-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LbtBamKrhAWlIi9k4c5qDxBXqrMqRVtgctIky3TalX5896ypeLF7CGJTZsge0Xeu zOqdJw2RqgcABAs05suksg== 0000899243-02-000858.txt : 20020415 0000899243-02-000858.hdr.sgml : 20020415 ACCESSION NUMBER: 0000899243-02-000858 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED DOMINION REALTY TRUST INC CENTRAL INDEX KEY: 0000074208 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 540857512 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10524 FILM NUMBER: 02593202 BUSINESS ADDRESS: STREET 1: 400 EAST CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3802 BUSINESS PHONE: 8047802691 MAIL ADDRESS: STREET 1: 400 EAST CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3802 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REIT ONE DATE OF NAME CHANGE: 19770921 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUS DATE OF NAME CHANGE: 19741216 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19850110 10-K 1 d10k.txt FORM 10-K 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, 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 (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129 (Address of principal executive offices, including zip code) (720) 283-6120 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered ------------------- ------------------------------------ Common Stock, $ 1 par New York Stock Exchange value New York Stock Exchange Preferred Stock Purchase New York Stock Exchange Rights 8.60% Series B Cumulative Redeemable Preferred Stock Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days.Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference into Part III of this Form 10-K [_]. The aggregate market value of the shares of common stock held by non-affiliates on March 1, 2002 was approximately $1.4 billion. This calculation excludes shares of common stock held by the Registrant's officers and directors and each person known by the Registrant to beneficially own more than 5% of the Registrant's outstanding shares, as such persons may be deemed to be affiliates. This determination of affiliate status should not be deemed conclusive for any other purpose. As of March 1, 2002, there were 103,420,104 shares of the Registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 7, 2002. TABLE OF CONTENTS
Page ---- PART I. Item 1. Business............................................................................. 2 Item 2. Properties........................................................................... 16 Item 3. Legal Proceedings.................................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders.................................. 18 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 18 Item 6. Selected Financial Data.............................................................. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................... 34 Item 8. Financial Statements and Supplementary Data.......................................... 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 34 PART III. Item 10. Directors and Executive Officers of the Registrant................................... 34 Item 11. Executive Compensation............................................................... 34 Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 34 Item 13. Certain Relationships and Related Transactions....................................... 34 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 35
PART I Item 1. BUSINESS General United Dominion Realty Trust, Inc. is a self-administered equity real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages middle market apartment communities nationwide. At December 31, 2001, our apartment portfolio included 274 communities located in 21 states, with a total of 77,567 completed apartment homes. In addition, we had 462 apartment homes under development at two additional phases of existing communities. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate, our income be derived primarily from real estate and that we distribute at least 90% of our taxable income (other than our net capital gain) to our shareholders. As a qualified REIT, we generally will not be subject to federal income taxes on our net income to the extent we distribute such income to our shareholders. In 2001, we paid total distributions of $1.08 per share to our shareholders, which represents our 25th year of consecutive dividend increases to our shareholders. We were formed in 1972 as a Virginia corporation. Our corporate headquarters is located at 400 East Cary Street, Richmond, Virginia. Our principal executive offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado. As of March 1, 2002, we had 1,879 full-time employees and 106 part-time employees. Our subsidiaries include two operating partnerships, United Dominion Realty, L.P. and Heritage Communities L.P. Unless the context otherwise requires, all references in this Report to "we," "us," "our," "the company" or "United Dominion" refer collectively to United Dominion Realty Trust, Inc. and its subsidiaries. 2001 Accomplishments . Our net operating income from same communities increased 2.3% in 2001 compared to 2000. Net operating income is property operating income less property operating expenses. Same communities are those acquired, developed or stabilized prior to January 1, 2000 and held on January 1, 2001. . We completed three development projects aggregating $51.5 million with 776 apartment homes in three different markets. . We completed development of the remaining four communities in the development joint venture that was formed in June 2000 to develop five new communities containing 1,438 apartment homes at a total cost of $101 million. We earn fee income by providing development, construction and property management services to each of the joint venture projects. . We completed the disposition of nine apartment communities with 1,889 apartment homes and five parcels of land that no longer met our investment criteria, for an aggregate sales price of approximately $141.3 million. . We repurchased 17,600 shares of our Series B preferred stock at an average price of $24.42 per share and 3,768,704 shares of our common stock and operating partnership units at an average price of $13.21 for a total cost of $50.2 million. . We repurchased all of our outstanding 9.25% Series A Cumulative Redeemable Preferred Stock at $25 per share plus accrued dividends. . We negotiated a new $200 million credit facility and a new $400 million credit facility to enhance our financial flexibility. 2 . We completed a public offering of 4.1 million shares of our common stock and received net proceeds from the offering of approximately $56 million, or $13.67 per share. . We acquired five communities with 1,304 apartment homes and one parcel of land at a total cost of approximately $92.6 million, which included the use of tax free exchange funds. . We hired Thomas W. Toomey as our Chief Executive Officer to succeed John P. McCann, who had served in this role for more than 26 years. Upon completion of Mr. Toomey's review of our strategy and organizational structure, we hired several new senior executives, opened a new executive office near Denver, Colorado and streamlined our workforce. Business Objectives and Operating Strategies Our principal business objective is to maximize the economic returns of our apartment communities to provide our shareholders with the greatest possible total return and value. To achieve this objective, we intend to continue to pursue the following goals and strategies: . own and operate middle market apartments across a national platform, thus enhancing stability and predictability of returns to our shareholders, . manage real estate cycles by taking an opportunistic approach to buying, selling and building apartment communities, . empower site associates to manage our communities efficiently and effectively, . measure and reward associates based on specific performance targets, and . manage the capital structure to ensure predictability of earnings and dividends. To further our goal of being one of the largest apartment REITs, we have continued to focus on upgrading our portfolio and improving our operations in an effort to sustain above-average net operating income growth, steadily increase cash flow per apartment home and strengthen our capital structure. Acquisitions and Mergers Acquisitions. During the past five years, we have increased our property portfolio by nearly 40,000 apartment homes by acquiring other REITs, private portfolios and individual communities as part of our strategy to enhance our geographic diversification. During the past three years, our dispositions have exceeded acquisitions, with acquisitions mostly utilizing disposition proceeds to complete Section 1031 tax-deferred exchanges. During 2001, using the proceeds from our disposition program and our equity offering, we acquired five communities with 1,304 apartment homes and one parcel of land at a total cost of $92.6 million, including the assumption of debt and the use of tax free exchange funds. When evaluating potential acquisitions, we consider: . population growth, cost of alternative housing, overall potential for economic growth and the tax and regulatory environment of the community in which the property is located, . geographic location and type of community, including proximity to our existing communities which can deliver significant economies of scale, . construction quality, condition and design of the community, . current and projected cash flow of the property and the ability to increase cash flow, . potential for capital appreciation of the property, 3 . ability to increase the value and profitability of the property through upgrades and repositioning, . terms of resident leases, including the potential for rent increases, . occupancy and demand by residents for properties of a similar type in the vicinity, . prospects for liquidity through sale, financing or refinancing of the property, and . competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area. Mergers. The apartment sector of the real estate industry has undergone modest but steady consolidation over the past decade. Some apartment REITs and privately owned portfolios may seek to be acquired by large, well capitalized REITs that have superior access to the capital markets. We have participated in this consolidation process by completing the following mergers: . On December 31, 1996, we acquired SouthWest Property Trust Inc. in a statutory merger. SouthWest was a publicly traded multifamily REIT that owned 44 communities with 14,320 apartment homes primarily located in Texas. The merger provided us with diversification beyond our traditional Southeast and Mid-Atlantic markets and into the Southwestern markets. . On March 27, 1998, we acquired ASR Investments Corporation in a statutory 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 merger furthered our investment in Southwestern markets, provided an initial presence in the Pacific Northwest and added communities in Houston and Phoenix. . On December 7, 1998, we acquired American Apartment Communities II, Inc., or AAC, in a statutory merger. In connection with this acquisition, we acquired 53 communities with 14,001 apartment homes located primarily in California, the Pacific Northwest, the Midwest and Florida. The merger enabled us to enter new major markets, many of which are strong growth markets. Through the merger, we entered Portland, San Francisco, Sacramento, San Jose, Monterey, Los Angeles, Denver, Indianapolis and Detroit. In addition, AAC added communities to our portfolios in Columbus, Tampa, South Florida and Seattle. The following table summarizes our apartment acquisitions, including acquisitions through mergers, during the last five years (dollars in thousands):
2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- Homes acquired............................ 1,304 267 1,230 28,510 8,628 Homes owned at December 31................ 77,567 77,219 82,154 86,893 62,789 Total real estate owned, at carrying value $3,907,667 $3,836,320 $3,953,045 $3,952,752 $2,517,398 Total rental income....................... $ 618,590 $ 626,594 $ 625,115 $ 481,986 $ 387,647
