ------------------------------------ <S> <C> Common Stock, $1 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 9.25% Series A Cumulative Redeemable Preferred Stock New York Stock Exchange 8.60% Series B Cumulative Redeemable Preferred Stock New York Stock Exchange 7.50% Series D Cumulative Convertible Redeemable Preferred Stock None </TABLE> Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference into Part III of this Form 10-K ( ). The aggregate market value of the shares of common stock held by non-affiliates (based upon the closing sales price on the New York Stock Exchange) on March 2, 1999 was approximately $1 billion. * As of March 21, 2000 there were 103,127,425 shares of common stock, $1 par value, outstanding. Part III incorporates certain information by reference from the Proxy Statement to be filed with respect to the Annual Meeting of Shareholders on May 9, 2000. *In determining this figure, the Company has assumed that all of its officers & directors, and persons known to the Company to be beneficial owners of more than 5% of the Company's shares, are affiliates. Such assumptions should not be deemed conclusive for any other purpose.
UNITED DOMINION REALTY TRUST, INC. TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> PART I. Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 18 Item 6. Selected Financial Data 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 34 Item 8. Financial Statements and Supplementary Data 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34 PART III. Item 10. Directors and Executive Officers of the Registrant 35 Item 11. Executive Compensation 35 Item 12. Security Ownership of Certain Beneficial Owners and Management 35 Item 13. Certain Relationships and Related Transactions 35 PART IV. Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 36 </TABLE> 2
Part I Item 1. BUSINESS - ----------------- General United Dominion Realty Trust, Inc. ("United Dominion"), a Virginia corporation, is a self-administered equity real estate investment trust with activities related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities nationwide. Formed in 1972, United Dominion is headquartered in Richmond, Virginia with regional offices in Richmond, Dallas and Atlanta. The regional offices are responsible for the operation, acquisition, construction and asset management activities in their respective geographic regions. United Dominion had approximately 2,400 employees as of January 31, 2000. The Company operates as a real estate investment trust under the applicable provisions of the Internal Revenue Code of 1986, as amended. To qualify, the Company must meet certain tests which, among other things, require that its assets consist primarily of real estate, its income be derived primarily from real estate and at least 95% of its taxable income be distributed to its common shareholders. Because the Company qualifies as a REIT, it is generally not subject to federal income taxes. Business and Operating Strategies The apartment industry has become increasingly competitive, as ownership has shifted to large companies with more resources and sophisticated management. In order to compete more effectively, United Dominion began a strategic repositioning in 1996, with the objective of being better positioned to achieve more consistent earnings growth in the future in order to increase shareholder value over the long-term. During the past several years, United Dominion implemented this strategy through the following: . the acquisition of portfolios and mergers with companies primarily in different markets and different regions; . the disposition of communities that do not meet the long-term strategic objectives set for the portfolio due to location, size, age, quality and/ or operating performance; . the development of higher quality apartment communities in target markets that can provide higher returns on investment; . the upgrade of our communities through various capital investments and through the addition of revenue enhancing and/or expense reducing features; . building local operating management groups throughout the country in order to bring local market knowledge in order to run our business effectively; . refocusing on serving our residents by providing high quality apartment homes and uncompromising service; . the hiring of experienced corporate and operations staff; and . the investment in efficient, scalable systems. United Dominion believes that the repositioning strategy provides the following benefits: . more consistent property net operating income growth; . lower capital expenditures per apartment home; . improved operating margins; 3
. operating efficiencies; . increased cash flow per apartment home and per common share; and . a balance between acquisitions and development that will provide better investment returns. 1999 Accomplishments . Net operating income (property operating income less property operating expenses) from our same communities (those acquired or developed prior to January 1, 1998) increased 5.6% in 1999 compared to 1998; the third consecutive year same community net operating income growth has exceeded 5%; . Completed seven development projects aggregating $120 million with 1,846 apartment homes in five different markets. Lease-ups were generally ahead of projected absorption at these communities; . Return on investment of the American Apartment Communities II acquisition that occurred in December 1998 of 9.1%, which is better than the initial projection of 9.0%; . Completed the disposition of $241 million of apartment homes that no longer met our investment criteria, which included exiting certain non-core markets including Greenville, South Carolina; . Instituted a share repurchase program, which resulted in the buyback of $44 million of common and preferred stock and operating partnership units (OP Units); . Repurchased $70 million of higher rate debt using proceeds from the disposition program in order to proactively manage the balance sheet; . Paid dividends of $1.06 per share, which represents United Dominion's 23rd year of consecutive dividend increases to shareholders; . Systems upgrades and technology initiatives that make United Dominion a leader in the apartment industry, which included the installation of the PeopleSoft financial system, the ongoing development of a web-based property management system and the ability to provide high-speed broadband Internet service to residents; . Concluded the upgrade of our core portfolio of apartments, which included the addition of new features and enhanced amenities to attract resident customers; and . Higher resident satisfaction as indicated by United Dominion winning the 1999 Level 1 National Multifamily Customer Service Award for Excellence. Apartments and Markets Apartments At December 31, 1999, United Dominion's apartment portfolio included 301 communities having a total of 82,154 completed apartment homes (See Item 2, Properties). In addition, United Dominion had three new communities and three additional phases to existing communities with 1,622 apartment homes under development at December 31, 1999. United Dominion's apartment communities consist primarily of upper and middle-income garden and townhouse communities that make up the broadest segment of the apartment market. Most of the communities are considered to be "A" and "B" grade quality that compete at or near the top of their respective markets. "A" grade communities are generally properties less than five years old with superior amenity packages. "B" grade communities are generally either of 1970's or 1980's construction, located in good neighborhoods. Management believes that these well-located apartments offer United Dominion a good combination of current income and longer-term income growth. As a result of the upgrade program, the overall quality of United Dominion's apartment portfolio has improved. 4
Markets Geographic market diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability of United Dominion's earnings growth. In a given year, United Dominion will have some markets that are strong or recovering, some will be balanced and others may be softening. However, with its market diversification, United Dominion's aggregate results of operations are anticipated to be balanced from year to year. During 1999, for the first time in United Dominion's history, we operated a national portfolio of apartment homes. In 1999, West Coast markets, including Seattle, Portland, Sacramento, San Francisco, the Monterey Peninsula and Southern California, became important markets for United Dominion, providing almost 20% of its property operating income by the fourth quarter. These markets have barriers to apartment construction, which limits new supply and offers the prospect for higher revenue growth in the future. In addition, new Midwest markets, including Columbus, Detroit and Indianapolis, provided another 8% of our property operating income. Most of the West and Midwest markets provided occupancy rates above the average of the portfolio during 1999. As a result of the geographic diversification, no single market is expected to provide more than 10% of our property net operating income in 2000. United Dominion's three largest markets, Dallas, Houston and Orlando, provided above average rent growth in 1999. Although there has been an increase in multifamily permits in these markets, they have benefited from strong economic and job growth during the past several years. During 1999, apartment supply and demand was in relative balance in most of United Dominion's markets. Although there was an increase in apartment construction in 1999, a strong economy led to good absorption of the new supply of apartments. In 1999, United Dominion experienced a slight increase in physical occupancy to 92.6% along with higher rent growth. A key objective for 2000 will be to grow average occupancy during a time when economic growth may slow slightly and new apartment home completions are near the levels where they have been the past two years. This can be achieved through aggressive property management, use of the Internet to lease apartments and use of revenue maintenance tools to manage vacant inventory. Acquisitions and Mergers During the past five years, United Dominion acquired 65,000 apartment homes as part of our strategy to diversify geographically. However, this pace slowed during 1999, with acquisitions being funded with disposition proceeds in order to complete 1031 tax-deferred exchanges. During 1999, using the proceeds from its disposition program, United Dominion acquired five communities with 1,230 apartment homes at a total cost of $74 million. The communities are located in markets that are considered strategically important to United Dominion, such as Baltimore, Maryland, South Florida and Riverside and San Diego, California where we have locally based infrastructure. When evaluating potential acquisitions, United Dominion considers geographic location, construction quality, condition and design of the community, asset quality and age of the property, current and projected cash flow of the property, the ability to increase the value and cash flow of the property through upgrades and repositioning, potential for rent increases, competition from existing multifamily communities, anticipated new construction and the potential for economic growth in the market. The following table summarizes United Dominion's growth during the last five years (dollars in thousands): <TABLE> <CAPTION> 1999 1998 (a) 1997 1996 (b) 1995 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Homes acquired 1,230 28,510 8,628 22,032 5,142 Homes owned at December 31, 82,154 86,893 62,789 55,664 34,224 Total real estate owned, at carrying value $3,953,045 $3,952,752 $2,517,398 $2,099,641 $1,205,685 Total rental income $ 618,749 $ 478,718 $ 386,672 $ 241,260 $ 194,511 </TABLE> (a) Includes 7,550 apartment homes acquired in the ASR Merger on March 27, 1998 and 14,001 apartment homes acquired in the AAC Merger on December 7, 1998. (b) Includes 14,320 completed apartment homes and 675 homes under development acquired in connection with the South West Merger on December 31, 1996. 5
During 2000, United Dominion does not anticipate acquiring communities except to reinvest a portion of the proceeds from property sales. Prior to 1990, United Dominion was the only major publicly held REIT focusing predominantly on apartment investments. Since then, a number of new multifamily REITs have been formed. Some of these REITs may seek to be acquired by larger, more strongly capitalized REITs that have superior access to the capital markets. During the past few years, the apartment sector has undergone consolidation and United Dominion has been a major participant in this real estate consolidation process, completing the following mergers: On December 31, 1996, United Dominion completed the acquisition of South West Property Trust Inc. ("South West") in a statutory merger (the "South West Merger"). South West was a publicly traded multifamily REIT that owned 44 communities with 14,320 apartment homes primarily located in Texas and several other Southwestern markets. The South West Merger provided the company with significant diversification beyond its traditional Southeast and Mid-Atlantic markets, expanding United Dominion into Southwestern markets. On March 27, 1998, United Dominion completed the acquisition of ASR Investments Corporation ("ASR") in a statutory merger (the "ASR Merger"). ASR was a publicly traded multifamily REIT that owned 39 communities with 7,550 apartment homes located in Arizona, Texas, New Mexico and the state of Washington. The ASR Merger furthered the company's investment in Southwestern markets, provided an initial presence in the Pacific Northwest, and provided United Dominion with critical size in Houston and Phoenix. On December 7, 1998, United Dominion completed the acquisition of American Apartment Communities II, Inc. (AAC) in a statutory merger (the "AAC Merger"). In connection with the acquisition of AAC, the Company acquired 53 communities with 14,001 apartment homes located primarily in California, the Pacific Northwest, the Midwest and Florida. The AAC Merger allowed United Dominion to enter into new major markets that are believed to have the potential for good long-term growth, such as, Portland, San Francisco, Sacramento, San Jose, Monterey, Los Angeles, Denver, Indianapolis and Detroit. In addition, it added size to our existing portfolios in Columbus, Tampa, South Florida and Seattle. Development During 1999, United Dominion continued to expand its development capability, both as a way of upgrading the portfolio and increasing investment options. There is balance between acquisition and development capabilities that will allow United Dominion to achieve better long-term investment returns. During 1999, United Dominion continued its commitment to development as part of its strategic repositioning, shifting capital into development activity which can provide returns on investment (property operating income less property operating expenses divided by the average investment in real estate) in excess of 10% and away from lower yielding acquisitions. During 1999, United Dominion invested $114 million on the development of over 1,500 apartment homes, up from 890 homes completed during 1998. United Dominion believes that having a development capability provides the following benefits: . returns on investment in excess of returns on acquisitions; . control over the quality of the product which includes quality of features, size and floor plan; . by acting as our own general contractor, we have more control over the schedule, including building delivery; and . the ability to add presence in existing markets where we have a strong operating group in place. During 2000, we plan to undertake a development joint venture with a financial partner. This will allow us to reduce our development capital commitment, generate fee income as the general contractor and developer and continue to increase our development expertise and capability. 6
In determining whether to develop in a certain market, United Dominion analyzes demographic and market data such as income levels, occupancy rates, household formation, employment growth and supply demand ratios. Same Communities United Dominion's net income is primarily generated from the operations of its apartment communities. During 1999, the company's same communities provided rental growth of 3.1% that was coupled with a 0.6% decrease in rental expenses. Average physical occupancy, rental rates, and operating margins at United Dominion's same communities during the comparable periods are set forth below: 1999 1998 1997 ------ ------ ------ Physical occupancy 93.1% 92.9% 92.6% Average monthly rental rates $ 631 $ 602 $ 572 Operating margin 61.3% 59.6% 57.3% Over the past three years, United Dominion's strategic objectives include upgrading the apartment portfolio through the addition of features and initiatives to the communities that are appropriate for the market and which will support higher rents. United Dominion completed the same community upgrade program in 1999 as part of the strategic plan to improve the overall quality of the portfolio. United Dominion recognized the need to improve its asset quality in order to compete with an increase in the supply of newer communities, and consequently, embarked on the upgrade program. In addition, several initiatives which are considered revenue enhancing or expense reducing were underway that either allowed United Dominion to increase rents by more than the inflationary rate or allowed United Dominion to pass expenses to residents including: sub- metering of water and sewer to residents where local and state regulations allow, gating and fencing of apartment communities, installing monitoring devices such as intrusion alarms or controlled access devices, adding business and fitness centers and constructing carports, garages and self storage units. Capital expenditures decreased from 1998 as the overall age and physical condition of the apartment portfolio has improved. Dispositions As part of its strategic repositioning, United Dominion determined that it would selectively dispose of assets that are not in core markets, have a lower net operating income growth rate than the overall portfolio or no longer meet the operating and investment strategies of United Dominion. The disposition program allowed United Dominion to reduce the age of its existing portfolio, which should result in lower operating expense and capital expenditure growth associated with the older communities. During 1999, the focus of United Dominion's investment activities was the sale of non-strategic properties. During the past three years, United Dominion sold approximately 15,000 of its slow-growth, non-core apartment homes while exiting certain markets which have proved to be less profitable. These sales allowed United Dominion to exit markets that had low growth opportunities and improve the average age of the apartment portfolio by selling communities with an average age of 25 years. Proceeds from the disposition program were used to strengthen the balance sheet by paying down debt, as well as to fund new development projects and to selectively repurchase shares of United Dominion's preferred and common stock. At December 31, 1999, there were 37 communities with 7,182 apartment homes and four commercial properties classified as real estate held for disposition. United Dominion intends to sell 6,000 to 7,000 apartment homes during 2000, which will substantially complete the sale of its non-strategic assets. However, a REIT must constantly monitor and adjust its assets in order to achieve the best return on invested capital. Proceeds from the 2000 sales, expected to be at levels similar to 1999, are expected to be used to reduce debt, repurchase preferred shares, fund development activity and acquire communities through 1031 exchanges. Financing United Dominion's significant 1998 acquisition activity was financed primarily with debt, and to a lesser extent, preferred stock and Operating Partnership Units. Since completing these acquisitions, United Dominion's objective has been to maintain Baa2/BBB investment grade debt ratings and to improve its overall financial flexibility through proactive balance sheet management. 7
During the first half of 1999 United Dominion refinanced a significant portion of the debt that resulted from the 1998 acquisitions. During 1999, our two major financing activities consisted of selling $190 million of medium-term notes at a weighted average interest rate of 7.6% and closing on $195.7 million of a $200 million revolving credit facility with the Federal National Mortgage Association that had a weighted average interest rate of 6.3% at December 31, 1999. During 1999, $141 million of the proceeds from the disposition program were used to repay $70 million of unsecured debt at a weighted average interest rate of 7.7% and to repurchase $43.5 million of common and preferred shares and OP Units. In addition, United Dominion was relieved of $57.7 million of mortgage debt. We expect to use a significant portion of our 2000 disposition proceeds to repay debt and repurchase common shares and Operating Partnership Units and further increase our financial flexibility. Competition In most of United Dominion's markets, the competition for residents among communities is extremely intense as some competing communities offer features that United Dominion's communities do not have. Also, some competing communities are larger and/or newer than United Dominion's communities. The competitive situation of each community varies and intensifies as additional properties are constructed. Management believes that United Dominion, in general, is well positioned in terms of economic and other resources to compete effectively and intends to maintain its pricing discipline while continuing to pursue acquisitions that meet United Dominion's long-term investment objectives. United Dominion believes it has certain competitive advantages that include: . A fully integrated organization with property management, development, acquisition, redevelopment, marketing and financing expertise; . geographic diversification of its apartment portfolio with market presence in over 30 markets across the country; and . local presence in many of its major markets which allows us to become local market experts. Environmental Regulations To date, compliance with federal, state, and local environmental protection regulations has not had a material effect on the capital expenditures, earnings or competitive position of United Dominion. However, over the past few years, the issue has been raised regarding the presence of asbestos and other hazardous materials in existing real estate properties. United Dominion has a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigation and reports have been completed for each property owned. In addition, all proposed acquisitions are inspected prior to acquisition. Acquisitions through merger are inspected on a case by case basis given historical information available. The inspections are conducted by qualified environmental consultants, and the report issued is reviewed by United Dominion prior to the purchase or development of any property. Nevertheless, it is possible that United Dominion's environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist in which United Dominion is unaware. In some cases, United Dominion has abandoned otherwise economically attractive acquisitions because the costs of removal or control have been prohibitive and/or United Dominion has been unwilling to accept the potential risks involved. United Dominion does not believe it will be required to engage in any large-scale abatement at any of its properties as asbestos is managed in place in accordance with current environmental laws and regulations. Management believes that through professional environmental inspections and testing for asbestos and other hazardous materials, coupled with a conservative posture toward accepting known risk, United Dominion can minimize its exposure to potential liability associated with environmental hazards. Recently enacted federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and will impose treble damages for failure to so notify. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and United Dominion 8
may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities. United Dominion is unaware of any environmental hazards at any of its properties which individually or in the aggregate may have a material adverse impact on its operations or financial position. United Dominion has not been notified by any governmental authority, and is not otherwise aware, of any material non- compliance, liability or claim relating to environmental liabilities in connection with any of its properties. United Dominion does not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on the company or its financial condition or results of operations. There can be no assurance, however, that future environmental laws, regulations or ordinances will not require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed on United Dominion in the future, the costs of compliance could have a material adverse effect on United Dominion or its financial condition. To the best of its knowledge, United Dominion is in compliance with all applicable environmental rules and regulations. Operating Partnership - United Dominion Realty, L.P. On October 23, 1995, United Dominion organized United Dominion Realty, L.P. (the "Partnership") under the Virginia Revised Uniform Limited Partnership Act, as amended (the "Partnership Act"). United Dominion is the sole General Partner of the Partnership and currently holds a 90.8% interest. The Partnership is intended to assist United Dominion in competing for the acquisition of properties that meet United Dominion's investment strategies from seller partnerships, some or all of whose partners may wish to defer taxation of gain realized on sale through an exchange of partnership interests. The Partnership was organized under a First Amended and Restated Agreement of Limited Partnership dated as of December 31, 1995 which was subsequently amended in the Second Amended and Restated Agreement of Limited Partnership dated as of August 30, 1997 and later amended by the Third Amended and Restated Agreement of Limited Partnership dated as of December 7, 1998 (the "Partnership Agreement"). A summary of certain provisions of the Partnership Agreement is set forth below. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to applicable provisions of the Partnership Act and the complete Partnership Agreement. The Partnership Agreement is filed as an exhibit to United Dominion's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Admission of Limited Partners; Investment Agreements United Dominion presently intends to limit admission to the Partnership to Limited Partners who are "accredited investors," as defined in Rule 501(a) under the Securities Act of 1933, as amended (the "Securities Act"). Limited Partners will be admitted upon executing and delivering to United Dominion an Investment Agreement (the "Investment Agreement") and delivering to the Partnership the consideration prescribed therein. In the Investment Agreement, the prospective Limited Partner makes both representations as to his status as an accredited investor and other representations and agreements regarding the Units (defined below) to be issued to him, thus, assuring compliance with the Securities Act. Any rights to Securities Act registration of the Common Stock of United Dominion issued to such Limited Partner upon redemption of his Units (see "Redemption Rights" below), will also be set forth in the Investment Agreement or a separate registration rights agreement. Units The interests in the Partnership of the Partnership's limited partners (the "Limited Partners") are represented by units of limited partnership interest (the "Units"). All holders of Units are entitled to share in the cash distributions from, and in the profits and losses of, the Partnership. Distributions by the Partnership are made equally for each Unit outstanding except that outside partners have first priority as described in the "Distributions" section. As the Partnership's sole General Partner, United Dominion intends to make distributions per Unit in the same amount as the cash dividends paid by United Dominion on each share of Common Stock. However, because Partnership properties, which are the primary source of cash available for distribution to Unit holders, are significantly fewer than properties held directly by United Dominion and may not perform as well, there can be no assurance that distributions per Unit will always equal Common Stock dividends per share. A distribution made to United Dominion that enables it to maintain its REIT status (see "Management and Operations" below) may deplete cash otherwise available to Unit holders. The Partnership may borrow from United Dominion for the purpose of equalizing per Unit and per Common share distributions, but neither the Partnership nor United Dominion is under any obligation regarding Partnership borrowings for this or any other 9
