UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-10524 UNITED DOMINION REALTY TRUST, INC. (Exact name of registrant as specified in its charter) Virginia 54-0857512 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 10 South Sixth Street, Richmond, Virginia 23219-3802 (Address of principal executive offices - zip code) (804) 780-2691 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: <TABLE> <CAPTION> Title of each class Name of exchange on which registered - - ------------------- ------------------------------------- <S> <C> Common Stock, $1 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 9.25% Series A Cumulative Redeemable Preferred Stock New York Stock Exchange 8.60% Series B Cumulative Redeemable Preferred Stock New York Stock Exchange 7.50% Series D Cumulative Convertible Redeemable Preferred Stock None </TABLE> Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days. Yes X No Indicate by check mark if the 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 information statements incorporated by reference into Part III of this Form 10-K ( ). The aggregate market value of the shares of common stock held by non-affiliates (based upon the closing sales price on the New York Stock Exchange) on March 2, 1999 was approximately $1 billion. * As of March 2, 1999 there were 104,060,609 shares of common stock, $1 par value, outstanding. Part III incorporates certain information be reference from the Proxy Statement to be filed with respect to the Annual Meeting of Shareholders on May 11, 1999. *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 PAGE ---- 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 17 Stockholder Matters Item 6. Selected Financial Data 19 Item 7. Management's Discussion and Analysis of Financial 21 Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 37 Item 9. Changes in and Disagreements with Accountants on 37 Accounting and Financial Disclosure PART III. Item 10. Directors and Executive Officers of the Registrant 38 Item 11. Executive Compensation 38 Item 12. Security Ownership of Certain Beneficial Owners and 38 Management Item 13. Certain Relationships and Related Transactions 38 PART IV. Item 14. Exhibits, Financial Statement Schedule, and 39 Reports on Form 8-K 2
Part I Item 1. BUSINESS The Company General United Dominion Realty Trust, Inc., a Virginia corporation, (collectively with its subsidiaries, the Company), is a self-administered equity real estate investment trust ("REIT"), that operates within one defined business segment as a fully integrated owner, operator, renovator and developer of apartment communities located nationwide. Formed in 1972, the Company is headquartered in Richmond, Virginia with regional offices in Richmond, Dallas and Atlanta. In addition, the Company has area offices in the previously mentioned cities plus Orlando, Raleigh, Charlotte, Tampa, Houston, San Francisco and Phoenix. The regional offices are responsible for the operation, acquisition, construction and asset management activities in their respective geographic regions. The Company had approximately 2,700 employees as of March 15, 1999. The Company manages its properties directly, rather than through outside property management firms. During 1998, the cost of internal property management of the Company's communities totaled 3.5% of rental revenue. In determining its cost of self management, the Company considers all direct and indirect costs associated with the internal property management function. The Company operates as a real estate investment trust under the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the Company must meet certain tests which, among other things, require that its assets consist primarily of real estate, its income be derived primarily from real estate and at least 95% of its taxable income be distributed to its common shareholders. Because the Company qualifies as a REIT, it is generally not subject to federal income taxes. Apartments and Markets At December 31, 1998, the Company's apartment portfolio included 326 communities having a total of 86,893 completed apartment homes (See Item 2, Properties.). The Company had eight communities and two additional phases to existing communities with 1,946 apartment homes under development at December 31, 1998. The apartment community is the Company's basic business unit and is staffed with well trained property management personnel. The communities have a community director, leasing assistants and a maintenance staff who oversee the daily operation of the communities. Other than Dallas, Texas where 9.5% of the Company's apartment homes are located, no other market has more than 5% of the Company's apartment homes. The Company's apartment communities consist primarily of upper middle to moderate income garden and townhouse communities which make up the broadest segment of the apartment market. Most of the communities are considered to be "B" grade quality although the Company does own class A properties that compete at or near the top of their respective markets. "B" grade communities are generally either of 1980's construction, located in good neighborhoods or 1970's construction in good neighborhoods where the apartments have been, or can be, significantly upgraded and repositioned. Management believes that these well located apartments offer the Company a good combination of current income and longer-term income growth. Management's strategy is to be a national, highly efficient provider of quality apartment homes with meaningful size in approximately 35 growth markets. Geographic market diversification is important as it balances the portfolio performance and makes the Company less vunerable to cyclical real estate cycles and economies in a specific market. In a given year, the Company will have some markets that are strong or recovering, some will be balanced and others may be softening. However, with its market diversification, the Company's aggregate results of operations are anticipated to be balanced year to year. 3
Physical occupancy at the Company's apartment communities averaged 91.9% for December 1996 and bottomed out in January 1997 at 91.6%. Occupancy grew steadily throughout 1997 as these markets began to recover, and by December 1997, physical occupancy had increased to 92.6%, one full basis point above the beginning of the year. In 1997, the increased supply led to softness in certain of the Company's southeastern markets, however, supply and demand in the Company's markets are generally in equilibrium. During 1998, physical occupancy of 92.9% was the same as 1997. In 1998, the Company's best performing markets were also its largest: Dallas, Houston and Orlando. The Company experienced improvements in markets that were weak in 1997, including Baltimore, Washington, Atlanta and Jacksonville. Greenville, Greensboro and Albuquerque continued to be soft. During 1998, apartment supply and demand are in relative balance in most of the Company's markets. Although there was an increase in apartment construction in 1997 and 1998, a strong economy led to good absorption of the new supply of apartments. Apartment supply and demand are in relative balance in most of the Company's major markets. During 1999, the Company anticipates some slowdown in economic growth and a slight increase in apartment completions which is expected to result in a modest decline in physical occupancy and slightly lower rent growth. Although there is no known move toward rent control in any of the markets in which the Company currently owns apartments, the Company's ability to raise rents to cover increases in operating expenses might be impaired should rent control legislation be enacted. As the Company has expanded, attempts have been made to avoid markets where the exposure to reduced defense spending is believed to be high. Business and Operating Strategies The Company seeks to increase shareholder value by (i) generating growth in the operating results of its existing communities, (ii) acquiring communities that will provide a good long-term investment, (iii) developing communities in its existing markets which provide above market yields, (iv) selling communities that no longer meet its investment criteria and (v) financing its activities at the lowest possible cost of capital. The apartment sector has become increasingly competitive, as ownership has shifted to large companies with more resources and sophisticated management. In order to compete more effectively, the Company began a strategic repositioning in 1996, with the objective of being better positioned to achieve more consistent earnings growth in the future. The repositioning included expanding geographically, upgrading the quality of its apartment portfolio through the sale of non-strategic assets and the upgrade of its existing portfolio and investing in scalable management systems. The key elements of the Company's strategic repositioning included: (i) investing in property upgrades, including revenue-enhancing improvements, (ii) establishing a development pipeline, (iii) selling non-strategic properties and reinvesting the proceeds in newer communities with more growth potential, (iv) investing in scalable infrastructure, primarily in the form of people and technology and (v) expanding into new markets in new regions of the country. The Company believes that the repositioning strategy provides the following benefits: o More stable operating growth o Lower capital expenditures per apartment home o Improved operating margins o A balance between acquisitions and development that will provide better investment returns o Lower general and administrative costs as a percentage of rental income o Increased productivity Acquisitions The Company seeks to acquire communities in individual and portfolio transactions that can provide returns on investment (property rental income less property operating expenses divided by the average capital investment in real estate) substantially in excess of the Company's cost of capital by the third year of ownership. During 1998, the Company continued added size to its existing markets where it was under-invested. During 1998, the Company acquired 24 communities, in individual and portfolio transactions, containing 6,959 apartment homes (excluding ASR Investments Corporation ("ASR") and American Apartment Communities II, Inc. ("AAC") at a total cost (including closing costs) of $314.7 million or $45,200 per home. When evaluating potential acquisitions, the Company considers, among other things: (i) the geographic location, (ii) construction quality, condition and design of the community, (iii) asset quality and age of the property, (iv) current and projected cash flow of the property, (v) the ability to increase the value and cash flow of the property through upgrades and repositioning, (vi) potential for rent increases, (vii) competition from existing multi-family communities, (viii) anticipated new construction and (ix) the potential for economic growth in the market. 4
The following table summarizes the Company's growth during the last five years (dollars in thousands): <TABLE> <CAPTION> 1998 (a) 1997 1996 (b) 1995 1994 -------- ---- -------- ---- ------ <S> <C> <C> <C> <C> <C> Homes acquired 28,510 8,628 22,032 5,142 11,368 Homes owned at December 31, 86,893 62,789 55,664 34,224 29,282 Total real estate owned, at cost $3,916,785 $2,472,537 $2,085,023 $1,182,113 $1,007,599 Total rental income $ 478,718 $ 386,672 $ 241,260 $ 194,511 $ 139,380 </TABLE> (a) Includes 7,550 apartment homes acquired in the ASR Merger on March 27, 1998 and 14,001 apartment homes acquired in the AAC Merger on December 7, 1998. (b) Includes 14,320 completed apartment homes and 675 homes under development acquired in connection with the South West Property Trust Inc. Merger on December 31, 1996. During 1999, the Company does not anticipate acquiring communities except to reinvest a portion of the proceeds from property sales. Mergers Prior to 1990, the Company was the only major publicly held REIT focusing predominantly on apartment investments. Since then, a number of new multi-family REITs have been formed. Some of these REITs may seek to be acquired by larger, more strongly capitalized REITs that have superior access to the capital markets. During the past few years, the apartment sector has undergone consolidation and the Company has been a major participant in this real estate consolidation process, completing the following mergers: On December 31, 1996, The Company completed the acquisition of South West Property Trust Inc. ("South West") in a statutory merger (the "South West Merger"). South West was a publicly traded multifamily REIT that owned 44 communities with 14,320 apartment homes primarily located in Texas and several other Southwestern markets. The South West Merger provided the Company with significant diversification beyond its traditional Southeast and Mid-Atlantic markets, expanding the Company into Southwestern markets. On March 27, 1998, the Company completed the acquisition of ASR Investments Corporation ("ASR") in a statutory merger (the "ASR Merger"). ASR was a publicly traded multifamily REIT that owned 39 communities with 7,550 apartment homes located in Arizona, Texas, New Mexico and the state of Washington. The ASR Merger furthered the Company's investment in Southwestern markets, provided an initial presence in the Pacific Northwest, and provided the Company with critical size in Houston and Phoenix. On December 7, 1998, the Company 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 the Company to enter into new major markets that are believed to have the potential for good long-term growth, such as, Portland, San Francisco, Sacramento, San Jose, Monterey, Los Angeles, Denver, Indianapolis and Detroit. In addition, it added size to our existing portfolios in Columbus, Tampa, South Florida and Seattle. 5
Real estate under development Development activity is focused in certain of the Company's major markets. With acquisition costs approaching replacement cost and the spreads over the Company's cost of capital narrowing, building in selected markets enables the Company to increase its return on investment. In determining whether to develop in a certain market, the Company considers among other things, the following: (i) income levels and employment growth, (ii) location, (iii) barriers to entry that would limit competition, (iii) demographic information such as expected household growth, (iv) supply/demand ratio and competition among other apartment communities or housing alternatives and (v) pricing and yields on acquisition properties relative to development properties. During 1998, the Company increased is commitment to development as part of its strategic repositioning, investing $97.2 million on development projects which included eight new communities, four additional phases to existing communities and nine parcels of undeveloped land. The Company plans to invest approximately $150 million on development, including communities currently under development plus six new starts during the year. These communities are anticipated to provide stabilized returns on investment in excess of 10%. The Company believes that having a development capability provides the following benefits: (i) returns on investment in excess of returns on acquisitions, (ii) control over the quality of the product which includes quality of features, size and floor plan, (iii) ability to add presence in existing markets and (iv) a new, high quality community that requires no material capital expenditures for five years. Same Communities The Company's net income is primarily generated from the operations of its apartment communities. During 1998, the Company's same communities (those communities acquired, developed and stabilized prior to January 1, 1997 and held throughout the annual reporting period) consisted of 180 communities containing 47,875 apartment homes. These same communities provided rental growth of 3.3% which was coupled with a .3% decrease in rental expenses. Average physical occupancy and rental rates at the Company's same communities during the comparable periods are set forth below: 1998 1997 1996 ---- ---- ---- Physical occupancy 92.9% 92.9% 92.6% Average monthly rental rates $602 $582 $572 The Company's strategic objectives include upgrading the apartment portfolio through the addition of features and initiatives to the communities that are appropriate for the market and which will support higher rents. Value enhancing improvements plus improvements that substantially extend the useful life of an existing asset are capitalized. A significant portion of the Company's capital expenditures relate to an upgrade and repositioning program that began in 1996. The Company recognized the need to improve its asset quality in order to compete with an increase in the supply of newer communities, and consequently, embarked on the upgrade program. In addition, several initiatives which are considered revenue enhancing or expense reducing are underway that either allow the Company to increase rents by more than the inflationary rate or allow the Company to pass expenses to residents including: (i) sub-metering of water and sewer to residents where local and state regulations allow, (ii) gating and fencing of apartment communities, (iii) installing monitoring devices such as intrusion alarms or controlled access devices, (iv) adding business and fitness centers and (v) constructing carports, garages and self storage units. Sales The Company continually undertakes portfolio review analysis with the objective of identifying communities that do not meet the Company's long-term investment objectives. When determining whether to dispose of communities, the Company considers the following factors: (i) size, location, asset quality and age of the community, (ii) current operating performance of the community, (iii) markets where the economy is not expected to be strong over the long-term and (iv) markets where the Company does not intend to establish a long-term concentration. These sales allow the Company to reduce the age of its existing portfolio, which should result in lower operating expenses and capital expenditures associated with the older communities and to exit non-core markets. Since 1997, the Company sold 30 communities with 7,888 non-strategic apartment homes (average age of communities sold was 25 years), the net proceeds from which were used to acquire and develop newer communities that will provide higher long-term returns on investment than the communities that are being sold. The Company intends to sell 6,000 to 7,000 apartment homes during 1999 to complete the sale of non-strategic assets, the proceeds from which will be used to fund acquisitions in order to complete tax deferred exchanges, to repay debt and to fund new development. At December 31, 1998, the Company had 26 communities, four commercial properties and one parcel of undeveloped land included in real estate held for disposition. 6
Financing Strategies As a qualified REIT, the Company distributes a substantial portion of its cash flow to its shareholders in the form of distributions. The Company seeks to retain sufficient cash to cover normal operating needs, including routine replacements and to help fund additional acquisitions and development activity. The Company utilizes a variety of primarily external financing sources to fund portfolio growth, major capital improvement programs and balloon debt payments. Bank lines of credit generally have been used to temporarily finance these expenditures, and subsequently this short-term bank debt has been replaced with longer-term debt or equity. The Company may also fund its capital requirements through (i) the assumption of mortgage indebtedness, (ii) property sales, (iii) common shares sold through the Company's Dividend Reinvestment and Stock Purchase Plan, (iv) retained operating cash flow, (v) the issuance of operating partnership units and (vi) the use of unused credit facilities. At December 31, 1998, the Company had the following credit facilities: (i) $200 million three year unsecured revolving credit facility which includes a $100 million competitive bid option which allows the Company to solicit bids from participating banks at rates below the contractual rate, (ii) a $50 million one year unsecured line of credit and (iii) a $15 million uncommitted line of credit with a major U.S. financial institution. At December 31, 1998, the Company had $240 million of borrowings outstanding under these credit facilities. During 1998, the Company completed the following financing activities: (i) issued 1.7 million shares of common stock at a gross sales price of $14.31 per share to a Unit Investment Trust (UIT) and 1.1 million shares of common stock at a gross sales price of $14.19 to a second UIT, for net proceeds of $38.0 million, (ii) issued $150 million of 8.125% Notes, (iii) issued $62.5 million of 8.5% Monthly Income Notes, (iv) raised $36.6 million under the Dividend Reinvestment and Stock Purchase Plan, (v) assumed debt of $753.5 million in connection with the acquisition of communities, (vi) issued 8,396,863 Operating Partnership Units valued at $107.3 million in connection with the acquisition of communities, (vii) issued 8,224,090 shares of common stock with an aggregate value of $115.6 million in connection with the acquisition of communities, (viii) issued eight million shares of convertible preferred stock with a fair value of $175 million in connection with the AAC Merger and (ix) had net borrowings under its bank credit facilities of $104.4 million. In January 1999, the Company established a program for the sale of up to $200 million aggregate principal amount of medium-term notes (the "MTN Program"). The Company subsequently sold an aggregate of $150 million of senior unsecured notes under the MTN Program which consisted of the following: (i) $70 million of 7.60% Notes due January 25, 2002, (ii) $58 million of 7.67% Notes due January 26, 2004, (iii) $10 million of variable-rate Notes due January 27, 2003 on which the Company subsequently executed a swap fixing the rate at 7.52% and (iv) $12 million of 7.22% notes due February 19, 2003. Net proceeds from the offerings were used to repay revolving bank debt and prepay mortgage debt. The Company anticipates issuing the remaining $50 million of notes under the MTN Program during the first half of 1999, the net proceeds of which will be used to repay a senior unsecured note maturing in April 1999. The Company is currently negotiating a $130 million five year variable-rate revolving credit agreement ("the Credit Facility") with a lender through which the Company will have access to secured funding through Federal National Mortgage Association. The proceeds from the Credit Facility will be used to repay a $91 million secured credit facility assumed in connection with the AAC transaction and repay unsecured bank debt. Additional features of this Credit Facility may allow the Company to extend the maturity for five or ten years and increase the amount available under the Credit Facility to $200 million. It is anticipated that this Credit Facility will be executed during the first quarter of 1999. 7
Depending on the volume and timing of acquisition activity, the Company anticipates raising additional debt during the next twelve months primarily to refinance debt maturities, however, 1999 acquisition and development activity is expected to be funded primarily with the proceeds from the planned sales of communities. Competition In most of the Company's markets, the competition for residents among communities is extremely intense as some competing communities offer features that the Company's communities do not have. Also, some competing communities are larger and/or newer than the Company's communities. The competitive situation of each community varies and intensifies as additional properties are constructed. When in the market for new acquisitions, the Company competes with numerous other investors, including other REITs, individuals, partnerships, corporations, pension funds, insurance companies, foreign investors and other real estate entities. Although the Company has certain advantages because of its substantial presence in its markets and its access to capital, some competing investors are larger than and may have a competitive advantage over the Company in terms of assets and other investment resources. During 1998, the competition for both single property and portfolio acquisitions intensified which resulted in lower acquisition capitalization rates. Management believes that the Company, in general, is well positioned in terms of economic and other resources to compete effectively and intends to maintain its pricing discipline while continuing to pursue acquisitions that meet the Company's long-term investment objectives. 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 the Company. However, over the past few years, the issue has been raised regarding the presence of asbestos and other hazardous materials in existing real estate properties. In response to this, on March 1, 1991, the Company adopted 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 by the Company and not previously inspected. 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 the Company prior to the purchase or development of any property. Nevertheless, it is possible that the Company's environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist in which the Company is unaware. In some cases, the Company has abandoned otherwise economically attractive acquisitions because the costs of removal or control have been prohibitive and/or the Company has been unwilling to accept the potential risks involved. The Company does not believe it will be required to engage in any large scale abatement at any of its properties as asbestos is managed in place in accordance with current environmental laws and regulations. Management believes that through professional environmental inspections and testing for asbestos and other hazardous materials, coupled with a conservative posture toward accepting known risk, the Company 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 the Company may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities. The Company 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. The Company 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. The Company 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 the Company in the future, the costs of compliance could have a material adverse effect on the Company or its financial condition. To the best of its knowledge, the Company is in compliance with all applicable environmental rules and regulations. 8
Operating Partnership - United Dominion Realty Trust, L.P. On October 23, 1995, the Company organized United Dominion Realty, L.P. (the "Partnership") under the Virginia Revised Uniform Limited Partnership Act, as amended (the "Partnership Act"). The Company is the sole General Partner of the Partnership and currently holds a 79.8% interest. The Partnership is intended to assist the Company in competing for the acquisition of properties that meet the Company's investment strategies from seller partnerships, some or all of whose partners may wish to defer taxation of gain realized on sale through an exchange of partnership interests. The Partnership was organized under a First Amended and Restated Agreement of Limited Partnership dated as of December 31, 1995 which was subsequently amended in the Second Amended and Restated Agreement of Limited Partnership dated as of August 30, 1997 and later amended by the Third Amended and Restated Agreement of Limited Partnership dated as of December 7, 1998 (the "Partnership Agreement"). A summary of certain provisions of the Partnership Agreement is set forth below. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to applicable provisions of the Partnership Act and the complete Partnership Agreement. The Partnership Agreement is filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Admission of Limited Partners; Investment Agreements The Company 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 the Company 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 the Company 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, the Company intends to make distributions per Unit in the same amount as the cash dividends paid by the Company 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 the Company 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 the Company 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 the Company for the purpose of equalizing per Unit and per Common share distributions, but neither the Partnership nor the Company 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 the Company 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." 9
Management and Operations The Company, 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 the Company 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 the Company to pay distributions to its shareholders that are required in order to maintain REIT status and to avoid income tax or excise tax liability. Ability to Engage in Other Businesses; Conflicts of Interest The Company and other persons (including officers, directors, employees, agents and other affiliates of the Company) 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. The Company 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 Company, 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 the Company 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. 10
The Partnership Agreement also provides for indemnification of the General Partner, the directors, officers and employees of the General Partner, and such other persons as the General Partner may from time to time designate, against any and all losses, claims, damages, liabilities (joint or several), expenses (including reasonable legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that relate to the operations of the Partnership in which any such indemnitee may be involved, or is threatened to be involved, unless it is established that (i) the act or omission of such indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) such indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, such indemnitee had reasonable cause to believe that the act or omission was unlawful. Sale of Assets; Merger Under the Partnership Agreement, the General Partner generally has the exclusive authority to determine whether, when and on what terms the assets of the Partnership will be sold or on which the Partnership will merge or consolidate with another entity. Removal of the General Partner; Transfer of General Partner's Interest The Partnership Agreement does not authorize the Limited Partners to remove the General Partner and the Limited Partners have no right to remove the General Partner under the Partnership Act. The General Partner may not transfer any of its interest as General Partner and withdraw as General Partner, except (a) to a wholly-owned subsidiary of the General Partner or the owner of all the ownership interests in the General Partner, (b) in connection with a merger or sale of all or substantially all of the assets of the General Partner or (c) as a result of the bankruptcy of the General Partner. A substitute or additional General Partner may be admitted upon compliance with the applicable provisions of the Partnership Agreement, including delivery by counsel for the Partnership of an opinion that admission of such General Partner will not cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes or (ii) the loss of any Limited Partner's limited liability. The General Partner may not sell all or substantially all of its assets, or enter into a merger, unless the sale or merger includes the sale of all or substantially all of the assets of, or the merger of, the Partnership and the Limited Partners receive for each Unit substantially the same consideration as the holder of one share of Common Stock. Transferability of Interests A Limited Partner generally may not transfer his interest in the Partnership without the consent of the General Partner which may be withheld at its absolute discretion. The General Partner may require, as a condition of any transfer, that the transferring Limited Partner assume all costs incurred by the Partnership in connection with such a transfer. Redemption Rights Each Limited Partner has the right (the "Redemption Right"), subject to the purchase right of the General Partner described below, to cause the redemption of such Limited Partner's Units for cash in an amount per Unit equal to the average of the closing sale prices of the Common Stock of the Company 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. 11