Dispositions We regularly monitor and adjust our assets to increase portfolio profitability. During the past three years, we sold more than 15,000 of our slower growing, non-core apartment homes while exiting some markets in an effort to increase the quality and performance of our portfolio. Proceeds from the disposition program were used to strengthen our capitalization structure by paying down debt, as well as to fund development projects, acquire replacement communities and to selectively repurchase shares of our preferred and common stock. Factors we consider in deciding whether to dispose of a property include: . current market pricing for an asset compared to projected economics for that asset, 4 . potential increases in new construction in the market area, . areas where the economy is not expected to grow substantially, and . markets where we do not intend to establish long-term concentration. At December 31, 2001, there were four parcels of land in low-performing markets classified as real estate held for disposition. In addition, we were actively marketing 33 apartment communities for sale in similar markets. We are in the market for replacement properties that will correspond with our expected sales activity to prevent dilution to earnings. Development and Upgrading Activities During 2001, we continued to reposition properties in targeted markets where there was a perceived opportunity to add value and achieve greater than inflationary increases in rents over the long term. In 2001, we spent $51.5 million to finish 776 apartment homes in two new communities and a phase three to an existing community. In addition, revenue enhancing capital expenditures, including water sub-metering, gating and access systems, the addition of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $21.6 million or $286 per home for the year ended December 31, 2001. We will continue to seek out development opportunities in our core markets and seek to raise equity with potential joint venture partners to start a new development program in 2002. We anticipate that any potential starts would occur towards the end of 2002. Until then, we will strive to create value for the portfolio through rehabilitation of existing properties and phase II opportunities within the existing portfolio. Financing Activities As part of our plan to strengthen our capital structure, we used a majority of our disposition proceeds in 2001 to reduce debt and repurchase shares of our outstanding common and preferred stock. The following is a list of our major financing activities in 2001: . We redeemed all of our 9.25% Series A Cumulative Redeemable Preferred shares at $25 per share plus accrued interest. . We negotiated a $200 million secured credit facility with ARCS Commercial Mortgage Co., L.P., or ARCS, a Fannie Mae DUS Lender. . We negotiated a $400 million secured credit facility through ARCS with the funds earmarked to refinance existing debt on over 30 properties. . We repurchased 17,600 share of our Series B preferred stock at an average price of $24.42 per share and 3,768,704 shares of our common stock and operating partnership units at an average price of $13.21 for a total cost of $50.2 million. . We sold 4.1 million shares of our common stock in a public offering and received net proceeds of approximately $56 million from the offering. Markets At December 31, 2001, we owned apartment communities in 62 markets in 21 states. Of those markets, 45 markets, or 73%, generated positive same community net operating income growth. We have a geographically diverse portfolio and we believe this diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of our earnings. 5 In 2001, new supply continued to come into the market as demand was slowing. The excess supply exerted pressure on occupancy in some of our key markets, particularly in Charlotte, Raleigh, Atlanta, and Orlando. Offsetting this, some of our markets experienced above-average net operating income growth for the year, including Seattle, Dallas/Fort Worth, Baltimore, Norfolk and Metropolitan DC. Our West Coast markets, including our markets in California and the Pacific Northwest, were exceptionally strong throughout the year. We believe changing demographics will have a significant impact on the apartment industry over the next two decades. In particular, we believe the annual number of young people entering the workforce and creating households will be significantly higher over the next 15 years as compared to the number who entered the workforce over the past 10 years. The number of single people and single parent households continues to grow significantly. There is also higher growth in immigration than had been expected. Each of these population segments has a high propensity to rent. Many economists believe the United States economy is currently in recession. The weakness in the overall United States economy was exacerbated by the events of September 11, 2001. The recession has adversely affected employment and other significant elements of the economy that drive productivity and the financial strength of business. To maintain our occupancy levels during these economic conditions, we have provided certain concessions to our residents and we have increased our bad debt allowance. Moving forward, we will continue to emphasize aggressive lease management, expense control, increased resident retention efforts and the realignment of employee incentive plans tied to our bottom line performance. We believe this plan of operations, coupled with the portfolio's strengths in targeting the middle market of renters across a geographically diverse platform, should position us for continued operational improvement. Communities At December 31, 2001, our apartment portfolio included 274 communities having a total of 77,567 completed apartment homes. In addition, we had 462 apartment homes under development at two additional phases to existing owned communities. The overall quality of our portfolio has significantly improved since 1997 with the disposition of non-core apartment homes and the upgrading of most of our communities. The upgrading of the portfolio provides several key benefits related to portfolio profitability. It enables us to raise rents more significantly and to attract residents with higher levels of disposable income who are more likely to accept the transfer of expenses, such as water and sewer costs, from the landlord to the resident. In addition, it potentially reduces recurring capital expenditures per apartment, and therefore increases cash flow. Same Communities Our primary earnings driver is same apartment community operations. During 2001, our same communities provided 95% of our property operating income. Rental growth was 3.1% and resulted primarily from a 3.9% increase in rental rates offset by a 0.2% decrease in physical occupancy, higher concessions and an increase in bad debt expense. Operating expenses also grew by 4.4%, much of which resulted from a 10.6% increase in electricity costs and a 9.4% increase in repair and maintenance. Average physical occupancy, rental rates and operating margins at our same communities during the past three years are set forth below:
2001 2000 1999 ----- ----- ----- Physical occupancy.......... 94.0% 94.2% 93.0% Average monthly rental rates $ 698 $ 667 $ 631 Operating margin............ 63.2% 63.1% 63.3%
6 Customers We focus on the broad middle-market segment of the apartment market that generally consists of renters-by-necessity. This group includes young professionals, blue-collar families, single parent households, older singles, immigrants, non-related parties and families renting while waiting to purchase a home. We believe this segment provides the highest profit potential in terms of rent growth, stability of occupancy and investment opportunities. We believe there will be a significant increase in the number of younger renters over the next decade and a half. Accordingly, we plan to target some of our incremental investments to communities that will be attractive to younger households. These communities will often be located close to where young people work, shop and play. Tax Matters We have elected to be taxed as a REIT under the Internal Revenue Code. To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate, our income be derived primarily from real estate and that we distribute at least 90% of our taxable income (other than our net capital gain) to our shareholders. Provided we maintain our qualification as a REIT, we will generally not be subject to federal income taxes at the corporate level on our net income to the extent net income is distributed to our shareholders. The REIT Modernization Act, or RMA, which took effect in 2001, contains several provisions that allow REITs to compete more effectively in the real estate industry by allowing REITs to offer the same types of services as non-REIT competitors in the marketplace. The most important feature of the RMA is the allowance for REITs to create taxable REIT subsidiaries, or TRS, that can provide services to residents and others without disqualifying the rents that a REIT receives from its residents. Prior to the RMA, REITs were not allowed to provide non-customary or tenant specific services to their residents, such as concierge services, beyond a de minimus amount. As the apartment industry has become a competitive customer-focused business, these constraints inhibited REITs from maintaining a competitive edge in attracting and maintaining residents. Therefore, the RMA has several significant benefits for the REIT industry. REITs will be allowed, through a TRS, to provide a wide range of increasingly important services that residents have come to expect, generating new sources of income for REIT shareholders. Effective January 1, 2001, REITs can own 100% of the stock of a TRS. However, the legislation contains a number of safeguards that would limit the size of a TRS to ensure that REITs remain focused on their core business of owning and operating real estate assets. The RMA provides another significant change to the existing law. The RMA changes the minimum distribution requirement from 95% to 90% of the REIT's taxable income. This allows REITs to retain a greater level of capital that can be used to invest in expenditures to maintain the quality of their real estate assets as well as repay outstanding debt. We do not currently have any TRSs; however, we are evaluating opportunities to take advantage of this legislation. Competitive Conditions In most of our markets, competition for new residents is intense. Some competing communities offer features that our communities do not have. Some competing communities may use concessions or lower rents to obtain competitive advantages. Also, some competing communities are larger or newer than our communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. In addition, other real estate investors compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, 7 developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources than we do. Management believes that, in general, we are well-positioned to compete effectively for residents and investments. We believe our competitive advantages include: . a fully integrated organization with property management, development, acquisition, marketing and financing expertise, . scalable operating and support systems, . purchasing power, . geographic diversification with a presence in more than 62 markets across the country, and . local presence in many of our major markets which allows us to be a local operating expert. Inflation Substantially all of our leases are for a term of one year or less, which may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty. Short-term leases and relatively consistent demand allow rents, and therefore cash flow from the portfolio, to provide an attractive hedge against inflation. Environmental Matters To date, compliance with federal, state, and local environmental protection regulations has not had a material effect on our capital expenditures, earnings or competitive position. However, over the past 15 years, the issue has been raised regarding the presence of asbestos and other hazardous materials in existing real estate properties, and within the past year there has been an increase in the number of claims of potential health-related issues allegedly caused by the presence of mold in confined spaces. We have a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigations and reports have been completed for each property we own. In addition, all proposed acquisitions are inspected prior to acquisition. The inspections are conducted by qualified environmental consultants, and we review the issued report prior to the purchase or development of any property. Nevertheless, it is possible that our environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of which we are unaware. In some cases, we have abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or we have been unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large-scale abatement at any of our properties. Management believes that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a conservative posture toward accepting known risk, we can minimize our exposure to potential liability associated with environmental hazards. 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 imposes treble damages for failure to provide such notification. 