purpose. The Limited Partners have the rights to which limited partners are entitled under the Partnership Act. The Units are illiquid, they are not registered for secondary sale under any securities laws, state or federal, and they cannot be transferred by a holder except as provided in the Partnership Agreement and unless they are registered as such or an exemption from such registration is available. Except as provided in any Investment Agreement or other agreement with a partner, neither the Partnership nor United Dominion is under any obligation to effect any such registration or to establish any such exemption. The Partnership Agreement imposes additional restrictions on the transfer of Units, as described below under "Transferability of Interests." Management and Operations United Dominion, as the sole General Partner of the Partnership, has full, exclusive and complete responsibility and discretion in the management and control of the Partnership. The Limited Partners have no authority to transact business for, or participate in the management activities or decisions of the Partnership. The Partnership Agreement requires that the Partnership be operated in a manner that will enable United Dominion to both satisfy the requirements for being classified as a REIT and avoid any federal income tax liability. The General Partner is expressly directed, notwithstanding anything to the contrary in the Partnership Agreement, to cause the Partnership to distribute amounts (including proceeds of Partnership borrowings) that sufficiently enable United Dominion to pay distributions to its shareholders that are required in order to maintain REIT status and to avoid income tax or excise tax liability. Ability to Engage in Other Businesses; Conflicts of Interest United Dominion and other persons (including officers, directors, employees, agents and other affiliates of United Dominion) are not prohibited under the Partnership Agreement from engaging in other business activities, including business activities substantially similar or identical to those of the Partnership. United Dominion will not be required to present any business opportunities to the Partnership or to any Limited Partner. Borrowing by the Partnership The General Partner is authorized under the Partnership Agreement to cause the Partnership to borrow money and to issue and guarantee debt as it deems necessary for the conduct of the activities of the Partnership. Such debt may be secured by mortgages, deeds of United Dominion, pledges or other liens on the assets of the Partnership. Reimbursement of General Partner; Transactions with the General Partner and its Affiliates The General Partner will receive no compensation for its services as General Partner of the Partnership. However, as a partner in the Partnership, the General Partner has the same right to allocations of profit and loss and distributions as other partners of the Partnership. In addition, the Partnership will reimburse the General Partner for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Partnership and any offering of Units or other partnership interests, and for the pro rata share of the expenses of any offering of securities of United Dominion some or all of the proceeds of which are contributed to the Partnership. Liability of General Partner and Limited Partners The General Partner is liable for all general obligations of the Partnership to the extent not paid by the Partnership. The General Partner is not liable for the non-recourse obligations of the Partnership. The Limited Partners are not required to make further capital contributions to the Partnership after their respective initial contributions are fully paid. Assuming that a Limited Partner acts in conformity with the provisions of the Partnership Agreement, the liability of the Limited Partner for obligations of the Partnership under the Partnership Agreement and Partnership Act will be limited to, subject to certain possible exceptions, the loss of the Limited Partner's investment in the Partnership. The Partnership is qualified to conduct business in each state in which it owns property and may qualify to conduct business in other jurisdictions. Maintenance of limited liability may require compliance with certain legal requirements of those jurisdictions and certain other jurisdictions. Limitations on the liability of a limited partner for the obligations of a limited partnership have not clearly been established in many states. Accordingly, if it were determined that the 10
right, or exercise of the right by the Limited Partners, to make certain amendments to the Partnership Agreement or to take other action pursuant to the Partnership Agreement constituted "control" of the Partnership's business for the purposes of the statutes of any relevant state, the Limited Partners might be held personally liable for the Partnership's obligations. The Partnership will operate in a manner the General Partner deems reasonable, necessary and appropriate to preserve the limited liability of the Limited Partners. Exculpation and Indemnification of the General Partner If acting in good faith, the Partnership Agreement provides that the General Partner will incur no liability for monetary damages to the Partnership or any Limited Partner for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission. In addition, the General Partner is not responsible for any misconduct or negligence on the part of its agents, provided the General Partner appointed such agents in good faith. The Partnership Agreement also provides for indemnification of the General Partner, the directors, officers and employees of the General Partner, and such other persons as the General Partner may from time to time designate, against any and all losses, claims, damages, liabilities (joint or several), expenses (including reasonable legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that relate to the operations of the Partnership in which any such indemnitee may be involved, or is threatened to be involved, unless it is established that (i) the act or omission of such indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) such indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, such indemnitee had reasonable cause to believe that the act or omission was unlawful. Sale of Assets; Merger Under the Partnership Agreement, the General Partner generally has the exclusive authority to determine whether, when and on what terms the assets of the Partnership will be sold or on which the Partnership will merge or consolidate with another entity. Removal of the General Partner; Transfer of General Partner's Interest The Partnership Agreement does not authorize the Limited Partners to remove the General Partner and the Limited Partners have no right to remove the General Partner under the Partnership Act. The General Partner may not transfer any of its interest as General Partner and withdraw as General Partner, except (a) to a wholly-owned subsidiary of the General Partner or the owner of all the ownership interests in the General Partner, (b) in connection with a merger or sale of all or substantially all of the assets of the General Partner or (c) as a result of the bankruptcy of the General Partner. A substitute or additional General Partner may be admitted upon compliance with the applicable provisions of the Partnership Agreement, including delivery by counsel for the Partnership of an opinion that admission of such General Partner will not cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes or (ii) the loss of any Limited Partner's limited liability. The General Partner may not sell all or substantially all of its assets, or enter into a merger, unless the sale or merger includes the sale of all or substantially all of the assets of, or the merger of, the Partnership and the Limited Partners receive for each Unit substantially the same consideration as the holder of one share of Common Stock. Transferability of Interests A Limited Partner generally may not transfer his interest in the Partnership without the consent of the General Partner which may be withheld at its absolute discretion. The General Partner may require, as a condition of any transfer, that the transferring Limited Partner assume all costs incurred by the Partnership in connection with such a transfer. Redemption Rights Each Limited Partner has the right (the "Redemption Right"), subject to the purchase right of the General Partner described below, to cause the redemption of such Limited Partner's Units for cash in an amount per Unit equal to the average of the closing sale prices of the Common Stock of United Dominion on the New York Stock Exchange (the "NYSE") for the ten trading days immediately preceding the date of receipt by the General Partner of notice of such Limited Partner's exercise of the Redemption Right provided that such Units have been outstanding for at least one year. Subject to certain restrictions intended to prevent undesirable tax consequences and assure compliance with the Securities Act, a Limited Partner may exercise the Redemption Right at any time but not more than twice within the 11
same calendar year and not with respect to less than 1,000 Units (or all Units owned by such Limited Partner, if less than 1,000). A Limited Partner that exercises the Redemption Right shall be deemed to have offered to sell the Units to be redeemed to the General Partner, and the General Partner may elect to purchase such Units by paying to such Limited Partner either the redemption price in cash or by delivering to such Limited Partner a number of shares of Common Stock of the Company equal to the product of the number of such Units, multiplied by the "Conversion Factor," which is 1.0, subject to customary antidilution provisions in the event of stock dividends on or subdivisions or combinations of the Common Stock subsequent to issuance of such Units. Any Common Stock issued to the redeeming Limited Partner will be listed on the NYSE and, if to the extent provided in such Redeeming Partner's Investment Agreement or other agreement, registered under the Securities Act and/or entitled to rights to Securities Act registration. No Withdrawal of Capital by Limited Partners No Limited Partner has the right to withdraw any part of his capital contribution to the Partnership or interest thereon or to receive any distribution, except as provided in the Partnership Agreement. Issuance of Additional Limited Partnership Interests and Other Partnership Securities The General Partner is authorized, without the consent of the Limited Partners, to cause the Partnership to issue additional Units or other Partnership securities to the partners or to other persons on such terms and conditions and for such consideration, including cash or any property or other assets permitted by the Partnership Act, as the General Partner deems appropriate. Meetings The Partnership Agreement does not provide for annual meetings of the Limited Partners, and the General Partner does not anticipate calling such meetings. Amendment of Partnership Agreement Amendments to the Partnership Agreement may, with four exceptions, be made by the General Partner without the consent of the Limited Partners. Any amendment to the Partnership Agreement which would (i) affect the Conversion Factor or the Redemption Rights of the Limited Partners, (ii) adversely affect the rights of the Limited Partners to receive distributions payable to them under the Partnership Agreement, or (iii) alter the Partnership's profit and loss allocations shall require the consent of Limited Partners. Any amendment that would impose any obligation upon the Limited Partners to make additional capital contributions to the Partnership shall require the consent of each Limited Partner owning more than 50% of the percentage interests in the Partnership. Books and Reports The General Partner is required to keep at the specified office of the Partnership the Partnership's books and records, including copies of the Partnership's federal, state and local tax returns, a list of the partners and their last known business addresses, the Partnership Agreement, the Partnership certificate and all amendments thereto and any other documents and information required under the Partnership Act. Any partner or his duly authorized representative, upon paying duplicating, collection and mailing costs, is entitled to inspect or copy such records during ordinary business hours. The General Partner will furnish to each Limited Partner, as soon as practicable after the close of each fiscal year, an annual report containing financial statements of the Partnership (or United Dominion, if consolidated financial statements including the Partnership are prepared) for such fiscal year. The financial statements will be audited by accountants selected by the General Partner. In addition, as soon as practicable after the close of each fiscal quarter (other than the last quarter of the fiscal year), the General Partner will furnish to each Limited Partner a quarterly report containing unaudited financial statements of the Partnership (or the Company and the Partnership, consolidated). The General Partner will furnish to each Limited Partner, within 75 days after the close of each fiscal year of the Partnership, the tax information necessary to file such Limited Partner's individual tax returns. Loans to Partnership The Partnership Agreement provides that the General Partner may borrow additional Partnership funds for any Partnership purpose from the General Partner or a subsidiary or subsidiaries of the General Partner or otherwise. 12
Adjustments of Capital Accounts and Percentage Interests A separate capital account will be established and maintained for each Partner. The General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole discretion) in accordance with applicable federal income tax regulations if: (i) a new or existing general or limited partner of the Partnership (a Partner or collectively Partners) acquires an additional interest in the Partnership in exchange for more than a de minimis capital contribution, (ii) the Partnership distributes to a Partner more than a de minimis amount of Partnership property as consideration for a Partnership interest or (iii) the Partnership is liquidated for federal income tax purposes. When the Partnership's property is revalued by the General Partner, the capital accounts of the partners shall be adjusted in accordance with such regulations, which generally requires such capital accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the capital accounts previously) would be allocated among the Partners pursuant to the Partnership Agreement if there were a taxable disposition of such property for its fair market value on the date of the revaluation. If the number of outstanding Units increases or decreases during a taxable year, each Partner's percentage interest in the Partnership shall be adjusted by the General Partner as of the effective date of each such increase or decrease to a percentage equal to the number of Units held by such Partner divided by the aggregate number of Units outstanding, after giving effect to such increase or decrease, and profits and losses for the year will be allocated among the Partners in a manner selected by the General Partner to give appropriate effect to such adjustments. Registration Rights Limited Partners have no rights to Securities Act registration of any Common Stock of United Dominion received in connection with redemption of Units except as provided in their respective Investment Agreements or other agreements with United Dominion. Tax Matters; Profit and Loss Allocations Pursuant to the Partnership Agreement, the General Partner is the "tax matters" partner of the Partnership and, as such, has the authority to handle tax audits and to make tax elections under the Code on behalf of the Partnership. Profits of the Partnership are to be allocated first to partners in proportion to and up to the amount of cash distributions, and second in accordance with the respective partnership interests. Losses are allocated in accordance with each partners percentage interest. Distributions The Partnership Agreement provides that the General Partner shall distribute cash quarterly, in amounts determined by the General Partner in its sole discretion (i) first to the outside limited partners, (ii) second to United Dominion (or appropriate subsidiary) until United Dominion has received an amount equal to prior distributions to the outside limited partners, and (iii) third, to the outside limited partners and United Dominion (or the appropriate subsidiary) in accordance with their percentage interests in the Partnership. Also, the amount of cash distributable to a Limited Partner who has not been a Limited Partner for the full quarter for which the distribution is paid is subject to pro rata reduction. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership will be distributed to all Partners with positive capital accounts in accordance with their respective positive capital account balances. If the General Partner has a negative balance in its capital account following a liquidation of the Partnership, it will be obligated to contribute cash to the Partnership equal to the negative balance in its capital account. Term The Partnership will continue until December 31, 2051, or until sooner dissolved upon (i) the bankruptcy, dissolution, death or withdrawal of a General Partner (unless the Limited Partners elect to continue the Partnership by electing by unanimous consent a substitute General Partner within 90 days of such occurrence), (ii) the passage of 90 days after the sale or other disposition of all or substantially all the assets of the Partnership, (iii) the redemption of all Limited Partners' interests in the Partnership or (iv) election by the General Partner. Upon dissolution of the Partnership, the General Partner will proceed to liquidate the assets of the Partnership and distribute the proceeds remaining after payment or adequate provision for payment of all debts and obligations of the Partnership as provided in the Partnership Agreement. 13
Item 2. Properties Real Estate Owned The table below sets forth a summary by major geographic market of United Dominion's real estate portfolio at December 31, 1999. See also Notes 1 and 2 to the Consolidated Financial Statements and Schedule III - Summary of Real Estate Owned. <TABLE> <CAPTION> Number of Number of Percentage of Carrying Apartment Apartment Carrying Value Encumbrances Cost Major Geographic Markets Communities Homes Value (In thousands) (In thousands) Per Home - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> Apartments: Dallas/Fort Worth, TX 29 9,042 11% $415,116 $ 43,455 (A) $45,910 Houston, TX 25 6,228 6% 238,123 66,546 (A) 38,234 Phoenix, AZ 10 3,458 5% 198,702 19,500 (A) 57,462 Orlando, FL 13 4,052 5% 194,569 41,298 (A) 48,018 Tampa, FL 12 4,018 5% 179,307 40,177 (A) 44,626 San Antonio, TX 12 3,515 4% 171,556 38,138 (A) 48,807 Raleigh, NC 9 2,951 4% 146,528 15,202 49,654 Nashville, TN 11 3,064 4% 144,107 - 47,032 San Francisco, CA 4 980 4% 138,681 68,751 141,511 Charlotte, NC 10 2,534 3% 128,190 17,650 50,588 Columbus, OH 5 2,175 3% 118,268 34,459 54,376 Wilmington, NC 10 2,710 3% 111,709 - 41,221 Monterey Peninsula, CA 13 1,955 3% 111,474 703 (A) 57,020 Memphis, TN 7 2,196 3% 105,859 33,032 48,205 South Florida 6 1,638 3% 102,349 - (A) 62,484 Richmond, VA 8 2,372 3% 102,120 2,917 (A) 43,052 Greensboro, NC 8 2,123 3% 102,091 4,072 48,088 Columbia, SC 9 2,730 2% 97,414 5,000 35,683 Southern California 6 1,762 2% 95,243 6,034 54,054 Baltimore, MD 8 1,788 2% 85,368 34,800 (A) 47,745 Atlanta, GA 6 1,426 2% 69,239 10,841 (A) 48,555 Jacksonville, FL 3 1,157 1% 56,783 12,455 49,078 Hampton Roads, VA 6 1,437 1% 54,655 - (A) 38,034 Sacramento, CA 2 914 1% 52,758 17,065 (A) 57,722 Denver, CO 2 876 1% 44,942 - 51,304 Seattle, WA 5 1,159 1% 57,816 28,684 49,884 Detroit, MI 4 744 1% 42,910 635 (A) 57,675 Washington, DC 3 615 1% 35,731 - (A) 58,099 Portland, OR 3 627 1% 34,353 1,542 (A) 54,789 Indianapolis, IN 3 875 1% 28,699 304 (A) 32,799 Austin, TX 2 542 1% 23,836 - (A) 43,978 Other Florida 7 1,665 1% 78,929 - 47,405 Eastern Shore MD and Delaware 6 1,156 1% 52,553 - (A) 45,461 Other North Carolina 4 1,052 1% 48,876 10,142 46,460 Other Virginia 6 1,154 1% 47,984 2,780 41,581 Other Michigan 4 1,227 1% 47,535 - (A) 38,741 Other Midwest 5 969 1% 42,780 1,006 (A) 44,149 Other Washington State 3 536 1% 21,914 8,889 40,884 Arkansas 2 512 1% 22,306 - 43,566 Nevada 1 384 1% 20,776 - 54,104 New Mexico 3 530 1% 19,972 7,771 (A) 37,683 Other Arizona 2 408 -- 13,408 4,618 32,863 Other Georgia 1 240 -- 10,413 - (A) 43,388 Alabama 1 242 -- 8,780 - 36,281 Other Texas 1 248 -- 8,330 - (A) 33,589 Other South Carolina 1 168 -- 7,428 2,200 44,214 --------------------------------------------------------------------------------------------------- Total Apartments 301 82,154 100% $3,940,480 $ 997,066 $47,965 --------------------------------------------------------------------------------------------------- Commercial Properties (C) 4 N/A -- 12,565 3,070 N/A --------------------------------------------------------------------------------------------------- Total Real Estate Owned 305 82,154 100% $ 3,953,045 $ 1,000,136 $47,965 --------------------------------------------------------------------------------------------------- <CAPTION> Physical Average Monthly Rental Average Occupancy Rates for the Year Ended Unit Size Major Geographic Markets Full Year 1999 December 31, 1999 (B) (Square Feet) - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Apartments: Dallas/Fort Worth, TX 94.5% $625 801 Houston, TX 90.5% 582 794 Phoenix, AZ 91.5% 662 891 Orlando, FL 94.1% 666 930 Tampa, FL 92.4% 646 950 San Antonio, TX 92.4% 623 818 Raleigh, NC 92.5% 693 914 Nashville, TN 89.7% 636 955 San Francisco, CA 98.8% 1,482 776 Charlotte, NC 91.2% 680 965 Columbus, OH 92.8% 631 853 Wilmington, NC 89.8% 593 936 Monterey Peninsula, CA 93.1% 735 727 Memphis, TN 93.9% 593 833 South Florida 91.1% 830 1,084 Richmond, VA 94.3% 661 945 Greensboro, NC 88.8% 625 981 Columbia, SC 91.1% 535 812 Southern California 93.8% 704 751 Baltimore, MD 96.2% 695 865 Atlanta, GA 92.7% 692 908 Jacksonville, FL 90.5% 638 896 Hampton Roads, VA 95.1% 603 1,016 Sacramento, CA 97.8% 646 820 Denver, CO 93.5% 644 957 Seattle, WA 93.2% 681 840 Detroit, MI 94.9% 690 946 Washington, DC 97.7% 783 814 Portland, OR 91.2% 682 890 Indianapolis, IN 94.0% 519 966 Austin, TX 94.6% 620 713 Other Florida 92.1% 610 841 Eastern Shore MD and Delaware 96.3% 667 922 Other North Carolina 94.7% 586 890 Other Virginia 93.8% 623 869 Other Michigan 90.5% 622 815 Other Midwest 94.5% 608 1,004 Other Washington State 83.3% 702 936 Arkansas 93.9% 593 821 Nevada 93.4% 646 839 New Mexico 89.4% 526 670 Other Arizona 91.5% 445 602 Other Georgia 90.8% 581 852 Alabama 91.8% 513 1,095 Other Texas 85.4% 562 739 Other South Carolina 88.7% 509 855 --------------------------------------------------------------------------- Total Apartments 92.6% $645 873 --------------------------------------------------------------------------- Commercial Properties (C) N/A N/A N/A --------------------------------------------------------------------------- Total Real Estate Owned 92.6% $645 873 --------------------------------------------------------------------------- </TABLE> (A) These communities are encumbered by the following: (i) 21 communities encumbered by two REMIC financings aggregating $59.2 million, (ii) 19 communities encumbered by one secured note payable in the amount of $195.7 million and (iii) 29 communities encumbered by two fixed rate debt aggregating $161.5 million. The amount of debt is not included in the encumbrances shown for the individual markets. (B) Average Monthly Rental Rates for the Year Ended December 31, 1999, represents potential rent collections (gross potential rents less market adjustments), which approximates net effective rents. These amounts exclude the 1999 acquisitions. (C) Includes four commercial properties and one parcel of land included in real estate held for disposition. 14
Item 3. LEGAL PROCEEDINGS - --------------------------- Neither United Dominion nor any of its apartment communities is presently subject to any material litigation nor, to United Dominion's knowledge, is any litigation threatened against United Dominion or any of the communities, other than routine actions arising in the ordinary course of business. Some of these routine actions are expected to be covered by liability insurance, and none are expected to have a material adverse effect on the business or financial condition or results of operations of United Dominion. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of United Dominion's fiscal year ended December 31, 1999. Executive Officers of the Registrant - ------------------------------------ The executive officers of United Dominion, listed below, serve in their respective capacities for approximate one year terms. Name Age Office Since - ---- --- ------ ----- John P. McCann 55 Chairman of the Board 1974 and Chief Executive Officer John S. Schneider 61 Vice-Chairman of the Board, 1996 Chief Operations Officer and President A. William Hamill 52 Executive Vice President 1999 and Chief Financial Officer Richard A. Giannotti 44 Senior Vice President and Director 1985 of Development-East Mark E. Wood 55 Senior Vice President and Director 1996 of Development-West Katheryn E. Surface 41 Senior Vice President, Corporate 1992 Secretary and General Counsel Kevin W. Walsh 45 Senior Vice President of 1999 Finance Curt W. Carter 43 Senior Vice President and Director 1985 of Apartment Operations-Northern Region Robert L. Landis 41 Senior Vice President and Director 1996 of Apartment Operations-Western Region 15
Walter J. Lamperski 42 Senior Vice President and Director 1996 of Apartment Operations-Southern Region Blake W. Clemens 42 Senior Vice President and Director 1998 of Acquisitions Thomas J. Corcoran 53 Senior Vice President and Director of Human Resources 1997 Patrick S. Gregory 50 Senior Vice President and Director of Information Technology 1997 Mr. McCann has been United Dominion's managing Chief Executive Officer since 1974. Mr. McCann was elected Chairman of the Board in 1996. Mr. Schneider is the former Chief Executive Officer and Chairman of the Board of South West Property Trust Inc. (South West). Mr. Schneider was employed with the investment banking firm of Donaldson, Lufkin and Jenrette until from 1967 until 1973, when he co-founded a predecessor firm to South West. Mr. Schneider was elected Vice Chairman of the Board and Executive Vice President in 1996 in connection with the merger with South West and President in 1998. Mr. Hamill joined United Dominion as Executive Vice President and Chief Financial Officer in October 1999. Prior to joining United Dominion, Mr. Hamill was the Chief Financial Officer of Union Camp Corporation. Mr. Hamill also previously served as an investment banker with Morgan Stanley & Co. Incorporated, where he was a managing director. Mr. Giannotti joined United Dominion as Director of Development and Construction in September 1985. He was elected Assistant Vice President in 1988, Vice President in 1989 and Senior Vice President in 1996. In 1998, Mr. Giannotti was elected Director of Development-East. Mr. Wood joined United Dominion as Vice President of Construction in connection with the merger of South West in 1996. He was promoted to Senior Vice President and Director Development -West in 1998. Ms. Surface joined United Dominion in 1992 as Assistant Vice President and Legal Counsel, elected General Counsel, Corporate Secretary and Vice President in 1994 and elected to Senior Vice President in 1997. Mr. Walsh joined United Dominion as Vice President of Finance in May 1998. In 1999, Mr. Walsh was elected to Senior Vice President. Prior to joining United Dominion, Mr. Walsh was the Vice President of Finance and Treasurer of Tultex Corporation. His experience also includes fifteen years in corporate banking with predecessors to both First Union and NationsBank. Mr. Carter joined United Dominion in 1991 as an Assistant Vice President of Apartment Operations. In 1992, he was promoted to Vice President of Apartment Operations. In 1995, he was elected Regional Vice President- Northern Region, and in 1997 was promoted to Senior Vice President and Director of Apartment Operations- Northern Region. Mr. Landis joined United Dominion in 1996 as Regional Vice President- Florida Region and was promoted in 1997 to Senior Vice President and Director of Apartment Operations-Florida Region. During 1998, Mr. Landis became the Senior Vice President and Director of Apartment Operations-Western Region. Prior to joining United 16
Dominion, he was Vice President of Asset Management and Property Management for CRI/CAPREIT, Inc. Mr. Lamperski joined United Dominion in 1996 as the Regional Vice President-Southern Region and was promoted in 1997 to Senior Vice President and Director of Apartment Operations-Southern Region. From February 1990 to August 1996, he was Vice President and Director of Property Management for Steven D. Bell, a property management company located in Greensboro, North Carolina. Mr. Clemens joined United Dominion in 1998 as a Vice President and Director of Acquisitions and was promoted to Senior Vice President in 1999. Prior to joining United Dominion, Mr. Clemens was the Vice President of Acquisitions for McNeil Real Estate Management Company from 1996 to 1998. Prior to this, Mr. Clemens was the Vice President of Acquisitions and Finance at Insignia Commercial Group, Incorporated. Mr. Corcoran joined United Dominion in 1997 as the Assistant Vice President of Human Resources and was promoted to Vice President in 1998 and Senior Vice President in 1999. Prior to joining United Dominion, Mr. Corcoran was the Vice President of Human Resources for Acordia, Inc., a national insurance brokerage firm from 1993 to 1995. Mr. Gregory joined United Dominion in 1997 as the Vice President and Director Information Technology and was promoted to Senior Vice President in 1999. From 1976 to 1997, Mr. Gregory was employed by Crestar Bank as a New Technology Analyst. 17
PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------- United Dominion's Common Stock is traded on the New York Stock Exchange (NYSE) under the symbol UDR. The following tables set forth the quarterly high and low sale prices per common share reported on the NYSE for each quarter of the last two years. Distribution information for Common Stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month. COMMON STOCK Distributions High Low Declared 1998 1st Quarter $14 13/16 $13 3/4 $.2625 2nd Quarter 14 1/2 13 5/16 .2625 3rd Quarter 14 1/16 10 11/16 .2625 4th Quarter 11 3/4 10 1/16 .2625 1999 1st Quarter $11 1/4 $ 9 1/16 $.2650 2nd Quarter 11 15/16 9 13/16 .2650 3rd Quarter 12 1/16 10 3/4 .2650 4th Quarter 11 5/8 9 1/8 .2650 United Dominion determined that, for federal income tax purposes, approximately 58.6% of the distributions for each of the four quarters of 1999 represented ordinary income to its shareholders, 29.2% represented return of capital to its shareholders and 12.2% represented long-term capital gain to its shareholders. On March 21, 2000, the closing sale price of the Common Stock was $9 7/8 per share on the NYSE, and there were 8,874 holders of record of the 103,127,425 shares of Common Stock. United Dominion pays regular quarterly distributions to holders of shares of Common Stock. Future distributions by United Dominion will be at the discretion of its Board of Directors after considering the company's actual funds from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors. The annual distribution payment for calendar year 1999 necessary for United Dominion to maintain its status as a REIT was approximately $.78 per share. United Dominion paid total distributions of $1.06 per share for 1999. 18
SERIES A PREFERRED STOCK United Dominion's Series A Preferred Stock ("Series A Preferred") and Series B Preferred Stock ("Series B Preferred") is traded on the New York Stock Exchange (NYSE) under the symbol "UDRpfa" and "UDRpfb", respectively. The following tables set forth the quarterly high and low sale prices per share reported on the NYSE for each quarter of the last two years for the Series A Preferred and Series B Preferred. Distribution information for the Series A Preferred and Series B Preferred reflects distributions declared per share for each calendar quarter and paid at the end of the following month. Distributions High Low Declared 1998 1st Quarter $26 11/16 $26 1/8 $.5775 2nd Quarter 26 7/8 25 3/4 .5775 3rd Quarter 25 15/16 24 1/2 .5775 4th Quarter 25 11/16 24 3/8 .5775 1999 1st Quarter $25 1/8 $24 $.5775 2nd Quarter 25 1/4 23 13/16 .5775 3rd Quarter 25 1/16 20 9/16 .5775 4th Quarter 22 3/8 17 13/16 .5775 On or after April 24, 2000, the Series A Preferred Stock may be redeemed for cash at a redemption price of $25 per share, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). SERIES B PREFERRED STOCK Distributions High Low Declared 1998 1st Quarter $27 3/8 $26 3/16 $.5375 2nd Quarter 26 1/2 25 5/8 .5375 3rd Quarter 26 13/16 24 9/16 .5375 4th Quarter 25 7/8 24 9/16 .5375 1999 1st Quarter $26 1/16 $24 $.5375 2nd Quarter 25 1/2 23 5/8 .5375 3rd Quarter 25 5/16 20 1/4 .5375 4th Quarter 22 5/8 15 5/8 .5375 The Series B Preferred Stock may be redeemed beginning May 29, 2007 at the sole option of United Dominion at a redemption price of $25 per share, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). 19