No Withdrawal of Capital by Limited Partners No Limited Partner has the right to withdraw any part of his capital contribution to the Partnership or interest thereon or to receive any distribution, except as provided in the Partnership Agreement. Issuance of Additional Limited Partnership Interests and Other Partnership Securities The General Partner is authorized, without the consent of the Limited Partners, to cause the Partnership to issue additional Units or other Partnership securities to the partners or to other persons on such terms and conditions and for such consideration, including cash or any property or other assets permitted by the Partnership Act, as the General Partner deems appropriate. Meetings The Partnership Agreement does not provide for annual meetings of the Limited Partners, and the General Partner does not anticipate calling such meetings. Amendment of Partnership Agreement Amendments to the Partnership Agreement may, with four exceptions, be made by the General Partner without the consent of the Limited Partners. Any amendment to the Partnership Agreement which would (i) affect the Conversion Factor or the Redemption Rights of the Limited Partners, (ii) adversely affect the rights of the Limited Partners to receive distributions payable to them under the Partnership Agreement, or (iii) alter the Partnership's profit and loss allocations shall require the consent of Limited Partners. Any amendment that would impose any obligation upon the Limited Partners to make additional capital contributions to the Partnership shall require the consent of each Limited Partner owning more than 50% of the percentage interests in the Partnership. Books and Reports The General Partner is required to keep at the specified office of the Partnership the Partnership's books and records, including copies of the Partnership's federal, state and local tax returns, a list of the partners and their last known business addresses, the Partnership Agreement, the Partnership certificate and all amendments thereto and any other documents and information required under the Partnership Act. Any partner or his duly authorized representative, upon paying duplicating, collection and mailing costs, is entitled to inspect or copy such records during ordinary business hours. The General Partner will furnish to each Limited Partner, as soon as practicable after the close of each fiscal year, an annual report containing financial statements of the Partnership (or the Company, 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. 12
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 the Company received in connection with redemption of Units except as provided in their respective Investment Agreements or other agreements with the Company. 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 the Company (or appropriate subsidiary) until the Company has received an amount equal to prior distributions to the outside limited partners, and (iii) third, to the outside limited partners and the Company (or the appropriate subsidiary) in accordance with their percentage interests in the Partnership. Also, the amount of cash distributable to a Limited Partner who has not been a Limited Partner for the full quarter for which the distribution is paid is subject to pro rata reduction. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership will be distributed to all Partners with positive capital accounts in accordance with their respective positive capital account balances. If the General Partner has a negative balance in its capital account following a liquidation of the Partnership, it will be obligated to contribute cash to the Partnership equal to the negative balance in its capital account. Term The Partnership will continue until December 31, 2051, or until sooner dissolved upon (i) the bankruptcy, dissolution, death or withdrawal of a General Partner (unless the Limited Partners elect to continue the Partnership by electing by unanimous consent a substitute General Partner within 90 days of such occurrence), (ii) the passage of 90 days after the sale or other disposition of all or substantially all the assets of the Partnership, (iii) the redemption of all Limited Partners' interests in the Partnership or (iv) election by the General Partner. Upon dissolution of the Partnership, the General Partner will proceed to liquidate the assets of the Partnership and distribute the proceeds remaining after payment or adequate provision for payment of all debts and obligations of the Partnership as provided in the Partnership Agreement. 13
Item 2. Properties Real Estate Owned The table below sets forth a summary by major geographic market of the Company's portfolio of apartment communities at December 31, 1998. Included in the table below are (i) 26 apartment communities held for disposition in the amount of $163,366,912, net of accumulated depreciation in the amount of $34,176,249 and (ii) real estate under development which includes eight new communities and two additional phases (excludes land held for future development). At December 31, 1998, the Company also had two shopping centers, three other commercial properties and one parcel of undeveloped land in the consolidated balance sheet classified as real estate held for disposition in the amount of $16,294,529, net of accumulated depreciation in the amount of $1,791,161, which are not included in the table below. 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 Apartment Value Encumbrances Major Geographic Markets Communities Homes Homes (In thousands) (In thousands) - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Dallas, TX 28 8,954 10% $389,202 $49,002 (A) Houston, TX 23 5,927 7% 210,015 65,965 (A) Orlando, FL 12 3,848 4% 177,696 41,630 Phoenix, AZ 8 3,136 4% 177,434 19,931 (A) San Antonio, TX 13 3,840 4% 170,405 38,609 (A) Tampa, FL 11 3,777 4% 162,077 41,067 (A) Raleigh, NC 11 3,484 4% 154,990 16,132 (A) San Francisco, CA 4 980 1% 128,754 70,086 Nashville, TN 10 2,776 3% 123,343 5,081 Charlotte, NC 11 2,566 3% 122,009 22,772 (A) Richmond, VA 10 3,091 4% 114,880 3,034 Columbia, SC 11 3,326 4% 113,633 28,639 Columbus, OH 7 1,972 2% 110,996 34,981 (A) Eastern NC 10 2,710 3% 110,189 10,127 Monterey Peninsula, CA 16 2,076 2% 105,970 (A) Memphis, TN 7 2,206 3% 103,851 43,412 Greensboro, NC 8 2,123 3% 101,521 4,145 (A) Other Florida 8 1,722 2% 81,280 -- Miami/Ft Lauderdale, FL 5 1,280 1% 80,473 -- Baltimore, MD 8 1,746 2% 79,665 29,755 Atlanta, GA 7 1,642 2% 78,195 11,093 Hampton Roads, VA 8 1,830 2% 63,774 3,900 Portland, OR 4 996 1% 59,743 12,745 Washington DC 5 1,113 1% 57,759 5,875 Jacksonville, FL 3 1,157 1% 55,913 12,455 Greenville, SC 6 1,436 2% 53,794 3,265 Los Angeles, CA 2 926 1% 53,387 6,141 Lansing, MI 4 1,227 2% 50,558 (A) Other Virginia 6 1,156 1% 47,739 2,830 Sacramento, CA 2 914 1% 47,549 17,127 (A) Seattle, WA 4 790 1% 46,382 24,367 Denver, CO 2 876 1% 44,195 (A) Other Midwest 5 969 1% 42,321 -- Fayetteville, NC 3 884 1% 40,900 18,453 Detroit, MI 4 744 1% 38,125 (A) Eastern Shore MD 4 784 1% 34,546 -- Indianapolis, IN 3 875 1% 32,663 (A) Tucson, AZ 8 1,112 1% 30,062 15,557 Albuquerque, NM 4 758 1% 29,422 13,704 (A) Other Washington State 2 536 1% 25,264 9,702 Other Texas 3 776 1% 23,352 (A) Austin, TX 2 542 1% 23,315 (A) Other Georgia 2 468 1% 22,401 6,179 Arkansas 2 512 1% 21,897 -- Nevada 1 384 1% 20,551 -- Other California 2 444 1% 18,277 (A) Delaware 2 368 -- 17,672 -- Other South Carolina 2 408 -- 13,471 2,200 Alabama 1 242 -- 11,211 -- Oklahoma 1 316 -- 9,734 (A) Other North Carolina 1 168 -- 7,628 (A) -------------------------------------------------------------------------------------- Total 326 86,893 100% $3,940,183 $1,068,672 -------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Physical Average Monthly Rental Average Cost Occupancy Rates for the Year Ended Unit Size Major Geographic Markets Per Home Full Year 1998 (C) December 31, 1998 (B) (Square Feet) - - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Dallas, TX $43,467 94.4% $606 (D) 801 Houston, TX 35,434 91.9% 540 (D) 825 Orlando, FL 46,179 94.0% 634 953 Phoenix, AZ 56,580 89.7% 661 (D) 891 San Antonio, TX 44,376 92.6% 622 815 Tampa, FL 42,912 94.2% 604 956 Raleigh, NC 44,486 94.1% 660 926 San Francisco, CA 131,382 -- -- (D) 776 Nashville, TN 44,432 91.0% 536 955 Charlotte, NC 47,548 91.0% 659 961 Richmond, VA 37,166 92.7% 610 951 Columbia, SC 34,165 93.5% 514 929 Columbus, OH 56,286 -- -- (D) 870 Eastern NC 40,660 86.8% 569 1,002 Monterey Peninsula, CA 51,045 -- -- (D) 727 Memphis, TN 47,077 90.9% 541 833 Greensboro, NC 47,820 84.8% 615 981 Other Florida 47,201 94.0% 567 826 Miami/Ft Lauderdale, FL 62,870 90.9% 818 1,084 Baltimore, MD 45,627 94.3% 677 869 Atlanta, GA 47,622 93.2% 628 906 Hampton Roads, VA 34,849 92.0% 558 981 Portland, OR 59,983 -- -- (D) 890 Washington DC 51,895 92.8% 755 859 Jacksonville, FL 48,326 91.3% 616 896 Greenville, SC 37,461 87.5% 532 883 Los Angeles, CA 57,653 -- -- (D) 649 Lansing, MI 41,205 -- -- (D) 815 Other Virginia 41,297 87.2% 607 869 Sacramento, CA 52,023 -- -- (D) 820 Seattle, WA 58,711 -- -- (D) 840 Denver, CO 50,451 -- -- (D) 957 Other Midwest 43,675 -- -- (D) 1,004 Fayetteville, NC 46,267 92.6% 568 900 Detroit, MI 51,243 95.0% -- (D) 946 Eastern Shore MD 44,064 97.5% 656 938 Indianapolis, IN 37,329 -- -- (D) 966 Tucson, AZ 27,034 87.7% -- (D) 582 Albuquerque, NM 38,815 78.5% 553 (D) 712 Other Washington State 47,134 68.4% -- (D) 936 Other Texas 30,093 88.7% 526 725 Austin, TX 43,017 92.9% 595 713 Other Georgia 47,865 88.6% 649 1,142 Arkansas 42,768 92.5% 581 821 Nevada 53,518 81.3% 645 839 Other California 41,164 -- -- (D) 1,031 Delaware 48,022 94.0% 616 889 Other South Carolina 33,017 90.9% 427 909 Alabama 46,326 91.8% 516 1,095 Oklahoma 30,804 91.7% 456 756 Other North Carolina 45,405 94.5% 590 836 ---------------------------------------------------------------------------------- Total $45,345 91.7% $602 882 ---------------------------------------------------------------------------------- </TABLE> (A) These communities are encumbered by the following: (i) 23 communities encumbered by two REMIC financings aggregating $75,919,228, (ii) six communities encumbered by one secrued note payable in the amount of $31,700,000, (iii) 24 communities encumbered by two fixed-rate notes payable aggregating $159,732,050 and (iv) 18 communities encumbered by two variable-rate notes payable aggregating $111,360,025. Excludes a $3.5 million mortgage note on one commercial property. (B) Average Monthly Rental Rates for the Year Ended December 31, 1998, represents potential rent collections (gross potential rents less market adjustments), which approximates net effective rents. These amounts exclude the 1998 acquisitions. (C) Physical occupancy for the year excludes the communities acquired on December 7, 1998, in connection with the American Apartment Communities II, Inc. statutory merger ("AAC Merger"). (D) Average Monthly Rental Rates for the year ended December 31, 1998 exclude the 14,001 apartment homes acquired on December 7, 1998 in connection with the AAC Merger and the 7,550 apartment homes acquired on March 27, 1998 in connection with the acquisition of ASR Investments Corporation. These apartment homes are excluded because the results are not meaningful on a yearly comparison as these apartment homes were not owned for a full year. 14
Item 3. LEGAL PROCEEDINGS Neither the Company nor any of its apartment communities is presently subject to any material litigation nor, to the Company's knowledge, is any litigation threatened against the Company or any of the communities, other than routine actions arising in the ordinary course of business. Some of these routine actions are expected to be covered by liability insurance, and none are expected to have a material adverse effect on the business or financial condition or results of operations of the Company. 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 the Company's fiscal year ended December 31, 1998. Executive Officers of the Registrant The executive officers of the Company, listed below, serve in their respective capacities for approximate one year terms. Name Age Office Since - - ---- --- ------ ------ John P. McCann 54 Chairman of the Board 1974 and Chief Executive Officer John S. Schneider 60 Vice-Chairman of the Board, 1996 Chief Operations Officer and President James Dolphin 49 Executive Vice President 1979 and Chief Financial Officer Richard A. Giannotti 43 Senior Vice President and Director 1985 of Development-East
Mark E. Wood 54 Senior Vice President and Director 1996 of Development-West Katheryn E. Surface 40 Senior Vice President, Corporate 1992 Secretary and General Counsel Curt W. Carter 42 Senior Vice President and Director 1985 of Apartment Operations-Northern Region Robert L. Landis 40 Senior Vice President and Director 1996 of Apartment Operations-Western Region Walter J. Lamperski 41 Senior Vice President and Director 1996 of Apartment Operations-Southern Region 15
Mr. McCann has been the Company's managing Chief Executive Officer since 1974. Mr. McCann was elected Chairman of the Board in 1996. Mr. Schneider is the former Chief Executive Officer and Chairman of the Board of South West Property Trust Inc. (South West). Mr. Schneider was employed with the investment banking firm of Donaldson, Lufkin and Jenrette until from 1967 until 1973, when he co-founded a predecessor firm to South West. Mr. Schneider was elected Vice Chairman of the Board and Executive Vice President in 1996 in connection with the merger with South West and President in 1998. Mr. Dolphin was first employed by the Company in 1979 as Controller. He was elected Vice President of Finance in 1985 and has served as the Company's Chief Financial Officer through December 31, 1998. He was elected Senior Vice President in 1987 and Executive Vice President in 1996. Effective at the close of business on December 31, 1998, Mr. Dolphin was no longer employed by the Company. Mr. Giannotti joined the Company 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 the Company as Vice President of Construction in connection with the merger of South West in 1996. He was promoted to Senior Vice President and Director Development-West in 1998. Ms. Surface joined the Company 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. Carter joined the Company 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 the Company 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 the Company, he was Vice President of Asset Management and Property Management for CRI/CAPREIT, Inc. Mr. Lamperski joined the Company joined the Company 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. 16
PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company'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 closing sale prices per common share reported on the NYSE for each quarter of the last two years. Distribution information for Common Stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month. COMMON STOCK Distributions High Low Declared 1997 1st Quarter $ 16 $ 14 5/8 $ .2525 2nd Quarter 15 1/8 13 3/8 .2525 3rd Quarter 15 3/8 13 7/8 .2525 4th Quarter 15 1/8 13 5/8 .2525 1998 1st Quarter $ 14 13/16 $ 13 3/4 $ .2625 2nd Quarter 14 1/2 13 5/16 .2625 3rd Quarter 14 1/16 10 11/16 .2625 4th Quarter 11 3/4 10 1/16 .2625 The Company determined that, for federal income tax purposes, approximately 87.8% of the distributions for each of the four quarters of 1998 represented ordinary income to its shareholders and 12.2% represented return of capital to its shareholders. On March 2, 1999, the closing sale price of the Common Stock was $9.81 per share on the NYSE, and there were 8,809 holders of record of the 104,060,609 shares of Common Stock. The Company pays regular quarterly distributions to holders of shares of Common Stock. Future distributions by the Company 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 1998 necessary for the Company to maintain its status as a REIT was approximately $0.84 per share. The Company paid total distributions of $1.04 per share for 1998. SERIES A PREFERRED STOCK The Company'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 closing 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. 17
Distributions High Low Declared 1997 1st Quarter $ 26 7/8 $ 25 3/4 $ .578 2nd Quarter 26 5/8 25 5/8 .578 3rd Quarter 27 1/8 25 7/8 .578 4th Quarter 26 7/8 25 1/8 .578 1998 1st Quarter $ 26 11/16 $ 26 1/8 $ .578 2nd Quarter 26 7/8 25 3/4 .578 3rd Quarter 25 15/16 24 1/2 .578 4th Quarter 25 11/16 24 3/8 .578 On or after April 24, 2000, the Series A Preferred Stock may be redeemed for cash at a redemption price of $25 per share, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). SERIES B PREFERRED STOCK Distributions High Low Declared 1997 1st Quarter -- -- -- 2nd Quarter $ 25 1/2 $ 25 -- 3rd Quarter 26 7/8 25 1/4 .5554 4th Quarter 26 5/8 25 7/8 .5375 1998 1st Quarter $ 27 3/8 26 3/16 .5375 2nd Quarter 26 1/2 25 5/8 .5375 3rd Quarter 26 13/16 24 9/16 .5375 4th Quarter 25 7/8 24 9/16 The Series B Preferred Stock may be redeemed beginning May 29, 2007 at the sole option of the Company 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), the Company 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, the Company 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 during the fourth quarter were $.12 per share. The Series D is not listed on any exchange. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company 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 the Company's Common Stock at a discount. 18
OPERATING PARTNERSHIP UNITS From time to time, the Company issues shares of its common stock in exchange for Operating Partnership Units (OP Unit) tendered to the Company's operating partnership, United Dominion Realty L.P., for redemption in accordance with the provisions of the Agreement of limited Partnership of United Dominion Realty L.P. Such shares are issued based on the exchange ratio of one share for each OP Unit. During 1998, the Company issued a total of 39,041 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 the Company as of and for each of the years in the five year period ended December 31, 1998. 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. 19
Selected Financial Data <TABLE> <CAPTION> Years Ended December 31, 1998 1997 1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> In thousands, except per share data and apartment homes owned Operating Data (a) Rental income $ 478,718 $ 386,672 $ 241,260 $ 194,511 $ 139,380 Income before gains on sales of investments, minority interests and extraordinary item 47,339 57,813 33,726 28,037 19,118 Gains on sales of investments 26,672 12,664 4,346 5,090 108 Extraordinary item - early extinguishment of debt (138) (50) (23) - (89) Net income 72,332 70,149 37,991 33,127 19,137 Distributions to preferred shareholders 23,593 17,345 9,713 6,637 - Net income available to common shareholders 48,739 52,804 28,278 26,490 19,137 Common distributions declared 107,758 88,587 55,493 48,610 37,539 Weighted average number of common shares outstanding-basic 99,966 87,145 57,482 52,781 46,182 Weighted average number of common shares outstanding-diluted 100,062 87,339 57,655 52,972 46,391 Per share: Basic earnings per share $ 0.49 $ 0.61 $ 0.49 $ 0.50 $ 0.41 Diluted earnings per share 0.49 0.60 0.49 0.50 0.41 Common distributions declared 1.05 1.01 0.96 0.90 0.78 - - ------------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data (a) Real estate held for investment $3,643,245 $2,281,438 $2,007,612 $1,131,098 $1,007,599 Real estate under development 99,395 24,598 37,855 - - Real estate held for disposition 174,145 166,501 39,556 51,015 - Total real estate owned, net of accumulated depreciation 3,636,122 2,272,031 1,911,732 1,052,659 887,258 Total assets 3,755,388 2,313,725 1,966,904 1,080,616 911,913 Notes payable-secured 1,072,185 417,325 376,560 180,481 158,449 Notes payable-unsecured 1,045,564 738,901 668,275 349,858 368,215 Total debt 2,117,749 1,156,226 1,044,835 530,339 526,664 Shareholders' equity 1,374,121 1,058,357 850,379 516,389 356,968 Number of common shares outstanding 103,639 89,168 81,983 56,375 50,356 - - ------------------------------------------------------------------------------------------------------------------------------------ Other Data (a) Cash Flow Data Cash provided by operating activities $ 145,323 $ 137,903 $ 90,064 $ 66,428 $ 54,544 Cash used in investing activities (296,437) (345,666) (161,572) (183,930) (359,631) Cash provided by financing activities 169,170 194,784 82,056 113,145 306,575 Funds from operations (b) Income before gains on sales of investments, minority interests and extraordinary item $ 47,339 $ 57,813 $ 33,726 $ 28,037 $ 19,118 Adjustments: Depreciation of real estate owned 99,588 76,688 47,410 38,939 28,729 Distributions to preferred shareholders (23,593) (17,345) (9,713) (6,637) -- Non-recurring items: Impairment loss on real estate owned -- 1,400 290 1,700 -- Loss on termination of an interest rate risk management agreement (d) 15,591 -- -- -- -- Prior years' employment and other taxes -- -- -- 395 -- Adoption of SFAS No. 112 "Employers' Accounting for Postemployment benefits" -- -- -- -- 450 Adjustment for internal acquisition costs (c) (544) (1,341) (901) (587) (704) --------------------------------------------------------------- Funds from operations $ 138,381 $ 117,215 $ 70,812 $ 61,847 $ 47,593 =============================================================== Apartment Homes Owned Total apartment homes owned at December 31 86,893 62,789 55,664 34,224 29,282 Weighted average number of apartment homes owned during the year 70,724 58,038 37,481 31,242 23,160 </TABLE> (a) During the past three years, the Company has completed three statutory mergers which include the following: (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, Inc. on December 7, 1998, for an aggregate purchase price of $794 million. (b) Funds from operations ("FFO") is defined as income before gains (losses) on sales of investments, minority interests and extraordinary items (computed in accordance with generally accepted accounting principles) plus real estate depreciation, less preferred dividends and after adjustment for significant non-recurring items. This definition conforms to recommendations set forth in a White Paper adopted by the National Association of Real Estate Investment Trusts (NAREIT) in early 1995. FFO for the years prior to 1995 have been adjusted to conform to the NAREIT definition. The Company 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 the Company's activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. (c) Reflects the adjustment for internal acquisition costs that were capitalized prior to March 19, 1998. (d) During 1998, the Company recorded a loss of $15.6 million on the termination of an interest rate risk management contract. 20
PART II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto of United Dominion Realty Trust, Inc. (the "Company") appearing elsewhere in this report. 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 1999 property acquisitions and dispositions, 1999 development activity and capital expenditures, 1999 capital raising activities, 1999 rent growth, occupancy and rental expense growth. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company 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 the Company, and/or its properties, adverse changes in the real estate markets and general and local economies and business conditions. Although the Company 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 representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. The Company operates in one defined business segment as an owner, operator, renovator and developer of apartment communities nationwide. Management's strategy is to be a national, highly efficient provider of quality apartment homes with meaningful size in approximately 35 growth markets. The Company has implemented this strategy through the acquisition of portfolios of higher quality communities, the sale of lower quality communities, a greater commitment to development and the upgrade of older communities. The Company seeks to be a market leader by operating a sufficiently sized portfolio of apartments within each market in order to drive down operating costs through economies of scale and management efficiencies. The Company believes that market diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies. At December 31, 1998, the Company owned 326 communities containing 86,893 apartment homes nationwide. The following table summarizes the Company's apartment information by market: 21
The following table summarizes the Company's apartment market information by strategic geographic market: <TABLE> <CAPTION> Year Ended Quarter Ended As of December 31, 1998 December 31, 1998 December 31, 1998 --------------------------------------------------- -------------------- --------------------- Average Average No. of No. of % of Carrying Physical Monthly Physical Monthly Apartment Apartment Apartment Value Occupancy Rental Occupancy Rental Market Communities Homes Homes (in thousands) (b) Rates (a) (b) Rates (a) - - -------------------------------------------------------------------------- ----------------------- ---------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Dallas, TX (c) 28 8,954 10% $389,202 94.4% $ 606 94.6% $ 617 Houston, TX (c) 23 5,927 7% 210,015 91.9% 540 89.5% 583 Orlando, FL 12 3,848 4% 177,696 94.0% 634 93.8% 652 Phoenix, AZ (c) 8 3,136 4% 177,434 89.7% 661 90.5% 668 San Antonio, TX 13 3,840 4% 170,405 92.6% 622 93.3% 621 Tampa, FL 11 3,777 4% 162,077 94.2% 604 92.8% 613 Raleigh, NC 11 3,484 4% 154,990 94.1% 660 94.3% 669 San Francisco, CA (d) 4 980 1% 128,754 -- -- -- -- Nashville, TN 10 2,776 3% 123,343 91.0% 536 87.2% 593 Charlotte, NC 11 2,566 3% 122,009 91.0% 659 93.0% 667 Richmond, VA 10 3,091 4% 114,880 92.7% 610 91.7% 622 Columbia, SC 11 3,326 4% 113,633 93.5% 514 92.1% 520 Columbus, OH (d) 7 1,972 2% 110,996 -- -- -- -- Eastern NC 10 2,710 3% 110,189 86.8% 569 83.3% 602 Monterey Peninsula, CA (d) 16 2,076 2% 105,970 -- -- -- -- Memphis, TN 7 2,206 3% 103,851 90.9% 541 92.3% 546 Greensboro, NC 8 2,123 3% 101,521 84.8% 615 88.1% 619 Miami / Ft. Lauderdale, FL 5 1,280 1% 80,473 90.9% 818 89.8% 829 Baltimore, MD 8 1,746 2% 79,665 94.3% 677 96.1% 686 Atlanta, GA 7 1,642 2% 78,195 93.2% 628 94.7% 640 Hampton Roads, VA 8 1,830 2% 63,774 92.0% 558 92.8% 566 Portland, OR (d) 4 996 1% 59,743 -- -- -- -- Washington, DC 5 1,113 1% 57,759 92.8% 755 94.3% 764 Jacksonville, FL 3 1,157 1% 55,913 91.3% 616 90.2% 628 Greenville, SC 6 1,436 2% 53,794 87.5% 532 86.5% 538 Los Angeles, CA (d) 2 926 1% 53,387 -- -- -- -- Lansing, MI (d) 4 1,227 2% 50,558 -- -- -- -- Sacramento, CA (d) 2 914 1% 47,549 -- -- -- -- Seattle, WA (c) 4 790 1% 46,382 -- -- -- -- Denver , CO (d) 2 876 1% 44,195 -- -- -- -- Fayetteville, NC 3 884 1% 40,900 92.6% 568 95.7% 573 Detroit, MI (d) 4 744 1% 38,125 95.0% -- 95.0% -- Eastern Shore, MD 4 784 1% 34,546 97.5% 656 97.4% 667 Indianapolis, IN (d) 3 875 1% 32,663 -- -- -- -- Tucson, AZ (c) 8 1,112 1% 30,062 87.7% -- 86.6% -- Albuquerque, NM (c) 4 758 1% 29,422 78.5% 553 81.9% 557 Austin, TX 2 542 1% 23,315 92.9% 595 96.4% 599 Other Florida 8 1,722 2% 81,280 94.0% 567 94.0% 587 Other Virginia 6 1,156 1% 47,739 87.2% 607 93.0% 614 Other Midwest (d) 5 969 1% 42,321 -- -- -- -- Other Washington State (c) 2 536 1% 25,264 68.4% -- 77.1% -- Other Texas 3 776 1% 23,352 88.7% 526 88.8% 528 Other Georgia 2 468 1% 22,401 88.6% 649 88.6% 651 Arkansas 2 512 1% 21,897 92.5% 581 92.0% 585 Nevada 1 384 1% 20,551 81.3% 645 84.0% 642 Other California 2 444 1% 18,277 91.7% -- 91.7% -- Delaware 2 368 -- 17,672 94.0% 616 94.1% 617 Other South Carolina 2 408 -- 13,471 90.9% 427 92.6% 433 Alabama 1 242 -- 11,211 91.8% 516 91.4% 512 Oklahoma 1 316 -- 9,734 91.7% 456 94.6% 457 Other North Carolina 1 168 -- 7,628 94.5% 590 95.5% 597 ------------------------------------------ ------------------- --------------- Total 326 86,893 100% $3,940,183 91.7% $602 91.8% $616 ============================================ ================== =============== </TABLE> 22