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 we may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities. We are unaware of any environmental hazards at any of our properties which individually or in the aggregate may have a material adverse impact on our operations or financial position. We have not been notified 8 by any governmental authority, and we are not otherwise aware, of any material non-compliance, liability or claim relating to environmental liabilities in connection with any of our properties. We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on us or our financial condition or results of operations. We cannot assure you, 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 us in the future, the costs of compliance could have a material adverse effect on us and our financial condition. To the best of our knowledge, we are in compliance with all applicable environmental rules and regulations. Insurance We carry comprehensive general liability coverage on our communities, with limits of liability customary within the industry to insure against liability claims and related defense costs. We are also insured, in all material respects, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Factors Affecting Our Business and Prospects There are many factors that affect our business and our results of operations, some of which are beyond our control. The following is a description of some of the important factors that may cause our actual results of operations in future periods to differ materially from those currently expected or desired. Unfavorable Changes in Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels and Rental Rates. Market and economic conditions in the metropolitan areas in which we operate may significantly affect our occupancy levels and rental rates and therefore our profitability. Factors that may adversely affect these conditions include the following: . a reduction in jobs and other local economic downturns, . declines in mortgage interest rates, making alternative housing more affordable, . oversupply of, or reduced demand for, apartment homes, . declines in household formation, and . rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs. The weakness in the United States economy has been exacerbated by the events of September 11, 2001, as well as by the United States' war on terrorism. The weak economy has adversely affected employment and other significant elements of the economy that drive productivity and the financial strength of businesses. Any continuation or worsening of current economic conditions, generally and in our principal market areas, could have a material adverse effect on our occupancy levels, our rental rates and our ability to strategically acquire and dispose of apartment communities. This may impair our ability to satisfy our financial obligations and pay distributions to our shareholders. Acquisitions or New Development May Not Achieve Anticipated Results. We intend to continue to selectively acquire apartment communities that meet our investment criteria. Our acquisition activities and their success are subject to the following risks: . An acquired community may fail to perform as we expected in analyzing our investment, or a significant exposure related to the acquired property may go undetected during our due diligence procedures. 9 . When we acquire an apartment community, we often invest additional amounts in it with the intention of increasing profitability. These additional investments may not produce the anticipated improvements in profitability. . New developments may not achieve pro forma rents or occupancy levels, or problems with construction or local building codes may delay initial occupancy dates for all or a portion of a development community. Possible Difficulty of Selling Apartment Communities Could Limit Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but market conditions could change and purchasers would not be willing to pay prices acceptable to us. A weak market may limit our ability to change our portfolio promptly in response to changing economic conditions. Furthermore, a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify as like-kind exchanges under Section 1031 of the Internal Revenue Code, so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash flow generated from our property sales. In addition, federal tax laws limit our ability to profit on the sale of communities that we have owned for fewer than four years, and this limitation may prevent us from selling communities when market conditions are favorable. Increased Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents. Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents. Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk. We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow will be insufficient to make required payments of principal and interest, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. We cannot assure you that sufficient cash flow will be available to make all required principal payments and still satisfy our distribution requirements to maintain our status as a REIT, nor can we assure you that the full limits of our line of credit will be available to us if our operating performance falls outside the constraints of our debt covenants. Additionally, we are likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise not choose to do so. Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Shareholders. If our apartment communities do not generate sufficient net rental income to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to our shareholders will be adversely affected. The following factors, among others, may affect the net rental income generated by our apartment communities: . the national and local economies, . local real estate market conditions, such as an oversupply of apartment homes, . tenants' perceptions of the safety, convenience and attractiveness of our communities and the neighborhoods where they are located, . our ability to provide adequate management, maintenance and insurance, and . rental expenses, including real estate taxes and utilities. 10 Expenses associated with our investment in a community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgagee. Debt Level May Be Increased. Our current debt policy does not contain any limitations on the level of debt that we may incur, although our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt. Financing May Not Be Available and Could be Dilutive. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Debt or equity financing may not be available in sufficient amounts, or on favorable terms or at all. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing shareholders could be diluted. Development and Construction Risks Could Impact Our Profitability. We intend to continue to develop and construct apartment communities. Development activities may be conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities may be exposed to the following risks: . We may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations, which could result in increased development costs and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations. . If we are unable to find joint venture partners to help fund the development of a community or otherwise obtain acceptable financing for the developments, our development potential may be limited. . We may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring them. . We may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs. . Occupancy rates and rents at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our profitability goals for that community. Construction costs have been increasing in our existing markets, and the costs of upgrading acquired communities have, in some cases, exceeded our original estimates. We may experience similar cost increases in the future. Our inability to charge rents that will be sufficient to offset the effects of any increases in these costs may impair our profitability. Failure to Succeed in New Markets May Limit Our Growth. We may from time to time make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets and we may not be able to operate successfully in new markets. These risks include, among others: . inability to accurately evaluate local apartment market conditions and local economies, 11 . inability to obtain land for development or to identify appropriate acquisition opportunities, . inability to hire and retain key personnel, and . lack of familiarity with local governmental and permitting procedures. Changing Interest Rates Could Increase Interest Costs and Could Affect the Market Price of Our Securities. We currently have, and expect to incur in the future, debt bearing interest at rates that vary with market interest rates. Therefore, if interest rates increase, our interest costs will rise to the extent our variable rate debt is not hedged effectively. In addition, an increase in market interest rates may lead our security holders to demand a higher annual yield, which could adversely affect the market price of our common and preferred stock and debt securities. Limited Investment Opportunities Could Adversely Affect Our Growth. We expect that other real estate investors will compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources than we do. As a result, we may not be able to make attractive investments on favorable terms, which could adversely affect our growth. Failure to Integrate Acquired Communities and New Personnel Could Create Inefficiencies. To grow successfully, we must be able to apply our experience in managing our existing portfolio of apartment communities to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability. Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges. From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the pricing of new debt securities is not within the parameters of, or market interest rates produce a lower interest cost than that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges. Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property. Compliance With REIT Share Ownership Limit May Prevent Takeovers Beneficial to Shareholders. One of the requirements for maintenance of our qualification as a REIT for federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Internal Revenue Code, during the last half of any taxable year. Our charter includes provisions allowing us to stop transfers of and redeem our shares that are intended to assist us in complying with 12 this requirement. These provisions may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for our shareholders or might otherwise be in our shareholders' best interests. We are Subject to Certain Tax Risks. We have elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, we must satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Internal Revenue Code provisions. Only limited judicial or administrative interpretation exists for these provisions and involves the determination of various factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may apply to us, potentially with retroactive effect, and adversely affect our ability to qualify as a REIT. We may receive significant non-qualifying income or acquire non-qualifying assets, which as a result, may cause us to approach the income and assets test limits imposed by the Internal Revenue Code. There is a risk that we may not satisfy these tests. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at corporate rates. We may also be disqualified from treatment as a REIT for the four taxable years following the year in which we failed to qualify. This would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property. The Ability of Our Shareholders to Control Our Policies and Effect a Change of Control of Our Company is Limited, Which May Not Be in Our Shareholders' Best Interests. Under the terms of our shareholder rights plan, our Board of Directors can in effect prevent a person or group from acquiring more than 15% of the outstanding shares of our common stock. Unless our Board of Directors approves the person's purchase, after that person acquires more than 15% of our outstanding common stock, all other shareholders will have the right to purchase securities from us at a price that is less than their then fair market value. Purchases by other shareholders would substantially reduce the value and influence of the shares of our common stock owned by the acquiring person. Our Board of Directors, however, can prevent the shareholder rights plan from operating in this manner. This gives our Board of Directors significant discretion to approve or disapprove a person's efforts to acquire a large interest in us. 13 Executive Officers of the Company The following table sets forth information about our executive officers as of March 1, 2002. The executive officers listed below serve in their respective capacities for approximate one-year terms.
Name Age Office Since ---- --- ------ ----- Thomas W. Toomey.... 41 President, Chief Executive 2001 Officer and Director W. Mark Wallis...... 51 Senior Executive Vice President 2001 Legal, Acquisitions, Dispositions & Development Christopher D. Genry 41 Executive Vice President 2001 Chief Financial Officer Ella S. Neyland..... 47 Executive Vice President 2001 Treasurer & Investor Relations Lester C. Boeckel... 53 Senior Vice President 2001 Acquisitions & Dispositions Martha R. Carlin.... 39 Senior Vice President 2001 Operations Thomas J. Corcoran.. 55 Senior Vice President 1997 Human Resources Richard A. Giannotti 46 Senior Vice President 1985 Development and Acquisitions, Eastern Region Patrick S. Gregory.. 52 Senior Vice President 1997 Chief Information Officer Kevin M. McCabe..... 36 Senior Vice President 2001 Real Estate Operations Scott A. Shanaberger 33 Senior Vice President 1994 Corporate Controller & Chief Accounting Officer Mark E. Wood........ 50 Senior Vice President 1996 Development and Acquisitions, Western Region
Set forth below is certain biographical information about each of our executive officers. Mr. Toomey joined us as President, Chief Executive Officer and a Director in February 2001. Prior to joining us, Mr. Toomey was the Chief Operating Officer of Apartment Investment Management Company, or AIMCO. Before becoming the Chief Operating Officer, Mr. Toomey was the Executive Vice President--Finance and Administration at AIMCO. Prior to joining AIMCO in November 1995, Mr. Toomey was Senior Vice President and Treasurer with Lincoln Property Company from 1990 to 1995 and an Audit Manager with Arthur Andersen & Co. from 1984 to 1990. Mr. Wallis joined us in March 2001 as Senior Executive Vice President of Legal, Acquisitions, Dispositions and Development. Prior to joining us, Mr. Wallis was the President of Golden Living Communities, a company he established in 1995, involved in the development of assisted and independent living communities. Prior to 14 founding Golden Living, Mr. Wallis was Executive Vice President of Finance and Administration of Lincoln Property Company, a real estate development and management company. Mr. Genry joined us in March 2001 as Executive Vice President and Chief Financial Officer. Mr. Genry had been Chief Financial Officer of Centex Construction Group, a $ 1 billion subsidiary of the New York Stock Exchange listed Centex Corporation. As CFO, he provided strategic leadership in the development and management of all financial and information systems, the redesign and oversight of internal audit functions and the identification and evaluation of acquisition opportunities. Prior to joining Centex, he was with Arthur Andersen & Co. in Dallas. Ms. Neyland joined us in March 2001 as Executive Vice President and Treasurer and is also responsible for Investor Relations. Ms. Neyland had been Chief Financial Officer of Sunrise Housing, Ltd., a privately owned apartment development company that manufactures modular units for the construction of affordable apartment communities. Previously, she served as an Executive Director with CIBC World Markets and as Senior Vice President of Finance of Lincoln Property Company. Mr. Boeckel joined us in July 2001 as Vice President of Acquisitions and Dispositions and was promoted to Senior Vice President in February 2002. Prior to joining United Dominion, Mr. Boeckel was the Senior Vice President of Asset Management at Apartment Investment Management Company. Before becoming the SVP of Asset Management, Mr. Boeckel was a Regional Vice President with operating responsibility for a portfolio of 12,000 apartment homes. Prior to joining AIMCO, Mr. Boeckel had over ten years of real estate experience with various firms including a regional investment banking firm, a regional financial planning firm and a national apartment syndication firm. Ms. Carlin joined us in March 2001 as a Senior Vice President responsible for operational efficiencies and revenue enhancement. Ms. Carlin was previously Senior Vice President of Operations for opsXchange, Inc., a real estate procurement technology developer. Previously, she served as Senior Vice President of Ancillary Services at Apartment Investment and Management Company and as a member of Arthur Andersen's Real Estate Services Group. Mr. Corcoran joined us in 1997 as the Assistant Vice President of Human Resources and was promoted to Vice President in 1998 and Senior Vice President in 1999. Prior to joining United Dominion, Mr. Corcoran was the Vice President of Human Resources for Acordia, Inc., a national insurance brokerage firm from 1993 to 1995. Mr. Giannotti joined us 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. Gregory joined us in 1997 as Vice President and Chief Information Officer and was promoted to Senior Vice President in 1999. From 1976 to 1997, Mr. Gregory was employed by Crestar Bank as a New Technology Analyst. Mr. McCabe joined us in June 2001 as Senior Vice President responsible for property operations. Prior to joining United Dominion, Mr. McCabe was President of AutoTrac Information Solutions, a customer relationship management and database marketing company based in Wheat Ridge, Colorado. Mr. McCabe also worked as a senior manager in the strategy and business transformation consulting group for E&Y Kenneth Leventhal and as a manager with Pritchett and Associates, a consulting firm specializing in M&A integration. Mr. Shanaberger joined us in 1994 as an Accounting Manager and was promoted to Assistant Vice President and Assistant Treasurer in 1997. In 2000, Mr. Shanaberger was promoted to Vice President Corporate Controller 15 and Chief Accounting Officer and was promoted to Senior Vice President in 2002. Prior to joining United Dominion, Mr. Shanaberger was employed by Ernst & Young LLP. Mr. Wood joined us as Vice President of Construction in connection with the merger of SouthWest in 1996. He was promoted to Senior Vice President and Director of Development-West in 2000. Item 2. PROPERTIES At December 31, 2001, our apartment portfolio included 274 communities located in 21 states, with a total of 77,567 completed apartment homes. In addition, we had 462 apartment homes under development at two additional phases of existing owned communities. We own approximately 53,000 square feet of office space in Richmond, Virginia for our corporate offices and we lease approximately 9,700 square feet of office space in Highlands Ranch, Colorado for our principal executive offices. The table below sets forth a summary of our real estate portfolio by geographic market at December 31, 2001. 16 Summary of Real Estate Portfolio by Geographic Market at December 31, 2001
Number of Number of Percentage of Carrying Physical Apartment Apartment Carrying Value Encumbrances Cost Occupancy Communities Homes Value (in thousands) (in thousands) Per Home Full Year 2001 ----------- --------- ------------- -------------- -------------- -------- -------------- Dallas, TX.......................... 16 5,177 6.5% $ 255,437 $ 40,850 $ 49,341 95.0% Houston, TX......................... 22 5,722 5.8% 227,217 27,336 39,709 94.0% Phoenix, AZ......................... 12 3,854 5.8% 225,997 56,893 58,640 93.6% Orlando, FL......................... 14 4,140 5.2% 202,676 89,823 48,956 92.9% San Antonio, TX..................... 12 3,827 4.9% 190,182 37,072 49,695 91.6% Raleigh, NC......................... 10 3,283 4.3% 166,411 57,754 50,689 91.7% Tampa, FL........................... 10 3,372 3.9% 151,867 57,315 45,038 94.1% Fort Worth, TX...................... 11 3,561 3.8% 148,888 22,786 41,811 96.6% Columbus, OH........................ 6 2,527 3.8% 148,012 43,897 58,572 93.4% San Francisco, CA................... 4 980 3.6% 140,995 21,423 143,872 97.3% Charlotte, NC....................... 10 2,710 3.5% 136,303 12,159 50,296 89.2% Nashville, TN....................... 8 2,220 3.1% 119,805 -- 53,966 94.2% Greensboro, NC...................... 8 2,122 2.7% 103,703 -- 48,870 91.0% Monterey Peninsula, CA.............. 9 1,706 2.5% 97,304 44,416 57,036 95.4% Memphis, TN......................... 6 1,956 2.5% 96,909 27,092 49,544 92.3% Richmond, VA........................ 8 2,372 2.5% 96,117 66,657 40,522 95.6% Southern California................. 5 1,414 2.3% 90,989 11,627 64,349 95.8% Wilmington, NC...................... 6 1,869 2.3% 89,015 -- 47,627 92.6% Metropolitan DC..................... 5 1,291 1.9% 74,599 38,011 57,784 97.9% Atlanta, GA......................... 6 1,426 1.8% 71,202 19,113 49,931 93.3% Baltimore, MD....................... 6 1,291 1.7% 67,102 29,011 51,977 97.1% Columbia, SC........................ 6 1,584 1.6% 62,230 5,000 39,287 95.0% Jacksonville, FL.................... 3 1,157 1.5% 58,329 23,202 50,414 92.9% Norfolk, VA......................... 6 1,437 1.4% 54,095 7,359 37,644 95.4% Lansing, MI......................... 4 1,226 1.2% 48,668 24,889 39,697 92.4% Seattle, WA......................... 3 628 0.9% 34,031 13,311 54,189 94.9% Other Western....................... 6 2,594 3.3% 127,729 42,239 49,240 96.3% Other Florida....................... 8 2,073 2.6% 101,208 -- 48,822 91.3% Other Southwestern.................. 9 2,212 2.5% 98,136 19,102 44,365 93.4% Other Midwestern.................... 10 2,122 2.4% 93,803 36,148 44,205 93.0% Other Pacific....................... 7 1,757 2.2% 87,156 45,605 49,605 93.6% Other North Carolina................ 8 1,893 1.9% 74,453 9,876 39,331 95.1% Other Mid-Atlantic.................. 5 928 1.1% 42,397 12,542 45,686 96.6% Other Southeastern.................. 3 764 1.0% 37,428 19,285 48,990 94.8% Other Northeastern.................. 2 372 0.5% 18,119 5,167 48,707 96.4% Land................................ n/a n/a 0.3% 12,879 n/a n/a n/a Real Estate Under Development....... n/a n/a 0.7% 27,361 n/a n/a n/a --- ------ ---- ---------- -------- -------- ---- Total Apartments.............. 274 77,567 99.3% $3,878,752 $966,960 $ 49,486 93.9% --- ------ ---- ---------- -------- -------- ---- Real Estate Held for Disposition (b) n/a n/a 0.2% 8,848 -- n/a n/a Commercial Property................. n/a n/a 0.3% 12,448 3,221 n/a n/a Richmond--Corporate................. n/a n/a 0.2% 7,619 3,996 n/a n/a --- ------ ---- ---------- -------- -------- ---- Total Real Estate Owned....... 274 77,567 100% $3,907,667 $974,177 $ 49,486 93.9% === ====== ==== ========== ======== ======== ====
Average Monthly Rental Average Rates for the Year Ended Unit Size December 31, 2001 (a) (Square Feet) ------------------------ ------------- Dallas, TX.......................... $ 678 814 Houston, TX......................... 623 821 Phoenix, AZ......................... 715 918 Orlando, FL......................... 746 937 San Antonio, TX..................... 677 835 Raleigh, NC......................... 719 937 Tampa, FL........................... 694 950 Fort Worth, TX...................... 638 803 Columbus, OH........................ 691 905 San Francisco, CA................... 1,767 776 Charlotte, NC....................... 703 983 Nashville, TN....................... 688 943 Greensboro, NC...................... 642 981 Monterey Peninsula, CA.............. 859 727 Memphis, TN......................... 633 835 Richmond, VA........................ 711 945 Southern California................. 903 745 Wilmington, NC...................... 661 951 Metropolitan DC..................... 845 905 Atlanta, GA......................... 741 908 Baltimore, MD....................... 817 889 Columbia, SC........................ 586 838 Jacksonville, FL.................... 669 896 Norfolk, VA......................... 665 1,016 Lansing, MI......................... 661 816 Seattle, WA......................... 742 823 Other Western....................... 703 902 Other Florida....................... 722 868 Other Southwestern.................. 589 786 Other Midwestern.................... 629 945 Other Pacific....................... 706 904 Other North Carolina................ 566 895 Other Mid-Atlantic.................. 770 931 Other Southeastern.................. 586 950 Other Northeastern.................. 672 889 Land................................ n/a n/a Real Estate Under Development....... n/a n/a ------ ----- Total Apartments.............. $ 703 884 ------ ----- Real Estate Held for Disposition (b) n/a n/a Commercial Property................. n/a n/a Richmond--Corporate................. n/a n/a ------ ----- Total Real Estate Owned....... $ 703 884 ====== =====
- -------- (a) Average Monthly Rental Rates for the Year Ended December 31, 2001, represent potential rent collections (gross potential rents less market adjustments), which approximate net effective rents, based on weighted average number of homes. (b) Includes four parcels of land. 17 Item 3. LEGAL PROCEEDINGS We are subject to various legal proceedings and claims arising in the ordinary course of business. We cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. Management believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flows. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our security holders during the fourth quarter of the year ended December 31, 2001. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common Stock Our common stock is traded on the New York Stock Exchange under the symbol "UDR." The following tables set forth the quarterly high and low sale prices per common share reported on the NYSE for each quarter of the last two years. Distribution information for common stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month.
Distribution High Low Declared -------- -------- ------------ 2001 1st Quarter $12.7000 $10.5625 $.2700 2nd Quarter 14.3800 11.9000 .2700 3rd Quarter 14.6000 13.7200 .2700 4th Quarter 14.8500 13.8600 .2700 2000 1st Quarter $10.5000 $ 9.4375 $.2675 2nd Quarter 11.7500 9.7500 2675 3rd Quarter 11.7500 10.6875 .2675 4th Quarter 11.1250 9.3750 .2675
On March 1, 2002, the closing sale price of our common stock was $14.35 per share on the NYSE and there were 7,943 holders of record of the 103,420,104 shares of common stock. We have determined that, for federal income tax purposes, approximately 69% of the distributions for each of the four quarters of 2001 represented ordinary income to its shareholders, 10% represented long-term capital gain, 6% represented unrecaptured section 1250 gain and 15% represented return of capital to our shareholders. We pay regular quarterly distributions to holders of shares of our common stock. Future distributions will be at the discretion of our Board of Directors and will depend on our 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 2001 necessary for United Dominion to maintain its status as a REIT was approximately $0.67 per share. We paid total distributions of $1.08 per share for 2001. 18 Series D Preferred Stock The Series D Convertible Redeemable Preferred Stock has no stated par value and a liquidation preference of $25 per share. The Series D has no voting rights, no stated maturity and is not subject to any sinking fund or mandatory redemption and is convertible into 1.5385 shares of common stock at the option of the holder of the Series D at any time at $16.25 per share. We have the right to cause the holder of the Series D to convert the Series D to common shares at $16.25 based on twenty trading days at or above $17.06 for the life of the security (the "Option Shares"). We have the right to purchase 2 million shares of the Option Shares in accordance with a predetermined schedule, provided that the volume weighted average price of our common shares is $16.25 for a twenty day trading period. The repurchase price payable will be computed in accordance with the table below, expressed as a percentage of the liquidation preference, determined by the period in which the Option Shares repurchase date occurs, together with all accrued and unpaid dividends to and including the repurchase date:
Option Share Repurchase Date Occurs During Period: Repurchase Price -------------------------------------------------- ---------------- January 1, 2002 to June 30, 2002 102.0% July 1, 2002 to December 31, 2002 101.5% January 1, 2003 to June 30, 2003 101.0% July 1, 2003 to December 6, 2003 100.5%
After December 7, 2003, we may, at our 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, we may not redeem in any consecutive twelve-month period a number of shares of Series D having an aggregate liquidation preference of more than $100 million. Distributions declared for 2001 were $1.93 per share or $.4821 per quarter. The Series D is not listed on any exchange. Dividend Reinvestment and Stock Purchase Plan We have a Dividend Reinvestment and Stock Purchase Plan under which holders of our common and preferred stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of our common stock. Shareholders who do not participate in the plan continue to receive dividends as declared. As of March 1, 2002, there were 3,645 participants in the plan. Operating Partnership Units From time to time we issue shares of our common stock in exchange for operating partnership units, or OP Units, tendered to our operating partnerships, United Dominion Realty L.P. and Heritage Communities L.P., for redemption in accordance with the provisions of their respective agreements. At December 31, 2001, there were 6,453,074 OP Units and 384,888 OP Units in United Dominion Realty L.P. and Heritage Communities L.P., respectively, that were owned by non-affiliated limited partners. United Dominion Realty L.P. OP Units are convertible into common stock at an exchange ratio of one share for each OP Unit. Heritage Communities L.P. OP Units are convertible into common stock at an exchange ratio of 1.575 shares for each OP Unit. During 2001, we issued a total of 74,271 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 as of and for each of the years in the five-year period ended December 31, 2001. The table should be read in conjunction with our consolidated financial statements and the notes thereto, and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report. 19 UNITED DOMINION REALTY TRUST, INC. SELECTED FINANCIAL DATA (in thousands, except per share data and apartment homes owned)
Years Ended December 31, ----------------------------------------------- 2001 2000 1999 1998 ---------- ---------- ---------- ---------- Operating Data (a) Rental income........................................................ $ 618,590 $ 626,594 $ 625,115 $ 481,986 Income before gains on sales of investments, minority interests and extraordinary item.............................................. 44,743 48,720 60,379 47,339 Gains on sales of investments........................................ 24,748 31,450 37,995 26,672 Extraordinary item-early extinguishment of debt...................... (3,471) 831 927 (138) Net income........................................................... 61,828 76,615 93,622 72,332 Distributions to preferred shareholders.............................. 31,190 36,891 37,714 23,593 Net income available to common shareholders.......................... 27,142 42,653 55,908 48,739 Common distributions declared........................................ 108,956 110,225 109,607 107,758 Weighted average number of common shares outstanding-basic........... 100,339 103,072 103,604 99,966 Weighted average number of common shares outstanding-diluted......... 101,037 103,208 103,639 100,062 Weighted average number of common shares, OP Units and common share equivalents-diluted.................................... 120,728 123,005 124,127 103,793 Per share: Basic earnings per share............................................. $ 0.27 $ 0.41 $ 0.54 $ 0.49 Diluted earnings per share........................................... 0.27 0.41 0.54 0.49 Common distributions declared........................................ 1.08 1.07 1.06 1.05 Balance Sheet Data (a) Real estate owned, at carrying value................................. $3,907,667 $3,836,320 $3,953,045 $3,952,752 Accumulated depreciation............................................. 646,366 509,405 395,864 316,630 Total real estate owned, net of accumulated depreciation............. 3,261,301 3,326,915 3,557,181 3,636,122 Total assets......................................................... 3,348,091 3,453,957 3,688,317 3,762,940 Secured debt......................................................... 974,177 866,115 1,000,136 1,072,185 Unsecured debt....................................................... 1,090,020 1,126,215 1,127,169 1,045,564 Total debt........................................................... 2,064,197 1,992,330 2,127,305 2,117,749 Shareholders' equity................................................. 1,042,725 1,218,892 1,310,212 1,374,121 Number of common shares outstanding.................................. 103,133 102,219 102,741 103,639 Other Data (a) Cash Flow Data Cash provided by operating activities................................ $ 224,411 $ 224,160 $ 190,602 $ 140,597 Cash (used in)/provided by investing activities...................... (64,055) 58,705 (103,836) (263,864) Cash (used in)/provided by financing activities...................... (166,020) (280,238) (105,169) 148,875 Funds from Operations (b) Net income........................................................... $ 61,828 $ 76,615 $ 93,622 $ 72,332 Adjustments: Distributions to preferred shareholders........................... (31,190) (36,891) (37,714) (23,593) Real estate depreciation, net of other partnerships' interest..... 150,206 151,520 120,543 99,588 Gains on sales of depreciable property, net of other partnerships' interest........................................... (24,007) (30,300) (37,995) (26,672) Minority interests of unitholders in operating partnership........ 1,967 2,885 4,434 1,430 Real estate depreciation related to unconsolidated entities....... 1,105 251 181 24 Extraordinary item-early extinguishment of debt................... 3,471 (831) (927) 138 ---------- ---------- ---------- ---------- Funds from operations-basic.......................................... $ 163,380 $ 163,249 $ 142,144 $ 123,247 ========== ========== ========== ========== Adjustment: Distributions to preferred shareholders-Series D (Convertible).................................................... 15,428 15,300 15,154 986 ---------- ---------- ---------- ---------- Funds from operations-diluted........................................ $ 178,808 $ 178,549 $ 157,298 $ 124,233 ========== ========== ========== ========== Adjustment: Recurring capital expenditures.................................... (31,535) (24,794) (43,528) (25,019) ---------- ---------- ---------- ---------- Adjusted Funds from Operations-diluted (c)........................... $ 147,273 $ 153,755 $ 113,770 $ 99,214 ========== ========== ========== ========== Apartment Homes Owned Total apartment homes owned at December 31........................... 77,567 77,219 82,154 86,893 Weighted average number of apartment homes owned during the year................................................................ 76,487 80,253 85,926 70,724
1997 ---------- Operating Data (a) Rental income........................................................ $ 387,647 Income before gains on sales of investments, minority interests and extraordinary item.............................................. 57,813 Gains on sales of investments........................................ 12,664 Extraordinary item-early extinguishment of debt...................... (50) Net income........................................................... 70,149 Distributions to preferred shareholders.............................. 17,345 Net income available to common shareholders.......................... 52,804 Common distributions declared........................................ 88,587 Weighted average number of common shares outstanding-basic........... 87,145 Weighted average number of common shares outstanding-diluted......... 87,339 Weighted average number of common shares, OP Units and common share equivalents-diluted.................................... 87,656 Per share: Basic earnings per share............................................. $ 0.61 Diluted earnings per share........................................... 0.60 Common distributions declared........................................ 1.01 Balance Sheet Data (a) Real estate owned, at carrying value................................. $2,517,398 Accumulated depreciation............................................. 245,367 Total real estate owned, net of accumulated depreciation............. 2,272,031 Total assets......................................................... 2,313,725 Secured debt......................................................... 417,325 Unsecured debt....................................................... 738,901 Total debt........................................................... 1,156,226 Shareholders' equity................................................. 1,058,357 Number of common shares outstanding.................................. 89,168 Other Data (a) Cash Flow Data Cash provided by operating activities................................ $ 137,903 Cash (used in)/provided by investing activities...................... (342,273) Cash (used in)/provided by financing activities...................... 191,391 Funds from Operations (b) Net income........................................................... $ 70,149 Adjustments: Distributions to preferred shareholders........................... (17,345) Real estate depreciation, net of other partnerships' interest..... 76,688 Gains on sales of depreciable property, net of other partnerships' interest........................................... (12,664) Minority interests of unitholders in operating partnership........ 278 Real estate depreciation related to unconsolidated entities....... -- Extraordinary item-early extinguishment of debt................... 50 ---------- Funds from operations-basic.......................................... $ 117,156 ========== Adjustment: Distributions to preferred shareholders-Series D (Convertible).................................................... -- ---------- Funds from operations-diluted........................................ $ 117,156 ========== Adjustment: Recurring capital expenditures.................................... (24,490) ---------- Adjusted Funds from Operations-diluted (c)........................... $ 92,666 ========== Apartment Homes Owned Total apartment homes owned at December 31........................... 62,789 Weighted average number of apartment homes owned during the year................................................................ 58,038
20 - -------- (a) In 1998, we completed the following statutory mergers: (i) ASR Investments Corporation Inc. on March 27, 1998 for an aggregate purchase price of $323 million and; (ii) American Apartment Communities II on December 7, 1998 for an aggregate purchase price of $794 million. (b) Funds from operations ("FFO") is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (losses) from sales of depreciable property, plus depreciation and amortization, less preferred dividends and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust's definition issued in October 1999 which was effective beginning January 1, 2000. We consider FFO in evaluating property acquisitions and its operating performance and believe that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of our activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 2001, FFO includes a non-recurring charge of $8.6 million related to workforce reductions, other severance costs, executive office relocation costs and the write-down of seven undeveloped land sites along with our investment in an online apartment leasing company. For 2000, FFO includes a non-recurring charge of $3.7 million related to the settlement of litigation and an organizational charge. (c) Adjusted funds from operations is defined as FFO less recurring capital expenditures for our stabilized portfolio. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of United Dominion Realty Trust, Inc. (United Dominion) to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting United Dominion, or its properties, adverse changes in the real estate markets and general and local economies and business conditions. Although United Dominion believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by United Dominion or any other person that the results or conditions described in such statements or the objectives and plans of United Dominion will be achieved. Business Overview United Dominion is a real estate investment trust (REIT) that owns, acquires, renovates, develops and manages middle market apartment communities nationwide. From 1996 through 1999, United Dominion acquired other REITs, private portfolios and individual communities to create a national platform. Following this significant acquisition period, the Company upgraded the quality of the portfolio and invested in infrastructure and technology to catch up with the rapid growth of its portfolio of assets. During 2001, United Dominion continued to refine its strategy with the goal of enhancing long-term earnings growth on a sustained basis by focusing on operational issues that management believes will produce above-average net operating income growth, steadily increase cash flow per apartment home and strengthen the capital structure of the Company. The Company's strategy includes the following key initiatives: . Own and operate middle market apartment homes across a geographically diverse platform by enhancing United Dominion's presence in 25 - 30 core markets to enable the Company to capitalize on operating efficiencies. . As local market cycles create opportunities, exit current markets where long-term growth is below the national average (the "non-core markets"). . Employ a strict capital allocation discipline throughout all decision-making processes to enhance performance, improve the strength of the Company's balance sheet and increase financial flexibility. 21 . Lead, manage, measure and reward associates based upon performance specifically tied to key financial and investment indicators, including the growth of funds from operations, adjusted funds from operations and the common share price. Over the long-term, these key initiatives will better position United Dominion to serve its customers, increase profitability and capitalize on changes in the marketplace. At December 31, 2001, United Dominion owned 274 communities with 77,567 apartment homes nationwide. The following table summarizes United Dominion's apartment market information by major geographic market (excluding real estate under development):
Year Ended As of December 31, 2001 December 31, 2001 ------------------------------------------------ ---------------------- Number of Number of Percentage Carrying Average Average Apartment Apartment of Carrying Value Physical Monthly Communities Homes Value (in thousands) Occupancy Rental Rates ----------- --------- ----------- -------------- --------- ------------ Dallas, TX............. 16 5,177 6.7% $ 255,437 95.0% $ 678 Houston, TX............ 22 5,722 5.9% 227,217 94.0% 623 Phoenix, AZ............ 12 3,854 5.9% 225,997 93.6% 715 Orlando, FL............ 14 4,140 5.3% 202,676 92.9% 746 San Antonio, TX........ 12 3,827 5.0% 190,182 91.6% 677 Raleigh, NC............ 10 3,283 4.3% 166,411 91.7% 719 Tampa, FL.............. 10 3,372 4.0% 151,867 94.1% 694 Fort Worth, TX......... 11 3,561 3.9% 148,888 96.6% 638 Columbus, OH........... 6 2,527 3.9% 148,012 93.4% 691 San Francisco, CA...... 4 980 3.7% 140,995 97.3% 1,767 Charlotte, NC.......... 10 2,710 3.5% 136,303 89.2% 703 Nashville, TN.......... 8 2,220 3.1% 119,805 94.2% 688 Greensboro, NC......... 8 2,122 2.7% 103,703 91.0% 642 Monterey Peninsula, CA. 9 1,706 2.5% 97,304 95.4% 859 Memphis, TN............ 6 1,956 2.5% 96,909 92.3% 633 Richmond, VA........... 8 2,372 2.5% 96,117 95.6% 711 Southern California.... 5 1,414 2.4% 90,989 95.8% 903 Wilmington, NC......... 6 1,869 2.3% 89,015 92.6% 661 Metropolitan DC........ 5 1,291 1.9% 74,599 97.9% 845 Atlanta, GA............ 6 1,426 1.9% 71,202 93.3% 741 Baltimore, MD.......... 6 1,291 1.7% 67,102 97.1% 817 Columbia, SC........... 6 1,584 1.6% 62,230 95.0% 586 Jacksonville, FL....... 3 1,157 1.5% 58,329 92.9% 669 Norfolk, VA............ 6 1,437 1.4% 54,095 95.4% 665 Lansing, MI............ 4 1,226 1.3% 48,668 92.4% 661 Seattle, WA............ 3 628 0.9% 34,031 94.9% 742 Other Western.......... 6 2,594 3.2% 127,729 96.3% 703 Other Florida.......... 8 2,073 2.6% 101,208 91.3% 722 Other Southwestern..... 9 2,212 2.6% 98,136 93.4% 589 Other Midwestern....... 10 2,122 2.5% 93,803 93.0% 629 Other Pacific.......... 7 1,757 2.3% 87,156 93.6% 706 Other North Carolina... 8 1,893 1.9% 74,453 95.1% 566 Other Mid-Atlantic..... 5 928 1.1% 42,397 96.6% 770 Other Southeastern..... 3 764 1.0% 37,428 94.8% 586 Other Northeastern..... 2 372 0.5% 18,119 96.4% 672 --- ------ ----- ---------- ---- ------ Total Apartments... 274 77,567 100.0% $3,838,512 93.9% $ 703 === ====== ===== ========== ==== ======
22 Liquidity and Capital Resources Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of additional funds through working capital management. Both the coordination of asset and liability maturities and effective working capital management are important to the maintenance of liquidity. United Dominion's primary source of liquidity is its cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to its portfolio of apartment homes. United Dominion routinely uses its unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sales of real estate have been used for both investing and financing activities. United Dominion expects to meet its short-term liquidity requirements generally through its net cash provided by operations and borrowings under credit arrangements. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties and the issuance of debt securities or additional equity securities of the Company. The Company believes that its net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements in both the short- and long-term. The budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations. United Dominion filed a shelf registration statement in December 1999 providing for the issuance of up to $700 million in common shares, preferred shares and debt securities to facilitate future financing activities in the public capital markets. In March 2000, United Dominion utilized this shelf registration statement to sell $100 million of senior unsecured notes due March 2003 at an interest rate of 8.625%. In December 2001, United Dominion completed an offering to the public of 4.1 million shares of common stock at a price of $14.40 per share. As of December 31, 2001, $541 million of equity and debt securities remain available for use under the shelf registration, although access to capital markets is dependent on market conditions at the time of issuance. Subsequent to December 31, 2001, the underwriters who sold the Company's stock in December 2001 exercised their over-allotment option for 166,800 shares of common stock at a price of $14.40 per share. In September 2001, Moody's Investors Service lowered its rating on the securities of the Company to Baa3 from Baa2, placing its rating on par with that of Standard & Poors, which had lowered its rating in 2000. This revision did not trigger a material increase in the borrowing rate under the Company's $375 million three-year unsecured revolving bank credit facility or the Company's secured revolving Fannie Mae credit facilities (see discussion under "Credit Facilities"), and United Dominion's debt rating remains "investment grade." Management does not anticipate that this revision will prevent the Company from accessing the public or private markets for either unsecured or secured financing. Future Capital Needs Future development expenditures are expected to be funded primarily through joint ventures or 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 2002, United Dominion has approximately $108.6 million of maturing debt which the Company anticipates repaying using proceeds from mortgage refinancing activity or borrowings under unsecured or secured credit facilities. 23 Critical Accounting Policies Capital Expenditures United Dominion capitalizes those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. During 2001, $53.1 million or $704 per home was spent on capital expenditures for all of United Dominion's communities excluding development and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as HVAC equipment, roofs, landscaping, siding, parking lots and other non-revenue enhancing capital expenditures, which aggregated $31.5 million or $418 per home. In addition, revenue enhancing capital expenditures, including water sub-metering, gating and access systems, the addition of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $21.6 million or $286 per home for the year ended December 31, 2001. The following table outlines capital expenditures and repair and maintenance costs for the Company's total portfolio, excluding real estate under development and commercial properties for the periods presented (dollars in thousands):
Year Ended December 31, Year Ended December 31, (per unit) ----------------------- --------------------------------- 2001 2000 % Change 2001 2000 % Change ------- ------- -------- ------ ---- -------- Turnover capital expenditures........ $16,776 $14,109 18.9% $ 222 $177 25.4% Other recurring capital expenditures. 14,759 10,685 38.1% 196 134 46.3% ------- ------- ---- ------ ---- ---- Total recurring capital expenditures 31,535 24,794 27.2% 418 311 34.4% Revenue enhancing improvements....... 21,561 16,702 29.1% 286 210 36.2% ------- ------- ---- ------ ---- ---- Total capital improvements.......... $53,096 $41,496 28.0% $ 704 $521 35.1% ======= ======= ==== ====== ==== ==== Repair and maintenance............... 36,197 36,185 0.0% 480 454 5.7% ------- ------- ---- ------ ---- ---- Total expenditures.................. $89,293 $77,681 14.9% $1,184 $975 21.4% ======= ======= ==== ====== ==== ====
Total capital improvements increased $11.6 million or $183 per home in 2001 compared to the same period in 2000. United Dominion will continue to selectively add revenue enhancing improvements that the Company believes will provide a return on investment substantially in excess of United Dominion's cost of capital. Capital expenditures during 2002 are currently expected to be at approximately the same level as those experienced in 2001. Revenue Recognition United Dominion's apartment homes are leased under operating leases with terms generally of one year or less. The Company's revenue recognition policy approximates a straight-line rent policy; however, United Dominion's revenue recognition policy results in slightly lower revenues in periods of increasing concessions and slightly higher revenues during periods of decreasing concessions. Rental concessions are recognized when incurred rather than using the straight-line rent methodology. During 2001, 2000 and 1999, the Company has experienced increased rental concessions. Derivatives and Hedging Activities United Dominion uses derivative financial instruments in the normal course of business to reduce its exposure to fluctuations in interest rates. As of December 31, 2001, United Dominion had 16 interest rate swap 24 agreements with a notional value aggregating $282 million that are used to fix the interest rate on a portion of the Company's variable rate debt. These derivatives qualify for hedge accounting as discussed in Note 1 to our consolidated financial statements. While we intend to continue to meet the conditions for hedge accounting, if a particular interest rate swap does not qualify as highly effective, the change in the fair value of the derivatives used as hedges would be reflected in earnings. Interest rate swaps, where the Company effectively makes fixed rate payments and receives variable rate payments to eliminate its variable rate exposure, are entered into to manage the interest rate risk in the Company's existing balance sheet mix. These instruments are valued using the market standard methodology of netting the discounted future variable cash receipts and the discounted expected fixed cash payments. The variable cash flow streams are based on an expectation of future interest rates derived from observed market interest rate curves. We have not changed our methods of calculating these fair values or developing the underlying assumptions. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change. Information about the fair values, notional amounts, and contractual terms of the Company's interest rate swaps can be found in Note 7 to our consolidated financial statements and the section titled "Interest Rate Risk" that follows. Potential losses are limited to counterparty risk in situations where United Dominion is owed money; that is, when United Dominion holds contracts with positive fair values. The Company does not expect any losses from counterparties failing to meet their obligations as the counterparties are highly rated credit quality U.S. financial institutions and management believes that the likelihood of realizing material losses from counterparty non-performance is remote. At December 31, 2001, the Company had unrealized losses totaling $14.9 million on derivative transactions, which if terminated would require a cash outlay. United Dominion presently has no intention to terminate these contracts. There are no credit concerns related to the Company's obligations and it expects to meet those obligations without default (see Note 7--Financial Instruments). The following discussion explains the changes in net cash provided by operating activities and net cash used in investing and financing activities which are presented in United Dominion's Consolidated Statements of Cash Flows. Operating Activities For the year ended December 31, 2001, United Dominion's cash flow from operating activities was $224.4 million compared to $224.2 million for 2000. During 2001, cash flow from operating activities resulted primarily from a change in the level of operating assets as a result of collections on escrow accounts and joint venture receivables offset by a decline in revenues generated from a smaller portfolio of assets. Investing Activities For the year ended December 31, 2001, net cash used in investing activities was $64.1 million compared to net cash provided by investing activities of $58.7 million for 2000. Changes in the level of investing activities from period to period reflects United Dominion's strategy as it relates to its acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities. Real Estate Under Development Development activity is focused in core markets that have strong operations managers in place. For the year ended December 31, 2001, United Dominion invested approximately $53.6 million in real estate projects, down $30.8 million from its 2000 level of $84.4 million. 25 The following projects, representing additional phases to existing communities, were under development at December 31, 2001:
Number of Completed Estimated Expected Apartment Apartment Cost to Date Budgeted Cost Cost Per Completion Location Homes Homes (In thousands) (In thousands) Home Date - - ---------- --------- --------- -------------- -------------- --------- ---------- Greensview II Denver, CO 192 168 $15,400 $16,700 $87,000 1Q02 Meridian II.. Dallas, TX 270 86 12,000 17,400 64,400 2Q02 --- --- ------- ------- ------- ---- Total..... 462 254 $27,400 $34,100 $73,800 === === ======= ======= =======
In addition, United Dominion owns nine parcels of land that it continues to hold for future development that had a carrying value at December 31, 2001 of $12.8 million. Eight of the nine parcels represent additional phases to existing communities as United Dominion plans to add apartment homes adjacent to currently owned communities that are in improving markets. The following projects were complete at December 31, 2001:
Number of Development Apartment Cost Cost Per Date % Leased Location Homes (In thousands) Home Completed at 12/31/01 -------- --------- -------------- -------- --------- ----------- New Communities: Red Stone Ranch... Austin, TX 324 $19,400 $59,900 7/01 76.9% Dominion Place at Kildaire Farm... Raleigh, NC 332 23,600 71,100 12/01 49.0% --- ------- ------- 656 43,000 65,500 --- ------- ------- Additional Phases: Manor at England Run III......... Fredericksburg, VA 120 8,500 70,800 9/01 99.2% --- ------- ------- Total......... 776 $51,500 $66,400 === ======= =======
Development Joint Venture On June 21, 2000, United Dominion completed the formation of a joint venture that would invest approximately $101 million to develop five apartment communities with a total of 1,438 apartment homes. United Dominion owns a 25% interest in the joint venture and 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 the formation of the joint venture. For the years ended December 31, 2001 and 2000, United Dominion recognized fee income of approximately $2.6 million and $3.0 million, respectively, for general contracting, developer and management services provided by the Company to the joint venture. As of December 31, 2001, all five joint venture properties were complete as follows:
Number of Development Apartment Cost Cost Per Date % Leased Location Homes (In thousands) Home Completed at 12/31/01 ------------ --------- -------------- -------- --------- ----------- Meridian I.... Dallas, TX 250 $16,400 $65,600 6/00 94.4% Parke 33...... Lakeland, FL 264 17,100 64,800 2/01 92.0% Sierra Canyon. Phoenix, AZ 236 15,400 65,300 3/01 97.9% Oaks at Weston Raleigh, NC 380 28,000 73,700 3/01 82.9% Mandolin...... Dallas, TX 308 21,100 68,500 9/01 99.4% ----- ------- ------- Total...... 1,438 $98,000 $68,200 ===== ======= =======
26 On December 28, 2001, United Dominion purchased three of the five apartment communities for a total aggregate cost of $61.3 million. The three communities purchased were Meridian I, Sierra Canyon and Mandolin. The Company has the option, but not the obligation, to purchase the remaining two properties for fair value through December 31, 2006. If neither the Company nor the joint venture partner elects to purchase these properties prior to December 2006, the joint venture will then dispose of the assets to a third party at the then market price. Disposition of Investments For the year ended December 31, 2001, United Dominion sold nine communities with 1,889 apartment homes and five parcels of land for an aggregate sales price of approximately $141.3 million and recognized gains for financial reporting purposes of $24.7 million. Proceeds from the sales were used primarily to repurchase the Company's 9.25% Series A Cumulative Redeemable Preferred stock during the second quarter of 2001, and to a lesser extent, to reduce long-term debt, repurchase common shares and to complete Section 1031 exchanges in order to defer taxable gains. During 2000, United Dominion sold 26 communities with 5,835 apartment homes, one commercial property and a parcel of land for an aggregate sales price of approximately $214.5 million and recognized gains for financial reporting purposes of $31.5 million. During 2002, United Dominion plans to dispose of selected communities in non-core markets or with inferior locations, significant capital expense requirements without the potential of a corresponding increase in rent or insufficient growth potential. Proceeds from 2002 dispositions, expected to be at levels above that of 2001, are planned to be used to acquire communities, fund development activity and to reduce debt. Acquisitions During the year ended December 31, 2001, United Dominion acquired five communities with 1,304 apartment homes and one parcel of land at a total cost (including closing costs) of approximately $92.6 million which included the use of tax free exchange funds. During 2002, senior management plans to continue to channel new investments to those markets that are projected to provide the best investment returns for the Company over the next ten years. Markets will be targeted based upon refined criteria including past performance, expected job growth, current and anticipated housing supply and demand and the ability to attract and support household formation. Financing Activities Net cash used in financing activities during 2001 was $166.0 million compared to $280.2 million for 2000, a decrease of $114.2 million. As part of the plan to improve the Company's balance sheet position, United Dominion used proceeds from its disposition program and borrowings under its credit facilities to pay down secured and unsecured debt, to repurchase shares of common and preferred stock and to complete Section 1031 exchanges in order to defer taxable gains. In June 2001, the Company completed the redemption of all of its outstanding 9.25% Series A Cumulative Redeemable Preferred shares at $25 per share plus accrued dividends utilizing proceeds from asset sales and a new secured credit facility. For the year ended December 31, 2001, United Dominion repurchased 17,600 Series B preferred shares at an average price of $24.42 per share and 3,768,704 common shares and operating partnership units at an average price of $13.21. As of December 31, 2001, approximately 3.2 million common shares and $13.6 million of Series B preferred shares remained available for purchase under the existing authorization for the share repurchase program. 27 In August 2001, United Dominion closed on a $200 million credit facility with ARCS Commercial Mortgage Co., L.P. ARCS is a Fannie Mae DUS Lender. The initial funding on the facility was $139 million. The adjustable rate loan was provided through Fannie Mae DMBS for a five-year term based on three month LIBOR, with an initial interest rate of 3.99%. The Company has the option to extend the facility for an additional five years. The proceeds of the loan were used principally to redeem the Company's 9.25% Series A Cumulative Redeemable Preferred shares and reduce unsecured debt. The balance of the loan proceeds was used to refinance maturing secured loans. In December 2001, United Dominion closed on a $400 million Fannie Mae revolving credit facility through ARCS Commercial Mortgage Co., L.P. The facility provides for an initial term of ten years with an option by the Company to extend the term an additional five years at the then market rate. The Company has the option of variable or fixed rate tranches. The facility will be funded over the next several months and will be used primarily for the refinancing of existing debt on approximately 30 properties. Although the Company expects to pay prepayment penalties of approximately $23 million, the Company estimates, based upon certain assumptions as to the timing of the refinancings and underlying interest rates, that the positive net present value of the refinancings will range from approximately $17 million to $20 million. Also in December 2001, United Dominion completed an offering to the public of 4.1 million shares of common stock at a price of $14.40 per share. The proceeds were used to purchase apartment communities. For the year ended December 31, 2001, the Company repaid $107.3 million of secured debt and $21.3 million of unsecured debt, assumed $18.2 million of secured debt in connection with the acquisition of properties and was relieved of $28.3 million of secured debt in connection with the disposition of properties. Credit Facilities United Dominion has four secured revolving credit facilities with the Federal National Mortgage Association (the "FNMA Credit Facilities") with an aggregate commitment of $860 million. As of December 31, 2001, $422.7 million was outstanding under the FNMA Credit Facilities leaving $437.3 million of unused capacity. The FNMA Credit Facilities are for an initial term of five or ten years, bear interest at a floating rate and can be extended for an additional five years at United Dominion's discretion (see Note 4--Secured Debt). United Dominion has a $375 million three-year unsecured revolving credit facility (the "Bank Credit Facility") that matures August 2003. As of December 31, 2001, $230.2 million was outstanding under the Bank Credit Facility leaving $144.8 million of unused capacity. Under the Bank Credit Facility, the Company may borrow at a rate of LIBOR plus 110 basis points for LIBOR-based borrowings and pays a facility fee, which is equal to 0.25% of the commitment (see Note 5--Unsecured Debt). The FNMA Credit Facilities and the Bank Credit Facility are subject to customary financial covenants and limitations. Derivative Instruments As part of United Dominion's overall interest rate risk management strategy, the Company uses derivatives as a means to fix the interest rates of variable rate debt obligations or to hedge anticipated financing transactions. The Company's derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. The Company believes that it has appropriately controlled its interest rate risk through the use of its derivative instruments. Due to the decline in interest rates in 2001, the fair value of the Company's derivative instruments has declined from an unfavorable value position of $3.8 million at December 31, 2000 to an unfavorable value position of $14.9 million at December 31, 2001 (see Note 7--Financial Instruments). 28 Interest Rate Risk United Dominion is exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. United Dominion does not hold financial instruments for trading or other speculative purposes, but rather issues these financial instruments to finance its portfolio of real estate assets. United Dominion's interest rate sensitivity position is managed by the Company's finance department. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. United Dominion's earnings are affected as changes in short-term interest rates impact its cost of variable rate debt and maturing fixed rate debt. A large portion of United Dominion's market risk is exposure to short-term interest rates from variable rate borrowings outstanding under the unhedged portion of its FNMA Credit Facilities and its Bank Credit Facility, which totaled $405.7 million and $75.2 million, respectively, at December 31, 2001. The impact on United Dominion's financial statements of refinancing fixed rate debt that matured during 2001 was not material. As permitted by the terms of the Company's FNMA Credit Facilities, management intends to convert a significant portion of those borrowings from variable rates to fixed rates in 2002. At December 31, 2001, the notional value of United Dominion's derivative products for the purpose of managing interest rate risk was $282 million, representing interest rate swaps under which United Dominion pays a fixed rate of interest and receives a variable rate. These agreements effectively fix $282 million of United Dominion's variable rate notes payable to a weighted average fixed rate of 7.20%. At December 31, 2001, the fair market value of the interest rate swaps in an unfavorable value position to United Dominion was $14.9 million. If interest rates were 100 basis points more or less at December 31, 2001, the fair market value of the interest rate swaps would have increased or decreased approximately $4.9 million and $5.0 million, respectively. If market interest rates for variable rate debt average 100 basis points more in 2002 than they did during 2001, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $5.2 million. Comparatively, if market interest rates for variable rate debt had averaged 100 basis points more in 2001 than in 2000, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would have increased, and income before taxes would have decreased by $3.8 million. If market rates for fixed rate debt were 100 basis points higher at December 31, 2001, the fair value of fixed rate debt would have decreased from $1.32 billion to $1.28 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 2001, the fair value of fixed rate debt would have increased from $1.32 billion to $1.38 billion. These amounts are determined by considering the impact of hypothetical interest rates on United Dominion's borrowing cost and interest rate swap agreements. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in United Dominion's financial structure. