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, 2000 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.) 400 East Cary Street, Richmond, Virginia 23219 - - -------------------------------------------------------------------------------- (Address of principal executive offices - zip code) (804) 780-2691 -------------- (Registrant's telephone number, including area code) 10 South Sixth Street, Richmond, Virginia 23219 - - -------------------------------------------------------------------------------- (Former address, if changed since last report) 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 1, 2001 was approximately $1 billion. * As of March 1, 2001 there were 101,346,145 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 8, 2001. *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 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 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 that owns, acquires, renovates, develops and manages middle market 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 and management of the Company's 277 apartment communities in their respective geographic regions. United Dominion, which owns over 77,000 apartment homes, had approximately 2,400 employees as of January 31, 2001. 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 preferred and common shareholders. Because the Company qualifies as a REIT, it is generally not subject to federal income taxes. Business Overview With an objective to be a national company and one of the largest apartment REITs, from 1996 through 1998, United Dominion acquired other REITs, private portfolios and individual communities, growing its apartment portfolio from 34,000 to over 87,000 apartment homes by the end of 1998. Following this significant acquisition period, the Company has spent the last two years building infrastructure to catch up with the rapid growth, upgrading its portfolio and focusing on operational issues. The goals have been to strengthen and better position the Company to sustain above-average net operating income growth, steadily increase cash flow per apartment home, generate more predictable earnings and strengthen the capital structure. In 2000, United Dominion upgraded its portfolio, increased its financial flexibility and refined its strategy. During the year, the Company sold $215 million of non-core properties that included 26 communities with 5,835 apartment homes. These divestitures were designed to increase the long-term profitability of the portfolio. The properties sold included slower growing communities in several of the Company's core markets, as well as properties located within markets which United Dominion exited such as Galveston, Texas, Montgomery, Alabama and Roanoke, Virginia. The majority of the proceeds were used to reduce debt, strengthen the capital structure and increase financial flexibility. A lesser part of the proceeds were used to buyback equity securities, both common and preferred stock. Changing demographics will have a significant impact on the apartment industry over the next two decades. The number of young people entering the workforce and creating households will be significantly higher over the next 17 years as compared to the number who entered the workforce over the past 12 years. The number of single people and single parent households continues to grow significantly. There is also higher growth in immigration than had been expected. Each of the above-mentioned population segments has a high propensity to rent. For the first time in more than a decade, the growth in demand for rental housing will exceed the growth in demand for owner occupied housing. Customers United Dominion focuses on the broad middle-market segment of the apartment market which generally consists of renters-by-necessity. This group includes young professionals, blue collar families, single parent households, older singles, non-related parties and families renting while waiting to purchase a home. The Company believes that this segment provides the highest profit potential in terms of rent growth, stability of occupancy, desired level of service and amenities and investment opportunities. Recognizing the significant increase in younger renters over the next decade and a half, the Company plans to target some of its incremental investments to communities that will be attractive to young households. These communities will often be located close to where young people work, shop and play. 3
Markets At the end of 2000, United Dominion owned apartments in more than 60 MSAs, but derived 70% of its net operating income in 2000 from its 20 largest markets. The Company has a geographically diverse portfolio both by region and market. This diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of United Dominion's earnings. In any given year, the Company will have some markets that are strong, some that are balanced and some that are weak. In 2000, new supply continued to come into the market as demand was slowing. The excess supply exerted pressure on occupancy and rents in some of the Company's key markets, particularly Raleigh, Charlotte and Wilmington in North Carolina and Columbus, Ohio. Offsetting this, some of the Company's markets experienced above-average NOI growth for the year, including Richmond, Dallas/Fort Worth, Atlanta, Greensboro and Baltimore. The Company's West Coast markets including its markets in California and the Pacific Northwest were exceptionally strong throughout the year. Communities At December 31, 2000, United Dominion's apartment portfolio included 277 communities having a total of 77,219 completed apartment homes (see Item 2, Properties). In addition, United Dominion had 1,238 apartment homes under development at two new communities and three additional phases to existing owned communities. The overall quality of the portfolio has significantly improved since 1997 with the disposition of more than 21,000 apartment homes and the upgrading of most of the core communities. The upgrading of the portfolio provides several key benefits related to portfolio profitability. It reduces capital expenditures per apartment, and therefore increases cash flow. It enables the Company to attract residents with higher levels of disposable income, and these are customers that are more likely to accept the transfer of expenses from the landlord to the resident, such as water and sewer costs, and will generally want additional services from the landlord that will generate additional revenue. During the past four years, United Dominion's same community NOI growth averaged above 5%. The Company grew rental and other income and increased occupancy while controlling operating expenses. This is a direct result of the overall improvement to the quality of the portfolio. For 2001, the Company expects same community net operating income growth in a majority of its markets. NOI growth is the Company's primary earnings driver. New CEO With the Company's repositioning substantially complete, United Dominion began a search for a new CEO in the fourth quarter. This search culminated with the hiring of Thomas W. Toomey on February 13, 2001 to replace John P. McCann who served in this role for more than 26 years. Mr. Toomey has begun a review of the organizational structure and strategy of the Company. This review could result in changes that may require the Company to incur expenses for severance and termination benefits. Additionally, the review may result in a change of intent with regard to anticipated holding periods of certain assets which could require the write down of these assets. Technology Primarily over the past two years, United Dominion has invested in technology to improve business processes, communications with constituencies and to become a better marketer. The Company believes that technology can provide competitive advantages in the future. Key technology initiatives over the past year have included a redeveloped corporate web site, an e-training initiative to take training out of the classroom and directly to associates at their workstations, and the co-development of a web-based property management system. 2000 Accomplishments . Net operating income (property operating income less property operating expenses) from same communities (those acquired, developed or stabilized prior to January 1, 1999 and held on January 1, 2000) increased 4.1% in 2000 compared to 1999; . Completed four development projects aggregating $68.1 million with 992 apartment homes in five different markets. Lease-ups were ahead of projected absorption at two of these communities; 4
. Completed the formation with a financial partner of a development joint venture for five new communities containing 1,438 apartment homes at a budgeted cost of $103 million . United Dominion earns fee income by providing development, construction and property management services to each of the joint venture projects; . Completed the disposition of 26 apartment communities representing $215 million of gross sales proceeds and consisting of communities that no longer met the Company's investment criteria. This included exiting certain non-core markets; . Reduced debt by $135 million using divestiture proceeds; . Repurchased $29 million of common and preferred stock and operating partnership units (OP Units) using divestiture proceeds; . Arranged a new $375 million, three-year revolving credit agreement in order to enhance the Company's financial flexibility; . Paid dividends of $1.07 per share, which represents United Dominion's 24th year of consecutive dividend increases to shareholders, and; . Formed Realeum, Inc. with two other apartment REITs to complete the development of a web-based on-site apartment management system. Acquisitions and Mergers Over the past five years, United Dominion acquired over 60,000 apartment homes as part of its strategy to have a national portfolio. Over the past two years, the amount of United Dominion's dispositions exceeded its acquisitions, with acquisitions limited to using disposition proceeds to complete 1031 tax-deferred exchanges. During 2000, using the proceeds from its disposition program, United Dominion acquired one community with 267 apartment homes at a total cost of $14.8 million, including the assumption of debt and the use of tax free exchange funds. When evaluating potential acquisitions, United Dominion considers geographic location, construction quality, condition and design of the community, asset quality and current and projected cash flow of the property, ability to increase the value and profitability of the property through upgrades and repositioning, potential for rent growth, competition from existing multifamily communities, anticipated new construction and the potential for economic growth in the market and sub-market. The following table summarizes United Dominion's apartment acquisitions (including mergers) during the last five years (dollars in thousands): <TABLE> <CAPTION> 2000 1999 1998 (a) 1997 1996 (b) ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Homes acquired 267 1,230 28,510 8,628 22,032 Homes owned at December 31, 77,219 82,154 86,893 62,789 55,664 Total real estate owned, at carrying value $3,836,320 $3,953,045 $3,952,752 $2,517,398 $2,099,641 Total rental income $ 616,825 $ 618,749 $ 478,718 $ 386,672 $ 241,260 </TABLE> (a) Includes 7,550 apartment homes acquired in the ASR Merger on March 27, 1998 and 14,001 apartment homes acquired in the American Apartment Communities Merger on December 7, 1998. (b) Includes 14,320 completed apartment homes and 675 homes under development acquired in connection with the SouthWest Merger on December 31, 1996. 5
Prior to 1990, United Dominion was the only major publicly held REIT focusing predominantly on apartment investments. Since then, a number of multifamily REITs have been formed. The apartment sector of the real estate industry has undergone modest but steady consolidation over the past decade. Some apartment REITs and privately owned portfolios may seek to be acquired by large, well capitalized REITs that have superior access to the capital markets. United Dominion has been a participant in this consolidation process, completing the following mergers: On December 31, 1996, United Dominion completed the acquisition of SouthWest Property Trust Inc. ("SouthWest") in a statutory merger (the "SouthWest Merger"). SouthWest was a publicly traded multifamily REIT that owned 44 communities with 14,320 apartment homes primarily located in Texas. The SouthWest Merger provided the Company with diversification beyond its traditional southeast and mid-atlantic markets, expanding the Company into the 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 added communities 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, many of which are strong growth markets. Through the AAC merger, the Company entered Portland, San Francisco, Sacramento, San Jose, Monterey, Los Angeles, Denver, Indianapolis and Detroit. In addition, AAC added communities to the Company's portfolios in Columbus, Tampa, South Florida and Seattle. Development/Upgrading Activity During 2000, United Dominion continued to reposition properties in targeted markets where there was a perceived opportunity to add value and achieve greater than inflationary increases in rents over the long term. Over the past three years, the Company has shifted capital into development that could provide returns on investment (property operating income less property operating expenses and a capital expenditure allowance, divided by the average investment) in excess of 9.5% and away from lower yielding acquisitions. In 2000, United Dominion spent over $90 million on direct development projects. This included $68.1 million to finish 992 apartment homes in one new community and three second phases and $26.8 million to start 1,238 apartment homes in two new communities and three second phases. During 2000, United Dominion completed the formation of a development joint venture with an institutional partner. The joint venture allows the Company to reduce its development capital commitment and generate fee income as the developer, general contractor and project manager. United Dominion expects to further reduce the capital committed to development in 2001 and to do most new development in joint ventures where the Company can generate fee income and increased participation based on performance. In 2001, the Company will reduce its development activity in suburban, low barrier to entry sub-markets and sell off several suburban development sites. 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. United Dominion will spend less on development in 2001 than it spent in either 1999 or 2000. Same Communities United Dominion's primary earnings driver is same apartment community operations. During 2000, the Company's same communities provided 94% of the Company's property operating income. Rental growth was 4.2% and resulted primarily from a 2.9% increase in rental rates and a 1.2% increase in physical occupancy. Operating expenses also grew by 4.2%, much of which resulted from a 63.4% increase in property insurance costs and a 5.3% increase in real estate taxes. Average physical occupancy, rental rates and operating margins at United Dominion's same communities during the past three years as set forth below: 6
2000 1999 1998 ----- ----- ----- Physical occupancy 94.2% 93.0% 92.9% Average monthly rental rates $ 667 $ 631 $ 602 Operating margin 61.2% 61.3% 59.6% While the Company continues to add features to its apartment communities, United Dominion completed most of its same community upgrade program in 1999, as part of its plan to improve the quality of the portfolio. During 2000, the Company's investment in revenue enhancing and recurring capital expenditures significantly decreased. As a result of the portfolio upgrade, recurring and overall capital expenditures declined in 2000. For the mature apartments, recurring capital expenditures were $311 versus $386 per mature apartment in 1999. The Company, in 2000, also spent $203 per mature apartment on revenue enhancing capital expenditures, mostly on communities acquired in 1998, where the upgrade work was not completed in 1999. In 1999, the Company spent $253 per mature apartment on revenue enhancing capital expenditures. Revenue enhancing improvements include sub-metering of water and sewer to residents, gating and fencing of communities, installing intrusion alarms, adding business and fitness centers and constructing carports, garages and self storage units. Divestiture Activity During the past three years, United Dominion has sold more than 21,000 of its slower growing, non-core apartment homes while exiting some markets. These sales were done to increase the performance of the portfolio. They allowed United Dominion to exit slower growing markets and increase the quality of the portfolio, including reducing the average age of the portfolio. Proceeds from the disposition program were used to strengthen the Company's capitalization structure 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, 2000, there was one community with 132 apartment homes, three commercial properties and one parcel of land classified as real estate held for disposition. The Company regularly monitors and adjusts its assets in order to increase portfolio profitability. Proceeds from the 2001 sales, currently planned to be lower than 2000, are expected to be used to reduce debt, repurchase common and preferred stock, fund development and acquire communities through 1031 exchanges. The Company's divestitures in 2001 are currently expected to be substantially non-dilutive to earnings. Financing Activity As part of United Dominion's plan to strengthen its capital structure in 2000, the Company used a majority of its disposition proceeds to reduce debt. The Company anticipates using a significant portion of its 2001 disposition proceeds to reduce debt and further increase its financial flexibility. During 2000, United Dominion's major financing activities consisted of: (i) issuing $100 million of unsecured notes with an interest rate of 8.625%; (ii) refinancing $46.7 million of tax-exempt notes at a blended rate of 6.32%; (iii) closing on a $60 million revolving credit facility with the Federal National Mortgage Association with an initial interest rate of 7.12%; (iv) borrowing $100 million in the form of an unsecured term loan from a consortium of banks; and (v) repurchasing approximately 1.4 million of common shares and over 700,000 shares of preferred stock. 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. 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 that can be used to invest back into expenditures to maintain the quality of their real estate assets as well as repay outstanding debt. 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. Competition In most of United Dominion's markets, the competition for new residents is intense. Some competing communities offer features that United Dominion's communities do not have. Some competing communities may use concessions or lower rents to obtain competitive advantages. Also, some competing communities are larger or newer than United Dominion's communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. Management believes that United Dominion, in general, is well positioned in terms of economic and other resources to compete effectively for residents and investments. 7
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 with presence in more than 32 major markets across the country, and; . local presence in many of its major markets which allows it to be a local operating expert. 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 15 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 of which United Dominion is unaware. In some cases, United Dominion has abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive 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. Management believes that through professional environmental inspections and testing for asbestos, lead paint 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 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. 8
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 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. 9
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 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. 10
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 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. 11
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. 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. 12