(a) Average monthly rental rates represent potential rent collections (gross potential rents less market adjustments), which approximate net effective rents. These figures exclude 1998 acquisitions. (b) Physical occupancy is defined as rental income (potential rental collections less vacancy loss, management units, units held out of service and move-in concessions) divided by potential collections (gross potential rent less management units, units held out of service and move-in concessions) for the period, expressed as a percentage. (c) The Physical Occupancy and Average Monthly Rental Rates for the twelve months ended December 31, 1998, does not include communities which were acquired on March 27, 1998 in connection with the acquisition of ASR Investments Corporation nor communities acquired on December 7, 1998 in connection with the acquisition of American Apartment Communities II or the 1998 single acquisitions. (d) The Physical Occupancy and Average Monthly Rental Rates are not available for the communities included in this market which were acquired on December 7, 1998 in connection with the acquisition of American Apartment Communities II. Liquidity and Capital Resources As a qualified real estate investment trust ("REIT"), the Company distributes a substantial portion of its cash flow to its shareholders in the form of quarterly distributions. The Company believes that cash provided by operations will be adequate to meet normal operating requirements and payment of distributions by the Company in accordance with REIT requirements in both the short and long-term. For the year ended December 31, 1998, the Company's cash flow from operating activities exceeded cash distributions paid to preferred and common shareholders and operating partnership unitholders by $17.2 million. The Company utilizes a variety of primarily external financing sources to fund portfolio growth, major capital improvement programs and balloon debt payments. The Company's bank lines of credit generally have been used to temporarily finance these expenditures, and subsequently this short-term bank debt has been replaced with longer-term debt or equity. At December 31, 1998, the Company had cash and cash equivalents of $18.5 million and amounts available under its various credit facilities aggregating $25.0 million. The Company expects to meet its short-term liquidity requirements through net cash provided by operations and borrowings under credit facilities. To meet certain long-term liquidity requirements, such as scheduled debt maturities, development activity and significant capital improvements, the Company expects to issue secured and unsecured notes payable. The Company may also fund its capital requirements through: (i) proceeds from asset sales, (ii) common shares sold through the Company's Dividend Reinvestment and Stock Purchase Plan, (iii) retained operating cash flow and (iv) the use of unused credit facilities. The Company anticipates issuing debt during 1999, primarily to replace existing debt maturities and to pay down credit facilities. The following discussion explains the changes in net cash provided by operating activities, net cash used for investing activities and net cash provided by financing activities which are presented in the Company's Consolidated Statements of Cash Flows. Operating Activities For the year ended December 31, 1998, the Company's cash flow from operating activities increased $7.4 million over the same period last year. This increase is primarily due to the increased operating income from the Company's acquired communities, as well as increases in property operating income within the Company's same community portfolio achieved primarily through higher rental rates as discussed below and under "Results of Operations". Investing Activities For the year ended December 31, 1998, net cash used for investing activities was $296.4 million compared to $345.7 million for 1997, a decrease of $49.3 million. Changes in the level of investing activities from period to period primarily reflect the changing levels of the Company's acquisition, capital expenditure, development and sales programs. 23
Acquisitions The Company seeks to acquire communities in individual or portfolio transactions that can provide returns on investment (property rental income less property operating expenses divided by the average capital investment in real estate) substantially in excess of the Company's cost of capital by the third year of ownership. During 1999, the Company does not anticipate acquiring communities except to reinvest a portion of the proceeds from property sales. During 1998, the Company acquired 24 communities, in individual and portfolio transactions, containing 6,959 apartment homes (excluding ASR and AAC) at a total cost (including closing costs) of $314.7 million or $45,200 per home. All of these acquisitions were located within one of the Company's designated major markets. The communities acquired by market were as follows: <TABLE> <CAPTION> Purchase Purchase No. Apt. Year Price Cost Location Date Name Homes Built (thousands) per Home - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> San Antonio, TX 04/16/98 Audubon 216 1984 $7,082 $ 32,800 04/16/98 Carmel 228 1984 8,084 35,500 04/16/98 Cimarron 140 1984 5,087 36,300 04/16/98 Grand Cypress 164 1995 9,975 60,800 04/16/98 Kenton Place 244 1982 11,883 48,700 04/16/98 Peppermill 232 1984 8,151 35,100 04/16/98 Villages of Thousand Oaks 466 1983 13,986 30,000 08/15/98 Inn at Los Patios 167 1990 14,550 87,100 Memphis, TN 01/09/98 The Trails at Kirby Parkway 376 1987 16,757 44,600 01/09/98 Cinnamon Trails 208 1989 9,531 45,800 01/09/98 The Trails at Mount Moriah 630 1990/91 28,026 44,500 02/06/98 Dogwood Creek 278 1997 18,446 66,400 Phoenix, AZ 01/09/98 The Village at North Park 320 1983 15,056 47,100 05/28/98 Rancho Mirage 856 1984/85 38,538 45,000 06/09/98 Woodland Park 300 1980 9,723 32,400 Columbus, OH 07/02/98 Sycamore Ridge 270 1997 19,501 72,200 07/02/98 Washington Park 150 1997/98 9,577 63,800 07/02/98 Heritage Green 264 1997/98 10,476 39,700 Dallas, TX 01/30/98 Summit Ridge 264 1983 8,034 30,400 04/16/98 The Crest 280 1983 7,026 25,100 Atlanta, GA 04/15/98 Waterford Place 180 1990 11,900 66,100 Nashville, TN 05/20/98 Williamsburg 300 1986 12,307 41,000 Orlando. FL 07/20/98 Heron Lake 264 1989 10,734 40,700 Seattle, WA 07/31/98 Aspen Creek 162 1996 10,261 63,300 -------------------------------------------------------------------------------------------------------- Total/Weighted Average 6,959 1986 $314,691 $45,200 ------------------------------------------------------------------------------------------------ </TABLE> Mergers On March 27, 1998, the Company 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 acquisition was structured as a tax-free transaction and was treated as a purchase for accounting purposes. No goodwill was recorded in connection with this transaction. In connection with the acquisition, the Company acquired primarily real estate assets totaling $313.7 million. Each share of ASR's common stock was exchanged for 1.575 shares of the Company's common stock. Consideration given by the Company included 7,742,839 shares of the Company's common stock valued at $14 per share for an aggregate equity value of $108.4 million plus the issuance of 1,529,990 OP Units in the Heritage Communities, L.P. valued at $21.4 million. In addition, the Company assumed, at fair value, mortgage debt totaling $179.4 million and other liabilities of $13.6 million. The aggregate purchase price in the ASR Merger was $323.1 million, including transaction costs. On December 7, 1998, the Company completed the acquisition of American Apartment Communities II ("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 was structured as a tax-free merger and was treated as a purchase for accounting purposes. No goodwill was recorded in connection with this transaction. In connection with the AAC Merger, the Company acquired primarily real estate assets totaling $766.9 million. The aggregate purchase price consisted of the following: (i) 8,000,000 shares of the Company's 24
7.5% Series D Convertible Preferred Stock ($25 liquidation preference value) with a fair market value of $175 million which is convertible into the Company's Common Stock at $16.25 per share, (ii) the issuance of 5,614,035 OP Units to holders of the 21% interest in AAC 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 interests aggregating $27.8 million and (v) the payment of $59.8 million of cash. The aggregate purchase price in the AAC Merger was $793.7 million, including transaction costs. The AAC Merger and ASR Merger established the Company as a national owner of apartment communities. These two transactions enabled the Company to enter into new markets in the Pacific Northwest, California, Colorado and the Midwest. Entry into these markets provides the Company with market diversification and reduces cyclical risks by making the Company less dependent on any one market. Real Estate under Development Consistent with the Company's acquisition strategy, development activity is focused in certain of its major markets. During 1998, the Company increased its level of development activity, completing the development of 228 apartment homes in two additional phases to existing communities and 662 apartment homes in four new communities. During 1998, the Company invested $97.2 million on development projects, which included eight new communities, four additional phases to existing communities and nine parcels of undeveloped land. At December 31, 1998, the Company had 1,946 apartment homes under development as outlined below (dollars in thousands except estimated cost per home): <TABLE> <CAPTION> Estimated Estimated Expected No. Apt. Completed Development Development Cost per Completion Property Location Homes Apt. Homes Costs to Date Costs Home Date - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> New Apartment Communities Dominion Franklin Nashville, TN 360 360 $24,545 $24,800 $68,900 1Q99 Ashlar I Fort Myers, FL 260 76 13,224 18,600 71,500 2Q99 Sierra Foothill Phoenix, AZ 322 -- 7,125 22,500 69,900 4Q99 Stone Canyon Houston, TX 216 120 8,945 11,100 51,400 2Q99 Alexander Court Columbus, OH 356 106 15,707 23,000 64,600 2Q99 Legends at Park 10 Houston, TX 236 -- 2,800 13,900 58,900 4Q99 Ashton at Waterford Lakes Orlando, FL 292 -- 5,003 18,600 63,700 4Q99 The Meridian I Dallas, TX 250 -- 3,452 15,480 61,700 2Q00 ----------------------------------------------------------------------------- 2,292 662 80,801 147,980 64,600 Additional Phases Heritage Green II Columbus, OH 96 -- 3,919 6,900 71,900 2Q99 Dominion Crown Pointe II Charlotte, NC 220 -- 1,942 14,939 67,900 1Q00 ----------------------------------------------------------------------------- 316 -- 5,861 21,839 69,100 Land Held for Future Development -- -- 12,733 -- -- ----------------------------------------------------------------------------- 2,608 662 $99,395 $169,819 $65,100 ============================================================================= </TABLE> During 1998, the following development projects were completed and moved to real estate held for investment (dollars in thousands): <TABLE> <CAPTION> No. Apt. Development Date % Leased Property Location Homes Costs Completed at 12/31/98 - - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Additional Phases Oak Forest II Dallas, TX 260 $ 11,876 1Q98 95% Mill Creek II Wilmington, NC 184 11,946 4Q98 56% </TABLE> The Company has increased its commitment to development as part of its strategic repositioning. During 1999, the Company expects to invest approximately $150 million on the development, including communities currently under development plus six new starts during the year. 25
Capital Expenditures The Company capitalizes value enhancing improvements plus improvements that substantially extend the useful life of an existing asset. In addition to the Company's capital expenditures on new acquisitions, a significant portion of capital expenditures relate to the Company's same communities. These capital expenditures include an upgrade program and other initiatives which began in 1996 and are considered revenue enhancing or expense reducing. During 1998, the Company invested $100.4 million on capital improvements to its apartment portfolio which include an upgrade program and other initiatives that began in 1996. For the same community apartments (those owned prior to January 1, 1997), capital expenditures averaged $1,112 per home as follows: (i) ordinary capital expenditures including floor coverings, HVAC equipment, roofs, appliances and other ordinary capital expenditures of $14.5 million or $303 per home, (ii) asset preservation expenditures including landscaping, parking lots and other land improvements of $9.4 million or $197 per home and (iii) revenue enhancing expenditures including sub-metering of water and sewer, interior improvements and upgrades, construction of carports, garages and self-storage units, business and fitness centers, security alarms, gating and access devices and intrusion alarms, washer and dryer connections and other revenue enhancing expenditures of $29.3 million or $612 per home. The Company has completed most of its same community upgrade program and will reduce its capital expenditures related to same communities during 1999, but will continue to selectively add revenue enhancing improvements which can provide a high return on investment. Disposition of Investments The Company continually undertakes portfolio review analyses with the objective of identifying communities that do not meet the Company's long-term investment objectives due to size, location, age, quality and/or performance. These sales allow the Company to reduce the age of its existing portfolio, which should result in lower operating expenses and capital expenditures associated with the older communities and to exit non-core markets. Since 1997, the Company has sold 30 communities with 7,888 non-strategic apartment homes (average age of communities sold was 25 years), the net proceeds from which were used to acquire and develop newer communities that will provide higher long-term returns on investment than the communities that are being sold. The sales are initially dilutive to earnings as the initial returns on investment on higher quality apartments are lower than the returns on investment on the communities being sold. During 1998, the sales program had approximately a $.03 per share dilutive impact on the Company's net income available to common shareholders. During 1998, the Company transferred 19 communities and one commercial property aggregating $128.4 million, net of accumulated depreciation and valuation allowance, from real estate held for investment to real estate held for disposition. During 1998, the Company sold 18 communities with 5,318 apartment homes and one shopping center for an aggregate sales price of $156.6 million. For income tax purposes, 11 of the 18 community sales were structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, so the related capital gain will be deferred for federal income tax purposes. Net proceeds of approximately $135.2 million were primarily used to fund acquisitions. The Company intends to sell 6,000 to 7,000 apartment homes during 1999 to complete the sale of non-strategic assets. It is anticipated that the net proceeds from the sales, estimated between $200 million to $250 million, will be used to fund acquisitions in order to complete tax-deferred exchanges to defer large capital gains, to fund development activity and repay mortgage debt. Financing Activities Net cash provided by financing activities during 1998 was $169.2 million compared to $194.8 million for 1997. 26
Cash Provided by Financing Activities During the first quarter of 1998, the Company entered into two separate transactions to sell its common stock to Unit Investment Trusts ("UIT"). In February 1998, the Company issued 1.7 million shares of its common stock at a gross sales price of $14.31 per share to a UIT. In March 1998, the Company issued 1.1 million shares of its common stock at a gross sales price of $14.19 to a second UIT. The net proceeds from the two UIT's aggregating $38.0 million were primarily used to curtail bank debt. The Company issued 2,824,627 shares of its common stock and received $36.6 million under its Dividend Reinvestment and Stock Purchase Plan during 1998, which included $23.5 million in optional cash investments and $13.1 million of reinvested distributions. On November 10, 1998, the Company sold an aggregate $212.5 million of senior unsecured notes payable in two simultaneous but separate public offerings which consisted of the following: (i) $150 million of 8.125% Notes due November 15, 2000 and (ii) $62.5 million (including the over-allotment option) of 8.5% Monthly Income Notes due November 15, 2008. Net proceeds from the two offerings (net of underwriting discounts, commissions and offering expenses) of approximately $207.6 million were used to repay bank debt outstanding under the Company's various credit facilities and to fund the acquisition of AAC. In January 1999, the Company established a program for the sale of up to $200 million aggregate principal amount of medium-term notes (the "MTN Program"). The Company subsequently sold an aggregate of $150 million of senior unsecured notes under the MTN Program which consisted of the following: (i) $70 million of 7.60% Notes due January 25, 2002, (ii) $58 million of 7.67% Notes due January 26, 2004, (iii) $10 million of variable-rate Notes due January 27, 2003 on which the Company subsequently executed a swap fixing the rate at 7.52% and (iv) $12 million of 7.22% notes due February 19, 2003. Net proceeds from the offerings were used to repay revolving bank debt and prepay mortgage debt. The Company anticipates issuing the remaining $50 million of notes under the MTN Program during the first half of 1999, the net proceeds of which will be used to repay a senior unsecured note maturing in April 1999. The Company is currently negotiating a $130 million five year variable-rate revolving credit agreement ("the Credit Facility") with a lender through which the Company will have access to secured funding through Federal National Mortgage Association. The proceeds from the Credit Facility will be used to repay a $91 million secured credit facility assumed in connection with the AAC transaction and repay unsecured bank debt. Additional features of this Credit Facility may allow the Company to extend the maturity for five or ten years and increase the amount available under the Credit Facility to $200 million. It is anticipated that this Credit Facility will be executed during the first quarter of 1999. Derivative Instruments The Company, from time to time, uses derivative instruments to synthetically alter on-balance sheet liabilities or to hedge anticipated financing transactions. In order to reduce the interest rate risk associated with the anticipated issuance of unsecured notes during 1998, the Company entered into a $100 million (notional amount) fixed pay forward starting swap agreement (interest rate risk management agreement) with a major Wall Street investment banking firm in July 1997. The Company settled the interest rate risk management agreement on November 9, 1998, by paying $15.6 million to the counterparty. The Company was unable to issue the unsecured notes contemplated by the interest rate risk management agreement because of changed market conditions, and accordingly, the cost associated with the settlement of this agreement was expensed during the fourth quarter of 1998. Market Risk Disclosures The Company is exposed to market risk principally from interest rate risk associated with variable-rate notes payable and maturing debt that has to be refinanced. The Company does not hold financial instruments for trading 27
purposes, but rather, holds these financial instruments to finance owning and managing real estate. The Company's interest rate sensitivity position is managed by its treasury department. Interest rate sensitivity is the relationship between changes in market interest rates and changes in rate sensitive income due to the repricing characteristics of assets and liabilities. The Company's earnings are affected by changes in short-term interest rates on its variable-rate debt and the repricing of fixed-rate debt maturities. A large portion of the Company's market risk is exposure to short-term interest rates from variable-rate borrowings outstanding under its various credit facilities, which was $240 million at December 31, 1998. The impact on the Company's financial statements of refinancing fixed-rate debt that matured during 1998 was not material. At December 31, 1998, the notional value of the Company's derivative products for the purpose of managing interest rate risk was $45 million of interest rate swaps which have an average pay rate fixed at 5.98% to 8.00% and an average receive rate of one month to three month LIBOR. These agreements effectively fix $45 million of the Company's variable-rate secured notes payable to a weighted average interest rate of 7.29%. At December 31, 1998, the fair market value of the interest rate swaps in an unfavorable value position to the Company was $1.3 million. If interest rates were 100 basis points more or less at December 31, 1998, the fair market value would have been $80,000 and $1.8 million, respectively. If market interest rates for variable-rate debt average 100 basis points more in 1999 than they did during 1998, the Company's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $2.9 million. Comparatively, if market interest rates for variable-rate debt averaged 100 basis points more in 1998 than it did in 1997, the Company's interest expense, after considering the effects of its interest rate swap agreements, would have increased, and income before taxes would have decreased by $1.0 million. If market rates for fixed-rate debt were 100 basis points higher at December 31, 1998, the fair value of fixed-rate debt would have decreased from $1.75 billion to $1.68 billion. If market interest rates for fixed-rate debt were 100 basis points lower at December 31, 1998, the fair value of fixed-rate debt would have increased from $1.75 billion to $1.82 billion. These amounts are determined by considering the impact of the hypothetical interest rates on the Company'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 changes in the Company's financial structure. Credit Facilities The Company has a $200 million three year unsecured revolving credit facility (the "Credit Facility"), a $50 million one year unsecured line of credit (the "Line of Credit") and a $15 million uncommitted line of credit with a major U.S. financial institution. Under the Credit Facility, pricing is based upon the higher of the Company's senior unsecured debt ratings from S&P and Moody's which are currently BBB and Baa2, respectively. At these rating levels, contractual interest under the Credit Facility is LIBOR plus 55 basis points. The Credit Facility also includes a $100 million competitive bid option which allows the Company to solicit bids from participating banks at rates below the contractual rate. The Credit Facility and Line of Credit are subject to customary financial covenants and limitations. At and for the year ended December 31, 1998, the Company had the following credit facilities (dollars in thousands): <TABLE> <CAPTION> Twelve Months Ended December 31, 1998 At December 31, 1998 -------------------------------------- ---------------------------------- Weighted Average Amount of Amount Weighted Average Amount Weighted Average Credit Facility Facility Outstanding Interest Rate Outstanding Interest Rate - - ---------------------------------------------------------------------------------------- ---------------------------------- <S> <C> <C> <C> <C> <C> Credit Facility $ 200,000 $ 180,915 6.1% $190,000 6.0% Line of Credit 50,000 31,205 6.1% 50,000 6.1% Uncommitted Line 15,000 6,184 6.1% -- -- ----------- --------- ---- -------- ---- $ 265,000 $ 218,304 6.1% $ 240,000 6.0% =========== ========= ==== ======== ==== </TABLE> 28
Funds from Operations Funds from operations ("FFO") is defined as income before gains (losses) on sales of investments, minority interests and extraordinary items (computed in accordance with generally accepted accounting principles) plus real estate depreciation, less preferred dividends and after adjustment for significant non-recurring items. The Company computes FFO in accordance with the recommendations set forth by the National Association of Real Estate Investment Trusts ("NAREIT"). The Company 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 the Company's operating performance and liquidity. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 1998, FFO increased 18.1% to $138.4 million, compared with $117.2 million during 1997. For 1997, FFO increased 65.5% to $117.2 million, compared with $70.8 million for 1996. The increase in FFO for both periods was principally due to the increased property operating income from the Company's non-mature apartment homes that were acquired and developed. <TABLE> <CAPTION> Year Ended December 31, ----------------------------------------- In thousands 1998 1997 1996 ----------------------------------------- <S> <C> <C> <C> Calculation of funds from operations: Income before gains on sales of investments, minority interests and extraordinary item $ 47,339 $ 57,813 $ 33,726 Adjustments: Depreciation of real estate owned 99,588 76,688 47,410 Distributions to preferred shareholders (23,593) (17,345) (9,713) Non-recurring items: Loss on termination of an interest rate risk management agreement 15,591 -- -- Impairment loss on real estate owned -- 1,400 290 Adjustment for internal acquisition costs (544) (1,341) (901) ------------------------------------------ Funds from operations $ 138,381 $ 117,215 $ 70,812 ========================================== </TABLE> Results of Operations The Company's net income is primarily generated from the operations of its communities. For purposes of evaluating its comparative operating performance, the Company categorizes its communities into two categories, same community and non-mature. For the 1998 versus 1997 comparison, these communities are as follows: (i) same community--those communities acquired, developed and stabilized prior to January 1, 1997 and held throughout both 1998 and 1997 and (ii) non-mature--those communities acquired, developed or sold subsequent to January 1, 1997. For the 1997 versus 1996 comparison, these communities are as follows: (i) same community--those communities acquired prior to January 1, 1996 and held throughout the annual reporting period and (ii) non-mature--those communities acquired and developed subsequent to January 1, 1996. All per share amounts refer to basic earnings per share unless otherwise indicated. 1998-vs-1997 For 1998, net income available to common shareholders decreased $4.1 million, with a corresponding decrease of $.12 and $.11 for basic and diluted earnings per share, respectively, compared to 1997. The decrease per share over last year is primarily attributable to the $15.6 million ($.15 per share) loss on the termination of an interest rate risk management agreement during the fourth quarter of 1998. Net income available to common shareholders for the year ended December 31, 1998 includes aggregate gains on the sales of investments of $26.7 million ($.27 per share) compared to $12.7 million ($.15 per share) last year. 1997-vs-1996 Net income available to common shareholders increased $24.5 million, with a corresponding increase of $.12 and $.11 for basic and diluted earnings per share, respectively, compared to 1996. The per share increase over last year is 29
primarily attributable to gains recognized on the sales of investments which aggregated $12.7 million ($.15 per share) for the year ended December 31, 1997. From January 1, 1996 to December 31, 1997, the Company acquired and developed a total of 31,270 apartment homes in 98 communities (including those acquired in the South West Property Trust Inc. Merger on December 31, 1996) representing an 82% expansion in the number of apartment homes owned during that period. These non-mature apartment homes provided a substantial portion of the aggregate reported increases. However, these increases were moderated in part due to the Company's financing activities during 1997 as the Company financed its acquisition and development activity primarily with common and preferred equity and the proceeds from property sales rather than debt which was used to finance much of the 1996 acquisition and development programs. All Communities The operating performance for the Company's total apartment portfolio is summarized below (dollars in thousands): <TABLE> <CAPTION> Years Ended Years Ended December 31, December 31, (In thousands) (In thousands) ------------------------------------- ------------------------------------ 1998 1997 % Change 1997 1996 % Change ------------------------------------- ------------------------------------ <S> <C> <C> <C> <C> <C> <C> Property rental income $ 476,226 $ 384,205 24.0% $ 384,205 $ 236,690 62.3% Property operating expenses (excluding depreciation and amortization) (197,824) (162,977) 21.4% (162,977) (102,499) 59.0% ------------------------------------- ----------------------------------- Property operating income $ 278,402 $ 221,228 25.9% $ 221,228 $ 134,191 64.9% ===================================== ==================================== Weighted average number of apartment homes 70,724 58,038 21.9% 58,038 37,481 54.8% Physical occupancy 91.7% 92.3% (0.6%) 92.3% 92.9% (0.6%) </TABLE> 1998-vs-1997 During 1998, the weighted average number of apartment homes increased 21.9% to 70,724, which resulted in significant increases in property rental income and property operating expenses. This includes 7,550 apartment homes acquired in the ASR Merger on March 27, 1998 and 14,001 apartment homes acquired in the AAC Merger on December 7, 1998. 1997-vs-1996 Due to the acquisition and development of 31,270 apartment homes from January 1, 1996 to December 31, 1997 (including the 14,320 apartment homes acquired in the South West Property Trust Inc. Merger on December 31, 1996), the weighted average number of apartment homes increased 54.8% to 58,038 for the year ended December 31, 1997, which resulted in significant increases in both property rental income and property operating expenses. Same Communities The operating performance of the Company's same community apartments is summarized below (dollars in thousands). For 1998 vs. 1997, there were 180 communities with 47,875 apartment homes that were classified as same community. For 1997 vs. 1996, there were 127 communities with 31,519 apartment homes were classified as same community. <TABLE> <CAPTION> Years Ended Years Ended December 31, December 31, (In thousands) (In thousands) ------------------------------------ ------------------------------- 1998 1997 % Change 1997 1996 % Change ------------------------------------ ------------------------------- <S> <C> <C> <C> <C> <C> <C> Property rental income $ 327,416 $ 316,860 3.3% $207,040 $ 199,432 3.8% Property operating expenses (excluding depreciation and amortization (132,156) (132,577) (0.3%) (88,394) (86,529) 2.2% ------------------------------------- ------------------------------ Property operating income $ 195,260 $ 184,283 6.0% $118,646 $ 112,903 5.1% =================================== ============================== Physical occupancy 92.9% 92.9% 0.0% 92.6% 93.0% (0.4%) Average monthly rental rate $ 602 $ 582 3.4% $ 572 $ 551 3.9% </TABLE> 1998-vs-1997 For 1998, the Company's same communities provided approximately 70.1% of its total property operating income. During 1998, the Company's same communities continued to generate rent growth greater than the rate of inflation. Compared to the same period last year, property rental income grew 3.3%, or approximately $10.6 million, reflecting an increase in average monthly rental rates of 3.4% to $602 per month while physical occupancy of 92.9% remained stable compared to 30