SERIES D PREFERRED STOCK On December 7, 1998, in connection with the acquisition of American Apartment Communities II, Inc. (AAC), United Dominion issued eight million shares of Series D Convertible Redeemable Preferred Stock (Series D) to one of the sellers of AAC. The Series D is convertible into 1.5385 shares of common stock at the option of the holder at any time at $16.25 per share. The Series D is not redeemable prior to December 7, 2003. On or after this date, United Dominion may, at its option, redeem all or part of the Series D at a price per share of $25, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). Distributions declared for 1999 were $1.89 per share or $.4725 per quarter. The Series D is not listed on any exchange. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN United Dominion has a Dividend Reinvestment and Stock Purchase Plan under which holders of Common and Preferred Stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of United Dominion's Common Stock at a discount. OPERATING PARTNERSHIP UNITS From time to time, United Dominion issues shares of its common stock in exchange for Operating Partnership Units (OP Units) tendered to United Dominion's operating partnership, United Dominion Realty L.P., for redemption in accordance with the provisions of the Agreement of Limited Partnership of United Dominion Realty L.P. Such shares are issued based on the exchange ratio of one share for each OP Unit. During 1999, United Dominion issued a total of 71,373 shares of common stock in exchange for OP Units. Item 6. SELECTED FINANCIAL DATA - -------------------------------- The following table sets forth selected consolidated financial and other information for United Dominion as of and for each of the years in the five year period ended December 31, 1999. The table should be read in conjunction with the Consolidated Financial Statements of United Dominion Realty Trust, Inc. and the Notes thereto included elsewhere herein. 20
Selected Financial Data <TABLE> <CAPTION> Years Ended December 31, 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> In thousands, except per share data and apartment homes owned Operating Data (a) Rental income $ 618,749 $ 478,718 $ 386,672 $ 241,260 $ 194,511 Income before gains on sales of investments, minority interests and extraordinary item 60,379 47,339 57,813 33,726 28,037 Gains on sales of investments 37,995 26,672 12,664 4,346 5,090 Extraordinary item - early extinguishment of debt 927 (138) (50) (23) - Net income 93,622 72,332 70,149 37,991 33,127 Distributions to preferred shareholders 37,714 23,593 17,345 9,713 6,637 Net income available to common shareholders 55,908 48,739 52,804 28,278 26,490 Common distributions declared 109,607 107,758 88,587 55,493 48,610 Weighted average number of common shares outstanding-basic 103,604 99,966 87,145 57,482 52,781 Weighted average number of common shares outstanding-diluted 103,639 100,062 87,339 57,655 52,972 Weighted average number of common shares, OP Units and common share equivalents - diluted 124,127 103,793 87,656 57,724 52,972 Per share: Basic earnings per share $0.54 $0.49 $0.61 $0.49 $0.50 Diluted earnings per share 0.54 0.49 0.60 0.49 0.50 Common distributions declared 1.06 1.05 1.01 0.96 0.90 - ----------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data (a) Real estate owned, at carrying value $3,953,045 $3,952,752 $2,517,398 $2,099,641 $1,205,685 Accumulated depreciation 395,864 316,630 245,367 187,909 153,026 Total real estate owned, net of accumulated depreciation 3,557,181 3,636,122 2,272,031 1,911,732 1,052,659 Total assets 3,688,317 3,762,940 2,313,725 1,966,904 1,080,616 Secured debt 1,000,136 1,072,185 417,325 376,560 180,481 Unsecured debt 1,127,169 1,045,564 738,901 668,275 349,858 Total debt 2,127,305 2,117,749 1,156,226 1,044,835 530,339 Shareholders' equity 1,310,212 1,374,121 1,058,357 850,379 516,389 Number of common shares outstanding 102,741 103,639 89,168 81,983 56,375 - ----------------------------------------------------------------------------------------------------------------------------------- Other Data (a) Cash Flow Data Cash provided by operating activities $ 190,876 $ 152,875 $ 137,903 $ 90,064 $ 66,428 Cash used in investing activities (34,294) (276,142) (342,273) (161,572) (183,930) Cash (used in) provided by financing activities (174,985) 148,875 191,391 82,056 113,145 Funds from operations (b) Income before gains on sales of investments, minority interests and extraordinary item $ 60,379 $ 47,339 $ 57,813 $ 33,726 $ 28,037 Adjustments: Depreciation of real estate owned, net of outside 120,543 99,588 76,688 47,410 38,939 partners' interest Distributions to preferred shareholders (37,714) (23,593) (17,345) (9,713) (6,637) Minority interest of outside partnerships (1,245) (111) -- -- -- Non-recurring items: Impairment loss on real estate and investments 19,300 -- 1,400 290 1,700 Loss on termination of an interest rate risk management agreement -- 15,591 Prior years' employment and other taxes -- -- -- -- 395 Adjustment for internal acquisition costs (c) -- (544) (1,341) (901) (587) ------------------------------------------------------------- Funds from operations-basic $ 161,263 $ 138,270 $ 117,215 $ 70,812 $ 61,847 ============================================================= Adjustments: Distributions to preferred shareholders-Series D (Convertible) 15,154 986 -- -- -- ------------------------------------------------------------- Funds from operations-diluted $ 176,417 $ 139,256 $ 117,215 $ 70,812 $ 61,847 ============================================================= Apartment Homes Owned Total apartment homes owned at December 31 82,154 86,893 62,789 55,664 34,224 Weighted average number of apartment homes owned during the year 85,926 70,724 58,038 37,481 31,242 </TABLE> (a) From 1996 to 1998, United Dominion completed the following statutory mergers: (i) South West Property Trust, Inc. on December 31, 1996 for an aggregate purchase price of $572 million, (ii) ASR Investments Corporation Inc. on March 27, 1998 for an aggregate purchase price of $323 million, and (iii) American Apartment Communities II on December 7, 1998, for an aggregate purchase price of $794 million. (b) Funds from operations ("FFO") is defined as income before gains (losses) on sales of investments, minority interests and extraordinary items (computed in accordance with generally accepted accounting principles) plus real estate depreciation, less preferred dividends and after adjustment for significant non-recurring items, if any. This definition conforms to recommendations set forth in a White Paper adopted by the National Association of Real Estate Investment Trusts (NAREIT) in early 1995. 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. (c) Reflects the adjustment for internal acquisition costs that were capitalized prior to March 19, 1998. 21
Management's Discussion and Analysis of Financial Condition and Results of Operations Overview 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. 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. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto of United Dominion appearing elsewhere in this annual report. United Dominion is a real estate investment trust ("REIT") with activities related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities nationwide. Management's strategy is to be a national, highly efficient provider of quality apartment homes. During the past several years, United Dominion has implemented this strategy through the acquisition of portfolios of higher quality communities, the disposition of non-strategic communities, a greater commitment to development and the upgrade of its core portfolio of apartment communities. Through a combination of dispositions and acquisitions over the past two years, United Dominion aggressively moved the company into better performing markets with attractive prospects for long-term growth. During this same period, more emphasis has been placed on higher quality development projects. This strategy resulted in the upgrade of the overall quality and average age of United Dominion's portfolio which is now solidly positioned with "B" and "A" grade communities. United Dominion seeks to be a market leader by operating a sufficiently sized portfolio of apartments within each of its target markets in order to drive down operating costs through economies of scale and management efficiencies. United Dominion believes that geographic market diversification increases investment opportunities and decreases the risk associated with cyclical local real estate markets and economies. At December 31, 1999, United Dominion owned 301 communities containing 82,154 apartment homes nationwide, including 37 communities with 7,182 completed apartment homes included in real estate held for disposition and 330 recently completed apartment homes included in real estate under development. 22
The following table summarizes United Dominion's apartment market information by major geographic markets and other geographic areas (including real estate under development and excluding four commercial properties): <TABLE> <CAPTION> As of December 31, 1999 December 31, 1999 - ------------------------------------------------------------------------------------------- ----------------------------- No. of No. of % of Carrying Year Ended Quarter Ended Apartment Apartment Carrying Value Physical Physical Area Communities Homes Value (in thousands) Occupancy Occupancy - ------------------------------------------------------------------------------------------- ----------------------------- <S> <C> <C> <C> <C> <C> <C> Major Markets - ------------- Dallas/Fort Worth, TX 29 9,042 11% $ 415,116 94.5% 94.8% Houston, TX 25 6,228 6% 238,123 90.5% 90.3% Phoenix, AZ 10 3,458 5% 198,702 91.5% 93.3% Orlando, FL 13 4,052 5% 194,569 94.1% 94.3% Tampa, FL 12 4,018 5% 179,307 92.4% 93.2% San Antonio, TX 12 3,515 4% 171,556 92.4% 92.5% Raleigh, NC 9 2,951 4% 146,528 92.5% 92.3% Nashville, TN 11 3,064 4% 144,107 89.7% 92.4% San Francisco, CA 4 980 4% 138,681 98.8% 99.5% Charlotte, NC 10 2,534 3% 128,190 91.2% 91.1% Columbus, OH 5 2,175 3% 118,268 92.8% 95.3% Wilmington, NC 10 2,710 3% 111,709 89.8% 93.7% Monterey Peninsula, CA 13 1,955 3% 111,474 93.1% 91.2% Memphis, TN 7 2,196 3% 105,859 93.9% 94.1% South Florida 6 1,638 3% 102,349 91.1% 90.8% Richmond, VA 8 2,372 3% 102,120 94.3% 97.0% Greensboro, NC 8 2,123 3% 102,091 88.8% 90.8% Columbia, SC 9 2,730 2% 97,414 91.1% 91.2% Southern California 6 1,762 2% 95,243 93.8% 93.4% Baltimore, MD 8 1,788 2% 85,368 96.2% 97.1% Atlanta, GA 6 1,426 2% 69,239 92.7% 94.4% Seattle, WA 5 1,159 1% 57,816 93.2% 96.9% Jacksonville, FL 3 1,157 1% 56,783 90.5% 92.0% Hampton Roads, VA 6 1,437 1% 54,655 95.1% 97.4% Sacramento, CA 2 914 1% 52,758 97.8% 98.1% Denver, CO 2 876 1% 44,942 93.5% 95.1% Detroit, MI 4 744 1% 42,910 94.9% 95.0% Washington, DC 3 615 1% 35,731 97.7% 98.4% Portland, OR 3 627 1% 34,353 91.2% 91.0% Indianapolis, IN 3 875 1% 28,699 94.0% 92.7% Austin, TX 2 542 1% 23,836 94.6% 97.4% Other Areas - ----------- Other Florida 7 1,665 1% 78,929 92.1% 94.6% Eastern Shore MD and Delaware 6 1,156 1% 52,553 96.3% 95.6% Other North Carolina 4 1,052 1% 48,876 94.7% 94.5% Other Virginia 6 1,154 1% 47,984 93.8% 94.7% Other Michigan 4 1,227 1% 47,535 90.5% 95.0% Other Midwest 5 969 1% 42,780 94.5% 95.0% Other Washington State 3 536 1% 21,914 83.3% 93.5% Arkansas 2 512 1% 22,306 93.9% 95.3% Nevada 1 384 1% 20,776 93.4% 96.8% New Mexico 3 530 1% 19,972 89.4% 90.6% Other Arizona 2 408 -- 13,408 91.5% 94.8% Other Georgia 1 240 -- 10,413 90.8% 95.9% Alabama 1 242 -- 8,780 91.8% 91.7% Other Texas 1 248 -- 8,330 85.4% 91.4% Other South Carolina 1 168 -- 7,428 88.7% 93.0% -------------------------------------------------- ------------------- Total 301 82,154 100% $3,940,480 92.6% 93.6% ================================================== =================== </TABLE> 23
Liquidity and Capital Resources United Dominion expects to meet its short-term financial requirements through net cash provided by operations and borrowings under its unsecured bank lines of credit. United Dominion believes that cash provided by operations will be adequate to meet normal operating requirements and payment of distributions by United Dominion in accordance with REIT requirements in both the short and long- term. In addition, budgeted capital expenditures and monthly principal amortization of debt are also expected to be funded from net cash provided by operating activities. United Dominion meets certain long-term liquidity requirements, such as scheduled debt maturities, development activity and significant capital improvements through: (i) the issuance of long-term secured and unsecured borrowings, (ii) proceeds from the sales of assets, (iii) common and preferred stock offerings, (iv) retained operating cash flow and (v) the use of unused credit facilities. To facilitate future fund raising activities in the public capital markets, management believes that it is prudent to maintain shelf registration statement capacity. In this regard, United Dominion filed such a shelf registration statement in December 1999 providing for the issuance of up to $700 million in common shares, preferred shares and debt securities. In March 2000, United Dominion sold $100 million of senior unsecured notes due March 2003 at an interest rate of 8.625%. The proceeds from the offering were used to prepay certain mortgage debt and repay revolving bank debt. United Dominion currently plans to establish during 2000, a program for the sale of up to $150 million aggregate principal amount of medium-term notes. United Dominion has no significant maturities of debt until the fourth quarter of 2000 at which time approximately $175 million of secured and unsecured debt will mature. At this time, management expects to refinance the maturing debt with debt of similar characteristics and prevailing market rates. The following discussion explains the changes in net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities which are presented in United Dominion's Consolidated Statements of Cash Flows. Operating Activities For the year ended December 31, 1999, United Dominion's cash flow from operating activities was $190.9 million compared to $152.9 million in 1998. The increase was primarily due to the increased operating income from United Dominion's acquired communities as well as increases in property operating income achieved through higher rent growth as discussed under "Results of Operations". Investing Activities For the year ended December 31, 1999, net cash used in investing activities was $34.3 million compared to $276.1 million for 1998, a decrease of $241.8 million. During 1999, United Dominion shifted its focus from the acquisition of real estate assets to the disposition and development of real estate assets. Changes in the level of investing activities from period to period reflect the changing levels of United Dominion's acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities. Disposition of Investments As part of its strategic repositioning, United Dominion determined that it would selectively dispose of assets that are not in core markets, have a lower net operating income growth rate than the overall portfolio or no longer meet the operating and investment strategies of United Dominion. The disposition program allows United Dominion to reduce the age of its existing portfolio, which should result in lower operating expense and capital expenditure growth associated with the older communities. During 1999, United Dominion sold 36 communities with 7,443 apartment homes for an aggregate sales price of $241.2 million and recognized gains for financial reporting purposes of $38.0 million. These sales allowed United Dominion to exit certain markets that had low growth opportunities and improve the average age of the company's overall apartment portfolio by selling communities with an average age of 25 24
years. During 1998, 18 communities with 5,318 apartment homes and an average age of 25 years were sold for an aggregate sales price of $156.6 million, which resulted in gains for financial reporting purposes of $26.7 million. Proceeds from the disposition program were used to strengthen the balance sheet by paying down debt, as well as to fund new development projects and to selectively repurchase shares of United Dominion's preferred and common stock. Where necessary to defer capital gain taxes, disposition proceeds have been reinvested in strategically attractive communities. United Dominion intends to sell 6,000 to 7,000 apartment homes during 2000. Proceeds from the 2000 dispositions, expected to be at levels similar to 1999, are to be used to reduce debt, repurchase preferred shares, fund development activity and acquire communities through 1031 exchanges. Subsequent to year-end, United Dominion sold three communities for approximately $18.5 million. In addition, United Dominion entered into contracts to sell two communities with 285 apartment homes for an aggregate sales price in excess of $17 million. For financial reporting purposes, aggregate gains on the sales of investments are not expected to be material. The transactions are expected to close during the first and second quarters of 2000; however, there can be no assurance that these transactions will be consummated as planned. Real Estate under Development During 1999, United Dominion continued its commitment to development as part of its strategic repositioning, shifting capital into development activity and away from lower yielding acquisitions. During 1999, the development of over 1,500 homes was completed, up from 890 homes during 1998. Development activity is focused in core markets that have locally based development teams and strong operations managers in place. During 1999, the following development projects were completed: <TABLE> <CAPTION> Total No. Apt. Costs Cost per Date % Leased Property Location Homes (Thousands) Home Completed at 12/31/99 - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> New Communities - --------------- Stone Canyon Houston, TX 216 $ 10,322 $47,800 3/99 89.4% Dominion Franklin Nashville, TN 360 26,347 73,200 3/99 91.4% Ashlar I Ft. Myers, FL 260 18,887 72,600 5/99 99.6% Alexander Court Columbus, OH 356 22,827 64,100 11/99 91.9% Sierra Foothills Phoenix, AZ 322 21,458 66,600 11/99 79.5% Legends at Park 10 Houston, TX 236 13,612 57,700 11/99 89.8% ----------------------------- 1,750 113,453 64,800 Additional Phases - ----------------- Heritage Green II Columbus, OH 96 $ 6,740 $70,200 5/99 94.8% ----------------------------- Total 1,846 $120,193 $65,100 ============================= </TABLE> The following projects are under development at December 31, 1999: <TABLE> <CAPTION> Costs Estimated Estimated Expected No. Apt. Completed To Date Costs Cost per Completion Property Location Homes Apt. Homes (Thousands) (Thousands) Home Date - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> New Communities - --------------- Ashton at Waterford Lakes Orlando, FL 292 204 $19,244 $ 21,000 $71,900 1Q00 The Meridian Dallas, TX 250 82 11,403 16,500 66,000 2Q00 Oaks at Weston Raleigh, NC 380 -- 6,391 30,200 79,500 2Q01 -------------------------------------------------------- 922 286 37,038 67,700 73,400 Additional Phases - ----------------- Dominion Crown Point II Charlotte, NC 220 44 10,016 14,800 67,300 1Q01 Ashlar II Ft. Myers, FL 168 -- 1,712 12,900 76,800 4Q00 Escalante II San Antonio, TX 312 -- 5,295 19,700 63,100 4Q00 -------------------------------------------------------- 700 44 17,023 47,400 67,700 Total 1,622 330 $54,061 $115,100 $71,000 ======================================================== </TABLE> 25
In addition to the apartment homes under development at December 31, 1999, United Dominion has land held for future development with a carrying value of $37.9 million. Future development activity will be based upon the availability of capital and real estate fundamentals. Additional development starts planned in 2000 are expected to be undertaken with financial partners through joint venture arrangements. Acquisitions During 1999, United Dominion curtailed its active pace of acquisitions, investing in new communities only when necessary to complete 1031 exchanges in order to defer taxes on large capital gains. During 1999, using proceeds from its disposition program, United Dominion acquired five communities with 1,230 apartment homes at a total cost (including closing costs) of $74.3 million or $60,400 per home during 1999. These communities are located in markets that are considered strategically important to United Dominion, such as Baltimore, Maryland, South Florida and Riverside and San Diego, California. During 2000, United Dominion does not anticipate acquiring communities except to reinvest a portion of the proceeds from property dispositions in order to defer taxes on capital gains. 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 1999, United Dominion substantially completed the upgrade program which was part of the strategic plan to improve the overall quality of its portfolio. Capital expenditures decreased from 1998 as the overall age and physical condition of the apartment portfolio has improved. For the year ended December 31, 1999, $32.8 million or $639 per home was spent on capital expenditures for United Dominion's same communities (those acquired or developed prior to January 1, 1998). These capital improvements included recurring capital expenditures, including floor coverings, HVAC equipment, roofs, appliances, landscaping, siding, parking lots and other non-revenue enhancing capital expenditures, which aggregated $19.8 million or $386 per home. In addition, non-recurring / revenue enhancing capital expenditures, including water sub-metering, gating and access systems, the additions of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $13.0 million or $253 per home for the year ended December 31, 1999. United Dominion reduced capital expenditures related to same communities throughout 1999, but will continue to selectively add revenue- enhancing improvements, which are budgeted to provide a high return on investment. Capital expenditures during 2000 are expected to be at levels similar to 1999. In addition to capital improvements to its same communities, United Dominion invested approximately $42 million or $1,220 per home on its non-mature communities (those acquired or developed subsequent to January 1, 1998) during 1999, which includes both recurring and revenue enhancing capital improvements. Financing Activities Net cash used in financing activities during 1999 was $175.0 million compared to net cash provided by financing activities of $148.9 million for 1998. During 1999, as part of its strategic plan to improve its balance sheet position, United Dominion used approximately 60% of the proceeds from its disposition program to pay down secured and unsecured debt. The remaining proceeds were used to acquire assets where necessary to complete 1031 exchanges and, to a lesser extent, to repurchase shares of preferred and common stock. In January 1999, United Dominion established a program for the sale of up to $200 million aggregate principal amount of medium-term notes (the "MTN Program"). For the year ended December 31, 1999, United Dominion sold an aggregate of $190 million of senior unsecured notes under the MTN Program with a weighted average interest rate of 7.61%. Net proceeds from the offerings were used to repay amortizing unsecured debt, repay maturing mortgage debt, repay a $75 million senior unsecured note that matured in April 1999 and repay revolving bank debt. 26
During 1999, United Dominion closed on $195.7 million of a $200 million revolving credit facility with the Federal National Mortgage Association (the "FNMA Credit Facility"). The FNMA Credit Facility is for an initial term of five years, bears interest at a floating rate which can be fixed for periods of up to 270 days, and can be extended for an additional five or ten years at United Dominion's discretion. The FNMA Credit Facility had a weighted average interest rate of 6.32% at December 31, 1999. United Dominion used interest rate swap agreements to limit its interest rate exposure on $57 million of this borrowing (see Secured Credit Facilities in Note 3). The proceeds from the FNMA Credit Facility were used to repay a $91 million secured credit facility assumed in connection with the American Apartment Communities II transaction, to replace $58 million in maturing secured debt and the remaining proceeds were used to repay revolving bank debt. United Dominion issued 1.6 million shares of its common stock and received $16.7 million under its Dividend Reinvestment and Stock Purchase Plan during 1999 that included $1.2 million in optional cash investments and $15.5 million of reinvested dividends. For the year ended December 31, 1999, United Dominion paid distributions to its common shareholders and unitholders in its operating partnerships aggregating $118.8 million. The distribution to common shareholders and holders of operating partnership units equates to a dividend rate of $1.06 per share or unit. In addition, $35.0 million of preferred dividends were paid to Series A, B and D preferred shareholders. In June 1999, the Board of Directors authorized the repurchase of up to 5.5 million common shares, or 5% of the total common shares outstanding, using proceeds from the disposition program. Such purchases will be made from time to time in the open market or in privately negotiated transactions; the timing, volume and price of such purchases will be at the discretion of management and the Board of Directors. For the year ended December 31, 1999, United Dominion repurchased 2.6 million common shares at an average price of $11.22 per share. The Board of Directors, also approved the repurchase of up to $25 million of United Dominion's Series A and Series B Cumulative Redeemable Preferred Stock from time to time as market conditions permit. For the year ended December 31, 1999, United Dominion repurchased 31,440 Series A preferred shares at an average price of $19.76 per share and 53,700 Series B preferred shares at an average price of $18.35 per share. In addition, United Dominion redeemed one million operating partnership units for $12.0 million. During 1999, using proceeds from its disposition program, United Dominion repurchased $70.0 million of certain of its higher rate outstanding unsecured debt with a weighted average yield of 7.74%. In addition, in connection with the disposition program, United Dominion was relieved of $57.7 million of mortgage debt and $9.3 million of revolving bank debt. Credit Facilities United Dominion has a $200 million three-year unsecured revolving credit facility (the "Bank Credit Facility") which expires in August 2000 and a $110 million one-year unsecured line of credit (the "Line of Credit") which expires in August 2000 that are provided by a consortium of banks. Under the Bank Credit Facility, pricing is based upon the higher of United Dominion's senior unsecured debt ratings from Standard & Poor's Corporation and Moody's Investor Services that are currently BBB and Baa2, respectively. At these rating levels, interest under the Bank Credit Facility is LIBOR plus 0.50% and interest under the Line of Credit is LIBOR plus 1.0%. However, these rates are subject to change as United Dominion's credit ratings change. The Bank Credit Facility also includes a $100 million competitive bid option, which allows United Dominion to solicit bids from participating banks at rates below the contractual rate. At December 31, 1999, $277.6 million was outstanding under these credit facilities leaving $32.4 million available for use. The Bank Credit Facility and Line of Credit are subject to customary financial covenants and limitations. Derivative Instruments United Dominion, from time to time, uses derivative instruments to synthetically alter on-balance sheet liabilities or to hedge anticipated financing transactions. Derivative contracts did not have a material impact on the results of operations during 1999. 27
Market Risk United Dominion is exposed to market risk principally from 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 purposes, but rather issues these financial instruments to finance owning and managing real estate. United Dominion's interest rate sensitivity position is managed by its treasury 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 by changes in short-term interest rates on its variable rate debt and the repricing of 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 its bank credit facilities, which totaled $277.6 million at December 31, 1999. The impact on United Dominion's financial statements of refinancing fixed rate debt that matured during 1999 was not material. At December 31, 1999, the notional value of United Dominion's derivative products for the purpose of managing interest rate risk was $177 million of interest rate swaps under which United Dominion pays a fixed rate of interest and receives a variable rate. These agreements effectively fix $177 million of United Dominion's variable rate notes payable to a weighted average fixed rate of 6.78% (see Note 5 - Financial Instruments). At December 31, 1999, the fair market value of the interest rate swaps in a favorable value position to United Dominion would have been $626 thousand. If interest rates were 100 basis points more or less at December 31, 1999, the fair market value of the interest rate swaps would have increased or decreased $500 thousand, respectively. If market interest rates for variable rate debt averaged 100 basis points more in 2000 than they did during 1999, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $4.0 million. Comparatively, if market interest rates for variable rate debt averaged 100 basis points more in 1999 than it did in 1998, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $4.0 million. If market rates for fixed rate debt were 100 basis points higher at December 31, 1999, the fair value of fixed rate debt would have decreased from $1.55 billion to $1.50 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 1999, the fair value of fixed rate debt would have increased from $1.55 billion to $1.62 billion. These amounts are determined by considering the impact of the 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 United Dominion's net income is primarily generated from the operations of its apartment communities. 1999-vs-1998 For 1999, net income available to common shareholders increased $7.2 million, with a corresponding increase of $.05 for both basic and diluted earnings per share, compared to 1998. The increase per share was primarily attributable to aggregate gains on the sale of investments of $38.0 million ($.37 per share) for the year ended December 31, 1999, compared to $26.7 million ($.27 per share) in 1998. However, the increases associated with the gain on sales of investments were moderated in part due to the $19.3 million of impairment losses recorded during 1999. United Dominion's non-mature communities with 31,454 apartment homes at December 31, 1999 provided a substantial portion of the increase in United Dominion's operating income during 1999. 1998-vs-1997 For 1998, net income available to common shareholders decreased $4.1 million, with a corresponding decrease of $.12 and $.11 for basic and diluted earnings per share, respectively, compared to 1997. The 28
decrease per share was primarily attributable to the $15.6 million ($.15 per share) loss on the termination of an interest rate risk management agreement during the fourth quarter of 1998. Net income available to common shareholders for the year ended December 31, 1998 included aggregate gains on the sales of investments of $26.7 million ($.27 per share) compared to $12.7 million ($.15 per share) in 1997. The following is a combined summary of the operating performance for United Dominion's apartment portfolio (dollars in thousands): <TABLE> <CAPTION> Year Ended Year Ended December 31, December 31, ------------------------------------ ----------------------------------- 1999 1998 % Change 1998 1997 % Change <S> <C> <C> <C> <C> <C> <C> Same Communities - ---------------------------------------------------------------------------------------------------------------------------------- Property rental income $ 366,173 $ 355,038 3.1% $ 328,018 $ 316,995 3.5% - ---------------------------------------------------------------------------------------------------------------------------------- Property rental expenses (excluding depreciation and amortization) (141,721) (142,548) -0.6% (132,758) (132,712) 0.0% - ---------------------------------------------------------------------------------------------------------------------------------- Property operating income $ 224,452 $ 212,490 5.6% $ 195,260 $ 184,283 6.0% - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Physical occupancy 93.1% 93.1% 0.0% 92.9% 92.9% 0.0% - ---------------------------------------------------------------------------------------------------------------------------------- Average monthly rental rates $ 631 $ 610 3.4% $ 602 $ 582 3.4% - ---------------------------------------------------------------------------------------------------------------------------------- Non-Mature Communities - ---------------------------------------------------------------------------------------------------------------------------------- Property rental income $ 251,125 $ 122,245 105.4% $ 149,262 $ 67,207 122.1% - ---------------------------------------------------------------------------------------------------------------------------------- Property rental expenses (excluding depreciation and amortization) (103,452) (56,333) 83.6% (66,120) (30,262) 118.5% - ---------------------------------------------------------------------------------------------------------------------------------- Property operating income $ 147,673 $ 65,912 124.1% $ 83,142 $ 36,945 125.1% - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average number of apartment homes 33,980 19,408 75.1% 22,849 10,164 124.8% - ---------------------------------------------------------------------------------------------------------------------------------- All Communities - ---------------------------------------------------------------------------------------------------------------------------------- Property rental income $ 617,298 $ 477,279 29.3% $ 477,279 $ 384,205 24.2% - ---------------------------------------------------------------------------------------------------------------------------------- Property rental expenses (excluding depreciation and amortization) (245,173) (198,877) 23.2% (198,877) (162,977) 22.0% - ---------------------------------------------------------------------------------------------------------------------------------- Property operating income $ 372,125 $ 278,402 33.7% $ 278,402 $ 221,228 25.8% - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average number of apartment homes 85,926 70,724 21.5% 70,724 58,038 21.9% - ---------------------------------------------------------------------------------------------------------------------------------- Physical occupancy 92.6% 92.5% 0.1% 91.7% 92.3% -0.6% - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> Same Communities 1999-vs-1998 (51,316 apartment homes) In 1999, property rental income grew 3.1%, or approximately $11.1 million, reflecting an increase in average monthly rental rates of 3.4% while physical occupancy remained constant at 93.1%. For 1999, property operating expenses at these same communities decreased 0.6%, or $827 thousand. Utility expense decreased due to the continued transfer of water and sewer costs to residents, repair and maintenance expense decreased as a result of the upgrade program and taking more turnover work in-house and property management expenses decreased due to better economies of scale. However, these decreases were offset by an increase in personnel costs due to higher salaries and benefit costs, an increase in real estate taxes, the addition of monitored alarms in more communities and higher technology costs. As a result of the increase in property rental income and the decrease in property operating expenses, the operating margin (property operating income divided by property rental income) improved 1.5% to 61.3%. 29
1998-vs-1997 (47,875 apartment homes) Compared to the same period in 1997, property rental income from these communities grew 3.5%, or approximately $11.0 million, reflecting an increase in average monthly rental rates of 3.4%. During 1998, physical occupancy of 92.9% was the same as reported in 1997. For 1998, property operating expenses at these communities were unchanged. Utility expenses decreased as a result of United Dominion's water and sewer sub- metering initiative and repair and maintenance expenses decreased as United Dominion continued to benefit from a centralized purchasing initiative and the upgrade program. However, these expense decreases were offset by increases in real estate taxes primarily in certain Florida and Texas markets and increases in personnel costs as United Dominion experienced pressure on wages due to low unemployment and tighter job markets. Due to the increase in property rental income and the unchanged property operating expenses, the operating margin improved 1.4% to 59.5%. Non-Mature Communities 1999-vs-1998 Property rental income and property operating expenses increased from 1998 to 1999 directly as a result of the increase in the weighted average number of apartment homes owned during 1999. For the year ended December 31, 1999, average economic occupancy was 88.2%, and the operating margin was 58.8% for the non- mature communities. United Dominion's non-mature apartment portfolio can be categorized as follows for the years ended December 31, 1999 and 1998: 1998 Acquisitions - ----------------- American Apartment Communities II, Inc. (AAC) On an average investment of $761 million, the AAC portfolio (13,728 homes net of sales) provided a first year return on investment (property rental income less property operating expenses divided by the average capital investment in real estate) of 9.1% which is slightly better than the projection of 9.0%. These communities achieved physical occupancy of 93.6%, which is higher than United Dominion's average physical occupancy primarily due to the California markets included in this portfolio. For the year, these communities had an economic occupancy of 92.1% and an operating margin of 62.7%. 1998 Acquisitions (Excluding AAC) For the 13,577 homes (net of sales) acquired in 1998, the return on investment for the year ended December 31, 1999, on an average investment of $611 million was 8.4%. This return on investment was below amounts projected for 1999, however, these communities continue to be upgraded, repositioned and selectively sold, which is expected to improve overall operating results over the long-term. These communities had an economic occupancy of 88.8% and an operating margin of 57.8%. 1999 Acquisitions - ----------------- Included in this category are five communities with 1,230 apartment homes acquired by United Dominion during 1999 that are projected to provide a first year return on investment of 9.0% on an initial investment of $74 million. These communities did not have a material impact on 1999 results of operations. Disposition Communities - ----------------------- Included in this category are the 12,761 apartment homes sold for an aggregate sales price of $398 million as part of United Dominion's strategic repositioning (see Disposition of Investments under Liquidity and Capital Resources) since January 1, 1998. The communities sold during 1999 and 1998 had a capitalization rate (budgeted property operating income less a reserve placement divided by the sales price) in the 10% range. 30
Development Communities - ----------------------- United Dominion developed 2,404 homes at various times since January 1, 1998, which included the completion of six new communities and one additional phase to an existing community during 1999. Once stabilized, development communities are projected to generate an average return on investment in the 10% range, however, the full impact on property operating income is not realized until after the communities are stabilized, which is generally six months after construction is completed. United Dominion considers a development community stabilized on the earlier to occur of (i) one year after completion of construction or (ii) attainment of 90% physical occupancy. Construction activity is staged to allow for leasing and occupancy during the construction period in order to minimize the lease-up period subsequent to the completion of construction. 1998-vs-1997 Property rental income and property operating expenses increased from 1997 to 1998 directly as a result of the increase in the weighted average number of apartment homes owned during 1998. For the year ended December 31, 1998, average economic occupancy was 88.6%, and the operating margin was 55.7% for the non- mature communities. 1997 Acquisitions - ----------------- On an average investment of $355 million, the 1997 acquisitions which consisted of 8,524 apartment homes provided a 9.1% return on investment during 1998. For the year, these communities had economic occupancy of 91.5% and an operating margin of 56.6%. During 1998, property operating expenses were adversely impacted by (i) an increase in real estate taxes due to reassessments at several Florida communities and (ii) the delay in United Dominion's implementation of its water billing and reimbursement schedule for these communities. 1998 Acquisitions - ----------------- 1998 Single Acquisitions On an average investment of $312 million, the 1998 acquisitions which consisted of 6,959 apartment homes provided an annualized return on investment of 8.7%. These results were below the full year forecasted return on investment of 9.0% as a result of delays in water billing and reimbursement and market softness in San Antonio and Phoenix where United Dominion acquired communities in 1998. ASR Investments Corporation (ASR) A total of 7,550 apartment homes were included in the ASR merger on March 27, 1998, which provided the largest increase in property rental income and property operating expenses for United Dominion's apartment portfolio during 1998. The annualized return on investment for the ASR properties was 7.3% on an average investment of $313 million during 1998. The under-performance of this portfolio was primarily attributable to weak markets in Phoenix, Tucson and Albuquerque and certain assets were undergoing upgrading and repositioning. For the year ended December 31, 1998, these communities had economic occupancy of 87.9% and an operating margin of 49.3%. American Apartment Communities (AAC) This included 14,001 apartment homes in the AAC merger on December 7, 1998 for an initial investment of $767 million. This acquisition did not have a material effect on 1998 results of operations. Disposition Communities - ------------------------ During 1998 and 1997, United Dominion sold approximately $225 million of real estate consisting of 30 communities with 7,888 apartment homes, the net proceeds from which were used to acquire newer communities that provide higher long-term returns on investment than the communities being sold. The properties sold during 1998 had a capitalization rate (budgeted property operating income less a replacement reserve divided by the sales price) in excess of 10%. Development Communities - ----------------------- These communities consisted of 1,957 apartment homes in five new communities and five additional phases to existing communities developed from January 1, 1997 to December 31, 1998. Once stabilized, development communities are projected to generate an average return on investment in excess of 10%. 31
Interest Expense During 1999, interest expense increased $47.5 million over the corresponding amount in 1998 as the weighted average amount of debt employed during 1999 was higher than it was in 1998 ($2.1 billion in 1999 versus $1.5 billion in 1998). The increase in the weighted average amount of debt employed in 1999 is primarily due to debt assumed during 1998 to fund United Dominion's investment activities. The weighted average interest rate on this debt was 7.4% in both 1999 and 1998. For 1999, 1998 and 1997, total interest capitalized was $5.2 million, $3.4 million and $2.6 million, respectively. For 1998, interest expense increased $27.2 million over 1997. The weighted average amount of debt employed during 1998 was higher than it was in 1997 ($1.5 billion in 1998 versus $1.0 billion in 1997) which accounted for the majority of the increase in interest expense. The weighted average interest rate on this debt was slightly lower than it was in 1997, decreasing from 7.5% in 1997 to 7.4% in 1998 reflecting greater usage of lower rate short-term bank borrowings in 1998 ($238.6 million weighted average outstanding in 1998 versus $74.6 million in 1997). General and Administrative During the year ended December 31, 1999, general and administrative expenses increased $3.7 million, or 36.6%, over 1998, primarily due to the expanded operations of United Dominion and its continued investment in professional staff, technology and scaleable accounting and information systems. During 1998, general and administrative expenses increased by $3.1 million over 1997. In 1998, United Dominion incurred increases in most of its general and administrative expense categories which was directly attributable to the expanded operations of United Dominion and its investment in infrastructure. The largest increases occurred in payroll and payroll-related expenses. General and administrative expense as a percentage of rental income increased 0.3% from 1.8% during 1997 to 2.1% during 1998 primarily due to (i) the added infrastructure costs incurred due to the expanded operations of United Dominion and (ii) the change in accounting for internal acquisition costs subsequent to March 19, 1998. Impairment Loss For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate portfolio. At the beginning of June 1999, United Dominion embarked on an accelerated disposition plan for non- strategic properties. As a result of the review of its real estate apartment portfolio, 21 properties included in real estate held for investment were moved to real estate held for disposition during the second quarter. Accordingly, through the review and analysis of communities targeted for strategic disposition, an aggregate $7.1 million impairment loss was recognized on five communities in the second quarter. Based on United Dominion's review and analysis of the sales planned for 2000 and the periodic evaluation of its apartment portfolio, an additional $11.2 million impairment loss was recognized in the fourth quarter of 1999, related principally to communities acquired in the ASR merger in 1998. During 1997, the company recorded and impairment loss of $1.4 million relating to two communities included in United Dominion's real estate held for investment. These communities were subsequently moved to real estate held for disposition based upon management's decision to dispose of these properties. Distributions to Preferred Shareholders Distributions to preferred shareholders totaled $37.7 million for 1999 compared to $23.6 million for 1998. The increase was a result of the issuance of eight million shares of Series D 7.50% Cumulative Convertible Redeemable Preferred Stock in December 1998. Distributions to preferred shareholders totaled $23.6 million for the year ended December 31, 1998 compared to $17.3 million for 1997. The increase was a result of the issuance of six million shares of Series B 8.60% Cumulative Redeemable Preferred Stock in May 1997. 32
age of 25 Inflation United Dominion believes that the direct effects of inflation on United Dominion's operations have been inconsequential. Information Technology United Dominion is currently engaged in the development of an innovative on-site property management system (the "system") to enable management to capture, review and analyze data to a greater extent than is possible using available existing commercial software. United Dominion believes the new system will enable it to become a more efficient provider of a high quality living environment for its residents, and provide the scalability necessary to support future growth. These development activities are being conducted through a joint venture with another public multifamily real estate company. The system development process is currently managed by the employees of United Dominion and its joint venture partner who have significant related project management experience. The actual programming and documentation of the system is being conducted by employees and third party consultants under the supervision of these experienced project managers. Current projections indicate that total development costs over a three-year period will be approximately $7.5 million (including hardware costs and expenses, the costs of employees and related overhead, and the costs of engaging third party consultants) and that such development costs will be shared on an equal basis by the joint venture partners. Once developed, the system would be used in place of current property management information systems for which a license fee is paid to third parties. The system is currently projected to undergo an on-site test (i.e., a "beta test") during the third quarter of 2000 and the system should be functional by the fourth quarter of 2000. Neither United Dominion nor its joint venture partner have been engaged in the development of systems software. There are several risks associated with the development of the system for internal use, such as: (i) the inability to maintain the schedule or budget that has been projected for the development and implementation of the software, and (ii) the system may not have the functionality and efficiencies desired. Year 2000 United Dominion completed the transition to the Year 2000 with all of its computer platforms Year 2000 compliant and the transition took place without incident. There have been no reported problems with any equipment or software, nor have any disruptions with suppliers or vendors occurred. United Dominion will continue to monitor its systems in 2000 to insure that any latent issues with Year 2000 are identified and addressed. Taxable REIT Subsidiary In December 1999, the REIT Modernization Act ("RMA") was signed into law. The RMA contains several provisions that, when effective in 2001, will allow REIT's to compete more effectively in the real estate industry by allowing REIT's to offer the same types of services as other competitors in the marketplace. The most important feature of the RMA is the allowance for REIT's to create a taxable REIT subsidiary ("TRS") that can provide services to residents and others without disqualifying the rents that a REIT receives from its residents. Under the prior law, REIT's were not allowed to provide non-customary or tenant specific services to its residents, such as concierge services, beyond a de minimus amount. As the apartment industry has become a competitive customer focused business, these constraints inhibited REIT's from maintaining a competitive edge in attracting and maintaining residents. As such, the RMA has several significant benefits for the REIT industry REIT's will be allowed, through a TRS, to provide a wide range of increasingly important services that residents have come to expect. In addition, the TRS will allow REIT's to generate new sources of income for REIT shareholders. Effective January 1, 2001, a REIT can own 100% of the stock of a TRS. However, the legislation contains a number of safeguards that would limit the size of a TRS to ensure that REIT's remain focused on their core business of owning and operating real estate assets. 33
The RMA provides another significant change to the existing law. The RMA changes the minimum distribution requirement from 95% to 90% of the REIT's taxable income. This will allow REIT's to retain a greater level of capital which can be used to invest back into expenditures to maintain the quality of their real estate assets as well as repay outstanding debt. During 2000, United Dominion will determine the best uses of the TRS in order to be in a position to take full advantage of the opportunities the new legislation has to offer in 2001. 34
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- Information required by this regarding Quantitative and Qualitative Disclosures about Market Risk is included in Part II, Item 7 of this Annual Report on Form 10-K included in Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------- See Index to Consolidated Financial Statements and Schedule on page 45 of this Annual Report on Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None. 35
Part III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 9, 2000. Information required by this item regarding the executive officers of United Dominion is included in Part I of this Annual Report on Form 10-K in the section entitled "Executive Officers of the Registrant". Item 11. EXECUTIVE COMPENSATION - -------------------------------- Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 9, 2000. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 9, 2000. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 9, 2000. 36
PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) (1&2) See Index to Consolidated Financial Statements and Schedule on page 45 of this Annual Report on Form 10-K. (3) Exhibits The exhibits listed below are filed as part of this Annual Report. References under the caption Location to exhibits, forms, or other filings indicate that the form or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. <TABLE> <CAPTION> Exhibit Description Location - --------- --------------------------------------- --------------------------------------------------- <S> <C> <C> 1(a) Underwriting Agreement and related Filed herewith. Pricing Agreement, each dated February 29, 2000, between the Company and certain of its subsidiaries and the underwriters named therein, relating to $100,000,000 8.625% Notes Due 2003 of the Company, issued March 3, 2000. 2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration as of December 19, 1997, between Statement (Registration No. 333-45305) filed with the Company, ASR Investment the Commission on January 30, 1998. Corporation and ASR Acquisition Sub, Inc. 2(b) Agreement of Plan of Merger dated as Exhibit 2(c) to the Company's Form S-3 Registration of September 10, 1998, between the Statement (Registration No. 333-64281) filed with Company and American Apartment the Commission on September 25, 1998. Communities II, Inc. including as exhibits thereto the proposed terms of the Series D Preferred Stock and the proposed form of Investment Agreement between the Company, United Dominion Realty, L.P., American Apartment Communities II, Inc., American Apartment Communities Operating Partnership, L.P., Schnitzer Investment Corp., AAC Management LLC and LF Strategic Realty Investors, L.P. 2(c) Partnership Interest Purchase and Exchange Exhibit 2(d) to the Company's Form S-3 Registration Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with between the Company, United Dominion the Commission on September 25, 1998. Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. 3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement (Registration No. 333-72885) filed with the Commission on February 24, 1999. </TABLE> 37
<TABLE> <S> <C> <C> 3(b) Restated By-Laws Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report Certificate on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares of 9 1/4% Exhibit 1(e) to the Company's Form 8-A Series A Cumulative Redeemable Preferred Registration Statement dated April 24, 1995. Stock 4(i)(c) Form of Certificate for Shares of 8.60% Exhibit 1(e) to the Company's Form 8-A Series B Cumulative Redeemable Preferred Registration Statement dated June 11, 1997. Stock 4(i)(d) Rights Agreement dated as of January 27, Exhibit 1 to the Company's Form 8-A 1998, between the Company and ChaseMellon Registration Statement dated February 4, 1998. Shareholder Services, L.L.C., as Rights Agent. 4(i)(d)(a) First Amended and Restated Rights Exhibit 4(i)(d)(a) to the Company's Form 10-Q Agreement dates as of September 14, for the quarter ended September 30, 1999. 1999, between the Company and ChaseMellon Shareholders Services, L.L.C., as Rights Agent 4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A Registration Statement dated February 4, 1998. 4(ii)(e) Note Purchase Agreement dated as of February Exhibit 6(c)(5) to the Company's Form 8-A 15, 1993, between the Company and CIGNA Registration Statement dated April 19, 1990. Property and Casualty Insurance Company, Connecticut General Life Insurance Company, Connecticut General Life Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 4(ii)(f) 364-day Credit Agreement dated as of September Exhibit 4(ii)(f) to the Company's Form 10-Q for 16, 1999, between the Company and certain the quarter ended September 30, 1999. subsidiaries and a syndicate of banks represented by Bank of America, N.A. 4(ii)(g)(a) Resolutions of the Board of Directors of the Filed herewith. Company establishing terms of 8.625% Notes Due 2003. 4(ii)(g)(b) Form of 8.625% Notes Due 2003. Filed herewith. 10(i) Employment Agreement between the Company and Exhibit 10(i) to the Company's Annual Report John P. McCann dated December 8, 1998. on Form 10-K for the year ended December 31, 1998. </TABLE> 38
<TABLE> <S> <C> <C> 10(ii) Employment Agreement between the Company Exhibit 10(ii) to the Company's Annual Report and John S. Schneider dated December 8, on Form 10-K for the year ended December 31, 1998. 1998. 10(iii) Employment Agreement between the Company Exhibit 10(iii) to the Company's Annual Report and Richard Giannotti dated December 8, on Form 10-K for the year ended December 31, 1998. 1998. 10(iv) Employment Agreement between the Company Exhibit 10(iv) to the Company's Quarterly Report and A. William Hamill dated September 30, on Form 10-Q for the quarter ended September 30, 1999. 1999. 10(v) 1985 Stock Option Plan, as amended. Exhibit 10(iv) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 10(vi) 1991 Stock Purchase and Loan Plan. Exhibit 10(viii) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. 10(vii) Third Amended and Restated Agreement of Exhibit 10(vi) to the Company's Annual Report Limited Partnership of United Dominion on Form 10-K for the year ended December 31, Realty, L.P. Dated as of December 7, 1998. 1998. 10(vii)(a) Subordination Agreement dated April 16, 1998, Exhibit 10(vi)(a) to the Company's Form 10-Q for between the Company and United Dominion the quarter ended March 31, 1998. Realty, L.P. 10(viii) Servicing and Purchase Agreement dated as of Exhibit 10(vii) to the Company's Form 10-Q for June 24, 1999, including as an exhibit thereto the quarter ended June 30, 1999. the Note and Participation Agreement forms. 10(ix) Description of Restricted Stock Awards Filed herewith. Program. 10(x) Description of United Dominion Realty Trust, Filed herewith. Inc. Shareholder Value Plan. 10(xi) Description of United Dominion Realty Trust, Filed herewith. Inc. Executive Deferral Plan. 10(xii) Employment Agreement between the Company and Filed herewith. Curtis W. Carter dated December 8, 1998. 10(xiii) Employment Agreement between the Company and Filed herewith. Mark E. Wood dated March 21, 2000. 12 Computation of Ratio of Earnings to Fixed Filed herewith. Charges. </TABLE> 21 The Company has the following subsidiaries, all of which but United Dominion Realty, L.P. are wholly owned. The Company owns general and limited partnership interests in United Dominion Realty, L.P., constituting 90.8% of the aggregate partnership interest. United Dominion Realty Trust, Inc. The Commons of Columbia, Inc. UDRT of Virginia, Inc. United Dominion Residential, Inc. UDR at Marble Hill, LLC United Dominion Realty, L.P. UDRT of North Carolina, L.L.C. UDRT of Alabama, Inc. Cleary Court Property Owners' Association, Inc. 39
UDR South Carolina Trust UDR Western Residential, Inc. SWPT II Arizona Properties, Inc. SRL Amarillo Investors, Inc. Little Rock Apartment Management, Inc. SWP Arkansas Properties, Inc. SWP Developers, Inc. SWP Depositor, Inc. South West REIT Holding, Inc. South West Properties, L.P. SWP REMIC Properties II, Inc. SWP REMIC Properties II-A, L.P. SWP Creeks Properties, Inc. UDR Summit Ridge, L.P. SWP Woodscape Properties, Inc. SWP Woodscape Properties I, L.P. SWP Properties, Inc. SWP Properties I, L.P. South West Property Apartments, L.P. UDR Pecan Grove, L.P. UDR Camino Village, L.P. United Sub, Inc. ASR Acquisition Sub, Inc. UDR Audubon, L.P. UDR Villages of Thousand Oaks, L.P. UDR Cimarron City, L.P. UDR Kenton, L.P. ASR Investments Corporation Heritage Communities L.P. Heritage SGP Corporation Heritage - Aspen Court L.P. Heritage - Gentry Place L.P. Heritage - Greenwood Creek L.P. Heritage - Highlands of Preston L.P. Heritage - 14400 Montfort L.P. Heritage - Preston Park L.P. Heritage - Smith Summit L.P. Heritage - Springfield L.P. Heritage - Briar Park L.P. Heritage - Chelsea Park L.P. Heritage - Country Club Place L.P. Heritage - Ivystone L.P. Heritage - London Park L.P. Heritage - Marymont L.P. Heritage - Riverway L.P. Heritage - Timbercreek Landings L.P. Heritage - Campus Commons North, L.L.C. Heritage - Campus Commons South, L.L.C. Heritage - Court, L.L.C. Heritage - On The Boulevard, L.L.C. Heritage - Pacific South Center, L.L.C. 40
Heritage - Arbor Terrace I, L.L.C. Heritage - Arbor Terrace II, L.L.C. ASR Properties, Inc. ASC Properties, Inc. ASC-I Properties, Inc. ASC-II Properties, Inc. ASC-III Properties, Inc. ASC-IV Properties, Inc. ASC-V Properties, Inc. Rescap Inc. Rescap Manager Limited Partnership Contempo Heights L.L.C. La Privada L.L.C. Finisterra Apartments L.L.C. ASV-I Properties, Inc. ASV-II Properties, Inc. ASV-III Properties, Inc. ASV-IV Properties, Inc. ASV-V Properties, Inc. ASV-VI Properties, Inc. ASV-VII Properties, Inc. ASV-VIII Properties, Inc. ASV-IX Properties, Inc. ASV-X Properties, Inc. ASV-XI Properties, Inc. ASV-XII Properties, Inc. ASV-XIII Properties, Inc. ASV-XIV Properties, Inc. ASV-XV Properties, Inc. ASV-XVI Properties, Inc. ASV-XVII Properties, Inc. Heritage Residential Group, Inc. RMA Investments Holdings, Inc. CIMSA Financial Corporation RMA Investments I, Inc. RMA Investments II, Inc. Cholla Estates Construction L.L.C. ASR Finance Corporation Southwest Capital Mortgage Funding L.P. ASR Mortgage Acceptance, Inc. UDR Developers, Inc. UDR Texas Properties, L.P. UDR of Tennessee, L.P. UDR Seniors Housing, L.P. UDR Aspen Creek, LLC United Dominion Residential Ventures, L.L.C. American Apartment Communities Holdings, Inc. AAC Funding II, Inc. AAC Funding III, Inc. AAC Funding IV, Inc. AAC Seattle I, Inc. 41