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 georgraphic market of United Dominion's real estate portfolio at December 31, 2000. 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 Communities Homes Value (in thousands) (in thousands) ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> NORTHERN REGION: Raleigh, NC 9 2,951 3.7% $140,725 $31,327 Charlotte, NC 10 2,710 3.5% 133,652 12,267 Columbus, OH 5 2,175 3.2% 122,281 42,703 Greensboro, NC 8 2,123 2.7% 102,574 - Richmond, VA 8 2,372 2.5% 94,633 60,682 (a) Wilmington, NC 6 1,869 2.3% 88,200 - Baltimore, MD 6 1,421 1.7% 66,380 28,657 (a) Other Northern Markets 38 8,383 9.5% 366,179 56,194 (a) SOUTHERN REGION: Orlando, FL 14 4,140 5.2% 198,761 76,736 (a) Tampa, FL 10 3,372 3.9% 149,907 51,665 (a) Nashville, TN 8 2,220 3.1% 117,978 - South Florida 6 1,638 2.7% 103,335 20,620 (a) Memphis, TN 6 1,956 2.5% 95,752 32,724 Atlanta, GA 6 1,426 1.8% 69,964 17,714 (a) Columbia, SC 6 1,584 1.6% 61,472 5,000 Other Southern Markets 16 4,760 5.8% 220,993 43,696 (a) WESTERN REGION: Houston, TX 22 5,722 5.8% 222,164 47,499 Dallas, TX 14 4,533 5.4% 208,238 10,349 Phoenix, AZ 10 3,460 5.2% 199,500 19,086 San Antonio, TX 12 3,827 4.9% 187,470 37,627 Fort Worth, TX 11 3,561 3.8% 145,046 18,711 San Francisco, CA 4 980 3.6% 139,462 21,709 Monterey Peninsula, CA 11 1,827 2.7% 104,041 - (a) Southern California 5 1,414 2.3% 89,863 5,937 Seattle, WA 3 628 0.9% 33,473 16,661 Other Western Markets 22 6,167 7.6% 290,068 66,178 (a) Land n/a n/a 0.9% 33,633 n/a Real Estate Under Development n/a n/a 0.7% 26,735 n/a ---------------------------------------------------------------------------------- Total Apartments 276 77,219 99.4% $3,812,478 $859,285 ---------------------------------------------------------------------------------- Real Estate Held for Disposition (c) 5 n/a 0.4% 16,980 6,830 Richmond - Corporate n/a n/a 0.2% 6,863 - ---------------------------------------------------------------------------------- Total Real Estate Owned 281 77,219 100.0% $3,836,320 $866,115 ================================================================================== <CAPTION> Physical Average Monthly Rental Average Cost Occupancy Rates for the Year Ended Unit Size Per Home Full Year 2000 December 31, 2000 (b) (Square Feet) ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> NORTHERN REGION: Raleigh, NC $47,687 90.8% $707 914 Charlotte, NC 49,318 92.0% 686 983 Columbus, OH 56,221 95.0% 656 886 Greensboro, NC 48,315 92.5% 631 981 Richmond, VA 39,896 96.2% 684 945 Wilmington, NC 47,191 89.5% 648 951 Baltimore, MD 46,713 98.3% 731 872 Other Northern Markets 43,681 94.9% 643 912 SOUTHERN REGION: Orlando, FL 48,010 94.4% 721 937 Tampa, FL 44,457 94.7% 676 951 Nashville, TN 53,143 94.8% 657 850 South Florida 63,086 92.9% 847 847 Memphis, TN 48,953 94.5% 610 835 Atlanta, GA 49,063 94.6% 718 908 Columbia, SC 38,808 94.0% 540 838 Other Southern Markets 46,427 92.5% 624 904 WESTERN REGION: Houston, TX 38,826 92.8% 602 819 Dallas, TX 45,938 95.2% 669 713 Phoenix, AZ 57,659 93.3% 693 905 San Antonio, TX 48,986 93.7% 650 835 Fort Worth, TX 40,732 96.1% 610 803 San Francisco, CA 142,308 99.5% 1,602 776 Monterey Peninsula, CA 56,947 94.8% 829 707 Southern California 63,552 95.2% 818 745 Seattle, WA 53,300 96.0% 701 823 Other Western Markets 47,035 94.7% 636 810 Land n/a n/a n/a n/a Real Estate Under Development n/a n/a n/a n/a ------------------------------------------------------------------------------------ Total Apartments $48,591 94.2% $674 869 ------------------------------------------------------------------------------------ Real Estate Held for Disposition (c) n/a n/a n/a n/a Richmond - Corporate n/a n/a n/a n/a ------------------------------------------------------------------------------------ Total Real Estate Owned $48,591 94.2% $674 869 ===================================================================================== </TABLE> (a) There are 88 communities encumbererd by fixed rate debt aggregating $723.7 million. The amount of this debt is included in the encumbrances shown for the individual markets. There are 27 communities encumbered by fixed rate debt aggregating $135.5 million that is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (b) Average Monthly Rental Rates for the Year Ended December 31, 2000, represents potential rent collections (gross potential rents less market adjustments), which approximate net effective rents, based on weighted average number of homes. (c) Includes three commercial properties, one parcel of land and one apartment community. 14
Item 3. LEGAL PROCEEDINGS - - ---------------------------- United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The ultimate liability in respect of such litigations and claims cannot be determined at this time. United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion. In October 2000, United Dominion reached an agreement to settle a class action lawsuit concerning water usage billing in Texas. The settlement was for $2.7 million and is subject to final court approval (see Note 9 - Contingencies). 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, 2000. 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 56 Chairman of the Board 1974 Thomas W. Toomey 40 President and Chief Executive 2001 Officer John S. Schneider 62 Senior Executive Vice President 1996 and Chief Operating Officer A. William Hamill 53 Executive Vice President 1999 and Chief Financial Officer Richard A. Giannotti 45 Senior Vice President and Director 1985 of Development-East Mark E. Wood 49 Senior Vice President and Director 1996 of Development-West Katheryn E. Surface 42 Senior Vice President, Corporate 1992 Secretary and General Counsel Kevin W. Walsh 46 Senior Vice President of 1999 Finance Curt W. Carter 44 Senior Vice President and Director 1985 of Apartment Operations-Northern Region Robert L. Landis 42 Senior Vice President and Director 1996 of Apartment Operations-Western Region 15
Walter J. Lamperski 43 Senior Vice President and Director 1996 of Apartment Operations-Southern Region Blake W. Clemens 43 Senior Vice President and Director 1998 of Acquisitions Thomas J. Corcoran 54 Senior Vice President and Director of Human Resources 1997 Patrick S. Gregory 51 Senior Vice President and Director of Information Technology 1997 Mr. McCann was United Dominion's Chief Executive Officer starting in 1974. Mr. McCann was elected Chairman of the Board in 1996. Mr. McCann retired as Chief Executive Officer of the Company in February 2001. Mr. Toomey joined United Dominion as President and Chief Executive Officer in February 2001. Prior to joining the Company, Mr. Toomey was the Chief Operating Officer of Apartment Investment Management Company. Before becoming Chief Operating Officer, Mr. Toomey was Executive Vice President - Finance Administration. Prior to joining AIMCO in November 1995, Mr. Toomey was Senior Vice President and Treasurer with Lincoln Property Company from 1990 to 1995 and an Audit Manager with Arthur Andersen & Co. from 1984 to 1990. 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 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 of Development-West in 2000. 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. 16
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 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 of 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 <TABLE> <CAPTION> Distributions High Low Declared <S> <C> <C> <C> 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 2000 1st Quarter $ 10 1/2 $ 9 7/16 $ .2675 2nd Quarter 11 3/4 9 3/4 .2675 3rd Quarter 11 3/4 10 11/16 .2675 4th Quarter 11 1/8 9 3/8 .2675 </TABLE> United Dominion determined that, for federal income tax purposes, approximately 76% of the distributions for each of the four quarters of 2000 represented ordinary income to its shareholders and 24% represented long-term capital gain to its shareholders. On March 1, 2001, the closing sale price of the Common Stock was $12 per share on the NYSE, and there were 8,265 holders of record of the 101,346,145 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 2000 necessary for United Dominion to maintain its status as a REIT was approximately $1.04 per share. United Dominion paid total distributions of $1.07 per share for 2000. 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. <TABLE> <CAPTION> Distributions High Low Declared <S> <C> <C> <C> 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 2000 1st Quarter $ 21 11/16 $ 19 1/16 $ .5781 2nd Quarter 23 3/8 18 3/4 .5781 3rd Quarter 24 7/8 22 5/8 .5781 4th Quarter 24 9/16 20 3/4 .5781 </TABLE> 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 <TABLE> <CAPTION> Distributions High Low Declared <S> <C> <C> <C> 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 2000 1st Quarter $ 20 9/16 $ 17 5/8 $ .5375 2nd Quarter 22 18 .5375 3rd Quarter 23 15/16 20 11/16 .5375 4th Quarter 23 1/4 19 1/4 .5375 </TABLE> 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). 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 2000 were 19
$1.91 per share or $.4777 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. 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 partnerships, United Dominion Realty L.P. and Heritage Communities L.P., for redemption in accordance with the provisions of their respective agreements. Such shares are issued based on the exchange ratio of one share for each OP Unit. During 2000, United Dominion issued a total of 41,490 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, 2000. 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, 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ In thousands, except per share data and apartment homes owned <S> <C> <C> <C> <C> <C> Operating Data (a) Rental income $ 616,825 $ 618,749 $ 478,718 $ 386,672 $ 241,260 Income before gains on sales of investments, minority interests and extraordinary item 48,720 60,379 47,339 57,813 33,726 Gains on sales of investments 31,450 37,995 26,672 12,664 4,346 Extraordinary item-early extinguishment of debt 831 927 (138) (50) (23) Net income 76,615 93,622 72,332 70,149 37,991 Distributions to preferred shareholders 36,891 37,714 23,593 17,345 9,713 Net income available to common shareholders 42,653 55,908 48,739 52,804 28,278 Common distributions declared 110,225 109,607 107,758 88,587 55,493 Weighted average number of common shares outstanding- basic 103,072 103,604 99,966 87,145 57,482 Weighted average number of common shares outstanding- diluted 103,208 103,639 100,062 87,339 57,655 Weighted average number of common shares, OP Units and common share equivalents-diluted 123,005 124,127 103,793 87,656 57,724 Per share: Basic earnings per share $ 0.41 $ 0.54 $ 0.49 $ 0.61 $ 0.49 Diluted earnings per share 0.41 0.54 0.49 0.60 0.49 Common distributions declared 1.07 1.06 1.05 1.01 0.96 - - ------------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data (a) Real estate owned, at carrying value $ 3,836,320 $ 3,953,045 $ 3,952,752 $ 2,517,398 $ 2,099,641 Accumulated depreciation 509,405 395,864 316,630 245,367 187,909 Total real estate owned, net of accumulated depreciation 3,326,915 3,557,181 3,636,122 2,272,031 1,911,732 Total assets 3,453,957 3,688,317 3,762,940 2,313,725 1,966,904 Secured debt 866,115 1,000,136 1,072,185 417,325 376,560 Unsecured debt 1,126,215 1,127,169 1,045,564 738,901 668,275 Total debt 1,992,330 2,127,305 2,117,749 1,156,226 1,044,835 Shareholders' equity 1,218,892 1,310,212 1,374,121 1,058,357 850,379 Number of common shares outstanding 102,219 102,741 103,639 89,168 81,983 - - ------------------------------------------------------------------------------------------------------------------------------------ Other Data (a) Cash Flow Data Cash provided by operating activities $ 224,160 $ 190,602 $ 140,597 $ 137,903 $ 90,064 Cash provided by/(used in) investing activities 103,793 (34,020) (263,864) (342,273) (161,572) Cash (used in)/provided by financing activities (325,326) (174,985) 148,875 191,391 82,056 Funds from Operations (b) Net income $ 76,615 $ 93,622 $ 72,332 $ 70,149 $ 37,991 Adjustments: Distributions to preferred shareholders (36,891) (37,714) (23,593) (17,345) (9,713) Real estate depreciation, net of other partnerships' interest 151,520 120,543 99,588 76,688 47,410 Gains on sales of depreciable property, net of other partnerships' interest (30,300) (37,995) (26,672) (12,664) (4,346) Minority interests of unitholders in operating partnership 2,885 4,434 1,430 278 58 Real estate depreciation related to unconsolidated entities 251 181 24 -- -- Extraordinary item-early extinguishment of debt (831) (927) 138 50 23 Impairment loss on real estate and investments -- 19,300 -- 1,400 290 ----------------------------------------------------------------------- Funds from operations-basic $ 163,249 $ 161,444 $ 123,247 $ 118,556 $ 71,713 ======================================================================= Adjustment: Distributions to preferred shareholders-Series D (Convertible) 15,300 15,154 986 -- -- ----------------------------------------------------------------------- Funds from operations-diluted $ 178,549 $ 176,598 $ 124,233 $ 118,556 $ 71,713 ======================================================================= Apartment Homes Owned Total apartment homes owned at December 31 77,219 82,154 86,893 62,789 55,664 Weighted average number of apartment homes owned during the year 80,253 85,926 70,724 58,038 37,481 </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 net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciable property, plus depreciation and amortization, less preferred dividends and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust's definition issued in October 1999 which was effective beginning January 1, 2000. United Dominion considers FFO in evaluating property acquisitions and its operating performance and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of United Dominion's activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 2000, FFO includes a non- recurring net charge of $2.9 million related to the settlement of litigation and an organizational charge which was partially offset by a gain on the sale of land. For 1998, FFO includes a non-recurring charge of $15.6 million related to the loss on the termination of a risk management agreement. 21
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - - ------------------------------------------------------------------------------- OF OPERATIONS ------------- Forward-Looking Statements This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of United Dominion 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. Overview 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. Over the past four years, United Dominion has diversified into new markets to create a national platform, upgraded the quality of the portfolio and invested in infrastructure and technology. The Company continues to review its strategy with a goal of enhancing long-term earnings growth. At December 31, 2000, United Dominion owned 277 communities with 77,219 apartment homes nationwide. 22
The following table summarizes United Dominion's apartment market information by major geographic markets within each region (including real estate held for disposition): <TABLE> <CAPTION> As of December 31, 2000 December 31, 2000 ---------------------------------------------------------- ---------------------------- Number of Number of Percentage of Carrying Year Ended Quarter Ended Apartment Apartment Carrying Value Physical Physical Communities Homes Value (in thousands) Occupancy Occupancy ---------------------------------------------------------- ---------------------------- <S> <C> <C> <C> <C> <C> <C> NORTHERN REGION: Raleigh, NC 9 2,951 3.7% $ 140,725 90.8% 89.9% Charlotte, NC 10 2,710 3.6% 133,652 92.0% 91.7% Columbus, OH 5 2,175 3.3% 122,281 95.0% 95.0% Greensboro, NC 8 2,123 2.7% 102,574 92.5% 91.5% Richmond, VA 8 2,372 2.5% 94,633 96.2% 96.1% Wilmington, NC 6 1,869 2.3% 88,200 89.5% 89.3% Baltimore, MD 7 1,421 1.9% 71,076 98.0% 98.6% Other Northern Markets 38 8,383 9.8% 366,179 94.9% 94.9% SOUTHERN REGION: Orlando, FL 14 4,140 5.3% 198,761 94.4% 94.1% Tampa, FL 10 3,372 4.0% 149,907 94.7% 95.5% Nashville, TN 8 2,220 3.1% 117,978 94.8% 94.9% South Florida 6 1,638 2.8% 103,335 92.9% 94.8% Memphis, TN 6 1,956 2.5% 95,752 94.5% 93.1% Atlanta, GA 6 1,426 1.9% 69,964 94.6% 95.6% Columbia, SC 6 1,584 1.6% 61,472 94.0% 95.0% Other Southern Markets 16 4,760 5.9% 220,993 92.5% 91.7% WESTERN REGION: Houston, TX 22 5,722 5.9% 222,164 92.8% 92.8% Dallas, TX 14 4,533 5.5% 208,238 95.2% 95.5% Phoenix, AZ 10 3,460 5.3% 199,500 93.3% 91.9% San Antonio, TX 12 3,827 5.0% 187,470 93.7% 93.3% Fort Worth, TX 11 3,561 3.9% 145,046 96.1% 96.9% San Francisco, CA 4 980 3.7% 139,462 99.5% 99.5% Monterey Peninsula, CA 11 1,827 2.8% 104,041 94.8% 96.7% Southern California 5 1,414 2.4% 89,863 95.2% 95.6% Seattle, WA 3 628 0.9% 33,473 96.0% 95.7% Other Western Markets 22 6,167 7.7% 290,068 94.7% 95.7% ---------------------------------------------------------- -------------------------- Total Apartments 277 77,219 100.0% $3,756,807 94.2% 94.2% ========================================================== ========================== </TABLE> 23
Liquidity and Capital Resources United Dominion's primary source of liquidity is its cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to its portfolio of apartment homes. United Dominion routinely uses its unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sales of real estate have been used for both investing and financing activities. United Dominion regularly reviews its short and long-term liquidity requirements and considers the adequacy of its cash flow from operations as well as other liquidity sources to meet these requirements. United Dominion believes that it can fund its short-term liquidity needs such as normal recurring operating expenses, debt service payments, recurring capital expenditures and distributions to common and preferred shareholders through cash provided by operating activities and borrowings from the Company's unsecured bank credit facility, as needed (see discussion that follows under "Financing Activities"). To facilitate future financing activities in the public capital markets, management believes that it is prudent to maintain shelf registration statement capacity. In this regard, United Dominion filed a shelf registration statement in December 1999 providing for the issuance of up to $700 million in common shares, preferred shares and debt securities. In March 2000, United Dominion utilized this shelf registration statement to sell $100 million of senior unsecured notes due March 2003 at an interest rate of 8.625%. The proceeds from the offering were used to repay certain mortgage debt and repay revolving bank debt. Future Capital Needs Future development expenditures are expected to be funded through joint ventures or with proceeds from the sale of property. Acquisition activity is expected to be primarily limited to the reinvestment of proceeds from the sale of property in order to defer large tax gains and reinvested in targeted markets and sub- markets. During 2001, United Dominion has approximately $63 million of maturing debt which the Company anticipates repaying using proceeds from the sale of apartment communities, mortgage refinancing activity or borrowings under the Company's unsecured credit facility. The following discussion explains the changes in net cash provided by operating and 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, 2000, United Dominion's cash flow from operating activities was $224.2 million compared to $190.6 million for 1999, an increase of $33.6 million. The increase in cash flow from operating activities resulted primarily from a change in the level of operating assets as a result of collections on escrow accounts and property insurance receivables during 2000. Investing Activities For the year ended December 31, 2000, net cash provided by investing activities was $103.8 million compared to net cash used in investing activities of $34.0 million for 1999. Changes in the level of investing activities from period to period reflects United Dominion's strategy as it relates to its acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities. Real Estate under Development During 2000, development activity was focused in core markets that have strong operations managers in place. For the year ended December 31, 2000, United Dominion invested approximately $80.1 million on real estate projects, down $33.9 million from its 1999 level of $114.0 million. 24
The following projects were complete as of December 31, 2000: <TABLE> <CAPTION> Development No. of Costs Cost Per Date Apt. Homes (In thousands) Home Completed % Leased ------------ ------------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> New Community: - - -------------- Ashton at Waterford Lakes 292 $21,500 $73,600 2/00 97.9% Orlando, FL Additional Phases: - - ------------------ Dominion Crown Pointe II 220 14,700 66,800 6/00 89.1% Charlotte, NC Escalante II 312 19,100 61,200 11/00 82.1% San Antonio, TX Ashlar II 168 12,800 76,200 12/00 29.2% Ft. Myers, FL ------------ ------------------ ------------ Total 992 $68,100 $68,600 ============ ================== ============ </TABLE> The following projects were under development at December 31, 2000: <TABLE> <CAPTION> Cost to Budgeted Expected No. of Apt. Completed Date Cost Est. Cost Completion Homes Apt. Homes (In thousands) (In thousands) Per Home Date ------------- -------------- ---------------- ---------------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> New Communities: - - ---------------- Dominion Place at Kildaire Farm 332 -- $11,400 $25,700 $77,400 1Q02 Raleigh, NC Red Stone Ranch 324 -- 8,600 21,700 67,000 4Q01 Austin, TX ------------- -------------- ---------------- ---------------- ------------ 656 -- 20,000 47,400 72,300 ------------- -------------- ---------------- ---------------- ------------ Additional Phases: - - ------------------ Greensview II 192 -- 3,200 16,700 87,000 4Q01 Denver, CO Manor at England Run III 120 -- 900 8,800 73,300 4Q01 Fredericksburg, VA The Meridian II 270 -- 2,700 17,400 64,400 1Q02 Dallas, TX ------------- -------------- ---------------- ---------------- ------------ 582 -- 6,800 42,900 73,700 ------------- -------------- ---------------- ---------------- ------------ Total 1,238 -- $26,800 $90,300 $72,900 ============= ============== ================ ================ ============ </TABLE> In addition to the apartment homes under development at December 31, 2000, United Dominion has land held for future development with a carrying value of $33.6 million, a significant portion of which the Company expects to sell during 2001 as these locations do not meet the investment criteria as a result of the refinement of the Company's strategy during 2000. United Dominion anticipates funding approximately $63.5 million on internal development activity in 2001, which would include the development of two new communities and second phases at three existing communities. Development Joint Venture On June 21, 2000, United Dominion completed the formation of a joint venture that will invest approximately $103 million to develop five apartment communities with a total of 1,438 apartment homes. United Dominion owns a 25% interest in the joint venture and is serving as the managing partner of the joint venture as well as the developer, general contractor and property manager. Prior to completing the joint venture, United Dominion had commenced construction on all five of the projects. Upon closing of the venture, United Dominion contributed the projects in return for its equity interest of approximately $8 million in the venture and was reimbursed for approximately $35 million of development outlays that were incurred prior to closing the joint venture. The proceeds were used to reduce outstanding debt balances. In addition, during 2000, United Dominion recognized fee income of 25
