UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q FOR QUARTERLY AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-10524 ------- UNITED DOMINION REALTY TRUST, INC. ---------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-0857512 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 400 East Cary Street, Richmond, Virginia 23219-3802 - -------------------------------------------------------------------------------- (Address of principal executive offices - zip code) (804) 780-2691 -------------- (Registrant's telephone number, including area code) 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 ------ ------ APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of August 8, 2001: Common Stock, $1 Par Value: 100,782,835
UNITED DOMINION REALTY TRUST, INC. FORM 10-Q INDEX <TABLE> <CAPTION> PAGE ---- <S> <C> PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000................................... 3 Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000.......................................................................... 4 Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000........................................................................................ 5 Consolidated Statement of Shareholders' Equity for the six months ended June 30, 2001................................................................................... 6 Notes to Consolidated Financial Statements.............................................................. 7-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................................... 15-25 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 26 PART II - OTHER INFORMATION Item 1. Legal Proceedings....................................................................................... 27 Item 2. Changes in Securities................................................................................... 27 Item 3. Defaults Upon Senior Securities......................................................................... 27 Item 4. Submission of Matters to a Vote of Security Holders..................................................... 27 Item 5. Other Information....................................................................................... 28 Item 6. Exhibits and Reports on Form 8-K........................................................................ 28-31 Signatures ........................................................................................................ 32 </TABLE> 2
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) <TABLE> <CAPTION> June 30, December 31, 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> ASSETS Real estate owned: Real estate held for investment (Note 2) $ 3,716,127 $ 3,758,974 Less: accumulated depreciation (572,560) (506,871) ------------------ ------------------ 3,143,567 3,252,103 Real estate under development 67,834 60,366 Real estate held for disposition (net of accumulated depreciation of $0 and $2,534) (Note 3) 20,768 14,446 ------------------ ------------------ Total real estate owned, net of accumulated depreciation 3,232,169 3,326,915 Cash and cash equivalents 13,671 10,305 Restricted cash 36,087 44,943 Deferred financing costs 13,113 14,271 Investment in unconsolidated development joint venture (Note 4) 7,705 8,088 Other assets 39,727 49,435 ------------------ ------------------ Total assets $ 3,342,472 $ 3,453,957 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Secured debt (Note 5) $ 864,814 $ 866,115 Unsecured debt (Note 6) 1,183,722 1,126,215 Real estate taxes payable 30,564 30,554 Accrued interest payable 16,663 18,059 Security deposits and prepaid rent 22,606 22,524 Distributions payable 34,392 36,128 Accounts payable, accrued expenses and other liabilities 60,211 47,144 ------------------ ------------------ Total liabilities 2,212,972 2,146,739 Minority interests 82,072 88,326 Shareholders' equity Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 0 shares 9.25% Series A Cumulative Redeemable issued and outstanding (3,969,120 in 2000) - 99,228 5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,439,109 in 2000) 135,400 135,978 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding (8,000,000 in 2000) 175,000 175,000 Common stock, $1 par value; 150,000,000 shares authorized 100,046,438 shares issued and outstanding (102,219,250 in 2000) 100,046 102,219 Additional paid-in capital 1,059,978 1,081,387 Distributions in excess of net income (404,126) (366,531) Deferred compensation - unearned restricted stock awards (2,089) (828) Notes receivable from officer-shareholders (6,943) (7,561) Accumulated other comprehensive loss, net (Note 7) (9,838) - ------------------ ------------------ 1,047,428 1,218,892 ------------------ ------------------ Total liabilities and shareholders' equity $ 3,342,472 $ 3,453,957 ================== ================== </TABLE> See accompanying notes to consolidated financial statements. 3
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, 2001 2000 2001 2000 --------------------------- ------------------------- <S> <C> <C> <C> <C> REVENUES Rental income $ 150,915 $ 155,144 $ 303,731 $ 309,202 Non-property income 669 1,980 1,805 3,049 --------- --------- --------- --------- Total revenues 151,584 157,124 305,536 312,251 EXPENSES Rental expenses: Real estate taxes and insurance 17,246 17,684 34,807 35,167 Personnel 14,914 16,586 30,964 33,024 Repair and maintenance 8,346 9,130 16,822 17,662 Utilities 6,594 6,197 14,232 12,731 Administrative and marketing 5,539 6,065 11,372 11,966 Property management 4,525 4,760 8,315 9,404 Other operating expenses 346 331 776 755 Real estate depreciation 38,013 44,054 78,411 77,958 Interest 35,834 39,752 73,055 78,826 Severance costs and other organizational charges (Note 9) - - 5,404 - Impairment loss on real estate and investments (Note 3) - - 3,188 - General and administrative 5,642 3,698 10,147 7,568 Other depreciation and amortization 854 1,250 1,735 2,453 --------- --------- --------- --------- Total expenses 137,853 149,507 289,228 287,514 --------- --------- --------- --------- Income before gains on sales of investments, minority interests and extraordinary item 13,731 7,617 16,308 24,737 Gains on sales of depreciable property 20,646 5,928 24,748 8,461 --------- --------- --------- --------- Income before minority interests and extraordinary item 34,377 13,545 41,056 33,198 Minority interests of outside partnerships (285) (560) (1,289) (737) Minority interests of unitholders in operating partnerships (1,475) (294) (1,231) (962) --------- --------- --------- --------- Income before extraordinary item 32,617 12,691 38,536 31,499 Extraordinary item - early extinguishment of debt (372) 586 (559) 358 --------- --------- --------- --------- Net income 32,245 13,277 37,977 31,857 Distributions to preferred shareholders - Series A and B (4,733) (5,396) (9,939) (10,979) Distributions to preferred shareholders - Series D (Convertible) (3,857) (3,825) (7,714) (7,650) (Premium) / discount on preferred share repurchases (3,519) 2,177 (3,496) 2,177 --------- --------- --------- --------- Net income available to common shareholders $ 20,136 $ 6,233 $ 16,828 $ 15,405 ========= ========= ========= ========= Earnings per common share (Note 8): Basic $ 0.20 $ 0.06 $ 0.17 $ 0.15 ========= ========= ========= ========= Diluted $ 0.20 $ 0.06 $ 0.17 $ 0.15 ========= ========= ========= ========= Common distributions declared per share $ 0.2700 $ 0.2675 $ 0.5400 $ 0.5350 ========= ========= ========= ========= Weighted average number of common shares outstanding-basic 100,858 103,271 101,115 103,087 Weighted average number of common shares outstanding-diluted 101,590 103,470 101,713 103,258 </TABLE> See accompanying notes to consolidated financial statements. 4
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2001 2000 - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Operating Activities Net income $ 37,977 $ 31,857 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 80,146 80,411 Impairment loss on real estate and investments 3,188 - Gains on sales of investments (24,748) (8,461) Minority interests 2,520 1,699 Extraordinary item-early extinguishment of debt 559 (358) Amortization of deferred financing costs and other 1,677 2,153 Changes in operating assets and liabilities: Increase /(decrease) in operating liabilities 1,436 (5,098) Decrease in operating assets 14,465 400 --------------- ----------------- Net cash provided by operating activities 117,220 102,603 Investing Activities Proceeds from sales of real estate investments, net 114,035 67,341 Proceeds received for excess expenditures over investment contribution in development joint venture - 34,215 Development of real estate assets (30,296) (54,646) Capital expenditures - real estate assets, net of escrow reimbursement (23,453) (16,060) Acquisition of real estate assets, net of liabilities assumed (8,296) (4,635) Capital expenditures - non-real estate assets (581) (2,233) --------------- ----------------- Net cash provided by investing activities 51,409 23,982 Financing Activities Proceeds from the issuance of secured notes payable 25,780 - Scheduled principal payments on secured notes payable (5,991) (12,617) Non-scheduled principal payments on secured notes payable (31,947) (49,645) Proceeds from the issuance of unsecured notes payable - 146,700 Payments on unsecured notes payable (21,308) (35,751) Net borrowing/(repayment) of short-term bank debt 79,100 (90,300) Payment of financing costs (499) (3,807) Cash paid to buy out minority interests (1,568) - Proceeds from the issuance of common stock 4,351 7,429 Distributions paid to minority interests (7,091) (4,785) Distributions paid to preferred shareholders (19,192) (18,555) Distributions paid to common shareholders (54,593) (55,277) Repurchase of common and preferred stock (132,305) (8,317) --------------- ----------------- Net cash used in financing activities (165,263) (124,925) Net increase in cash and cash equivalents 3,366 1,660 Cash and cash equivalents, beginning of period 10,305 7,678 --------------- ----------------- Cash and cash equivalents, end of period $ 13,671 $ 9,338 =============== ================= Supplemental Information: Interest paid during the period $ 74,961 $ 76,399 Conversion of operating partnership units to common stock 11 626 Issuance of restricted stock awards 1,547 829 Non-cash transactions associated with the acquisition of properties: Secured debt assumed 18,229 10,130 Non-cash transactions associated with the disposition of properties: Reduction in secured debt 7,694 19,742 See accompanying notes to consolidated financial statements. 5 </TABLE>