FMP Member, Inc. AAC Funding IV LLC AAC Funding Partnership II AAC Funding Partnership III AAC Vancouver I, L.P. AAC/FSC Crown Pointe Investors, LLC AAC/FSC Hilltop Investors, LLC AAC/FSC Seattle Properties, LLC CMP-1, LLC Coastal Anaheim Properties, LLC Coastal Long Beach Properties, LLC Coastal Monterey Properties LLC Fountainhead Apartments Limited Partnership Governour's Square of Columbus Co. Jamestown of St. Matthews Co. Northbay Properties II, L.P. Parker's Landing Venture I Parker's Landing Venture II Polo Chase Venture Limited Partnership Regency Park, L.P. Sunset Company Tivoli of Columbus Limited Partnership Windward Point, LLC Winterland San Francisco Partners Woodlake Village, L.P. UDR Virginia Properties, LLC UDR California Properties, L.L.C. UDR Florida Properties, L.L.C. UDR Holdings, LLC UDR Lakeside Mills, LLC UDR Maryland Properties, LLC 23 Consent of Independent Filed herewith. Auditors 27 Financial Data Schedule Filed electronically with the Securities and Exchange Commission. Exhibits 10(i) through 10(v) inclusive, are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (b) Reports on Form 8-K A Form 8-K was filed with the Securities and Exchange Commission on February 25, 2000. The filing reported United Dominion's 1999 fourth quarter and year to date results of operations as reported on its Press Release issued on February 1, 2000. A Form 8-K was filed with the Securities and Exchange Commission on December 22, 1999. The filing reported United Dominion's 1999 dispositions and plans for 2000 dispositions as reported on its Press Release issued on December 16, 1999. 42
A Form 8-K was filed with the Securities and Exchange Commission on March 29, 1999. The filing reported pro forma financial information with respect to the American Apartment Communities II, Inc. merger. A Form 8-K was filed with the Securities and Exchange Commission on January 20, 1999. The filing reported pro forma financial information with respect to the American Apartment Communities II, Inc. merger. 43
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. United Dominion Realty Trust, Inc. - ---------------------------------- (registrant) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 17, 2000 by the following persons on behalf of the registrant and in the capacities indicated. /s/ John P. McCann /s/ Jeff C. Bane - ------------------------------------- ----------------------------------- John P. McCann Jeff C. Bane Chairman of the Board and Chief Director Executive Officer /s/ Lynne Sagalyn - ------------------------------------- ___________________________________ Lynne Sagalyn Mark J. Sandler Director Director /s/ John S. Schneider /s/ Robert W. Scharar - ------------------------------------- ----------------------------------- John S. Schneider Robert W. Scharar Director, Vice Chairman of the Board, Director President and Chief Operating Officer _____________________________________ ___________________________________ Robert P. Freeman Jon A. Grove Director Director /s/ James D. Klingbeil /s/ Barry M. Kornblau - ------------------------------------- ----------------------------------- James D. Klingbeil Barry M. Kornblau Director Director /s/ R. Toms Dalton /s/ Robin R. Flanagan - ------------------------------------- ----------------------------------- R. Toms Dalton Robin R. Flanagan Director Vice President, Controller-Corporate Accounting and Chief Accounting Officer /s/ A. William Hamill - ------------------------------------- A. William Hamill Executive Vice President and Chief Financial Officer 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE UNITED DOMINION REALTY TRUST, INC. <TABLE> <CAPTION> Page ---- <S> <C> FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT Report of Ernst & Young LLP, Independent Auditors 46 Consolidated Balance Sheets at December 31, 1999 and 1998 47 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999 48 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999 49 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1999 50 Notes to Consolidated Financial Statements 51 SCHEDULE FILED AS PART OF THIS REPORT Schedule III - Summary of Real Estate Owned 70 </TABLE> 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. 45
Report of 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, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 also 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 estimate 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Dominion Realty Trust, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, 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. Ernst & Young LLP Richmond, Virginia January 31, 2000 46
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) <TABLE> <CAPTION> December 31, December 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Real estate owned: Real estate held for investment (Notes 2 and 9) $ 3,577,848 $ 3,643,245 Less: accumulated depreciation 373,164 280,663 -------------- -------------- 3,204,684 3,362,582 Real estate under development 91,914 99,395 Real estate held for disposition (net of accumulated depreciation of $22,700 and $35,967) (Note 2) 260,583 174,145 -------------- -------------- Total real estate owned, net of accumulated depreciation 3,557,181 3,636,122 Cash and cash equivalents 7,678 26,081 Restricted cash 56,969 50,805 Deferred financing costs 13,511 10,894 Other assets 52,978 39,038 -------------- -------------- Total assets $ 3,688,317 $ 3,762,940 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Secured debt (Note 3) $ 1,000,136 $ 1,072,185 Unsecured debt (Note 4) 1,127,169 1,045,564 Real estate taxes payable 30,887 29,078 Accrued interest payable 17,867 20,714 Security deposits and prepaid rent 20,738 21,125 Distributions payable 36,020 31,423 Accounts payable, accrued expenses and other liabilities 51,121 53,288 -------------- -------------- Total liabilities 2,283,938 2,273,377 Minority interests 94,167 115,442 Shareholders' equity (Notes 6 and 7): Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 4,168,560 shares 9.25% Series A Cumulative Redeemable issued and 104,214 105,000 outstanding (4,200,000 in 1998) 5,946,300 shares 8.60% Series B Cumulative Redeemable issued and 148,658 150,000 outstanding (6,000,000 in 1998) 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued 175,000 175,000 and outstanding Common stock, $1 par value; 150,000,000 shares authorized 102,740,777 shares issued and outstanding (103,639,117 in 1998) 102,741 103,639 Additional paid-in capital 1,083,687 1,090,432 Distributions in excess of net income (296,030) (242,331) Deferred compensation - unearned restricted stock awards (305) -- Notes receivable from officer-shareholders (7,753) (7,619) -------------- -------------- Total shareholders' equity 1,310,212 1,374,121 -------------- -------------- Total liabilities and shareholders' equity $ 3,688,317 $ 3,762,940 ============== ============== </TABLE> See accompanying notes to consolidated financial statements. 47
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) <TABLE> <CAPTION> Year ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues Rental income $ 618,749 $ 478,718 $ 386,672 Other non-property income 1,942 3,382 1,123 ------------ ------------ ------------ Total revenues 620,691 482,100 387,795 Expenses Rental expenses: Personnel 66,968 51,219 53,315 Real estate taxes and insurance 63,425 48,898 36,273 Repair and maintenance 41,339 36,827 21,392 Utilities 30,106 26,361 24,861 Administrative and marketing 25,410 19,066 15,208 Property management 18,475 16,945 12,299 Other operating expenses 1,539 244 383 Real estate depreciation 121,727 99,588 76,688 Interest 153,748 106,238 79,004 Impairment loss on real estate and investments (Note 2) 19,300 - 1,400 General and administrative 13,850 10,139 7,075 Other depreciation and amortization 4,425 3,645 2,084 Loss on termination of interest rate risk management agreement (Note 5) - 15,591 - ------------ ------------ ------------ Total expenses 560,312 434,761 329,982 ------------ ------------ ------------ Income before gains on sales of investments, minority interests and extraordinary item 60,379 47,339 57,813 Gains on sales of investments 37,995 26,672 12,664 ------------ ------------ ------------ Income before minority interests and extraordinary item 98,374 74,011 70,477 Minority interests of outside partners (1,245) (111) - Minority interests of unitholders in operating partnership (4,434) (1,430) (278) ------------ ------------ ------------ Income before extraordinary item 92,695 72,470 70,199 Extraordinary item - early extinguishment of debt 927 (138) (50) ------------ ------------ ------------ Net income 93,622 72,332 70,149 Distributions to preferred shareholders - Series A and B (22,560) (22,607) (17,345) Distributions to preferred shareholders - Series D (Convertible) (15,154) (986) - ------------ ------------ ------------ Net income available to common shareholders $ 55,908 $ 48,739 $ 52,804 ============ ============ ============ Earnings per common share (Note 1): Basic $ 0.54 $ 0.49 $ 0.61 ============ ============ ============ Diluted $ 0.54 $ 0.49 $ 0.60 ============ ============ ============ Common distributions declared per share $ 1.06 $ 1.05 $ 1.01 ============ ============ ============ Weighted average number of common shares outstanding-basic 103,604 99,966 87,145 Weighted average number of common shares outstanding-diluted 103,639 100,062 87,339 </TABLE> See accompanying notes to consolidated financial statements. 48
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Year ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Activities Net income $ 93,622 $ 72,332 $ 70,149 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 126,152 103,233 78,772 Minority interests 5,679 1,541 278 Impairment loss on real estate and investments 19,300 -- 1,400 Amortization of deferred financing costs and other 5,184 2,061 1,706 Gains on sales of investments (37,995) (26,672) (12,664) Extraordinary item-early extinguishment of debt (927) 138 50 Net cash paid in mergers (8,417) -- -- Changes in operating assets and liabilities: Increase in operating liabilities 3,640 30,682 8,830 Increase in operating assets (15,362) (30,440) (10,618) ------------- ------------- ------------- Net cash provided by operating activities 190,876 152,875 137,903 Investing Activities Net proceeds from sales of investments 236,706 155,459 77,257 Development of real estate assets (114,028) (97,222) (52,217) Acquisition of real estate, net of liabilities assumed (75,719) (169,808) (271,836) Capital expenditures - real estate assets (74,323) (100,398) (95,499) Capital expenditures - non real estate assets (8,062) (2,876) (3,659) Net cash paid in mergers -- (59,446) -- Other investing activities 1,132 (1,851) 3,681 ------------- ------------- ------------- Net cash used in investing activities (34,294) (276,142) (342,273) Financing Activities Net reduction in secured debt (72,048) (98,792) (19,337) Net proceeds from the issuance of unsecured debt 83,828 307,482 69,936 Payment of financing costs (6,719) (4,875) (2,836) Proceeds from the sale of preferred stock -- -- 145,068 Proceeds from the issuance of common stock 17,250 76,686 100,751 Distributions paid to minority interests (9,200) (2,413) (144) Distributions paid to preferred shareholders (34,958) (22,611) (16,270) Distributions paid to common shareholders (109,608) (103,074) (85,777) Repurchase of operating partnership units (11,967) (3,528) -- Repurchase of common and preferred stock (31,563) -- -- ------------- ------------- ------------- Net cash (used in)/provided by financing activities (174,985) 148,875 191,391 Net increase (decrease) in cash and cash equivalents (18,403) 25,608 (12,979) Cash and cash equivalents, beginning of year 26,081 473 13,452 ------------- ------------- ------------- Cash and cash equivalents, end of year $ 7,678 $ 26,081 $ 473 ============= ============= ============= Supplemental Information: Interest paid during the period $ 162,236 $ 104,858 $ 76,669 Conversion of operating partnership units to common stock 3,947 7,542 -- Non-cash transactions associated with the acquisition of properties: Secured debt assumed -- 116,326 60,052 Issuance of common stock -- 7,099 -- Issuance of operating partnership -- 18,477 12,530 units Non-cash transactions associated with mergers: Real estate assets acquired -- 1,080,696 -- Other operating assets acquired -- 26,845 -- Issuance of preferred stock -- 175,000 -- Issuance of common stock -- 108,456 -- Issuance of operating partnership units -- 88,831 -- Secured debt assumed -- 637,188 -- Operating liabilities assumed -- 36,026 -- Minority interests in partnerships assumed -- 5,382 -- </TABLE> See accompanying notes to consolidated financial statements. 49
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share data) <TABLE> <CAPTION> Year ended December 31 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Preferred Stock Balance, beginning of year $ 430,000 $ 255,000 $ 105,000 Issuance of 8.60% Series B Cumulative Redeemable - - 150,000 Issuance of 7.50% Series D Cumulative Convertible Redeemable in connection with the acquisition of American Apartment Communities II - 175,000 - Purchase of preferred stock (2,128) - - ------------ ------------ -------------- Balance, end of year $ 427,872 $ 430,000 $ 255,000 ============ ============ ============== Common Stock, $1 Par Value Balance, beginning of year $ 103,639 $ 89,168 $ 81,983 Issuance of common shares in public offerings - 2,804 4,000 Issuance of common shares in the acquisition of ASR Investment Corporation - 7,743 - Issuance of common shares to employees, officers and director- shareholders 72 78 333 Issuance of common shares through dividend reinvestment and stock purchase plan 1,598 2,825 2,852 Issuance of common shares in connection with the acquisition of properties - 482 - Purchase of common stock (2,688) - - Issuance of restricted stock awards 46 - - Conversion of operating partnership units 74 539 - ------------ ------------ -------------- Balance, end of year $ 102,741 $ 103,639 $ 89,168 ============ ============ ============== Additional Paid-in Capital Balance, beginning of year $ 1,090,432 $ 906,307 $ 814,795 Issuance of commons shares in public offerings, net of issuance costs - 35,170 55,386 Issuance of common shares in the acquisition of ASR Investment Corporation - 100,713 - Offering costs associated with the issuance of preferred shares - - (4,934) Issuance of common shares to employees, officers and director-shareholders 665 801 4,170 Issuance of common shares through dividend reinvestment and stock purchase plan 15,049 33,821 36,890 Issuance of common shares in connection with the acquisition of properties - 6,617 - Purchase of common stock (27,372) - - Purchase of preferred stock 626 - - Issuance of restricted stock awards 414 - - Adjustment for cash purchase and conversion of minority interests of - - - unitholders in operating partnerships 3,873 7,003 - ------------ ------------ -------------- Balance, end of year $ 1,083,687 $ 1,090,432 $ 906,307 ============ ============ ============== Notes Receivable from Officer-Shareholders Balance, beginning of year $ (7,619) $ (8,806) $ (5,926) Principal repayments officer-shareholders 139 1,413 635 Shares issued to officer-shareholders (273) (226) (3,515) ------------ ------------ -------------- Balance, end of year $ (7,753) $ (7,619) $ (8,806) ============ ============ ============== Distributions in Excess of Net Income Balance, beginning of year $ (242,331) $ (183,312) $ (147,529) Net income 93,622 72,332 70,149 Common stock distributions declared ($1.06 per share for 1999, $1.05 per share for 1998 and $1.01 per share for 1997) (109,607) (107,758) (88,587) Preferred stock distributions declared-Series A ($2.31 per share for 1999, 1998 and 1997) (9,688) (9,704) (9,713) Preferred stock distributions declared-Series B ($2.15 per share for 1999 and 1998 and $1.27 per share for 1997) (12,872) (12,903) (7,632) Preferred stock distributions declared-Series D ($1.89 per share for 1999 and $.12 per share for 1998) (15,154) (986) - ------------ ------------ -------------- Balance, end of year $ (296,030) $ (242,331) $ (183,312) ============ ============ ============== Deferred Compensation - Unearned Restricted Stock Awards Balance, beginning of year $ - $ - $ - Issuance of restricted stock awards (460) - - Amortization of deferred compensation 155 - - ------------ ------------ -------------- Balance, end of year $ (305) $ - $ - ============ ============ ============== Unrealized Gains on Securities Available-for-Sale Balance, beginning of year $ - $ - $ 2,056 Realized gain on securities available-for-sale - - (2,056) Unrealized gain on securities available-for-sale - - - ------------ ------------ -------------- Balance, end of year $ - $ - $ - ============ ============ ============== Total Shareholders' Equity $ 1,310,212 $ 1,374,121 $ 1,058,357 ============ ============ ============== </TABLE> See accompanying notes to consolidated financial statements. 50
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 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, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities nationwide. At December 31, 1999, United Dominion owned 301 communities with 82,154 completed apartment homes and had three communities and three additional phases to existing communities with 1,622 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. (collectively, "United Dominion"). As of December 31, 1999, there were 74,463,788 units in the Operating Partnership outstanding, of which, 67,619,425, or 90.8%, were owned by United Dominion and 6,844,363, or 9.2%, were owned by non-affiliated limited partners. In connection with the acquisition of ASR Investment Corporation in March 1998, United Dominion acquired Heritage Communities L.P., a Delaware limited partnership (the "Heritage OP"). As of December 31, 1999, there were 4,502,668 units in the Heritage OP outstanding, of which 3,839,330, or 85.3%, were owned by United Dominion and 663,338 units, or 14.7%, 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 that complies with the provisions of the Code and distributes at least 95% of its taxable income to its shareholders will not be subject to U.S. federal income taxes. Accordingly, no provision has been made for federal income taxes. However, United Dominion is subject to certain state and local excise or franchise taxes. 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. For income tax purposes, distributions paid to common shareholders consist of ordinary income, capital gains, return of capital or a combination thereof. For the three years ended December 31, 1999, distributions paid per common share were taxable as follows: 1999 1998 1997 ------ ------ ------ Ordinary income $ .620 $.913 $.727 Long-term capital gain .129 --- .021 Return of capital .309 .127 .249 ------ ----- ----- $1.058 $1.040 $.997 ====== ====== ===== Dividends declared on all series of United Dominion's preferred stock represent ordinary income to preferred stockholders for tax purposes in the year paid. Use of estimates The preparation of the financial statements in conformity with generally accepted accounting principles 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. 51
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 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. Real estate Real estate assets held for investment are carried at historical cost less accumulated depreciation less any recorded impairment losses. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Significant 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. 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. Real estate is classified as real estate held for disposition when management has committed to sell and is actively marketing the property, and United Dominion expects to dispose of these properties within the next twelve months. 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. 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 5 to 20 years for furniture, fixtures, equipment and other assets. All development projects and related carrying costs are capitalized and reported on the 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 and real estate taxes incurred during the development period 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 1999, 1998 and 1997, total interest capitalized was $5.2 million, $3.4 million and $2.6 million, respectively. Commencing with the adoption of EITF No. 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions" in March 1998, United Dominion expenses direct internal costs of identifying and acquiring operating properties. 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 paid. 52
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 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 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. Interest rate swap agreements United Dominion enters into interest rate swap agreements to alter the interest rate characteristics of outstanding debt instruments. 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. The fair value of and changes in the fair value as a result of changes in market interest rates for the interest rate swap agreements are not reflected in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized into interest expense over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. There were no gains or losses on terminations of interest rate swap agreements recognized by United Dominion for the periods presented. Any interest rate swap agreements that are not designated with outstanding debt or notional amounts of interest rate swap agreements in excess of the original amounts of the underlying debt obligations are recorded as an asset or liability at fair value, with the changes in the fair value recorded in other income or expense (fair value method). Interest rate risk management agreements United Dominion enters into interest rate futures contracts to hedge interest rate risk associated with anticipated debt transactions. United Dominion follows SFAS No. 80, "Accounting for Futures Contracts," which permits hedge accounting for anticipatory transactions meeting certain criteria. Gains and losses, if any, on these transactions are deferred as an adjustment to the carrying amount of the outstanding debt and amortized over the term of the related debt as an adjustment to interest expense. The fair values of interest rate risk management agreements are not recognized in the financial statements. At the time the anticipated transaction is no longer likely to occur, United Dominion would mark the derivative instrument to market and would recognize any adjustment in the consolidated statement of operations. 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 on 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 early extinguishment of debt does not have an effect on the earnings per share calculation for the periods presented. The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts): 53
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 <TABLE> <CAPTION> 1999 1998 1997 - --------------------------------------------------------------------------- <S> <C> <C> <C> Numerator for basic and diluted earnings per share-net income available to common shareholders $ 55,908 $ 48,739 $52,804 Denominator: Denominator for basic earnings per share- weighted average shares 103,604 99,966 87,145 Effect of dilutive securities: Employee stock options 35 96 194 -------- -------- ------- Denominator for dilutive earnings per share 103,639 100,062 87,339 ======== ======== ======= Basic earnings per share $ .54 $ .49 $ .61 ======== ======== ======= Diluted earnings per share $ .54 $ .49 $ . 60 ======== ======== ======= </TABLE> 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, 1999, 1998 and 1997 was 8,180,409, 2,963,427, and 317,120, respectively. The weighted average effect of the conversion of the convertible preferred stock for the years ended December 31, 1999 and 1998 was 12,307,692 and 809,273, respectively. Minority interests in operating partnerships Interests in operating partnerships held by limited partners are represented by operating partnership units (OP Units). The operating partnerships' income is allocated to holders of OP Units based upon net income available to common shareholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions and profits and losses are allocated to minority interests in accordance with the terms of the individual partnership agreements. OP Units can be exchanged for cash or shares of United Dominion's common stock on a one-for-one basis, at the option of United Dominion. OP Units as a percentage of total OP Units and shares outstanding was 6.8%, 7.7% and 1.1% at December 31, 1999, 1998 and 1997, respectively. Minority interest 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 SFAS No. 123, "Accounting for Stock Based Compensation," requires 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. 54
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 Impact of recently issued accounting standards In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), as amended by Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133," which is required to be adopted in years beginning after June 15, 2000. Statement 133 permits early adoption as of the beginning of any fiscal quarter after its issuance, however, United Dominion does not anticipate adopting Statement 133 until such time as it is required. Statement 133 will require United Dominion to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value will be immediately recognized in earnings. United Dominion has not yet determined what the effect of Statement 133 will be on earnings and the financial position of United Dominion, however, management does not anticipate that the adoption of Statement 133 will have a significant effect on earnings or the financial position of United Dominion. 2. REAL ESTATE OWNED United Dominion operates in over 30 major markets dispersed throughout a 22 state area. At December 31, 1999, the company's largest apartment market was Dallas, Texas, where it owned 9.7% of its apartment homes, based upon carrying value. Excluding Dallas, United Dominion did not own more than 5.5% 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): <TABLE> <CAPTION> 1999 1998 -------------------------- <S> <C> <C> Land and land improvements $ 636,905 $ 647,328 Buildings and improvements 2,767,940 2,819,312 Furniture, fixtures and equipment 166,826 169,364 Construction in progress 6,177 7,241 -------------------------- Real estate held for investment 3,577,848 3,643,245 Accumulated depreciation (373,164) (280,663) -------------------------- Real estate held for investment, net $3,204,684 $3,362,582 ========================== </TABLE> The following is a summary of real estate owned by market at December 31, 1999 (dollars in thousands): Real Estate Held for Investment by Market (in order of carrying value and excluding real estate under development): <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Market Communities Cost Value Depreciation Encumbrances <S> <C> <C> <C> <C> <C> Dallas/Ft. Worth, TX 25 $ 312,391 $ 348,190 $ 28,588 $ 34,299 (A) Phoenix, AZ 10 164,891 196,529 11,174 19,500 (A) Houston, TX 15 139,969 183,991 11,875 43,546 (A) Orlando, FL 13 146,114 175,325 24,667 41,298 (A) San Antonio, TX 12 150,741 165,825 12,051 38,138 (A) Tampa, FL 11 146,849 162,933 19,550 40,177 (A) Raleigh, NC 9 123,071 139,336 23,894 15,202 San Francisco, CA 4 128,754 138,681 3,320 68,751 Columbus, OH 5 86,625 120,913 3,244 34,459 </TABLE> 55
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Market Communities Cost Value Depreciation Encumbrances <S> <C> <C> <C> <C> <C> Charlotte, NC 10 95,265 118,169 20,430 17,650 Nashville, TN 8 83,987 116,954 9,253 -- Wilmington, NC 10 80,116 111,709 23,421 -- Monterey Peninsula, CA 13 100,762 111,474 2,930 703 (A) Memphis, TN 7 95,594 103,723 10,110 33,032 South Florida 6 96,137 102,349 10,310 (A) Richmond, VA 8 75,101 100,058 24,772 2,917 (A) Columbia, SC 9 83,053 97,332 19,490 5,000 Southern California 6 94,583 95,243 2,102 6,034 Other FL 8 56,901 86,616 11,308 -- Greensboro, NC 5 63,359 78,175 8,625 -- Atlanta, GA 6 57,669 69,224 10,347 10,841 Baltimore, MD 6 58,846 65,439 10,796 18,260 (A) Seattle, WA 5 63,998 57,816 2,341 28,684 Jacksonville, FL 3 44,787 56,783 8,657 12,455 Hampton, VA 6 42,741 54,653 15,238 (A) Sacramento, CA 2 47,549 52,758 1,406 17,065 (A) Other VA 6 29,510 47,439 9,337 2,780 Denver, CO 2 44,195 44,111 1,298 -- Other North Carolina 3 39,004 41,155 4,734 10,142 Detroit, MI 4 38,126 40,254 1,111 635 (A) Other Midwest 3 36,119 38,293 1,267 1,006 (A) Washington DC 3 32,603 35,731 4,565 (A) Eastern Shore MD 4 31,403 34,790 5,217 (A) Portland, OR 3 41,892 34,353 1,163 1,542 (A) Indianapolis, IN 2 29,988 26,263 938 304 (A) Austin, TX 2 21,005 23,836 2,506 (A) Arkansas 2 20,500 22,306 2,083 -- Nevada 1 20,000 20,776 1,759 -- Delaware 2 14,732 17,761 3,044 (A) New Mexico 2 16,023 16,761 1,219 5,221 (A) Arizona 2 11,891 13,408 780 4,618 Other GA 1 8,590 10,413 2,244 (A) --------------------------------------------------------------- 264 $3,075,434 $3,577,848 $373,164 $514,259 (A) =============================================================== </TABLE> Real Estate Held for Disposition (B) <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Properties Cost Value Depreciation Encumbrances <S> <C> <C> <C> <C> <C> Apartments 37 $ 257,625 $ 270,718 $ 20,909 $ 66,407 (A) Commercial 4 11,082 12,565 1,791 3,070 ----------------------------------------------------------- 41 $ 268,707 $ 283,283 $ 22,700 $ 69,477 (A) =========================================================== Total 305 $3,344,141 $3,861,131 $395,864 $1,000,136 (A) =========================================================== </TABLE> 56
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 (A) There are 21 communities encumbered by two REMIC financings aggregating $59.2 million, 19 communities encumbered by one secured note payable aggregating $195.7 million and 29 communities encumbered by fixed rate debt aggregating $161.5 million. The amount of this debt is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (B) Real estate held for disposition contributed property operating income (property rental income less property rental expenses) in the aggregate amount of approximately $25.2 million for the year ended December 31, 1999. The properties classified as held for disposition at December 31, 1999 reflect properties management has committed to sell during the next twelve months. For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate owned. At the beginning of June 1999, United Dominion embarked on an accelerated disposition plan for non-strategic properties. Accordingly, through the review and analysis of communities targeted for strategic disposition which included exiting one of United Dominion's major markets and planned sales in 2000, 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 connection with the periodic evaluation of its apartment portfolio, United Dominion recorded a $3.5 million impairment loss on three communities acquired in the ASR merger in 1998 which are classified in real estate held for investment. An impairment loss was indicated as the sum of the estimated future cash flows from the assets was deemed to be less than their carrying amounts. The following is a reconciliation of the carrying amount of real estate held for investment at December 31, (dollars in thousands): <TABLE> <CAPTION> 1999 1998 1997 -------------------------------------- <S> <C> <C> <C> Balance at January 1 $3,643,245 $2,281,438 $ 2007,612 Real estate acquired 75,719 1,388,514 344,363 Capital expenditures 72,096 98,872 96,102 Transferred from development 116,787 23,350 65,475 Impairment loss on real estate (3,500) -- (1,400) Transferred to real estate held for disposition (326,499) (148,929) (230,714) -------------------------------------- Balance at December 31 $3,577,848 $3,643,245 $2,281,438 ====================================== </TABLE> The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands): <TABLE> <CAPTION> 1999 1998 1997 ------------------------------------ <S> <C> <C> <C> Balance at January 1 $280,663 $200,506 $173,291 Depreciation expense for the year* 122,884 100,683 77,440 Transferred to real estate held for disposition (30,383) (20,526) (50,225) ------------------------------------ Balance at December 31 $373,164 $280,663 $200,506 ==================================== </TABLE> * Includes $1,157, $1,095 and $752 for 1999, 1998 and 1997, respectively, classified as "Other depreciation and amortization" in the Consolidated Statements of Operations. 57
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 3. SECURED DEBT Secured debt, which encumber $1.9 billion or 48.0% of United Dominion's real estate owned, ($2.1 billion or 52.0% of United Dominion's real estate owned is unencumbered) consist of the following at December 31, 1999 (dollars in thousands): <TABLE> <CAPTION> Weighted Average No. of -------------------- Interest Years to Communities Principal Outstanding Rate Maturity Encumbered 1999 1998 1999 1999 1999 ---------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Fixed Rate Debt Mortgage Notes Payable (a) $ 555,414 $ 618,997 7.81% 6.5 84 Tax-Exempt Secured Notes Payable 96,699 125,405 6.91% 12.5 13 REMIC Financings 59,167 75,919 7.78% 1.0 21 Secured Credit Facilities 57,000 45,000 6.65% 14.0 -- ------------------------------------------------------------ Total Fixed Rate Secured Debt 768,280 865,321 7.61% 7.4 118 Variable Rate Debt Secured Credit Facilities 138,675 -- 6.18% 14.0 19 Tax-Exempt Secured Notes Payable 66,616 64,895 4.96% 18.9 5 Mortgage Notes Payable 26,565 141,969 7.34% 13.3 9 ------------------------------------------------------------ Total Variable Rate Secured Debt 231,856 206,864 5.96% 15.3 33 ------------------------------------------------------------ Total Secured Debt $1,000,136 $1,072,185 7.23% 9.2 151 ============================================================ </TABLE> (a) Includes fair value adjustments aggregating $14.8 million recorded in connection with two statutory mergers 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 August 2000 through June 2034 and carry interest rates ranging from 7.13% 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 from 6.13% to 8.50%. Interest on these notes is generally payable in semi-annual installments. REMIC Financings United Dominion has two fixed rate REMIC Financings which bear interest of 7.01% and 8.50% and mature in December 2000 and February 2001, respectively. United Dominion makes monthly installments of principal and interest over the term of the REMIC Financings. Secured Credit Facilities On March 18, 1999, United Dominion closed on the first part of a $200 million revolving credit facility with the Federal National Mortgage Association (the "FNMA Credit Facility"). The FNMA Credit Facility is for an initial term of five years, bear interest at a floating rate which can be fixed for periods of up to 270 days, and can be extended for an additional five or ten years at United Dominion's discretion. The $102.3 million initially borrowed under the terms of the FNMA Credit Facility had an interest rate of 5.70%. In April 1999, United Dominion borrowed an additional $16.6 million at an interest rate of 5.68% and $10.7 million at an interest rate of 5.72%. In August, an additional $66.1 million was borrowed under the FNMA Credit Facility at an interest rate of 6.53%. At December 31, 1999, the FNMA Credit Facility had a weighted average floating rate of interest of 6.32%. In order to limit a portion of its interest rate exposure on the Credit Facility, United Dominion entered into three forward rate swap agreements. These agreements have an aggregate notional value of $57 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 $57 million of 58
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 secured debt from a variable rate to a weighted average fixed rate of 6.65% (see Note 5 - Financial Instruments). Variable Rate Debt Secured Credit Facilities Variable rate secured credit facilities consists of $138.7 million of the $195.7 million outstanding on the FNMA Credit Facility. 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 April 2029. At December 31, 1999, these notes carry interest rates ranging from 4.75% to 5.90%. Mortgage Notes Payable Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from February 2001 through September 2027. At December 31, 1999, these notes carry interest rates ranging from 6.86% to 7.50%. The extraordinary loss for the years ended December 31, 1998 and 1997 resulted from the write-off of deferred financing costs on mortgage debt satisfied. The aggregate maturities of secured debt for the five years subsequent to December 31, 1999 are as follows (dollars in thousands): <TABLE> <CAPTION> Fixed Variable ------ -------------------------------------------- ------------------------------- ---------- Mortgage Tax-Exempt REMIC Secured Secured Tax Exempt Mortgage Year Notes Bonds Financings Notes Notes Notes Notes TOTAL ------ -------------------------------------------- ------------------------------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 2000 $ 28,351 $ 1,150 $26,445 $ - $ - $ 1,500 $ 629 $ 58,075 2001 64,845 1,402 32,722 - - 1,500 4,232 104,701 2002 51,325 1,490 - - - 4,000 660 57,475 2003 52,076 1,306 - - - 1,900 6,255 61,537 2004 120,435 4,866 - - - 2,000 619 127,920 Thereafter 238,382 86,485 - 57,000 138,675 55,716 14,170 590,428 -------------------------------------------- ------------------------------ ---------- $555,414 $96,699 $59,167 $57,000 $138,675 $66,616 $26,565 $1,000,136 ============================================ ============================== ========== </TABLE> 4. UNSECURED DEBT A summary of unsecured debt at December 31, 1999 and 1998 is as follows (dollars in thousands): 1999 1998 -------- -------- Commercial Banks Borrowings outstanding under credit facilities (a) (b) $277,600 $240,000 Insurance Companies--Senior Unsecured Notes 7.98% due March, 2000-2003 (c) 29,800 37,228 Other (d) 4,931 5,836 59
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 <TABLE> <CAPTION> Senior Unsecured Notes - Other <S> <C> <C> 7.25% Notes repaid April 1999 -- 75,000 8.13% Senior Notes due November 2000 146,150 150,000 7.60% Medium-Term Notes due January 2002 55,000 -- 7.65% Medium-Term Notes due January 2003 (e) 10,000 -- 7.22% Medium-Term Notes due February 2003 12,000 -- 5.05% City of Portland, OR Bonds due October 2003 7,345 -- 7.67% Medium-Term Notes due January 2004 54,000 -- 7.73% Medium-Term Notes due April 2005 23,400 -- 7.02% Medium-Term Notes due November 2005 50,000 50,000 7.95% Medium-Term Notes due July 2006 120,340 125,000 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.25% Notes due January 2007 111,825 125,000 8.50% Monthly Income Notes due November 2008 59,778 62,500 8.50% Debentures due September 2024(f) 140,000 150,000 ---------- ---------- 814,838 762,500 ---------- ---------- Total Unsecured Debt $1,127,169 $1,045,564 ========== ========== </TABLE> (a) Weighted average interest rate of 6.7% and 6.0% at December 31, 1999 and 1998, respectively. (b) As of December 31, 1999, United Dominion had seven interest rate swap agreements associated with commercial bank borrowings with an aggregate notional value of $110 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 these borrowings from a variable rate to a weighted average fixed rate of approximately 6.77% (see Note 5 - Financial Instruments). (c) Payable annually in four equal principal installments of $7.4 million. (d) Includes $4.6 million and $5.4 million at December 31, 1999 and 1998, respectively, of deferred gains from the termination of interest rate risk management agreements. (e) 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% (see Note 5 - Financial Instruments). (f) Debentures include an investor put feature which grants a one-time option to redeem debentures in September 2004. For the year ended December 31, 1999, United Dominion recognized a $927 thousand extraordinary gain related to the repurchase of $70.0 million of its unsecured notes payable at less than face value. Information concerning short-term bank borrowings is summarized in the table that follows (dollars in thousands): <TABLE> <CAPTION> 1999 1998 ----------------------------------------------------------------------------------------- <S> <C> <C> Total revolving credit facilities and lines of credit at December 31 $310,000 $265,000 Borrowings outstanding at December 31 277,600 240,000 Weighted average daily borrowings during the year 223,629 238,587 Maximum daily borrowings during the year 283,000 334,500 (a) Weighted average daily interest rate during the year 5.8% 6.1% (a) Weighted average daily interest rate at December 31 6.7% 6.0% </TABLE> 60
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 (a) Includes balances on a $75 million bridge facility funded in July 1998 that matured in November 1998. At December 31, 1999, United Dominion had in place a syndicated three year $200 million unsecured revolving credit facility (the "Bank Credit Facility") of which $197.6 million was outstanding at December 31, 1999. The Bank Credit Facility will expire on August 4, 2000. Borrowings under the Bank Credit Facility generally bear interest at LIBOR plus .50%. United Dominion is also required to pay a fee of .20% of the committed amount. This fee and the interest rate are both subject to change should United Dominion's credit ratings change. At December 31, 1999, United Dominion had a $110 million syndicated 364-day credit agreement (the "Line of Credit") of which $80 million was outstanding at December 31, 1999. The Line of Credit will mature on September 15, 2000. Borrowings under the Line of Credit generally bear interest at LIBOR plus 1.00%. United Dominion is also required to pay a fee of .20% of the committed amount. This fee and the interest rate are both subject to change should United Dominion's credit ratings change. The Bank Credit Facility and the Line of Credit are subject to customary financial covenants and limitations. The underlying loan agreements contain certain covenants which, among other things, require United Dominion to maintain minimum consolidated tangible net worth, as defined, and maintain certain financial ratios. 5. FINANCIAL INSTRUMENTS Fair Value of Financial Instruments The following disclosures of estimated fair value 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, 1999 and 1998, both on and off-balance sheet, are summarized as follows (dollars in thousands): <TABLE> <CAPTION> 1999 1998 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------------------------ ------------------------ <S> <C> <C> <C> <C> Secured debt $1,000,136 $1,031,074 $1,072,185 $1,125,582 Unsecured debt 1,127,169 1,102,605 1,045,564 1,068,868 Interest rate swap agreements - favorable / (unfavorable) -- 626 -- (1,321) </TABLE> 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 approximate fair value at December 31, 1999 and 1998. 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, 1999 and 1998. Interest rate swap agreements Fair value is based on external market - ----------------------------- quotations from investment banks. 61
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 Derivative Instruments - ---------------------- The following table summarizes certain information pursuant to interest rate limitation and swap contracts at December 31, 1999 (dollars in thousands): <TABLE> <CAPTION> Notional Fixed Type of Underlying Contract Fair Amount Rate Contract Debt Maturity Value ---------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $ 7,000 6.78% Swap FNMA 06/30/00 $ 230 10,000 7.22% Swap FNMA 04/01/04 141 40,000 6.49% Swap FNMA 04/01/04 174 20,000 7.07% Swap Bank Credit Facility 05/01/00 (45) 5,000 6.70% Swap Bank Credit Facility 06/01/00 (4) 5,000 6.82% Swap Bank Credit Facility 07/01/04 91 5,000 6.48% Swap Bank Credit Facility 10/03/02 98 10,000 6.64% Swap Bank Credit Facility 10/03/02 152 20,000 6.44% Swap Bank Credit Facility 01/24/00 10 45,000 6.84% Swap Line of Credit 01/18/00 23 10,000 7.65% Swap 4-year MTN 01/27/03 (244) ---------------------------------------------------------------------- $ 177,000 $ 626 ====================================================================== </TABLE> For all periods presented, United Dominion had no deferred gains or losses relating to terminated swap contracts. Interest rate risk management agreements In order to reduce the interest rate risk associated with the anticipated issuance of unsecured debt during 1998, United Dominion entered into a $100 million (notional amount) fixed pay forward starting swap agreement (interest rate risk management agreement) with an investment banking firm in July 1997. United Dominion settled the interest rate risk management agreement on November 9, 1998, by paying $15.6 million to the counterparty. United Dominion was unable to issue the unsecured debt contemplated by the interest rate risk management agreement, and accordingly, the cost associated with this settlement is reflected in the 1998 Statement of Operations. United Dominion has no interest rate risk management agreements outstanding at December 31, 1999. Risk of counterparty non-performance United Dominion has not obtained collateral or other security to support financial instruments. In the event of non-performance by the counterparty, United Dominion's credit loss on its derivative instruments is limited to the value of the derivative instruments that are favorable to United Dominion at December 31, 1999. 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. 6. 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 contributions, both matching and discretionary, which are included in United Dominion's consolidated statements of operations for the three years ended December 31, 1999, 1998 and 1997 were $2.2 million, $550,000 and $646,000, respectively. Stock Option Plan United Dominion's 1985 Share Option Plan, (the "Option Plan"), authorizes the grant of options, at the discretion of the Board of Directors, to certain officers, directors and key employees of United Dominion, for up to ten million shares of 62
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 United Dominion's common stock which is limited to 8% of the number of shares of common stock issued and outstanding. The Option Plan generally provides, among other things, that options be granted at exercise prices not lower than the market value of the shares on the date of grant. Shares under options which subsequently expire or are canceled are available for subsequent grant. For options granted prior to December 12, 1995, the optionee has up to five years from the date on which the options first become exercisable during which to exercise the options. For options granted on or after December 12, 1995, the options have a ten-year term. Options granted prior to December 9, 1997 vest on December 31 of the year subsequent to grant while options granted on and after this date vest ratably over a three year period beginning on December 31 of the year subsequent to grant. On December 8, 1998, United Dominion cancelled 1,047,165 options which were granted on December 9, 1997 at $14.25. United Dominion subsequently issued options on December 8, 1998, which vest over a three-year period, at United Dominion's then market price of $10.875. Pro forma information regarding net income and earnings per share is required by SFAS No. 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 1999, 1998 and 1997: 1999 1998 1997 ----- ----- ----- Risk free interest rate 6.7% 4.9% 4.8% Dividend yields 6.9% 6.6% 6.6% Volatility factor .144 .150 .150 Weighted average expected life (years) 9 9 9 The weighted average fair value of options granted during 1999, 1998 and 1997 was $.76, $.66 and $1.35, 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): 1999 1998 1997 ------- -------- -------- Net income available to common shareholders As reported $55,908 $48,739 $52,804 Pro forma 54,847 47,841 52,221 Earnings per common share-diluted As reported $ .54 $ .49 $ .60 Pro forma .53 .48 .60 63
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 A summary of United Dominion's stock option activity during the three years ended December 31, 1999 is provided in the following table (dollars in thousands, except per share amounts): <TABLE> <CAPTION> Options Outstanding ------------------------------------------------------ Shares Available Weighted Average Range of For Future Grant Options Exercise Price Exercise Prices - ----------------------------------------------------- ----------------- -------------- --------------- <S> <C> <C> <C> <C> Balance, December 31, 1996 1,970,040 1,775,216 $13.29 $ 7.44-$15.25 Granted (1,841,000) 1,841,000 14.34 13.50-15.38 Exercised -- (116,495) 11.18 7.44-14.63 Forfeited 51,000 (51,000) 15.09 13.13-15.38 ---------- ---------- ------ -------------- Balance, December 31, 1997 180,040 3,448,721 13.89 7.44- 15.38 Granted (1,137,665) 1,137,665 11.16 10.88-14.13 Exercised -- (73,490) 11.47 7.44-13.88 Forfeited 1,153,883 (1,153,883) 14.28 7.44-15.38 Additional shares authorized (a) 4,735,858 -- -- -- ---------- ---------- ------ -------------- Balance, December 31, 1998 4,932,116 3,359,013 12.89 7.44-15.38 Granted (1,192,333) 1,192,333 10.02 9.63-11.19 Exercised -- (46,998) 9.87 9.19-10.25 Forfeited 288,756 (288,756) 13.46 10.88-15.38 ---------- ---------- ------ -------------- Balance, December 31, 1999 4,028,539 4,215,592 $12.09 $9.19- $ 15.38 ========== ========== ====== ============== </TABLE> (a) The number of shares of common stock issuable upon the exercise of options outstanding is limited to 8% of the number of shares of common stock issued and outstanding. Exercisable at December 31, 1997 916,981 $12.67 $7.44-$15.38 1998 1,691,863 13.79 7.44-15.38 1999 2,042,505 13.28 9.19-15.38 The weighted average remaining contractual life on all options outstanding is 7.5 years. Approximately 1,407,315 of share options had exercise prices between $14.13 and $15.38, approximately 1,967,691 of share options had exercise prices between $10.81 and $13.94 and approximately 840,586 of share options had exercise prices between $9.19 and $10.25. 7. SHAREHOLDERS' EQUITY Preferred Stock Both Series A and Series B Preferred Stock have no stated par value and a liquidation preference of $25 per share. With no voting rights and no stated maturity, the preferred stock in both series is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of United Dominion. The Series A and Series B Preferred Stock are not redeemable prior to April 24, 2000 and May 29, 2007, respectively. On or after these dates, the Series A and Series B Preferred Stock 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 A and Series B Preferred Stock have been accrued or paid as of the end of each fiscal year. United Dominion declared total distributions of $2.31 and $2.15 per share on the Series A and Series B Preferred Stock, respectively, during 1999. On December 7, 1998, in connection with the AAC merger, United Dominion issued eight million shares of newly created Series D Convertible Redeemable Preferred Stock (Series D), with 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. Series D is convertible into 1.5385 shares of common stock at the option of the holder of Series D at any time at $16.25 per share. The Series D is not redeemable prior to December 7, 2003. On or after this date, 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, 64
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 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 12 month period a number of shares of Series D having an aggregate liquidation preference of more than $100 million. United Dominion declared total distributions of $1.89 per share on the Series D Preferred Stock during 1999. 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 mature between November 2001 and October 2006. A total of 848,500 shares have been issued and 551,500 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 reinvestment of cash dividends, additional shares of United Dominion's common stock. As of December 31, 1999, 8,337,961 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 5,662,039 were reserved for further issuance under the Stock Purchase Plan at December 31, 1999. During 1999, 1,597,841 shares were issued under the Stock Purchase Plan for a total consideration of approximately $16.7 million. Restricted Stock Awards United Dominion's 1999 Restricted Stock Awards Plan authorizes the granting of restricted stock awards to employees, officers and directors of United Dominion. The shares of common stock vest ratably over a three year period. Deferred compensation expense is recorded over the vesting period and is based upon the value of the common stock on the date of issuance. A total of 46,000 shares of restricted stock have been issued under the Restricted Stock Awards Plan as of December 31, 1999. Purchase Rights On January 27, 1998, the Board of Directors authorized a Shareholders Rights Plan (the "Rights Plan") which will become exercisable only if a person or group (the "Acquiring Person") acquires or announces a tender offer for more than 15% of the outstanding common stock of United Dominion. Upon exercise, United Dominion may issue one share of common stock in exchange for each right. Each right will entitle the holder to purchase for $45 one thousandth of a share of Series C Preferred stock or, at the option of United Dominion, common stock of United Dominion having a value of $90. 8. 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 corporate and regional offices. Future minimum lease payments for noncancelable land and other leases at December 31, 1999 are as follows (dollars in thousands): 2000 $ 2,177 2001 1,800 2002 1,746 2003 1,566 2004 1,444 Thereafter 26,631 ------- Total $35,364 ======= 65
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 United Dominion incurred $2.8 million, $1.6 million and $1.2 million, respectively, of rent expense for the years ended December 31, 1999, 1998 and 1997. Contingencies - ------------- United Dominion is party to various legal actions which are incidental to its business. Management believes that these actions will not have a material adverse affect on the consolidated balance sheets and statements of operation. Commitments - ----------- United Dominion is committed to completing its real estate currently under development which has an estimated cost to complete of $59.0 million at December 31, 1999. 9. ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION On March 27, 1998, United Dominion completed the acquisition of ASR Investments Corporation in a statutory merger (the "ASR Merger"). In connection with the ASR Merger, United Dominion acquired 39 communities with 7,550 apartment homes. Each share of ASR's common stock was exchanged for 1.575 shares of United Dominion's common stock. The acquisition was structured as a tax-free transaction and was treated as a purchase for accounting purposes. In connection with the acquisition, United Dominion acquired primarily real estate assets totaling $313.7 million. Consideration given by United Dominion included 7,742,839 shares of United Dominion's common stock valued at $14 per share for an aggregate equity value of $108.4 million plus the issuance of 1,529,990 Units in the ASR Operating Partnership valued at $21.4 million. In addition, United Dominion assumed, at fair value, mortgage debt totaling $179.4 million and other liabilities of $13.6 million. On December 7, 1998, United Dominion completed the acquisition of American Apartment Communities II ("AAC") in a statutory merger (the "AAC Merger"). In connection with the acquisition of AAC, United Dominion acquired 53 communities with 14,001 apartment homes. The AAC Merger was structured as a tax-free merger and exchange of partnership units and was treated as a purchase for accounting purposes. In connection with the AAC Merger, United Dominion acquired primarily real estate assets totaling $766.9 million. The aggregate purchase price consisted of the following: (i) 8,000,000 shares of United Dominion's 7.5% Series D Convertible Preferred Stock ($25 liquidation preference value) which is convertible into United Dominion's Common Stock at $16.25 per share with a fair market value of $175 million, (ii) the issuance of 5,614,035 units of limited partnership interest in the Partnership with an aggregate fair market value of $67.4 million, (iii) the assumption of $457.7 million of secured notes payable at fair market value, (iv) the assumption of liabilities and minority interest aggregating $27.8 million and (v) $59.8 million of cash. Information concerning unaudited pro forma results of operations of United Dominion for the years ended December 31, 1998 and 1997 are set forth below. For 1998, such pro forma information assumes the following transactions occurred on January 1, 1998: (i) the acquisition of ASR, (ii) the acquisition of AAC and (iii) the acquisition of 13 communities with 4,318 apartment homes for an aggregate purchase price of $144 million. For 1997, in addition to the acquisitions previously described, such pro forma information assumes the following transactions occurred on January 1, 1997: (i) the acquisition by United Dominion of 17 communities with 5,659 apartment homes at a total cost of $219 million and (ii) the acquisition by ASR of 22 communities with 4,208 apartment homes at total cost of $176 million. 66
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 In addition to the ASR Merger and the AAC Merger, all of the acquisitions described have been accounted for as purchases of real estate and operating results for those communities are reflected in the accompanying consolidated financial statements from their respective dates of acquisition. Pro Forma Year Ended December 31, ------------------- In thousands, except per share amounts 1998 1997 - -------------------------------------- -------- -------- (Unaudited) Rental income $597,460 $566,681 Net income available to common shareholders before extraordinary item 43,218 37,468 Net income available to common shareholders 43,080 37,418 Net income per common share before extraordinary item - basic and diluted $ .41 $ .39 Net income per common share - basic and diluted .41 .39 The unaudited information is not necessarily indicative of what United Dominion's consolidated results of operations would have been if the acquisitions had occurred at the beginning of each period presented. Additionally, the pro forma information does not purport to be indicative of United Dominion's results of operations for future periods. 10. INDUSTRY SEGMENTS United Dominion adopted Financial Accounting Standards Board ("FASB") Statement No. 131, Disclosure about Segments of an Enterprise and Related Information" ("Statement 131") in the fourth quarter of 1998. Statement 131 superseded FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise." Statement 131 establishes standards for the way public business enterprises report information regarding reportable operating segments. The adoption of Statement 131 did not affect the results of operations or financial position of United Dominion. United Dominion owns and operates multifamily apartment communities throughout the United States which generated 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 are included in or can be derived from United Dominion's consolidated financial statements. All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants which contributed 10% or more of United Dominion's total revenues during 1999, 1998 or 1997. 67
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 11. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Summarized consolidated quarterly financial data for the year ended December 31, 1999 is as follows (dollars in thousands, except per share amounts): <TABLE> <CAPTION> Three Months Ended ----------------------------------------------------- March 31 June 30 (a) September 30 December 31 (b) --------- ----------- ------------ --------------- <S> <C> <C> <C> <C> Rental income $153,791 $154,430 $155,523 $155,005 Income before gains on sales of investments, minority interests and extraordinary item 20,941 11,389 20,521 7,528 Gains on the sales of investments 191 32,214 48 5,542 Net income 20,082 40,800 19,876 12,864 Distributions to preferred shareholders 9,439 9,440 9,441 9,394 Net income available to common shareholders 10,643 31,360 10,435 3,470 Earnings per common share: Basic $ .10 $ .30 $ .10 $ .03 Diluted $ .10 $ .30 $ .10 $ .03 Weighted average number of common shares outstanding-basic 103,932 104,324 103,439 102,735 Weighted average number of common shares outstanding-diluted 103,935 104,338 103,490 102,807 </TABLE> (a) The second quarter of 1999 includes $32.2 million of gains on the sales of investments and a $7.1 million impairment loss on real estate and investments. (b) The fourth quarter of 1999 includes $ 5.5 million of gains on the sales of investments and a $12.2 million impairment loss on real estate and investments. ________________________________________________________________________________ Summarized consolidated quarterly financial data for the year ended December 31, 1998 is as follows (dollars in thousands, except per share information): <TABLE> <CAPTION> Three Months Ended ---------------------------------------------------------- March 31(a) June 30 September 30 December 31(a), (b) ------------ --------- ------------ ------------------- <S> <C> <C> <C> <C> Rental income $104,249 $118,176 $123,475 $132,818 Income before gains (losses) on sales of investments, minority interests and extraordinary item 17,578 15,387 13,872 502 Gains (losses) on the sales of investments (260) 20,721 13 6,198 Net income 17,183 35,005 13,807 6,337 Distributions to preferred shareholders 5,650 5,653 5,650 6,640 Net income (loss) available to common shareholders 11,533 29,352 8,157 (303) Earnings per common share: Basic $ .13 $ .29 $ .08 $ (.00) Diluted $ .13 $ .29 $ .08 $ (.00) Weighted average number of common shares outstanding-basic 90,867 101,562 103,104 103,467 Weighted average number of common shares outstanding-diluted 90,985 102,358 103,145 103,476 </TABLE> 68
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 (a) United Dominion completed the acquisition of ASR Investments Corporation on March 27, 1998 and the acquisition of American Apartment Communities II on December 7, 1998. (b) The fourth quarter of 1998 includes a $15.6 million charge associated with the termination of an interest rate risk management agreement. 69
SCHEDULE III. Summary of Real Estate Owned <TABLE> <CAPTION> Cost of Improvements Intitial Costs Total Capitalized ------------------------------ Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposals) ------------------ ------------------------------ ---------------- ------------------- <S> <C> <C> <C> <C> <C> Apartments: Real estate held for investment Dallas, Texas Preston Oaks b $ 1,783,626 $ 6,416,374 $ 8,200,000 $ 530,121 Preston Trace c 2,195,500 8,304,500 10,500,000 552,953 Rock Creek c 4,076,680 15,823,320 19,900,000 3,573,377 Windridge b 3,414,311 14,027,310 17,441,621 2,266,191 Autumnwood c 2,412,180 8,687,820 11,100,000 762,036 Cobblestone c 2,925,372 10,527,738 13,453,110 1,681,620 Pavillion b 4,428,258 19,032,881 23,461,139 1,184,901 Oak Park 3,966,129 22,227,701 26,193,830 (697,245) Catalina b 1,543,321 5,631,679 7,175,000 456,151 Wimbledon Court c 1,809,183 10,930,306 12,739,489 1,745,504 Southern Oaks 1,565,000 5,335,000 6,900,000 542,005 Hunters Ridge 1,613,000 5,837,000 7,450,000 573,789 Lakeridge c 1,631,350 5,668,650 7,299,999 715,626 Summergate c 1,171,300 3,928,700 5,100,000 595,043 Oak Forest 5,630,740 23,293,922 28,924,662 9,817,808 The Oaks of Lewisville 3,726,795 13,563,181 17,289,976 3,119,859 Kelly Crossing 2,496,701 9,156,355 11,653,056 1,127,200 Parc Plaza 1,683,531 5,279,123 6,962,654 990,898 Summit Ridge 4,872,444 1,725,508 6,308,032 8,033,540 1,246,411 Greenwood Creek 4,774,835 1,958,378 8,551,018 10,509,396 935,853 Highlands of Preston 4,580,372 2,151,056 8,167,630 10,318,686 1,303,422 Derby Park 7,239,436 3,121,153 11,764,974 14,886,127 542,940 Aspen Court 1,912,063 776,587 4,944,947 5,721,534 684,781 The Summit 5,278,406 1,932,195 9,041,301 10,973,496 1,005,111 Springfield 5,206,080 3,074,511 6,823,120 9,897,631 846,362 Orlando, Florida Fisherman's Village 2,387,368 7,458,897 9,846,265 2,795,562 Seabrook 1,845,853 4,155,275 6,001,128 2,581,715 Dover Village 2,894,702 6,456,100 9,350,802 3,196,819 Lakeside North 12,440,000 1,532,700 11,076,062 12,608,762 3,296,687 Regatta Shores 757,008 6,607,367 7,364,375 2,386,927 Alafaya Woods d 1,653,000 9,042,256 10,695,256 1,787,491 Vinyards 8,940,000 1,840,230 11,571,625 13,411,855 2,525,212 Andover Place 13,485,000 3,692,187 7,756,919 11,449,106 2,757,718 Los Altos d 2,803,805 12,348,464 15,152,270 2,286,065 Lotus Landing 2,184,723 8,638,664 10,823,387 1,675,727 Seville on the Green 1,282,616 6,498,062 7,780,678 1,678,320 Arbors at Lee Vista d 3,975,679 16,920,454 20,896,133 1,449,777 Heron Lake 6,432,533 1,446,553 9,287,878 10,734,431 792,740 <CAPTION> Gross amount at Which Carried at Close of Period Total ------------------------------------- Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (h) (a) Depreciation Construction ------------------------------------- ------------ ---------------- ---------------- <S> <C> <C> <C> <C> <C> Apartments: Real estate held for investment Dallas, Texas Preston Oaks $ 1,895,879 $ 6,834,242 $ 8,730,121 $ 779,301 1980 Preston Trace 2,333,010 8,719,943 11,052,953 963,573 1984 Rock Creek 4,473,445 18,999,932 23,473,377 2,105,346 1979 Windridge 3,996,322 15,711,490 19,707,812 1,905,987 1980 Autumnwood 2,640,715 9,221,321 11,862,036 1,102,885 1984 Cobblestone 3,089,857 12,044,873 15,134,730 1,385,007 1984 Pavillion 4,615,450 20,030,590 * 24,646,040 2,329,082 1979 Oak Park 4,780,229 20,716,355 25,496,585 2,456,430 1982, 1998 Catalina 1,645,302 5,985,849 7,631,151 711,272 1982 Wimbledon Court 2,789,704 11,695,289 14,484,993 1,201,246 1983 Southern Oaks 1,600,188 5,841,816 7,442,005 731,015 1982 Hunters Ridge 1,794,234 6,229,555 8,023,789 780,972 1992 Lakeridge 1,768,334 6,247,292 8,015,625 773,038 1984 Summergate 1,379,968 4,315,075 5,695,043 518,945 1984 Oak Forest 6,309,302 32,433,168 38,742,470 2,545,941 1996, 1998 The Oaks of Lewisville 4,480,658 15,929,177 20,409,835 1,974,317 1983 Kelly Crossing 2,814,883 9,965,373 12,780,256 1,037,252 1984 Parc Plaza 1,839,226 6,114,326 7,953,552 649,206 1986 Summit Ridge 2,159,446 7,120,505 9,279,952 662,931 1983 Greenwood Creek 2,075,518 9,369,732 11,445,249 663,904 1984 Highlands of Preston 2,303,384 9,318,724 11,622,108 667,857 1985 Derby Park 3,499,222 11,929,844 15,429,067 998,474 1984 Aspen Court 1,041,896 5,364,419 6,406,315 386,395 1986 The Summit 2,298,403 9,680,204 11,978,607 689,536 1983 Springfield 3,259,924 7,484,069 10,743,993 568,301 1985 Orlando, Florida Fisherman's Village 3,071,962 9,569,866 12,641,828 1,922,285 1984 Seabrook 2,227,419 6,355,424 8,582,842 1,456,920 1984 Dover Village 3,355,114 9,192,507 12,547,621 2,860,515 1981 Lakeside North 2,213,892 13,691,557 15,905,449 3,201,570 1984 Regatta Shores 1,496,916 8,254,386 9,751,302 2,244,224 1988 Alafaya Woods 2,096,368 10,386,379 12,482,747 2,368,946 1988/90 Vinyards 2,361,248 13,575,819 15,937,067 3,062,340 1984/86 Andover Place 4,441,272 9,765,552 14,206,824 1,985,387 1988 Los Altos 3,293,459 14,144,876 17,438,335 1,867,618 1990 Lotus Landing 2,374,503 10,124,611 12,499,114 944,301 1985 Seville on the Green 1,433,223 8,025,775 9,458,998 749,337 1986 Arbors at Lee Vista 4,360,580 17,985,330 22,345,910 1,375,080 1991 Heron Lake 1,578,534 9,948,637 11,527,171 626,684 1989 <CAPTION> Depreciable Life of Date Building Acquired Component ------------ --------------- <S> <C> <C> Apartments: Real estate held for investment Dallas, Texas Preston Oaks 12/31/96 35 yrs. Preston Trace 12/31/96 35 yrs. Rock Creek 12/31/96 35 yrs. Windridge 12/31/96 35 yrs. Autumnwood 12/31/96 35 yrs. Cobblestone 12/31/96 35 yrs. Pavillion 12/31/96 35 yrs. Oak Park 12/31/96 35 yrs. Catalina 12/31/96 35 yrs. Wimbledon Court 12/31/96 35 yrs. Southern Oaks 12/31/96 35 yrs. Hunters Ridge 12/31/96 35 yrs. Lakeridge 12/31/96 35 yrs. Summergate 12/31/96 35 yrs. Oak Forest 12/31/96 35 yrs. The Oaks of Lewisville 03/27/97 35 yrs. Kelly Crossing 06/18/97 35 yrs. Parc Plaza 10/30/97 35 yrs. Summit Ridge 03/27/98 35 yrs. Greenwood Creek 03/27/98 35 yrs. Highlands of Preston 03/27/98 35 yrs. Derby Park 03/27/98 35 yrs. Aspen Court 03/27/98 35 yrs. The Summit 03/27/98 35 yrs. Springfield 03/27/98 35 yrs. Orlando, Florida Fisherman's Village 12/29/95 35 yrs. Seabrook 02/20/96 35 yrs. Dover Village 3/31/93 35 yrs. Lakeside North 04/14/94 35 yrs. Regatta Shores 06/30/94 35 yrs. Alafaya Woods 10/21/94 35 yrs. Vinyards 10/31/94 35 yrs. Andover Place 19/29/95 & 09/30/9 35 yrs. Los Altos 10/31/96 35 yrs. Lotus Landing 07/01/97 35 yrs. Seville on the Green 10/21/97 35 yrs. Arbors at Lee Vista 12/31/97 35 yrs. Heron Lake 03/27/98 35 yrs. </TABLE>
<TABLE> <CAPTION> Cost of Improvements Intitial Costs Total Capitalized ------------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposals) ---------------- ------------------------------- ---------------- ------------------- <S> <C> <C> <C> <C> <C> Raleigh, North Carolina Dominion on Spring Forest 1,257,500 8,586,255 9,843,755 2,850,723 Dominion Park Green 500,000 4,321,872 4,821,872 1,244,921 Dominion on Lake Lynn 1,723,363 5,303,760 7,027,123 2,197,691 Dominion Courtney Place 1,114,600 5,119,259 6,233,859 2,678,260 Dominion Walnut Ridge 1,791,215 11,968,852 13,760,067 2,020,629 Dominion Walnut Creek 3,170,290 21,717,407 24,887,697 2,841,165 Dominion Ramsgate 907,605 6,819,154 7,726,759 681,882 Harbour Pointe 1,898,740 7,101,260 9,000,000 137,506 Copper Mill 1,548,280 16,066,720 17,615,000 805,675 Trinity Park 15,202,148 4,579,648 17,575,712 22,155,360 806,193 Charlotte, North Carolina The Highlands 321,400 2,830,346 3,151,746 2,453,267 Emerald Bay 626,070 4,722,862 5,348,932 2,624,018 Dominion Peppertree 1,546,267 7,699,221 9,245,488 1,428,272 Dominion Crown Point 1,115,261 8,648,865 9,764,126 1,517,372 Dominion Harris Pond 886,788 6,728,097 7,614,885 1,173,119 Dominion Mallard Creek (A) 5,286,892 698,860 6,488,061 7,186,921 563,074 Chateau Village 1,046,610 6,979,555 8,026,164 2,010,495 Dominion at Sharon 667,368 4,856,103 5,523,471 937,996 Providence Court 0 22,047,803 22,047,803 9,190,662 Stoney Pointe 12,363,127 1,499,650 15,855,610 17,355,260 1,005,466 Richmond, Virginia Dominion Olde West 1,965,097 12,203,965 14,169,062 3,642,140 Dominion Laurel Springs 464,480 3,119,716 3,584,196 1,096,684 Dominion English Hills d 1,979,174 11,524,313 13,503,487 5,235,888 Dominion Gayton Crossing 2,916,860 825,760 5,147,968 5,973,728 6,305,074 Dominion West End d 2,059,252 15,049,088 17,108,340 2,480,461 Courthouse Green d 732,050 4,702,353 5,434,403 3,035,353 Waterside at Ironbridge 1,843,819 13,238,590 15,082,409 514,371 Corporate Headquarters 245,332 0 245,332 2,646,644 Houston, Texas Woodtrail b 1,543,000 5,457,000 7,000,000 1,968,873 Park Trails b 1,144,750 4,105,250 5,250,000 504,830 Green Oaks 5,313,920 19,626,181 24,940,101 2,104,673 Sky Hawk 2,297,741 7,157,965 9,455,706 1,777,515 South Grand at Pecan Grove 10,611,128 4,058,090 14,755,809 18,813,899 3,239,221 Breakers 1,527,467 5,297,930 6,825,397 1,755,182 Braesridge 9,311,384 3,048,212 10,961,749 14,009,961 1,520,863 Skylar Pointe 8,450,023 3,604,483 11,592,432 15,196,915 3,174,814 Stone Canyon 899,515 899,515 9,422,885 Chelsea Park 3,279,625 1,991,478 5,787,626 7,779,104 1,083,347 Country Club Place 3,402,110 498,632 6,520,172 7,018,804 708,680 Arbor Ridge 3,565,032 1,688,948 6,684,229 8,373,177 45,141 London Park 4,249,085 2,018,478 6,667,450 8,685,928 1,241,833 Legends at Park 10 1,995,011 1,995,011 11,616,704 Towne Lake 1,333,958 5,308,884 6,642,842 939,739 <CAPTION> Gross amount at Which Carried at Close of Period Total ------------------------------------- Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (h) (a) Depreciation Construction ------------------------------------- ------------ ---------------- ---------------- <S> <C> <C> <C> <C> <C> Raleigh, North Carolina Dominion on Spring Forest 1,590,092 11,104,386 12,694,478 4,289,327 1978/81 Dominion Park Green 683,491 5,383,303 6,066,793 1,937,129 1987 Dominion on Lake Lynn 2,222,832 7,001,982 9,224,814 2,161,888 1986 Dominion Courtney Place 1,397,012 7,515,107 8,912,119 1,911,643 1979/81 Dominion Walnut Ridge 2,187,221 13,593,476 15,780,696 3,046,721 1982/84 Dominion Walnut Creek 3,682,948 24,045,913 27,728,862 5,058,480 1985/86 Dominion Ramsgate 1,005,603 7,403,039 8,408,641 961,558 1988 Harbour Pointe 1,898,796 7,238,710 9,137,506 779,826 1984 Copper Mill 1,755,353 16,665,321 18,420,675 1,822,899 1997 Trinity Park 4,696,853 18,264,700 22,961,553 1,924,742 1987 Charlotte, North Carolina The Highlands 648,291 4,956,722 5,605,013 3,135,715 1970 Emerald Bay 1,179,772 6,793,179 7,972,950 3,442,007 1972 Dominion Peppertree 1,840,457 8,833,304 10,673,760 2,304,375 1987 Dominion Crown Point 1,585,606 9,695,892 11,281,498 2,124,705 1987 Dominion Harris Pond 1,213,702 7,574,302 8,788,004 1,608,800 1987 Dominion Mallard Creek (A) 776,615 6,973,380 7,749,995 1,409,891 1989 Chateau Village 1,407,249 8,629,411 10,036,660 1,338,797 1974 Dominion at Sharon 897,820 5,563,648 6,461,467 775,591 1984 Providence Court 7,403,009 23,835,456 31,238,465 2,445,314 1997 Stoney Pointe 1,733,721 16,627,005 18,360,726 1,845,083 1991 Richmond, Virginia Dominion Olde West 2,409,869 15,401,333 17,811,202 7,030,866 1978/82/84/85/87 Dominion Laurel Springs 629,481 4,051,398 4,680,880 1,553,130 1972 Dominion English Hills 2,791,907 15,947,467 18,739,374 5,887,304 1969/76 Dominion Gayton Crossing 1,154,343 11,124,459 12,278,802 2,704,162 1973 Dominion West End 2,635,873 16,952,927 19,588,801 2,734,344 1989 Courthouse Green 1,074,475 7,395,280 8,469,756 3,718,955 1974/78 Waterside at Ironbridge 1,966,099 13,630,681 15,596,780 1,142,817 1987 Corporate Headquarters 245,352 2,646,624 2,891,976 0 1999 Houston, Texas Woodtrail 1,720,755 7,248,118 8,968,873 1,042,304 1978 Park Trails 1,157,500 4,597,329 5,754,830 572,312 1983 Green Oaks 5,736,323 21,308,451 27,044,774 2,159,879 1985 Sky Hawk 2,694,055 8,539,166 11,233,221 968,055 1984 South Grand at Pecan Grove 4,426,643 17,626,476 22,053,120 1,547,219 1985 Breakers 1,854,904 6,725,675 8,580,579 676,510 1985 Braesridge 3,315,626 12,215,199 15,530,824 1,141,337 1982 Skylar Pointe 3,658,701 14,713,028 18,371,729 1,375,015 1979 Stone Canyon 899,515 9,422,886 10,322,400 2,464 1998 Chelsea Park 2,282,748 6,579,703 8,862,451 480,958 1983 Country Club Place 638,395 7,089,089 7,727,484 441,084 1985 Arbor Ridge 2,026,944 6,391,374 8,418,318 445,042 1983 London Park 2,265,686 7,662,075 9,927,761 557,356 1983 Legends at Park 10 1,995,011 11,616,704 13,611,715 73 1998 Towne Lake 1,556,275 6,026,306 7,582,581 465,410 1984 <CAPTION> Depreciable Life of Date Building Acquired Component ------------ --------------- <S> <C> <C> Raleigh, North Carolina Dominion on Spring Forest 05/21/91 35 yrs. Dominion Park Green 09/27/91 35 yrs. Dominion on Lake Lynn 12/01/92 35 yrs. Dominion Courtney Place 07/08/93 35 yrs. Dominion Walnut Ridge 03/04/94 35 yrs. Dominion Walnut Creek 05/17/94 35 yrs. Dominion Ramsgate 08/15/96 35 yrs. Harbour Pointe 12/31/96 35 yrs. Copper Mill 12/31/96 35 yrs. Trinity Park 02/28/97 35 yrs. Charlotte, North Carolina The Highlands 01/17/84 35 yrs. Emerald Bay 02/06/90 35 yrs. Dominion Peppertree 12/14/93 35 yrs. Dominion Crown Point 07/01/94 35 yrs. Dominion Harris Pond 07/01/94 35 yrs. Dominion Mallard Creek (A) 08/16/94 35 yrs. Chateau Village 08/15/96 35 yrs. Dominion at Sharon 08/15/96 35 yrs. Providence Court 09/30/97 35 yrs. Stoney Pointe 02/28/97 35 yrs. Richmond, Virginia Dominion Olde West 2/31/84 & 08/27/9 35 yrs. Dominion Laurel Springs 09/06/91 35 yrs. Dominion English Hills 12/06/91 35 yrs. Dominion Gayton Crossing 09/28/95 35 yrs. Dominion West End 12/28/95 35 yrs. Courthouse Green 12/31/84 35 yrs. Waterside at Ironbridge 09/30/97 35 yrs. Corporate Headquarters 11/30/99 35 yrs. Houston, Texas Woodtrail 12/31/96 35 yrs. Park Trails 12/31/96 35 yrs. Green Oaks 06/25/97 35 yrs. Sky Hawk 05/08/97 35 yrs. South Grand at Pecan Grove 09/26/97 35 yrs. Breakers 09/26/97 35 yrs. Braesridge 09/26/97 35 yrs. Skylar Pointe 11/20/97 35 yrs. Stone Canyon 12/17/97 35 yrs. Chelsea Park 03/27/98 35 yrs. Country Club Place 03/27/98 35 yrs. Arbor Ridge 03/27/98 35 yrs. London Park 03/27/98 35 yrs. Legends at Park 10 05/19/98 35 yrs. Towne Lake 03/27/98 35 yrs. </TABLE>
<TABLE> <CAPTION> SCHEDULE III. Summary of Real Estate Owned Cost of Improvements Initial Costs Total Capitalized ---------------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposals) ---------------- ---------------------------------- ------------ ------------------ <S> <C> <C> <C> <C> <C> Columbia, South Carolina Gable Hill 824,847 5,307,194 6,132,041 1,292,961 St. Andrews Commons 1,428,826 9,371,378 10,800,204 1,496,945 Forestbrook 5,000,000 395,516 2,902,040 3,297,556 1,760,192 Crossroads 2,074,800 13,760,014 15,834,814 3,138,140 The Park 1,004,072 5,558,436 6,562,508 2,005,764 St. Andrews 976,192 6,884,502 7,860,694 1,018,436 Waterford 957,980 6,947,939 7,905,919 1,268,293 Hampton Greene 1,363,046 10,118,453 11,481,499 1,286,690 Rivergate 1,122,500 12,055,625 13,178,125 1,011,673 Tampa, Florida Bay Cove 2,928,847 6,578,257 9,507,104 2,572,662 Summit West 2,176,500 4,709,970 6,886,470 2,077,805 Pinebrook 1,780,375 2,458,172 4,238,547 2,843,856 Village at Old Tampa Bay 1,750,320 10,756,337 12,506,657 2,067,928 Lakewood Place d 1,395,051 10,647,377 12,042,428 1,095,116 Hunters Ridge d 2,461,548 10,942,434 13,403,982 1,289,708 Bay Meadow 7,712,608 2,892,526 9,253,525 12,146,051 2,371,645 Cambridge 1,790,804 7,166,329 8,957,133 1,279,383 Orange Oaks 1,361,553 6,541,980 7,903,533 1,099,158 Parker's Landing 31,853,507 10,178,355 37,868,669 48,047,024 548,529 Sugar Mill Creek e 2,241,880 7,552,520 9,794,400 254,142 Greensboro, North Carolina Beechwood 1,409,377 6,086,677 7,496,054 861,802 Steeplechase 3,208,108 11,513,978 14,722,086 12,058,659 Northwinds 1,557,654 11,735,787 13,293,441 867,710 Lake Brandt 1,546,950 13,489,466 15,036,416 678,417 Deep River Pointe 1,670,648 11,140,329 12,810,977 349,371 Eastern North Carolina Colony Village 346,330 3,036,956 3,383,286 1,816,132 Brynn Marr 432,974 3,821,508 4,254,482 2,496,077 Liberty Crossing 840,000 3,873,139 4,713,139 2,640,985 Bramblewood 401,538 3,150,912 3,552,450 1,376,822 Cape Harbor 1,891,671 18,113,109 20,004,780 855,424 Mill Creek 1,404,498 4,489,398 5,893,895 13,280,395 The Creek 417,500 2,506,206 2,923,706 1,444,301 Forest Hills 1,028,000 5,420,478 6,448,478 1,767,817 Clear Run 874,830 8,740,602 9,615,432 5,048,129 Crosswinds 1,096,196 18,230,236 19,326,432 866,826 <CAPTION> Gross amount at Which Carried at Close of Period Total ------------------------------------ Land and Buildings Carrying Land and Value Accumulated Date of Date Improvements Improvements (h) (a) Depreciation Constuction Acquired ------------------------------------ -------- ------------ ----------- -------- <S> <C> <C> <C> <C> <C> <C> Columbia, South Carolina Gable Hill 1,184,326 6,240,676 7,425,002 2,403,028 1985 12/04/89 St. Andrews Commons 1,818,494 10,478,655 12,297,149 2,859,026 1986 05/20/93 Forestbrook 627,056 4,430,693 5,057,748 1,500,317 1974 07/01/93 Crossroads 2,605,133 16,367,821 18,972,954 3,609,947 1977/84 07/01/94 The Park 1,468,684 7,099,588 8,568,272 1,648,616 1975/77 07/01/94 St. Andrews 1,196,944 7,682,186 8,879,130 1,691,243 1972 07/01/94 Waterford 1,231,182 7,943,030 9,174,212 1,828,235 1985 07/01/94 Hampton Greene 1,866,086 10,902,104 12,768,189 2,278,167 1990 08/19/94 Rivergate 1,406,365 12,783,433 14,189,798 1,671,166 1989 08/15/96 Tampa, Florida Bay Cove 3,264,201 8,815,565 12,079,766 2,826,433 1972 12/16/92 Summit West 2,446,995 6,517,280 8,964,275 2,133,335 1972 12/16/92 Pinebrook 2,039,000 5,043,403 7,082,403 1,830,553 1977 09/28/93 Village at Old Tampa Bay 2,120,323 12,454,262 14,574,585 3,152,798 1986 12/08/93 Lakewood Place 1,586,517 11,551,027 13,137,544 2,561,131 1986 03/10/94 Hunters Ridge 2,933,433 11,760,257 14,693,690 2,239,009 1992 06/30/95 Bay Meadow 3,421,576 11,096,120 14,517,695 1,436,787 1985 12/09/96 Cambridge 2,064,074 8,172,442 10,236,516 875,195 1985 06/06/97 Orange Oaks 1,534,286 7,468,405 9,002,691 771,467 1986 07/01/97 Parker's Landing 9,193,535 39,402,018 48,595,553 1,412,617 1991 12/07/98 Sugar Mill Creek 2,375,839 7,672,703 10,048,542 310,961 1988 12/07/98 Greensboro, North Carolina Beechwood 1,599,720 6,758,136 8,357,856 1,710,041 1985 12/22/93 Steeplechase 3,748,136 23,032,609 26,780,745 2,528,179 1990/97 03/07/96 Northwinds 1,738,394 12,422,758 14,161,151 1,624,782 1989/97 08/15/96 Lake Brandt 1,771,863 13,942,970 15,714,833 1,750,446 1995 08/15/96 Deep River Pointe 1,783,557 11,376,791 13,160,348 1,012,011 1997 10/01/97 Eastern North Carolina Colony Village 552,767 4,646,651 5,199,418 2,579,772 1972/74 12/31/84 Brynn Marr 734,114 6,016,445 6,750,559 3,016,012 1973/77 12/31/84 Liberty Crossing 1,400,915 5,953,209 7,354,124 2,803,360 1972/74 11/30/90 Bramblewood 551,414 4,377,858 4,929,272 2,450,853 1980/82 12/31/84 Cape Harbor 2,222,269 18,637,936 20,860,205 2,393,894 1996 08/15/96 Mill Creek 1,889,337 17,284,953 19,174,291 1,974,152 1986/98 09/30/91 The Creek 488,728 3,879,279 4,368,007 1,442,161 1973 06/30/92 Forest Hills 1,201,540 7,014,755 8,216,295 2,094,062 1964/69 06/30/92 Clear Run 1,234,266 13,429,295 14,663,561 2,564,093 1987/89 07/22/94 Crosswinds 1,191,487 19,001,771 20,193,258 2,102,685 1990 02/28/97 <CAPTION> Depreciable Life of Building Component ---------- <S> <C> Columbia, South Carolina Gable Hill 35 yrs. St. Andrews Commons 35 yrs. Forestbrook 35 yrs. Crossroads 35 yrs. The Park 35 yrs. St. Andrews 35 yrs. Waterford 35 yrs. Hampton Greene 35 yrs. Rivergate 35 yrs. Tampa, Florida Bay Cove 35 yrs. Summit West 35 yrs. Pinebrook 35 yrs. Village at Old Tampa Bay 35 yrs. Lakewood Place 35 yrs. Hunters Ridge 35 yrs. Bay Meadow 35 yrs. Cambridge 35 yrs. Orange Oaks 35 yrs. Parker's Landing 35 yrs. Sugar Mill Creek 35 yrs. Greensboro, North Carolina Beechwood 35 yrs. Steeplechase 35 yrs. Northwinds 35 yrs. Lake Brandt 35 yrs. Deep River Pointe 35 yrs. Eastern North Carolina Colony Village 35 yrs. Brynn Marr 35 yrs. Liberty Crossing 35 yrs. Bramblewood 35 yrs. Cape Harbor 35 yrs. Mill Creek 35 yrs. The Creek 35 yrs. Forest Hills 35 yrs. Clear Run 35 yrs. Crosswinds 35 yrs. </TABLE>
<TABLE> <CAPTION> SCHEDULE III. Summary of Real Estate Owned Cost of Improvements Initial Costs Total Capitalized ---------------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposals) ---------------- ---------------------------------- ------------ ------------------ <S> <C> <C> <C> <C> <C> San Antonio, Texas Promontory Pointe 7,548,219 28,051,781 35,600,000 2,063,598 Bluffs b 1,901,146 6,898,854 8,800,000 1,210,767 Ashley Oaks c 4,590,782 16,809,218 21,400,000 362,650 Sunflower 2,209,000 7,891,000 10,100,000 458,265 Escalanic 4,003,444 875,417 6,759,349 7,634,766 1,093,471 Cimarron City 3,129,269 487,906 4,534,793 5,022,699 620,157 Kenton 7,382,816 2,344,962 8,917,376 11,262,338 1,554,305 Peppermill 4,384,853 773,405 6,873,146 7,646,551 1,793,202 Sunset Canyon 8,842,261 3,201,039 10,669,680 13,870,720 2,995,004 Audubon 4,598,137 771,037 6,123,917 6,894,953 2,095,900 Grand Cypress 5,797,136 749,341 8,609,353 9,358,694 926,326 Inn At Los Patios 3,005,300 11,544,700 14,550,000 (1,489,487) Nashville, Tennessee Legacy Hill 1,147,660 5,867,567 7,015,227 2,680,368 Hickory Run 1,468,727 11,583,786 13,052,513 1,311,239 Dominion Franklin 2,117,244 2,117,244 24,230,126 Brookridge 707,508 5,461,251 6,168,760 1,028,328 Club at Hickory Hollow 2,139,774 15,231,201 17,370,975 1,752,625 Breckenridge 766,428 7,713,862 8,480,290 593,407 Williamsburg 1,376,190 10,931,309 12,307,498 1,164,247 Colonnade 1,459,754 16,014,857 17,474,612 206,901 Baltimore, Maryland Gatewater Landing 2,078,422 6,084,526 8,162,948 1,102,194 Dominion Kings Place 4,620,000 1,564,942 7,006,574 8,571,516 755,523 Dominion at Eden Brook 7,890,000 2,361,167 9,384,171 11,745,339 1,082,388 Dominion Great Oaks d 2,919,481 9,099,691 12,019,172 2,986,389 Dominion Constant Friendship 903,122 4,668,956 5,572,078 662,873 Lakeside Mill 5,750,000 2,665,869 10,109,175 12,775,044 3,970 Atlanta, Georgia Stanford Village 884,500 2,807,839 3,692,339 1,095,571 Griffin Crossing 1,509,633 7,544,018 9,053,651 1,241,934 Gwinnett Square d 1,924,325 7,376,454 9,300,779 1,447,504 Dunwoody Pointe 5,686,987 2,763,324 6,902,996 9,666,320 4,286,358 Riverwood 5,153,596 2,985,599 11,087,903 14,073,502 3,178,954 Waterford Place 1,579,478 10,302,679 11,882,157 305,079 Miami/Fort Lauderdale, Florida Copperfield d 4,424,128 20,428,969 24,853,097 1,623,655 Mediterranean Village d 2,064,788 11,939,113 14,003,901 1,330,323 Cleary Court 2,399,848 7,913,450 10,313,298 1,528,958 University Club 1,390,220 6,992,620 8,382,840 1,467,700 Polo Chase 3,675,276 13,301,853 16,977,129 356,907 Pembroke Bay 4,442,492 16,664,469 21,106,962 404,631 <CAPTION> Gross amount at Which Carried at Close of Period Total ------------------------------------ Land and Buildings Carrying Land and Value Accumulated Date of Date Improvements Improvements (h) (a) Depreciation Constuction Acquired ------------------------------------ -------- ------------ ----------- -------- <S> <C> <C> <C> <C> <C> <C> San Antonio, Texas Promontory Pointe 7,794,292 29,869,306 37,663,598 3,379,919 1997 12/31/96 Bluffs 2,082,390 7,928,377 10,010,767 1,117,979 1978 12/31/96 Ashley Oaks 4,658,532 17,104,118 21,762,650 1,811,750 1993 12/31/96 Sunflower 2,301,959 8,256,306 10,558,265 968,360 1980 12/31/96 Escalanic 911,937 7,816,299 8,728,236 510,746 1986 04/16/98 Cimarron City 583,875 5,058,980 5,642,855 328,616 1983 04/16/98 Kenton 2,437,944 10,378,699 12,816,643 684,645 1983 04/16/98 Peppermill 926,913 8,512,840 9,439,753 570,351 1984 04/16/98 Sunset Canyon 3,541,720 13,324,003 16,865,723 970,062 1984 04/16/98 Audubon 988,517 8,002,337 8,990,854 617,300 1985 04/16/98 Grand Cypress 796,794 9,488,226 10,285,020 605,058 1995 04/16/98 Inn At Los Patios 3,005,300 10,055,213 13,060,513 486,610 1990 08/15/98 Nashville, Tennessee Legacy Hill 1,419,424 8,276,171 9,695,594 1,617,171 1977 11/06/95 Hickory Run 1,633,746 12,730,005 14,363,752 2,037,295 1989 12/29/95 Dominion Franklin 2,656,545 23,690,825 26,347,370 28,718 1999 12/06/95 Brookridge 918,655 6,278,432 7,197,087 1,113,562 1986 03/28/96 Club at Hickory Hollow 2,668,936 16,454,664 19,123,600 1,954,511 1987 02/21/97 Breckenridge 949,676 8,124,020 9,073,697 922,254 1986 03/27/97 Williamsburg 1,534,910 11,936,836 13,471,746 957,348 1986 05/20/98 Colonnade 1,538,137 16,143,375 17,681,512 621,990 1998 01/07/99 Baltimore, Maryland Gatewater Landing 2,169,331 7,095,811 9,265,142 2,120,711 1970 12/16/92 Dominion Kings Place 1,645,423 7,681,617 9,327,039 1,984,785 1983 12/29/92 Dominion at Eden Brook 2,462,172 10,365,554 12,827,727 2,711,664 1984 12/29/92 Dominion Great Oaks 3,729,385 11,276,175 15,005,561 2,883,942 1974 07/01/94 Dominion Constant Friendship 1,043,201 5,191,750 6,234,951 976,261 1990 05/04/95 Lakeside Mill 2,665,869 10,113,145 12,779,014 118,442 1989 12/10/99 Atlanta, Georgia Stanford Village 1,163,216 3,624,694 4,787,910 1,735,119 1985 09/26/89 Griffin Crossing 1,681,736 8,613,848 10,295,585 1,957,911 1987/89 06/08/94 Gwinnett Square 2,121,447 8,626,836 10,748,283 1,589,468 1985 03/29/95 Dunwoody Pointe 3,273,387 10,679,291 13,952,678 2,110,106 1980 10/24/95 Riverwood 3,332,343 13,920,113 17,252,456 2,296,664 1980 06/26/96 Waterford Place 1,642,321 10,544,915 12,187,236 657,262 1985 04/15/98 Miami/Fort Lauderdale, Florida Copperfield 4,969,542 21,507,210 26,476,752 3,834,227 1991 09/21/94 Mediterranean Village 2,268,554 13,065,670 15,334,224 2,564,744 1989 09/30/94 Cleary Court 2,631,357 9,210,899 11,842,256 1,832,096 1984/85 11/30/94 University Club 1,757,874 8,092,665 9,850,540 1,372,224 1988 09/26/95 Polo Chase 3,740,090 13,593,946 17,334,036 528,403 1991 12/07/98 Pembroke Bay 4,581,097 16,930,495 21,511,592 178,252 1989 07/26/99 <CAPTION> Depreciable Life of Building Component ----------- <S> <C> San Antonio, Texas Promontory Pointe 35 yrs. Bluffs 35 yrs. Ashley Oaks 35 yrs. Sunflower 35 yrs. Escalanic 35 yrs. Cimarron City 35 yrs. Kenton 35 yrs. Peppermill 35 yrs. Sunset Canyon 35 yrs. Audubon 35 yrs. Grand Cypress 35 yrs. Inn At Los Patios 35 yrs. Nashville, Tennessee Legacy Hill 35 yrs. Hickory Run 35 yrs. Dominion Franklin 35 yrs. Brookridge 35 yrs. Club at Hickory Hollow 35 yrs. Breckenridge 35 yrs. Williamsburg 35 yrs. Colonnade 35 yrs. Baltimore, Maryland Gatewater Landing 35 yrs. Dominion Kings Place 35 yrs. Dominion at Eden Brook 35 yrs. Dominion Great Oaks 35 yrs. Dominion Constant Friendship 35 yrs. Lakeside Mill 35 yrs. Atlanta, Georgia Stanford Village 35 yrs. Griffin Crossing 35 yrs Gwinnett Square 35 yrs. Dunwoody Pointe 35 yrs. Riverwood 35 yrs. Waterford Place 35 yrs. Miami/Fort Lauderdale, Florida Copperfield 35 yrs. Mediterranean Village 35 yrs. Cleary Court 35 yrs University Club 35 yrs. Polo Chase 35 yrs. Pembroke Bay 35 yrs. </TABLE>
<TABLE> <CAPTION> SCHEDULE III. Summary of Real Estate Owned Cost of Improvements Initial Costs Total Capitalized ---------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposal) ---------------- ---------------------------- ------------- ----------------- <S> <C> <C> <C> <C> <C> Washington, D.C Dominion Middle Ridge d 3,311,468 13,283,047 16,594,515 912,576 Dominion Lake Ridge d 2,366,061 8,386,439 10,752,500 690,425 Knolls at Newgate 1,725,725 3,530,134 5,255,859 1,524,692 Hampton Roads, Virginia Forest Lakes at Oyster Point 780,117 8,861,878 9,641,995 1,815,296 Woodscape 798,700 7,209,525 8,008,225 3,239,207 Eastwind 155,000 5,316,738 5,471,738 2,063,900 Dominion Waterside at Lynnhaven 1,823,983 4,106,710 5,930,693 1,126,494 Heather Lake 616,800 3,400,672 4,017,472 3,114,571 Dominion Yorkshire Downs d 1,088,887 8,581,771 9,670,658 552,770 Jacksonville, Florida Greentree Place 12,455,000 1,634,330 11,226,990 12,861,320 3,459,440 Westland Park 1,834,535 14,864,742 16,699,276 3,340,996 The Antlers 4,034,039 11,192,842 15,226,880 5,195,299 Phoenix, Arizona Paradise Falls c 1,622,700 6,170,800 7,793,500 2,779,594 Vista Point b 1,587,400 5,612,600 7,200,000 1,255,301 Sierra Palms 4,638,950 17,361,050 22,000,000 250,531 Northpark Village 1,519,314 13,536,707 15,056,021 1,267,796 Stonegate 3,608,460 735,036 7,939,875 8,674,911 612,551 Finisterra 1,273,798 26,392,207 27,666,005 184,436 La Privada 15,534,541 7,303,161 18,507,617 25,810,778 1,386,298 Terracina 3,757,224 34,780,779 38,538,002 4,328,142 Woodland Park 3,016,907 6,706,473 9,723,380 543,832 Sierra Foothills 2,728,172 2,728,172 18,729,625 Tucson, Arizona Desert Springs 4,385,309 1,118,402 7,094,431 8,212,833 478,720 Posada Del Rio 843,748 4,288,097 5,131,845 (415,617) Eastern Shore Maryland Brittingham Square 650,143 4,962,246 5,612,389 570,718 Greens at Schumaker Pond 709,559 6,117,582 6,827,141 833,510 Greens at Cross Court 1,182,414 4,544,012 5,726,426 853,023 Greens at Hilton Run d 2,754,447 10,482,579 13,237,026 1,129,949 Fayetteville, North Carolina Cumberland Trace 632,281 7,895,674 8,527,955 560,363 Village At Cliffdale 10,141,760 941,284 15,498,216 16,439,501 1,035,732 Morganton Place 819,090 13,217,086 14,036,176 555,086 Memphis, Tennessee Briar Club 1,214,400 6,928,959 8,143,359 1,869,009 <CAPTION> Gross amount at Which Carried at Close of Period Total ----------------------------------- Land and Buildings Carrying Land and Value Accumulated Date of Date Improvements Improvements (h) (a) Depreciation Construction Acquired ----------------------------------- -------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> <C> Washington, D.C Dominion Middle Ridge 3,423,239 14,083,851 17,507,091 1,852,981 1990 06/25/96 Dominion Lake Ridge 2,492,983 8,949,942 11,442,925 1,417,110 1987 02/23/96 Knolls at Newgate 1,846,268 4,934,283 6,780,551 1,294,946 1972 07/01/94 Hampton Roads, Virginia Forest Lakes at Oyster Point 1,166,789 10,290,502 11,457,291 1,910,160 1986 08/15/95 Woodscape 1,100,154 10,147,278 11,247,432 4,462,580 1974/76 12/29/87 Eastwind 368,372 7,167,266 7,535,638 3,265,303 1970 04/04/88 Dominion Waterside at Lynnhaven 2,009,683 5,047,503 7,057,186 813,609 1966 08/15/96 Heather Lake 1,030,545 6,101,498 7,132,043 4,067,057 1972/74 03/01/80 Dominion Yorkshire Downs 1,255,510 8,967,918 10,223,428 719,107 1987 12/23/97 Jacksonville, Florida Greentree Place 2,261,104 14,059,656 16,320,760 3,160,326 1986 07/22/94 Westland Park 2,574,299 17,465,973 20,040,272 2,773,834 1990 05/09/96 The Antlers 4,760,539 15,661,640 20,422,180 2,722,635 1985 05/28/96 Phoenix, Arizona Paradise Falls 1,815,207 8,757,887 10,573,094 894,067 1986 12/31/96 Vista Point 1,693,237 6,762,064 8,455,301 802,708 1986 12/31/96 Sierra Palms 4,704,744 17,545,787 22,250,531 1,894,955 1996 12/31/96 Northpark Village 1,819,190 14,504,627 16,323,817 1,124,575 1983 03/27/98 Stonegate 881,404 8,406,058 9,287,462 580,865 1978 03/27/98 Finisterra 1,303,253 26,547,188 27,850,441 1,646,350 1997 03/27/98 La Privada 7,794,661 19,402,415 27,197,076 1,275,680 1987 03/27/98 Terracina 4,492,064 38,374,080 42,866,144 2,420,135 1984 05/28/98 Woodland Park 3,206,079 7,061,133 10,267,212 516,492 1979 06/09/98 Sierra Foothills 2,788,376 18,669,421 21,457,797 17,806 1998 02/18/98 Tucson, Arizona Desert Springs 1,123,560 7,567,993 8,691,553 466,928 1985 03/27/98 Posada Del Rio 938,382 3,777,846 4,716,228 313,532 1980 03/27/98 Eastern Shore Maryland Brittingham Square 780,918 5,402,188 6,183,106 986,951 1991 05/04/95 Greens at Schumaker Pond 855,888 6,804,763 7,660,651 1,219,567 1988 05/04/95 Greens at Cross Court 1,362,893 5,216,555 6,579,449 977,309 1987 05/04/95 Greens at Hilton Run 3,045,621 11,321,355 14,366,976 2,033,520 1988 05/04/95 Fayetteville, North Carolina Cumberland Trace 664,579 8,423,73 9,088,318 1,101,434 1973 08/15/96 Village At Cliffdale 1,118,152 16,357,08 17,475,233 2,007,330 1992 08/15/96 Morganton Place 886,825 13,704,43 14,591,261 1,625,684 1994 08/15/96 Memphis, Tennessee Briar Club 1,522,537 8,489,831 10,012,368 2,002,236 1987 10/14/94 <CAPTION> SCHEDULE III. Summary of Real Estate Owned Depreciable Life of Building Component --------- <S> <C> Washington, D.C Dominion Middle Ridge 35 yrs. Dominion Lake Ridge 35 yrs. Knolls at Newgate 35 yrs. Hampton Roads, Virginia Forest Lakes at Oyster Point 35 yrs. Woodscape 35 yrs. Eastwind 35 yrs. Dominion Waterside at Lynnhaven 35 yrs. Heather Lake 35 yrs. Dominion Yorkshire Downs 35 yrs. Jacksonville, Florida Greentree Place 35 yrs. Westland Park 35 yrs. The Antlers 35 yrs. Phoenix, Arizona Paradise Falls 35 yrs. Vista Point 35 yrs. Sierra Palms 35 yrs. Northpark Village 35 yrs. Stonegate 35 yrs. Finisterra 35 yrs. La Privada 35 yrs. Terracina 35 yrs. Woodland Park 35 yrs. Sierra Foothills 35 yrs. Tucson, Arizona Desert Springs 35 yrs. Posada Del Rio 35 yrs. Eastern Shore Maryland Brittingham Square 35 yrs. Greens at Schumaker Pond 35 yrs. Greens at Cross Court 35 yrs. Greens at Hilton Run 35 yrs. Fayetteville, North Carolina Cumberland Trace 35 yrs. Village At Cliffdale 35 yrs. Morganton Place 35 yrs. Memphis, Tennessee Briar Club 35 yrs. </TABLE>
<TABLE> <CAPTION> SCHEDULE III. Summary of Real Estate Owned Cost of Improvements Initial Costs Total Capitalized ---------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposals) ---------------- ---------------------------- ------------- ------------------ <S> <C> <C> <C> <C> <C> Hunters Trace 5,520,000 888,440 6,676,552 7,564,992 1,314,492 Hickory Pointe 1,074,424 6,052,020 7,126,444 1,502,982 Cinnamon Trails 1,886,632 7,644,522 9,531,154 (175,680) The Trails 27,512,347 10,387,416 34,394,843 44,782,259 3,050,080 Dogwood Creek 2,771,868 15,673,846 18,445,714 568,362 Columbus, Ohio Sycamore Ridge 13,861,385 4,067,900 15,433,285 19,501,185 685,156 Heritage Green 2,990,199 11,391,797 14,381,996 8,978,316 Alexander Court 1,573,412 1,573,412 21,253,649 Govenour's Square 18,724,971 7,512,513 28,695,050 36,207,563 983,126 Hickory Creek 3,421,413 13,539,402 16,960,815 387,289 Austin, Texas Pecan Grove b 1,406,750 5,293,250 6,700,000 261,494 Anderson Mill 3,134,669 11,170,376 14,305,045 2,569,958 Albuquerque, New Mexico Alvarado b 1,930,229 5,969,771 7,900,000 412,002 Dorado Heights 4,957,908 1,567,762 6,555,395 8,123,157 326,338 Detroit, Michigan American Heritage e 1,021,412 3,958,146 4,979,558 51,394 Ashton Pines 1,822,351 8,013,902 9,836,253 120,134 Kings Gate e 1,180,664 4,828,504 6,009,168 66,593 Lancaster Lakes e 4,237,887 14,662,797 18,900,684 290,639 Other Midwest Washington Park/Centerville, Ohio 2,011,520 7,565,279 9,576,799 926,936 Jamestown of St. Matthews/Kentucky e 3,865,596 14,422,383 18,287,979 438,370 Jamestown of Toledo/Toledo, Ohio e 1,800,271 7,053,585 8,853,856 208,637 Other Florida Brantley Pines/Ft. Myers 1,892,888 8,247,621 10,140,509 4,793,209 The Ashlar I/Ft. Myers 2,853,178 2,853,178 16,033,992 Santa Barbara Landing/Naples 1,134,120 8,019,814 9,153,934 1,569,307 Mallards of Wedgewood/Lakeland 959,284 6,864,666 7,823,950 1,575,226 The Groves/Daytona Beach 789,953 4,767,055 5,557,008 1,668,188 Lakeside/Daytona Beach 2,404,305 6,420,160 8,824,465 1,200,232 Mallards of Brandywine/Deland 765,949 5,407,683 6,173,632 1,004,914 Lake Washington Downs/Melbourne 1,434,450 4,940,166 6,374,616 1,869,890 Seattle, Washington Arbor Terrace 7,038,404 1,453,342 11,994,972 13,448,314 408,014 Aspen Creek 6,984,886 1,177,714 9,115,789 10,293,503 150,930 Crown Point 4,884,471 2,486,252 6,437,256 8,923,508 645,031 Hill Top 4,485,658 2,173,969 7,407,628 9,581,597 168,873 <CAPTION> SCHEDULE III. Summary of Real Estate Owned Gross amount at Which Carried at Close of Period Total ----------------------------------- Land and Buildings Carrying Land and Value Accumulated Date of Date Improvements Improvements (h) (a) Depreciation Construction Acquired ----------------------------------- -------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> <C> Hunters Trace 1,163,246 7,716,238 8,879,484 1,727,534 1986 10/14/94 Hickory Pointe 1,573,592 7,055,834 8,629,426 1,606,203 1985 02/10/95 Cinnamon Trails 2,039,201 7,316,272 9,355,473 583,445 1989 01/09/98 The Trails 11,010,750 36,821,589 47,832,339 2,747,657 1990 01/09/98 Dogwood Creek 2,878,748 16,135,328 19,014,076 1,443,224 1997 02/06/98 Columbus, Ohio Sycamore Ridge 4,172,041 16,014,300 20,186,341 903,971 1997 07/02/98 Heritage Green 3,056,832 20,303,479 23,360,312 773,329 1998 07/02/98 Alexander Court 1,609,147 21,217,914 22,827,061 4,962 1999 07/02/98 Govenour's Square 7,634,425 29,556,265 37,190,689 1,075,402 1967 12/07/98 Hickory Creek 3,452,266 13,895,838 17,348,104 486,787 1988 12/07/98 Austin, Texas Pecan Grove 1,454,170 5,507,324 6,961,494 509,601 1984 12/31/96 Anderson Mill 3,466,120 13,408,883 16,875,003 1,996,516 1984 03/27/97 Albuquerque, New Mexico Alvarado 1,968,286 6,343,716 8,312,002 758,436 1984 12/31/96 Dorado Heights 1,616,840 6,832,656 8,449,495 460,240 1986 03/27/98 Detroit, Michigan American Heritage 1,028,097 4,002,855 5,030,952 146,058 1968 12/07/98 Ashton Pines 1,835,608 8,120,779 9,956,387 250,054 1987 12/07/98 Kings Gate 1,188,449 4,887,312 6,075,761 165,429 1973 12/07/98 Lancaster Lakes 4,280,152 14,911,171 19,191,323 549,283 1988 12/07/98 Other Midwest Washington Park/Centerville, Ohio 2,075,843 8,427,892 10,503,735 467,686 1998 12/07/98 Jamestown of St. Matthews/Kentucky 3,909,569 14,816,780 18,726,349 535,390 1968 12/07/98 Jamestown of Toledo/Toledo, Ohio 1,868,402 7,194,091 9,062,493 264,180 1965 12/07/98 Other Florida Brantley Pines/Ft. Myers 814,362 14,119,357 14,933,718 2,773,758 1986 08/11/94 The Ashlar I/Ft. Myers 4,621,590 14,265,580 18,887,170 259,619 1999 12/24/97 Santa Barbara Landing/Naples 1,697,900 9,025,341 10,723,241 2,088,979 1987 09/01/94 Mallards of Wedgewood/Lakeland 1,246,120 8,153,055 9,399,175 1,629,716 1985 07/27/95 The Groves/Daytona Beach 1,432,097 5,793,099 7,225,196 1,180,384 1989 12/13/95 Lakeside/Daytona Beach 2,574,381 7,450,316 10,024,697 760,734 1985 07/01/97 Mallards of Brandywine/Deland 977,719 6,200,828 7,178,546 666,752 1985 07/01/97 Lake Washington Downs/Melbourne 1,729,170 6,515,336 8,244,506 1,948,257 1984 09/24/93 Seattle, Washington Arbor Terrace 1,475,148 12,381,180 13,856,328 835,624 1996 03/27/98 Aspen Creek 1,258,261 9,186,172 10,444,433 339,182 1996 12/07/98 Crown Point 2,518,247 7,050,292 9,568,539 336,161 1987 12/07/98 Hill Top 2,216,480 7,533,990 9,570,470 293,502 1985 12/07/98 <CAPTION> Depreciable Life of Building Component ----------- <S> <C> Hunters Trace 35 yrs. Hickory Pointe 35 yrs. Cinnamon Trails 35 yrs. The Trails 35 yrs. Dogwood Creek 35 yrs. Columbus, Ohio Sycamore Ridge 35 yrs. Heritage Green 35 yrs. Alexander Court 35 yrs. Govenour's Square 35 yrs. Hickory Creek 35 yrs. Austin, Texas Pecan Grove 35 yrs. Anderson Mill 35 yrs. Albuquerque, New Mexico Alvarado 35 yrs. Dorado Heights 35 yrs. Detroit, Michigan American Heritage 35 yrs. Ashton Pines 35 yrs. Kings Gate 35 yrs. Lancaster Lakes 35 yrs. Other Midwest Washington Park/Centerville, Ohio 35 yrs. Jamestown of St. Matthews/Kentucky 35 yrs. Jamestown of Toledo/Toledo, Ohio 35 yrs. Other Florida Brantley Pines/Ft. Myers 35 yrs. The Ashlar I/Ft. Myers 35 yrs. Santa Barbara Landing/Naples 35 yrs. Mallards of Wedgewood/Lakeland 35 yrs. The Groves/Daytona Beach 35 yrs. Lakeside/Daytona Beach 35 yrs. Mallards of Brandywine/Deland 35 yrs. Lake Washington Downs/Melbourne 35 yrs. Seattle, Washington Arbor Terrace 35 yrs. Aspen Creek 35 yrs. Crown Point 35 yrs. Hill Top 35 yrs. </TABLE>
SCHEDULE III. Summary of Real Estate Owned <TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------- Total Capitalized Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposalsl) ----------------- ---------------- --------------- ------------ ------------------- <S> <C> <C> <C> <C> <C> Evergreen Park Apts 4,681,453 3,878,138 9,973,051 13,851,189 344,769 Indianapolis, Indiana International Village e 3,934,102 11,478,908 15,413,010 329,864 Regency Park South 2,643,025 7,632,098 10,275,123 245,388 Denver, Colorado Greensview 2,974,024 12,489,598 15,463,622 166,714 Mountain View 6,401,851 21,569,403 27,971,254 509,503 Portland, Oregon Lancaster Commons e 2,485,291 7,451,165 9,936,456 183,089 Tualatin Heights e 3,272,585 9,134,089 12,406,674 490,987 University Park 3,007,202 8,191,307 11,198,509 137,454 Los Angeles, California Pine Avenue 6,033,714 2,158,423 8,887,744 11,046,167 141,187 The Grand Resort 8,884,151 35,706,606 44,590,757 320,326 Grand Terrace 2,144,340 6,594,615 8,738,955 143,802 Sacramento, California Foothills Tennis Village e 3,617,507 14,542,028 18,159,535 239,155 Woodlake Village 16,232,867 6,772,438 26,966,750 33,739,188 619,851 San Francisco, California 2000 Post Street 26,400,000 9,860,627 44,577,506 54,438,133 192,850 Birch Creek 1,528,312 4,365,315 16,695,509 21,060,824 752,325 Highlands of Marin 20,300,000 5,995,838 24,868,350 30,864,188 309,500 Marina Playa 19,017,528 6,224,383 23,916,283 30,140,666 922,322 <CAPTION> Gross amount at Which Carried at Close of Period ----------------------------------- Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (h) (a) Depreciation Construction ----------------------------------- ------- --------------- ------------- <S> <C> <C> <C> <C> <C> Evergreen Park Apts 3,910,715 10,285,243 14,195,958 536,442 1988 Indianapolis, Indiana International Village 3,976,199 11,766,675 15,742,874 560,782 1968 Regency Park South 2,688,317 7,832,194 10,520,511 377,508 1968 Denver, Colorado Greensview 2,450,457 13,179,879 15,630,336 414,215 1987 Mountain View 6,249,912 22,230,845 28,480,757 883,487 1973 Portland, Oregon Lancaster Commons 2,503,919 7,615,625 10,119,545 354,601 1992 Tualatin Heights 3,358,936 9,538,725 12,897,661 433,758 1989 University Park 3,008,511 8,327,452 11,335,963 375,112 1987 Los Angeles, California Pine Avenue 2,160,001 9,027,353 11,187,354 284,989 1987 The Grand Resort 8,896,984 36,014,099 44,911,083 968,613 1971 Grand Terrace 2,193,927 6,688,830 8,882,757 125,429 1986 Sacramento, California Foothills Tennis Village 3,680,947 14,717,744 18,398,690 477,259 1988 Woodlake Village 6,897,148 27,461,892 34,359,039 928,624 1979 San Francisco, California 2000 Post Street 9,911,958 44,719,025 54,630,983 1,203,057 1987 Birch Creek 4,583,889 17,229,260 21,813,149 560,803 1968 Highlands of Marin 6,059,698 25,113,990 31,173,688 745,584 1991 Marina Playa 6,391,496 24,671,492 31,062,988 810,756 1971 <CAPTION> Depreciable Life of Date Building Acquired Component ----------- ------------ <S> <C> <C> Evergreen Park Apts 03/27/98 35 yrs. Indianapolis, Indiana International Village 12/07/98 35 yrs. Regency Park South 12/07/98 35 yrs. Denver, Colorado Greensview 12/07/98 35 yrs. Mountain View 12/07/98 35 yrs. Portland, Oregon Lancaster Commons 12/07/98 35 yrs. Tualatin Heights 12/07/98 35 yrs. University Park 03/27/98 35 yrs. Los Angeles, California Pine Avenue 12/07/98 35 yrs. The Grand Resort 12/07/98 35 yrs. Grand Terrace 06/30/99 35 yrs. Sacramento, California Foothills Tennis Village 12/07/98 35 yrs Woodlake Village 12/07/98 35 yrs San Francisco, California 2000 Post Street 12/07/98 35 yrs Birch Creek 12/07/98 35 yrs Highlands of Marin 12/07/98 35 yrs Marina Playa 12/07/98 35 yrs </TABLE>
<TABLE> <CAPTION> SCHEDULE III. Summary of Real Estate Owned Cost of Initial Costs Improvements -------------------------------- Total Capitalized Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances(j) Improvements Improvements Cost (i) (Net of Disposals) --------------- -------------------------------- ---------------- --------------------- <S> <C> <C> <C> <C> <C> Monterey Peninsula, California Boronda Manor f 1,946,423 8,981,742 10,928,165 67,862 Garden Court g 888,038 4,187,950 5,075,988 48,592 Glenridge g 415,284 1,952,934 2,368,218 11,540 Harding Park Townhomes f 549,393 2,051,322 2,600,715 24,545 Heather Plaza f 2,020,384 9,226,038 11,246,422 131,511 Laurel Tree f 1,303,902 5,115,356 6,419,258 44,043 Pine Grove f 1,383,161 5,783,993 7,167,154 33,898 Santanna g 957,079 4,026,117 4,983,196 34,415 The Capri f 1,018,493 3,657,274 4,675,767 10,620 The Claremont g 463,143 1,837,120 2,300,263 12,830 The Pointe At Harden Ranch f 6,388,446 23,853,534 30,241,980 223,449 The Pointe At Northridge f 2,043,736 8,028,443 10,072,179 86,632 The Pointe At Westlake f 1,329,064 5,334,004 6,663,068 45,561 Valli Hi g 881,376 5,037,805 5,919,181 37,167 Other California Silk Oak/Fresno 2,324,562 4,566,446 6,891,008 118,014 Windward Point/San Diego 1,767,970 7,117,879 8,885,849 144,914 Rancho Vallecitos/San Diego 3,302,967 10,877,286 14,180,254 42,187 Other Virginia Greens at Falls Run/Fredericksburg 2,730,722 5,300,203 8,030,925 792,141 Manor at England Run/Fredericksburg 1,168,810 7,006,464 8,175,274 13,146,585 Laurel Ridge/Roanoke 2,780,000 445,400 2,531,357 2,976,757 1,519,955 Greens at Hollymead/Charlottesville 965,114 5,250,374 6,215,488 622,219 Craig Manor/Salem 282,200 2,419,570 2,701,770 996,647 Northview/Salem 171,600 1,238,501 1,410,101 851,009 Other Georgia River Place/Macon d 1,097,280 7,492,385 8,589,665 1,823,834 Arkansas Turtle Creek/Little Rock 1,913,177 7,086,823 9,000,000 751,685 Shadow Lake/Little Rock 2,523,670 8,976,330 11,500,000 1,054,226 Nevada Sunset Pointe/Las Vegas 4,295,050 15,704,950 20,000,000 775,884 Delaware Dover Country Club/Dover 2,007,878 6,365,053 8,372,931 2,325,354 Greens at Cedar Chase/Dover d 1,528,667 4,830,738 6,359,405 703,310 -------------------------------------------------------------------------------------------- $ 514,259,193 $ 568,525,246 $2,515,397,434 $3,083,922,680 $493,925,036 ============================================================================================ Real estate held for disposition Apartments Deerwood Crossing/Winston-Salem, NC $ - $ 1,539,901 $ 7,989,043 $ 9,528,944 $ 911,450 Dutch Village/Winston-Salem, NC 1,197,593 4,826,266 6,023,858 540,781 <CAPTION> Gross amount at Which Carried at Close of Period ----------------------------------- Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (h) (a) Depreciation Construction ----------------------------------- -------------- ----------------- ------------- <S> <C> <C> <C> <C> <C> Monterey Peninsula, California Boronda Manor 1,954,850 9,041,177 10,996,027 267,976 1979 Garden Court 890,232 4,234,348 5,124,580 127,938 1973 Glenridge 415,600 1,964,158 2,379,758 56,434 1989 Harding Park Townhomes 550,249 2,075,011 2,625,260 72,033 1984 Heather Plaza 1,990,719 9,387,214 11,377,933 297,605 1974 Laurel Tree 1,308,893 5,154,408 6,463,301 184,119 1977 Pine Grove 1,383,720 5,817,332 7,201,052 181,459 1963 Santanna 957,476 4,060,135 5,017,611 127,411 1989 The Capri 1,018,544 3,667,843 4,686,387 133,058 1973 The Claremont 463,957 1,849,136 2,313,093 64,055 1973 The Pointe At Harden Ranch 6,396,915 24,068,514 30,465,429 840,211 1986 The Pointe At Northridge 2,043,743 8,115,068 10,158,811 277,180 1979 The Pointe At Westlake 1,329,407 5,379,222 6,708,629 182,615 1975 Valli Hi 882,058 5,074,290 5,956,348 117,603 1965 Other California Silk Oak/Fresno 2,354,241 4,654,781 7,009,022 16,648 1985 Windward Point/San Diego 1,796,891 7,233,872 9,030,763 235,101 1983 Rancho Vallecitos/San Die 3,304,236 10,918,204 14,222,440 470,982 1988 Other Virginia Greens at Falls Run/Fredericksburg 2,876,643 5,946,423 8,823,066 1,108,675 1989 Manor at England Run/Fredericksburg 2,794,885 18,526,974 21,321,859 2,188,050 1990 Laurel Ridge/Roanoke 668,773 3,827,939 4,496,712 2,052,234 1970/72 Greens at Hollymead/Charlottesville 1,056,498 5,781,209 6,837,707 1,031,034 1990 Craig Manor/Salem 364,351 3,334,066 3,698,417 1,557,497 1975 Northview/Salem 246,975 2,014,135 2,261,110 1,399,369 1969 Other Georgia River Place/Macon 1,700,991 8,712,508 10,413,499 2,244,453 1988 Arkansas Turtle Creek/Little Rock 2,185,212 7,566,474 9,751,685 909,070 1985 Shadow Lake/Little Rock 2,743,019 9,811,207 12,554,226 1,173,493 1984 Nevada Sunset Pointe/Las Vegas 4,437,932 16,337,952 20,775,884 1,758,837 1990 Delaware Dover Country Club/Dover 2,359,250 8,339,035 10,698,285 2,005,526 1970 Greens at Cedar Chase/Dover 1,722,356 5,340,359 7,062,715 1,038,934 1988 --------------------------------------------------------------- $636,904,958 $ 2,940,942,758 $ 3,577,847,716 $ 373,164,015 =============================================================== Real estate held for disposition Apartments Deerwood Crossing/Winston-Salem, NC $ 1,670,816 $ 8,769,579 $ 10,440,395 $ 740,584 1973 Dutch Village/Winston-Salem, NC 1,282,479 5,282,160 6,564,639 468,792 1970 <CAPTION> Depreciable Life of Date Building Acquired Component ----------- ------------ <S> <C> <C> Monterey Peninsula, California Boronda Manor 12/07/98 35 yrs. Garden Court 12/07/98 35 yrs. Glenridge 12/07/98 35 yrs. Harding Park Townhomes 12/07/98 35 yrs. Heather Plaza 12/07/98 35 yrs. Laurel Tree 12/07/98 35 yrs. Pine Grove 12/07/98 35 yrs. Santanna 12/07/98 35 yrs. The Capri 12/07/98 35 yrs. The Claremont 12/07/98 35 yrs. The Pointe At Harden Ranc 12/07/98 35 yrs. The Pointe At Northridge 12/07/98 35 yrs. The Pointe At Westlake 12/07/98 35 yrs. Valli Hi 12/07/98 35 yrs. Other California Silk Oak/Fresno 12/07/98 35 yrs. Windward Point/San Diego 12/07/98 35 yrs. Rancho Vallecitos/San Die 10/13/99 35 yrs. Other Virginia Greens at Falls Run/Fredericksburg 05/04/95 35 yrs. Manor at England Run/Fredericksburg 05/04/95 35 yrs. Laurel Ridge/Roanoke 05/17/88 35 yrs. Greens at Hollymead/Charlottesville 05/04/95 35 yrs. Craig Manor/Salem 11/06/87 35 yrs. Northview/Salem 09/29/78 35 yrs. Other Georgia River Place/Macon 04/08/94 35 yrs. Arkansas Turtle Creek/Little Rock 12/31/96 35 yrs. Shadow Lake/Little Rock 12/31/96 35 yrs. Nevada Sunset Pointe/Las Vegas 12/31/96 35 yrs. Delaware Dover Country Club/Dover 07/01/94 35 yrs. Greens at Cedar Chase/Dover 05/04/95 35 yrs. Real estate held for disposition Apartments Deerwood Crossing/Winston-Salem, NC 08/15/96 35 yrs. Dutch Village/Winston-Salem, NC 08/15/96 35 yrs. </TABLE> 76
SCHEDULE III. Summary of Real Estate Owned <TABLE> <CAPTION> Cost of Improvements Initial Costs Total Capitalized ---------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances(j) Improvements Improvements Cost (i) (Net of Disposals) --------------- ---------------------------- ----------- ------------------ <S> <C> <C> <C> <C> <C> Park Forest/Greensboro, NC 4,072,138 679,671 5,770,413 6,450,084 460,526 Patriot Place/Florence, SC 2,200,000 212,500 1,600,757 1,813,257 5,614,497 Woodside/Glen Burnie, MD 12,975,000 3,112,881 8,893,721 12,006,602 3,247,157 Twin Coves/Baltimore, MD 3,565,000 912,771 2,904,304 3,817,075 858,015 Park on Preston/Dallas, TX 5,406,615 1,521,877 8,569,278 10,091,155 (253,082) Cold Springs Manor/ Indianapolis, IN e 599,646 1,774,834 2,374,480 60,991 Woodberry/Asheville, NC 388,699 6,380,899 6,769,598 951,246 Montfort/Dallas, TX 3,749,516 1,696,778 4,645,874 6,342,652 51,321 Fountainhead/Dayton, Ohio e 390,542 1,420,166 1,810,708 20,562 Chandler's Mill/Corpus Christi, TX b 1,930,120 6,844,880 8,775,000 (442,663) Villa Serena/Albuquerque, NM 2,549,763 512,421 3,403,906 3,916,327 (705,775) On The Boulevard/Kennewick, WA 1,164,652 9,547,299 10,711,951 (227,420) Campus Commons North/Pullman, WA 6,253,953 305,143 9,867,157 10,172,300 (1,970,651) Campus Commons South/Pullman, WA 2,635,139 838,324 3,005,784 3,844,108 (616,317) Dove Park/Grapevine, TX 2,309,195 9,699,046 12,008,241 911,788 Citiscape/Dallas, TX b 2,092,387 7,532,613 9,625,000 392,422 Bammelwood/Houston, TX 2,863,973 929,601 3,330,352 4,259,953 261,607 Briar Park/Houston, TX 1,334,966 329,002 2,794,131 3,123,133 86,131 Clear Lake Falls/Webster, TX 2,974,723 1,090,080 4,534,335 5,624,415 (378,440) The Gallery/Houston, TX 1,562,072 768,708 3,358,484 4,127,192 48,957 Marymont/Tombull, TX 1,150,696 4,155,411 5,306,107 338,317 Memorial Bend/Houston, TX 1,829,704 882,230 3,776,765 4,658,995 (657,630) Nantucket Square/Houston, TX 2,620,590 1,067,617 4,833,402 5,901,019 (726,681) Prestonwood/Houston, TX 2,348,614 998,433 4,128,699 5,127,132 111,140 Riverway/Bay City, TX 1,129,758 523,457 2,828,282 3,351,739 61,048 Riviera Pines/Houston, TX 3,109,672 1,413,851 6,453,847 7,867,698 90,819 2900 Place/East Lansing, MI 1,818,957 5,593,327 7,412,284 48,331 Sunset Village/Flint, Michigan 796,994 1,829,226 2,626,220 29,528 Brandywine Creek/East Lansing, MI e 4,665,991 17,514,466 22,180,457 (2,869,847) Lakewood/Haslett, MI e 1,113,126 3,877,503 4,990,629 49,546 Nemoke Trail/Haslett, MI e 3,430,631 12,222,526 15,653,157 70,181 Three Fountains/Montgomery, AL 1,075,009 6,872,302 7,947,311 832,656 Harbour Town/Nashville, TN 572,567 3,522,092 4,094,659 961,611 The Lakes/Nashville, TN 1,285,657 5,980,197 7,265,854 1,264,196 2131 Apartments/Nashville, TN 869,860 9,155,185 10,025,045 3,667,714 Commercial Pacific South Center/Seattle, WA 3,069,871 1,000,000 4,000,000 5,000,000 (3,580) Hanover Village-Land/Richmond, VA 1,623,910 0 1,623,910 0 Gloucester Exchange/Gloucester, VA 403,688 2,278,553 2,682,241 86,096 Tri-County Buildings/Bristol, TN 275,580 900,281 1,175,861 1,280,670 Meadowdale Office/Richmond, VA 240,563 359,913 600,476 119,344 -------------------------------------------------------------------------------- $ 69,476,556 $49,731,309 $218,975,518 $268,706,827 $14,576,564 ================================================================================ <CAPTION> Gross amount at Which Carried at Close of Period Total ------------------------------------------- Land and Buildings Carrying Land and Value Accumulated Improvements Improvements (h) (a) Depreciation --------------------- ------------------ ----------- ------------- <S> <C> <C> <C> <C> <C> Park Forest/Greensboro, NC 804,457 6,106,153 6,910,610 592,023 Patriot Place/Florence, SC 1,451,936 5,975,818 7,427,754 2,671,181 Woodside/Glen Burnie, MD 3,446,281 11,807,478 15,253,759 1,910,891 Twin Coves/Baltimore, MD 1,025,146 3,649,943 4,675,090 373,910 Park on Preston/Dallas, TX 1,593,641 8,244,432 9,838,073 287,773 Cold Springs Manor/ Indianapolis, IN 601,096 1,834,375 2,435,471 4,512 Woodberry/Asheville, NC 549,427 7,171,417 7,720,844 822,465 Montfort/Dallas, TX 1,707,033 4,686,940 6,393,973 80,326 Fountainhead/Dayton, Ohio 390,542 1,440,728 1,831,270 3,028 Chandler's Mill/Corpus Christi, TX 1,961,704 6,370,633 8,332,337 253,538 Villa Serena/Albuquerque, NM 513,945 2,696,607 3,210,552 97,684 On The Boulevard/Kennewick, WA 1,090,116 9,394,415 10,484,531 513,668 Campus Commons North/Pullman, WA 328,100 7,873,549 8,201,649 277,194 Campus Commons South/Pullman, WA 895,743 2,332,049 3,227,791 93,617 Dove Park/Grapevine, TX 2,566,974 10,353,056 12,920,029 1,036,306 Citiscape/Dallas, TX 2,180,783 7,836,639 10,017,422 824,483 Bammelwood/Houston, TX 947,590 3,573,969 4,521,560 198,498 Briar Park/Houston, TX 332,264 2,877,000 3,209,264 77,120 Clear Lake Falls/Webster, TX 1,099,021 4,146,954 5,245,975 123,003 The Gallery/Houston, TX 772,479 3,403,670 4,176,149 77,104 Marymont/Tombull, TX 1,158,696 4,485,728 5,644,424 128,011 Memorial Bend/Houston, TX 884,589 3,116,776 4,001,365 99,044 Nantucket Square/Houston, TX 1,070,242 4,104,096 5,174,338 116,824 Prestonwood/Houston, TX 1,005,193 4,233,080 5,238,272 124,325 Riverway/Bay City, TX 527,607 2,885,180 3,412,787 95,032 Riviera Pines/Houston, TX 1,415,869 6,542,648 7,958,517 167,615 2900 Place/East Lansing, MI 1,819,883 5,640,731 7,460,615 128,594 Sunset Village/Flint, Michigan 796,994 1,858,754 2,655,748 6,004 Brandywine Creek/East Lansing, MI 4,678,981 14,631,628 19,310,610 472,762 Lakewood/Haslett, MI 1,118,755 3,921,420 5,040,175 157,920 Nemoke Trail/Haslett, MI 3,430,631 12,292,707 15,723,338 354,478 Three Fountains/Montgomery, AL 1,268,368 7,511,599 8,779,967 1,797,658 Harbour Town/Nashville, TN 726,166 4,330,104 5,056,270 1,092,006 The Lakes/Nashville, TN 1,463,155 7,066,895 8,530,050 1,872,323 2131 Apartments/Nashville, TN 1,195,090 12,497,669 13,692,759 2,768,626 Commercial Pacific South Center/Seattle, WA 1,000,000 3,996,420 4,996,420 0 Hanover Village-Land/Richmond, VA 1,103,600 520,310 1,623,910 0 Gloucester Exchange/Gloucester, VA 551,255 2,217,082 2,768,337 757,307 Tri-County Buildings/Bristol, TN 364,123 2,092,408 2,456,531 733,820 Meadowdale Office/Richmond, VA 259,684 460,136 719,820 300,034 ------------------------------------------------------------------------- $53,050,454 $230,232,937 $283,283,391 $22,700,081 ========================================================================= <CAPTION> Depreciable Life of Date of Date Building Construction Acquired Component ------------- --------- ------------ <S> <C> <C> <C> <C> Park Forest/Greensboro, NC 1987 09/26/96 35 yrs. Patriot Place/Florence, SC 1974 10/23/85 35 yrs. Woodside/Glen Burnie, MD 1966 08/16/94 35 yrs. Twin Coves/Baltimore, MD 1974 08/16/94 35 yrs. Park on Preston/Dallas, TX 1983 03/27/98 35 yrs. Cold Springs Manor/ Indianapolis, IN 1963 12/07/98 35 yrs. Woodberry/Asheville, NC 1987 08/15/96 35 yrs. Montfort/Dallas, TX 1986 03/27/98 35 yrs. Fountainhead/Dayton, Ohio 1966 12/07/98 35 yrs. Chandler's Mill/Corpus Christi, TX 1984 12/31/96 35 yrs. Villa Serena/Albuquerque, NM 1986 03/27/98 35 yrs. On The Boulevard/Kennewick, WA 1995 03/27/98 35 yrs. Campus Commons North/Pullman, WA 1972 03/27/98 35 yrs. Campus Commons South/Pullman, WA 1972 03/27/98 35 yrs. Dove Park/Grapevine, TX 1984 12/31/96 35 yrs. Citiscape/Dallas, TX 1973 12/31/96 35 yrs. Bammelwood/Houston, TX 1980 10/30/97 35 yrs. Briar Park/Houston, TX 1987 03/27/98 35 yrs. Clear Lake Falls/Webster, TX 1980 03/27/98 35 yrs. The Gallery/Houston, TX 1968 03/27/98 35 yrs. Marymont/Tombull, TX 1983 03/27/98 35 yrs. Memorial Bend/Houston, TX 1967 03/27/98 35 yrs. Nantucket Square/Houston, TX 1983 03/27/98 35 yrs. Prestonwood/Houston, TX 1978 03/27/98 35 yrs. Riverway/Bay City, TX 1985 03/27/98 35 yrs. Riviera Pines/Houston, TX 1979 03/27/98 35 yrs. 2900 Place/East Lansing, MI 1966 12/07/98 35 yrs. Sunset Village/Flint, Michigan 1940 12/07/98 35 yrs. Brandywine Creek/East Lansing, MI 1974 12/07/98 35 yrs. Lakewood/Haslett, MI 1974 12/07/98 35 yrs. Nemoke Trail/Haslett, MI 1978 12/07/98 35 yrs. Three Fountains/Montgomery, AL 1973 07/01/94 35 yrs. Harbour Town/Nashville, TN 1974 12/10/93 35 yrs. The Lakes/Nashville, TN 1986 09/15/93 35 yrs. 2131 Apartments/Nashville, TN 1972 12/16/92 35 yrs. Commercial Pacific South Center/Seattle, WA 1965 08/28/86 35 yrs. Hanover Village-Land/Richmond, VA -- 06/30/86 35 yrs. Gloucester Exchange/Gloucester, VA 1974 11/12/87 35 yrs. Tri-County Buildings/Bristol, TN 1976/79 01/21/81 35 yrs. Meadowdale Office/Richmond, VA 1976/82 12/31/84 35 yrs. </TABLE>
SCHEDULE III Summary of Real Estate Owned <TABLE> <CAPTION> Cost of Improvements Initial Costs Total Capitalized ----------------------------- Land and Buildings Initial Subsequent Land and Acquisition to Acquisition Encumbrances (j) Improvements Improvements Cost (i) (Net of Disposals) ----------------- ----------------------------- ----------- ------------------ <S> <C> <C> <C> <C> <C> Real estate under development New apartment communities Ashton at Waterford Lakes/Orlando, FL 3,079,772 16,163,734 19,243,506 The Meridian I/Dallas, TX 1,196,682 10,206,259 11,402,941 Oaks at Weston/Morrisville, NC 3,114,500 3,276,001 6,390,501 Additions to existing communities Dominion at Crown Point II/Charlotte, NC 1,006,918 9,009,307 10,016,225 The Ashlar II/ Fort Myers, FL 1,099,056 612,483 1,711,539 Escalante II/San Antonio, TX 1,826,575 3,468,075 5,294,650 Land held for future development 37,854,702 0 37,854,702 -------------------------------------------------------------------------------- $ 0 $ 49,178,205 $ 42,735,859 $ 91,914,064 $ 0 ================================================================================ -------------------------------------------------------------------------------- Total real estate owned $1,000,136 $667,434,760 $2,777,108,811 $3,444,543,571 $508,501,600 ================================================================================ Gross amount at Which Carried at Close of Period Total ----------------------------------------- Land and Buildings Carrying Land and Value Accumulated Improvements Improvements (h) (a) Depreciation --------------------- ------------------ ----------- ------------- <S> <C> <C> <C> Real estate under development New apartment communities Ashton at Waterford Lakes/Orlando, FL 3,079,772 16,163,734 19,243,506 The Meridian I/Dallas, TX 1,196,682 10,206,259 11,402,941 Oaks at Weston/Morrisville, NC 3,114,500 3,276,001 6,390,501 Additions to existing communities Dominion at Crown Point II/Charlotte, NC 1,006,918 9,009,307 10,016,225 The Ashlar II/ Fort Myers, FL 1,099,056 612,483 1,711,539 Escalante II/San Antonio, TX 1,826,575 3,468,075 5,294,650 Land held for future development 37,854,702 0 37,854,702 ---------------------------------------------------------------------------- $ 49,178,205 $ 42,735,859 $ 91,914,064 $ 0 ============================================================================ ---------------------------------------------------------------------------- Total real estate owned $739,133,616 $3,213,911,555 $3,953,045,171 $395,864,095 ============================================================================ <CAPTION> Depreciable Life of Date of Date Building Construction Acquired Component ------------- --------- ------------ <S> <C> <C> <C> Real estate under development New apartment communities Ashton at Waterford Lakes/Orlando, FL 1999 05/28/98 The Meridian I/Dallas, TX 1999 01/27/98 Oaks at Weston/Morrisville, NC 1999 01/14/99 Additions to existing communities Dominion at Crown Point II/Charlotte, NC 1999 12/29/98 The Ashlar II/ Fort Myers, FL 1999 12/24/97 Escalante II/San Antonio, TX 1999 04/16/98 Land held for future development Total real estate owned </TABLE> (a) The aggregate cost for federal income tax purposes was approximately $3.3 billion at December 31, 1999 and 1998, respectively. (b) Represents a $30,581,553 REMIC financing encumbering 12 apartment communities. (c) Represents a $28,585,050 REMIC financing encumbering 9 apartment communities. (d) Represents a $195,675,000 secured credit facility which encumbers 19 apartment communities. (e) Represents $107,492,963 of fixed rate debt which encumbers 15 apartment communities. (f) Represents $43,010,206 of fixed rate debt which encumbers 9 apartment communities. (g) Represents $11,031,634 of fixed rate debt which encumbers 5 apartment communities. (h) The depreciable life for all buildings is 35 years. (i) Total initial acquisition cost includes a purchase price reallocation of $8.5 million. (j) Encumbrances include a fair market value adjustment of $14.8 million.