approximately $3 million for general contracting and developer services provided by the Company to the joint venture. The Company has the option, but not the obligation, to purchase these properties for fair value upon completion of the projects. The following joint venture project was complete as of December 31, 2000: <TABLE> <CAPTION> Development No. of Apt. Cost Cost Per Date Homes (In thousands) Home Completed % Leased ------------ ---------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> New Community: - - -------------- The Meridian 250 $16,400 $65,600 6/00 100.0% Dallas, TX ------------ ---------------- ------------ Total 250 $16,400 $65,600 ============ ================ ============ </TABLE> The following joint venture projects were under development at December 31, 2000: <TABLE> <CAPTION> Cost to Budgeted Expected No. of Apt. Completed Date Cost Est. Cost Completion Homes Apt. Homes (In thousands) (In thousands) Per Home Date ------------- ------------- ----------------- ----------------- ------------ ------------- <S> <C> <C> <C> <C> <C> <C> New Communities: - - ---------------- Oaks at Weston 380 280 $26,300 $30,100 $79,200 2Q01 Raleigh, NC Sierra Canyon 236 92 13,900 16,700 70,800 1Q01 Phoenix, AZ Parke 33 264 244 16,700 17,400 65,900 1Q01 Lakeland, FL Mandolin 308 -- 12,600 22,100 71,800 3Q01 Dallas, TX ------------- ------------- ----------------- ----------------- ------------ Total 1,188 616 $69,500 $86,300 $72,600 ============= ============= ================= ================= ============ </TABLE> Disposition of Investments For the year ended December 31, 2000, United Dominion sold 26 communities with 5,835 apartment homes, one commercial property and a parcel of land for an aggregate sales price of approximately $214.5 million and recognized gains for financial reporting purposes of $31.5 million. These sales allowed the Company to dispose of older, non-core communities, to exit certain markets that had limited growth opportunities and to improve the average age of the apartment portfolio. During 1999, United Dominion sold 36 communities with 7,443 apartment homes for an aggregate sales price of $241.2 million, which resulted in gains for financial reporting purposes of $38.0 million. During 2001, United Dominion plans to sell non-core communities at levels somewhat below that of 2000. Proceeds from the 2001 dispositions are currently planned to be used to improve the Company's financial flexibility and opportunistically reinvest a portion of the proceeds in acquisitions and the repurchase of equity securities. Acquisitions During the year ended December 31, 2000, United Dominion acquired one community with 267 apartment homes at a total cost (including closing costs) of $14.8 million which included the assumption of debt and the use of tax free exchange funds as the Company further curtailed its acquisition activity from 1999 and 1998 levels. During 2001, in order to complete 1031 exchange requirements, United Dominion expects to invest 25% to 30% of the Company's disposition proceeds in targeted markets and sub-markets. These acquisitions will focus on communities where there is the opportunity to add value by repositioning the property to be attractive to the Company's middle-market customer. 26
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 2000, $39.2 million or $514 per home was spent on capital expenditures for United Dominion's same communities (those acquired or developed prior to January 1, 1999). 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 $23.7 million or $311 per home. In addition, non-recurring revenue enhancing capital expenditures, including water sub- metering, gating and access systems, the addition of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $15.5 million or $203 per home for the year ended December 31, 2000. United Dominion will continue to selectively add revenue-enhancing improvements which are budgeted to provide a high return on investment. Capital expenditures during 2001 are currently expected to be at levels somewhat higher than those experienced in 2000. Financing Activities Net cash used in financing activities during 2000 was $325.3 million compared to $175.0 million for 1999, an increase of $150.3 million. During 2000, as part of the plan to improve its balance sheet position, United Dominion used 77% of the net proceeds from its disposition program to pay down secured and unsecured debt and 14% to repurchase shares of common and preferred stock. The remaining 9% of the net proceeds were used to complete an acquisition. During 2000, using the net proceeds from its disposition program, United Dominion repurchased $64.7 million of certain of its higher rate outstanding unsecured debt with a weighted average yield of 8.39%. In addition, the Company repaid $70.9 million of mortgage debt and $22.4 million of revolving bank debt. During the first quarter of 2000, United Dominion issued $100 million of 8.625% unsecured notes due 2003. Net proceeds of $99.5 million were used to repay outstanding bank debt. In addition, United Dominion completed the refinancing of tax-exempt notes aggregating $46.7 million at a blended rate of 6.32% and with a final maturity of August 2008. In conjunction with this refinancing, the Company removed the liens on $86 million of real estate which had previously secured the tax-exempt notes. In September 2000, United Dominion closed on the first part of a $60 million revolving credit facility (the "FNMA Credit Facility") with the Federal National Mortgage Association. The $38.3 million initially borrowed under the terms of the FNMA Credit Facility has an initial interest rate of 7.12%, which is fixed through April 1, 2001. 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 proceeds from the FNMA Credit Facility were used to repay a $28.6 million REMIC financing that matured during the third quarter and the remaining proceeds were used to repay revolving bank debt. In November 2000, United Dominion borrowed $100 million in the form of an unsecured term loan from a consortium of banks. The term loan will initially mature in May 2003 but may be extended at the Company's option for two additional twelve-month periods. Proceeds from the term loan were used to partially repay a $140.9 million unsecured note payable that matured in the fourth quarter of 2000 with the remaining balance repaid from borrowings under United Dominion's existing unsecured credit facility. Also during the fourth quarter of 2000, a $23.9 million secured note payable matured and was repaid using proceeds from additional borrowings under an existing revolving credit facility with the Federal National Mortgage Association and borrowings under the Company's unsecured credit facility. As of December 31, 2000, approximately $14.5 million of United Dominion's preferred shares have been repurchased under the $25 million preferred share repurchase program. For the year ended December 31, 2000, United Dominion repurchased 199,440 Series A preferred shares at an average price of $23.22 per share and 507,191 Series B preferred shares at an average price of $19.46 per share. 27
For the year ended December 31, 2000, the Company repurchased 1,398,659 common shares at an average price of $10.03 and repurchased 10,097 operating partnership units. As of December 31, 2000, approximately seven million common shares remained available for purchase under the common share repurchase program. Repurchases of shares will be made from time to time in the open market or in privately negotiated transactions. The timing, volume and purchase price will be at the discretion of the Company. Credit Facilities In June 2000, United Dominion closed on a $375 million three-year unsecured revolving credit facility (the "Credit Facility") with a consortium of banks. The Credit Facility, which extends until August 2003, replaces two lines of credit that allowed the Company to borrow in aggregate up to $310 million. At December 31, 2000, $244.4 million was outstanding under the Credit Facility leaving $130.6 million available for use. Under the Credit Facility, the Company may borrow at a rate of LIBOR plus 100 basis points for LIBOR-based borrowings. This rate is equal to the rate the Company was able to borrow under a $110 million line of credit arranged in 1999 that was replaced by the new, expanded and longer-term Credit Facility. Under the Credit Facility, the Company pays a facility fee, which is equal to 0.20% of the commitment. The Credit Facility is subject to customary financial covenants and limitations. Derivative Instruments As part of United Dominion's overall interest rate risk management strategy, the Company uses off-balance sheet derivatives as a means to modify the interest rate characteristics of on-balance sheet debt obligations or to hedge anticipated financing transactions. The Company's off-balance sheet derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. The Company believes that it has appropriately controlled the risk so that derivatives used for interest rate risk management will not have any material unintended effect on consolidated earnings. Derivative contracts did not have a material impact on the results of operations during 2000 (see Note 6 - Financial Instruments). Effective January 1, 2001, United Dominion will be required to adopt the provisions of Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Derivative Instruments and Hedging Activities." All of the Company's derivatives qualify as cash flow hedges under the provisions of the statements (see Note 1 - Summary of Significant Accounting Policies). 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 or other speculative purposes, but rather issues these financial instruments to finance its portfolio of real estate assets. United Dominion's interest rate sensitivity position is managed by the Company's finance department. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. United Dominion's earnings are affected by changes in short-term interest rates on its variable rate debt and the refinancing 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 Credit Facility, which totaled $244.4 million at December 31, 2000. The impact on United Dominion's financial statements of refinancing fixed rate debt that matured during 2000 was not material. At December 31, 2000, the notional value of United Dominion's derivative products for the purpose of managing interest rate risk was $247 million of interest rate swaps under which United Dominion pays a fixed rate of interest and receives a variable rate. These agreements effectively fix $247 million of United Dominion's variable rate notes payable to a weighted average fixed rate of 7.38%. At December 31, 2000, the fair market value of the interest rate swaps in an unfavorable value position to United Dominion was $3.8 million (see Note 6 - Financial Instruments). If interest rates were 100 basis points more or less at December 31, 2000, the fair market value of the interest rate swaps would have increased or decreased approximately $5.9 million and $6.1 million, respectively. 28
If market interest rates for variable rate debt average 100 basis points more in 2001 than they did during 2000, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $3.8 million. Comparatively, if market interest rates for variable rate debt averaged 100 basis points more in 2000 than it did in 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. If market rates for fixed rate debt were 100 basis points higher at December 31, 2000, the fair value of fixed rate debt would have decreased from $1.39 billion to $1.33 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 2000, the fair value of fixed rate debt would have increased from $1.39 billion to $1.45 billion. These amounts are determined by considering the impact of hypothetical interest rates on United Dominion's borrowing cost and interest rate swap agreements. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in United Dominion's financial structure. Results of Operations 2000-vs-1999 Net income available to common shareholders was $42.7 million ($.41 per share) for the year ended December 31, 2000 compared to $55.9 million ($.54 per share) for 1999, representing a decrease of $13.2 million ($.13 per share). The decrease was primarily due to the following factors: (i) property operating income growth generated from the performance of the portfolio during 2000 was offset by the decrease in the size of the portfolio due to the disposition program; (ii) United Dominion recognized $31.5 million ($.31 per share) of gains on the sales of investments in 2000 compared to $38.0 million ($.37 per share) for the comparable period in 1999 and; (iii) real estate depreciation increased significantly in 2000 as a result of the recognition of catch-up depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 and, to a lesser extent, the impact of completed development communities and capital expenditures (see Note 2 - Real Estate Owned). 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 sales 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. Apartment Community Operations United Dominion's net income is primarily generated from the operations of its apartment communities. The following table summarizes the operating performance for United Dominion's total apartment portfolio for each of the periods presented (dollars in thousands): <TABLE> <CAPTION> Year Ended December 31, Year Ended December 31, ----------------------------------- --------------------------------- 2000 1999 % Change 1999 1998 % Change ----------------------------------- --------------------------------- <S> <C> <C> <C> <C> <C> <C> Property rental income $ 615,401 $ 617,298 -0.3% $ 617,298 $ 477,279 29.3% Property rental expenses (excluding depreciation and amortization) (238,717) (245,173) -2.6% (245,173) (198,877) 23.2% ----------------------------------- --------------------------------- Property operating income $ 376,684 $ 372,125 1.2% $ 372,125 $ 278,402 33.7% ======================================================================== Weighted average number of homes 80,253 85,926 -6.6% 85,926 70,724 21.5% Physical occupancy 94.2% 92.6% 1.2% 92.6% 92.5% 0.1% </TABLE> 29
The increase in property operating income provided by the same communities, development communities and acquisition communities since December 31, 1999, was partially offset by the loss of property operating income due to the disposition of 13,278 apartment homes during 1999 and 2000. As a result of United Dominion's disposition program, the weighted average number of apartment homes declined 6.6% during 2000. 2000-vs-1999 Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to January 1, 1999 and held on January 1, 2000 which consisted of 76,267 weighted average apartment homes) provided 94% of its property operating income for the year ended December 31, 2000. In 2000, property operating income for the same communities increased 4.1% or $14.1 million compared to 1999. The growth in property operating income resulted from a $23.3 million or 4.2% increase in property rental income which was driven by a $17.1 million or 2.9% increase in rental rates coupled with a $5.8 million or 1.2% increase in physical occupancy. The increase in rental rates and occupancy was partially offset by higher concessions and bad debt expense. For 2000, property operating expenses at these same communities increased $9.2 million or 4.2%. The increase in property operating expenses was due to (i) a $2.6 million or 5.3% increase in real estate taxes related to the portion of the $1.4 billion of real estate acquired in 1998 that has undergone reassessment; (ii) a $4.5 million or 63.4% increase in property insurance costs attributable to a combination of the Company's loss history plus overall increases in market rates; (iii) a $3.1 million or 5.3% increase in personnel costs due to higher salaries and benefit costs and; (iv) a $1.1 million or 6.5% increase in property management as a result of added infrastructure costs in areas such as information technology, human resources and training. These increases were offset by a $1.6 million or 6.0% decrease in utilities expense due to the continued transfer of water and sewer costs to residents and a $1.4 million or 3.8% decrease in repair and maintenance expense as the Company continues to benefit from the upgrade program and centralized purchasing initiatives. As a result of the percentage changes in total property operating income and total property operating expenses, the operating margin (property operating income divided by property rental income) declined 0.1% to 61.2%. Non-Mature Communities The remaining 6% of United Dominion's property operating income during 2000 was generated from its non-mature communities (those communities acquired or developed during 1999 and 2000). United Dominion's development communities which included 2,470 apartment homes constructed since January 1, 1999 provided an additional $12.3 million of property operating income for the year ended December 31, 2000. In addition, the six communities with 1,497 apartment homes acquired by United Dominion during 1999 and 2000 provided an additional $7.6 million of property operating income during 2000. 1999-vs-1998 Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to January 1, 1998 and held on January 1, 1999 which consisted of 51,316 weighted average apartment homes) provided 60% of its property operating income for the year ended December 31, 1999. In 1999, property operating income increased 5.6% or $12.0 million compared to 1998. The growth in property operating income resulted primarily from a $11.1 million or 3.1% increase in property rental income, 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 compared to 1998. 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 30
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 improved 1.5% to 61.3%. Non-Mature Communities The remaining 40% of United Dominion's property operating income during 1999 was generated from its non-mature communities (those communities acquired or developed during 1998 and 1999). United Dominion's non-mature apartment portfolio consisted of (i) American Apartment Communities II, Inc., consisting of 13,728 homes (net of sales), which 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% on an average investment of $761 million and achieved an operating margin of 62.7%; (ii) 13,577 homes (net of sales) acquired in 1998, which provided an 8.4% return on investment on an average investment of $611 million with an operating margin of 57.8%; (iii) five communities with 1,230 apartment homes acquired by United Dominion during 1999 on an initial investment of $74 million that did not have a material impact on 1999 results of operation; (iv) 12,761 apartment homes sold for an aggregate sales price of $398 million as part of United Dominion's strategic repositioning since January 1, 1998 and; (v) 2,404 homes developed 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. Interest Expense During 2000, interest expense increased $2.3 million over the corresponding amount in 1999 as the weighted average interest rate increased from 7.4% in 1999 to 7.6% in 2000, which more than offset the decrease of $124.7 million in the weighted average amount of debt outstanding ($2.1 billion in 2000 versus $2.2 billion in 1999). The weighted average amount of debt employed during 2000 was lower as disposition proceeds were used to repay outstanding debt. The increase in the average interest rate during 2000 reflects short-term bank borrowings that had higher interest rates when compared to the prior year. For 2000, 1999 and 1998, total interest capitalized was $3.6 million, $5.2 million and $3.4 million, respectively. 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 was 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. Real Estate Depreciation During the year ended December 31, 2000, real estate depreciation increased $31.3 million or 25.7% over 1999. This increase was primarily attributable to the recognition of catch-up depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 and, to a lesser extent, the impact of completed development communities (see Note 2 - Real Estate Owned) and capital expenditures. During the year ended December 31, 1999, real estate depreciation increased $22.1 million or 22.2% over 1998. The increase was primarily due to the recognition of a full year of depreciation on United Dominion's 1998 acquired properties, and to a lesser extent, the recognition of depreciation on the Company's 1999 acquisitions. General and Administrative During the year ended December 31, 2000, general and administrative expenses increased $1.9 million or 13.5% over 1999, excluding a $2.7 million charge recognized in the third quarter of 2000 related to the settlement of a class action lawsuit concerning water usage billing in Texas (see Note 10 - Contingencies) and a $1.0 million charge to recognize expenses under employment agreements for certain executives of United Dominion as a result of planned organizational changes. The $1.9 million increase was primarily due to a $0.8 million increase in franchise taxes in Tennessee as a result of a change in the state law 31
regarding franchise taxes with the remaining increase due to recruiting and tuition costs and consulting costs incurred throughout the strategic planning process. 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. Impairment Loss United Dominion did not recognize any impairment loss on its real estate portfolio for the year ended December 31, 2000. For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate portfolio. 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. 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 and 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. Gains on Sales of Investments For the years ended December 31, 2000 and 1999, United Dominion recognized gains for financial reporting purposes of $31.5 million and $38.0 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of United Dominion's divestiture activity from period to period as well as the extent of gains related to specific properties sold. Distributions to Preferred Shareholders Distributions to preferred shareholders totaled $36.9 million for the year ended December 31, 2000 compared to $37.7 million for 1999. The decrease was due to the repurchase of 199,440 Series A preferred shares and 507,191 Series B preferred shares during 2000. 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. Discount on Preferred Share Repurchases For the year ended December 31, 2000, United Dominion recognized $2.9 million of discount on preferred share repurchases. The discount on preferred share repurchases represents the difference between the carrying value and the purchase price of the preferred shares. Inflation United Dominion believes that the direct effects of inflation on the Company's operations have been inconsequential. Substantially all of the Company's leases are for a term of one year or less which generally minimizes United Dominion's risk from the adverse effects of inflation. Technology Initiatives United Dominion is committed to technology initiatives that will allow the Company to improve its operating efficiencies, gain marketing advantages and provide the electronic services its customers demand. Among the key technology initiatives underway are: . United Dominion is developing a comprehensive eCommerce plan. As part of this plan, the Company has created a new corporate home page, and is in the process of creating home pages for each of its communities and community portals for residents. The resident portals will allow United Dominion to offer additional products and services to residents, accessing a previously untapped revenue source for the Company. 32