last year. Management believes a portion of the rent growth reflects the impact of the Company's upgrade and revenue enhancing capital expenditure programs. It is anticipated that there will be a slowdown in the U.S. economic growth, while new apartment completions increase. As a result, the Company expects a modest decline in occupancy and slightly lower rent growth during 1999. The Company expects to maintain rent growth in the 3% range and physical occupancy in the 92% range during 1999. For 1998, property operating expenses at these same communities decreased 0.3%, or $421,000. The decline is primarily the result of the following: (i) utility expenses decreased $2.1 million, which is directly attributable to the Company's water and sewer sub-metering initiative where local and state regulations allow and (ii) an overall decrease in repair and maintenance expenses of $2.6 million. The decrease in repair and maintenance expenses occurred as the Company continued to benefit from its upgrade program and centralized purchasing initiatives. However, these decreases were offset by increases in real estate taxes, personnel costs and property management expenses. Real estate taxes increased $1.3 million primarily in certain Florida and Texas markets. Personnel costs increased $1.6 million as the Company experienced pressure on wages due to low unemployment and tighter job markets, particularly in the service area. In addition, the Company's cost of property management increased $1.1 million as a result of the added infrastructure costs in areas such as Information Technology, Human Resources and Training, and the cost of entering new markets in new regions of the country during 1998. The Company's objective is for operating expenses to be unchanged in 1999 primarily as a result of lower utility expenses due to the continuing transfer of water and sewer costs to the resident. Primarily as a result of an increase in property rental income, the operating margin improved 1.4% to 59.6% over 1997. 1997-vs-1996 For 1997, the Company's same communities provided approximately 53.6% of its total property operating income. During 1997, the Company's same communities continued to generate rent growth greater than the pace of inflation and double digit growth of other income. Compared to the same period in 1996, property rental income from these apartment homes grew 3.8%, or approximately $7.6 million, reflecting an increase in average monthly rents of 3.9% to $572 per month. Growth in property rental income was slightly offset by a .04% decrease in physical occupancy. In addition, other income, primarily fee income, increased approximately $1.2 million or 17.6%. Overall, physical occupancy bottomed out in January 1997 at 90.8% and grew steadily through August before declining slightly to 92.3% in December 1997, an improvement of 1.9% for the year. Physical occupancy declined due to the weakening of certain major southeastern markets during the last half of 1996. For 1997, property operating expenses at these communities increased 2.2%, or $1.9 million. The 2.2% increase in property operating expenses was attributable to higher personnel costs, marketing and advertising costs and the Company's cost of property management. Personnel costs increased approximately $1.8 million, primarily due to understaffing at some properties during much of 1996. Marketing and advertising costs increased 33.9% or approximately $845,000 over the same period in 1996 as a direct result of softening in certain major markets as discussed above. The cost of property management increased $1.7 million as the Company invested heavily in its personnel and technological infrastructure during 1997 in response to growth. However, these expense increases were offset by decreases in repair and maintenance expense and utility expense. Repair and maintenance expense decreased 13.1% or approximately $2.0 million primarily as a result of less exterior painting, extraordinary repairs, mechanical repairs and the effect of the upgrade program. In addition, the Company benefited from economies of scale due to its increased size and some centralized purchasing during the 1997 period. Utility expense decreased primarily as a result of sub-metering water and sewer that began in 1997. Due to the increase in property rental income, the operating margin improved 0.8% to 57.3%. Non-Mature Communities For 1998 vs. 1997, the Company's non-mature communities include: (i) 28 communities with 8,524 apartment homes acquired during 1997, net of one resold, (ii) 39 communities with 7,550 apartment homes acquired on March 27, 1998 in 31
connection with the ASR Merger, (iii) 53 communities with 14,001 apartment homes acquired on December 7, 1998 in connection with the AAC Merger, (iv) 24 communities with 6,959 apartment homes acquired in individual and portfolio transactions during 1998, (v) 7,888 apartment homes sold since January 1, 1997 and (vi) the 1,957 apartment homes developed since January 1, 1997, which is summarized in the chart below (dollars in thousands): For 1997 vs. 1996, the Company's non-mature communities include: (i) 7,590 apartment homes acquired during 1996, net of one resold, and a community acquired in 1995 and not stabilized due to significant rehabilitation, (ii) 13,671 apartment homes acquired on December 31, 1996 in connection with the South West Property Trust Inc. Merger, net of one resold and one under development, (iii) 8,524 apartment homes acquired since January 1, 1997, net of one resold, (iv) 3,222 apartment homes sold from January 1, 1996 to December 31, 1997 and (v) the 1,232 apartment homes developed during 1996 and 1997. The operating performance of these non-mature communities is summarized in the chart below (dollars in thousands): Years Ended December 31, 1998 and 1997: <TABLE> <CAPTION> Sales Development 1997 Acquisitions 1998 Acquisitions Communities Communities Total Non-Mature ----------------- --------------------- ----------------- ----------------- ------------------ 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997 ------------------------------------------- ----------------- ----------------- ------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Property rental income $ 57,609 $ 27,292 $ 74,295 $ -- $ 7,660 $ 36,677 $ 9,246 $ 3,376 $ 148,810 $ 67,345 Property operating expenses (excluding depreciation and amortization) (24,925) (10,961) (33,149) -- (3,773) (17,987) (3,821) (1,452) (65,668) (30,400) ------------------- ------------------- ---------------- ----------------- ----------------- Property operating income $ 32,684 $ 16,331 $ 41,146 $ -- $ 3,887 $18,690 $ 5,425 $ 1,924 $ 83,142 $ 36,945 ===================== =================== ================= ================= ================== </TABLE> Years Ended December 31, 1997 and 1996: <TABLE> <CAPTION> 1997 Acquisitions and Former 1997 and 1996 1996 Acquisitions South West Development & Sales Total Non-Mature ------------------------ -------------------- -------------------- --------------------- 1997 1996 1997 1996 1997 1996 1997 1996 ------------------------ -------------------- -------------------- --------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Property rental income $ 50,977 $ 23,336 $ 86,884 $ -- $ 39,304 $ 13,922 $ 177,165 $ 37,258 Property operating expenses (excluding depreciation and amortization) (20,690) (8,958) (36,923) -- (16,970) (7,012) (74,583) (15,970) ------------------------ ------------------- -------------------- -------------------- Property operating income $ 30,287 $ 14,378 $ 49,961 $ -- $ 22,334 $ 6,910 $ 102,582 $ 21,288 ======================== =================== ==================== ==================== </TABLE> 1998-vs-1997 For 1998, the Company's non-mature communities provided approximately 29.9% of its total property operating income. Property rental income and property operating expenses increased from 1997 to 1998 directly as a result of the increase in the weighted average number of apartment homes owned during 1998. For the year ended December 31, 1998, average economic occupancy was 88.6%, and the operating margin was 55.9% for the non-mature communities. 1997 Acquisitions On an average investment of $355.2 million, the 1997 acquisitions provided a 9.1% return on investment during 1998. For the year, these communities had physical occupancy of 91.9% and an operating margin of 56.7%. During 1998, property operating expenses were adversely impacted by (i) an increase in real estate taxes due to reassessments at several Florida communities and (ii) the delay in the Company's implementation of its water billing and reimbursement schedule for these communities. 1998 Acquisitions 1998 Single Acquisitions Included in this category are the 24 communities with 6,959 apartment homes acquired by the Company during 1998 which are projected to have a first year return on investment of approximately 9%. The annualized return on investment for the 1998 single acquisitions on an average investment of $311.9 million was 32
8.7%. These results were below the Company's full year forecasted return on investment of 9% primarily as a result of market softness in San Antonio and Phoenix where the Company acquired communities in 1998. However, it is expected that these communities will experience improved operating results in 1999 as improvements are completed. ASR Investments Corporation (ASR) The acquisition of the 39 communities containing 7,550 apartment homes included in the ASR Merger on March 27, 1998, provided the largest increases in property rental income and property operating expenses for the Company's apartment portfolio. The annualized return on investment for the ASR properties was 7.3% on an average investment of $312.5 million during 1998. The under-performance of this portfolio is primarily attributable to weak markets and seasonality in the Phoenix/Tuscon/Albuquerque markets, however, certain assets are undergoing upgrading and repositioning that is expected to improve operating results in 1999. While the Phoenix and Tuscon markets suffer temporarily from an abundance of supply in the apartment sector, the Company believes in these markets over the long-term. For the year ended December 31, 1998, these communities had economic occupancy of 87.9% and an operating margin of 49.5%. American Apartment Communities (AAC) The acquisition of the 53 communities containing 14,001 apartment homes included in the AAC Merger on December 7, 1998, had economic occupancy of 94.0% and an operating margin of 67.4% for the 24 days owned during 1998. The return on investment for the AAC properties is projected to be approximately 9% during 1999 on an initial investment of $766.9 million. This acquisition did not have a material effect on 1998 results of operations. Sales Communities Since January 1, 1997, the Company sold approximately $225 million of property consisting of 30 communities with 7,888 apartment homes, the net proceeds from which were used to acquire newer communities that will provide higher long-term returns on investment than the communities being sold. The properties sold during 1998 had an annualized return on investment in excess of 10%. Development Communities The development communities consist of 1,957 apartment homes in five new communities and five additional phases to existing communities developed since January 1, 1997. Once stabilized, development communities are projected to generate an average return on investment in excess of 10%. 1997-vs-1996 For 1997, the Company's non-mature communities provided approximately 46.4% of the Company's total property operating income. Property rental income and property operating expenses increased from 1996 to 1997 directly as a result of the increase in the weighted average number of apartment homes owned during 1997. For the year ended December 31, 1997, average physical occupancy was 90.7%, and the operating margin was 57.9% for the non-mature communities. 1996 Acquisitions (excluding the South West Merger) The 29 communities containing 7,590 apartment homes that were acquired during 1996 (net of one community containing 122 apartment homes resold and a community acquired in 1995 and not stabilized due to significant rehabilitation) provided a significant increase in property rental income and property operating expenses for the Company's apartment portfolio for 1997. For 1997, these communities had economic occupancy of 89.8% and an operating margin of 59.4%. The first year return on investment for these communities in 1997, on an average investment of $319 million, was 9.0% (excluding one community under renovation). This reflects the under-performance of nine communities in the Greensboro/Winston-Salem, North Carolina market that were acquired in August 1996 as part of a portfolio transaction. Occupancy in this region peaked in August 1996 when the Company acquired these properties and subsequently fell, reflecting an oversupply of apartment product in this market. However, the Company believes Greensboro is a good long-term market. South West Property Trust Inc. (South West) The acquisition of the 43 communities containing 13,671 apartment homes included in the South West Merger on December 31, 1996, net of one community resold and 33
one under development, provided the largest increases in property rental income and property operating expenses for the Company's entire apartment portfolio for the year ended December 31, 1997. The return on investment for the South West properties was 9.4% during 1997. For the year ended December 31, 1997, these communities had economic occupancy of 92.7% and an operating margin of 57.5%. 1997 Acquisitions, Development and Sales Included in this category are the following: (i) the 28 communities containing 8,524 apartment homes acquired by the Company during 1997 (net of one resold), (ii) the 1,232 apartment homes developed during 1996 and 1997 and (iii) the 16 communities containing 3,222 apartment homes sold between January 1, 1996 and December 31, 1997. The annualized return on investment for 1997 acquisitions on an average investment of $345 million was projected to be 9.5%, but fell slightly short at 9.3%. Interest Expense During 1998, interest expense increased $27.2 million or $.15 per common share over 1997. The weighted average amount of debt employed during 1998 was higher than it was in 1997 ($1.5 billion in 1998 versus $1 billion in 1997) which accounted for the majority of the increase in interest expense. The weighted average interest rate on this debt was slightly lower than it was last year, decreasing from 7.5% in 1997 to 7.4% in 1998 reflecting the fact that the Company's reliance on the lower rate short-term bank borrowings increased in 1998 compared to 1997 ($238.6 million weighted average outstanding in 1998 versus $74.6 million in 1997). For 1998, 1997 and 1996, total interest capitalized was $3.4 million, $2.6 million and $541,000, respectively. For 1997, interest expense increased $28.2 million or $.02 per common share over 1996. The weighted average amount of debt employed during 1997 was higher than it was in 1996 ($1 billion in 1997 versus $647 million in 1996). The weighted average interest rate on this debt was slightly lower in 1997, decreasing from 7.6% in 1996 to 7.5% in 1997. The slightly lower interest rate during 1997 reflected the fact that the weighted average interest rate on short-term bank borrowings decreased compared to 1996 and the Company's reliance on these lower rate short-term bank borrowings increased in 1997 compared to 1996 ($74.6 million weighted average outstanding in 1997 versus $49.9 million in 1996). General and Administrative During the year ended December 31, 1998, general and administrative expenses increased by $3.1 million over 1997. In 1998, the Company incurred increases in most of its general and administrative expense categories which were directly attributable to the increased size of the Company and its investment in infrastructure. The largest increases occurred in payroll and payroll-related expenses. General and administrative expense as a percentage of rental income increased 0.3% from 1.8% during 1997 to 2.1% during 1998 primarily due to (i) the added infrastructure costs incurred due to the increased size of the Company and (ii) the change in accounting for internal acquisition costs subsequent to March 19, 1998. During 1997, general and administrative expenses increased by $1.7 million over the same period in the prior year. In 1997, the Company incurred increases in most of its general and administrative expense categories. The largest increases occurred in payroll expenses, investor relations expenses and office rent which was directly related to increasing the size of the Company. However, general and administrative expense, as a percentage of property rental income, remained relatively flat compared to 1996. Impairment Loss During 1997, the Company recorded an impairment loss of $1.4 million relating to two communities included in the Company's real estate held for investment. These communities were subsequently moved to real estate held for disposition based upon management's decision to dispose of these properties. Gains on Sales of Investments For the year ended December 31, 1998, the Company recognized gains on the sales of investments for financial reporting purposes aggregating $26.7 million as a result of the sale of 18 communities with 5,318 apartment homes and one shopping center for an aggregate sales price of $156.6 million. 34
During 1997, the Company recognized gains on the sales of investments aggregating $12.7 million as a result of the: (i) first quarter sale of the Company's investment in the preferred stock of First Washington Realty Trust, Inc. on which the Company recognized a gain for financial reporting purposes of $2.1 million and (ii) the sale of 12 communities containing 2,570 apartment homes and one shopping center for an aggregate sales price of $68.4 million on which the Company recognized aggregate gains for financial reporting purposes of $10.6 million. Distributions to Preferred Shareholders Distributions to preferred shareholders totaled $23.6 million for 1998 compared to $17.3 million for 1997. The increase in distributions to preferred shareholders is a result of the issuance of eight million shares of Series D 7.50% Cumulative Convertible Redeemable Preferred Stock in December 1998, in connection with the acquisition of AAC and the issuance of six million shares of Series B 8.60% Cumulative Redeemable Preferred Stock in May 1997. Distributions to preferred shareholders totaled $17.3 million for the year ended December 31, 1997 compared to $9.7 million for 1996. The increase in distributions to preferred shareholders was a result of the issuance of six million shares of Series B 8.60% Cumulative Redeemable Preferred Stock in May 1997. Inflation The Company believes that the direct effects of inflation on the Company's operations have been inconsequential. Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date sensitive software or embedded chips may recognize a date using "00"" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities. The Company continues to identify and address issues regarding the transition to Year 2000, as it is dependent on computer systems and applications to conduct its business. The Company has performed a thorough assessment of its personal computers, desktop software and major applications and is in the process of completing its server environment assessment. To ensure that the Company completed a formalized and thorough assessment of its Year 2000 issues, the Company engaged an outside consulting firm to conduct a Year 2000 assessment and develop a remediation plan. The plans covers four stages: (i) inventory, (ii) assessment, (iii) remediation and (iv) testing and certification. Because the Company operates in a structured, standardized environment, the assessment indicated a high degree of Year 2000 compliance with few items for remediation. All mission-critical applications have been determined to be Year 2000 compliant. Desktop hardware and software are 90% compliant, with remediation of the non-compliant 10% to be completed by July 1999. None of the non-compliant issues identified are mission-critical. The Company is commencing the assessment phase for non-IT operating equipment at its communities (gates, security, telephone, elevator, HVAC systems and other such systems). This assessment will be completed by May 1, 1999, with any remediation to be completed by November 1, 1999. The Company is also assessing the Year 2000 compliance of vendors and other external relationships to determine the extent to which the Company may be vulnerable to such parties' failure to resolve their own Year 2000 issues. The Company has initiated formal communication with these parties. The Company cannot insure timely compliance of third parties and; therefore, could be adversely affected by failure of a significant third party to become Year 2000 compliant. The effect, if any, on the Company's results of operations from the failure of such third parties to be Year 2000 compliant is not reasonably estimable. The Company estimates that the total Year 2000 project cost will be approximately $100,000, of which approximately 50% has been incurred as of December 31, 1998. Amounts expended to ensure Year 2000 compliance have been 35
funded by cash flows from operations and are not expected to have a material impact on the Company's financial position, results of operations, or cash flows. The Company believes that its Year 2000 initiatives are adequate to address reasonably likely Year 2000 issues. <TABLE> <CAPTION> - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- Assessment Remediation / Testing % Complete Compliance Expected Completion - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- <S> <C> <C> <C> IT - Mission-Critical Applications 100% 100% July 1999 - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- IT - Desktop Hardware / Software 95% 90% July 1999 - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- IT - Network Hardware / Software 60% 90% July 1999 - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- Operating Equipment 0%, Expected Completion, Expected at Communities May 1999 Completion, November 1999 July 1999 - - --------------------------------- ------------------------------- ------------------------------ ------------------------------- </TABLE> Failure to correct a material Year 2000 problem could result in the failure of certain normal business activities or operations. Management believes that, with the implementation of new or upgraded business systems, as needed, and the completion of the Year 2000 project as scheduled, the possibility of significant interruptions of normal operations due to the failure of those systems will be reduced. However, the Company is dependent on the power and telecommunications infrastructure within the United States. The most reasonably likely worst case scenario would be that the Company may experience disruption in its operations if any of the third-party suppliers reported a system failure. Although the Company's Year 2000 project will reduce the level of uncertainty about the compliance and readiness of its material third-party providers, due to the general uncertainty over Year 2000 readiness of these third-party suppliers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact. The final phase of the Company's Year 2000 project relates to a contingency plan. The Company maintains contingency plans in the normal course of business designed to be deployed in the event of various potential business interruptions. 36
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item 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 Managements 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 F-1 of this Annual Report on Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 37
Part III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference from the Company's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 11, 1999. Information required by this item regarding the executive officers of the Company 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 the Company's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 11, 1999. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 11, 1999. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 11, 1999. 38
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 F-1 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 Exchange Company's Form S-3 Registration Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with between the Company, United Dominion the Commission on September 25, 1998. Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. 3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement (Registration No. 333-72885) filed with the Commission on February 24, 1999. </TABLE> 39
<TABLE> <S> <C> <C> 3(b) Restated By-Laws Filed herewith. 4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report Certificate on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995. Redeemable Preferred Stock 4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 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 Company Registration Statement dated February 4, 1998. and ChaseMellon Shareholder 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)(b) Amended and Restated Credit Filed herewith. Agreement dated as of December 7, 1998, among AAC Funding Partnership III, certain affiliates of AAC Funding Partnership III, the Lenders identified therein and NationsBank, N.A., as Administrative Agent 4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A as of February 15, 1993, between Registration Statement dated April 19, 1990. the Company and CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, Connecticut General Life Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 10(i) Employment Agreement between Filed herewith. the Company and John P. McCann dated December 8, 1998 10(ii) Employment Agreement between Filed herewith. the Company and John S. Schneider dated December 8, 1998 </TABLE> 40
<TABLE> <S> <C> <C> 10(iii) Employment Agreement between Filed herewith. the Company and Richard Giannotti dated December 8, 1998 10(iv) 1985 Stock Option Plan, Exhibit 10(iv) to the Company's Quarterly as amended. Report on Form 10-Q for the quarter ended June 30, 1998. 10(v) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report Plan. on Form 10-Q for the quarter ended March 31, 1997. 10(vi) Third Amended and Restated Filed herewith. Agreement of Limited Partnership of United Dominion Realty, L.P. Dated as of December 7, 1998. 10(vi)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Form 10-Q for April 16, 1998, between the the quarter ended March 31, 1998. Company and United Dominion Realty, L.P. 12 Computation of Ratio of Earnings Filed herewith. to Fixed Charges. 21 The Company has the following subsidiaries, all of which but United Dominion Realty, L.P. are wholly owned. The Company owns general and limited partnership interests in United Dominion Realty, L.P., constituting 79.1% of the aggregate partnership interest. United Dominion Realty Trust, Inc., a Virginia corporation The Commons of Columbia, Inc., a Virginia corporation UDRT of North Carolina, L.L.C., a North Carolina limited liability company UDRT of Alabama, Inc., an Alabama corporation UDR at Marble Hill, L.L.C., a Virginia limited liability company United Dominion Realty, L.P., a Virginia limited partnership UDRT of Virginia, Inc., a Virginia corporation United Dominion Residential, Inc., a Virginia corporation UDR South Carolina Trust, a Maryland real estate investment trust Cleary Court Property Owner's Association, Inc., a Florida non-profit corporation United Sub, Inc., a Virginia corporation ASR Acquisition Sub, Inc. UDR Developers, Inc., a Virginia corporation UDR of Tennessee, L.P., a Virginia limited partnership United Dominion Residential Ventures, L.L.C., a Virginia limited liability company UDR Western Residential, Inc., a Virginia corporation UDR Summit Ridge, L.P., a Delaware limited partnership SWO REMIC Properties II-A, L.P., a Delaware limited partnership South West Properties, L.P., a Delaware limited partnership SWP Arkansas Properties, Inc., an Arkansas corporation SWP Depositor, Inc., a Texas corporation SWP Developers, Inc., a Texas corporation SRL Amarillo Investors, Inc., a Texas corporation UDR Camino Village, L.P., a Delaware limited partnership UDR Pecan Grove, L.P., a Delaware limited partnership </TABLE> 41
<TABLE> <S> <C> <C> UDR Seniors Housing, L.P. a Delaware limited partnership UDR Texas Properties, L.P., a Delaware limited partnership UDR Aspen Creek, L.L.C., a Virginia limited liability company South West REIT Holding, Inc., a Texas corporation SWP Properties, Inc., a Texas corporation SWP Woodscape Properties, Inc., a Texas corporation SWP Creeks Properties, Inc., a Texas corporation SWP Properties I, L.P., a Delaware limited partnership SWP Woodscape Properties I, L.P., a Delaware limited partnership SWP Creeks Properties, I, L.P., a Delaware limited partnership SWP REMIC Properties II, Inc., a Texas corporation SWPT II Arizona Properties, Inc., an Arizona corporation UDR Audobon, L.P., a Delaware limited partnership UDR Cimarron City, L.P. a Delaware limited partnership UDR Kenton, L.P., a Delaware limited partnership UDR Villages of Thousand Oaks, L.P., a Delaware limited partnership ASR Investments Corporation, an Arizona corporation ASR Properties, Inc., an Arizona corporation Heritage Communities L.P., a Delaware limited partnership Heritage SGP Corporation, an Arizona corporation Heritage Residential Group, an Arizona corporation RMA Investments Holdings, Inc., an Arizona corporation RMA Investments, Inc., an Arizona corporation RMA Investments II, Inc., an Arizona corporation Cholla Estates Construction L.L.C., an Arizona limited liability company Pima Realty Advisors JC Mortgage Advisors JG Mortgage Advisors FP Mortgage Advisors CIMSA Financial Corporation, an Arizona corporation ASR Finance Corporation, an Arizona corporation Southwest Funding Capital Mortgage L.P., an Arizona limited partnership ASR Mortgage Acceptance, Inc., an Arizona corporation Rescap, Inc., an Arizona corporation Rescap Manager Limited Partnership ASC Properties, Inc., an Arizona corporation ASV-II Properties, Inc., an Arizona corporation ASV-XVII Properties, Inc., an Arizona corporation ASC II Properties, Inc., an Arizona corporation La Privada L.L.C., an Arizona limited liability company Contempo Heights L.L.C., an Arizona limited liability company Finesterra Apartments L.L.C., an Arizona limited liability company Residential Mortgage Acceptance AAC Funding II, Inc., a Delaware corporation AAC Funding III, Inc., a Delaware corporation AAC Funding IV, Inc., a Delaware corporation AAC Funding IV, L.L.C., a Delaware limited liability company AAC Funding Partnership II, a Delaware corporation AAC Funding Partnership III, a Delaware corporation AAC Management L.L.C., a Delaware limited liability company AAC Seattle I, Inc., a Delaware corporation AAC Vancouver I, L.P., a Washington limited partnership </TABLE> 42
<TABLE> <S> <C> <C> AAC/FSC Clocktower Investors, L.L.C., a Washington limited liability company AAC/FSC Crown Pointe Investors, L.L.C., a Washington limited liability company AAC/FSC Hilltop Investors, L.L.C., a Washington limited liability company AAC/FSC Seattle Properties, L.L.C., a Delaware limited liability company Alexandria Executive Limited Partnership American Apartment Communities II, Inc., a Maryland corporation American Apartment Communities II, L.P., a Delaware limited partnership American Apartment Communities Holdings, Inc., a Delaware corporation American Apartment Communities Operating Partnership, L.P., a Delaware limited partnership Bainbridge Associates PL-I, Ltd. Bainbridge Associates PL-II, Ltd. Bainbridge Communities, L.L.C. C.A. Property Associates, L.L.C. CMP-1, L.L.C. Coastal Anaheim Properties, L.L.C., a Delaware limited liability company Coastal Long Beach Properties, L.L.C., a Delaware limited liability company Coastal Monterey Properties, L.L.C. FMP Member, Inc., a Delaware corporation FSC Realty, L.L.C. Ft. Craig, L.P., an Ohio limited partnership Fountainhead Apartments, L.P. an Ohio limited partnership Jamestown of St. Matthews Governour's Square of Columbus Co., an Ohio company Jamestown of St. Matthews Co., an Ohio company L.B. Property Associates, L.L.C. LF Strategic Realty Investors, L.P. Monterey Property Associates, L.L.C. Northbay Properties II, L.P., a California limited partnership Parker's Landing Venture I Parker's Landing Venture II Polo Chase Venture, L.L.C., a Delaware limited liability company Regency park, L.P., an Indiania limited partnership Schitzer Investment Corporation Sunset Company, an Ohio company Tivoli of Columbus L.P., an Ohio limited partnership University Arms L.P. Windward Point, L.L.C., a California limited liability company Winterland San Francisco Partners Woodlake Village, L.P., a California limited partnership 23 Consent of Independent Filed herewith. Auditors 27 Financial Data Schedule Filed electronically with the Securities and Exchange Commission. </TABLE> Exhibits 10(i) through 10(v) inclusive, are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. 43
(b) Reports on Form 8-K A Form 8-K dated September 11, 1998 was filed with the Securities and Exchange Commission on October 23, 1998. The filing reported the proposed merger of American Apartment Communities II, Inc. by the Company. The filing included the audited financial statements of American Apartment Communities II, Inc, and American Apartment Communities II, LP for the year ended December 31, 1997. A Form 8-K dated October 28, 1998 was filed with the Securities and Exchange Commission on October 28, 1998. The filing reported on the Company's results of operations for the three and nine months ended September 30, 1998. A Form 8-K dated November 2, 1998 was filed with the Securities and Exchange Commission on November 6, 1998. The filing included the Exhibits for the Consents of Experts as used in the Company's Prospectus Supplement for the issuance of debt securities. A Form 8-K dated November 12, 1998 was filed with the Securities and Exchange Commission on November 12, 1998. The filing included the Exhibits for the Underwriting Agreements, Pricing Agreements and Form of Notes as used in the Company's Prospectus Supplement for the issuance of debt securities. A Form 8-K/A amending the Form 8-K dated September 11, 1998 was filed with the Securities and Exchange Commission on December 21, 1998. The filing amended the Item under which the original 8-K was previously filed. A Form 8-K dated December 7, 1998, was filed with the Securities and Exchange Commission on December 21, 1998. The filing reported the acquisition of American Apartment Communities II, Inc. on December 7, 1998. A Form 8-K dated January 20, 1999 was filed with the Securities and Exchange Commission on January 20, 1999. The filing included pro forma financial statements for the Company for the nine months ended September 30, 1998. 44
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, 1999 by the following persons on behalf of the registrant and in the capacities indicated. /s/ John P. McCann /s/ Jeff C. Bane - - ------------------------------- ------------------------------ John P. McCann Jeff C. Bane Chairman of the Board and Chief Director Executive Officer /s/ Lynne Sagalyn /s/ Mark J. Sandler - - ------------------------ ------------------------------- Lynne Sagalyn Mark J. Sandler Director Director /s/ John S. Schneider - - ---------------------------------- -------------------------------- John S. Schneider Robert W. Scharar Director, Vice Chairman of the Board, Director President and Chief Operating Officer /s/ C. Harmon Williams, Jr. /s/ R. Toms Dalton - - ---------------------------- -------------------------------- C. Harmon Williams, Jr. R. Toms Dalton Director Director /s/ Robert P. Freeman /s/ Jon A. Grove - - ---------------------------- -------------------------------- Robert P. Freeman Jon A. Grove Director Director /s/ James D. Klingbeil /s/ Barry M. Kornblau - - ---------------------------- ------------------------------- James D. Klingbeil Barry M. Kornblau Director Director /s/ Robin R. Flanagan - - --------------------------------------- Robin R. Flanagan Assistant Vice President, Controller-Corporate Accounting and Chief Accounting Officer 45
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE UNITED DOMINION REALTY TRUST, INC. Page ---- FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT Report of Ernst & Young LLP, Independent Auditors F-2 Consolidated Balance Sheets at December 31, 1998 and 1997 F-3 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998 F-4 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 F-5 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1998 F-6 Notes to Consolidated Financial Statements F-7 SCHEDULE FILED AS PART OF THIS REPORT Schedule III-Summary of Real Estate Owned F-26 All other schedules are omitted since the required information 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.
Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders United Dominion Realty Trust, Inc. We have audited the accompanying consolidated balance sheets of United Dominion Realty Trust, Inc. (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. 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 generally accepted auditing standards. 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. Ernst & Young LLP Richmond, Virginia January 27, 1999 F-2
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) <TABLE> <CAPTION> December 31, 1998 1997 - - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> ASSETS Real estate owned: Real estate held for investment (Notes 2 and 3) $ 3,643,245 $ 2,281,438 Less: accumulated depreciation 280,663 200,506 ---------------- ---------------- 3,362,582 2,080,932 Real estate under development 99,395 24,598 Real estate held for disposition (Note 2) 174,145 166,501 ---------------- ---------------- Total real estate owned, net of accumulated depreciation 3,636,122 2,272,031 Cash and cash equivalents 18,529 473 Restricted cash 50,805 17,107 Deferred financing costs-net 10,894 10,588 Other assets 39,038 13,526 ---------------- ---------------- Total assets $ 3,755,388 $ 2,313,725 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable-secured (Note 4) $ 1,072,185 $ 417,325 Notes payable-unsecured (Note 5) 1,045,564 738,901 Real estate taxes payable 29,078 21,744 Accrued interest payable 20,714 14,912 Security deposits and prepaid rent 21,125 12,105 Distributions payable 31,423 25,607 Accounts payable, accrued expenses and other liabilities 45,736 10,081 ---------------- ---------------- Total liabilities 2,265,825 1,240,675 Minority interests 115,442 14,693 Shareholders' equity: (Notes 8 and 9) Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000 6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 150,000 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable 175,000 - Common stock, $1 par value; 150,000,000 shares authorized 103,639,117 shares issued and outstanding (89,168,442 in 1997) 103,639 89,168 Additional paid-in capital 1,090,432 906,307 Notes receivable from officer-shareholders (7,619) (8,806) Distributions in excess of net income (242,331) (183,312) ---------------- ---------------- Total shareholders' equity 1,374,121 1,058,357 ================ ================ Total liabilities and shareholders' equity $ 3,755,388 $ 2,313,725 ================ ================ </TABLE> See accompanying notes to consolidated financial statements. F-3
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) <TABLE> <CAPTION> Year ended December 31, 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------- ------------- <S> <C> <C> <C> Revenues Rental income $478,718 $386,672 $241,260 Interest and other non-property income 3,382 1,123 1,707 -------------- -------------- ------------- 482,100 387,795 242,967 Expenses Rental expenses: Utilities 26,361 24,861 17,735 Repair and maintenance 62,753 54,607 40,665 Real estate taxes 41,768 30,961 17,348 Property management 16,748 12,203 5,575 Other operating expenses 51,930 41,099 22,658 Depreciation of real estate owned 99,588 76,688 47,410 Interest 106,238 79,004 50,843 General and administrative 10,139 7,075 5,418 Other depreciation and amortization 3,645 2,084 1,299 Loss on termination of an interest rate risk management agreement (Note 6) 15,591 - - Impairment loss on real estate owned - 1,400 290 -------------- -------------- ------------- 434,761 329,982 209,241 -------------- -------------- ------------- Income before gains on sales of investments, minority interests and extraordinary item 47,339 57,813 33,726 Gains on sales of investments 26,672 12,664 4,346 -------------- -------------- ------------- Income before minority interests and extraordinary item 74,011 70,477 38,072 Minority interests (1,541) (278) (58) -------------- -------------- ------------- Income before extraordinary item 72,470 70,199 38,014 Extraordinary item - early extinguishment of debt (138) (50) (23) -------------- -------------- ------------- Net income $ 72,332 $ 70,149 $ 37,991 Distributions to preferred shareholders (23,593) (17,345) (9,713) -------------- -------------- ------------- Net income available to common shareholders $ 48,739 $ 52,804 $ 28,278 ============== ============== ============= Earnings per common share: (Note 1) Basic $ 0.49 $ 0.61 $ 0.49 ============== ============== ============= Diluted $ 0.49 $ 0.60 $ 0.49 ============== ============== ============= Common distributions declared per share $ 1.05 $ 1.01 $ 0.96 ============== ============== ============= Weighted average number of common shares outstanding-basic 99,966 87,145 57,482 Weighted average number of common shares outstanding -diluted 100,062 87,339 57,655 </TABLE> See accompanying notes to consolidated financial statements. F-4
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Year ended December 31, 1998 1997 1996 - - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Activities Net income $ 72,332 $ 70,149 $ 37,991 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 103,233 78,772 48,709 Minority interests 1,541 278 58 Extraordinary item-early extinguishment of debt 138 50 23 Impairment loss on real estate owned -- 1,400 290 Gains on sales of investments (26,672) (12,664) (4,346) Amortization of deferred financing costs 2,061 1,706 1,319 Changes in operating assets and liabilities: Increase in operating liabilities 23,130 8,830 8,899 Increase in operating assets (30,440) (10,618) (2,879) ----------- ----------- ----------- Net cash provided by operating activities 145,323 137,903 90,064 - - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities Net cash acquired in acquisition of ASR Investments Corporation 321 -- -- Net cash used in acquisition of American Apartment Communities II (59,767) -- -- Acquisition of real estate, net of liabilities assumed (169,808) (271,836) (137,236) Capital expenditures (100,398) (95,499) (50,533) Development of real estate assets (97,222) (52,217) (9,229) Additions to non-real estate assets (2,876) (3,659) (2,554) Net proceeds from sales of investments 135,164 73,864 33,823 Proceeds from interest rate risk management agreements -- 1,538 3,025 Net cash acquired in acquisition of South West Property Trust Inc. -- -- 1,129 Other investing activities (1,851) 2,143 3 ----------- ----------- ----------- Net cash used in investing activities (296,437) (345,666) (161,572) - - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities Net proceeds from the issuance of common stock 40,040 61,009 1,824 Net proceeds from the sale of preferred stock -- 145,068 -- Net proceeds from the issuance of common stock through the dividend reinvestment and stock purchase plan 36,646 39,742 13,188 Gross proceeds from the issuance of notes payable-unsecured 212,500 125,000 200,111 Net proceeds from the issuance of notes payable-secured -- -- 5,925 Net borrowings of short-term bank debt 104,400 10,350 37,800 Proceeds from refunding of tax exempt bonds 7,700 -- -- Conversion of operating partnership units (3,528) -- -- Distributions paid to preferred shareholders (22,611) (16,270) (9,713) Distributions paid to common shareholders (103,074) (85,777) (53,979) Distributions paid to minority interest operating partnership unitholders (2,413) (144) -- Scheduled principal payments on notes payable-secured (18,255) (6,547) (2,729) Non-scheduled payments on notes payable-secured (67,942) (9,397) (40,628) Mortgage financing proceeds released from construction fund -- -- 3,627 Payments on notes payable-unsecured (9,418) (65,414) (72,064) Payment of financing costs (4,875) (2,836) (1,306) ----------- ----------- ----------- Net cash provided by financing activities 169,170 194,784 82,056 - - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 18,056 (12,979) 10,548 Cash and cash equivalents, beginning of year 473 13,452 2,904 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 18,529 $ 473 $ 13,452 =========== =========== =========== - - ---------------------------------------------------------------------------------------------------------------------------- Supplemental Information: Interest paid during the period $ 104,858 $ 76,669 $ 48,500 Non-cash transactions associated with the acquisition of properties: Secured debt assumed 116,326 60,052 137,988 Issuance of common stock 7,099 -- 22,769 Issuance of unsecured notes payable -- -- 25,000 Issuance of operating partnership units 18,477 12,530 2,006 Non-cash transactions associated with Mergers: Real estate assets acquired 1,080,696 -- 559,591 Other operating assets acquired 26,845 -- -- Issuance of preferred stock 175,000 -- -- Issuance of common stock 108,456 -- 322,110 Issuance of operating partnership units 88,831 -- -- Secured debt assumed 637,188 -- 99,921 Unsecured debt assumed -- -- 125,035 Operating liabilities assumed 36,026 -- 23,805 Minority interests in partnerships assumed 5,382 -- -- </TABLE> See accompanying notes to consolidated financial statements. F-5
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In thousands, except per share data) <TABLE> <CAPTION> Year ended December 31 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Preferred Stock Balance, beginning of year $ 255,000 $ 105,000 $ 105,000 Issuance of 8.60% Series B Cumulative Redeemable -- 150,000 -- Issuance of 7.50% Series D Cumulative Convertible Redeemable 175,000 =========== =========== =========== Balance, end of year $ 430,000 $ 255,000 $ 105,000 =========== =========== =========== Common Stock, $1 Par Value Balance, beginning of year $ 89,168 $ 81,983 $ 56,375 Issuance of common shares in public offerings 2,804 4,000 -- Issuance of common shares in the acquisition of South West Property Trust Inc. -- -- 22,804 Issuance of common shares in the acquisition of ASR Investments Corporation 7,743 -- -- Issuance of common shares in private placement -- -- 1,680 Issuance of common shares to employees and officer-shareholders 78 333 152 Issuance of common shares through dividend reinvestment and stock purchase plan 2,825 2,852 972 Issuance of common shares in connection with the acquisition of properties 482 -- -- Conversion of operating partnership units to common stock 539 -- -- =========== =========== =========== Balance, end of year $ 103,639 $ 89,168 $ 81,983 =========== =========== =========== Additional Paid-in Capital Balance, beginning of year $ 906,307 $ 814,795 $ 480,971 Issuance of commons shares in public offerings, net of issuance costs 35,170 55,386 -- Issuance of common shares in the acquisition of South West Property Trust Inc. -- -- 299,109 Issuance of common shares in the acquisition of ASR Investments Corporation 100,713 -- -- Issuance of common shares in private placement, net of issuance costs -- -- 21,059 Offering costs associated with the issuance of preferred shares -- (4,934) -- Issuance of common shares to employees and officer-shareholders 801 4,170 1,440 Issuance of common shares through dividend reinvestment and stock purchase plan 33,821 36,890 12,216 Issuance of common shares in connection with the acquisition of properties 6,617 -- -- Conversion of operating partnership units to common stock 7,003 -- -- =========== =========== =========== Balance, end of year $ 1,090,432 $ 906,307 $ 814,795 =========== =========== =========== Notes Receivable from Officer-Shareholders Balance, beginning of year $ (8,806) $ (5,926) $ (6,091) Principal repayments 1,413 635 381 Notes received for issuance of common shares (226) (3,515) (216) =========== =========== =========== Balance, end of year $ (7,619) $ (8,806) $ (5,926) =========== =========== =========== Distributions in Excess of Net Income Balance, beginning of year $ (183,312) $ (147,529) $ (120,314) Net income 72,332 70,149 37,991 Common stock distributions declared ($1.05 per share for 1998, -- $1.01 per share for 1997 and $.96 per share for 1996) (107,758) (88,587) (55,493) Preferred stock distributions declared-Series A ($2.31 per share for 1998, -- 1997 and 1996) (9,704) (9,713) (9,713) Preferred stock distributions declared-Series B ($2.15 per share for 1998 and $1.27 per share for 1997) (12,903) (7,632) -- Preferred stock distributions declared-Series D ($.12 per share for 1998) (986) -- -- =========== =========== =========== Balance, end of year $ (242,331) $ (183,312) $ (147,529) =========== =========== =========== Unrealized Gains on Securities Available-for-Sale Balance, beginning of year $ -- $ 2,056 $ 448 Realized gain on securities available-for-sale -- (2,056) -- Unrealized gain on securities availabe-for-sale -- -- 1,608 =========== =========== =========== Balance, end of year $ -- $ -- $ 2,056 =========== =========== =========== Total Shareholders' Equity $ 1,374,121 $ 1,058,357 $ 850,379 =========== =========== =========== </TABLE> See accompanying notes to consolidated financial statements. F-6
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization United Dominion Realty Trust, Inc., a Virginia corporation, was formed in 1972. The Company operates within one defined business segment. The Company is a fully integrated owner, operator, renovator and developer of apartment communities located nationwide. At December 31, 1998, the Company owned 326 communities with 86,893 completed apartment homes. The Company had eight communities and two additional phases to existing communities with 1,946 apartment homes under development at December 31, 1998. Basis of presentation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, including United Dominion Realty, L.P., its Operating Partnership, and Heritage Communities, L.P. (collectively, the "Company"). As of December 31, 1998, there were 38,218,389 units in the Operating Partnership outstanding, of which, 30,486,005, or 79.8% were owned by the Company and 7,732,384, or 20.2% were owned by non-affiliated limited partners. In connection with the acquisition of ASR Investment Corporation, the Company acquired Heritage Communities, L.P., a Delaware limited partnerhip (Heritage OP). As of December 31, 1998, there were 3,834,837 units in the Heritage OP outstanding, of which, 2,974,252 or 77.5% were owned by the Company and 22.5% were owned by non-affiliated limited partnerships. The financial statements of the Company include the minority interest of the unitholders in the operating partnerships. All significant inter-company accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. Use of estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Federal income taxes The Company is operated as and elects to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the Code). Generally, a real estate investment trust which complies with the provisions of the Code and distributes at least 95% of its taxable income to its shareholders, does not pay federal income taxes on its distributed income. Accordingly, no provision has been made for federal income taxes. Cash and cash equivalents All highly liquid investments with maturities of three months or less, when purchased, are considered to be cash equivalents. Real estate assets and depreciation Real estate assets held for investment are carried at historical cost less accumulated depreciation less any recorded impairment losses. Ordinary repair and maintenance costs are expensed as incurred. Significant 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. The Company recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows are not sufficient to recover the assets carrying value. If such indicators are present, an impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Real estate is classified as real estate held for disposition when management has committed to sell and is actively marketing the property, and the Company expects to dispose of these properties within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation or fair value less cost to dispose, determined on an asset by asset basis. Depreciation is not recorded on real estate held for F-7
disposition and gains (losses) from initial and subsequent adjustments to the carrying value of the assets, if any, are recorded as a separate component of income from continuing operations. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which is 35 years for buildings, 10 to 35 years for major improvements, and 5 to 20 years for fixtures, equipment and other assets. All development projects and related carrying costs, principally interest and real estate taxes, 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, property taxes, insurance and allocated development overhead during the construction period. Interest and real estate taxes incurred during the construction period are capitalized as part of the projects under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 1998, 1997 and 1996, total interest capitalized was $3,360,000, $2,634,000 and $541,000, respectively. Commencing with the adoption of EITF No. 97-11 on March 19, 1998, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions", the Company expenses direct internal costs related to identifying and acquiring operating properties. Revenue recognition The Company's apartment homes are leased under operating leases with terms generally of one year or less. Rental income is recognized as it is earned. Restricted cash Restricted cash mainly consists of escrow deposits held by lenders for property taxes, insurance and replacement reserves and resident security deposits. Deferred financing costs Deferred financing costs include fees and other costs incurred to obtain long-term debt obligations and are generally amortized over a period not to exceed the term of the related debt. Interest rate swap agreements The Company enters into interest rate swap agreements to alter the interest rate characteristics of outstanding debt instruments. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. The interest rate swaps involve the periodic exchange of payments over the life of the related agreements. Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively. The fair value of and changes in the fair value as a result of changes in market interest rates for the interest rate swap agreements are not reflected in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized into interest expense over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. There were no gains or losses on terminations of interest rate swap agreements recognized by the Company for the periods presented. F-8
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 The Company enters into interest rate futures contracts to hedge interest rate risk associated with anticipated debt transactions. The Company 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 terms 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, the Company marks the derivative instrument to market and recognizes 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 potential common stock equivalents is determined using the treasury stock method based on the Company'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 effect of the conversion of the operating partnership units and convertible preferred stock is not dilutive and is therefore not included in the following calculations. The weighted average effect of the conversion of the operating partnership units for the years ended December 31, 1998, 1997 and 1996 was 2,963,427, 317,120 and 68,502, respectively. The weighted average effect of the conversion of the convertible preferred stock for the year ended December 31, 1998, was 809,273. The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share data): <TABLE> <CAPTION> 1998 1997 1996 -------- ------- ------- <S> <C> <C> <C> Numerator for basic and diluted earnings per share-net income available to common shareholders $ 48,739 $ 52,804 $ 28,278 Denominator: Denominator for basic earnings per share- weighted average shares 99,966 87,145 57,482 Effect of dilutive securities: Employee stock options 96 194 173 -------- -------- -------- Dilutive potential common shares Denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions 100,062 87,339 57,655 ======== ======== ======== Basic earnings per share $ .49 $ .61 $ .49 ======== ======== ======== Diluted earnings per share $ .49 $ .60 $ .49 ======== ======== ======== </TABLE> Investment in marketable equity securities In connection with a shopping center sale in 1995, the Company received marketable preferred stock with a fair value of $7.7 million on the date of receipt. In January 1997, the Company sold the preferred stock and received $9.9 million in cash and recognized a $2.1 million gain on the sale of investment for financial reporting purposes. F-9
Minority interests in operating partnerships Interests in the Operating Partnership held by limited partners are represented by operating partnerships 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 the Company's common stock on a one-for-one basis, at the option of the Company. OP Units as a percentage of total units and shares outstanding was 7.7%, 1.1% and 0.1% at December 31, 1998, 1997 and 1996, respectively. Minority interests in other partnerships The Company 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 The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock Based Compensation", requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company'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 As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" (Statement 130). Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of Statement 130 had no impact on the Company's financial statements for each of the periods presented as the Company has no items of comprehensive income. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133) which is required to be adopted in years beginning after June 15, 1999. Statement 133 permits early adoption as of the beginning of any fiscal quarter after its issuance, however, the Company does not anticipate adopting Statement 133 until such time as it is required. Statement 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement 133 will be on earnings and the financial position of the Company, however, management does not anticipate that the adoption of Statement 133 will have a significant effect on earnings or the financial position of the Company. F-10
2. REAL ESTATE OWNED The Company operates primarily in 34 major markets dispersed throughout a 22 state area. At December 31, 1998, the Company's largest apartment market was Dallas, where it owned 9.5% of its apartment homes, based upon carrying value. Excluding Dallas, the Company did not own more than 5% of its apartment homes in any one market, based upon carrying value. The following table summarizes the components of real estate held for investment at December 31, (dollars in thousands): 1998 1997 ----------- ---------- Land and land improvements $ 647,328 $ 393,505 Buildings and improvements 2,819,312 1,783,565 Furniture, fixtures and equipment 169,364 100,380 Construction in progress 7,241 3,988 ----------- ----------- Real estate held for investment 3,643,245 2,281,438 Accumulated depreciation (280,663) (200,506) ----------- ----------- Real estate held for investment, net $ 3,362,582 $ 2,080,932 =========== =========== The following is a reconciliation of the carrying amount of real estate held for investment at December 31, (dollars in thousands): <TABLE> <CAPTION> 1998 1997 1998 ---------- ---------- ----------- <S> <C> <C> <C> Balance at January 1 $ 2,281,438 $ 2,007,612 $ 1,131,098 Real estate acquired 1,388,514 344,363 843,277 Capital expenditures 98,872 96,102 49,434 Transferred from real estate under development 23,350 65,475 -- Real estate sold -- -- (230) Impairment loss -- (1,400) -- Transferred to real estate held for disposition (148,929) (230,714) (15,967) ----------- ----------- ----------- Balance at December 31 $ 3,643,245 $ 2,281,438 $ 2,007,612 =========== =========== =========== </TABLE> The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands): <TABLE> <CAPTION> 1998 1997 1996 --------- -------- ---------- <S> <C> <C> <C> Balance at January 1 $ 200,506 $ 173,291 $ 129,454 Depreciation expense for the year* 100,683 77,440 48,039 Transferred to real estate held for disposition (20,526) (50,225) (4,202) --------- --------- --------- Balance at December 31 $ 280,663 $ 200,506 $ 173,291 ========= ========= ========= </TABLE> * Includes $1,095, $752, and $629 for 1998, 1997 and 1996, respectively, classified as "Other depreciation and amortization" in the Consolidated Statements of Operations. F-11
The following is a summary of real estate owned by market at December 31, 1998 (dollars in thousands): Real Estate Held for Investment by Market (Excluding real estate under development) <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Properties Cost Value Depreciation Encumbrances ---------- ----------- -------- ------------ ------------ <S> <C> <C> <C> <C> <C> Apartments Dallas, TX 27 $340,778 $375,962 $18,872 $40,510 (A) Houston, TX 22 183,317 195,997 7,276 65,965 (A) Orlando, FL 12 146,114 172,692 17,647 41,630 Phoenix, AZ 8 162,162 168,309 5,194 19,931 (A) Tampa, FL 11 146,849 162,077 13,855 41,067 (A) San Antonio, TX 12 150,741 159,216 6,514 38,609 (A) Raleigh, NC 10 123,071 137,946 19,070 9,132 (A) San Francisco, CA 4 128,754 128,754 240 70,086 Charlotte, NC 10 95,265 116,668 16,227 22,772 (A) Eastern NC 10 80,116 110,189 19,514 10,127 Monterey Peninsula, CA 16 105,970 105,970 183 (A) Columbia, SC 10 89,168 104,132 17,440 21,639 Memphis, TN 6 95,594 101,809 6,260 43,412 Nashville, TN 9 85,781 98,798 11,059 5,081 Richmond, VA 8 74,856 96,063 20,511 3,034 Columbus, OH 6 90,539 91,395 617 34,981 (A) Miami/Ft. Lauderdale, FL 5 75,030 80,473 7,478 -- Atlanta, GA 7 66,892 78,195 8,382 11,093 Greensboro, NC 5 63,359 77,768 5,211 (A) Portland, OR 4 59,743 59,743 108 12,745 (A) Jacksonville, FL 3 44,787 55,913 6,173 12,455 Los Angeles, CA 2 53,387 53,387 96 6,141 Hampton, VA 6 42,741 53,286 13,198 -- Baltimore, MD 5 46,071 51,827 8,788 12,980 Lansing, MI 4 50,559 50,559 89 (A) Greenville, SC 5 41,703 50,058 7,544 -- Sacramento, CA 2 47,549 47,549 85 17,127 (A) Seattle, WA 4 46,147 46,383 386 24,367 Denver, CO 2 44,195 44,195 79 (A) Fayetteville, NC 3 39,004 40,900 3,255 18,453 Detroit, MI 4 38,126 38,126 68 (A) Washington DC 2 32,603 35,509 3,339 -- Eastern Shore MD 4 31,403 34,546 4,014 -- Indianapolis, IN 3 32,663 32,663 57 (A) </TABLE> F-12
<TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Properties Cost Value Depreciation Encumbrances ---------- ----------- -------- ------------ ------------ <S> <C> <C> <C> <C> <C> Apartments (continued) Albuquerque, NM 4 28,531 29,101 999 13,704 (A) Tucson, AZ 6 25,679 26,341 702 13,937 Austin, TX 2 21,005 23,315 1,680 (A) Other FL 7 54,048 66,929 7,898 -- Other VA 6 29,510 47,194 7,666 2,830 Other Midwest 5 41,556 42,321 207 -- Other WA 3 24,728 25,264 635 9,702 Other GA 2 19,049 22,401 3,769 6,179 Arkansas 2 20,500 21,897 1,287 -- Nevada 1 20,000 20,549 1,138 -- Other CA 2 18,277 18,277 32 (A) Delaware 2 14,732 17,670 2,364 -- Alabama 1 7,947 11,212 1,799 -- Other NC 1 6,770 7,628 663 (A) Other SC 1 4,558 6,089 995 -- - ----- ----- ---- ------ 296 $3,291,927 $3,643,245 $280,663 $ 629,689 === ========== ========== ======== ========= </TABLE> Real Estate Held for Disposition (B) <TABLE> <CAPTION> Initial Number of Acquisition Carrying Accumulated Properties Cost Value Depreciation Encumbrances ---------- ----------- -------- ------------ ------------ <S> <C> <C> <C> <C> <C> Apartments 26 $ 154,733 $ 197,543 $ 34,177 $ 60,273 (A) Commercial 4 11,082 12,569 1,790 3,512 - ------ ------ ----- -------- 30 $165,815 $ 210,112 $ 35,967 $ 63,785 == ======== ========= ========= ======== Total Real Estate Owned (C) 326 $3,457,742 $3,853,357 $316,630 $1,072,185 === ========== ========== ======== ========== </TABLE> (A) There are 23 communities encumbered by two REMIC financings aggregating $75.9 million, 6 communities encumbered by one secured note payable aggregating $31.7 million, 24 communities encumbered by fixed-rate debt aggregating $159.7 million and 18 communities encumbered by variable-rate debt aggregating $111.4 million. (B) Real estate held for disposition contributed property operating income (property rental income less property operating expenses) in the aggregate amount of $19.7 million, $19.5 million and $3.9 million, respectively for the years ended December 31, 1998, 1997 and 1996, respectively. (C) Excludes real estate under development. In connection with the Company's periodic evaluation of its apartment portfolio during 1997 the Company recorded an impairment loss of $1.4 million relating to two communities included in real estate held for investment. These apartment communities were subsequently moved to real estate held for disposition based upon management's decision to dispose of these properties. F-13
3. ACQUISITIONS On March 27, 1998, the Company 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. Each share of ASR's common stock was exchanged for 1.575 shares of the Company's common stock. The transaction was structured as a tax-free merger and was treated as a purchase for accounting purposes. No good will was recorded in connection with this transaction. In connection with the acquisition, the Company acquired primarily real estate assets totaling $313.7 million. Consideration given by the Company included 7,742,839 shares of the Company's common stock valued at $14 per share for an aggregate equity value of $108.4 million plus the issuance of 1,529,990 OP Units in Heritage Communities, L.P. valued at $21.4 million. In addition, the Company assumed, at fair value, mortgage debt totaling $179.4 million and other liabilities of $13.6 million. The aggregate purchase price in the ASR Merger was $323.1 million, including transaction costs. On December 7, 1998, the Company completed the acquisition of American Apartment Communities II, Inc. ("AAC") in a statutory merger (the "AAC Merger"). American Apartment Communities II, Inc.'s principal asset was a 79% interest in American Apartment Communities II, LP. 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 was structured as a tax-free merger and was treated as a purchase for accounting purposes. No good will was recorded in connection with this transaction. In connection with the AAC Merger, the Company acquired primarily real estate assets totaling $766.9 million. The aggregate purchase price consisted of the following: (i) 8,000,000 shares of the Company's 7.5% Series D Convertible Preferred Stock ($25 liquidation preference value) with a fair market value of $175 million which is convertible into the Company's Common Stock at $16.25 per share, (ii) the issuance of 5,614,035 OP units to holders of the 21% minority interests in American Apartment Communities, L.P. 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 interests aggregating $27.8 million and (v) $59.8 million of cash. The aggregate purchase price in the AAC Merger was $793.7 million, including transaction costs. Information concerning unaudited pro forma results of operations of the Company for the years ended December 31, 1998 and 1997 are set forth below. For 1998, such pro forma information assumes the following transactions occurred on January 1, 1997: (i) the acquisition of ASR, (ii) the acquisition of AAC and (iii) the acquisition of 13 communities with 4,318 apartment homes for an aggregate purchase price of $144 million. For 1997, in addition to the acquisitions previously described, such pro forma information assumes the following transactions occurred on January 1, 1997: (i) the acquisition by the Company of 17 communities with 5,659 apartment homes at a total cost of $219 million and (ii) the acquisition by ASR of 22 communities with 4,208 apartment homes at a total cost of $176 million. In addition to the ASR Merger and the AAC Merger, all of the acquisitions previously described have been accounted for as purchases of real estate and operating results for those communities are reflected in the accompanying consolidated financial statements from their respective dates of acquisition. F-14
<TABLE> <CAPTION> Pro Forma Year Ended December 31, ---------------------- In thousands, except per share amounts 1998 1997 - - --------------------------------------- -------- ---------- <S> <C> <C> (Unaudited) Rental income $597,460 $566,681 Net income available to common shareholders before extraordinary item 43,218 37,468 Net income available to common shareholders 43,080 37,418 Net income per common share before extraordinary item-basic and diluted $ .41 $ .39 Net income per common share-basic and diluted .41 .39 </TABLE> The unaudited information is not necessarily indicative of what the Company's consolidated results of operations would have been if the acquisitions previoulsy described had occurred at the beginning of each period presented. Additionally, the pro forma information does not purport to be indicative of the Company's results of operations for future periods. 4. NOTES PAYABLE-SECURED Notes payable-secured, which encumber $1.9 billion or 48.7% of the Company's real estate owned, ($2.0 billion or 51.3% of the Company's real estate owned is unencumbered) consist of the following at December 31, 1998 (dollars in thousands): <TABLE> <CAPTION> Weighted Weighted Average Average No. of Interest Years to Communities Principal Outstanding Rate Maturity Encumbered - - -------------------------------------------------------------------------------------------------------------------- 1998 1997 1998 1998 1998 --------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Fixed-Rate Debt Mortgage Notes Payable (a) $ 618,997 $ 134,888 7.87% 6.1 76 Tax-Exempt Secured Notes Payable 125,405 127,437 7.02% 21.5 18 REMIC Financings 75,919 88,574 7.82% 2.0 23 Secured Notes Payable 45,000 45,000 7.29% 0.2 6 ------------------------------------------------------------------- Total Fixed-Rate Secured Notes Payable 865,321 395,899 7.69% 7.1 123 Variable-Rate Debt Secured Notes Payable 141,969 19,226 7.13% 3.9 7 Tax-Exempt Secured Notes Payable 64,895 2,200 5.45% 15.5 5 ------------------------------------------------------------------- Total Variable-Rate Secured Notes Payable 206,864 21,426 6.60% 10.1 12 ------------------------------------------------------------------- Total Notes Payable-Secured $1,072,185 $ 417,325 7.48% 7.6 135 =================================================================== </TABLE> (a) Includes fair value adjustments aggregating $18.9 million recorded in connection with the ASR Merger and the AAC Merger. F-15
Fixed-Rate Mortgage Notes Payable Fixed-rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from March 1999 through June 2034 and carry interest rates ranging from 7.13% to 9.58%. During 1998, the Company assumed sixty fixed-rate mortgage notes payable aggregating $515.6 million with a weighted average interest rate of 8.03% in connection with the acquisition of communities, including the ASR Merger and AAC Merger. Tax-Exempt Secured Notes Payable Fixed-rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates from November 2004 through December 2025 and carry interest rates from 6.03% to 8.50%. Interest on these notes is generally payable in semi-annual installments. During 1998, the Company assumed one fixed-rate tax-exempt secured note payable carrying an interest rate of 7.54%. REMIC Financings The Company has two fixed-rate REMIC Financings which bear interest of 7.01% and 8.50% and mature on December 10, 2000 and February 10, 2001, respectively. The Company makes monthly installments of principal and interest over the term of the REMIC Financings. Principal balances at maturity are expected to be $29.3 million and $36.6 million, respectively. Secured Notes Payable Secured notes payable consist of a $31.7 million variable-rate secured senior credit facility and two secured variable-rate notes payable aggregating $13.3 million, all of which mature in August 1999. The variable-rate secured notes payable bear interest at LIBOR + .65% or 6.06% at December 31, 1998. The Company has five interest rate swap agreements with an aggregate notional value of $45 million under which the Company pays a fixed-rate of interest and receives a variable-rate on the notional amounts. The interest rate swap agreements effectively change the Company's interest rate exposure on the $45 million secured notes payable from a variable-rate to a weighted average fixed-rate of 7.29%. Variable-Rate Secured Notes Payable Variable-rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 1999 through September 2027. At December 31, 1998, these notes carry interest rates ranging from 6.33% to 7.21%. During 1998, the Company assumed five variable-rate mortgage notes payable aggregating $129.4 million with a weighted average interest rate of 7.26%. Tax-Exempt Secured Notes Payable Variable-rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates from December 2002 to April 2029. At December 31, 1998, these notes carry interest rates ranging from 3.07% to 7.00%. During 1998, the Company assumed three variable-rate tax-exempt notes payable aggregating $55 million which carry a weighted average interest rate of 5.33%. The aggregate maturities of secured notes payable for the five years subsequent to December 31, 1998 is as follows (dollars in thousands): <TABLE> <CAPTION> Fixed-Rate Variable-Rate --------------------------------------------------- ------------------------ Mortgage Tax-Exempt REMIC Secured Mortgage Tax-Exempt Notes Bonds Financings Notes Notes Notes Total - - ---------------------------------------------------------------------- ------------------------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> 1999 $ 32,209 $ 1,769 $ 3,396 $ 45,000 $ 111,365 $ 1,400 $ 195,139 2000 61,451 1,400 34,464 -- 743 1,500 99,558 2001 55,636 1,657 38,059 -- 10,386 1,500 107,238 2002 61,108 1,845 -- -- 293 4,000 67,246 2003 110,314 1,786 -- -- 5,810 1,900 119,810 Thereafter 298,279 116,948 -- -- 13,372 54,595 483,194 ------------------------------------------------------- ------------------------- ---------- $ 618,997 $ 125,405 $ 75,919 $ 45,000 $ 141,969 $ 64,895 $1,072,185 ======================================================= ========================= ========== </TABLE> F-16
5. NOTES PAYABLE-UNSECURED A summary of notes payable-unsecured at December 31, 1998 and 1997 is as follows: <TABLE> <CAPTION> Dollars in thousands 1998 1997 --------- ---------- <S> <C> <C> Commercial Banks Borrowings outstanding under credit facilities $ 240,000 $ 135,600 Insurance Companies -Senior Unsecured Notes 7.98% due March 1999-2003 (a) 37,228 44,571 8.72% due November 1998 -- 2,000 ---------- ---------- 37,228 46,571 Other (b) 5,836 6,730 Senior Unsecured Notes - Other 8.50% Monthly Income Notes due November 2008 62,500 -- 8.13% Senior Notes due November 2000 150,000 -- 7.25% Notes due April 1999 75,000 75,000 8.50% Debentures due September 2024 (c) 150,000 150,000 7.95% Medium-Term Notes due July 2006 125,000 125,000 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.02% Medium-Term Notes due November 2005 50,000 50,000 7.25% Notes due January 2007 125,000 125,000 ---------- ---------- 762,500 550,000 ---------- ---------- Total Notes Payable-Unsecured $1,045,564 $ 738,901 ========== ========== </TABLE> (a) Payable in five equal principal installments of $7.4 million. (b) Includes $5.4 million and $6.2 million at December 31, 1998 and 1997, respectively, of deferred gain from the termination of interest rate risk management agreements. (c) Debentures include an investor put feature which grants a one time option to redeem debentures in September 2004. On January 21, 1999, the Company established a program for the sale of up to $200 million aggregate principal amount of Medium-Term Notes (the "MTN Program"). The Company sold an aggregate of $150 million of senior unsecured notes which consisted of the following: (i) $70 million of 7.60% Notes due January 25, 2002, (ii) $58 million of 7.67% Notes due January 26, 2004, (iii) $10 million of variable rate Notes due January 27, 2003 on which the Company subsequently executed an interest rate swap with a notional amount of $10 million which effectively fixed the interest rate at 7.52% and (iv) $12 million of 7.22% Notes due February 19, 2003. Net proceeds from the offerings will be used to repay revolving bank debt and prepay mortgage debt. The extraordinary items for the years ended December 31, 1998, 1997 and 1996 resulted from the write-off of deferred financing costs on mortgage debt satisfied. F-17
Information concerning short-term bank borrowings is summarized in the table that follows: <TABLE> <CAPTION> In thousands 1998 1997 1996 - - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Total revolving credit facilities and lines of credit at December 31 $265,000 $265,000 $228,500 Borrowings outstanding at December 31 240,000 135,600 125,250 Weighted average daily borrowings during the year (d) 238,587 74,623 49,941 Maximum daily borrowings during the year (d) 334,500 135,600 125,250 Weighted average daily interest rate during the year(d) 6.1% 6.3% 6.0% Weighted average daily interest rate at December 31 6.0% 6.4% 6.3% </TABLE> (d) Includes balances on a $75 million bridge facility funded in July 1998 that matured in November 1998. At December 31, 1998, the Company had in place a syndicated three year $200 million unsecured revolving credit facility (the "Credit Facility") of which $190 million was outstanding at December 31, 1998. The Credit Facility will expire on August 4, 2000. Borrowings under the Credit Facility generally bear interest at LIBOR plus 55 basis points. The Company is also required to pay a fee of .200% of the committed amount. This fee and the interest rate are both subject to change as the Company's credit ratings change. At December 31, 1998, the Company had a $50 million interim syndicated 364-day credit agreement (the "Credit Agreement") of which $50 million was outstanding at December 31, 1998. The Credit Agreement will mature on August 4, 1999. Borrowings under the Credit Agreement generally bear interest at LIBOR plus 55 basis points. The Company is also required to pay a fee of .150% of the committed amount. This fee and the interest rate are both subject to change as the Company's credit ratings change. At December 31, 1998, the Company had a $15 million unsecured line of credit with a commercial bank, of which there were no borrowings outstanding at December 31, 1998. Currently expiring on June 30, 1999, this credit facility is renewable annually by mutual agreement between the Company and the bank. The line is subject to periodic bank review and requires the Company to maintain a depository relationship with the bank; however, there are no formal compensating balance arrangements. Borrowings bear interest generally at negotiated rates in line with borrowings under the Company's revolving credit facility. The Credit Facility and Credit Agreement are subject to customary financial covenants and limitations. The underlying loan agreements contain certain covenants which, among other things, require the Company to maintain minimum consolidated tangible net worth, as defined, and maintain certain financial ratios. F-18
6. FINANCIAL INSTRUMENTS Fair Value of Financial Instruments The following disclosures of estimated fair value of financial instruments were determined by the Company 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 the Company would realize on the disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair value of the Company's financial instruments at December 31, 1998 and 1997, both on and off-balance sheet, are summarized as follows: <TABLE> <CAPTION> December 31, 1998 December 31, 1997 ----------------------------- ---------------------------- In thousands Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------ ---------------------------- <S> <C> <C> <C> <C> Notes payable-secured $ 1,072,185 $ 1,125,582 $ 417,325 $ 444,925 Notes payable-unsecured 1,045,564 1,068,868 738,901 780,051 Interest rate swap agreements -- (1,321) -- (547) Interest rate risk management agreements -- -- -- (5,620) </TABLE> The following methods and assumptions were used by the Company in estimating the fair values set forth above. Cash and cash equivalents The carrying amount of cash and cash equivalents approximates fair value. Notes payable Estimated fair value is based on mortgage rates and tax-exempt bond rates believed to be available to the Company for the issuance of debt with similar terms and remaining lives. The carrying amount of the Company's variable-rate notes payable-secured approximate fair value at December 31, 1998 and 1997. The carrying amounts of the Company's borrowings under short-term revolving credit agreements and lines of credit approximate their fair values. Interest rate swap agreements Fair value is based on external market quotations from investment banks. Interest rate risk management agreements Fair value is based on external market quotations from investment banks. Derivative Instruments Interest rate swap agreements At December 31, 1998 and 1997, the Company had five interest rate swap agreements (the "Agreements") outstanding with an aggregate notional amount of $45 million. These agreements effectively fix the interest rate on certain variable-rate secured notes payable to a weighted average fixed-rate of 7.29%. These Agreements have a weighted average maturity of 2.6 years and mature at various times from May 2000 to July 2004. The Company's credit exposure on swaps is limited to the value of interest rate swaps that are favorable to the Company at December 31, 1998. For all periods presented, the Company had no deferred gains or losses relating to terminated swap contracts. Interest rate risk management agreements The Company deferred gains of $1.5 million in 1997 related to the termination of an interest rate risk management agreement used to hedge the issuance of $125 million of notes issued in 1997. This agreement had the economic impact of reducing the interest rate from 7.31% to 7.14% over the ten year term of the notes. F-19
In order to reduce the interest rate risk associated with the anticipated issuance of unsecured notes during 1998, the Company entered into a $100 million (notional amount) fixed pay forward starting swap agreement (interest rate risk management agreement) with a major Wall Street investment banking firm in July 1997. The Company settled the interest rate risk management agreement on November 9, 1998, by paying $15.6 million to the counterparty. The Company was unable to issue the unsecured notes contemplated by the interest rate risk management agreement, and accordingly, the cost associated with this settlement is reflected in the 1998 Statement of Operations. The Company has no interest rate risk management agreements outstanding at December 31, 1998. The Company has not obtained collateral or other security to support financial instruments. In the event of non-performance by the counterparty, the Company's credit loss on its derivative instruments is limited to the value of the derivative instruments that are favorable to the Company at December 31, 1998. However, such non-performance is not anticipated as the counterparties are highly rated, credit quality U.S. financial institutions. 7. INCOME 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. All realized gains (losses) on sales of investments are distributed to shareholders if and when recognized for income tax purposes. Since 1980, gains aggregating approximately $82.6 million have been deferred for income tax purposes and are undistributed at December 31, 1998. 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, 1998, distributions paid per common share were taxable as follows: 1998 1997 1996 ---- ----- ------ Ordinary income $ .913 $ .727 $ .638 Long-term capital gain --- .021 --- Return of capital .127 .249 .307 ------ ------ ------- $1.040 $ .997 $ .945 ====== ====== ======= 8. EMPLOYEE BENEFIT PLANS Profit Sharing Plan The United Dominion Realty Trust, Inc. Profit Sharing Plan (the "Profit Sharing Plan") is a defined contribution plan covering all eligible full-time employees. Under the Profit Sharing Plan, the Company makes discretionary profit sharing and matching contributions to the Profit Sharing Plan as determined by the Compensation Committee of the Board of Directors. Aggregate contributions, both matching and discretionary, which are included in the Company's consolidated statements of operations for the three years ended December 31, 1998, 1997 and 1996 were $550,000, $646,000 and $600,000, respectively. F-20
Stock Option Plan The Company's 1985 Share Option Plan, (the "Option Plan"), authorizes the grant of options, at the discretion of the Board of Directors, to certain officers, directors and key employees of the Company, for up to 10,000,000 shares of the Company'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 equal to the market value of the shares on the date of grant. Shares under options which subsequently expire or are canceled are available for subsequent grant. For options granted prior to December 12, 1995, the optionee has up to five years from the date on which the options first become exercisable during which to exercise the options. For all options granted subsequent to December 12, 1995, the options have ten year terms and typically vest on December 31 of the year subsequent to grant. On December 8, 1998, the Company cancelled 1,047,165 options which were granted on December 9, 1997 at $14.25. The Company subsequently reissued these options on December 8, 1998 at the Company'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 the Company 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 1998, 1997 and 1996: 1998 1997 1996 ---- ---- ---- Risk free interest rate 4.9% 4.8% 4.8% Dividend yields 6.6% 6.6% 6.6% Volatility factor .150 .150 .150 Weighted average expected life (years) 9 9 9 For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, consequently, the pro forma effect is not fully reflected until 1997. The Company's pro forma information is as follows: (in thousands, except per share amounts): 1998 1997 1996 ---- ---- ---- Net income available to common shareholders As reported $ 48,739 $ 52,804 $ 28,278 Pro forma 47,841 52,221 27,961 Earnings per common share-diluted As reported $ .49 $ .60 $ .49 Pro forma .48 .60 .48 F-21
A summary of the Company's stock option activity during the three years ended December 31, 1998 is provided in the following table (in thousand of dollars, except per share amounts). <TABLE> <CAPTION> Outstanding Options ----------------------------------------------------- Shares Available Weighted Average Range of For Future Grant Options Exercise Price Exercise Prices - - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Balance, December 31, 1995 602,840 1,490,636 $12.41 $ 7.44-$14.63 Granted (472,000) 472,000 15.21 13.88-15.25 Exercised -- (148,220) 10.33 7.44-13.63 Forfeited 39,200 (39,200) 14.17 13.13-14.63 Additional shares authorized 1,800,000 -- -- -- ----------------------------------------------------------------------------------- Balance, December 31, 1996 1,970,040 1,775,216 13.29 7.44-15.25 Granted (1,841,000) 1,841,000 14.34 13.50-15.38 Exercised -- (116,495) 11.18 7.44-14.63 Forfeited 51,000 (51,000) 15.09 13.13-15.38 --------------------------------------------------------------------------------------- Balance, December 31, 1997 180,040 3,448,721 13.89 7.44- 15.38 Granted (1,137,665) 1,137,665 11.16 10.88-14.13 Exercised -- (73,490) 11.47 7.44-13.88 Forfeited 1,153,883 (1,153,883) 14.28 7.44-15.38 Additional shares authorized (a) 4,735,858 -- -- -- --------------------------------------------------------------------------------------- Balance, December 31, 1998 4,932,116 3,359,013 $12.89 $ 7.44- $ 15.38 ======================================================================================= </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, 1996 713,791 $11.94 $7.44-$15.25 1997 916,981 12.67 7.44-15.38 1998 1,691,863 13.79 7.44-15.38 The weighted average remaining contractual life on all options outstanding is 7.6 years. Approximately 1,533,335 of share options had exercise prices between $14.13 and $15.38, approximately 1,781,454 had exercise prices between $10.88 and $13.94 and approximately 44,224 of share options had exercise prices between $7.44 and $9.19. The weighted average fair value of options granted during 1998, 1997 and 1996 was $.66, $1.35 and $1.43, respectively. 9. SHAREHOLDERS' EQUITY Preferred Stock Both Series A and Series B Preferred Stock have no stated par value, with 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 the Company. The Series A and Series B Preferred Stock are not redeemable prior to April 24, 2000 and May 29, 2007, respectively. On or after these dates, the Series A and Series B Preferred Stock may be redeemed for cash at the option of the Company, 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 proceeds of the sales proceeds of other capital stock of the Company. 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, the Company 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 F-22
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, the Company 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, the Company may not redeem in any consecutive 12 month period a number of shares of Series D having an aggregate liquidation preference of more than $100 million. 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 the Company at 7.5% interest only. Originally, the underlying notes began maturing in November 1998, however, the maturity date for the 194,000 shares maturing November 1998 was extended to November 2001. A total of 823,500 shares have been issued and 576,500 shares are available for future issuance under the Loan Plan. Dividend Reinvestment and Stock Purchase Plan The Company's Dividend Reinvestment and Stock Purchase Plan (the "Stock Purchase Plan") allows common and preferred shareholders the opportunity to purchase, through reinvestment of cash dividends and optional cash constributions, additional shares of the Company's common stock. As of December 31, 1998, 6,740,120 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 7,259,880 were reserved for further issuance under the Stock Purchase Plan at December 31, 1998. During 1998, 2,824,627 shares were issued under the Stock Purchase Plan for a total market equity value of approximately $36.6 million. 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 the Company. Upon exercise, the Company 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 the Company, the Company's common stock having a value of $90. 10. COMMITMENTS AND CONTINGENCIES Land and Other Leases The Company is party to several ground leases relating to operating communities. In addition, the Company is party to various other operating leases related to the operation of its corporate and regional offices. Future minimum lease payments for noncancelable land and other leases at December 31, 1998 are as follows (in thousands): 1999 $ 2,129 2000 1,336 2001 1,233 2002 1,227 2003 1,180 Thereafter 29,996 ----------- Total $ 37,101 =========== The Company incurred $1,614, $1,150, and $707, of rent expense for the years ended December 31, 1998, 1997 and 1996. F-23
Contingencies The Company is party to various legal actions which are incidental to its business. Management believes that these actions will not have a material adverse affect on the consolidated balance sheets and statements of operation. Commitments The Company is committed to completing its real estate currently under development which has an estimated cost to complete of $83.2 million at December 31, 1998. 11. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Summarized consolidated quarterly financial data for the year ended December 31, 1998 is as follows (In thousands, except per share information): <TABLE> <CAPTION> Three Months Ended ------------------------------------------------------------ March 31(a) June 30 September 30 December 31(a), (b) ---------- ---------- ------------ ------------------ <S> <C> <C> <C> <C> Rental income $ 104,249 $ 118,176 $ 123,475 $ 132,818 Income before gains (losses) on sales of investments, minority interests and extraordinary item 17,578 15,387 13,872 502 Gains (losses) on the sales of investments (260) 20,721 13 6,198 Net income 17,183 35,005 13,807 6,337 Distributions to preferred shareholders 5,650 5,653 5,650 6,640 Net income (loss) available to common shareholders 11,533 29,352 8,157 (303) Earnings per common share: Basic $ .13 $ .29 $ .08 $ (.00) Diluted $ .13 $ .29 $ .08 $ (.00) Weighted average number of common shares outstanding-basic 90,867 101,562 103,104 103,467 Weighted average number of common shares outstanding-diluted 90,985 102,358 103,145 103,476 </TABLE> (a) The Company completed the acquisition of ASR Investments Corporation on March 27, 1998 and the acquisition of American Apartment Communities II on December 7, 1998. (b) The fourth quarter of 1998 includes a $15.6 million charge associated with the termination of an interest rate risk management agreement. F-24
Summarized consolidated quarterly financial data for the year ended December 31, 1997 is as follows (In thousands, except per share information): <TABLE> <CAPTION> Three Months Ended ------------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ---------- ------------ ------------- <S> <C> <C> <C> <C> Rental income $ 89,984 $ 95,382 $ 98,816 $ 102,490 Income before gains (losses) on sales of investments, minority interests and extraordinary item 15,024 13,451 14,053 15,285 Gains (losses) on the sales of investments 2,120 1,254 9,309 (19) Net income 17,113 14,677 23,309 15,050 Distributions to preferred shareholders 2,428 3,611 5,653 5,653 Net income available to common shareholders 14,685 11,066 17,656 9,397 Earnings per common share: Basic $ .17 $ .13 $ .20 $ .11 Diluted $ .17 $ .13 $ .20 $ .11 Weighted average number of common shares outstanding-basic 85,046 86,877 87,853 88,756 Weighted average number of common shares outstanding -diluted 85,273 87,036 88,007 88,906 </TABLE> F-25
SCHEDULE III. Summary of Real Estate Owned <TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Apartments: Real estate held for investment Dallas, Texas Citiscape b 2,092,387 7,532,613 9,625,000 293,033 Preston Oaks b 1,783,626 6,416,374 8,200,000 353,018 Preston Trace 2,195,500 8,304,500 10,500,000 427,246 Rock Creek c 4,076,680 15,823,320 19,900,000 1,677,201 Windridge b 3,414,311 14,027,310 17,441,621 1,915,476 Autumnwood c 2,412,180 8,687,820 11,100,000 650,093 Cobblestone c 2,925,372 10,527,738 13,453,110 1,187,891 Pavillion b 4,428,258 18,692,922 23,121,180 872,429 Oak Park 3,966,129 17,848,850 21,814,979 3,404,370 Catalina b 1,543,321 5,631,679 7,175,000 356,305 Wimbledon Court c 1,809,183 10,930,306 12,739,489 2,009,275 Southern Oaks 1,565,000 5,335,000 6,900,000 451,052 Hunters Ridge 1,613,000 5,837,000 7,450,000 480,238 Lakeridge c 1,631,350 5,668,650 7,300,000 543,554 Summergate c 1,171,300 3,928,700 5,100,000 535,904 Dove Park 2,309,195 9,699,046 12,008,241 790,709 Oak Forest 5,630,740 19,961,055 25,591,795 1,181,665 Oak Forest II/Dallas, TX - 3,332,867 3,332,867 8,543,425 Post Oak Ridge 3,726,795 13,563,181 17,289,976 2,593,852 Kelly Crossing 2,496,701 9,156,355 11,653,056 847,386 Parc Plaza 1,683,531 5,279,123 6,962,654 901,066 Summit Ridge 4,925,555 1,725,508 6,308,032 8,033,540 1,041,606 Greenwood Creek 4,993,022 1,958,378 8,551,018 10,509,396 330,832 Highlands of Preston 4,774,686 2,151,056 8,167,630 10,318,686 599,129 Merit Place 7,416,554 3,121,153 12,071,435 15,192,588 1,667,007 Park on Preston 5,668,758 1,521,877 9,950,455 11,472,332 196,598 Aspen Court 2,022,724 776,587 4,944,947 5,721,534 232,885 Smith Summit 5,516,872 1,932,195 9,041,301 10,973,496 699,299 Springfield 5,192,011 3,074,511 6,823,120 9,897,631 401,450 Orlando, Florida Fisherman's Village 2,387,368 7,458,897 9,846,265 2,661,274 Seabrook 1,845,853 4,155,275 6,001,128 2,529,430 Dover Village 2,894,702 6,456,100 9,350,802 3,023,040 Lakeside North 12,440,000 1,532,700 11,076,062 12,608,762 3,086,935 Regatta Shores 757,008 6,607,367 7,364,375 2,176,134 Alafaya Woods 1,653,000 9,042,256 10,695,256 1,629,505 Vinyards 9,080,000 1,840,230 11,571,625 13,411,855 2,367,182 Andover Place 13,560,000 3,692,187 7,756,919 11,449,106 2,574,008 Los Altos 2,803,805 12,348,464 15,152,269 2,071,136 Lotus Landing 2,184,723 8,638,664 10,823,387 1,483,462 Seville on the Green 1,282,616 6,498,062 7,780,678 1,570,126 Arbors at Lee Vista 3,975,679 16,920,454 20,896,133 1,166,563 Heron Lake 6,549,795 1,446,553 9,287,878 10,734,431 239,004 Raleigh, North Carolina Dominion on Spring Forest 1,257,500 8,586,255 9,843,755 2,658,993 Dominion Park Green 500,000 4,321,872 4,821,872 1,151,529 Dominion on Lake Lynn 1,723,363 5,303,760 7,027,123 1,998,600 Dominion Courtney Place 1,114,600 5,119,259 6,233,859 2,568,045 Dominion Walnut Ridge 1,791,215 11,968,852 13,760,067 1,845,863 Dominion Walnut Creek 3,170,290 21,717,407 24,887,697 2,481,164 Dominion Ramsgate d 907,605 6,819,154 7,726,759 565,726 Harbour Pointe 1,898,740 7,101,260 9,000,000 137,505 Copper Mill 1,548,280 16,066,720 17,615,000 772,401 Trinity Park 9,132,143 4,579,648 17,575,712 22,155,360 695,680 </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction --------------------------------------------------- ------------------------------------ <S> <C> <C> <C> <C> <C> Apartments: Real estate held for investment Dallas, Texas Citiscape 2,162,504 7,755,529 9,918,033 584,774 1973 Preston Oaks 1,879,294 6,673,724 8,553,018 497,289 1980 Preston Trace 2,303,887 8,623,359 10,927,246 616,382 1984 Rock Creek 4,454,182 17,123,019 21,577,201 1,297,000 1974 Windridge 3,971,087 15,386,010 19,357,097 1,163,009 1980 Autumnwood 2,625,778 9,124,315 11,750,093 700,677 1984 Cobblestone 3,060,821 11,580,180 14,641,001 835,546 1984 Pavillion 4,576,772 19,416,837 23,993,609 1,302,289 1979 Oak Park 2,257,661 22,961,688 25,219,349 1,535,094 1982 Catalina 1,615,288 5,916,017 7,531,305 453,230 1982 Wimbledon Court 1,889,146 12,859,618 14,748,764 755,713 1983 Southern Oaks 1,593,240 5,757,812 7,351,052 469,256 1982 Hunters Ridge 1,786,871 6,143,367 7,930,238 502,247 1992 Lakeridge 1,754,334 6,089,219 7,843,553 489,394 1984 Summergate 1,364,304 4,271,600 5,635,904 320,733 1984 Dove Park 2,557,532 10,241,418 12,798,950 719,443 1984 Oak Forest 5,674,617 21,098,843 26,773,460 1,678,772 1996 Oak Forest II/Dallas, TX 606,365 11,269,927 11,876,292 803,552 1998 Post Oak Ridge 4,358,867 15,524,961 19,883,828 1,157,558 1983 Kelly Crossing 2,791,685 9,708,757 12,500,442 588,853 1984 Parc Plaza 1,864,220 5,999,500 7,863,720 323,701 1986 Summit Ridge 2,110,943 6,964,203 9,075,146 291,473 1983 Greenwood Creek 2,007,346 8,832,882 10,840,228 259,035 1984 Highlands of Preston 2,222,899 8,694,916 10,917,815 242,580 1985 Merit Place 3,276,257 13,583,338 16,859,595 375,279 1984 Park on Preston 1,572,297 10,096,633 11,668,930 287,753 1983 Aspen Court 843,321 5,111,098 5,954,419 144,617 1986 Smith Summit 2,261,908 9,410,887 11,672,795 261,913 1983 Springfield 3,180,328 7,118,753 10,299,081 214,697 1985 Orlando, Florida Fisherman's Village 3,057,520 9,450,019 12,507,539 1,351,487 1984 Seabrook 2,222,219 6,308,339 8,530,558 1,006,352 1984 Dover Village 3,351,532 9,022,310 12,373,842 2,341,719 1981 Lakeside North 2,209,769 13,485,928 15,695,697 2,568,868 1984 Regatta Shores 1,487,257 8,053,252 9,540,509 1,795,008 1988 Alafaya Woods 2,070,133 10,254,628 12,324,761 1,866,181 1988/90 Vinyards 2,351,199 13,427,838 15,779,037 2,375,293 1984/86 Andover Place 4,428,435 9,594,679 14,023,114 1,383,978 1987/88 Los Altos 3,256,262 13,967,144 17,223,406 1,219,123 1990 Lotus Landing 2,364,862 9,941,987 12,306,849 510,974 1985 Seville on the Green 1,430,736 7,920,068 9,350,804 369,368 1986 Arbors at Lee Vista 4,189,389 17,873,307 22,062,696 670,345 1991 Heron Lake 1,534,759 9,438,676 10,973,435 188,470 1989 Raleigh, North Carolina Dominion on Spring Forest 1,542,668 10,960,080 12,502,748 3,765,984 1978/81 Dominion Park Green 674,640 5,298,761 5,973,401 1,706,827 1987 Dominion on Lake Lynn 2,156,066 6,869,657 9,025,723 1,807,699 1986 Dominion Courtney Place 1,377,228 7,424,676 8,801,904 1,513,094 1979/81 Dominion Walnut Ridge 2,085,931 13,519,999 15,605,930 2,496,621 1982/84 Dominion Walnut Creek 3,643,340 23,725,521 27,368,861 4,160,114 1985/86 Dominion Ramsgate 994,517 7,297,968 8,292,485 653,113 1988 Harbour Pointe 1,898,796 7,238,709 9,137,505 517,692 1984 Copper Mill 1,742,427 16,644,974 18,387,401 1,205,279 1997 Trinity Park 4,695,353 18,155,687 22,851,040 1,244,633 1987 </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component ------------------ ------------- <S> <C> <C> Apartments: Real estate held for investment Dallas, Texas Citiscape 12/31/96 35 yrs. Preston Oaks 12/31/96 35 yrs. Preston Trace 12/31/96 35 yrs. Rock Creek 12/31/96 35 yrs. Windridge 12/31/96 35 yrs. Autumnwood 12/31/96 35 yrs. Cobblestone 12/31/96 35 yrs. Pavillion 12/31/96 35 yrs. Oak Park 12/31/96 35 yrs. Catalina 12/31/96 35 yrs. Wimbledon Court 12/31/96 35 yrs. Southern Oaks 12/31/96 35 yrs. Hunters Ridge 12/31/96 35 yrs. Lakeridge 12/31/96 35 yrs. Summergate 12/31/96 35 yrs. Dove Park 12/31/96 35 yrs. Oak Forest 12/31/96 35 yrs. Oak Forest II/Dallas, TX 01/31/98 35 yrs. Post Oak Ridge 03/27/97 35 yrs. Kelly Crossing 06/18/97 35 yrs. Parc Plaza 10/30/97 35 yrs. Summit Ridge 3/27/98 35 yrs. Greenwood Creek 3/27/98 35 yrs. Highlands of Preston 3/27/98 35 yrs. Merit Place 3/27/98 35 yrs. Park on Preston 3/27/98 35 yrs. Aspen Court 3/27/98 35 yrs. Smith Summit 3/27/98 35 yrs. Springfield 3/27/98 35 yrs. Orlando, Florida Fisherman's Village 12/29/95 35 yrs. Seabrook 02/20/96 35 yrs. Dover Village 3/31/93 35 yrs. Lakeside North 04/14/94 35 yrs. Regatta Shores 06/30/94 35 yrs. Alafaya Woods 10/21/94 35 yrs. Vinyards 10/31/94 35 yrs. Andover Place 9/29/95 35 yrs. Los Altos 10/31/96 35 yrs. Lotus Landing 07/01/97 35 yrs. Seville on the Green 10/21/97 35 yrs. Arbors at Lee Vista 12/31/97 35 yrs. Heron Lake 3/27/98 35 yrs. Raleigh, North Carolina Dominion on Spring Forest 05/21/91 35 yrs. Dominion Park Green 09/27/91 35 yrs. Dominion on Lake Lynn 12/01/92 35 yrs. Dominion Courtney Place 07/08/93 35 yrs. Dominion Walnut Ridge 03/04/94 35 yrs. Dominion Walnut Creek 05/17/94 35 yrs. Dominion Ramsgate 08/15/96 35 yrs. Harbour Pointe 12/31/96 35 yrs. Copper Mill 12/31/96 35 yrs. Trinity Park 02/28/97 35 yrs. </TABLE> F-26
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Charlotte, North Carolina The Highlands 321,400 2,830,346 3,151,746 2,352,583 Emerald Bay 626,070 4,722,862 5,348,932 2,559,463 Dominion Peppertree 1,546,267 7,699,221 9,245,488 1,189,092 Dominion Crown Point 70,641 1,115,261 8,648,865 9,764,126 1,022,310 Dominion Harris Pond 4,962,658 886,788 6,728,097 7,614,885 1,056,872 Dominion Mallard Creek (A) 5,345,937 698,860 6,488,061 7,186,921 515,832 Chateau Village 1,046,610 6,979,555 8,026,165 1,891,855 Dominion at Sharon d 667,368 4,856,103 5,523,471 903,292 Providence Court - 22,047,803 22,047,803 8,957,196 Stoney Pointe 12,393,112 1,499,650 15,855,610 17,355,260 954,937 Richmond, Virginia Dominion Olde West 1,965,097 12,203,965 14,169,062 3,372,637 Dominion Creekwood - - - 100,362 Dominion Laurel Springs 464,480 3,119,716 3,584,196 1,016,484 Dominion English Hills 1,979,174 11,524,313 13,503,487 4,878,966 Dominion Gayton Crossing 3,027,211 825,760 5,147,968 5,973,728 6,248,180 Dominion West End 2,059,252 15,049,088 17,108,340 2,182,406 Courthouse Green 732,050 4,702,353 5,434,403 2,942,594 Waterside at Ironbridge 6,874 1,843,819 13,238,590 15,082,409 465,623 Houston, Texas Woodtrail b 1,543,000 5,457,000 7,000,000 1,598,821 Park Trails b 1,144,750 4,105,250 5,250,000 235,290 Green Oaks 5,313,920 19,626,181 24,940,101 1,801,513 Seahawk 2,297,741 7,157,965 9,455,706 1,598,418 Greenhouse Patio 11,142,725 4,058,090 14,755,809 18,813,899 2,088,263 Breakers 1,527,467 5,297,930 6,825,397 832,009 Braesridge 9,478,127 3,048,212 10,961,749 14,009,961 889,358 Bammelwood 2,914,992 929,601 3,330,352 4,259,953 207,914 Camino Village 8,550,559 3,604,483 11,592,432 15,196,915 806,930 Briar Park 1,463,642 329,002 2,742,196 3,071,198 50,963 Chelsea Park 3,241,830 1,991,478 5,787,626 7,779,104 407,440 Clear Lake Falls 1,764,277 1,090,080 4,534,335 5,624,415 43,878 Country Club Place 3,649,073 498,632 5,658,634 6,157,266 268,962 Ivy Stone 3,916,943 1,688,948 4,761,680 6,450,628 348,902 London Park 4,714,569 2,018,478 6,534,362 8,552,840 454,256 Marymont 1,150,696 4,155,411 5,306,107 296,151 Memorial Bend 1,972,752 882,230 3,157,829 4,040,059 (37,095) Nantucket Square 2,825,491 1,067,617 4,222,908 5,290,525 45,805 Prestonwood 2,532,249 998,433 4,128,699 5,127,132 70,540 Riverway 1,250,187 523,457 2,828,282 3,351,739 23,632 Riviera Pines 3,420,047 1,413,851 5,578,207 6,992,058 29,917 The Gallery 3,127,232 768,708 2,410,732 3,179,440 19,822 Timbercreek Landing 1,333,958 5,308,884 6,642,842 598,363 Columbia, South Carolina Gable Hill 824,847 5,307,194 6,132,041 1,163,591 Colonial Villa 1,014,181 5,100,269 6,114,450 1,898,967 St. Andrews Commons 1,428,826 9,371,378 10,800,204 1,315,853 Forestbrook 5,000,000 395,516 2,902,040 3,297,556 1,693,495 Crossroads 2,074,800 13,760,014 15,834,814 2,935,215 The Park 1,004,072 5,558,436 6,562,508 1,881,195 St. Andrews 976,192 6,884,502 7,860,694 938,009 Waterford 957,980 6,947,939 7,905,919 1,071,145 Hampton Greene 7,183,907 1,363,046 10,118,453 11,481,499 1,177,708 Rivergate 9,454,788 1,122,500 12,055,625 13,178,125 889,548 </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Charlotte, North Carolina The Highlands 629,591 4,874,738 5,504,329 2,930,714 1970 Emerald Bay 1,171,772 6,736,623 7,908,395 3,084,174 1972 Dominion Peppertree 1,830,202 8,604,378 10,434,580 1,875,697 1987 Dominion Crown Point 1,316,111 9,470,325 10,786,436 1,730,037 1987 Dominion Harris Pond 1,199,843 7,471,914 8,671,757 1,265,039 1987 Dominion Mallard Creek (A) 775,856 6,926,897 7,702,753 1,141,100 1989 Chateau Village 1,407,248 8,510,771 9,918,019 888,350 1974 Dominion at Sharon 897,820 5,528,943 6,426,763 520,656 1984 Providence Court 7,332,921 23,672,078 31,004,999 1,607,404 1997 Stoney Pointe 1,722,292 16,587,905 18,310,197 1,184,108 1991 Richmond, Virginia Dominion Olde West 2,376,176 15,165,523 17,541,699 6,372,898 1978/82/85/87 Dominion Creekwood 17,786 82,576 100,362 5,114 1984 Dominion Laurel Springs 617,439 3,983,241 4,600,680 1,343,137 1972 Dominion English Hills 2,579,333 15,803,120 18,382,453 5,055,054 1969/76 Dominion Gayton Crossing 1,125,116 11,096,792 12,221,908 1,768,866 1973 Dominion West End 2,460,328 16,830,418 19,290,746 1,936,326 1989 Courthouse Green 1,068,765 7,308,232 8,376,997 3,399,361 1974/78 Waterside at Ironbridge 1,960,369 13,587,663 15,548,032 630,628 1987 Houston, Texas Woodtrail 1,653,334 6,945,487 8,598,821 608,145 1978 Park Trails 1,145,558 4,339,732 5,485,290 363,216 1983 Green Oaks 5,724,396 21,017,218 26,741,614 1,237,112 1985 Seahawk 2,665,473 8,388,651 11,054,124 539,300 1984 Greenhouse Patio 4,011,815 16,890,347 20,902,162 759,509 1985 Breakers 1,689,613 5,967,793 7,657,406 320,120 1985 Braesridge 3,098,893 11,800,426 14,899,319 594,692 1982 Bammelwood 946,970 3,520,897 4,467,867 198,498 1980 Camino Village 3,614,087 12,389,758 16,003,845 748,207 1979 Briar Park 332,107 2,790,054 3,122,161 77,096 1987 Chelsea Park 2,027,451 6,159,093 8,186,544 180,100 1983 Clear Lake Falls 1,095,021 4,573,272 5,668,293 123,003 1980 Country Club Place 564,173 5,862,055 6,426,228 167,766 1985 Ivy Stone 1,813,711 4,985,819 6,799,530 172,079 1983 London Park 2,151,877 6,855,219 9,007,096 210,184 1983 Marymont 1,150,696 4,451,562 5,602,258 128,040 1983 Memorial Bend 883,645 3,119,319 4,002,964 98,900 1967 Nantucket Square 1,068,145 4,268,185 5,336,330 116,824 1983 Prestonwood 1,003,137 4,194,535 5,197,672 124,329 1978 Riverway 523,457 2,851,914 3,375,371 95,032 1985 Riviera Pines 1,415,859 5,606,116 7,021,975 167,615 1979 The Gallery 770,447 2,428,815 3,199,262 77,014 1968 Timbercreek Landing 1,447,042 5,794,163 7,241,205 168,809 1984 Columbia, South Carolina Gable Hill 1,135,416 6,160,216 7,295,632 2,153,319 1985 Colonial Villa 1,481,347 6,532,070 8,013,417 1,723,195 1974 St. Andrews Commons 1,773,706 10,342,351 12,116,057 2,436,770 1986 Forestbrook 626,697 4,364,354 4,991,051 1,246,558 1974 Crossroads 2,559,396 16,210,633 18,770,029 2,838,789 1977/84 The Park 1,415,284 7,028,419 8,443,703 1,295,885 1975/77 St. Andrews 1,188,669 7,610,034 8,798,703 1,330,794 1972 Waterford 1,226,683 7,750,381 8,977,064 1,480,926 1985 Hampton Greene 1,833,229 10,825,978 12,659,207 1,791,543 1990 Rivergate 1,352,160 12,715,513 14,067,673 1,142,450 1989 </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component -------------------------------- <S> <C> <C> Charlotte, North Carolina The Highlands 01/17/84 35 yrs. Emerald Bay 02/06/90 35 yrs. Dominion Peppertree 12/14/93 35 yrs. Dominion Crown Point 07/01/94 35 yrs. Dominion Harris Pond 07/01/94 35 yrs. Dominion Mallard Creek (A) 08/16/94 35 yrs. Chateau Village 08/15/96 35 yrs. Dominion at Sharon 08/15/96 35 yrs. Providence Court 09/30/97 35 yrs. Stoney Pointe 02/28/97 35 yrs. Richmond, Virginia Dominion Olde West 12/31/84 35 yrs. Dominion Creekwood 08/27/91 35 yrs. Dominion Laurel Springs 09/06/91 35 yrs. Dominion English Hills 12/06/91 35 yrs. Dominion Gayton Crossing 09/28/95 35 yrs. Dominion West End 12/28/95 35 yrs. Courthouse Green 12/31/84 35 yrs. Waterside at Ironbridge 09/30/97 35 yrs. Houston, Texas Woodtrail 12/31/96 35 yrs. Park Trails 12/31/96 35 yrs. Green Oaks 06/25/97 35 yrs. Seahawk 05/08/97 35 yrs. Greenhouse Patio 09/26/97 35 yrs. Breakers 09/26/97 35 yrs. Braesridge 09/26/97 35 yrs. Bammelwood 10/30/97 35 yrs. Camino Village 11/20/97 35 yrs. Briar Park 3/27/98 35 yrs. Chelsea Park 3/27/98 35 yrs. Clear Lake Falls 3/27/98 35 yrs. Country Club Place 3/27/98 35 yrs. Ivy Stone 3/27/98 35 yrs. London Park 3/27/98 35 yrs. Marymont 3/27/98 35 yrs. Memorial Bend 3/27/98 35 yrs. Nantucket Square 3/27/98 35 yrs. Prestonwood 3/27/98 35 yrs. Riverway 3/27/98 35 yrs. Riviera Pines 3/27/98 35 yrs. The Gallery 3/27/98 35 yrs. Timbercreek Landing 3/27/98 35 yrs. Columbia, South Carolina Gable Hill 12/04/89 35 yrs. Colonial Villa 09/16/92 35 yrs. St. Andrews Commons 05/20/93 35 yrs. Forestbrook 07/01/93 35 yrs. Crossroads 07/01/94 35 yrs. The Park 07/01/94 35 yrs. St. Andrews 07/01/94 35 yrs. Waterford 07/01/94 35 yrs. Hampton Greene 08/19/94 35 yrs. Rivergate 08/15/96 35 yrs. </TABLE> F-27
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Tampa, Florida Bay Cove 2,928,847 6,578,257 9,507,104 2,304,898 Summit West 2,176,500 4,709,970 6,886,470 1,937,832 Pinebrook 1,780,375 2,458,172 4,238,547 2,689,874 Village at Old Tampa Bay 1,750,320 10,756,337 12,506,657 1,844,632 Lakewood Place 1,395,051 10,647,377 12,042,428 936,027 Hunters Ridge 2,461,548 10,942,434 13,403,982 1,185,735 Bay Meadow 7,855,253 2,892,526 9,253,525 12,146,051 2,258,216 Cambridge 1,790,804 7,166,329 8,957,133 1,061,448 Orange Oaks 1,361,553 6,541,980 7,903,533 1,008,878 Parker's Landing 33,211,758 10,178,355 38,584,669 48,763,024 - Sugar Mill Creek e 2,241,880 8,252,520 10,494,400 - Greensboro, North Carolina Beechwood 1,409,377 6,086,677 7,496,054 823,687 Steeplechase 3,208,108 11,513,978 14,722,086 11,949,577 Northwinds d 1,557,654 11,735,787 13,293,441 804,111 Lake Brandt 1,546,950 13,489,466 15,036,416 572,667 Deep River Pointe 1,670,648 11,140,329 12,810,977 258,714 Eastern North Carolina Colony Village 346,330 3,036,956 3,383,286 1,768,928 Brynn Marr 432,974 3,821,508 4,254,482 2,247,425 Liberty Crossing 869,731 840,000 3,873,139 4,713,139 2,453,104 Bramblewood 401,538 3,150,912 3,552,450 1,277,629 Cape Harbor 9,257,264 1,891,671 18,113,109 20,004,780 786,419 Mill Creek 597,248 4,489,398 5,086,646 1,679,481 Mill Creek II/Wilmington, NC 807,250 - 807,250 11,138,762 The Creek 417,500 2,506,206 2,923,706 1,372,412 Forest Hills 1,028,000 5,420,478 6,448,478 1,625,769 Clear Run 874,830 8,740,602 9,615,432 5,000,303 Crosswinds 1,096,196 18,230,236 19,326,432 722,601 San Antonio, Texas Promontory Pointe 7,548,219 28,051,781 35,600,000 1,419,789 Bluffs b 1,901,146 6,898,854 8,800,000 1,115,367 Ashley Oaks c 4,590,782 16,809,218 21,400,000 217,320 Sunflower 2,209,000 7,891,000 10,100,000 367,744 Carmel 4,087,024 875,417 6,709,349 7,584,766 778,025 Cimarron City 3,158,544 487,906 4,284,793 4,772,699 441,320 Kenton 7,469,865 2,344,962 8,817,376 11,162,338 1,026,816 Peppermill 4,459,272 773,405 6,873,146 7,646,551 786,793 Villages of Thousand Oaks 8,923,129 3,201,039 9,919,680 13,120,719 1,636,801 Audubon 4,641,035 771,037 5,873,917 6,644,954 1,445,307 Grand Cypress 5,870,421 749,341 8,609,353 9,358,694 777,896 Inn At Los Patios 3,005,300 11,544,700 14,550,000 (1,537,310) </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Tampa, Florida Bay Cove 3,257,053 8,554,949 11,812,002 2,314,008 1972 Summit West 2,446,995 6,377,307 8,824,302 1,758,153 1972 Pinebrook 2,022,578 4,905,843 6,928,421 1,462,590 1977 Village at Old Tampa Bay 2,108,454 12,242,835 14,351,289 2,605,702 1986 Lakewood Place 1,565,662 11,412,793 12,978,455 2,108,171 1986 Hunters Ridge 2,915,105 11,674,612 14,589,717 1,694,918 1992 Bay Meadow 3,415,436 10,988,831 14,404,267 909,254 1985 Cambridge 2,049,576 7,969,005 10,018,581 480,927 1985 Orange Oaks 1,529,357 7,383,054 8,912,411 414,613 1986 Parker's Landing 10,178,355 38,584,669 48,763,024 87,684 1991 Sugar Mill Creek 2,241,880 8,252,520 10,494,400 18,816 1988 Greensboro, North Carolina Beechwood 1,599,720 6,720,021 8,319,741 1,397,580 1985 Steeplechase 3,730,687 22,940,976 26,671,663 1,296,142 1990/97 Northwinds 1,725,289 12,372,263 14,097,552 755,072 1989/97 Lake Brandt 1,742,758 13,866,325 15,609,083 1,208,681 1995 Deep River Pointe 1,752,525 11,317,166 13,069,691 554,003 1997 Eastern North Carolina Colony Village 543,318 4,608,896 5,152,214 2,355,236 1972/74 Brynn Marr 714,169 5,787,738 6,501,907 2,753,746 1973/77 Liberty Crossing 1,362,097 5,804,146 7,166,243 2,464,291 1972/74 Bramblewood 551,414 4,278,665 4,830,079 2,274,746 1980/82 Cape Harbor 2,214,575 18,576,624 20,791,199 1,658,467 1996 Mill Creek 822,733 5,943,393 6,766,126 1,671,542 1986 Mill Creek II/Wilmington, NC 1,654,093 10,291,919 11,946,012 - 1998 The Creek 485,163 3,810,955 4,296,118 1,210,607 1973 Forest Hills 1,165,162 6,909,085 8,074,247 1,754,109 1964/69 Clear Run 1,230,647 13,385,088 14,615,735 2,013,480 1987/89 Crosswinds 1,179,387 18,869,646 20,049,033 1,358,307 1990 San Antonio, Texas Promontory Pointe 7,749,116 29,270,673 37,019,789 2,206,529 1997 Bluffs 2,034,223 7,881,144 9,915,367 678,287 1978 Ashley Oaks 4,631,887 16,985,433 21,617,320 1,190,444 1993 Sunflower 2,299,470 8,168,274 10,467,744 624,998 1980 Carmel 878,986 7,483,805 8,362,791 208,163 1986 Cimarron City 518,973 4,695,046 5,214,019 133,162 1983 Kenton 2,384,911 9,804,243 12,189,154 274,164 1983 Peppermill 780,771 7,652,573 8,433,344 220,604 1984 Villages of Thousand Oaks 3,457,982 11,299,539 14,757,521 357,774 1984 Audubon 841,343 7,248,917 8,090,260 213,945 1985 Grand Cypress 760,798 9,375,792 10,136,590 252,007 1995 Inn At Los Patios 3,005,300 10,007,390 13,012,690 153,450 1990 </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building n Acquired Component ---------------------------------- <S> <C> <C> Tampa, Florida Bay Cove 12/16/92 35 yrs. Summit West 12/16/92 35 yrs. Pinebrook 09/28/93 35 yrs. Village at Old Tampa Bay 12/08/93 35 yrs. Lakewood Place 03/10/94 35 yrs. Hunters Ridge 06/30/95 35 yrs. Bay Meadow 12/09/96 35 yrs. Cambridge 06/06/97 35 yrs. Orange Oaks 07/01/97 35 yrs. Parker's Landing 12/7/98 35 yrs. Sugar Mill Creek 12/7/98 35 yrs. Greensboro, North Carolina Beechwood 12/22/93 35 yrs. Steeplechase 03/07/96 35 yrs. Northwinds 08/15/96 35 yrs. Lake Brandt 08/15/96 35 yrs. Deep River Pointe 10/01/97 35 yrs. Eastern North Carolina Colony Village 12/31/84 35 yrs. Brynn Marr 12/31/84 35 yrs. Liberty Crossing 11/30/90 35 yrs. Bramblewood 12/31/84 35 yrs. Cape Harbor 08/15/96 35 yrs. Mill Creek 09/30/91 35 yrs. Mill Creek II/Wilmington, NC 35 yrs. The Creek 06/30/92 35 yrs. Forest Hills 06/30/92 35 yrs. Clear Run 07/22/94 35 yrs. Crosswinds 02/28/97 35 yrs. San Antonio, Texas Promontory Pointe 12/31/96 35 yrs. Bluffs 12/31/96 35 yrs. Ashley Oaks 12/31/96 35 yrs. Sunflower 12/31/96 35 yrs. Carmel 4/16/98 35 yrs. Cimarron City 4/16/98 35 yrs. Kenton 4/16/98 35 yrs. Peppermill 4/16/98 35 yrs. Villages of Thousand Oaks 4/16/98 35 yrs. Audubon 4/16/98 35 yrs. Grand Cypress 4/16/98 35 yrs. Inn At Los Patios 8/15/98 35 yrs. </TABLE> F-28
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Nashville, Tennessee 2131 Apartments 869,860 9,155,185 10,025,045 3,413,587 The Lakes 1,285,657 5,980,197 7,265,854 1,131,216 Harbour Town 572,567 3,522,092 4,094,659 891,015 Legacy Hill 5,080,972 1,147,660 5,867,567 7,015,227 2,569,984 Hickory Run 1,468,727 11,583,786 13,052,513 1,200,687 Brookridge 707,508 5,461,251 6,168,759 916,879 Club at Hickory Hollow 2,139,774 15,231,201 17,370,975 1,552,323 Breckenridge 766,428 7,713,862 8,480,290 521,768 Williamsburg 1,376,190 10,931,309 12,307,499 819,399 Baltimore, Maryland Gatewater Landing 2,078,422 6,084,526 8,162,948 1,025,553 Dominion Kings Place 4,795,000 1,564,942 7,006,574 8,571,516 700,588 Dominion at Eden Brook 8,185,000 2,361,167 9,384,171 11,745,338 995,646 Dominion Great Oaks 2,919,481 9,099,691 12,019,172 2,410,980 Dominion Constant Friendship 903,122 4,668,956 5,572,078 623,209 Atlanta, Georgia Stanford Village 884,500 2,807,839 3,692,339 1,016,626 Griffin Crossing 1,509,633 7,544,018 9,053,651 1,103,728 Gwinnett Square 1,924,325 7,376,454 9,300,779 1,255,281 Dunwoody Pointe 5,783,881 2,763,324 6,902,996 9,666,320 4,119,690 Riverwood 5,309,328 2,985,599 11,087,903 14,073,502 2,866,910 Lake of the Woods 835,352 8,388,258 9,223,610 846,137 Waterford Place 1,579,478 10,302,679 11,882,157 94,149 Miami/Fort Lauderdale, Florida Copperfield 4,424,128 20,428,969 24,853,097 1,476,079 Mediterranean Village 2,064,788 11,939,113 14,003,901 1,233,880 Cleary Court 2,399,848 7,913,450 10,313,298 1,389,858 University Club 1,390,220 6,992,620 8,382,840 1,342,786 Polo Chase 3,675,276 13,801,853 17,477,129 - Washington D.C. Dominion Middle Ridge/Woodbridge 3,311,468 13,283,047 16,594,515 772,923 Dominion Lake Ridge/Woodbridge 2,366,061 8,386,439 10,752,500 665,608 Knolls at Newgate/Fairfax 1,725,725 3,530,134 5,255,859 1,467,169 Hampton Roads, Virginia Forest Lakes at Oyster Point 780,117 8,861,878 9,641,995 1,558,191 Woodscape 798,700 7,209,525 8,008,225 2,670,385 Eastwind 155,000 5,316,738 5,471,738 1,944,651 Kings Arms 1,823,983 4,106,710 5,930,693 1,060,252 Heather Lake 616,800 3,400,672 4,017,472 2,796,641 York Pointe 1,088,887 8,581,771 9,670,658 515,331 Jacksonville, Florida Greentree Place 12,455,000 1,634,330 11,226,990 12,861,320 3,316,528 Westland Park 1,834,535 14,864,742 16,699,277 3,189,368 The Antlers 4,034,039 11,192,842 15,226,881 4,619,321 </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Nashville, Tennessee 2131 Apartments 1,190,094 12,248,538 13,438,632 2,768,622 1972 The Lakes 1,461,651 6,935,419 8,397,070 1,661,764 1986 Harbour Town 721,324 4,264,350 4,985,674 944,649 1974 Legacy Hill 1,416,362 8,168,849 9,585,211 1,122,442 1977 Hickory Run 1,621,766 12,631,434 14,253,200 1,479,324 1989 Brookridge 909,717 6,175,921 7,085,638 779,067 1986 Club at Hickory Hollow 2,645,694 16,277,604 18,923,298 1,246,401 1987 Breckenridge 924,092 8,077,966 9,002,058 598,483 1986 Williamsburg 1,436,225 11,690,672 13,126,897 457,939 1986 Baltimore, Maryland Gatewater Landing 2,166,411 7,022,090 9,188,501 1,797,148 1970 Dominion Kings Place 1,645,423 7,626,681 9,272,104 1,688,397 1983 Dominion at Eden Brook 2,462,172 10,278,813 12,740,985 2,312,986 1984 Dominion Great Oaks 3,241,013 11,189,139 14,430,152 2,255,101 1974 Dominion Constant Friendship 1,038,234 5,157,053 6,195,287 734,120 1990 Atlanta, Georgia Stanford Village 1,156,761 3,552,204 4,708,965 1,551,738 1985 Griffin Crossing 1,671,386 8,485,993 10,157,379 1,573,554 1987/89 Gwinnett Square 2,110,130 8,445,930 10,556,060 1,194,754 1985 Dunwoody Pointe 3,265,954 10,520,056 13,786,010 1,439,655 1980 Riverwood 3,321,388 13,619,024 16,940,412 1,509,651 1980 Lake of the Woods 1,064,519 9,005,229 10,069,748 842,622 1989 Waterford Place 1,612,011 10,364,295 11,976,306 270,375 1985 Miami/Fort Lauderdale, Florida Copperfield 4,955,878 21,373,298 26,329,176 3,045,731 1991 Mediterranean Village 2,262,087 12,975,694 15,237,781 2,011,391 1989 Cleary Court 2,613,237 9,089,919 11,703,156 1,398,251 1984/85 University Club 1,757,874 7,967,752 9,725,626 991,011 1988 Polo Chase 3,675,276 13,801,853 17,477,129 31,352 1991 Washington D.C. Dominion Middle Ridge/Woodbridge 3,408,199 13,959,239 17,367,438 1,292,977 1990 Dominion Lake Ridge/Woodbridge 2,489,682 8,928,426 11,418,108 1,026,435 1987 Knolls at Newgate/Fairfax 1,844,394 4,878,634 6,723,028 1,020,075 1972 Hampton Roads, Virginia Forest Lakes at Oyster Point 1,144,089 10,056,096 11,200,185 1,410,934 1986 Woodscape 1,060,243 9,618,367 10,678,610 4,025,551 1974/76 Eastwind 349,983 7,066,406 7,416,389 2,986,791 1970 Kings Arms 2,010,103 4,980,842 6,990,945 526,341 1966 Heather Lake 954,979 5,859,134 6,814,113 3,899,340 1972/74 York Pointe 1,251,487 8,934,502 10,185,989 349,065 1987 Jacksonville, Florida Greentree Place 2,245,862 13,931,986 16,177,848 2,451,035 1986 Westland Park 2,567,434 17,321,210 19,888,644 1,891,845 1990 The Antlers 4,757,500 15,088,701 19,846,201 1,829,629 1985 </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component --------------------------------- <S> <C> <C> Nashville, Tennessee 2131 Apartments 12/16/92 35 yrs. The Lakes 09/15/93 35 yrs. Harbour Town 12/10/93 35 yrs. Legacy Hill 11/06/95 35 yrs. Hickory Run 12/29/95 35 yrs. Brookridge 03/28/96 35 yrs. Club at Hickory Hollow 02/21/97 35 yrs. Breckenridge 03/27/97 35 yrs. Williamsburg 5/20/98 35 yrs. Baltimore, Maryland Gatewater Landing 12/16/92 35 yrs. Dominion Kings Place 12/29/92 35 yrs. Dominion at Eden Brook 12/29/92 35 yrs. Dominion Great Oaks 07/01/94 35 yrs. Dominion Constant Friendship 05/04/95 35 yrs. Atlanta, Georgia Stanford Village 09/26/89 35 yrs. Griffin Crossing 06/08/94 35 yrs. Gwinnett Square 03/29/95 35 yrs. Dunwoody Pointe 10/24/95 35 yrs. Riverwood 06/26/96 35 yrs. Lake of the Woods 08/15/96 35 yrs. Waterford Place 04/15/98 35 yrs. Miami/Fort Lauderdale, Florida Copperfield 09/21/94 35 yrs. Mediterranean Village 09/30/94 35 yrs. Cleary Court 11/30/94 35 yrs. University Club 09/26/95 35 yrs. Polo Chase 12/7/98 35 yrs. Washington D.C. Dominion Middle Ridge/Woodbridge 06/25/96 35 yrs. Dominion Lake Ridge/Woodbridge 02/23/96 35 yrs. Knolls at Newgate/Fairfax 07/01/94 35 yrs. Hampton Roads, Virginia Forest Lakes at Oyster Point 08/15/95 35 yrs. Woodscape 12/29/87 35 yrs. Eastwind 04/04/88 35 yrs. Kings Arms 08/15/96 35 yrs. Heather Lake 03/01/80 35 yrs. York Pointe 12/23/97 35 yrs. Jacksonville, Florida Greentree Place 07/22/94 35 yrs. Westland Park 05/09/96 35 yrs. The Antlers 05/28/96 35 yrs. </TABLE> F-29
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Greenville, South Carolina Key Pines 601,693 3,773,304 4,374,997 1,877,702 Riverwind 802,484 6,386,212 7,188,696 842,648 The Landing 685,000 5,640,176 6,325,176 1,852,861 Overlook 824,600 5,098,194 5,922,794 2,835,133 Stonesthrow 1,557,015 16,334,483 17,891,498 946,578 Phoenix, Arizona Greenway Park c 1,622,700 6,170,800 7,793,500 2,682,360 Vista Point b 1,587,400 5,612,600 7,200,000 1,076,149 Sierra Palms 4,638,950 17,361,050 22,000,000 163,100 Northpark Village 36,957 1,519,314 13,536,707 15,056,021 818,456 Contempo Heights 3,887,969 735,036 7,639,875 8,374,911 287,769 Finisterra 1,273,798 26,392,207 27,666,005 87,620 La Privada 16,005,613 7,303,161 18,507,617 25,810,778 530,259 Rancho Mirage 3,757,224 34,780,779 38,538,003 710,794 Woodland Park 3,016,907 6,706,473 9,723,380 (210,136) Tucson, Arizona Casa Del Norte 1,410,911 319,181 1,980,628 2,299,809 18,496 Desert Springs 4,728,191 1,118,402 6,186,758 7,305,160 154,363 Landmark 3,120,868 460,791 3,980,299 4,441,090 132,988 Park Terrace 2,768,268 530,136 3,590,288 4,120,424 38,971 Posada Del Rio 843,748 3,742,175 4,585,923 269,539 South Point 1,909,114 447,370 2,479,069 2,926,439 47,593 Eastern Shore Maryland Brittingham Square 650,143 4,962,246 5,612,389 537,805 Greens at Schumaker Pond 709,559 6,117,582 6,827,141 786,483 Greens at Cross Court 1,182,414 4,544,012 5,726,426 792,429 Greens at Hilton Run 2,754,447 10,482,579 13,237,026 1,026,716 Fayetteville, North Carolina Cumberland Trace 632,281 7,895,674 8,527,955 430,321 Village At Cliffdale 10,259,673 941,284 15,498,216 16,439,500 942,148 Morganton Place 8,193,194 819,090 13,217,086 14,036,176 523,433 Memphis, Tennessee Briar Club 1,214,400 6,928,959 8,143,359 1,765,174 Hunters Trace 5,715,000 888,440 6,676,552 7,564,992 1,234,099 Hickory Pointe 1,074,424 6,052,020 7,126,444 1,399,445 Cinnamon Trails 1,886,632 7,644,522 9,531,154 (529,642) The Trails 27,696,865 10,387,416 34,394,843 44,782,259 1,948,511 Dogwood Creek 10,000,000 2,771,868 15,673,846 18,445,714 397,714 Columbus, Ohio Sycamore Ridge 14,008,386 4,067,900 15,433,285 19,501,185 580,955 Heritage Green 2,990,199 11,391,797 14,381,996 275,495 Govenour's Square 20,972,590 7,512,513 27,695,050 35,207,563 - Grandview Terrace 511,610 1,923,940 2,435,550 - Hickory Creek g 3,421,413 12,539,402 15,960,815 - The Tivoli 653,372 2,398,488 3,051,860 - </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of ) Improvements Improvements (i) (a) Depreciation Construction ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Greenville, South Carolina Key Pines 715,531 5,537,168 6,252,699 1,683,686 1974 Riverwind 953,688 7,077,656 8,031,344 1,498,576 1987 The Landing 1,018,551 7,159,486 8,178,037 1,306,801 1976 Overlook 1,327,738 7,430,189 8,757,927 1,520,361 1976 Stonesthrow 1,705,535 17,132,541 18,838,076 1,534,995 1993 Phoenix, Arizona Greenway Park 1,794,474 8,681,386 10,475,860 492,378 1986 Vista Point 1,656,868 6,619,281 8,276,149 472,090 1986 Sierra Palms 4,666,075 17,497,025 22,163,100 1,262,425 1996 Northpark Village 1,755,745 14,118,732 15,874,477 503,184 1983 Contempo Heights 786,471 7,876,209 8,662,680 223,595 1978 Finisterra 1,281,243 26,472,382 27,753,625 699,060 1997 La Privada 7,483,518 18,857,519 26,341,037 508,599 1987 Rancho Mirage 3,889,108 35,359,688 39,248,796 860,128 1984 Woodland Park 3,021,817 6,491,427 9,513,244 172,615 1979 Tucson, Arizona Casa Del Norte 325,937 1,992,368 2,318,305 62,032 1984 Desert Springs 1,118,946 6,340,577 7,459,523 187,196 1985 Landmark 471,887 4,102,191 4,574,078 127,103 1986 Park Terrace 532,907 3,626,488 4,159,395 117,849 1986 Posada Del Rio 929,027 3,926,435 4,855,462 121,384 1980 South Point 457,330 2,516,702 2,974,032 86,023 1984 Eastern Shore Maryland Brittingham Square 775,922 5,374,272 6,150,194 751,840 1991 Greens at Schumaker Pond 853,788 6,759,836 7,613,624 927,317 1988 Greens at Cross Court 1,362,894 5,155,961 6,518,855 781,560 1987 Greens at Hilton Run 3,041,042 11,222,700 14,263,742 1,553,356 1988 Fayetteville, North Carolina Cumberland Trace 663,198 8,295,078 8,958,276 756,005 1973 Village At Cliffdale 1,107,855 16,273,794 17,381,649 1,374,710 1992 Morganton Place 886,825 13,672,784 14,559,609 1,124,625 1994 Memphis, Tennessee Briar Club 1,490,502 8,418,031 9,908,533 1,569,826 1987 Hunters Trace 1,125,488 7,673,603 8,799,091 1,360,476 1986 Hickory Pointe 1,560,332 6,965,557 8,525,889 1,214,489 1985 Cinnamon Trails 1,967,974 7,033,538 9,001,512 281,464 1989 The Trails 10,852,433 35,878,337 46,730,770 1,300,464 1990 Dogwood Creek 2,796,344 16,047,084 18,843,428 533,684 1997 Columbus, Ohio Sycamore Ridge 4,101,080 15,981,060 20,082,140 262,645 1997 Heritage Green 3,030,466 11,627,025 14,657,491 253,770 1998 Govenour's Square 7,512,513 27,695,050 35,207,563 62,695 1967 Grandview Terrace 511,610 1,923,940 2,435,550 4,329 1974 Hickory Creek 3,421,413 12,539,402 15,960,815 28,105 1988 The Tivoli 653,372 2,398,488 3,051,860 5,365 1967 </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component ------------------------------------- <S> <C> <C> Greenville, South Carolina Key Pines 09/25/92 35 yrs. Riverwind 12/31/93 35 yrs. The Landing 07/01/94 35 yrs. Overlook 07/01/94 35 yrs. Stonesthrow 08/15/96 35 yrs. Phoenix, Arizona Greenway Park 12/31/96 35 yrs. Vista Point 12/31/96 35 yrs. Sierra Palms 12/31/96 35 yrs. Northpark Village 03/27/98 35 yrs. Contempo Heights 03/27/98 35 yrs. Finisterra 03/27/98 35 yrs. La Privada 03/27/98 35 yrs. Rancho Mirage 05/28/98 35 yrs. Woodland Park 06/09/98 35 yrs. Tucson, Arizona Casa Del Norte 3/27/98 35 yrs. Desert Springs 3/27/98 35 yrs. Landmark 3/27/98 35 yrs. Park Terrace 3/27/98 35 yrs. Posada Del Rio 3/27/98 35 yrs. South Point 3/27/98 35 yrs. Eastern Shore Maryland Brittingham Square 05/04/95 35 yrs. Greens at Schumaker Pond 05/04/95 35 yrs. Greens at Cross Court 05/04/95 35 yrs. Greens at Hilton Run 05/04/95 35 yrs. Fayetteville, North Carolina Cumberland Trace 08/15/96 35 yrs. Village At Cliffdale 08/15/96 35 yrs. Morganton Place 08/15/96 35 yrs. Memphis, Tennessee Briar Club 10/14/94 35 yrs. Hunters Trace 10/14/94 35 yrs. Hickory Pointe 02/10/95 35 yrs. Cinnamon Trails 1/9/98 35 yrs. The Trails 1/9/98 35 yrs. Dogwood Creek 2/6/98 35 yrs. Columbus, Ohio 3/27/98 35 yrs. Sycamore Ridge 7/2/98 35 yrs. Heritage Green 7/2/98 35 yrs. Govenour's Square 12/7/98 35 yrs. Grandview Terrace 12/7/98 35 yrs. Hickory Creek 12/7/98 35 yrs. The Tivoli 12/7/98 35 yrs. </TABLE> F-30
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Austin, Texas Pecan Grove b 1,406,750 5,293,250 6,700,000 156,669 Anderson Mill 3,134,669 11,170,376 14,305,045 2,152,805 Albuquerque, New Mexico Alvarado b 1,930,229 5,969,771 7,900,000 297,767 Dorado Heights 5,345,522 1,567,762 6,555,395 8,123,157 155,175 Villa Serena 2,749,125 512,421 3,403,906 3,916,327 37,545 Whispering Sands 5,609,631 865,633 7,725,456 8,591,089 80,378 East Lansing, Michigan 2900 Place g 1,818,957 6,593,327 8,412,284 - Brandywine Creek e 4,665,991 16,736,466 21,402,457 - Lakewood e 1,113,126 3,877,503 4,990,629 - Nemoke Trail e 3,430,631 12,322,526 15,753,157 - Detroit, Michigan American Heritage e 1,021,412 3,608,146 4,629,558 - Ashton Pines g 1,822,351 6,513,902 8,336,253 - Kings Gate e 1,180,664 4,328,504 5,509,168 - Lancaster Lakes e 4,237,887 15,412,797 19,650,684 - Other Midwest Washington Park/Centerville, Ohio 2,011,520 7,565,279 9,576,799 765,800 Fountainhead/Dayton, Ohio 390,542 1,420,166 1,810,708 - Jamestown of St.Matthews/ St. Matthews, Kentucky 3,865,596 14,422,383 18,287,979 - Jamestown of Toledo/Toledo, Ohio 1,800,271 6,453,585 8,253,856 - Sunset Village/Flint, Michigan - 796,994 2,829,226 3,626,220 - Other Florida Brantley Pines/Ft. Myers 1,892,888 8,247,621 10,140,509 4,619,987 Santa Barbara Landing/Naples 1,134,120 8,019,814 9,153,934 1,439,501 Mallards of Wedgewood/Lakeland 959,284 6,864,666 7,823,950 1,506,236 The Groves/Daytona Beach 789,953 4,767,055 5,557,008 1,563,944 Lakeside/Daytona Beach 2,404,305 6,420,160 8,824,465 1,084,294 Mallards of Brandywine/Deland 765,949 5,407,683 6,173,632 927,687 Lake Washington Downs/Melbourne 1,434,450 4,940,166 6,374,616 1,739,542 Seattle, Washington Arbor Terrace I 4,568,671 831,068 6,834,471 7,665,539 91,196 Arbor Terrace II 3,116,814 622,274 5,160,501 5,782,775 56,047 Aspen Creek 7,052,655 1,177,714 9,115,789 10,293,503 88,508 Crown Point 4,958,705 2,486,252 9,437,256 11,923,508 - Hill Top 4,670,040 2,173,969 8,307,628 10,481,597 - Indianapolis, Indiana Cold Springs Manor e 599,646 2,074,834 2,674,480 - International Village e 3,934,102 13,778,908 17,713,010 - Regency Park South g 2,643,025 9,632,098 12,275,123 - Denver, Colorado Greensview g 2,974,024 11,029,598 14,003,622 - Mountain View g 6,401,851 23,789,403 30,191,254 - </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction --------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Austin, Texas Pecan Grove 1,440,733 5,415,936 6,856,669 347,068 1984 Anderson Mill 3,437,730 13,020,120 16,457,850 1,333,117 1984 Albuquerque, New Mexico Alvarado 1,961,453 6,236,314 8,197,767 494,554 1984 Dorado Heights 1,615,674 6,662,658 8,278,332 189,464 1986 Villa Serena 513,602 3,440,270 3,953,872 97,695 1986 Whispering Sands 869,838 7,801,629 8,671,467 217,575 1986 East Lansing, Michigan 2900 Place 1,818,957 6,593,327 8,412,284 14,791 1966 Brandywine Creek 4,665,991 16,736,466 21,402,457 37,986 1974 Lakewood 1,113,126 3,877,503 4,990,629 8,666 1974 Nemoke Trail 3,430,631 12,322,526 15,753,157 27,831 1978 Detroit, Michigan American Heritage 1,021,412 3,608,146 4,629,558 8,088 1968 Ashton Pines 1,822,351 6,513,902 8,336,253 14,755 1987 Kings Gate 1,180,664 4,328,504 5,509,168 9,803 1973 Lancaster Lakes 4,237,887 15,412,797 19,650,684 35,510 1988 Other Midwest Washington Park/Centerville, Ohio 2,050,015 8,292,584 10,342,599 149,955 1998 Fountainhead/Dayton, Ohio 390,542 1,420,166 1,810,708 3,028 1966 Jamestown of St. Matthews/ St. Matthews, Kentucky 3,865,596 14,422,383 18,287,979 32,917 1968 Jamestown of Toledo/Toledo, Ohio 1,800,271 6,453,585 8,253,856 14,540 1965 Sunset Village/Flint, Michigan 796,994 2,829,226 3,626,220 6,072 1940 Other Florida Brantley Pines/Ft. Myers 801,116 13,959,380 14,760,496 1,839,427 1986 Santa Barbara Landing/Naples 1,674,582 8,918,853 10,593,435 1,655,803 1987 Mallards of Wedgewood/Lakeland 1,240,264 8,089,921 9,330,185 1,222,376 1985 The Groves/Daytona Beach 1,413,329 5,707,623 7,120,952 840,751 1989 Lakeside/Daytona Beach 2,602,581 7,306,178 9,908,759 408,287 1985 Mallards of Brandywine/Deland 974,487 6,126,832 7,101,319 359,393 1985 Lake Washington Downs/Melbourne 1,725,169 6,388,989 8,114,158 1,571,641 1984 Seattle, Washington Arbor Terrace I 832,888 6,923,847 7,756,735 194,030 1996 Arbor Terrace II 623,750 5,215,072 5,838,822 151,046 1996 Aspen Creek 1,251,783 9,130,228 10,382,011 - 1996 Crown Point 2,486,252 9,437,256 11,923,508 21,676 1987 Hill Top 2,173,969 8,307,628 10,481,597 19,032 1985 Indianapolis, Indiana Cold Springs Manor 599,646 2,074,834 2,674,480 4,512 1963 International Village 3,934,102 13,778,908 17,713,010 30,968 1968 Regency Park South 2,643,025 9,632,098 12,275,123 21,739 1968 Denver, Colorado Greensview 2,974,024 11,029,598 14,003,622 24,956 1987 Mountain View 6,401,851 23,789,403 30,191,254 54,260 1973 </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component --------------------------------- <S> <C> <C> Austin, Texas Pecan Grove 12/31/96 35 yrs. Anderson Mill 03/27/97 35 yrs. Albuquerque, New Mexico Alvarado 12/31/96 35 yrs. Dorado Heights 03/27/98 35 yrs. Villa Serena 03/27/98 35 yrs. Whispering Sands 03/27/98 35 yrs. East Lansing, Michigan 2900 Place 12/07/98 35 yrs. Brandywine Creek 12/07/98 35 yrs. Lakewood 12/07/98 35 yrs. Nemoke Trail 12/07/98 35 yrs. Detroit, Michigan American Heritage 12/07/98 35 yrs. Ashton Pines 12/07/98 35 yrs. Kings Gate 12/07/98 35 yrs. Lancaster Lakes 12/07/98 35 yrs. Other Midwest Washington Park/Centerville, Ohio 12/07/98 35 yrs. Fountainhead/Dayton, Ohio 12/07/98 35 yrs. Jamestown of St. Matthews/ St. Matthews, Kentucky 12/07/98 35 yrs. Jamestown of Toledo/Toledo, Ohio 12/07/98 35 yrs. Sunset Village/Flint, Michigan 12/07/98 35 yrs. Other Florida Brantley Pines/Ft. Myers 08/11/94 35 yrs. Santa Barbara Landing/Naples 09/01/94 35 yrs. Mallards of Wedgewood/Lakeland 07/27/95 35 yrs. The Groves/Daytona Beach 12/13/95 35 yrs. Lakeside/Daytona Beach 07/01/97 35 yrs. Mallards of Brandywine/Deland 07/01/97 35 yrs. Lake Washington Downs/Melbourne 09/24/93 35 yrs. Seattle, Washington Arbor Terrace I 3/27/98 35 yrs. Arbor Terrace II 3/27/98 35 yrs. Aspen Creek 12/7/98 35 yrs. Crown Point 12/7/98 35 yrs. Hill Top 12/7/98 35 yrs. Indianapolis, Indiana Cold Springs Manor 12/7/98 35 yrs. International Village 12/7/98 35 yrs. Regency Park South 12/7/98 35 yrs. Denver, Colorado Greensview 12/7/98 35 yrs. Mountain View 12/7/98 35 yrs. </TABLE> F-31
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Portland, Oregon Lancaster Commons e 2,485,291 9,301,165 11,786,456 - Tualatin Heights e 3,272,585 12,134,089 15,406,674 - University Park 7,345,000 3,007,202 11,691,307 14,698,509 - Double Tree 5,400,078 3,878,138 13,973,051 17,851,189 - Los Angeles, California Pine Avenue 6,141,240 2,158,423 8,387,744 10,546,167 - The Grand Resort 8,884,151 33,956,606 42,840,757 - Sacramento, California Foothills Tennis Village e 3,617,507 13,192,028 16,809,535 - Woodlake Village 17,126,871 6,772,438 23,966,750 30,739,188 - San Francisco, California 2000 Post Street 26,850,000 9,860,627 38,577,506 48,438,133 - Birch Creek 1,668,896 4,365,315 16,645,509 21,010,824 - Highlands of Marin 20,800,000 5,995,838 23,168,350 29,164,188 - Marina Playa 20,766,883 6,224,383 23,916,283 30,140,666 - Monterey Peninsula, California Boronda Manor f 1,946,423 6,981,742 8,928,165 - Garden Court h 888,038 3,187,950 4,075,988 - Glenridge h 415,284 1,552,934 1,968,218 - Harding Park Townhomes f 549,393 2,051,322 2,600,715 - Heather Plaza f 2,020,384 7,226,038 9,246,422 - Laurel Tree f 1,303,902 4,615,356 5,919,258 - New San Pablo h 289,468 1,020,473 1,309,941 - Pine Grove f 1,383,161 5,283,993 6,667,154 - San Pablo h 804,394 3,094,626 3,899,020 - Santanna h 957,079 3,526,117 4,483,196 - The Capri f 1,018,493 3,657,274 4,675,767 - The Claremont h 463,143 1,637,120 2,100,263 - The Pointe At Harden Ranch f 6,388,446 23,853,534 30,241,980 - The Pointe At Northridge f 2,043,736 7,528,443 9,572,179 - The Pointe At Westlake f 1,329,064 4,834,004 6,163,068 - Valli Hi h 881,376 3,237,805 4,119,181 - Other California Silk Oak/Fresno g 2,324,562 7,566,446 9,891,008 - Windward Point/Chula Vista g 1,767,970 6,617,879 8,385,849 - Other Virginia Greens at Falls Run/Fredericksburg 2,730,722 5,300,203 8,030,925 752,246 Manor at England Run/Fredericksburg 1,168,810 7,006,464 8,175,274 13,113,435 Laurel Ridge/Roanoke 2,830,000 445,400 2,531,357 2,976,757 1,482,339 Greens at Hollymead/Charlottesville 965,114 5,250,374 6,215,488 562,402 Craig Manor/Salem 282,200 2,419,570 2,701,770 949,636 Northview/Salem 171,600 1,238,501 1,410,101 823,888 Other Georgia Royal Oaks/Savannah 6,178,829 533,100 9,926,017 10,459,117 1,667,483 River Place/Macon 1,097,280 7,492,385 8,589,665 1,684,859 </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Portland, Oregon Lancaster Commons 2,485,291 9,301,165 11,786,456 21,046 1992 Tualatin Heights 3,272,585 12,134,089 15,406,674 27,836 1989 University Park 3,007,202 11,691,307 14,698,509 27,345 1987 Double Tree 3,878,138 13,973,051 17,851,189 31,820 1988 Los Angeles, California Pine Avenue 2,158,423 8,387,744 10,546,167 19,350 1987 The Grand Resort 8,884,151 33,956,606 42,840,757 76,300 1971 Sacramento, California Foothills Tennis Village 3,617,507 13,192,028 16,809,535 30,333 1988 Woodlake Village 6,772,438 23,966,750 30,739,188 54,502 1979 San Francisco, California 2000 Post Street 9,860,627 38,577,506 48,438,133 90,657 1987 Birch Creek 4,365,315 16,645,509 21,010,824 38,909 1968 Highlands of Marin 5,995,838 23,168,350 29,164,188 54,230 1991 Marina Playa 6,224,383 23,916,283 30,140,666 55,851 1971 Monterey Peninsula, California Boronda Manor 1,946,423 6,981,742 8,928,165 15,810 1979 Garden Court 888,038 3,187,950 4,075,988 7,166 1973 Glenridge 415,284 1,552,934 1,968,218 3,540 1989 Harding Park Townhomes 549,393 2,051,322 2,600,715 4,743 1984 Heather Plaza 2,020,384 7,226,038 9,246,422 16,348 1974 Laurel Tree 1,303,902 4,615,356 5,919,258 10,348 1977 New San Pablo 289,468 1,020,473 1,309,941 2,304 1973 Pine Grove 1,383,161 5,283,993 6,667,154 12,188 1963 San Pablo 804,394 3,094,626 3,899,020 7,019 1963 Santanna 957,079 3,526,117 4,483,196 8,077 1989 The Capri 1,018,493 3,657,274 4,675,767 826 1973 The Claremont 463,143 1,637,120 2,100,263 3,694 1973 The Pointe At Harden Ranch 6,388,446 23,853,534 30,241,980 55,046 1986 The Pointe At Northridge 2,043,736 7,528,443 9,572,179 17,186 1979 The Pointe At Westlake 1,329,064 4,834,004 6,163,068 10,963 1975 Valli Hi 881,376 3,237,805 4,119,181 7,410 1965 Other California Silk Oak/Fresno 2,324,562 7,566,446 9,891,008 16,648 1985 Windward Point/Chula Vista 1,767,970 6,617,879 8,385,849 15,311 1983 Other Virginia Greens at Falls Run/Fredericksburg 2,872,643 5,910,528 8,783,171 834,669 1989 Manor at England Run/Fredericksburg 2,794,777 18,493,932 21,288,709 1,448,501 1990 Laurel Ridge/Roanoke 665,161 3,793,935 4,459,096 1,874,928 1970/72 Greens at Hollymead/Charlottesville 1,048,258 5,729,632 6,777,890 779,314 1990 Craig Manor/Salem 364,351 3,287,055 3,651,406 1,412,021 1975 Northview/Salem 241,143 1,992,846 2,233,989 1,316,170 1969 Other Georgia Royal Oaks/Savannah 935,619 11,190,981 12,126,600 1,937,253 1980 River Place/Macon 1,689,302 8,585,222 10,274,524 1,831,308 1988 </TABLE> <TABLE> <CAPTION> Depreciable Life of f Date Building ion Acquired Component ----------------------------------- <S> <C> <C> Portland, Oregon Lancaster Commons 12/8/98 35 yrs. Tualatin Heights 12/8/98 35 yrs. University Park 3/27/98 35 yrs. Double Tree 3/27/98 35 yrs. Los Angeles, California Pine Avenue 12/7/98 35 yrs. The Grand Resort 12/7/98 35 yrs. Sacramento, California Foothills Tennis Village 12/7/98 35 yrs. Woodlake Village 12/7/98 35 yrs. San Francisco, California 2000 Post Street 12/7/98 35 yrs. Birch Creek 12/7/98 35 yrs. Highlands of Marin 12/7/98 35 yrs. Marina Playa 12/7/98 35 yrs. Monterey Peninsula, California Boronda Manor 12/7/98 35 yrs. Garden Court 12/7/98 35 yrs. Glenridge 12/7/98 35 yrs. Harding Park Townhomes 12/7/98 35 yrs. Heather Plaza 12/7/98 35 yrs. Laurel Tree 12/7/98 35 yrs. New San Pablo 12/7/98 35 yrs. Pine Grove 12/7/98 35 yrs. San Pablo 12/7/98 35 yrs. Santanna 12/7/98 35 yrs. The Capri 12/7/98 35 yrs. The Claremont 12/7/98 35 yrs. The Pointe At Harden Ranch 12/7/98 35 yrs. The Pointe At Northridge 12/7/98 35 yrs. The Pointe At Westlake 12/7/98 35 yrs. Valli Hi 12/7/98 35 yrs. Other California Silk Oak/Fresno 12/7/98 35 yrs. Windward Point/Chula Vista 12/7/98 35 yrs. Other Virginia Greens at Falls Run/Fredericksburg 05/04/95 35 yrs. Manor at England Run/Fredericksburg 05/04/95 35 yrs. Laurel Ridge/Roanoke 05/17/88 35 yrs. Greens at Hollymead/Charlottesville 05/04/95 35 yrs. Craig Manor/Salem 11/06/87 35 yrs. Northview/Salem 09/29/78 35 yrs. Other Georgia Royal Oaks/Savannah 07/01/94 35 yrs. River Place/Macon 04/08/94 35 yrs. F-32 </TABLE>
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Little Rock, Arkansas Turtle Creek 1,913,177 7,086,823 9,000,000 652,892 Shadow Lake 2,523,670 8,976,330 11,500,000 743,946 Las Vegas, Nevada Sunset Pointe 4,295,050 15,704,950 20,000,000 549,273 Dover, Delaware Dover Country Club 2,007,878 6,365,053 8,372,931 2,260,287 Greens at Cedar Chase 1,528,667 4,830,738 6,359,405 677,819 Other Washington Campus Commons North/Pullman 7,027,934 305,143 9,867,157 10,172,300 287,619 On The Boulevard/Kennewick 1,164,652 9,547,299 10,711,951 18,507 Campus Commons South/Pullman 2,674,005 838,324 3,005,784 3,844,108 229,249 Alabama Three Fountains/Montgomery 1,075,009 6,872,302 7,947,311 3,263,986 Other North Carolina Woodberry/Asheville d 388,699 6,380,899 6,769,598 858,015 Other South Carolina Somerset/Charleston 485,160 4,072,780 4,557,940 1,530,833 ============================================================================================ $ 629,688,918 $ 589,223,859 $ 2,702,702,804 $3,291,926,663 $ 351,318,208 ============================================================================================ </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Little Rock, Arkansas Turtle Creek 2,150,367 7,502,525 9,652,892 564,049 1985 Shadow Lake 2,672,445 9,571,501 12,243,946 722,571 1984 Las Vegas, Nevada Sunset Pointe 4,435,225 16,114,048 20,549,273 1,137,800 1990 Dover, Delaware Dover Country Club 2,355,591 8,277,627 10,633,218 1,583,479 1970 Greens at Cedar Chase 1,709,779 5,327,445 7,037,224 780,941 1988 Other Washington Campus Commons North/Pullman 328,060 10,131,859 10,459,919 286,517 1972 On The Boulevard/Kenniwick 1,166,044 9,564,414 10,730,458 255,088 1995 Campus Commons South/Pullman 886,377 3,186,980 4,073,357 93,617 1972 Alabama Three Fountains/Montgomery 1,263,205 9,948,092 11,211,297 1,798,645 1973 Other North Carolina Woodberry/Asheville 521,039 7,106,574 7,627,613 663,418 1987 Other South Carolina Somerset/Charleston 692,721 5,396,052 6,088,773 994,586 1979 ============================================================================== $ 647,327,889 $ 2,995,916,977 $ 3,643,244,866 $ 280,663,279 ============================================================================== </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component ---------------------------------- <S> <C> <C> Little Rock, Arkansas Turtle Creek 12/31/96 35 yrs. Shadow Lake 12/31/96 35 yrs. Las Vegas, Nevada Sunset Pointe 12/31/96 35 yrs. Dover, Delaware Dover Country Club 07/01/94 35 yrs. Greens at Cedar Chase 05/04/95 35 yrs. Other Washington Campus Commons North/Pullman 3/27/98 35 yrs. On The Boulevard/Kenniwick 3/27/98 35 yrs. Campus Commons South/Pullman 3/27/98 35 yrs. Alabama Three Fountains/Montgomery 07/01/94 35 yrs. Other North Carolina Woodberry/Asheville 08/15/96 35 yrs. Other South Carolina Somerset/Charleston 07/01/94 35 yrs. </TABLE> F-33
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Real estate held for disposition Apartments Heritage Trace/Hampton Roads, VA 3,900,000 880,000 2,312,285 3,192,285 1,879,478 Twin Coves/Baltimore, MD 3,615,000 912,771 2,904,304 3,817,075 835,231 Cedar Point/Raleigh, NC 75,400 4,514,435 4,589,835 3,306,726 Cinnamon Ridge/Raleigh, NC 7,000,000 967,230 3,337,197 4,304,427 4,841,777 Plum Chase/Columbia, SC 7,000,000 802,750 3,149,607 3,952,357 5,542,032 Hunting Ridge/Greenville, SC 3,265,000 449,500 2,246,908 2,696,408 1,039,761 Patriot Place/Florence, SC 2,200,000 212,500 1,600,757 1,813,257 5,568,491 Bluff Creek/Oklahoma City, OK c 2,172,063 7,202,937 9,375,000 359,258 Chandler's Mill/Corpus Christi, TX b 1,930,120 6,844,880 8,775,000 269,535 Ryan's Mill/El Paso, TX c 1,522,900 5,277,100 6,800,000 232,009 The Crest/Dallas, TX 4,616,074 1,464,755 5,126,939 6,591,694 683,389 Dominion Mallard Creek (M)/Charlotte, NC 329,300 2,772,449 3,101,749 296,545 Parkwood Court/Alexandria, VA 5,875,000 2,482,633 3,813,116 6,295,749 2,096,342 Hampton Court/Alexandria, VA 7,388,420 4,811,937 12,200,357 1,624,145 Westlake Villas /San Antonio, TX b 2,371,865 8,278,135 10,650,000 538,502 Meadowdale Lakes/Richmond, VA 1,581,671 6,717,237 8,298,908 3,963,789 Meadow Run/Richmond, VA 636,059 3,423,884 4,059,943 1,891,890 Acacia Hills/Tuscon, AZ 1,053,831 410,737 1,415,788 1,826,525 214,275 Park Village/Tuscon, AZ 566,324 187,860 1,065,384 1,253,244 13,238 Bayberry Commons/Hampton Roads, VA 516,800 3,485,645 4,002,445 1,411,705 Montfort/Dallas, TX 3,876,278 1,696,778 4,747,254 6,444,032 34,876 Holly Tree Park/Baltimore, MD 1,576,366 5,106,716 6,683,082 1,287,803 Woodside/Baltimore, MD 13,160,000 3,112,881 8,893,721 12,006,602 3,129,401 Deerwood Crossing/Greensboro, NC 1,539,901 7,989,043 9,528,944 894,394 Dutch Village/Greensboro, NC 1,197,593 4,826,266 6,023,859 508,099 Park Forest/Greensboro, NC 4,145,270 679,671 5,770,413 6,450,084 347,611 Commercial Pacific South Center/Seattle, WA 3,512,328 1,000,000 4,000,000 5,000,000 655 Hanover Village-Land/Richmond, VA 1,623,910 - 1,623,910 - Gloucester Exchange/Gloucester, VA 403,688 2,278,553 2,682,241 85,667 Tri-County Buildings/Bristol, TN 275,580 900,281 1,175,861 1,280,670 Meadowdale Office/Richmond, VA 240,563 359,913 600,476 119,344 ======================================================================================== $63,785,105 $40,642,265 $125,173,084 $165,815,349 $44,296,638 ======================================================================================== </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Real estate held for disposition Apartments Heritage Trace/Hampton Roads, VA 1,200,782 3,870,981 5,071,763 1,603,230 1973 Twin Coves/Baltimore, MD 1,020,290 3,632,016 4,652,306 376,566 1974 Cedar Point/Raleigh, NC 249,622 7,646,939 7,896,561 3,432,650 1972 Cinnamon Ridge/Raleigh, NC 1,272,296 7,873,908 9,146,204 3,308,395 1968/70 Plum Chase/Columbia, SC 1,138,202 8,356,187 9,494,389 2,754,252 1974 Hunting Ridge/Greenville, SC 611,412 3,124,757 3,736,169 366,795 1972 Patriot Place/Florence, SC 1,435,436 5,946,312 7,381,748 2,671,178 1974 Bluff Creek/Oklahoma City , OK 2,224,067 7,510,191 9,734,258 298,127 1984 Chandler's Mill/Corpus Christi , TX 1,956,652 7,087,883 9,044,535 261,307 1984 Ryan's Mill/El Paso, TX 1,561,530 5,470,479 7,032,009 212,958 1985 The Crest/Dallas, TX 1,536,987 5,738,096 7,275,083 117,872 1983 Dominion Mallard Creek (M)/Charlotte, NC 451,420 2,946,874 3,398,294 474,575 1985 Parkwood Court/Alexandria, VA 2,730,047 5,662,044 8,392,091 1,220,304 1964 Hampton Court/Alexandria, VA 7,631,128 6,193,374 13,824,502 1,526,912 1967 Westlake Villas /San Antonio, TX 2,447,517 8,740,985 11,188,502 314,309 1985 Meadowdale Lakes/Richmond, VA 2,212,224 10,050,473 12,262,697 5,629,984 1967/71 Meadow Run/Richmond, VA 869,735 5,082,098 5,951,833 2,676,832 1973/74 Acacia Hills/Tuscon, AZ 609,735 1,431,065 2,040,800 29,596 1986 Park Village/Tuscon, AZ 191,195 1,075,287 1,266,482 24,112 1985 Bayberry Commons/Hampton Roads, VA 744,991 4,669,159 5,414,150 2,108,631 1973/74 Montfort/Dallas, TX 1,704,006 4,774,902 6,478,908 80,288 1986 Holly Tree Park/Baltimore, MD 1,764,001 6,206,884 7,970,885 1,098,776 1973 Woodside/Baltimore, MD 3,449,637 11,686,366 15,136,003 1,911,050 1966 Deerwood Crossing/Greensboro, NC 1,670,815 8,752,523 10,423,338 740,581 1973 Dutch Village/Greensboro, NC 1,282,479 5,249,478 6,531,957 469,550 1970 Park Forest/Greensboro, NC 772,557 6,025,137 6,797,694 467,852 1987 Commercial Pacific South Center/Seattle, WA 1,000,000 4,000,655 5,000,655 - 1965 Hanover Village-Land/Richmond, VA 1,103,600 520,310 1,623,910 - -- Gloucester Exchange/Gloucester, VA 531,881 2,236,027 2,767,908 757,307 1974 Tri-County Buildings/Bristol, TN 364,123 2,092,408 2,456,531 733,820 1976/79 Meadowdale Office/Richmond, VA 259,684 460,136 719,820 300,034 1976/82 =========================================================================== $45,998,051 $164,113,934 $210,111,985 $35,967,843 =========================================================================== </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component ------------------------------- <S> <C> <C> Real estate held for disposition Apartments Heritage Trace/Hampton Roads, VA 06/30/89 35 yrs. Twin Coves/Baltimore, MD 08/16/94 35 yrs. Cedar Point/Raleigh, NC 12/18/85 35 yrs. Cinnamon Ridge/Raleigh, NC 12/01/89 35 yrs. Plum Chase/Columbia, SC 01/04/91 35 yrs. Hunting Ridge/Greenville, SC 11/01/94 35 yrs. Patriot Place/Florence, SC 10/23/85 35 yrs. Bluff Creek/Oklahoma City , OK 12/31/96 35 yrs. Chandler's Mill/Corpus Christi , TX 12/31/96 35 yrs. Ryan's Mill/El Paso, TX 12/31/96 35 yrs. The Crest/Dallas, TX 03/27/98 35 yrs. Dominion Mallard Creek (M)/Charlotte 07/01/94 35 yrs. Parkwood Court/Alexandria, VA 06/30/93 35 yrs. Hampton Court/Alexandria, VA 02/19/93 35 yrs. Westlake Villas /San Antonio, TX 12/31/96 35 yrs. Meadowdale Lakes/Richmond, VA 12/31/84 35 yrs. Meadow Run/Richmond, VA 12/31/84 35 yrs. Acacia Hills/Tuscon, AZ 3/27/98 35 yrs. Park Village/Tuscon, AZ 3/27/98 35 yrs. Bayberry Commons/Hampton Roads, VA 04/07/88 35 yrs. Montfort/Dallas, TX 3/27/98 35 yrs. Holly Tree Park/Baltimore, MD 07/01/94 35 yrs. Woodside/Baltimore, MD 08/16/94 35 yrs. Deerwood Crossing/Greensboro, NC 08/15/96 35 yrs. Dutch Village/Greensboro, NC 08/15/96 35 yrs. Park Forest/Greensboro, NC 09/26/96 35 yrs. Commercial Pacific South Center/Seattle, WA 08/28/86 35 yrs. Hanover Village-Land/Richmond, VA 06/30/86 35 yrs. Gloucester Exchange/Gloucester, VA 11/12/87 35 yrs. Tri-County Buildings/Bristol, TN 01/21/81 35 yrs. Meadowdale Office/Richmond, VA 12/31/84 35 yrs. </TABLE> F-34
<TABLE> <CAPTION> Cost of Intitial Costs Improvements --------------------------------------- Total Capitalized Land and Building Initials Subsequent Land and Acquisition to Acquisition Encumbrances Improvements Improvement Costs (Net of Disposals) ---------------------------------------------------------------------- --------------------- <S> <C> <C> <C> <C> <C> Real estate under development New apartment communites Ashlar I/Fort Myers, FL 2,853,178 10,370,767 13,223,945 Sierra Foothills/Phoenix, AZ 2,728,172 4,397,105 7,125,277 Dominion Franklin/Nashville, TN 2,117,244 22,428,101 24,545,345 Alexander Court/Columbus, OH 1,573,412 14,133,628 15,707,040 Stone Canyon/Houston, TX 899,515 8,045,153 8,944,668 Legends at Park 10/Houston, TX 1,995,011 804,518 2,799,529 Ashton at Waterford Lakes/Orlando, FL 3,077,956 1,925,512 5,003,468 The Meridian I/Dallas, TX 2,979,656 472,617 3,452,273 Additions to existing communites Heritage Green II/Columbus, OH 767,040 3,151,567 3,918,607 Dominion Crown Pointe/Charlotte, NC 1,936,427 5,654 1,942,081 Other Land Held for Development 12,733,141 12,733,141 ============================================================================================ $0 $33,660,752 $65,734,622 $99,395,374 $0 ============================================================================================ ============================================================================================ Total real estate owned $1,072,185,325 $663,526,876 $2,893,610,510 $3,557,137,386 $395,614,846 ============================================================================================ </TABLE> <TABLE> <CAPTION> Gross Amount at Which Carried at Close of Period ------------------------------ Total Land and Buildings Carrying Land and Value Accumulated Date of Improvements Improvements (i) (a) Depreciation Construction ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Real estate under development New apartment communites Ashlar I/Fort Myers, FL 2,853,178 10,370,767 13,223,945 1999 Sierra Foothills/Phoenix, AZ 2,728,172 4,397,105 7,125,277 1998 Dominion Franklin/Nashville, TN 2,117,244 22,428,101 24,545,345 4,899 1999 Alexander Court/Columbus, OH 1,573,412 14,133,628 15,707,040 1,103 1999 Stone Canyon/Houston, TX 899,515 8,045,153 8,944,668 1998 Legends at Park 10/Houston, TX 1,995,011 804,518 2,799,529 1998 Ashton at Waterford Lakes/Orlando, 3,077,956 1,925,512 5,003,468 1999 The Meridian I/Dallas, TX 2,979,656 472,617 3,452,273 1999 Additions to existing communites Heritage Green II/Columbus, OH 767,040 3,151,567 3,918,607 1998 Dominion Crown Pointe/Charlotte, NC 1,936,427 5,654 1,942,081 1999 Other Land Held for Development 12,733,141 12,733,141 ============================================================================ $33,660,752 $65,734,622 $99,395,374 $6,002 ============================================================================ ============================================================================ Total real estate owned $726,986,692 $3,225,765,533 $3,952,752,225 $316,637,124 ============================================================================ </TABLE> <TABLE> <CAPTION> Depreciable Life of Date Building Acquired Component ----------------------------- <S> <C> <C> Real estate under development New apartment communites Ashlar I/Fort Myers, FL 12/24/97 Sierra Foothills/Phoenix, AZ 2/18/98 Dominion Franklin/Nashville, TN 12/6/95 Alexander Court/Columbus, OH 7/2/98 Stone Canyon/Houston, TX 12/17/97 Legends at Park 10/Houston, TX 5/19/98 Ashton at Waterford Lakes/Orlando, FL 5/28/98 The Meridian I/Dallas, TX 1/27/98 Additions to existing communites Heritage Green II/Columbus, OH 7/2/98 Dominion Crown Pointe/Charlotte, NC 12/29/98 Other Land Held for Development Total real estate owned </TABLE> (a) The aggregate cost for federal income tax purposes was approximately $3.3 billion and $2.3 billion at December 31, 1998 and 1997, respectively. (b) Represents a $34,262,390 REMIC financing encumbering 12 apartment communities. (c) Represents a $41,656,838 REMIC financing encumbering 13 apartment communites. (d) Represents a $31,700,000 notes payable-secured which encumbers six apartment communities. (e) Represents $114,833,855 of fixed rate debt which encumbers 15 apartment communities. (f) Represents $44,898,195 of fixed rate debt which encumbers 9 apartment communties. (g) Represents $97,265,000 of variable rate debt which encumbers 11 apartment communties. (h) Represents $14,095,024 of variable rate debt which encumbers 7 apartment communities. (i) The depreciable life for all buildings is 35 years.