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Preferred Stock Common Stock --------------------------------------------------- Paid-in Shares Amount Shares Amount Capital - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, December 31, 2000 17,408,229 $ 410,206 102,219,250 $ 102,219 $ 1,081,387 Comprehensive Income Net income Other comprehensive loss: Cumulative effect of a change in accounting principle (Note 7) Unrealized loss on derivative instruments (Note 7) -------------------------------------------------------------------------------------------------------------------------------- Comprehensive income -------------------------------------------------------------------------------------------------------------------------------- Issuance of common shares to employees, officers and director-shareholders 123,779 124 1,457 Issuance of common shares through dividend reinvestment and stock purchase plan 176,057 176 2,132 Purchase of common and preferred stock (91,900) (2,298) (2,610,487) (2,611) (29,888) Redemption of Preferred A stock (3,900,320) (97,508) 3,522 Issuance of restricted stock awards 127,100 127 1,420 Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships 10,739 11 (52) Principal repayments on notes receivable from officer-shareholders Common stock distributions declared ($.54 per share) Preferred stock distributions declared-Series A ($1.05 per share) Preferred stock distributions declared-Series B ($1.08 per share) Preferred stock distributions declared-Series D ($.96 per share) Amortization of deferred compensation ----------------------------------------------------------------- Balance, June 30, 2001 13,416,009 $ 310,400 100,046,438 $ 100,046 $ 1,059,978 ================================================================= <CAPTION> Deferred Compensation - Accumulated Distributions in Notes Receivable Unearned Other Excess of from Officer - Restricted Comprehensive Net Income Shareholders Stock Awards Loss Total - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Balance, December 31, 2000 $ (366,531) $ (7,561) $ (828) $ - $1,218,892 Comprehensive Income Net income 37,977 37,977 Other comprehensive loss: Cumulative effect of a change in accounting principle (Note 7) (3,848) (3,848) Unrealized loss on derivative instruments (Note 7) (5,990) (5,990) -------------------------------------------------------------------------------------------------------------------------------- Comprehensive income 37,977 (9,838) 28,139 -------------------------------------------------------------------------------------------------------------------------------- Issuance of common shares to employees, officers and director-shareholders 1,581 Issuance of common shares through dividend reinvestment and stock purchase plan 2,308 Purchase of common and preferred stock (34,797) Redemption of Preferred A stock (3,522) (97,508) Issuance of restricted stock awards (1,547) - Adjustment for cash purchase and conversion of - minority interests of unitholders in operating partnerships (41) Principal repayments on notes receivable from officer-shareholders 618 618 Common stock distributions declared ($.54 per share) (54,397) (54,397) Preferred stock distributions declared-Series A ($1.05 per share) (4,111) (4,111) Preferred stock distributions declared-Series B ($1.08 per share) (5,828) (5,828) Preferred stock distributions declared-Series D ($.96 per share) (7,714) (7,714) Amortization of deferred compensation 286 286 ------------------------------------------------------------------------------ Balance, June 30, 2001 $ (404,126) $ (6,943) $ (2,089) $ (9,838) $1,047,428 ============================================================================== </TABLE> See accompanying notes to consolidated financial statements. 6
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P. (the "Operating Partnership"), and Heritage Communities L.P. (the "Heritage OP"), (collectively, "United Dominion"). As of June 30, 2001, there were 74,962,675 units in the Operating Partnership outstanding, of which 68,262,044 units, or 91.1%, were owned by United Dominion and 6,700,631 units, or 8.9%, were owned by non-affiliated limited partners. As of June 30, 2001, there were 5,501,300 units in the Heritage OP outstanding, of which 4,876,208 units, or 88.6%, were owned by United Dominion and 625,092 units, or 11.4%, were owned by non-affiliated limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the operating partnerships. The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in United Dominion's December 31, 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements reflect all adjustments which are necessary for the fair presentation of financial position at June 30, 2001 and results of operations for the interim periods ended June 30, 2001 and 2000. Such adjustments are normal and recurring in nature. All significant inter-company accounts and transactions have been eliminated in consolidation. The interim results presented are not necessarily indicative of results that can be expected for a full year. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. 2. Real Estate Held for Investment At June 30, 2001 there are 272 communities with 76,175 apartment homes classified as real estate held for investment. The following table summarizes the components of real estate held for investment at June 30, 2001 and December 31, 2000 (dollars in thousands): June 30, December 31, 2001 2000 ------------ -------------- Land and land improvements $ 545,559 $ 668,003 Buildings and improvements 2,980,435 2,902,386 Furniture, fixtures and equipment 189,923 188,321 Construction in progress 210 264 ------------ -------------- Real estate held for investment 3,716,127 3,758,974 Accumulated depreciation (572,560) (506,871) ------------ -------------- Real estate held for investment, net of accumulated depreciation $3,143,567 $3,252,103 ============ ============== 7
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 3. Real Estate Held for Disposition At June 30, 2001, United Dominion had nine parcels of land included in real estate held for disposition totaling $20.8 million. Total revenues and property operating income (property rental income less property operating expense) were immaterial for the three and six month periods ended June 30, 2001 and 2000. During the first quarter of 2001, management performed an analysis of the carrying value of all undeveloped land parcels in connection with the Company's plans to accelerate the disposition of these sites. As a result, an aggregate $2.8 million impairment loss was recognized on seven undeveloped sites in selected markets. An impairment loss was indicated as a result of the net book value of the assets being greater than the estimated fair market value less the cost of disposal. 4. Investment in Unconsolidated Joint Ventures At June 30, 2001, United Dominion's investment in an unconsolidated joint venture ("the venture") consisted of a 25% partnership interest in a development joint venture in which the Company is serving as the managing partner. No gain or loss was recognized on the Company's contribution to the development joint venture. The venture is developing five apartment communities with a total of 1,438 homes for an aggregate total cost of approximately $103 million. Upon closing of the venture in June 2000, United Dominion contributed the projects in return for its equity interest of approximately $8 million in the venture and was reimbursed for approximately $35 million of development outlays that were incurred prior to closing the joint venture. United Dominion serves as the developer, general contractor and property manager for the venture and recognized fee income, to the extent of the outside partner's interest, of approximately $0.8 million for services provided by the Company to the joint venture for the six months ended June 30, 2001. As of June 30, 2001, four of the joint venture properties were complete and one property remains under development with completion anticipated to occur in the third quarter of 2001. The Company has the option, but not the obligation, to purchase these properties for fair value upon completion of the projects. Although the legal termination date of the joint venture is December 2006, the Company does not anticipate that the venture's useful life will exceed three years. The following is a summary of the financial position of the joint venture as of June 30, 2001 and December 31, 2000 (dollars in thousands): <TABLE> <CAPTION> June 30, December 31, 2001 2000 ------------- ------------- <S> <C> <C> Assets: Real estate, net $ 98,193 $ 85,644 Other assets 3,968 6,507 ------------- ------------- Total assets $ 102,161 $ 92,151 ============= ============= Liabilities and partners' equity: Mortgage notes payable $ 64,601 $ 49,785 Other liabilities 7,649 11,436 Partners' equity 29,911 30,930 ------------- ------------- Total liabilities and partners' equity $ 102,161 $ 92,151 ============= ============= </TABLE> 8
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 5. Secured Debt Secured debt, which encumbers $1.5 billion or 39.6% of United Dominion's real estate owned ($2.3 billion or 60.4% of United Dominion's real estate owned is unencumbered) consists of the following at June 30, 2001 (dollars in thousands): <TABLE> <CAPTION> No. of Weighted Avg. Weighted Avg. Communities Principal Outstanding Interest Rate Years to Maturity Encumbered ---------------------------- -------------------------------------------------- June 30, December 31, 2001 2000 2001 2001 2001 - --------------------------------------------------------------- -------------------------------------------------- <S> <C> <C> <C> <C> <C> Fixed Rate Debt Mortgage Notes Payable (a) $ 529,763 $ 513,962 7.78% 4.8 74 Tax-Exempt Secured Notes Payable 76,537 79,756 6.91% 12.7 10 Secured Credit Facilities (b) 17,000 17,000 7.04% 12.6 -- ---------------------------- -------------------------------------------------- Total Fixed Rate Secured Debt 623,300 610,718 7.65% 6.0 84 Variable Rate Debt Secured Credit Facilities (b) 206,340 216,960 5.34% 12.9 20 Tax-Exempt Secured Notes Payable 19,915 19,916 2.71% 24.0 3 Mortgage Notes Payable 15,259 18,521 5.66% 7.1 4 ---------------------------- -------------------------------------------------- Total Variable Rate Secured Debt 241,514 255,397 5.14% 13.4 27 ---------------------------- -------------------------------------------------- Total Secured Debt $ 864,814 $ 866,115 7.46% 8.4 111 ============================ ================================================== </TABLE> (a) Includes fair value adjustments aggregating $9.2 million at June 30, 2001 and $10.2 million at December 31, 2000, recorded in connection with the ASR Merger and the AAC Merger on March 27, 1998 and December 7, 1998, respectively. (b) At June 30, 2001, United Dominion had $223.3 million outstanding under two revolving credit facilities with the Federal National Mortgage Association (the "FNMA Credit Facilities"). At June 30, 2001, the FNMA Credit Facilities had a weighted average floating rate of interest of 5.47%. In order to limit a portion of its interest rate exposure, United Dominion has two interest rate swap agreements associated with the FNMA Credit Facilities. These agreements have an aggregate notional value of $17 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreements effectively change United Dominion's interest rate exposure on $17 million of secured debt from a variable rate to a weighted average fixed rate of 7.04%. Approximate principal payments due during each of the next five calendar years and thereafter, as of June 30, 2001, are as follows (dollars in thousands): Amount Year Maturing -------------------------------------- 2001 $ 49,146 2002 54,419 2003 55,368 2004 139,556 2005 126,125 Thereafter 440,200 ---------- Total $ 864,814 ========== 9
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 6. UNSECURED DEBT A summary of unsecured debt at June 30, 2001 and December 31, 2000 is as follows (dollars in thousands): <TABLE> <CAPTION> 2001 2000 ---------- ---------- <S> <C> <C> Commercial Banks Borrowings outstanding under an unsecured credit facility (a) (b) $ 323,500 $ 244,400 Borrowings outstanding under an unsecured term loan (c) 100,000 100,000 Senior Unsecured Notes - Other 7.60% Medium-Term Notes due January 2002 46,750 48,750 7.65% Medium-Term Notes due January 2003 (d) 10,000 10,000 7.22% Medium-Term Notes due February 2003 11,815 11,900 5.05% City of Portland, OR Bonds due October 2003 7,345 7,345 8.63% Notes due March 2003 78,030 79,030 7.98% Notes due March, 2000-2003 (e) 14,857 22,285 7.67% Medium-Term Notes due January 2004 53,510 54,000 7.73% Medium-Term Notes due April 2005 22,400 22,400 7.02% Medium-Term Notes due November 2005 49,760 50,000 7.95% Medium-Term Notes due July 2006 103,179 107,398 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.25% Notes due January 2007 105,020 110,080 ABAG Tax-Exempt Bonds due August 2008 46,700 46,700 8.50% Monthly Income Notes due November 2008 57,402 57,400 8.50% Debentures due September 2024 (f) 124,920 125,500 Other (g) 3,534 4,027 ----------- ----------- 760,222 781,815 ----------- ----------- Total Unsecured Debt $ 1,183,722 $ 1,126,215 =========== =========== </TABLE> (a) Weighted average interest rate of 5.93% and 7.5% at June 30, 2001 and December 31, 2000, respectively. (b) United Dominion had eight interest rate swap agreements associated with commercial bank borrowings with an aggregate notional value of $155 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 6.98%. (c) United Dominion had five interest rate swap agreements associated with borrowings under the term loan with an aggregate notional value of $100 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 7.53%. (d) United Dominion had one interest rate swap agreement associated with these unsecured notes with an aggregate notional value of $10 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreement effectively changes United Dominion's interest rate exposure on the $10 million from a variable rate to a fixed rate of 7.65%. (e) Payable annually in two equal principal installments of $7.4 million. (f) Includes an investor put feature that grants a one-time option to redeem the debentures in September 2004. (g) Includes $3.4 million and $3.8 million at June 30, 2001 and December 31, 2000, respectively, of deferred gains from the termination of interest rate risk management agreements. 10
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 7. Derivative Instruments and Hedging Activities Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Certain Derivative Instruments and Hedging Activities" became effective on January 1, 2001. The new accounting standards require companies to carry all derivative instruments, including certain embedded derivatives, in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based on the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. At June 30, 2001, all of the Company's derivative financial instruments are designated as cash flow hedges of underlying exposures, and are qualifying hedges for financial reporting purposes. For derivative instruments that qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings during the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The adoption of Statements 133 and 138 on January 1, 2001 resulted in a cumulative effect of an accounting change of $(3.8) million, all of which was recorded directly to other comprehensive loss. As part of United Dominion's overall interest rate risk management strategy, the Company uses derivative financial instruments as a means to modify the exposure to interest rate risk on variable rate debt obligations or to hedge anticipated financing transactions. The Company's derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. Because of the close correlation between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the value of the underlying exposures. As a result, United Dominion believes that it has appropriately controlled the risk so that derivatives used for interest rate risk management will not have a material unintended effect on consolidated earnings. The Company does not enter into derivative financial instruments for trading purposes. The fair value of the Company's derivative instruments is reported on balance sheet at their current fair value. Estimated fair values for interest rate swaps rely on prevailing market interest rates. These fair value amounts should not be viewed in isolation, but rather in relation to the values of the underlying hedging transactions and investments and to the overall reduction in exposure to adverse fluctuations in interest rates. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. The interest rate swaps involve the periodic exchange of payments over the life of the related agreements. Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively. 11
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) The following table presents the fair values of the Company's derivative instruments outstanding as of June 30, 2001 (dollars in thousands): <TABLE> <CAPTION> - -------------------------------------------------------------------------------------- Notional Fixed Type of Effective Contract Fair Amount Rate Contract Date Maturity Value - -------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Secured Debt: FNMA $ 7,000 6.78% Swap 06/30/99 06/30/04 $ (227) 10,000 7.22% Swap 12/01/99 04/01/04 (428) ------------ ---- ---------- 17,000 7.04% (655) Unsecured Debt: Bank Credit Facility 5,000 7.32% Swap 06/26/95 07/01/04 (207) 10,000 7.14% Swap 10/18/95 10/03/02 (271) 5,000 6.98% Swap 11/21/95 10/03/02 (124) 25,000 7.39% Swap 11/01/00 08/01/03 (971) 25,000 7.39% Swap 11/01/00 08/01/03 (971) 25,000 7.21% Swap 12/01/00 08/01/03 (876) 25,000 7.21% Swap 12/04/00 08/01/03 (876) 35,000 5.98% Swap 03/13/01 04/01/03 (393) ------------ ---- ---------- 155,000 6.98% (4,689) Bank Term Loan 25,000 7.49% Swap 11/15/00 05/15/03 (978) 20,000 7.49% Swap 11/15/00 05/15/03 (783) 23,500 7.62% Swap 11/15/00 05/15/04 (1,146) 23,000 7.62% Swap 11/15/00 05/15/04 (1,130) 8,500 7.26% Swap 12/04/00 05/15/03 (295) ------------ ---- ----------- 100,000 7.53% (4,332) Medium-Term Notes 10,000 7.65% Swap 01/26/99 01/27/03 (194) - -------------------------------------------------------------------------------------- $ 282,000 $ (9,870) ====================================================================================== </TABLE> During the quarter ended June 30, 2001, United Dominion recognized $0.7 million of unrealized losses in accumulated other comprehensive loss related to the Company's hedging instruments and $(3.3) thousand in net income related to the ineffective portion of the Company's hedging instruments. For the six months ended June 30, 2001, the Company has recognized $5.9 million of unrealized losses in accumulated other comprehensive loss, $(31.3) thousand in net income, and $(3.8) million of a cumulative effect of a change in accounting principle. As of June 30, 2001, United Dominion expects to reclassify $4.6 million of net losses on derivative instruments from accumulated other comprehensive income to earnings (interest expense) during the next twelve months in order to artificially fix the interest rate on the related hedged transactions. 12
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 8. Earnings Per Share Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potential common stock equivalents is determined using the treasury stock method based on United Dominion's average stock price. The early extinguishment of debt does not have an effect on the earnings per share calculation for the periods presented. The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share data): <TABLE> <CAPTION> Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ---------------------------- ---------------------------- <S> <C> <C> <C> <C> Numerator for basic and diluted earnings per share- net income available to common shareholders $ 20,136 $ 6,233 $ 16,828 $ 15,405 Denominator: Beginning denominator for basic earnings per share-weighted average common shares outstanding 101,011 103,388 101,268 103,204 Non-vested restricted stock (153) (117) (153) (117) ------------ ------------ ------------ ------------ Denominator for basic earnings per share 100,858 103,271 101,115 103,087 ------------ ------------ ------------ ------------ Non-vested restricted stock 153 117 153 117 Effect of dilutive securities: Employee stock options 579 82 445 54 ------------ ------------ ------------ ------------ Denominator for diluted earnings per share 101,590 103,470 101,713 103,258 ============ ============ ============ ============ Basic earnings per share $ 0.20 $ 0.06 $ 0.17 $ 0.15 ============ ============ ============ ============ Diluted earnings per share $ 0.20 $ 0.06 $ 0.17 $ 0.15 ============ ============ ============ ============ </TABLE> The effect of the conversion of the operating partnership units and convertible preferred stock is not dilutive and is therefore not included in the above calculations. If the operating partnership units were converted to common stock, the additional shares of common stock outstanding for the three and six months ended June 30, 2001 and 2000 would be 7,416,706 and 7,421,208 for 2001 and 7,502,546 and 7,503,058 for 2000, respectively. If the convertible preferred stock was converted to common stock, the additional shares of common stock outstanding for the three and six months ended June 30, 2001 and 2000 would be 12,307,692 common shares. 9. Restructuring Charges During the first quarter of 2001, United Dominion announced the appointment of a new chief executive officer and senior management structure. The new management team began a comprehensive review of the organizational structure of the Company and its operations. As a result of this review, the Company recorded a charge of $5.4 million related to workforce reductions and other miscellaneous costs. These charges are included in the Consolidated Statements of Operations within the line item "Severance costs and other organizational charges." All charges came under consideration subsequent to the appointment of the Company's new CEO in February 2001 and were approved by management and the Board of Directors in March 2001. 13
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) The planned workforce reductions resulted in a charge of $4.5 million and in the planned termination of approximately 200 full time equivalent positions, or 10% of total staffing in corporate functions, including senior management and general and administrative functions, and in apartment operations. Employee termination benefits include severance packages and related benefits and outplacement services for employees terminated. As of June 30, 2001, approximately 230 employees have been terminated. The Company expects that substantially all of the unpaid charge as of June 30, 2001 will be paid during the third quarter of 2001. A reconciliation of the unpaid severance costs for the six months ended June 30, 2001, is presented below (dollars in millions): ------------------------------------------------ Balance, beginning of period $ - Accrued severance costs 4.5 Cash payments (0.9) ------------------------------------------------ Balance, March 31, 2001 $ 3.6 Cash payments (2.0) ------------------------------------------------ Balance, June 30, 2001 $ 1.6 ------------------------------------------------ In connection with senior management's review of the Company during the first quarter, United Dominion also recognized $0.4 million related to relocation costs associated with the new executive offices in Denver and $0.5 million related to other miscellaneous costs. 10. Contingencies In May 2001, the shareholders of United Dominion approved the Out-Performance Program (the "Program) pursuant to which officers and other key employees of the Company will be given the opportunity to invest in the Company by purchasing performance shares ("Out-Performance Partnership Shares" or "OPPSs") of the Operating Partnership for an initial investment of $1.27 million. To begin the Program, the Company's performance will be measured over a twenty-eight month period beginning with the month of Thomas W. Toomey's employment (February 2001). The Program is designed to provide participants with the possibility of substantial returns on their investment if the Company's total return, defined as dividend income plus share price appreciation, on its common stock during the measurement period exceeds the industry average and is the equivalent of at least a 30% total return or 12% annualized (the "minimum return"). At the conclusion of the measurement period, if United Dominion's total return satisfies these criteria, the holders of the OPPSs will receive distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of interests in the Operating Partnership ("OP Units") obtained by: (i) determining the amount by which the cumulative total return of the Company's common stock over the measurement period exceeds the greater of the cumulative total return of the peer group index (the Morgan Stanley REIT Index) or the minimum return (such being the "excess return"); (ii) multiplying 4% of the excess return by the Company's market capitalization (defined as the average number of shares outstanding over the 28 month period multiplied by the daily closing price of the Company's common stock); and (iii) dividing the number obtained in (ii) by the market value of one share of the Company common stock on the valuation date, as the weighted average price per day of the common stock for the 20 trading day immediately preceding the valuation date. If, on the valuation date, the cumulative total return of United Dominion's common stock does not meet the minimum return or the total return of the peer group and there is no excess return, then the holders of the OPPSs will forfeit their entire initial investment of $1.27 million. 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Forward-Looking Statements The following information should be read in conjunction with the United Dominion Realty Trust, Inc. ("United Dominion") 2000 Form 10-K as well as the financial statements and notes included in Item 1 of this report. This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of United Dominion to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting United Dominion, or its properties, adverse changes in the real estate markets and general and local economies and business conditions. Although United Dominion believes that the assumptions underlying the forward- looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by United Dominion or any other person that the results or conditions described in such statements or the objectives and plans of United Dominion will be achieved. Overview United Dominion is a real estate investment trust (REIT) with activities related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities nationwide. Over the past four years, United Dominion has diversified into new markets to create a national platform, upgraded the quality of the portfolio and invested in infrastructure and technology. The Company continues to review its strategy with a goal of enhancing long-term earnings growth on a sustained basis. At June 30, 2001, United Dominion owned 272 communities with 76,175 apartment homes nationwide. 15
The following table summarizes United Dominion's apartment market information by major geographic markets (including real estate under development): <TABLE> <CAPTION> Six Months Ended Three Months Ended As of June 30, 2001 June 30, 2001 June 30, 2001 ------------------------------------------------- -------------------------- ------------------------- Number of Total Percentage of Carrying Apartment Apartment Carrying Value Physical Avg Monthly Physical Avg Monthly Communities Homes Value (in thousands) Occupancy Rental Rates Occupancy Rental Rates --------------------------------------------------- ----------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Houston, TX 22 5,722 6.0% $ 224,853 93.3% $ 608 93.3% $ 611 Dallas, TX 14 4,533 5.7% 214,370 95.3% 675 95.2% 679 Phoenix, AZ 11 3,618 5.6% 210,233 93.9% 700 93.7% 702 Orlando, FL 14 4,140 5.3% 200,721 92.9% 701 93.3% 704 San Antonio, TX 12 3,827 5.0% 188,777 92.7% 652 92.2% 655 Raleigh, NC 10 3,027 4.3% 160,098 90.6% 720 91.6% 723 Tampa, FL 10 3,372 4.1% 150,778 94.4% 687 94.2% 690 Fort Worth, TX 11 3,561 3.9% 146,457 96.8% 629 96.7% 634 San Francisco, CA 4 980 3.7% 139,956 97.8% 1,780 96.5% 1,800 Charlotte, NC 10 2,710 3.6% 134,904 90.6% 702 90.1% 685 Columbus, OH 5 2,527 3.9% 145,588 92.9% 664 93.7% 666 Nashville, TN 8 2,220 3.2% 118,892 93.4% 687 94.6% 688 Greensboro, NC 8 2,122 2.7% 103,000 91.6% 637 91.3% 639 Monterey Peninsula, CA 9 1,706 2.6% 96,863 96.4% 833 96.6% 843 Memphis, TN 6 1,956 2.6% 96,227 92.7% 632 93.3% 633 Richmond, VA 8 2,372 2.5% 95,434 96.2% 702 96.3% 705 Southern California 5 1,414 2.4% 90,154 95.7% 881 95.5% 892 Wilmington, NC 6 1,869 2.4% 88,488 90.2% 656 92.4% 657 Atlanta, GA 6 1,426 1.9% 70,551 93.9% 737 93.8% 739 Baltimore, MD 6 1,291 1.8% 66,686 97.7% 798 97.7% 806 Columbia, SC 6 1,584 1.6% 61,766 94.1% 583 93.7% 584 Seattle, WA 3 628 0.9% 33,817 95.6% 730 94.9% 739 Other Northern Markets 39 8,431 9.9% 373,348 94.9% 671 95.1% 675 Other Western Markets 23 6,379 8.5% 318,478 94.9% 655 94.1% 659 Other Southern Markets 16 4,760 5.9% 222,613 92.6% 642 93.3% 644 --------------------------------------------------------------------------------------------------- Total Apartments 272 76,175 100.0% $ 3,753,052 94.0% $ 690 94.0% $ 694 ==================================================================================================== </TABLE> 16
Liquidity and Capital Resources United Dominion's primary source of liquidity is its cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to its portfolio of apartment homes. United Dominion routinely uses its unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sales of real estate have been used for both investing and financing activities. United Dominion regularly reviews its short and long-term liquidity requirements and considers the adequacy of its cash flow from operations as well as other liquidity sources to meet these requirements. United Dominion believes that it can fund its short-term liquidity needs such as normal recurring operating expenses, debt service payments, recurring capital expenditures and distributions to common and preferred shareholders through cash provided by operating activities and borrowings from the Company's unsecured bank credit facility, as needed (see discussion that follows under "Financing Activities"). To facilitate future financing activities in the public capital markets, management believes that it is prudent to maintain shelf registration statement capacity. In this regard, United Dominion filed a shelf registration statement in December 1999 providing for the issuance of up to $700 million in common shares, preferred shares and debt securities. In March 2000, United Dominion utilized this shelf registration statement to sell $100 million of senior unsecured notes due March 2003 at an interest rate of 8.625%. As of June 30, 2001, $600 million of equity and debt securities remain available for use under the shelf registration. Future Capital Needs Future development expenditures are expected to be funded primarily through joint ventures or with proceeds from the sale of property, and to a lesser extent, cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed by the reinvestment of proceeds from the sale of property in non-strategic markets. During the second half of 2001, United Dominion has approximately $50 million of maturing debt which the Company anticipates repaying using proceeds from mortgage refinancing activity or borrowings under the Company's unsecured credit facility. The following discussion explains the changes in net cash provided by operating activities and net cash used in investing and financing activities which are presented in United Dominion's Consolidated Statements of Cash Flows. Operating Activities For the six months ended June 30, 2001, United Dominion's cash flow from operating activities was $117.2 million compared to $102.6 million for the same period last year. The increase of $14.6 million in the cash flow from operating activities resulted primarily from (i) a change in the level of operating assets as a result of collections on escrow accounts and joint venture receivables and (ii) an increase in the level of operating liabilities due to the timing of payments of certain operating liabilities. Investing Activities For the six months ended June 30, 2001, net cash provided by investing activities was $51.4 million compared to net cash provided by investing activities of $24.0 million for 2000 primarily due to the increase in the sale of real estate during 2001. Changes in the level of investing activities from period to period reflects United Dominion's strategy as it relates to its acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities. 17
Real Estate under Development Development activity is focused in core markets that have strong operations managers in place. For the six months ended June 30, 2001, United Dominion invested approximately $30.3 million in real estate projects, down $24.3 million from its 2000 level of $54.6 million. The following projects were under development at June 30, 2001: <TABLE> <CAPTION> Cost to Budgeted Expected No. of Apt. Completed Date Cost Est. Cost Completion Homes Apt. Homes (In thousands) (In thousands) Per Home Date ------------ ------------- -------------- -------------- ----------- ------------ <S> <C> <C> <C> <C> <C> <C> New Communities: - ---------------- Dominion Place at Kildaire Farm 332 76 $ 18,400 $ 25,700 $ 77,400 1Q02 Raleigh, NC Red Stone Ranch 324 212 17,600 21,700 67,000 4Q01 Austin, TX ----------- ----------- ------------- ------------- ---------- Subtotal 656 288 36,000 47,400 72,300 ----------- ----------- ------------- ------------- ---------- Additional Phases: - ------------------ Greensview II 192 -- 9,600 16,700 87,000 4Q01 Denver, CO Manor at England Run III 120 48 6,500 8,800 73,300 4Q01 Fredericksburg, VA The Meridian II 270 -- 4,800 17,400 64,400 1Q02 Dallas, TX ----------- ----------- ------------- ------------- ---------- Subtotal 582 48 20,900 42,900 73,700 ----------- ----------- ------------- ------------- ---------- Total 1,238 336 $ 56,900 $ 90,300 $ 72,900 =========== =========== ============= ============= ========== </TABLE> In addition, United Dominion owns eight parcels of land held for future development. These development sites represent second phases to existing communities that at June 30, 2001 had a carrying value of $10.9 million. Development Joint Venture On June 21, 2000, United Dominion completed the formation of a joint venture that will invest approximately $103 million to develop five apartment communities with a total of 1,438 apartment homes. United Dominion owns a 25% interest in the joint venture and is serving as the managing partner of the joint venture as well as the developer, general contractor and property manager. Upon closing of the venture, United Dominion contributed the projects in return for its equity interest of approximately $8 million in the venture and was reimbursed for approximately $35 million of development outlays that were incurred prior to closing the joint venture. During the first quarter of 2001, United Dominion completed the development of three joint venture communities with a total of 880 apartment homes at a total investment that was below budgeted costs. The Meridian, a 250 home community located in Dallas, Texas was completed in June 2000. During the first six months of 2001, United Dominion recognized fee income of approximately $0.8 million for general contracting and developer services provided by the Company to the joint venture. The Company has the option, but not the obligation, to purchase these properties for fair value upon completion of the projects. 18
The following joint venture projects were complete as of June 30, 2001: <TABLE> <CAPTION> Development No. of Apt. Cost Cost Per Date Homes (In thousands) Home Completed % Leased ------------ ----------------- ------------ ------------- ------------ <S> <C> <C> <C> <C> <C> New Communities: - ---------------- Parke 33 264 $ 17,100 $ 64,800 2/01 76.9% Lakeland, FL Sierra Canyon 236 15,400 65,300 3/01 92.4% Phoenix, AZ Oaks at Weston 380 28,000 73,700 3/01 68.4% Raleigh, NC ------------ ----------- ---------- Total 880 $ 60,500 $ 68,800 ============ =========== ========== </TABLE> The following joint venture project was under development at June 30, 2001: <TABLE> <CAPTION> Cost to Budgeted Expected No. of Apt. Completed Date Cost Est. Cost Completion Homes Apt. Homes (In thousands) (In thousands) Per Home Date ------------ -------------- -------------- ---------------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> New Community: - -------------- Mandolin 308 206 $20,600 $22,100 $71,800 3Q01 Dallas, TX </TABLE> Disposition of Investments For the six months ended June 30, 2001, United Dominion sold nine communities with 1,889 apartment homes for an aggregate sales price of approximately $128.5 million and recognized gains for financial reporting purposes of $24.8 million. Proceeds from the sales were applied primarily to reductions in long-term debt, and to a lesser extent, to complete 1031 exchanges in order to defer taxable gains and to repurchase common and preferred shares. The Company currently has five development sites under contract for sale for a total consideration of $13.1 million that is slightly above carrying value. These sales are subject to due diligence evaluations by the buyers. Within each market, United Dominion plans to dispose of selected communities with inferior locations, significant capital expense requirements without the potential of a corresponding increase in rent or insufficient growth potential. Proceeds from the 2001 sales, expected to be at levels below that of 2000, are expected to be used to reduce debt, repurchase common and preferred shares, fund development activity and acquire communities. Acquisitions During the six months ended June 30, 2001, United Dominion acquired two communities with 510 apartment homes at a total cost (including closing costs) of approximately $32.0 million which included the use of tax free exchange funds. During 2001, the new senior management team currently plans to channel new investments to those markets that are projected to provide the best investment returns for the Company over the next ten years. These transactions will likely occur over time and will only be undertaken on an accretive basis. Markets will be targeted based upon refined criteria including past performance, expected job growth, current and anticipated housing supply and demand, ability to attract and support household formation and local market expertise. Capital Expenditures United Dominion capitalizes those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. 19
During the first six months of 2001, $20.7 million or $282 per home was spent on capital expenditures for United Dominion's same communities (those acquired or developed prior to January 1, 2000). These capital improvements included recurring capital expenditures, including floor coverings, HVAC equipment, roofs, appliances, landscaping, siding, parking lots and other non-revenue enhancing capital expenditures, which aggregated $11.4 million or $155 per home. In addition, non-recurring revenue enhancing capital expenditures, including water sub-metering, gating and access systems, the addition of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $9.3 million or $127 per home for the six months ended June 30, 2001. United Dominion will continue to selectively add revenue-enhancing improvements that the Company believes will provide a return on investment in excess of United Dominion's cost of capital. Capital expenditures during 2001 are currently expected to be at levels somewhat higher than those experienced in 2000. Financing Activities Net cash used in financing activities during the six months ended June 30, 2001 was $165.3 million compared to $124.9 million for 2000, an increase of $40.4 million. As part of the plan to improve the Company's balance sheet position, United Dominion used proceeds from its disposition program to pay down secured and unsecured debt, to repurchase shares of common and preferred stock and to complete 1031 exchanges in order to defer taxable gains. On June 15, 2001, the Company completed the redemption of all of its outstanding 9.25% Series A Cumulative Redeemable Preferred shares at $25 per share plus accrued dividends utilizing proceeds from its line of credit. Based on anticipated costs of a $100 million FNMA financing scheduled to close in August 2001 (the proceeds of which will be used to pay down the line of credit), this transaction will result in an annual reduction of $3.0 million in capital costs. For the three and six months ended June 30, 2001, United Dominion repurchased 16,100 and 17,600 Series B preferred shares at an average price of $24.61 and $24.42 per share, respectively. For the quarter ended June 30, 2001, the Company repurchased 1,418,044 common shares at an average price of $13.55. As of June 30, 2001, approximately 4.7 million common shares remained available for purchase under the common share repurchase program. Repurchases of shares will be made from time to time in the open market or in privately negotiated transactions. The timing, volume and purchase price will be at the discretion of the Company. For the six months ended June 30, 2001, the Company repaid $21.3 million of unsecured debt and $37.9 million of secured debt, was relieved of $7.7 million of secured debt in connection with the disposition of properties and assumed $18.2 million of secured debt in connection with the acquisition of properties. Credit Facilities United Dominion has a $375 million three-year unsecured revolving credit facility (the "Credit Facility") which extends until August 2003. At June 30, 2001, $323.5 million was outstanding under the Credit Facility leaving $51.5 million available for use. Under the Credit Facility, the Company may borrow at a rate of LIBOR plus 100 basis points for LIBOR-based borrowings. Under the Credit Facility, the Company pays a facility fee, which is equal to 0.20% of the commitment. The Credit Facility is subject to customary financial covenants and limitations. 20
Information concerning short-term bank borrowings is summarized in the table that follows (dollars in thousands): <TABLE> <CAPTION> Six months ended Year ended June 30, 2001 December 31, 2000 - --------------------------------------------------------------------------------------------------- <S> <C> <C> Total revolving credit facilities $375,000 $375,000 Borrowings outstanding at end of period 323,500 244,400 Weighted average daily borrowings during the period 262,932 195,128 Maximum daily borrowings during the period 323,500 308,000 Weighted average interest rate during the period 6.1% 7.3% Weighted average interest rate at end of period 5.0% 7.7% </TABLE> Derivative Instruments As part of United Dominion's overall interest rate risk management strategy, the Company uses derivatives as a means to modify the interest rate characteristics of variable rate debt obligations or to hedge anticipated financing transactions. The Company's derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. The Company believes that it has appropriately controlled the risk so that derivatives used for interest rate risk management will not have any material unintended effect on consolidated earnings. Derivative contracts did not have a material impact on the results of operations during the first half of 2001 (see Note 7 - Derivative Instruments and Hedging Activities). Funds from Operations Funds from operations ("FFO") is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. United Dominion computes FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust's October 1, 1999 White Paper. United Dominion considers FFO in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of United Dominion's 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. Adjusted funds from operations ("AFFO") is defined as FFO excluding recurring capital expenditures. The Company believes AFFO is the best measure of economic profitability for real estate investment trusts. The following table outlines United Dominion's FFO calculation for the three and six months ended June 30, (dollars in thousands, except per share amounts): <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, --------------------- -------------------- 2001 2000 2001 2000 --------------------- -------------------- <S> <C> <C> <C> <C> Net income $ 32,245 $ 13,277 $ 37,977 $ 31,857 Adjustments: Distributions to preferred shareholders (8,590) (9,221) (17,653) (18,629) Real estate depreciation, net of outside partners' interest 37,610 43,620 77,542 77,188 Gains on sale of depreciable property, net of outside partners' interest (20,675) (5,621) (24,005) (8,148) Minority interests of unitholders in operating partnership 1,475 294 1,231 962 Real estate depreciation related to unconsolidated entities 279 46 463 92 Extraordinary item-early extinguishment of debt 372 (586) 559 (358) ---------- ---------- --------- ---------- Funds from operations-basic $ 42,716 $ 41,809 $ 76,114 $ 82,964 ========== ========== ========= ========== </TABLE> 21
<TABLE> <S> <C> <C> <C> <C> Adjustment: Distribution to preferred shareholders-Series D (Convertible) 3,857 3,825 7,714 7,650 ---------- ---------- --------- ---------- Funds from operations-diluted $ 46,573 $ 45,634 $ 83,828 $ 90,614 ========== ========== ========= ========== Adjustment: Recurring capital expenditures (6,563) (5,807) (13,099) (11,613) ---------- ---------- --------- ---------- Adjusted funds from operations-diluted $ 40,010 $ 39,827 $ 70,729 $ 79,001 ========== ========== ========= ========== Weighted average number of common shares and OP Units outstanding - basic 108,428 110,774 108,690 110,590 Weighted average number of common shares and OP Units outstanding - diluted 121,314 123,281 121,442 123,069 </TABLE> Results of Operations Net Income Available to Common Shareholders Net income available to common shareholders increased $13.9 million and $1.4 million for the three and six months ended June 30, 2001 compared to the same periods last year. This increase was primarily attributable to (i) higher gains on the sales of investments of $20.6 million and $24.7 million for the three and six months ended June 30, 2001 compared to $5.9 million and $8.5 million for the comparable periods in 2000 and (ii) lower interest costs of $35.8 million and $73.1 million for the three and six months ended June 30, 2001 compared to $39.8 million and $78.8 million for the comparable periods in 2000. The increase in gains and decrease in expenses were partially offset by (i) a decrease in rental income from $155.1 million and $309.2 million for the three and six months ended June 30, 2000 to $150.9 million and $303.7 million in 2001, (ii) $8.5 million in non-recurring charges recognized in the first quarter of 2001 related primarily to workforce reductions and severance costs, the write down of seven undeveloped land sites and the Company's investment in an online apartment leasing company and relocation costs for the new executive offices, and (iii) the amount paid to redeem the Company's 9.25% Series A preferred shares that was in excess of the net proceeds received from the initial sale of the shares. Apartment Community Operations United Dominion's net income is primarily generated from the operations of its apartment communities. The following table summarizes the operating performance for United Dominion's total apartment portfolio for each of the periods presented (dollars in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ---------------------------------- ---------------------------------- 2001 2000 % Change 2001 2000 % Change ---------------------------------- ---------------------------------- <S> <C> <C> <C> <C> <C> <C> Property rental income $ 150,512 $154,764 -2.7% $ 302,922 $ 308,422 -1.8% Property rental expenses (excluding property management, depreciation and amortization) (52,565) (55,562) -5.4% (108,060) (110,337) -2.1% ---------------------------------- ---------------------------------- Property operating income $ 97,947 $ 99,202 -1.3% $ 194,862 $ 198,085 -1.6% ================================== ================================== Weighted average number of homes 76,149 81,606 -6.7% 76,580 81,830 -6.4% Physical occupancy 94.0% 94.3% -0.3% 94.0% 94.0% 0.0% </TABLE> The decrease in property operating income and property operating expenses by the Company's apartment community operations is due to the disposition of 7,724 apartment homes during 2000 and 2001. As a result of these dispositions, the weighted average number of apartment homes declined 6.7% from June 30, 2000 to June 30, 2001. 22
Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to April 1, 2000 and held on April 1, 2001 which consisted of 73,348 weighted average apartment homes for the three and six month comparative periods) provided 95% of the Company's property operating income for the six months ended June 30, 2001. For the second quarter of 2001, property operating income for the same communities increased 4.0% or $3.6 million compared to the same period in 2000. The growth in property operating income resulted from a $4.3 million or 3.1% increase in property rental income over the same period in the prior year. The increase was driven by a $6.0 million or 4.1% increase in rental rates. During the six months ended June 30, 2001, same community property operating income increased 2.9% or $5.3 million compared to the same period last year. The growth in property operating income resulted primarily from a $9.9 million or 3.6% increase in property rental income that was driven by an $11.2 million or 3.8% increase in average monthly rental rates. For both periods, the increased rental rates were partially offset by higher concessions and an increase in bad debt expense. Physical occupancy remained constant at 94.0%. For the quarter ended June 30, 2001, property operating expenses at these same communities increased only $0.7 million or 1.3%. The increase in property operating expenses was primarily due to a $0.9 million increase in gas costs (net of reimbursement by residents) caused by the run-up in prices of natural gas and a $0.5 million increase in property insurance costs due to a combination of the Company's loss history plus overall increases in market rates. These increases were offset by a $0.5 million decrease in personnel costs as a result of the reduction in force (see "Restructuring Charge" below) and a $0.2 million decrease in administrative and marketing costs. As a result of the percentage changes in total property operating income and total property operating expenses, the operating margin (property operating income divided by property rental income) for the three and six months ended June 30, 2001 was 65.2% and 64.4% compared to 64.6% and 64.9% for the same periods last year. Non-Mature Communities The remaining 5% of United Dominion's property operating income during the first six months of 2001 was generated from its non-mature communities (those communities acquired or developed during 2000 and 2001). United Dominion's development communities which included 1,328 apartment homes constructed since January 1, 2000 provided an additional $3.6 million and $6.7 million of property operating income for the three and six months ended June 30, 2001. In addition, the three communities with 777 apartment homes acquired by United Dominion during 2000 and 2001 provided an additional $1.1 million and $1.6 million of property operating income for the three and six months ended June 30, 2001. Real Estate Depreciation Real estate depreciation decreased $6.0 million or 13.7% and increased $0.5 million or 0.6% for the three and six months ended June 30, 2001, over the same periods last year. The decrease for the quarter was primarily attributable to the recognition of approximately $10 million of catch-up depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 in order to reflect depreciation on these properties while they were classified in real estate held for disposition. Excluding the $10 million, depreciation expense increased by $4.0 million due to the communities transferred in 2000 and increased capital expenditures. Interest Expense Interest expense decreased $3.9 million and $5.8 million for the three and six months ended June 30, 2001, respectively, over the same periods last year due to a decrease in the level of outstanding debt and decreasing interest rates. For the six month period, the weighted average amount of debt outstanding decreased 4.9% or $103.1 million from 2000 levels and the weighted average interest rate decreased from 7.6% in 2000 to 7.4% in 2001. For the three month period, the weighted average amount of debt outstanding decreased 6.8% or $143.7 million in 2001 as compared to the same period in the prior year and the weighted average interest rate decreased from 7.6% in 2000 to 7.4% in 2001. The weighted average amount of debt employed during 2001 is lower as a portion of disposition proceeds was used to repay outstanding debt. The decrease in the average interest rate during 2001 reflects the reliance on short-term bank borrowings which had lower interest rates when compared to the same period in the prior year. 23
Restructuring Charge During the quarter ended March 31, 2001, United Dominion undertook a comprehensive review of the organizational structure of the Company and its operations subsequent to the appointment of a new senior management team and CEO. As a result, the Company recorded $4.5 million of expense related to the termination of approximately 10% of United Dominion's workforce, or 200 full-time equivalent positions, in operations and at the corporate headquarters. Management anticipates that the reduction in workforce will result in an annualized savings of approximately $3.0 to $3.5 million through ongoing cost efficiencies. These reductions will impact both personnel and general and administrative expenses. As of June 30, 2001, approximately $2.9 million of the accrued charge has been paid with the remainder to be paid during the third quarter of 2001. In addition, United Dominion recognized expense in the aggregate of $0.9 million related to relocation costs associated with the new executive offices in Denver and other miscellaneous costs. No adjustments to the existing reserve are contemplated at this time. All charges came under consideration subsequent to the appointment of the Company's new CEO in February 2001 and were approved by management and the Board of Directors in March 2001. Impairment Loss on Real Estate and Investments In connection with the evaluation of the Company's real estate assets and operations during the first quarter of 2001, senior management determined that it was in the Company's best interest to dispose of all undeveloped tracts of land at an accelerated pace and redeploy the proceeds elsewhere. This represented a change from prior management in the holding period of these assets and their respective values. Prior management had purchased these tracts of land in 1999 and 2000 with the intent to build apartment communities on them. In order to accelerate the disposition of these undeveloped land sites, the Company recorded an aggregate $2.8 million impairment loss during the first quarter for the write down of seven undeveloped sites in selected markets. The $2.8 million charge represents the discount necessary to dispose of these assets in a short time frame coupled with decreases in market value in 2001 for these properties. In addition, the Company recognized a $0.3 million charge for the write down of United Dominion's investment in an online apartment leasing company. General and Administrative For the three and six months ended June 30, 2001, general and administrative expenses increased $1.9 million or 52.6% and $2.6 million or 34.1% over 2000. The increase was primarily due to an increase in accrued incentive bonus expense during the second quarter of 2001. Gains on Sales of Investments For the three and six months ended June 30, 2001, United Dominion recognized gains for financial reporting purposes of $20.6 million and $24.7 million, respectively, compared to $5.9 million and $8.5 million for the comparable periods last year. Changes in the level of gains recognized from period to period reflect the changing level of United Dominion's divestiture activity from period to period as well as the extent of gains related to specific properties sold. Premium on Preferred Share Repurchases During the second quarter of 2001, United Dominion redeemed all of the Company's 9.25% Series A preferred shares. The amount paid to redeem these shares in excess of the net proceeds received from the sale of the shares is reflected in the Statement of Operations as a reduction of net income available to common shareholders. Contingencies During the third quarter of 2000, the Company agreed to settle a class action lawsuit concerning water usage billing in Texas in the amount of $2.7 million. As a result of the settlement, the Company accrued $2.7 million in 2000 for the settlement amount and estimated fees. The settlement received final court approval during the first quarter of 2001 and the Company subsequently made payment during the second quarter. 24
Inflation United Dominion believes that the direct effects of inflation on the Company's operations have been inconsequential. Substantially all of the Company's leases are for a term of one year or less which generally minimizes United Dominion's risk from the adverse effects of inflation. 25
Item 3. Quantitative and Qualitative Disclosure Of Market Risk United Dominion is exposed to interest rate changes associated with the Company's unsecured credit facility and other variable rate debt as well as refinancing risk on the Company's fixed rate debt. United Dominion's involvement with derivative financial instruments is limited and the Company does not expect to use them for trading or other speculative purposes. United Dominion occasionally uses derivative instruments to manage the Company's exposure to interest rates. See United Dominion's Form 10-K for the year ended December 31, 2000 "Item 7A Qualitative and Quantitative Disclosures About Market Risk" for a more complete discussion of our interest rate sensitive assets and liabilities. As of June 30, 2001, United Dominion's market risk has not changed materially from the amounts reported on the Form 10-K for the year ended December 31, 2000. 26
PART II Item 1. LEGAL PROCEEDINGS - ------------------------- United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The ultimate liability in respect of such litigations and claims cannot be determined at this time. United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion. During the second quarter of 2001, United Dominion made payment of approximately $2.7 million to settle a class action lawsuit concerning water usage billing in Texas. Item 2. CHANGES IN SECURITIES - ----------------------------- None Item 3. DEFAULT UPON SENIOR SECURITIES - -------------------------------------- None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- On May 8, 2001, the Company held its Annual Meeting of Shareholders. The following persons were elected directors by the indicated vote. Name Votes For Votes Withheld ---- --------- -------------- R. Toms Dalton, Jr. 90,377,671 1,324,979 Robert P. Freeman 90,369,665 1,332,985 Jon A. Grove 90,372,175 1,330,475 James D. Klingbeil 90,335,526 1,367,124 Robert C. Larson 90,233,316 1,469,334 John P. McCann 90,266,263 1,436,387 Lynne B. Sagalyn 90,429,472 1,273,178 Mark J. Sandler 90,439,993 1,262,657 Robert W. Scharar 90,412,155 1,290,495 Thomas W. Toomey 90,402,604 1,300,046 27
The Company's proposed Out-Performance Program, pursuant to which officers and key employees are permitted to purchase performance shares of the Company's limited partnership subsidiary, United Dominion Realty, L.P., the value of which depends upon the achievement of specified performance goals established by the Board of Directors, was approved by a vote of 50,520,314 shares for, 12,119,738 shares against, 1,499,942 shares abstained and 27,562,656 broker non-votes. Finally, the Company's proposed Long-Term Incentive Compensation Plan, providing for formula grants of stock options to directors and awards at the discretion of the Compensation Committee of the Board of Directors of stock options, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, any other rights or interests relating to common stock, or cash to officers and employees, was approved by a vote of 80,194,579 shares for, 10,075,102 shares against and 1,432,969 shares abstained. Item 5. OTHER INFORMATION - ------------------------- None Item 6. EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- (a) The exhibits listed on the accompanying index to exhibits are filed as part of this quarterly report. (b) Reports on Form 8-K A Form 8-K was filed with the Securities and Exchange Commission on May 4, 2001. The filing reported United Dominion's 2001 first quarter results of operations as reported on its Press Release issued on April 30, 2001. A Form 8-K was filed with the Securities and Exchange Commission on May 17, 2001. The filing reported United Dominion's redemption of Series A preferred stock as reported on its Press Release issued on May 16, 2001. A Form 8-K was filed with the Securities and Exchange Commission on June 7, 2001. The filing included information that United Dominion will present to current and prospective stockholders and other persons and institutions as first presented on June 7, 2001. 28
EXHIBIT INDEX Item 6 (a) The exhibits listed below are filed as part of this Quarterly 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 Exchange Exhibit 2(d) to the Company's Form S-3 Registration Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with between the Company, United Dominion the Commission on September 25, 1998. Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. 3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement (Registration No. 333-72885) filed with the Commission on February 24, 1999. 3(b) Restated By-Laws Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. </TABLE> 29
<TABLE> <S> <C> <C> 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)(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)(d)(a) First Amended and Restated Rights Exhibit 4(i)(d)(a) to the Company's Quarterly Agreement dates as of September 14, Report on Form 10-Q for the quarter ended 1999, between the Company September 30, 1999. and ChaseMellon Shareholders Services, L.L.C., as Rights Agent 4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A Registration Statement dated February 4, 1998. 4(ii)(e) Note Purchase Agreement dated 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, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 4(ii)(f) Credit Agreement dated as of Exhibit 4(ii)(g) to the Company's Annual November 14, 2000, between Report on Form 10-K for the year ended the Company and certain subsidiaries December 31, 2000. and a syndicate of banks represented by First Union Nation Bank 10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual Report the Company and Richard Giannotti on Form 10-K for the year ended December 31, dated December 8, 1998. 1998. 10(v) 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(vi) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report </TABLE> 30
<TABLE> <S> <C> <C> Plan. on Form 10-Q for the quarter ended March 31, 1997. 10(vii) Third Amended and Restated Exhibit 10(vi) to the Company's Annual Report Agreement of Limited Partnership of on Form 10-K for the year ended December 31, United Dominion Realty, L.P. 1998. Dated as of December 7, 1998. 10(vii)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Quarterly April 16, 1998, between the Report on Form 10-Q for the quarter ended Company and United Dominion March 31, 1998. Realty, L.P. 10(viii) Servicing and Purchase Exhibit 10(vii) to the Company's Quarterly Agreement dated as of June 24, Report on Form 10-Q for the quarter ended 1999, including as an exhibit June 30, 1999. thereto the Note and Participation Agreement forms. 10(ix) Description of Restricted Stock Exhibit 10(ix) to the Company's Annual Report Awards Program. on Form 10-K for the year ended December 31, 1999. 10(x) Description of United Dominion Exhibit 10(x) to the Company's Annual Realty Trust, Inc. Shareholder Report on Form 10-K for the year ended Value Plan. December 31, 1999. 10(xi) Description of United Dominion Exhibit 10(xi) to the Company's Annual Realty Trust, Inc. Executive Report on Form 10-K for the year ended Deferral Plan. December 31, 1999. 10(xii) Employment Agreement between Exhibit 10(xii) to the Company's Annual the Company and Curtis W. Carter Report on Form 10-K for the year ended dated December 8, 1998. December 31, 1999. 10(xiii) Employment Agreement between Exhibit 10(xiii) to the Company's Annual the Company and Mark E. Wood Report on Form 10-K for the year ended dated March 21, 2000. December 31, 1999. 10(xv) Retirement Agreement and Covenant Exhibit 10(xv) to the Company's Quarterly Not to Compete between the Company Report on Form 10-Q for the quarter and John P. McCann dated March 20, ended March 31, 2001. 2001. 10(xvii) Employment Separation Agreement Exhibit 10(xvii) to the Company's Quarterly between the Company and A. William Report on Form 10-Q for the quarter Hamill dated March 20, 2001. ended March 31, 2001. 12 Computation of Ratio of Earnings Filed herewith. to Fixed Charges. </TABLE> 31
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. United Dominion Realty Trust, Inc. - ---------------------------------- (registrant) Date: August 14, 2001 /s/ Christopher D. Genry - ---------------------------------- --------------------------------- Christopher D. Genry Executive Vice President and Chief Financial Officer Date: August 14, 2001 /s/ Scott A. Shanaberger - ---------------------------------- --------------------------------- Scott A. Shanaberger Vice President and Chief Accounting Officer 32