. United Dominion has approximately a 15% interest in Realeum, Inc. Realeum is currently developing an innovative web-based property management and leasing system. United Dominion believes this system will enable the Company to capture, review and analyze data in a manner that is not currently available on the commercial market. In addition, the Company expects this system to make the leasing process more convenient for residents and more efficient for leasing associates. This system will also lay the foundation for the fulfillment of online leasing transactions. . United Dominion is continuing the implementation of a virtual private network (VPN) that will connect all of the Company's apartment communities and offices. This network will improve the efficiency of United Dominion's operations and its internal communications. . United Dominion is implementing a web-based learning center that will give all associates access to key corporate training courses and reference materials. Management Transition With the Company's repositioning substantially complete, United Dominion began a search for a new CEO in the fourth quarter. This search culminated with the hiring of Thomas W. Toomey on February 13, 2001 to replace John P. McCann who served in this role for more than 26 years. Mr. Toomey has begun a review of the organizational structure and strategy of the Company. This review could result in changes that may require the Company to incur expenses for severance and termination benefits. Additionally, the review may result in a change of intent with regard to anticipated holding periods of certain assets which could require the write down of these assets. 33
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 44 of this Annual Report on Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE -------------------- None. 34
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 8, 2001. 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 8, 2001. 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 8, 2001. 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 8, 2001. 35
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 44 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> 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 Exhibit 2(d) to the Company's Form S-3 Exchange Agreement dated as of Registration Statement (Registration No. 333-64281) September 10, 1998, between the filed with the Commission on September 25, 1998. Company, United Dominion 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. 3(b) Restated By-Laws Filed herewith. </TABLE> 36
<TABLE> <S> <C> <C> 4(i)(a) Specimen Common Stock Certificate Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares of Exhibit 1(e) to the Company's Form 8-A 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995. Redeemable Preferred Stock 4(i)(c) Form of Certificate for Shares of Exhibit 1(e) to the Company's Form 8-A 8.60% Series B Cumulative Registration Statement dated June 11, 1997. Redeemable Preferred Stock 4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A January 27, 1998, between the Registration Statement dated February 4, 1998. Company and ChaseMellon 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 Quarterly Agreement dates as of September Report on Form 10-Q for the quarter ended 14, 1999, between the Company and September 30, 1999. 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 Exhibit 6(c)(5) to the Company's Form 8-A February 15, 1993, between the Registration Statement dated April 19, 1990. Company and CIGNA Property and Casualty 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 Exhibit 4(ii)(f) to the Company's Quarterly as of June 1, 2000, between the Report on Form 10-Q for the quarter ended June 30, Company and certain subsidiaries 2000. and a syndicate of banks represented by Bank of America, N.A. 4(ii)(g) Credit Agreement dated as of Filed herewith. November 14, 2000, between the Company and certain subsidiaries and a syndicate of banks represented by First Union Nation Bank 10(i) Amended Employment Agreement Filed herewith. </TABLE> 37
<TABLE> <S> <C> <C> between the Company and John P. McCann dated December 5, 2000. 10(ii) Amended Employment Agreement between Filed herewith. the Company and John S. Schneider dated December 5, 2000. 10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual Report the Company and Richard Giannotti on Form 10-K for the year ended December 31, 1998. dated December 8, 1998. 10(iv) Employment Agreement between Exhibit 10(iv) to the Company's Quarterly Report the Company and A. William Hamill on Form 10-Q for the quarter ended dated September 30, 1999. September 30, 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 Exhibit 10(vi) to the Company's Annual Report Agreement of Limited Partnership of on Form 10-K for the year ended December 31, 1998. United Dominion Realty, L.P. Dated as of December 7, 1998. 10(vii)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Quarterly April 16, 1998, between the Report on Form 10-Q for the quarter ended Company and United Dominion March 31, 1998. Realty, L.P. 10(viii) Servicing and Purchase Exhibit 10(vii) to the Company's Quarterly Agreement dated as of June 24, Report on Form 10-Q for the quarter ended 1999, including as an exhibit June 30, 1999. thereto the Note and Participation Agreement forms. 10(ix) Description of Restricted Stock Exhibit 10(ix) to the Company's Annual Report Awards Program. on Form 10-K for the year ended December 31, 1999. 10(x) Description of United Dominion Exhibit 10(x) to the Company's Annual Realty Trust, Inc. Shareholder Report on Form 10-K for the year ended Value Plan. December 31, 1999. 10(xi) Description of United Dominion Exhibit 10(xi) to the Company's Annual Realty Trust, Inc. Executive Report on Form 10-K for the year ended Deferral Plan. December 31, 1999. 10(xii) Employment Agreement between Exhibit 10(xii) to the Company's Annual the Company and Curtis W. Carter Report on Form 10-K for the year ended </TABLE> 38
<TABLE> <S> <C> <C> dated December 8, 1998. December 31, 1999. 10(xiii) Employment Agreement between Exhibit 10(xiii) to the Company's Annual the Company and Mark E. Wood Report on Form 10-K for the year ended dated March 21, 2000. December 31, 1999. 12 Computation of Ratio of Earnings Filed herewith. to Fixed 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. and Heritage Communities L.P., constituting 90.9% of the aggregate partnership interest. United Dominion Realty Trust, Inc. The Commons of Columbia, Inc. UDRT of Virginia, Inc. United Dominion Residential, Inc. United Dominion Realty, L.P. UDRT of North Carolina, L.L.C. UDRT of Alabama, Inc. Cleary Court Property Owners' Association, Inc. 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 39
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. 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 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. 40
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. 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, LLC UDR Florida Properties, LLC UDR Holdings, LLC UDR Lakeside Mills, LLC UDR Maryland Properties, LLC UDR Beaumont, LLC UDR/CSFB JV, LLC UDR/CSFB Holdings, LLC 41
UDR Mandolin, L.P. UDR Meridian, L.P. UDR Mortgage Capital-1 (CSFB) LLC UDR Oaks @ Weston, LLC UDR Parke 33, LLC UDR Sierra Canyon, LLC 23 Consent of Independent Filed herewith. Auditors Exhibits 10(i) through 10(xiii), inclusive, are management contracts or compensatory plans or arrangements required to be filed as exhibits 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 March 9, 2001. The filing reported United Dominion's 2000 fourth quarter and year to date results of operations as reported on its Press Release issued on February 1, 2001. 42
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 9, 2001 by the following persons on behalf of the registrant and in the capacities indicated. /s/ John P. McCann /s/ Robert C. Larson - - ---------------------------------- ------------------------------------ John P. McCann Robert C. Larson Chairman of the Board Director /s/ Thomas W. Toomey /s/ Lynne B. Sagalyn - - ---------------------------------- ------------------------------------ Thomas W. Toomey Lynne B. Sagalyn President and Chief Executive Director Officer /s/ Mark J. Sandler - - ---------------------------------- ------------------------------------ John S. Schneider Mark J. Sandler Senior Executive Vice President Director and Chief Operating Officer /s/ Robert W. Scharar - - ---------------------------------- ------------------------------------ R. Toms Dalton Robert W. Scharar Director Director /s/ Robert P. Freeman /s/ A. William Hamill - - ---------------------------------- ------------------------------------ Robert P. Freeman A. William Hamill Director Executive Vice President and Chief Financial Officer /s/ Scott A. Shanaberger - - ---------------------------------- ------------------------------------ Jon A. Grove Scott A. Shanaberger Director Vice President, Corporate Controller and Chief Accounting Officer /s/ James D. Klingbeil - - ---------------------------------- James D. Klingbeil Director 43
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 45 Consolidated Balance Sheets at December 31, 2000 and 1999 46 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2000 47 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000 48 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2000 49 Notes to Consolidated Financial Statements 50 SCHEDULE FILED AS PART OF THIS REPORT Schedule III - Summary of Real Estate Owned 66 </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. 44
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, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Dominion Realty Trust, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, 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, present fairly in all material respects, the information set forth therein. Ernst & Young LLP Richmond, Virginia January 31, 2001 45
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) <TABLE> <CAPTION> December 31, 2000 1999 - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> ASSETS Real estate owned: Real estate held for investment (Note 2) $ 3,758,974 $ 3,577,848 Less: accumulated depreciation (506,871) (373,164) ---------------- ---------------- 3,252,103 3,204,684 Real estate under development 60,366 91,914 Real estate held for disposition (net of accumulated depreciation of $2,534 and $22,700) (Note 2) 14,446 260,583 ---------------- ---------------- Total real estate owned, net of accumulated depreciation 3,326,915 3,557,181 Cash and cash equivalents 10,305 7,678 Restricted cash 44,943 56,969 Deferred financing costs 14,271 13,511 Investment in unconsolidated development joint venture (Note 3) 8,088 - Other assets 49,435 52,978 ---------------- ---------------- Total assets $ 3,453,957 $ 3,688,317 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Secured debt (Note 4) $ 866,115 $ 1,000,136 Unsecured debt (Note 5) 1,126,215 1,127,169 Real estate taxes payable 30,554 30,887 Accrued interest payable 18,059 17,867 Security deposits and prepaid rent 22,524 20,738 Distributions payable 36,128 36,020 Accounts payable, accrued expenses and other liabilities 47,144 51,121 ---------------- ---------------- Total liabilities 2,146,739 2,283,938 Minority interests 88,326 94,167 Shareholders' equity: (Note 8) Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 3,969,120 shares 9.25% Series A Cumulative Redeemable issued and outstanding (4,168,560 in 1999) 99,228 104,214 5,439,109 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,946,300 in 1999) 135,978 148,658 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding (8,000,000 in 1999) 175,000 175,000 Common stock, $1 par value; 150,000,000 shares authorized 102,219,250 shares issued and outstanding (102,740,777 in 1999) 102,219 102,741 Additional paid-in capital 1,081,387 1,083,687 Distributions in excess of net income (366,531) (296,030) Notes receivable from officer-shareholders (7,561) (7,753) Deferred compensation - unearned restricted stock awards (828) (305) ---------------- ---------------- Total shareholders' equity 1,218,892 1,310,212 ---------------- ---------------- Total liabilities and shareholders' equity $ 3,453,957 $ 3,688,317 ================ ================ </TABLE> See accompanying notes to consolidated financial statements. 46
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues Rental income $616,825 $618,749 $478,718 Non-property income 5,326 1,942 3,382 -------------- -------------- -------------- Total revenues 622,151 620,691 482,100 Expenses Rental expenses: Real estate taxes and insurance 69,071 63,425 48,898 Personnel 65,666 66,968 51,219 Repair and maintenance 36,469 41,339 36,827 Utilities 25,791 30,106 26,361 Administrative and marketing 23,771 25,410 19,066 Property management 18,392 18,475 16,945 Other operating expenses 1,426 1,539 244 Real estate depreciation 152,994 121,727 99,588 Interest 156,040 153,748 106,238 Impairment loss on real estate and investments (Note 2) - 19,300 - General and administrative 19,444 13,850 10,139 Other depreciation and amortization 4,367 4,425 3,645 Loss on termination of interest rate risk management agreement (Note 6) - - 15,591 -------------- -------------- -------------- Total expenses 573,431 560,312 434,761 -------------- -------------- -------------- Income before gains on sales of investments, minority interests and extraordinary item 48,720 60,379 47,339 Gains on sales of depreciable property 30,618 37,995 26,672 Gains on sales of land 832 - - -------------- -------------- -------------- Income before minority interests and extraordinary item 80,170 98,374 74,011 Minority interests of unitholders in operating partnership (2,885) (4,434) (1,430) Minority interests in other partnerships (1,501) (1,245) (111) -------------- -------------- -------------- Income before extraordinary item 75,784 92,695 72,470 Extraordinary item - early extinguishment of debt 831 927 (138) -------------- -------------- -------------- Net income 76,615 93,622 72,332 Distributions to preferred shareholders - Series A and B (21,591) (22,560) (22,607) Distributions to preferred shareholders - Series D (Convertible) (15,300) (15,154) (986) Discount on preferred share repurchases 2,929 - - -------------- -------------- -------------- Net income available to common shareholders $42,653 $55,908 $48,739 ============== ============== ============== Earnings per common share: (Note 1) Basic $0.41 $0.54 $0.49 ============== ============== ============== Diluted $0.41 $0.54 $0.49 ============== ============== ============== Common distributions declared per share $1.07 $1.06 $1.05 ============== ============== ============== Weighted average number of common shares outstanding-basic 103,072 103,604 99,966 Weighted average number of common shares outstanding-diluted 103,208 103,639 100,062 </TABLE> See accompanying notes to consolidated financial statements. 47
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 - - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Activities Net income $ 76,615 $ 93,622 $ 72,332 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 157,361 126,152 103,233 Impairment loss on real estate and investments - 19,300 -- Gains on sales of investments (31,450) (37,995) (26,672) Minority interests 4,386 5,679 1,541 Extraordinary item-early extinguishment of debt (831) (927) 138 Amortization of deferred financing costs and other 2,551 5,184 2,061 Changes in operating assets and liabilities: (Decrease)/increase in operating liabilities (2,333) (4,777) 30,682 Decrease/(Increase) in operating assets 17,861 (15,636) (42,718) ------------- ------------ ------------- Net cash provided by operating activities 224,160 190,602 140,597 Investing Activities Proceeds from sales of real estate investments, net 205,345 236,706 155,459 Proceeds received for excess expenditures over investment contribution in development joint venture 30,176 - - Development of real estate assets (80,131) (114,028) (97,222) Capital expenditures - real estate assets, net of escrow reimbursement (45,796) (74,049) (88,120) Acquisition of real estate assets, net of liabilities assumed (4,635) (75,719) (169,808) Capital expenditures - non-real estate assets (1,166) (8,062) (2,876) Net cash paid in mergers - - (59,446) Other investing activities - 1,132 (1,851) ------------- ------------ ------------- Net cash provided by/(used in) investing activities 103,793 (34,020) (263,864) Financing Activities Proceeds from the issuance of secured notes payable 67,285 207,611 7,700 Scheduled principal payments on secured notes payable (62,575) (19,100) (18,255) Non-scheduled principal payments on secured notes payable (145,881) (260,559) (88,237) Proceeds from the issuance of unsecured notes payable 248,035 197,345 212,500 Payments on unsecured notes payable (214,984) (151,117) (9,418) Net (repayment)/borrowing of short-term bank debt (33,200) 37,600 104,400 Payment of financing costs (5,648) (6,719) (4,875) Proceeds from the issuance of common stock 7,660 17,250 76,686 Distributions paid to minority interests (10,272) (9,200) (2,413) Distributions paid to preferred shareholders (36,909) (34,958) (22,611) Distributions paid to common shareholders (110,098) (109,608) (103,074) Repurchase of operating partnership units (341) (11,967) (3,528) Repurchase of common and preferred stock (28,398) (31,563) - ------------- ------------ ------------- Net cash (used in)/provided by financing activities (325,326) (174,985) 148,875 Net increase (decrease) in cash and cash equivalents 2,627 (18,403) 25,608 Cash and cash equivalents, beginning of year 7,678 26,081 473 ------------- ------------ ------------- Cash and cash equivalents, end of year $ 10,305 $ 7,678 $ 26,081 ============= ============ ============= Supplemental Information: Interest paid during the period $ 152,434 $ 162,236 $ 104,858 Conversion of operating partnership units to common stock 247 3,947 7,542 Issuance of restricted stock awards 830 460 - Non-cash transactions associated with the acquisition of properties: Secured debt assumed 10,130 - 116,326 Issuance of common stock - - 7,099 Issuance of operating partnership units - - 18,477 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. 48
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share data) <TABLE> <CAPTION> Year ended December 31 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Preferred Stock Balance, beginning of year $ 427,872 $ 430,000 $ 255,000 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 (17,666) (2,128) - -------------- -------------- ------------- Balance, end of year $ 410,206 $ 427,872 $ 430,000 ============== ============== ============= Common Stock, $1 Par Value Balance, beginning of year $ 102,741 $ 103,639 $ 89,168 Issuance of common shares in public offerings - - 2,804 Issuance of common shares in the acquisition of ASR Investment Corporation - - 7,743 Issuance of common shares to employees, officers and director-shareholders 5 72 78 Issuance of common shares through dividend reinvestment and stock purchase plan 767 1,598 2,825 Issuance of common shares in connection with the acquisition of properties - - 482 Purchase of common stock (1,399) (2,688) - Issuance of restricted stock awards 86 46 - Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships 19 74 539 -------------- -------------- ------------- Balance, end of year $ 102,219 $ 102,741 $ 103,639 ============== ============== ============= Additional Paid-in Capital Balance, beginning of year $ 1,083,687 $ 1,090,432 $ 906,307 Issuance of common shares in public offerings, net of issuance costs - - 35,170 Issuance of common shares in the acquisition of ASR Investment Corporation - - 100,713 Issuance of common shares to employees, officers and director-shareholders 158 665 801 Issuance of common shares through dividend reinvestment and stock purchase plan 6,538 15,049 33,821 Issuance of common shares in connection with the acquisition of properties - - 6,617 Purchase of common and preferred stock (9,333) (26,746) - Issuance of restricted stock awards 744 414 - Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships (407) 3,873 7,003 -------------- -------------- ------------- Balance, end of year $ 1,081,387 $ 1,083,687 $ 1,090,432 ============== ============== ============= Notes Receivable from Officer-Shareholders Balance, beginning of year $ (7,753) $ (7,619) $ (8,806) Principal repayments 192 139 1,413 Notes issued for common shares - (273) (226) -------------- -------------- ------------- Balance, end of year $ (7,561) $ (7,753) $ (7,619) ============== ============== ============= Distributions in Excess of Net Income Balance, beginning of year $ (296,030) $ (242,331) $ (183,312) Net income 76,615 93,622 72,332 Common stock distributions declared ($1.07 per share for 2000, $1.06 per share for 1999 and $1.05 per share for 1998) (110,225) (109,607) (107,758) Preferred stock distributions declared-Series A ($2.31 per share for 2000, 1999 and 1998) (9,473) (9,688) (9,704) Preferred stock distributions declared-Series B ($2.15 per share for 2000, 1999 and 1998) (12,118) (12,872) (12,903) Preferred stock distributions declared-Series D ($1.91 per share for 2000, $1.89 per share for 1999 and $.12 per share for 1998) (15,300) (15,154) (986) -------------- -------------- ------------- Balance, end of year $ (366,531) $ (296,030) $ (242,331) ============== ============== ============= Deferred Compensation - Unearned Restricted Stock Awards Balance, beginning of year $ (305) $ - $ - Issuance of restricted stock awards (830) (460) - Amortization of deferred compensation 307 155 - -------------- -------------- ------------- Balance, end of year $ (828) $ (305) $ - ============== ============== ============= Total Shareholders' Equity $ 1,218,892 $ 1,310,212 $ 1,374,121 ============== ============== ============= </TABLE> See accompanying notes to consolidated financial statements. 49
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 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, 2000, United Dominion owned 277 communities with 77,219 completed apartment homes and had two communities and three additional phases to existing communities with 1,238 apartment homes under development. Basis of presentation The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P., (the "Operating Partnership"), and Heritage Communities L.P. (the "Heritage OP"), (collectively, "United Dominion"). As of December 31, 2000, there were 74,486,812 units in the Operating Partnership outstanding, of which 67,686,662 units or 90.9% were owned by United Dominion and 6,800,150 units or 9.1% were owned by non-affiliated limited partners. As of December 31, 2000, there were 4,535,845 units in the Heritage OP outstanding, of which 3,879,880 units or 85.5% were owned by United Dominion and 655,965 units or 14.5% were owned by non-affiliated limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the operating partnerships. All significant inter-company accounts and transactions have been eliminated in consolidation. Income taxes United Dominion is operated as, and elects to be taxed as, a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a REIT complies with the provisions of the Code if it distributes at least 95% of its taxable income and will avoid and will not be subject to U.S. federal income taxes if it distributes 100% of its income. Accordingly, no provision has been made for federal income taxes. However, United Dominion is subject to certain state and local excise or franchise taxes. 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, 2000, distributions paid per common share were taxable as follows: 2000 1999 1998 ------ ------ ------ Ordinary income $ .811 $ .620 $ .913 Long-term capital gain .257 .129 --- Return of capital --- .309 .127 ------ ------ ------ $1.068 $1.058 $1.040 ====== ====== ====== Use of estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to amounts in prior years' financial statements to conform with current year presentation. Cash and cash equivalents Cash and cash equivalents include all cash and liquid investments with maturities of three months or less when purchased. Investments in Unconsolidated Joint Ventures The Company accounts for investments in unconsolidated joint ventures using the equity method when major business decisions require approval by the other partners. Investments are recorded at cost and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. United Dominion eliminates intercompany profits on sales of services that are capitalized by the venture. Differences between the carrying value of investments and the underlying equity in net assets of the 50
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 investee are due to capitalized interest on the investment balance and capitalized development and leasing costs that are recovered by the Company through fees during construction. Such differences are amortized on a straight- line basis over the estimated useful life of the investment. During 2000, United Dominion recognized development and general contractor fees from its venture of approximately $3.0 million. Real estate Real estate assets held for investment are carried at historical cost less accumulated depreciation and any recorded impairment losses. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. 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. Prior to 2000, properties were classified as real estate held for disposition when management had committed to sell and was actively marketing the property, and United Dominion expected to dispose of these properties within the next twelve months. Beginning in 2000, properties classified as real estate held for disposition represent properties that are under contract. 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 3 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 2000, 1999 and 1998, total interest capitalized was $3.6 million, $5.2 million and $3.4 million, respectively. Revenue recognition United Dominion's apartment homes are leased under operating leases with terms generally of one year or less. Rental income is recognized after it is earned and collectibility is reasonably assured. Restricted cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves and security deposits. Deferred financing costs Deferred financing costs include fees and other external costs incurred to obtain debt financings and are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt. Unamortized financing costs are written-off when debt is retired before its maturity date. Advertising costs All costs are expensed as incurred. 51
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 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 basic 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 record the derivative instrument at its market value 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): 2000 1999 1998 - - ---------------------------------------------------------------------------- Numerator for basic and diluted earnings per share-net income available to common shareholders $ 42,653 $ 55,908 $ 48,739 Denominator: Denominator for basic earnings per share- weighted average shares 103,072 103,604 99,966 Effect of dilutive securities: Employee stock options and awards 136 35 96 -------- -------- -------- Denominator for dilutive earnings per share 103,208 103,639 100,062 ======== ======== ======== Basic earnings per share $ .41 $ .54 $ .49 ======== ======== ======== Diluted earnings per share $ .41 $ .54 $ .49 ======== ======== ======== 52
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 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, 2000, 1999 and 1998 was 7,489,435 units, 8,180,409 units and 2,963,427 units, respectively. The weighted average effect of the conversion of the convertible preferred stock for the years ended December 31, 2000 and 1999 was 12,307,692 shares and 809,273 shares at December 31, 1998. Minority interests in operating partnerships Interests in operating partnerships held by limited partners are represented by operating partnership units (OP Units). The operating partnerships' income is allocated to holders of OP Units based upon net income available to common shareholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions and profits and losses are allocated to minority interests in accordance with the terms of the individual partnership agreements. OP Units can be exchanged for cash or shares of United Dominion's common stock on a one-for-one basis, at the option of United Dominion. OP Units as a percentage of total OP Units and shares outstanding were 6.8% at December 31, 2000 and 1999 and 7.7% at December 31, 1998. 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 the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of United Dominion's employee stock options equals the market price of the underlying stock on the date of grant, no compensation cost has been recognized. Impact of recently issued accounting standards United Dominion will adopt Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. The new accounting standards require companies to carry all derivative instruments, including certain embedded derivatives, in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, companies might elect to designate a derivative instrument as a hedge of exposures to changes in fair values or cash flows. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported as a component of equity and reclassified into earnings when the hedged transaction affects earnings. If the hedged exposure is a fair value exposure, the gain or loss on the derivative is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. A gain or loss is recognized in earnings when a derivative is not designated as a hedge, or when any ineffectiveness is measured in the derivative when compared to the hedged item or anticipated transaction. United Dominion estimates that upon adoption of Statements 133 and 138 in January 2001, the Company will record a $3.8 million net transition loss adjustment in accumulated other comprehensive income (equity). Adoption of the standards also will result in the Company recognizing $134.0 thousand of derivative instrument assets and $3.9 million of derivative instrument liabilities. In general, the amount of volatility will vary with the level of derivative activities during any period. 53
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 2. REAL ESTATE OWNED United Dominion operates in over 32 major markets dispersed throughout 21 states. At December 31, 2000, the Company's largest apartment market was Houston, Texas, where it owned 5.9% of its apartment homes, based upon carrying value. Excluding Houston, 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): 2000 1999 - - ----------------------------------------------------------------------------- Land and land improvements $ 668,003 $ 636,905 Buildings and improvements 2,902,386 2,767,940 Furniture, fixtures and equipment 188,321 166,826 Construction in progress 264 6,177 ------------------------------ Real estate held for investment 3,758,974 3,577,848 Accumulated depreciation (506,871) (373,164) ------------------------------ Real estate held for investment, net $3,252,103 $3,204,684 ============================== The following is a summary of real estate held for investment by major market within each geographic region (in order of carrying value and excluding real estate under development) at December 31, 2000 (dollars in thousands): <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Communities Cost Value Depreciation Encumbrances - - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> NORTHERN REGION: Raleigh, NC 9 $ 123,071 $ 140,725 $ 28,793 $ 31,327 Charlotte, NC 10 109,961 133,652 24,942 12,267 Columbus, OH 5 88,625 122,281 10,049 42,703 Greensboro, NC 8 85,362 102,574 14,917 - Richmond, VA 8 74,856 94,633 25,219 60,682 (a) Wilmington, NC 6 64,213 88,200 15,540 - Baltimore, MD 6 58,846 66,380 14,752 28,657 (a) Other Northern Markets 38 318,407 366,179 63,506 56,194 (a) SOUTHERN REGION: Orlando, FL 14 167,524 198,761 32,513 76,736 (a) Tampa, FL 10 132,927 149,907 21,859 51,665 (a) Nashville, TN 8 83,987 117,978 13,012 - South Florida 6 95,637 103,335 13,588 20,620 (a) Memphis, TN 6 88,467 95,752 11,727 32,724 Atlanta, GA 6 57,669 69,964 13,307 17,714 (a) Columbia, SC 6 52,795 61,472 14,942 5,000 Other Southern Markets 16 168,885 220,993 35,955 43,696 (a) </TABLE> 54
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Communities Cost Value Depreciation Encumbrances - - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> WESTERN REGION: Houston, TX 22 178,188 222,164 24,255 47,499 Dallas, TX 14 177,414 208,238 23,930 10,349 Phoenix, AZ 10 165,191 199,500 21,104 19,086 San Antonio, TX 12 171,241 187,470 18,166 37,627 Fort Worth, TX 11 134,671 145,046 17,511 18,711 San Francisco, CA 4 136,504 139,462 6,855 21,709 Monterey Peninsula, CA 11 102,442 104,041 5,574 - (a) Southern California 5 87,442 89,863 6,752 5,937 Seattle, WA 3 31,953 33,473 2,694 16,661 Other Western Markets 22 279,699 290,068 25,376 66,178 (a) Richmond - Corporate 6,597 6,863 33 - ---------------------------------------------------------------------------------- 276 $3,242,574 $3,758,974 $506,871 $859,285 ================================================================================== </TABLE> The following is a summary of real estate held for disposition by major category at December 31, 2000 (dollars in thousands): Initial Number of Acquisition Carrying Accumulated Properties Cost Value Depreciation Encumbrances - - -------------------------------------------------------------------------------- Apartments (b) 1 $ 3,817 $ 4,696 $ 1,036 $ 3,506 Commercial (b) 4 10,482 12,284 1,498 3,324 ------------------------------------------------------------- 5 $ 14,299 $ 16,980 $ 2,534 $ 6,830 ============================================================= Total 281 $3,256,873 $3,775,954 $509,405 $866,115 ============================================================= (a) There are 88 communities encumbered by fixed rate debt aggregating $723.7 million. The amount of this debt is included in the encumbrances shown for the individual markets. There are 27 communities encumbered by fixed rate debt aggregating $135.5 million that is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (b) Real estate held for disposition included one apartment community with 132 homes, three commercial properties and one parcel of land totaling $14.5 million, which is net of $2.5 million of accumulated depreciation. Real estate held for disposition contributed property operating income (property rental income less property operating expense) of $1.7 million for the year ended December 31, 2000. The properties classified as held for disposition reflect properties that were under contract at December 31, 2000. The management of United Dominion periodically reviews its divestiture program, which is designed to better position the Company for achieving more consistent earnings growth and increasing shareholder value over the long-term. The factors considered in these reviews include the age, quality and projected operating income of communities that might be sold, the expected market value for the communities, the estimated timing for completion of sales and the pro forma effect of sales upon United Dominion's earnings and financial position. After a review undertaken in the second quarter of 2000, management transferred approximately $197 million of assets from real estate held for disposition to real estate held for investment and, as a result, approximately $10 million in depreciation expense was recognized on the communities transferred in order to reflect depreciation on these properties while they were classified in real estate held for disposition. For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate owned. Through the review and analysis of communities targeted for strategic disposition, an aggregate $14.8 million impairment loss was recognized on assets held for disposition. An impairment loss was indicated as a result of the net book value of the assets held for disposition being greater than the estimated fair market value less the cost of disposal. In addition, United Dominion recorded a $3.5 million impairment loss on three communities acquired in the ASR merger in 1998 which were classified in real estate held for investment. An impairment loss 55
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 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> 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Balance at January 1 $3,577,848 $3,643,245 $2,281,438 Real estate acquired 14,898 75,719 1,388,514 Capital expenditures 46,299 72,096 98,872 Transferred from development 68,025 116,787 23,350 Transferred from (to) real estate held for disposition 58,068 (326,499) (148,929) Impairment loss on real estate - (3,500) - Disposal of fully depreciated assets (6,164) - - ---------------------------------------------------------- Balance at December 31 $3,758,974 $3,577,848 $3,643,245 ========================================================== </TABLE> The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands): <TABLE> <CAPTION> 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Balance at January 1 $ 373,164 $ 280,663 $ 200,506 Depreciation expense for the year* 154,419 122,884 100,683 Transferred to held for disposition (14,548) (30,383) (20,526) Disposal of fully depreciated assets (6,164) - - ---------------------------------------------------------- Balance at December 31 $ 506,871 $ 373,164 $ 280,663 ========================================================== </TABLE> * Includes $1,425, $1,157 and $1,095 for 2000, 1999 and 1998, respectively, classified as "Other depreciation and amortization" in the consolidated statements of operations. 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE At December 31, 2000, United Dominion's investment in an unconsolidated joint venture consisted of a 25% partnership interest in a development joint venture in which the Company is serving as the managing partner. No gain or loss was recognized on the Company's contribution to the development joint venture. The venture will develop five apartment communities with a total of 1,438 homes for an aggregate total cost of approximately $103 million. United Dominion serves as the developer, general contractor and property manager for the venture. The operating results for the joint venture were not material for the year ended December 31, 2000. The following is a summary of the financial position of the joint venture as of December 31, 2000 (dollars in thousands): Assets: Real estate, net $85,644 Other assets 6,507 ----------- Total assets $92,151 =========== Liabilities and partners' equity: Mortgage notes payable $49,785 Other liabilities 11,436 Partners' equity 30,930 ----------- Total liabilities and partners' equity $92,151 =========== 56
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 4. SECURED DEBT Secured debt, which encumbers $1.5 billion or 38.8% of United Dominion's real estate owned, ($2.3 billion or 61.2% of United Dominion's real estate owned is unencumbered) consists of the following at December 31, 2000 (dollars in thousands): <TABLE> <CAPTION> No. of Weighted Avg. Weighted Avg. Communities Principal Outstanding Interest Rate Years to Maturity Encumbered ----------------------------- ------------------------------------------------ 2000 1999 2000 2000 2000 - - ------------------------------------------------------------------- ------------------------------------------------ <S> <C> <C> <C> <C> <C> Fixed Rate Debt Mortgage Notes Payable (a) $513,962 $ 555,414 7.96% 5.8 76 Tax-Exempt Secured Notes Payable 79,756 96,699 6.83% 13.1 13 REMIC Financings -- 59,167 -- -- -- Secured Credit Facilities 17,000 57,000 7.04% 13.0 -- ----------------------------- ------------------------------------------------ Total Fixed Rate Secured Debt 610,718 768,280 7.79% 7.0 89 Variable Rate Debt Secured Credit Facilities 216,960 138,675 7.22% 13.3 22 Tax-Exempt Secured Notes Payable 19,916 66,616 4.98% 24.5 3 Mortgage Notes Payable 18,521 26,565 7.71% 11.7 5 ----------------------------- ------------------------------------------------ Total Variable Rate Secured Debt 255,397 231,856 7.08% 14.1 30 ----------------------------- ------------------------------------------------ Total Secured Debt $866,115 $1,000,136 7.58% 9.0 119 ============================= ================================================ </TABLE> (a) Includes fair value adjustments aggregating $10.2 million in 2000 and $14.8 million in 1999 that were recorded in connection with two acquisitions consummated in 1998. Fixed Rate Debt Mortgage Notes Payable Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from January 2001 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 ranging from 6.13% to 8.10%. Interest on these notes is generally payable in semi-annual installments. Secured Credit Facilities On December 31, 2000, United Dominion had $234.0 million outstanding under two revolving secured credit facilities with the Federal National Mortgage Association (the "FNMA Credit Facilities"). The FNMA Credit Facilities are for an initial term of five 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. At December 31, 2000, the FNMA Credit Facilities had a weighted average floating rate of interest of 7.21%. In order to limit a portion of its interest rate exposure, United Dominion has two interest rate swap agreements associated with the FNMA Credit Facilities. These agreements have an aggregate notional value of $17 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreements effectively change United Dominion's interest rate exposure on $17 million of secured debt from a variable rate to a weighted average fixed rate of 7.04% (Financial Instruments - Note 6). Variable Rate Debt Secured Credit Facilities Variable rate secured credit facilities consist of $217.0 million of the $234.0 million outstanding on the FNMA Credit Facilities. Tax-Exempt Secured Notes Payable Variable rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates from December 2002 to October 2028. At December 31, 2000, these notes had interest rates ranging from 4.80% to 5.50%. 57
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Mortgage Notes Payable Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from July 2003 through September 2027. At December 31, 2000, these notes had interest rates ranging from 7.30% to 8.37%. The extraordinary loss for the year ended December 31, 1998 resulted from the write-off of deferred financing costs on mortgage debt extinguished. The aggregate maturities of secured debt for the five years subsequent to December 31, 2000 are as follows (dollars in thousands): <TABLE> <CAPTION> Fixed Rate Variable Rate ------------------------------------------------ ------------------------------------------------ Mortgage Tax-Exempt Secured Secured Tax-Exempt Mortgage Year Notes Bonds Notes Notes Notes Notes TOTAL - - ------------ ------------------------------------------------ ------------------------------------------------ ----------- <S> <C> <C> <C> <C> <C> <C> <C> 2001 $ 53,251 $ 1,062 - - - $ 281 $ 54,594 2002 47,446 1,215 - - $ 2,200 302 51,163 2003 40,855 1,246 - - - 5,886 47,987 2004 114,365 4,800 - - - 205 119,370 2005 119,406 1,236 - - - 5,489 126,131 Thereafter 138,639 70,197 $17,000 $216,960 17,716 6,358 466,870 ------------------------------------------------ ------------------------------------------------ ----------- $513,962 $79,756 $17,000 $216,960 $19,916 $18,521 $866,115 ================================================ ================================================ =========== </TABLE> 5. UNSECURED DEBT A summary of unsecured debt at December 31, 2000 and 1999 is as follows (dollars in thousands): <TABLE> <CAPTION> 2000 1999 ---------- ---------- <S> <C> <C> Commercial Banks Borrowings outstanding under an unsecured credit facility (a) (b) $ 244,400 $ 277,600 Borrowings outstanding under an unsecured term loan (c) 100,000 -- Senior Unsecured Notes - Other 8.13% Senior Notes due November 2000 -- 146,150 7.60% Medium-Term Notes due January 2002 48,750 55,000 7.65% Medium-Term Notes due January 2003 (d) 10,000 10,000 7.22% Medium-Term Notes due February 2003 11,900 12,000 5.05% City of Portland, OR Bonds due October 2003 7,345 7,345 8.63% Notes due March 2003 79,030 -- 7.98% Notes due March 2000-2003 (e) 22,285 29,800 7.67% Medium-Term Notes due January 2004 54,000 54,000 7.73% Medium-Term Notes due April 2005 22,400 23,400 7.02% Medium-Term Notes due November 2005 50,000 50,000 7.95% Medium-Term Notes due July 2006 107,398 120,340 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.25% Notes due January 2007 110,080 111,825 ABAG Tax-Exempt Bonds due August 2008 46,700 -- 8.50% Monthly Income Notes due November 2008 57,400 59,778 8.50% Debentures due September 2024 (f) 125,500 140,000 Other (g) 4,027 4,931 ---------- ---------- 781,815 849,569 ---------- ---------- Total Unsecured Debt $1,126,215 $1,127,169 ========== ========== </TABLE> 58
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (a) Weighted average interest rate of 7.5% and 6.7% at December 31, 2000 and 1999, respectively. (b) As of December 31, 2000, United Dominion had seven interest rate swap agreements associated with commercial bank borrowings with an aggregate notional value of $120 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 7.27%. (c) As of December 31, 2000, United Dominion had five interest rate swap agreements associated with borrowings under the term loan with an aggregate notional value of $100 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 7.53%. (d) 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%. (e) Payable annually in three equal principal installments of $7.4 million. (f) Includes an investor put feature which grants a one-time option to redeem the debentures in September 2004. (g) Includes $3.8 million and $4.6 million at December 31, 2000 and 1999, respectively, of deferred gains from the termination of interest rate risk management agreements. For the years ended December 31, 2000 and 1999, United Dominion recognized $831 thousand and $927 thousand in extraordinary gains related to the write-off of deferred financing costs and the repurchase of unsecured notes at less than face value, respectively. Information concerning short-term bank borrowings is summarized in the table that follows (dollars in thousands): <TABLE> <CAPTION> 2000 1999 1998 - - -------------------------------------------------------------------------------------- <S> <C> <C> <C> Total revolving credit facilities at December 31 $375,000 $310,000 $265,000 Borrowings outstanding at December 31 244,400 277,600 240,000 Weighted average daily borrowings during the year 195,128 223,629 238,587 Maximum daily borrowings during the year 308,000 283,000 334,500 (a) Weighted average daily interest rate during the year 7.3% 5.8% 6.1% (a) Weighted average daily interest rate at December 31 7.7% 6.7% 6.0% </TABLE> (a) Includes balances on a $75 million bridge facility funded in July 1998 that matured in November 1998. In June 2000, United Dominion closed on a $375 million three-year unsecured revolving credit facility (the "Credit Facility") with a consortium of banks. The Credit Facility, which extends until August 2003, replaces two lines of credit that allowed the Company to borrow in aggregate up to $310 million. Under the Credit Facility, the Company may borrow at a rate of LIBOR plus 100 basis points for LIBOR-based borrowings and pays a facility fee which is equal to 0.20% of the commitment. The Credit Facility is subject to customary financial covenants and limitations. 6. FINANCIAL INSTRUMENTS Fair Value of Financial Instruments The following estimated fair values of financial instruments were determined by United Dominion using available market information and appropriate valuation methodologies. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts United Dominion would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair value of United Dominion's financial instruments at December 31, 2000 and 1999, both on and off-balance sheet, are summarized as follows (dollars in thousands): 59
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 2000 1999 --------------------- ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value --------------------- ------------------------ Secured debt $ 866,115 $ 887,430 $1,000,136 $1,031,074 Unsecured debt 1,126,215 1,130,100 1,127,169 1,102,605 Interest rate swap agreements - (unfavorable) / favorable -- (3,847) -- 626 The following methods and assumptions were used by United Dominion in estimating fair values: Cash and cash equivalents The carrying amount of cash and cash equivalents - - ------------------------- approximates fair value. Secured and unsecured debt Estimated fair value is based on mortgage rates, - - -------------------------- tax-exempt bond rates and corporate unsecured debt rates believed to be available to United Dominion for the issuance of debt with similar terms and remaining lives. The carrying amount of United Dominion's variable rate secured debt approximates fair value at December 31, 2000 and 1999. 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, 2000 and 1999. Interest rate swap agreements Fair value is based on external market - - ----------------------------- quotations. Derivative Instruments The following table summarizes certain information pursuant to interest rate swap contracts at December 31, 2000 (dollars in thousands): Notional Fixed Type of Underlying Effective Contract Fair Amount Rate Contract Debt Date Maturity Value - - -------------------------------------------------------------------------------- $ 5,000 7.32% Swap Bank Credit Facility 06/26/95 07/01/04 $ (95) 10,000 7.14% Swap Bank Credit Facility 10/18/95 10/03/02 (59) 5,000 6.98% Swap Bank Credit Facility 11/21/95 10/03/02 (11) 10,000 7.65% Swap Medium-Term Notes 01/26/99 01/27/03 134 7,000 6.78% Swap FNMA 06/30/99 06/30/04 (44) 10,000 7.22% Swap FNMA 12/01/99 04/01/04 (211) 25,000 7.39% Swap Bank Credit Facility 11/01/00 08/01/03 (428) 25,000 7.39% Swap Bank Credit Facility 11/01/00 08/01/03 (428) 25,000 7.49% Swap Bank Term Loan 11/15/00 05/15/03 (433) 20,000 7.49% Swap Bank Term Loan 11/15/00 05/15/03 (347) 23,500 7.62% Swap Bank Term Loan 11/15/00 05/15/04 (602) 23,000 7.62% Swap Bank Term Loan 11/15/00 05/15/04 (589) 25,000 7.21% Swap Bank Credit Facility 12/01/00 08/01/03 (315) 8,500 7.26% Swap Bank Term Loan 12/04/00 05/15/03 (103) 25,000 7.21% Swap Bank Credit Facility 12/04/00 08/01/03 (316) - - -------------------------------------------------------------------------------- $247,000 $(3,847) ================================================================================ 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 60
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 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, 2000. 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, 2000. 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. 7. 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, 2000, 1999 and 1998 were $1.3 million, $2.2 million and $550,000, respectively. Stock Option Plan United Dominion's 1985 Stock 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 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 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 canceled 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 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Risk free interest rate 5.2% 6.7% 4.9% Dividend yield 7.2% 6.9% 6.6% Volatility factor .164 .144 .150 Weighted average expected life (years) 7 9 9 The weighted average fair value of options granted during 2000, 1999 and 1998 was $.65, $.76 and $.66, respectively. 61
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 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): 2000 1999 1998 ------- ------- ------- Net income available to common shareholders As reported $42,653 $55,908 $48,739 Pro forma 41,705 54,847 47,841 Earnings per common share-diluted As reported $ .41 $ .54 $ .49 Pro forma .40 .53 .48 A summary of United Dominion's stock option activity during the three years ended December 31, 2000 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, 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 Granted (653,300) 653,300 9.91 9.88-10.75 Exercised -- (11,584) 9.19 9.19 Forfeited 364,363 (364,363) 12.95 9.63-15.25 Reduction in shares authorized (a) (55,007) -- -- -- ---------- ---------- ------ ------------ Balance, December 31, 2000 3,684,595 4,492,945 $11.71 $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, 1998 1,691,863 $13.79 $7.44-$15.38 1999 2,042,505 13.28 9.19-15.38 2000 2,692,997 12.35 9.19-15.38 The weighted average remaining contractual life on all options outstanding is 7.2 years. 1,270,835 of share options had exercise prices between $13.94 and $15.38, 1,783,008 of share options had exercise prices between $10.75 and $13.50 and 1,439,102 of share options had exercise prices between $9.19 and $10.25. 8. 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 Preferred Stock could not be redeemed prior to April 24, 2000 and the Series B Preferred Stock is not redeemable prior to May 29, 2007. 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 62
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 stock of United Dominion. No Series A Preferred Stock was redeemed during 2000. 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. 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, provided that the current market price of the common stock at least equals the conversion price, initially set at $16.25 per share. The redemption is payable solely out of the sale proceeds of other capital stock. In addition, United Dominion may not redeem in any consecutive twelve-month period a number of shares of Series D having an aggregate liquidation preference of more than $100 million. 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 858,500 shares have been issued and 556,500 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 the reinvestment of cash dividends and through optional cash purchases, additional shares of United Dominion's common stock. As of December 31, 2000, 9,105,474 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 4,894,526 were reserved for further issuance under the Stock Purchase Plan at December 31, 2000. During 2000, 767,513 shares were issued under the Stock Purchase Plan for a total consideration of approximately $7.3 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 132,000 shares of restricted stock have been issued under the Restricted Stock Awards Plan as of December 31, 2000. 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. 9. COMMITMENTS AND CONTINGENCIES Land and Other Leases United Dominion is party to several ground leases relating to operating communities. In addition, United Dominion is party to various other operating leases related to the operation of its regional offices. Future minimum lease payments for non-cancelable land and other leases at December 31, 2000 are as follows (dollars in thousands): 2001 $ 1,860 2002 1,809 2003 1,627 2004 1,506 2005 1,358 Thereafter 25,289 ----------- Total $33,449 =========== 63
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 United Dominion incurred $2.6 million, $2.8 million and $1.6 million, respectively, of rent expense for the years ended December 31, 2000, 1999, and 1998. Contingencies United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The ultimate liability in respect of such litigations and claims cannot be determined at this time. United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion. During the third quarter of 2000, the Company agreed to settle a class action lawsuit concerning water usage billing in Texas in the amount of $2.7 million. The settlement is subject to final court approval. As a result of the settlement, the Company accrued $2.7 million for the settlement amount and estimated fees. The Company will pay the settlement amount when court approval is final. Individuals may opt out of the settlement and in the event that more than 125 persons opt out, United Dominion may elect to withdraw the settlement agreement. Management believes that the litigation will be resolved in accordance with the settlement agreement. Commitments United Dominion is committed to completing its real estate currently under development which has an estimated cost to complete of $63.5 million at December 31, 2000. For the joint venture development projects, United Dominion is committed to pay for all costs in excess of each individual project's budgeted costs. United Dominion does not anticipate any of the projects' costs to be in excess of their budget. 10. ACQUISITIONS 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. The ASR Merger and the AAC Merger were accounted for as purchases of real estate and the operating results for those communities are reflected in the accompanying consolidated financial statements from their respective dates of acquisition. 11. INDUSTRY SEGMENTS United Dominion owns and operates multifamily apartment communities throughout the United States which generates 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, 64
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 the apartment communities have been aggregated into a single apartment communities segment. All segment disclosure is included in or can be derived from United Dominion's consolidated financial statements. There is no tenant who contributed 10% or more of United Dominion's total revenues during 2000, 1999 or 1998. 12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Summarized consolidated quarterly financial data for the year ended December 31, 2000 is as follows (dollars in thousands, except per share amounts): <TABLE> <CAPTION> Three Months Ended --------------------------------------------------------------- March 31 June 30(a) September 30(b) December 31 -------- ---------- --------------- ----------- <S> <C> <C> <C> <C> Rental income $154,057 $155,144 $154,645 $152,979 Income before gains on sales of investments, minority interests and extraordinary item 17,120 7,617 10,199 13,784 Gains on the sales of investments 2,533 5,928 11,261 11,728 Net income available to common shareholders 9,172 6,233 11,161 16,087 Earnings per common share: Basic $ .09 $ .06 $ .11 $ .16 Diluted $ .09 $ .06 $ .11 $ .16 </TABLE> (a) The second quarter of 2000 includes $9.9 million of catch-up depreciation expense related to the transfer of properties from real estate held for disposition to real estate held for investment. (b) The third quarter of 2000 includes a $2.7 million charge related to water usage billing litigation and a $1.0 million charge for changes to executive employment agreements. ________________________________________________________________________________ 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 31b) -------- ---------- ------------ ------------- <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 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 </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. 65
SCHEDULE III Summary of Real Estate Owned <TABLE> <CAPTION> Initial Costs Total ------------------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> APARTMENTS REAL ESTATE HELD FOR INVESTMENT Northern Region: RALEIGH-DURHAM-CHAPEL HILL, NC Dominion On Spring Forest $ - $ 1,257,500 $ 8,586,255 $ 9,843,755 Dominion Park Green - 500,000 4,321,872 4,821,872 Dominion On Lake Lynn 16,250,000 1,723,363 5,303,760 7,027,123 Dominion Courtney Place - 1,114,600 5,119,259 6,233,859 Dominion Walnut Ridge - 1,791,215 11,968,852 13,760,067 Dominion Walnut Creek - 3,170,290 21,717,407 24,887,697 Dominion Ramsgate - 907,605 6,819,154 7,726,759 Harbour Pointe - 1,898,740 7,101,260 9,000,000 Copper Mill - 1,548,280 16,066,720 17,615,000 Trinity Park 15,076,889 4,579,648 17,575,712 22,155,360 RICHMOND-PETERSBURG, VA Dominion Olde West - 1,965,097 12,203,965 14,169,062 Dominion Creekwood - - - - Dominion Laurel Springs - 464,480 3,119,716 3,584,196 Dominion English Hills 16,640,000 1,979,174 11,524,313 13,503,487 Dominion Gayton Crossing 10,400,000 825,760 5,147,968 5,973,728 Dominion West End 14,597,100 2,059,252 15,049,088 17,108,340 Courthouse Green 7,410,000 732,050 4,702,353 5,434,403 Waterside At Ironbridge 11,635,000 1,843,819 13,238,590 15,082,409 CHARLOTTE-GASTONIA-ROCK HILL The Highlands - 321,400 2,830,346 3,151,746 Emerald Bay - 626,070 4,722,862 5,348,932 Dominion Peppertree - 1,546,267 7,699,221 9,245,488 Dominion Crown Point - 2,122,179 22,338,577 24,460,756 Dominion Harris Pond - 886,788 6,728,097 7,614,885 Dominion Mallard Creek 4,962 698,860 6,488,061 7,186,921 Chateau Village - 1,046,610 6,979,555 8,026,164 Dominion At Sharon - 667,368 4,856,103 5,523,471 Providence Court - - 22,047,803 22,047,803 Stoney Pointe 12,262,385 1,499,650 15,855,610 17,355,260 GREENSBORO-WINSTON-SALEM-H PNT Beechwood - 1,409,377 6,086,677 7,496,054 Steeplechase - 3,208,108 11,513,978 14,722,086 Northwinds - 1,557,654 11,735,787 13,293,441 Deerwood Crossings - 1,539,901 7,989,043 9,528,944 Dutch Village - 1,197,593 4,826,266 6,023,858 Lake Brandt - 1,546,950 13,489,466 15,036,416 Park Forest 378 679,671 5,770,413 6,450,084 Deep River Pointe - 1,670,648 11,140,329 12,810,977 WILMINGTON NC Cape Harbor - 1,891,671 18,113,109 20,004,780 Mill Creek - 1,404,498 4,489,398 5,893,895 The Creek - 417,500 2,506,206 2,923,706 Forest Hills - 1,028,000 5,420,478 6,448,478 Clear Run - 874,830 8,740,602 9,615,432 Crosswinds - 1,096,196 18,230,236 19,326,432 BALTIMORE Gatewater Landing - 2,078,422 6,084,526 8,162,948 Dominion Kings Place 4,525,000 1,564,942 7,006,574 8,571,516 Dominion At Eden Brook 7,730,000 2,361,167 9,384,171 11,745,339 Dominion Great Oaks 10,652,042 2,919,481 9,099,691 12,019,172 <CAPTION> Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period -------------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> APARTMENTS REAL ESTATE HELD FOR INVESTMENT Northern Region: RALEIGH-DURHAM-CHAPEL HILL, NC Dominion On Spring Forest $ 2,942,976 $ 1,620,092 $ 11,166,639 $ 12,786,731 Dominion Park Green 1,298,146 686,991 5,433,027 6,120,017 Dominion On Lake Lynn 2,712,747 2,237,052 7,502,818 9,739,870 Dominion Courtney Place 2,809,359 1,435,467 7,607,752 9,043,218 Dominion Walnut Ridge 2,092,322 2,166,192 13,686,197 15,852,389 Dominion Walnut Creek 3,109,641 3,693,110 24,304,228 27,997,338 Dominion Ramsgate 799,858 1,028,925 7,497,692 8,526,617 Harbour Pointe 127,062 1,898,796 7,228,266 9,127,062 Copper Mill 872,794 1,760,775 16,727,019 18,487,794 Trinity Park 888,403 4,696,853 18,346,911 23,043,763 RICHMOND-PETERSBURG, VA Dominion Olde West 1,784,328 2,378,396 13,574,994 15,953,390 Dominion Creekwood 453,599 45,423 408,176 453,599 Dominion Laurel Springs 1,040,630 632,047 3,992,779 4,624,826 Dominion English Hills 4,912,176 2,804,705 15,610,959 18,415,663 Dominion Gayton Crossing 6,252,057 1,164,893 11,060,892 12,225,785 Dominion West End 2,600,429 2,646,527 17,062,242 19,708,769 Courthouse Green 2,107,203 1,078,454 6,463,152 7,541,606 Waterside At Ironbridge 627,216 1,970,316 13,739,309 15,709,625 CHARLOTTE-GASTONIA-ROCK HILL The Highlands 2,551,906 690,791 5,012,860 5,703,652 Emerald Bay 2,722,321 1,179,772 6,891,482 8,071,253 Dominion Peppertree 1,487,446 1,844,832 8,888,102 10,732,934 Dominion Crown Point 1,653,268 3,802,672 22,311,352 26,114,024 Dominion Harris Pond 1,233,852 1,225,463 7,623,274 8,848,737 Dominion Mallard Creek 603,947 776,615 7,014,252 7,790,868 Chateau Village 2,067,104 1,405,669 8,687,599 10,093,268 Dominion At Sharon 965,963 897,820 5,591,614 6,489,433 Providence Court 9,281,912 7,409,295 23,920,420 31,329,715 Stoney Pointe 1,123,359 1,733,721 16,744,898 18,478,619 GREENSBORO-WINSTON-SALEM-H PNT Beechwood 930,458 1,614,690 6,811,822 8,426,512 Steeplechase 12,155,379 3,748,136 23,129,330 26,877,465 Northwinds 933,359 1,738,394 12,488,407 14,226,800 Deerwood Crossings 973,787 1,670,816 8,831,915 10,502,731 Dutch Village 567,861 1,282,479 5,309,240 6,591,719 Lake Brandt 720,578 1,782,363 13,974,632 15,756,994 Park Forest 555,165 859,257 6,145,992 7,005,249 Deep River Pointe 375,283 1,799,007 11,387,253 13,186,260 WILMINGTON NC Cape Harbor 950,768 2,265,135 18,690,413 20,955,549 Mill Creek 13,360,826 1,892,237 17,362,484 19,254,721 The Creek 1,632,568 488,728 4,067,546 4,556,275 Forest Hills 1,876,920 1,201,540 7,123,858 8,325,398 Clear Run 5,179,423 1,251,932 13,542,922 14,794,855 Crosswinds 987,071 1,202,881 19,110,623 20,313,503 BALTIMORE Gatewater Landing 1,259,919 2,175,367 7,247,500 9,422,867 Dominion Kings Place 853,607 1,645,423 7,779,700 9,425,123 Dominion At Eden Brook 1,204,443 2,462,172 10,487,609 12,949,782 Dominion Great Oaks 3,242,222 3,744,845 11,516,549 15,261,394 <CAPTION> Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> APARTMENTS REAL ESTATE HELD FOR INVESTMENT Northern Region: RALEIGH-DURHAM-CHAPEL HILL, NC Dominion On Spring Forest $ 4,848,738 1978/81 05/21/91 35 Years Dominion Park Green 2,174,275 1987 09/27/91 35 Years Dominion On Lake Lynn 2,529,733 1986 12/01/92 35 Years Dominion Courtney Place 2,313,698 1979/81 07/08/93 35 Years Dominion Walnut Ridge 3,590,871 1982/84 03/04/94 35 Years Dominion Walnut Creek 5,949,152 1985/86 05/17/94 35 Years Dominion Ramsgate 1,289,101 1988 08/15/96 35 Years Harbour Pointe 1,039,246 1984 12/31/96 35 Years Copper Mill 2,442,624 1997 12/31/96 35 Years Trinity Park 2,615,545 1987 02/28/97 35 Years RICHMOND-PETERSBURG, VA Dominion Olde West 5,803,922 1978/82/84/85/87 12/31/84 & 8/27/91 35 Years Dominion Creekwood 64,594 1984 08/27/91 35 Years Dominion Laurel Springs 1,563,229 1972 09/06/91 35 Years Dominion English Hills 5,912,461 1969/76 12/06/91 35 Years Dominion Gayton Crossing 3,650,677 1973 09/28/95 35 Years Dominion West End 3,563,759 1989 12/28/95 35 Years Courthouse Green 3,003,466 1974/78 12/31/84 35 Years Waterside At Ironbridge 1,656,472 1987 09/30/97 35 Years CHARLOTTE-GASTONIA-ROCK HILL The Highlands 3,335,723 1970 01/17/84 35 Years Emerald Bay 3,760,153 1972 02/06/90 35 Years Dominion Peppertree 2,699,442 1987 12/14/93 35 Years Dominion Crown Point 2,898,158 1987/2000 07/01/94 35 Years Dominion Harris Pond 1,925,529 1987 07/01/94 35 Years Dominion Mallard Creek 1,663,639 1989 08/16/94 35 Years Chateau Village 1,806,472 1974 08/15/96 35 Years Dominion At Sharon 1,040,435 1984 08/15/96 35 Years Providence Court 3,296,574 1997 09/30/97 35 Years Stoney Pointe 2,515,970 1991 02/28/97 35 Years GREENSBORO-WINSTON-SALEM-H PNT Beechwood 2,016,469 1985 12/22/93 35 Years Steeplechase 3,385,125 1990/97 03/07/96 35 Years Northwinds 2,167,287 1989/97 08/15/96 35 Years Deerwood Crossings 1,586,060 1973 08/15/96 35 Years Dutch Village 1,009,162 1970 08/15/96 35 Years Lake Brandt 2,295,729 1995 08/15/96 35 Years Park Forest 987,884 1987 09/26/96 35 Years Deep River Pointe 1,469,221 1997 10/01/97 35 Years WILMINGTON NC Cape Harbor 3,132,026 1996 08/15/96 35 Years Mill Creek 2,291,769 1986/98 09/30/91 35 Years The Creek 1,686,047 1973 06/30/92 35 Years Forest Hills 2,454,927 1964/69 06/30/92 35 Years Clear Run 3,098,749 1987/89 07/22/94 35 Years Crosswinds 2,876,364 1990 02/28/97 35 Years BALTIMORE Gatewater Landing 2,420,401 1970 12/16/92 35 Years Dominion Kings Place 2,287,161 1983 12/29/92 35 Years Dominion At Eden Brook 3,116,140 1984 12/29/92 35 Years Dominion Great Oaks 3,586,816 1974 07/01/94 35 Years </TABLE>
<TABLE> <CAPTION> Initial Costs Total -------------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Dominion Constant Friendship - 903,122 4,668,956 5,572,078 Lakeside Mill 5,750,000 2,665,869 10,109,175 12,775,044 COLUMBUS OH Sycamore Ridge 13,702,434 4,067,900 15,433,285 19,501,185 Heritage Green - 2,990,199 11,391,797 14,381,996 Alexander Court - 1,573,412 - 1,573,412 Governour's Square 29,000,003 7,512,513 28,695,050 36,207,563 Hickory Creek - 3,421,413 13,539,402 16,960,815 OTHER MARKETS Forest Lake At Oyster Point, Newport News, VA - 780,117 8,861,878 9,641,995 Woodscape, Newport News, VA - 798,700 7,209,525 8,008,225 Eastwind, Virginia Beach, VA - 155,000 5,316,738 5,471,738 Dominion Waterside At Lynnhaven, Virginia Beach, VA - 1,823,983 4,106,710 5,930,693 Heather Lake, Hampton, VA - 616,800 3,400,672 4,017,472 Dominion Yorkshire Downs, Yorktown, VA 6,825,000 1,088,887 8,581,771 9,670,658 Dominion Middle Ridge, Woodbridge. VA 13,192,977 3,311,468 13,283,047 16,594,515 Dominion Lake Ridge, Lake Ridge, VA 8,970,000 2,366,061 8,386,439 10,752,500 Knolls At Newgate, Centreville, VA - 1,725,725 3,530,134 5,255,859 Greens At Falls Run, Fredericksburg, VA - 2,730,722 5,300,203 8,030,925 Manor At England Run, Fredericksburg, VA - 1,168,810 7,006,464 8,175,274 Greens At Hollymead, Charlottesville, VA - 965,114 5,250,374 6,215,488 Brittingham Square, Salisbury, MD - 650,143 4,962,246 5,612,389 Greens At Schumaker Pond, Salisbury, MD - 709,559 6,117,582 6,827,141 Greens At Cross Court, Easton, MD - 1,182,414 4,544,012 5,726,426 Greens At Hilton Run, Lexington Park, MD 11,520,000 2,754,447 10,482,579 13,237,026 Dover Country, Dover, DE - 2,007,878 6,365,053 8,372,931 Greens At Cedar Chase, Dover, DE 4,150,000 1,528,667 4,830,738 6,359,405 Washington Park, Centerville, OH - 2,011,520 7,565,279 9,576,799 Fountainhead, Dayton, OH 1,521,711 390,542 1,420,166 1,810,708 Jamestown Of Toledo, Toledo, OH - 1,800,271 7,053,585 8,853,856 Colony Village, New Bern, NC - 346,330 3,036,956 3,383,286 Brynn Marr, Jacksonville, NC - 432,974 3,821,508 4,254,482 Liberty Crossing, Jacksonville, NC - 840,000 3,873,139 4,713,139 Bramblewood, Goldsboro, NC - 401,538 3,150,912 3,552,450 Cumberland Trace, Fayetteville, NC - 632,281 7,895,674 8,527,955 Village At Cliffdale, Fayetteville, NC 10,014,218 941,284 15,498,216 16,439,501 Morganton Place, Fayetteville, NC - 819,090 13,217,086 14,036,176 Woodberry, Asheville, NC - 388,699 6,380,899 6,769,598 Sunset Village, Flint, MI - 796,994 1,829,226 2,626,220 2900 Place, East Lansing, MI - 1,818,957 5,593,327 7,412,284 Brandywine Creek, East Lansing, MI - 4,665,991 17,514,466 22,180,457 Lakewood, Haslett, MI - 1,113,126 3,877,503 4,990,629 Nemoke Trail, Haslett, MI - 3,430,631 12,222,526 15,653,157 American Heritage, Waterford, MI - 1,021,412 3,958,146 4,979,558 Ashton Pines, Waterford, MI - 1,822,351 8,013,902 9,836,253 Kings Gate, Sterling Heights, MI - 1,180,664 4,828,504 6,009,168 Lancaster Lake, Clarkston, MI - 4,237,887 14,662,797 18,900,684 Southern Region: ORLANDO Fisherman's Village - 2,387,368 7,458,897 9,846,265 Seabrook - 1,845,853 4,155,275 6,001,128 Dover Village - 2,894,702 6,456,100 9,350,802 Lakeside North 12,440,000 1,532,700 11,076,062 12,608,762 Regatta Shore - 757,008 6,607,367 7,364,375 Alafaya Woods 10,000,000 1,653,000 9,042,256 10,695,256 Vinyards 8,795,000 1,840,230 11,571,625 13,411,855 Andover Place 13,405,000 3,692,187 7,756,919 11,449,106 Los Altos 11,440,000 2,803,805 12,348,464 15,152,270 Lotus Landing - 2,184,723 8,638,664 10,823,387 <CAPTION> Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period ---------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Dominion Constant Friendship 693,335 1,043,201 5,222,212 6,265,413 Lakeside Mill 280,575 2,673,914 10,381,705 13,055,619 COLUMBUS OH Sycamore Ridge 849,659 4,172,041 16,178,802 20,350,844 Heritage Green 9,228,112 3,093,476 20,516,631 23,610,107 Alexander Court 21,342,176 1,642,866 21,272,723 22,915,588 Governour's Square 1,589,518 7,663,518 30,133,563 37,797,081 Hickory Creek 646,837 3,452,749 14,154,904 17,607,652 OTHER MARKETS Forest Lake At Oyster Point, Newport News, VA 1,897,758 1,166,789 10,372,964 11,539,752 Woodscape, Newport News, VA 2,357,904 1,103,568 9,262,561 10,366,129 Eastwind, Virginia Beach, VA 1,214,815 368,372 6,318,181 6,686,553 Dominion Waterside At Lynnhaven, Virginia Beach, VA 1,170,854 2,009,683 5,091,864 7,101,547 Heather Lake, Hampton, VA 3,429,085 1,015,545 6,431,012 7,446,557 Dominion Yorkshire Downs, Yorktown, VA 672,743 1,248,510 9,094,892 10,343,401 Dominion Middle Ridge, Woodbridge. VA 962,754 3,423,239 14,134,030 17,557,269 Dominion Lake Ridge, Lake Ridge, VA 760,043 2,511,181 9,001,362 11,512,543 Knolls At Newgate, Centreville, VA 1,637,046 1,846,268 5,046,637 6,892,905 Greens At Falls Run, Fredericksburg, VA 818,868 2,876,643 5,973,149 8,849,792 Manor At England Run, Fredericksburg, VA 13,178,991 2,794,885 18,559,380 21,354,265 Greens At Hollymead, Charlottesville, VA 638,962 1,056,498 5,797,953 6,854,451 Brittingham Square, Salisbury, MD 597,661 784,733 5,425,316 6,210,050 Greens At Schumaker Pond, Salisbury, MD 861,372 857,168 6,831,345 7,688,513 Greens At Cross Court, Easton, MD 985,831 1,362,893 5,349,364 6,712,257 Greens At Hilton Run, Lexington Park, MD 1,343,556 3,083,093 11,497,489 14,580,582 Dover Country, Dover, DE 2,369,190 2,359,250 8,382,870 10,742,121 Greens At Cedar Chase, Dover, DE 722,150 1,722,356 5,359,199 7,081,555 Washington Park, Centerville, OH 972,360 2,100,912 8,448,248 10,549,159 Fountainhead, Dayton, OH 68,744 390,542 1,488,910 1,879,452 Jamestown Of Toledo, Toledo, OH 499,396 1,874,443 7,478,809 9,353,252 Colony Village, New Bern, NC 1,865,002 552,767 4,695,521 5,248,288 Brynn Marr, Jacksonville, NC 2,528,323 723,818 6,058,987 6,782,805 Liberty Crossing, Jacksonville, NC 2,782,941 1,418,632 6,077,448 7,496,080 Bramblewood, Goldsboro, NC 1,453,075 576,414 4,429,111 5,005,525 Cumberland Trace, Fayetteville, NC 657,116 664,579 8,520,492 9,185,071 Village At Cliffdale, Fayetteville, NC 1,081,762 1,118,152 16,403,110 17,521,262 Morganton Place, Fayetteville, NC 584,479 886,825 13,733,830 14,620,655 Woodberry, Asheville, NC 983,036 554,427 7,198,206 7,752,634 Sunset Village, Flint, MI 59,350 796,994 1,888,576 2,685,570 2900 Place, East Lansing, MI 170,664 1,819,883 5,763,065 7,582,948 Brandywine Creek, East Lansing, MI (2,752,066) 4,691,285 14,737,106 19,428,391 Lakewood, Haslett, MI 114,808 1,162,755 3,942,683 5,105,437 Nemoke Trail, Haslett, MI 118,676 3,430,631 12,341,201 15,771,833 American Heritage, Waterford, MI 76,712 1,028,097 4,028,174 5,056,270 Ashton Pines, Waterford, MI 187,150 1,838,608 8,184,796 10,023,403 Kings Gate, Sterling Heights, MI 115,509 1,193,949 4,930,729 6,124,677 Lancaster Lake, Clarkston, MI 584,959 4,292,759 15,192,885 19,485,643 Southern Region: ORLANDO Fisherman's Village 2,945,691 3,090,614 9,701,343 12,791,956 Seabrook 2,674,836 2,241,118 6,434,846 8,675,964 Dover Village 3,334,730 3,359,514 9,326,019 12,685,532 Lakeside North 3,521,173 2,232,375 13,897,560 16,129,935 Regatta Shore 2,493,119 1,503,406 8,354,088 9,857,494 Alafaya Woods 1,993,331 2,097,999 10,590,589 12,688,588 Vinyards 2,735,670 2,379,143 13,768,382 16,147,525 Andover Place 2,947,660 4,456,793 9,939,973 14,396,766 Los Altos 2,426,454 3,306,774 14,271,949 17,578,724 Lotus Landing 1,793,437 2,384,771 10,232,053 12,616,824 <CAPTION> Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) -------------------------------------------------------------------------- <S> <C> <C> <C> <C> Dominion Constant Friendship 1,201,822 1990 05/04/95 35 Years Lakeside Mill 2,140,095 1989 12/10/99 35 Years COLUMBUS OH Sycamore Ridge 1,522,763 1997 07/02/98 35 Years Heritage Green 1,544,562 1998 07/02/98 35 Years Alexander Court 3,680,423 1999 07/02/98 35 Years Governour's Square 2,249,997 1967 12/07/98 35 Years Hickory Creek 1,050,874 1988 12/07/98 35 Years OTHER MARKETS Forest Lake At Oyster Point, Newport News, VA 2,433,357 1986 08/15/95 35 Years Woodscape, Newport News, VA 3,897,754 1974/76 12/29/87 35 Years Eastwind, Virginia Beach, VA 2,567,744 1970 04/04/88 35 Years Dominion Waterside At Lynnhaven, Virginia Beach, VA 1,115,488 1966 08/15/96 35 Years Heather Lake, Hampton, VA 4,246,120 1972/74 03/01/80 35 Years Dominion Yorkshire Downs, Yorktown, VA 1,101,616 1987 12/23/97 35 Years Dominion Middle Ridge, Woodbridge. VA 2,427,325 1990 06/25/96 35 Years Dominion Lake Ridge, Lake Ridge, VA 1,807,529 1987 02/23/96 35 Years Knolls At Newgate, Centreville, VA 1,596,876 1972 07/01/94 35 Years Greens At Falls Run, Fredericksburg, VA 1,356,223 1989 05/04/95 35 Years Manor At England Run, Fredericksburg, VA 2,903,977 1990 05/04/95 35 Years Greens At Hollymead, Charlottesville, VA 1,265,020 1990 05/04/95 35 Years Brittingham Square, Salisbury, MD 1,209,075 1991 05/04/95 35 Years Greens At Schumaker Pond, Salisbury, MD 1,500,105 1988 05/04/95 35 Years Greens At Cross Court, Easton, MD 1,211,651 1987 05/04/95 35 Years Greens At Hilton Run, Lexington Park, MD 2,502,809 1988 05/04/95 35 Years Dover Country, Dover, DE 2,501,838 1970 07/01/94 35 Years Greens At Cedar Chase, Dover, DE 1,273,486 1988 05/04/95 35 Years Washington Park, Centerville, OH 795,173 1998 12/07/98 35 Years Fountainhead, Dayton, OH 113,397 1966 12/07/98 35 Years Jamestown Of Toledo, Toledo, OH 556,014 1965 12/07/98 35 Years Colony Village, New Bern, NC 2,794,741 1972/74 12/31/84 35 Years Brynn Marr, Jacksonville, NC 3,324,316 1973/77 12/31/84 35 Years Liberty Crossing, Jacksonville, NC 3,284,032 1972/74 11/30/90 35 Years Bramblewood, Goldsboro, NC 2,627,219 1980/82 12/31/84 35 Years Cumberland Trace, Fayetteville, NC 1,463,266 1973 08/15/96 35 Years Village At Cliffdale, Fayetteville, NC 2,653,591 1992 08/15/96 35 Years Morganton Place, Fayetteville, NC 2,130,664 1994 08/15/96 35 Years Woodberry, Asheville, NC 1,328,960 1987 08/15/96 35 Years Sunset Village, Flint, MI 263,559 1940 12/07/98 35 Years 2900 Place, East Lansing, MI 395,404 1966 12/07/98 35 Years Brandywine Creek, East Lansing, MI 1,276,029 1974 12/07/98 35 Years Lakewood, Haslett, MI 323,424 1974 12/07/98 35 Years Nemoke Trail, Haslett, MI 959,233 1978 12/07/98 35 Years American Heritage, Waterford, MI 298,729 1968 12/07/98 35 Years Ashton Pines, Waterford, MI 517,080 1987 12/07/98 35 Years Kings Gate, Sterling Heights, MI 339,160 1973 12/07/98 35 Years Lancaster Lake, Clarkston, MI 1,144,008 1988 12/07/98 35 Years Southern Region: ORLANDO Fisherman's Village 2,571,996 1984 12/29/95 35 Years Seabrook 1,922,830 1984 02/20/96 35 Years Dover Village 3,391,517 1981 03/31/93 35 Years Lakeside North 3,917,847 1984 04/14/94 35 Years Regatta Shore 2,673,048 1988 06/30/94 35 Years Alafaya Woods 2,941,398 1988/90 10/21/94 35 Years Vinyards 3,754,574 1984/86 10/31/94 35 Years Andover Place 2,609,490 1988 09/29/95 & 09/30/96 35 Years Los Altos 2,546,376 1990 10/31/96 35 Years Lotus Landing 1,408,858 1985 07/01/97 35 Years </TABLE>
SCHEDULE III Summary of Real Estate Owned <TABLE> <CAPTION> Initial Costs Total ------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) --------------------------------------------------------------------------- <S> <C> <C> <C> <C> Seville On The Green - 1,282,616 6,498,062 7,780,678 Arbors @ Lee Vista 14,350,000 3,975,679 16,920,454 20,896,133 Heron Lake 6,306,389 1,446,553 9,287,878 10,734,431 Ashton @ Waterford - 3,871,744 17,537,879 21,409,623 TAMPA-ST PETERSBURG-CLEARWATER Bay Cove - 2,928,847 6,578,257 9,507,104 Summit West - 2,176,500 4,709,970 6,886,470 Pinebrook - 1,780,375 2,458,172 4,238,547 Lakewood Place 10,250,000 1,395,051 10,647,377 12,042,428 Hunters Ridge 10,000,000 2,461,548 10,942,434 13,403,982 Bay Meadow - 2,892,526 9,253,525 12,146,051 Cambridge - 1,790,804 7,166,329 8,957,133 Laurel Oaks - 1,361,553 6,541,980 7,903,533 Parker's Landing 31,415,281 10,178,355 37,868,669 48,047,024 Sugar Mill Creek - 2,241,880 7,552,520 9,794,400 COLUMBIA SC Gable Hill - 824,847 5,307,194 6,132,041 St. Andrews Commons - 1,428,826 9,371,378 10,800,204 Forestbrook 5,000,000 395,516 2,902,040 3,297,556 Waterford - 957,980 6,947,939 7,905,919 Hampton Greene - 1,363,046 10,118,453 11,481,499 Rivergate - 1,122,500 12,055,625 13,178,125 NASHVILLE TN Legacy Hill - 1,147,660 5,867,567 7,015,227 Hickory Run - 1,468,727 11,583,786 13,052,513 Carrington Hills - 2,117,244 - 2,117,244 Brookridge - 707,508 5,461,251 6,168,760 Club At Hickory Hollow - 2,139,774 15,231,201 17,370,975 Breckenridge - 766,428 7,713,862 8,480,290 Williamsburg - 1,376,190 10,931,309 12,307,498 Colonnade - 1,459,754 16,014,857 17,474,612 MEMPHIS TN Briar Club - 1,214,400 6,928,959 8,143,359 Hunters Trace 5,412,083 888,440 6,676,552 7,564,992 Cinnamon Trails - 1,886,632 7,644,522 9,531,154 The Trails 27,311,519 10,387,416 34,394,843 44,782,259 Dogwood Creek - 2,771,868 15,673,846 18,445,714 ATLANTA GA Stanford Village - 884,500 2,807,839 3,692,339 Griffin Crossing - 1,509,633 7,544,018 9,053,651 Gwinnett Square 7,150,000 1,924,325 7,376,454 9,300,779 Dunwoody Pointe 5,580,829 2,763,324 6,902,996 9,666,320 Riverwood 4,983,254 2,985,599 11,087,903 14,073,502 Waterford Place - 1,579,478 10,302,679 11,882,157 SOUTH FLORIDA Copperfield 12,300,000 4,424,128 20,428,969 24,853,097 Mediterranean Village 8,320,000 2,064,788 11,939,113 14,003,901 Cleary Court - 2,399,848 7,913,450 10,313,298 University Club - 1,390,220 6,992,620 8,382,840 Polo Chase - 3,675,276 13,301,853 16,977,129 Pembroke Bay - 4,442,492 16,664,469 21,106,962 OTHER MARKETS Jamestown Of St. Matthews, St. Matthews, KY 11,235,576 3,865,596 14,422,383 18,287,979 Patriot Place, Florence, SC 2,200,000 212,500 1,600,757 1,813,257 <CAPTION> Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period ---------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) -------------------------------------------------------------------------- <S> <C> <C> <C> <C> Seville On The Green 1,763,132 1,442,318 8,101,492 9,543,810 Arbors @ Lee Vista 1,579,430 4,364,804 18,110,760 22,475,563 Heron Lake 921,005 1,591,825 10,063,611 11,655,436 Ashton @ Waterford 106,854 3,871,744 17,644,733 21,516,477 TAMPA-ST PETERSBURG-CLEARWATER Bay Cove 2,759,652 3,272,710 8,994,046 12,266,756 Summit West 2,380,213 2,446,995 6,819,689 9,266,683 Pinebrook 2,917,886 2,001,756 5,154,677 7,156,433 Lakewood Place 1,247,664 1,613,593 11,676,500 13,290,092 Hunters Ridge 1,384,461 2,948,973 11,839,470 14,788,443 Bay Meadow 2,463,507 3,424,786 11,184,772 14,609,557 Cambridge 1,367,588 2,069,587 8,255,134 10,324,721 Laurel Oaks 1,150,392 1,534,328 7,519,597 9,053,925 Parker's Landing 947,078 9,214,278 39,779,824 48,994,102 Sugar Mill Creek 362,264 2,383,861 7,772,803 10,156,664 COLUMBIA SC Gable Hill 1,347,428 1,184,326 6,295,143 7,479,469 St. Andrews Commons 1,615,500 1,851,322 10,564,382 12,415,704 Forestbrook 1,840,654 627,056 4,511,154 5,138,210 Waterford 1,404,693 1,253,454 8,057,158 9,310,612 Hampton Greene 1,362,842 1,871,519 10,972,822 12,844,341 Rivergate 1,105,359 1,430,844 12,852,639 14,283,484 NASHVILLE TN Legacy Hill 2,733,132 1,419,924 8,328,435 9,748,359 Hickory Run 1,446,005 1,638,812 12,859,706 14,498,518 Carrington Hills 24,316,537 2,719,118 23,714,662 26,433,781 Brookridge 1,206,524 922,455 6,452,829 7,375,284 Club At Hickory Hollow 1,884,544 2,681,185 16,574,334 19,255,519 Breckenridge 727,711 955,284 8,252,717 9,208,001 Williamsburg 1,240,439 1,537,718 12,010,219 13,547,938 Colonnade 435,493 1,601,222 16,308,882 17,910,104 MEMPHIS TN Briar Club 1,955,591 1,560,279 8,538,670 10,098,950 Hunters Trace 1,366,817 1,179,599 7,752,210 8,931,809 Cinnamon Trails (86,708) 2,054,103 7,390,342 9,444,446 The Trails 3,327,549 11,072,164 37,037,644 48,109,808 Dogwood Creek 721,652 2,937,407 16,229,959 19,167,366 ATLANTA GA Stanford Village 1,130,143 1,164,766 3,657,716 4,822,482 Griffin Crossing 1,445,351 1,805,742 8,693,260 10,499,002 Gwinnett Square 1,546,548 2,138,004 8,709,323 10,847,327 Dunwoody Pointe 4,394,708 3,305,952 10,755,076 14,061,028 Riverwood 3,396,877 3,340,776 14,129,603 17,470,379 Waterford Place 381,663 1,645,910 10,617,910 12,263,820 SOUTH FLORIDA Copperfield 1,741,384 4,976,042 21,618,439 26,594,481 Mediterranean Village 1,491,518 2,280,874 13,214,545 15,495,419 Cleary Court 1,590,125 2,633,617 9,269,806 11,903,423 University Club 1,710,713 1,758,874 8,334,678 10,093,553 Polo Chase 553,282 3,761,446 13,768,966 17,530,411 Pembroke Bay 610,308 4,630,954 17,086,316 21,717,270 OTHER MARKETS Jamestown Of St. Matthews, St. Matthews, KY 716,366 3,941,427 15,062,918 19,004,345 Patriot Place, Florence, SC 5,669,543 1,481,436 6,001,363 7,482,800 <CAPTION> Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) --------------------------------------------------------------------- <S> <C> <C> <C> <C> Seville On The Green 1,122,278 1986 10/21/97 35 Years Arbors @ Lee Vista 2,123,136 1991 12/31/97 35 Years Heron Lake 1,091,328 1989 03/27/98 35 Years Ashton @ Waterford 438,672 2000 05/28/98 35 Years TAMPA-ST PETERSBURG-CLEARWATER Bay Cove 3,348,738 1972 12/16/92 35 Years Summit West 2,519,809 1972 12/16/92 35 Years Pinebrook 2,228,633 1977 09/28/93 35 Years Lakewood Place 3,014,713 1986 03/10/94 35 Years Hunters Ridge 2,765,425 1992 06/30/95 35 Years Bay Meadow 1,996,174 1985 12/09/96 35 Years Cambridge 1,293,086 1985 06/06/97 35 Years Laurel Oaks 1,141,059 1986 07/01/97 35 Years Parker's Landing 2,900,441 1991 12/07/98 35 Years Sugar Mill Creek 651,092 1988 12/07/98 35 Years COLUMBIA SC Gable Hill 2,650,059 1985 12/04/89 35 Years St. Andrews Commons 3,306,427 1986 05/20/93 35 Years Forestbrook 1,875,622 1974 07/01/93 35 Years Waterford 2,167,790 1985 07/01/94 35 Years Hampton Greene 2,735,675 1990 08/19/94 35 Years Rivergate 2,205,971 1989 08/15/96 35 Years NASHVILLE TN Legacy Hill 2,158,124 1977 11/06/95 35 Years Hickory Run 2,632,416 1989 12/29/95 35 Years Carrington Hills 69,320 1999 12/06/95 35 Years Brookridge 1,455,483 1986 03/28/96 35 Years Club At Hickory Hollow 2,689,207 1987 02/21/97 35 Years Breckenridge 1,260,622 1986 03/27/97 35 Years Williamsburg 1,477,333 1986 05/20/98 35 Years Colonnade 1,269,212 1998 01/07/99 35 Years MEMPHIS TN Briar Club 2,395,205 1987 10/14/94 35 Years Hunters Trace 2,067,346 1986 10/14/94 35 Years Cinnamon Trails 916,584 1989 01/09/98 35 Years The Trails 4,280,014 1990 01/09/98 35 Years Dogwood Creek 2,067,610 1997 02/06/98 35 Years ATLANTA GA Stanford Village 1,912,758 1985 09/26/89 35 Years Griffin Crossing 2,389,006 1987/89 06/08/94 35 Years Gwinnett Square 1,971,405 1985 03/29/95 35 Years Dunwoody Pointe 2,831,981 1980 10/24/95 35 Years Riverwood 3,141,457 1980 06/26/96 35 Years Waterford Place 1,060,557 1985 04/15/98 35 Years SOUTH FLORIDA Copperfield 4,576,456 1991 09/21/94 35 Years Mediterranean Village 3,079,124 1989 09/30/94 35 Years Cleary Court 2,258,407 1984/85 11/30/94 35 Years University Club 1,759,178 1988 09/26/95 35 Years Polo Chase 1,099,810 1991 12/07/98 35 Years Pembroke Bay 815,485 1989 07/26/99 35 Years OTHER MARKETS Jamestown Of St. Matthews, St. Matthews, KY 1,129,765 1968 12/07/98 35 Years Patriot Place, Florence, SC 3,644,528 1974 10/23/85 35 Years </TABLE>
<TABLE> <CAPTION> Initial Costs ----------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> River Place, Macon, GA 5,000,000 1,097,280 7,492,385 8,589,665 Mallards Of Wedgewood, Lakeland, FL - 959,284 6,864,666 7,823,950 Greentree, Jacksonville, FL 12,455,000 1,634,330 11,226,990 12,861,320 Westland, Jacksonville, FL 12,805,000 1,834,535 14,864,742 16,699,276 Antlers, Jacksonville, FL - 4,034,039 11,192,842 15,226,880 Brantley Pines, Ft. Myers, FL - 1,892,888 8,247,621 10,140,509 Santa Barbara, Naples, FL - 1,134,120 8,019,814 9,153,934 Ashlar, Ft. Myers, FL - 3,952,234 11,718,186 15,670,420 The Groves, Port Orange, FL - 789,953 4,767,055 5,557,008 Lakeside, Port Orange, FL - 2,404,305 6,420,160 8,824,465 Mallards Of Brandywine, Deland, FL - 765,949 5,407,683 6,173,632 Lake Washington Downs, Melbourne, FL - 1,434,450 4,940,166 6,374,616 International Village, Speedway, IN - 3,934,102 11,478,908 15,413,010 Regency Park South, Indianapolis, IN - 2,643,025 7,632,098 10,275,123 Western Region: DALLAS TEXAS Preston Oaks - 1,783,626 6,416,374 8,200,000 Preston Trace - 2,195,500 8,304,500 10,500,000 Rock Creek - 4,076,680 15,823,320 19,900,000 Windridge - 3,414,311 14,027,310 17,441,621 Catalina - 1,543,321 5,631,679 7,175,000 Wimbledon Court - 1,809,183 10,930,306 12,739,489 Lakeridge - 1,631,350 5,668,650 7,299,999 Summergate - 1,171,300 3,928,700 5,100,000 Oak Forest - 5,630,740 23,293,922 28,924,662 Oaks Of Lewisville - 3,726,795 13,563,181 17,289,976 Kelly Crossing - 2,496,701 9,156,355 11,653,056 Highlands Of Preston - 2,151,056 8,167,630 10,318,686 The Summit 5,182,107 1,932,195 9,041,301 10,973,496 Springfield 5,167,275 3,074,511 6,823,120 9,897,631 HOUSTON Woodtrail - 1,543,000 5,457,000 7,000,000 Park Trails - 1,144,750 4,105,250 5,250,000 Green Oaks - 5,313,920 19,626,181 24,940,101 Sky Hawk - 2,297,741 7,157,965 9,455,706 South Grand At Pecan Grove 10,418,907 4,058,090 14,755,809 18,813,899 Breakers - 1,527,467 5,297,930 6,825,397 Braesridge 9,092,367 3,048,212 10,961,749 14,009,961 Skylar Pointe - 3,604,483 11,592,432 15,196,915 Stone Canyon - 899,515 - 899,515 Briar Park 1,391,437 329,002 2,794,131 3,123,133 Chelsea Park 3,192,625 1,991,478 5,787,626 7,779,104 Clear Lake Falls 3,054,749 1,090,080 4,534,335 5,624,415 Country Club Place 3,475,061 498,632 6,520,172 7,018,804 Arbor Ridge 3,734,476 1,688,948 6,684,229 8,373,177 London Park 4,455,643 2,018,478 6,667,450 8,685,928 Marymont - 1,150,696 4,155,411 5,306,107 Nantucket Square 2,688,551 1,067,617 4,833,402 5,901,019 Riverway 1,181,322 523,457 2,828,282 3,351,739 Riviera Pines 3,274,452 1,413,851 6,453,847 7,867,698 The Gallery 1,538,994 768,708 3,358,484 4,127,192 Towne Lake - 1,333,958 5,308,884 6,642,842 The Legend at Park 10 - 1,995,011 - 1,995,011 PHOENIX-MESA AZ Paradise Falls - 1,622,700 6,170,800 7,793,500 Vista Point - 1,587,400 5,612,600 7,200,000 Sierra Palms - 4,638,950 17,361,050 22,000,000 Northpark Village - 1,519,314 13,536,707 15,056,021 <CAPTION> Cost of Gross Amount at Improvements Which Carried at Close of Period Capitalized ----------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> River Place, Macon, GA 1,898,820 1,717,042 8,771,442 10,488,485 Mallards Of Wedgewood, Lakeland, FL 1,643,276 1,249,320 8,217,906 9,467,226 Greentree, Jacksonville, FL 3,575,811 2,270,802 14,166,330 16,437,131 Westland, Jacksonville, FL 3,506,505 2,607,242 17,598,540 20,205,782 Antlers, Jacksonville, FL 5,385,491 4,782,830 15,829,541 20,612,372 Brantley Pines, Ft. Myers, FL 4,861,958 820,127 14,182,340 15,002,467 Santa Barbara, Naples, FL 1,643,083 1,714,318 9,082,699 10,797,017 Ashlar, Ft. Myers, FL 16,111,886 7,593,378 24,188,928 31,782,306 The Groves, Port Orange, FL 1,725,606 1,443,512 5,839,102 7,282,614 Lakeside, Port Orange, FL 1,268,820 2,574,381 7,518,904 10,093,285 Mallards Of Brandywine, Deland, FL 1,099,309 980,636 6,292,306 7,272,941 Lake Washington Downs, Melbourne, FL 2,039,249 1,750,997 6,662,868 8,413,865 International Village, Speedway, IN 465,769 3,976,199 11,902,580 15,878,779 Regency Park South, Indianapolis, IN 496,876 2,688,317 8,083,682 10,771,999 Western Region: DALLAS TEXAS Preston Oaks 613,050 1,897,501 6,915,549 8,813,050 Preston Trace 761,953 2,349,946 8,912,007 11,261,953 Rock Creek 4,051,565 4,486,002 19,465,563 23,951,565 Windridge 2,568,127 4,001,213 16,008,534 20,009,748 Catalina 609,896 1,648,194 6,136,703 7,784,896 Wimbledon Court 2,010,590 2,825,054 11,925,025 14,750,079 Lakeridge 845,732 1,776,336 6,369,395 8,145,731 Summergate 701,529 1,380,065 4,421,464 5,801,529 Oak Forest 10,000,318 6,354,384 32,570,596 38,924,980 Oaks Of Lewisville 3,485,698 4,497,320 16,278,354 20,775,674 Kelly Crossing 1,442,413 2,965,259 10,130,210 13,095,469 Highlands Of Preston 1,607,813 2,463,053 9,463,446 11,926,499 The Summit 1,133,379 2,302,119 9,804,756 12,106,875 Springfield 992,593 3,260,450 7,629,774 10,890,224 HOUSTON Woodtrail 2,078,334 1,728,597 7,349,737 9,078,334 Park Trails 767,844 1,208,921 4,808,923 6,017,844 Green Oaks 2,383,195 5,758,011 21,565,285 27,323,296 Sky Hawk 1,872,546 2,698,250 8,630,002 11,328,252 South Grand At Pecan Grove 3,662,938 4,437,828 18,039,009 22,476,837 Breakers 2,038,067 1,873,522 6,989,942 8,863,464 Braesridge 1,705,322 3,349,650 12,365,633 15,715,283 Skylar Pointe 3,757,921 3,657,880 15,296,956 18,954,836 Stone Canyon 9,437,829 899,515 9,437,829 10,337,344 Briar Park 102,280 333,748 2,891,665 3,225,413 Chelsea Park 1,243,271 2,289,122 6,733,253 9,022,375 Clear Lake Falls (308,399) 1,106,162 4,209,854 5,316,016 Country Club Place 821,606 643,066 7,197,344 7,840,410 Arbor Ridge 148,635 2,029,720 6,492,092 8,521,812 London Park 1,374,895 2,299,585 7,761,238 10,060,823 Marymont 378,980 1,158,696 4,526,391 5,685,087 Nantucket Square (686,315) 1,070,242 4,144,462 5,214,704 Riverway 110,364 529,666 2,932,437 3,462,103 Riviera Pines 139,734 1,418,444 6,588,988 8,007,432 The Gallery 81,922 776,004 3,433,110 4,209,114 Towne Lake 1,106,694 1,563,625 6,185,911 7,749,536 The Legend at Park 10 11,758,419 2,018,039 11,735,391 13,753,430 PHOENIX-MESA AZ Paradise Falls 2,886,523 1,828,963 8,851,060 10,680,023 Vista Point 1,312,937 1,717,158 6,795,779 8,512,937 Sierra Palms 437,202 4,733,068 17,704,134 22,437,202 Northpark Village 1,565,066 1,819,190 14,801,897 16,621,087 <CAPTION> Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> River Place, Macon, GA 2,642,789 1988 04/08/94 35 Years Mallards Of Wedgewood, Lakeland, FL 2,014,027 1985 07/27/95 35 Years Greentree, Jacksonville, FL 3,822,480 1986 07/22/94 35 Years Westland, Jacksonville, FL 3,723,824 1990 05/09/96 35 Years Antlers, Jacksonville, FL 3,680,912 1985 05/28/96 35 Years Brantley Pines, Ft. Myers, FL 3,813,602 1986 08/11/94 35 Years Santa Barbara, Naples, FL 2,497,039 1987 09/01/94 35 Years Ashlar, Ft. Myers, FL 1,057,966 1999/2000 12/24/97 35 Years The Groves, Port Orange, FL 1,541,419 1989 12/13/95 35 Years Lakeside, Port Orange, FL 1,134,518 1985 07/01/97 35 Years Mallards Of Brandywine, Deland, FL 995,046 1985 07/01/97 35 Years Lake Washington Downs, Melbourne, FL 2,289,531 1984 09/24/93 35 Years International Village, Speedway, IN 1,181,011 1968 12/07/98 35 Years Regency Park South, Indianapolis, IN 787,026 1968 12/07/98 35 Years Western Region: DALLAS TEXAS Preston Oaks 1,094,475 1980 12/31/96 35 Years Preston Trace 1,349,446 1984 12/31/96 35 Years Rock Creek 3,126,426 1979 12/31/96 35 Years Windridge 2,697,391 1980 12/31/96 35 Years Catalina 991,890 1982 12/31/96 35 Years Wimbledon Court 1,709,266 1983 12/31/96 35 Years Lakeridge 1,088,847 1984 12/31/96 35 Years Summergate 742,151 1984 12/31/96 35 Years Oak Forest 3,492,985 1996/98 12/31/96 35 Years Oaks Of Lewisville 2,872,774 1983 03/27/97 35 Years Kelly Crossing 1,525,524 1984 06/18/97 35 Years Highlands Of Preston 1,138,410 1985 03/27/98 35 Years The Summit 1,148,319 1983 03/27/98 35 Years Springfield 951,962 1985 03/27/98 35 Years HOUSTON Woodtrail 1,531,754 1978 12/31/96 35 Years Park Trails 806,361 1983 12/31/96 35 Years Green Oaks 3,160,374 1985 06/25/97 35 Years Sky Hawk 1,459,437 1984 05/08/97 35 Years South Grand At Pecan Grove 2,486,549 1985 09/26/97 35 Years Breakers 1,094,679 1985 09/26/97 35 Years Braesridge 1,744,605 1982 09/26/97 35 Years Skylar Pointe 2,208,604 1979 11/20/97 35 Years Stone Canyon 92,201 1998 12/17/97 35 Years Briar Park 293,683 1987 03/27/98 35 Years Chelsea Park 838,680 1983 03/27/98 35 Years Clear Lake Falls 478,335 1980 03/27/98 35 Years Country Club Place 760,109 1985 03/27/98 35 Years Arbor Ridge 775,659 1983 03/27/98 35 Years London Park 983,269 1983 03/27/98 35 Years Marymont 489,885 1983 03/27/98 35 Years Nantucket Square 448,369 1983 03/27/98 35 Years Riverway 365,345 1985 03/27/98 35 Years Riviera Pines 633,214 1979 03/27/98 35 Years The Gallery 297,475 1968 03/27/98 35 Years Towne Lake 799,194 1984 03/27/98 35 Years The Legend at Park 10 2,507,695 1998 05/19/98 35 Years PHOENIX-MESA AZ Paradise Falls 1,325,764 1986 12/31/96 35 Years Vista Point 1,149,554 1986 12/31/96 35 Years Sierra Palms 2,552,849 1996 12/31/96 35 Years Northpark Village 1,801,053 1983 03/27/98 35 Years </TABLE>
SCHEDULE III Summary of Real Estate Owned <TABLE> <CAPTION> Initial Costs ------------------------------ Cost of Improvements Total Capitalized Land and Buildings Initial Subsequent of Land and Acquisition to Acquisitioning Encumbrances (a) (b) Improvements Improvements Costs (c) (Net of Disposals) ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Stonegate 3,703,436 735,036 7,939,875 8,674,911 688,203 Finisterra - 1,273,798 26,392,207 27,666,005 307,400 La Privada 15,382,899 7,303,161 18,507,617 25,810,778 1,774,951 Terracina - 3,757,224 34,780,779 38,538,002 5,632,594 Woodland Park - 3,016,907 6,706,473 9,723,380 909,752 Sierra Foothills - 2,728,172 - 2,728,172 18,794,624 FORT WORTH-ARLINGTON TEXAS Autumnwood - 2,412,180 8,687,820 11,100,000 915,690 Cobblestone - 2,925,372 10,527,738 13,453,110 1,895,732 Pavillion - 4,428,258 19,032,881 23,461,139 1,016,798 Oak Park - 3,966,129 22,227,701 26,193,830 (385,559) Southern Oaks - 1,565,000 5,335,000 6,900,000 754,590 Hunter's Ridge - 1,613,000 5,837,000 7,450,000 790,643 Parc Plaza - 1,683,531 5,279,123 6,962,654 1,339,056 Summit Ridge 4,810,550 1,725,508 6,308,032 8,033,540 1,367,077 Greenwood Creek 4,768,424 1,958,378 8,551,018 10,509,396 1,127,672 Derby Park 7,218,225 3,121,153 11,764,974 14,886,127 773,887 Aspen Court 1,913,309 776,587 4,944,947 5,721,534 779,032 SAN ANTONIO Promontory Pointe - 7,548,219 28,051,781 35,600,000 2,431,666 The Bluffs - 1,901,146 6,898,854 8,800,000 1,340,666 Ashley Oaks - 4,590,782 16,809,218 21,400,000 471,484 Sunflower - 2,209,000 7,891,000 10,100,000 582,262 Escalante 3,913,340 2,701,992 24,033,196 26,735,188 1,581,401 Cimarron City 3,097,104 487,906 4,534,793 5,022,699 683,210 Kenton 7,288,859 2,344,962 8,917,376 11,262,338 1,676,573 Peppermill 4,306,088 773,405 6,873,146 7,646,551 2,034,322 Sunset Canyon 8,753,297 3,201,039 10,669,680 13,870,720 3,780,981 Audubon 4,550,997 771,037 6,123,917 6,894,953 2,189,611 Grand Cypress 5,717,531 749,341 8,609,353 9,358,694 945,959 Inn @ Los Patios - 3,005,300 11,544,700 14,550,000 (1,489,487) SAN FRANCISO-SAN JOSE, CA 2000 Post Street - 9,860,627 44,577,506 54,438,133 418,708 Birch Creek 7,670,278 4,365,315 16,695,509 21,060,824 943,028 Highlands Of Marin - 5,995,838 24,868,350 30,864,188 485,151 Marina Playa 14,038,935 6,224,383 23,916,283 30,140,666 1,111,432 MONTEREY PENINSULA SALINAS CA Boronda Manor - 1,946,423 8,981,742 10,928,165 160,447 Garden Court - 888,038 4,187,950 5,075,988 96,563 Glenridge - 415,284 1,952,934 2,368,218 23,297 Harding Park Townhomes - 549,393 2,051,322 2,600,715 43,215 Cambridge Court - 2,020,384 9,226,038 11,246,422 357,691 Laurel Tree - 1,303,902 5,115,356 6,419,258 86,900 Pine Grove - 1,383,161 5,783,993 7,167,154 55,604 Santanna - 957,079 4,026,117 4,983,196 72,924 The CaprI - 1,018,493 3,657,274 4,675,767 10,620 The Pointe At Harden Ranch - 6,388,446 23,853,534 30,241,980 418,154 The Pointe At Northridge - 2,043,736 8,028,443 10,072,179 176,828 The Pointe At Westlake - 1,329,064 5,334,004 6,663,068 96,931 SOUTHERN CALIFORNIA Pine Avenue 5,936,948 2,158,423 8,887,744 11,046,167 205,027 The Grand Resort - 8,884,151 35,706,606 44,590,757 592,157 Grand Terrace - 2,144,340 6,594,615 8,738,955 1,106,879 Windward Point - 1,767,970 7,117,879 8,885,849 209,105 Rancho Vallecitos - 3,302,967 10,877,286 14,180,254 307,466 <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------------ Depreciable Land and Buildings Total Life of Land and Carrying Accumulated Date of Date Building Improvements Improvements Value (d) Depreciation Construction Acquired Component (e) -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Stonegate 882,503 8,480,611 9,363,114 962,027 1978 03/27/98 35 Years Finisterra 1,323,764 26,649,641 27,973,405 2,609,099 1997 03/27/98 35 Years La Privada 7,837,148 19,748,581 27,585,729 2,123,550 1987 03/27/98 35 Years Terracina 4,518,578 39,652,018 44,170,597 4,269,616 1984 05/28/98 35 Years Woodland Park 3,224,377 7,408,755 10,633,132 949,074 1979 06/09/98 35 Years Sierra Foothills 2,790,490 18,732,306 21,522,796 3,361,015 1998 02/18/98 35 Years FORT WORTH-ARLINGTON TEXAS Autumnwood 2,651,258 9,364,432 12,015,690 1,529,956 1984 12/31/96 35 Years Cobblestone 3,133,873 12,214,969 15,348,842 1,981,408 1984 12/31/96 35 Years Pavillion 4,636,529 19,841,408 24,477,937 2,920,587 1979 12/31/96 35 Years Oak Park 4,819,330 20,988,942 25,808,271 3,487,599 1982/98 12/31/96 35 Years Southern Oaks 1,611,548 6,043,043 7,654,590 1,016,813 1982 12/31/96 35 Years Hunter's Ridge 1,804,518 6,436,124 8,240,643 1,083,635 1992 12/31/96 35 Years Parc Plaza 2,105,315 6,196,395 8,301,710 1,007,442 1986 10/30/97 35 Years Summit Ridge 2,185,547 7,215,071 9,400,618 1,054,202 1983 03/27/98 35 Years Greenwood Creek 2,112,719 9,524,349 11,637,068 1,127,923 1984 03/27/98 35 Years Derby Park 3,516,461 12,143,553 15,660,014 1,636,578 1984 03/27/98 35 Years Aspen Court 1,064,382 5,436,185 6,500,566 664,644 1986 03/27/98 35 Years SAN ANTONIO Promontory Pointe 7,799,506 30,232,160 38,031,666 4,623,781 1997 12/31/96 35 Years The Bluffs 2,083,860 8,056,806 10,140,666 1,587,336 1978 12/31/96 35 Years Ashley Oaks 4,682,717 17,188,767 21,871,484 2,467,545 1993 12/31/96 35 Years Sunflower 2,323,773 8,358,488 10,682,262 1,338,170 1980 12/31/96 35 Years Escalante 2,740,785 25,576,804 28,316,589 863,882 1986/2000 04/16/98 35 Years Cimarron City 584,930 5,120,979 5,705,909 534,650 1983 04/16/98 35 Years Kenton 2,446,157 10,492,755 12,938,912 1,131,061 1983 04/16/98 35 Years Peppermill 938,875 8,741,998 9,680,873 1,014,174 1984 04/16/98 35 Years Sunset Canyon 3,554,592 14,097,108 17,651,701 1,752,202 1984 04/16/98 35 Years Audubon 1,014,250 8,070,314 9,084,564 1,064,677 1985 04/16/98 35 Years Grand Cypress 797,794 9,506,858 10,304,653 969,564 1995 04/16/98 35 Years Inn @ Los Patios 3,005,300 10,055,213 13,060,513 819,281 1990 08/15/98 35 Years SAN FRANCISO-SAN JOSE, CA 2000 Post Street 9,914,645 44,942,195 54,856,841 2,402,441 1987 12/07/98 35 Years Birch Creek 4,606,705 17,397,147 22,003,852 1,184,643 1968 12/07/98 35 Years Highlands Of Marin 6,072,433 25,276,906 31,349,339 1,534,986 1991 12/07/98 35 Years Marina Playa 6,438,679 24,813,419 31,252,098 1,732,828 1971 12/07/98 35 Years MONTEREY PENINSULA SALINAS Boronda Manor 1,960,729 9,127,883 11,088,612 545,192 1979 12/07/98 35 Years Garden Court 891,220 4,281,331 5,172,551 261,684 1973 12/07/98 35 Years Glenridge 415,744 1,975,771 2,391,515 84,998 1989 12/07/98 35 Years Harding Park Townhomes 553,422 2,090,508 2,643,930 145,868 1984 12/07/98 35 Years Cambridge Court 2,073,342 9,530,771 11,604,113 623,208 1974 12/07/98 35 Years Laurel Tree 1,311,767 5,194,391 6,506,158 372,825 1977 12/07/98 35 Years Pine Grove 1,387,287 5,835,471 7,222,758 365,774 1963 12/07/98 35 Years Santanna 958,195 4,097,925 5,056,120 258,888 1989 12/07/98 35 Years The CaprI 1,018,544 3,667,843 4,686,387 273,774 1973 12/07/98 35 Years The Pointe At Harden Ranch 6,407,856 24,252,278 30,660,134 1,705,826 1986 12/07/98 35 Years The Pointe At Northridge 2,052,115 8,196,892 10,249,007 565,569 1979 12/07/98 35 Years The Pointe At Westlake 1,330,060 5,429,939 6,759,999 370,779 1975 12/07/98 35 Years SOUTHERN CALIFORNIA Pine Avenue 2,165,035 9,086,159 11,251,194 590,361 1987 12/07/98 35 Years The Grand Resort 8,929,646 36,253,268 45,182,914 2,624,356 1971 12/07/98 35 Years Grand Terrace 2,225,774 7,620,061 9,845,834 399,479 1986 06/30/99 35 Years Windward Point 1,797,416 7,297,537 9,094,954 484,513 1983 12/07/98 35 Years Rancho Vallecitos 3,359,502 11,128,217 14,487,719 2,652,866 1988 10/13/99 35 Years </TABLE>
<TABLE> <CAPTION> Initial Costs Total ------------------------------------------ Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> SEATTLE-BELLEVUE-EVERETT, WA Arbor Terrace 7,310,472 1,453,342 11,994,972 13,448,314 Crowne Pointe 4,849,763 2,486,252 6,437,256 8,923,508 Hilltop 4,500,269 2,173,969 7,407,628 9,581,597 OTHER MARKETS Pecan Grove, Austin, TX - 1,406,750 5,293,250 6,700,000 Anderson Mill, Austin, TX - 3,134,669 11,170,376 14,305,045 Turtle Creek, Little Rock, AR - 1,913,177 7,086,823 9,000,000 Shadow Lake, Little Rock, AR - 2,523,670 8,976,330 11,500,000 Desert Springs, Tuscon, AZ 4,503,289 1,118,402 7,094,431 8,212,833 Posada Del Rio, Tucson, AZ - 843,748 4,288,097 5,131,845 Sunset Point, Las Vegas., NV - 4,295,050 15,704,950 20,000,000 Alvarado, Albuquerque, NM - 1,930,229 5,969,771 7,900,000 Dorado Heights, Albuquerque, NM 5,094,107 1,567,762 6,555,395 8,123,157 Greensview, Aurora, CO - 2,974,024 12,489,598 15,463,622 Mountain View, Aurora, CO - 6,401,851 21,569,403 27,971,254 Lancaster Commons, Salem, OR - 2,485,291 7,451,165 9,936,456 Tualatin Heights, Tualatin, OR 8,815,206 3,272,585 9,134,089 12,406,674 University Park, Portland, OR - 3,007,202 8,191,307 11,198,509 Evergreen Park Apartments, Vancouver, WA 5,221,064 3,878,138 9,973,051 13,851,189 Aspen Creek, Puyallup, WA 6,911,618 1,177,714 9,115,789 10,293,503 Beaumont, Tacoma, WA 10,029,283 2,339,132 12,559,224 14,898,356 Campus Commons North, Pullman, WA 6,395,923 305,143 9,867,157 10,172,300 Campus Commons South, Pullman, WA 2,789,726 838,324 3,005,784 3,844,108 Foothills Tennis Village, Roseville, CA - 3,617,507 14,542,028 18,159,535 Woodlake Village, Sacramento, CA 16,417,907 6,772,438 26,966,750 33,739,188 Silk Oak, Fresno, CA - 2,324,562 4,566,446 6,891,008 -------------------------------------------------------------------------------- 723,741,843 $ 593,021,296 $ 2,642,956,043 $ 3,235,977,339 ================================================================================ REAL ESTATE UNDER DEVELOPMENT NEW APARTMENT COMMUNITIES Kildaire Farms Land, Cary, NC - 2,846,027 8,520,815 11,366,841 Red Stone Ranch, Cedar Park, TX - 1,896,723 6,699,073 8,595,796 ADDITIONS TO EXISTING COMMUNITIES Meridian II, Carrollton, TX - 1,547,129 1,111,644 2,658,773 Manor At England Run III, Fredericksburg, VA - - 369,673 369,673 Greensview Phase II, Aurora, CO - 540,915 2,654,551 3,195,466 LAND HELD FOR FUTURE DEVELOPMENT - 33,632,506 - 33,632,506 -------------------------------------------------------------------------------- $ - $ 40,463,300 $ 19,355,756 $ 59,819,056 ================================================================================ COMMERCIAL PROPERTY Richmond Corporate - 245,332 6,351,847 6,597,179 COMMERCIAL PROPERTY HELD FOR DISPOSITION Hanover Village, Richmond, VA - 1,623,910 - 1,623,910 Gloucester Exchange, Gloucester, VA - 403,688 2,278,553 2,682,241 Tri-County, Bristol, TN - 275,580 900,281 1,175,861 Pacific South Center, Seattle, WA 3,323,349 1,000,000 4,000,000 5,000,000 APARTMENTS HELD FOR DISPOSITION Twin Coves, Glen Burnie, MD 3,506,254 912,771 2,904,304 3,817,075 -------------------------------------------------------------------------------- $ 6,829,603 $ 4,461,281 $ 16,434,985 $ 20,896,266 ================================================================================ TOTAL REAL ESTATE OWNED $ 866,114,652 $ 637,945,877 $ 2,678,746,784 $ 3,316,692,661 ================================================================================ <CAPTION> Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period ------------------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> SEATTLE-BELLEVUE-EVERETT, WA Arbor Terrace 500,291 1,478,876 12,469,729 13,948,605 Crowne Pointe 696,326 2,513,293 7,106,541 9,619,834 Hilltop 322,600 2,240,945 7,663,252 9,904,197 OTHER MARKETS Pecan Grove, Austin, TX 361,436 1,454,170 5,607,266 7,061,436 Anderson Mill, Austin, TX 2,804,234 3,468,727 13,640,552 17,109,279 Turtle Creek, Little Rock, AR 914,589 2,185,212 7,729,378 9,914,589 Shadow Lake, Little Rock, AR 1,220,904 2,743,019 9,977,885 12,720,904 Desert Springs, Tuscon, AZ 572,830 1,133,669 7,651,994 8,785,663 Posada Del Rio, Tucson, AZ (390,935) 938,382 3,802,529 4,740,910 Sunset Point, Las Vegas., NV 1,117,716 4,443,738 16,673,978 21,117,716 Alvarado, Albuquerque, NM 477,067 1,968,286 6,408,781 8,377,067 Dorado Heights, Albuquerque, NM 534,807 1,626,546 7,031,418 8,657,964 Greensview, Aurora, CO 415,868 2,450,457 13,429,033 15,879,490 Mountain View, Aurora, CO 1,028,829 6,268,502 22,731,581 29,000,083 Lancaster Commons, Salem, OR 266,092 2,504,452 7,698,096 10,202,548 Tualatin Heights, Tualatin, OR 636,663 3,368,922 9,674,414 13,043,337 University Park, Portland, OR 251,868 3,012,564 8,437,813 11,450,377 Evergreen Park Apartments, Vancouver, WA 487,162 3,911,688 10,426,663 14,338,351 Aspen Creek, Puyallup, WA 210,308 1,262,651 9,241,160 10,503,811 Beaumont, Tacoma, WA 269,726 2,378,591 12,789,491 15,168,082 Campus Commons North, Pullman, WA (1,833,580) 328,100 8,010,620 8,338,720 Campus Commons South, Pullman, WA (615,842) 895,743 2,332,524 3,228,266 Foothills Tennis Village, Roseville, CA 382,482 3,698,804 14,843,214 18,542,017 Woodlake Village, Sacramento, CA 1,068,668 6,945,744 27,862,112 34,807,856 Silk Oak, Fresno, CA 188,467 2,365,843 4,713,631 7,079,475 --------------------------------------------------------------------------------- $ 516,133,397 $ 667,754,240 $ 3,084,357,496 $ 3,752,110,736 ================================================================================= REAL ESTATE UNDER DEVELOPMENT NEW APARTMENT COMMUNITIES Kildaire Farms Land, Cary, NC - 2,846,027 8,520,815 11,366,841 Red Stone Ranch, Cedar Park, TX - 1,896,723 6,699,073 8,595,796 ADDITIONS TO EXISTING COMMUNITIES Meridian II, Carrollton, TX - 1,547,129 1,111,644 2,658,773 Manor At England Run III, Fredericksburg, VA 548,058 541,667 376,064 917,731 Greensview Phase II, Aurora, CO - 540,915 2,654,551 3,195,466 LAND HELD FOR FUTURE DEVELOPMENT - 33,632,506 - 33,632,506 --------------------------------------------------------------------------------- $ 548,058 $ 41,004,967 $ 19,362,147 $ 60,367,114 ================================================================================= COMMERCIAL PROPERTY Richmond Corporate 265,542 248,554 6,614,167 6,862,721 COMMERCIAL PROPERTY HELD FOR DISPOSITION Hanover Village, Richmond, VA - 1,103,600 520,310 1,623,910 Gloucester Exchange, Gloucester, VA 513,391 602,442 2,593,190 3,195,632 Tri-County, Bristol, TN 1,280,670 364,123 2,092,408 2,456,531 Pacific South Center, Seattle, WA 7,772 1,000,000 4,007,772 5,007,772 APARTMENTS HELD FOR DISPOSITION Twin Coves, Glen Burnie, MD 878,599 1,025,146 3,670,528 4,695,674 --------------------------------------------------------------------------------- $ 2,945,975 $ 4,343,864 $ 19,498,376 $ 23,842,241 ================================================================================= TOTAL REAL ESTATE OWNED $ 519,627,429 $ 713,103,071 $ 3,123,218,020 $ 3,836,320,090 ================================================================================= <CAPTION> Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) --------------------------------------------------------------------------- <S> <C> <C> <C> <C> SEATTLE-BELLEVUE-EVERETT, WA Arbor Terrace 1,362,540 1996 03/27/98 35 Years Crowne Pointe 715,809 1987 12/07/98 35 Years Hilltop 615,624 1985 12/07/98 35 Years OTHER MARKETS Pecan Grove, Austin, TX 748,248 1984 12/31/96 35 Years Anderson Mill, Austin, TX 2,722,711 1984 03/27/97 35 Years Turtle Creek, Little Rock, AR 1,273,301 1985 12/31/96 35 Years Shadow Lake, Little Rock, AR 1,679,685 1984 12/31/96 35 Years Desert Springs, Tuscon, AZ 773,792 1985 03/27/98 35 Years Posada Del Rio, Tucson, AZ 525,779 1980 03/27/98 35 Years Sunset Point, Las Vegas., NV 2,417,657 1990 12/31/96 35 Years Alvarado, Albuquerque, NM 1,039,555 1984 12/31/96 35 Years Dorado Heights, Albuquerque, NM 755,411 1986 03/27/98 35 Years Greensview, Aurora, CO 859,321 1987 12/07/98 35 Years Mountain View, Aurora, CO 1,857,474 1973 12/07/98 35 Years Lancaster Commons, Salem, OR 732,532 1992 12/07/98 35 Years Tualatin Heights, Tualatin, OR 930,089 1989 12/07/98 35 Years University Park, Portland, OR 778,197 1987 03/27/98 35 Years Evergreen Park Apartments, Vancouver, WA 1,106,331 1988 03/27/98 35 Years Aspen Creek, Puyallup, WA 684,955 1996 12/07/98 35 Years Beaumont, Tacoma, WA 1,366,911 1996 06/14/00 35 Years Campus Commons North, Pullman, WA 1,323,144 1972 03/27/98 35 Years Campus Commons South, Pullman, WA 173,657 1972 03/27/98 35 Years Foothills Tennis Village, Roseville, CA 986,712 1988 12/07/98 35 Years Woodlake Village, Sacramento, CA 1,953,472 1979 12/07/98 35 Years Silk Oak, Fresno, CA 687,450 1985 12/07/98 35 Years ------------------- $ 506,838,438 =================== REAL ESTATE UNDER DEVELOPMENT NEW APARTMENT COMMUNITIES Kildaire Farms Land, Cary, NC - 2000 05/25/00 Red Stone Ranch, Cedar Park, TX - 2000 06/14/00 ADDITIONS TO EXISTING COMMUNITIES Meridian II, Carrollton, TX - 2000 01/27/98 Manor At England Run III, Fredericksburg, VA - 2000 05/04/95 Greensview Phase II, Aurora, CO (849) 2000 12/07/98 LAND HELD FOR FUTURE DEVELOPMENT 962 - - ------------------- $ 114 =================== COMMERCIAL PROPERTY Richmond Corporate 33,177 1999 11/30/99 35 Years COMMERCIAL PROPERTY HELD FOR DISPOSITION Hanover Village, Richmond, VA - - 06/30/86 35 Years Gloucester Exchange, Gloucester, VA 764,072 1974 11/12/87 35 Years Tri-County, Bristol, TN 733,831 1976/79 01/21/81 35 Years Pacific South Center, Seattle, WA 227 1965 08/28/86 35 Years APARTMENTS HELD FOR DISPOSITION Twin Coves, Glen Burnie, MD 1,035,753 1974 08/16/94 35 Years ------------------- $ 2,567,060 =================== TOTAL REAL ESTATE OWNED $ 509,405,611 =================== </TABLE>
SCHEDULE III Summary of Real Estate Owned (a) There are 88 communities encumbererd by fixed rate debt aggregating $723.7 million. The amount of this debt is included in the encumbrances shown for the individual markets. There are 27 communities encumbered by fixed rate debt aggregating $135.5 million that is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (b) Includes a fair market value adjustment of $10.2 milion. (c) Includes a purchase price reallocation of $8.5 million. (d) The aggregate cost for federal income tax purposes was approximately $3.0 billion at December 31, 2000. (e) The depreciable life for all buildings is 35 years.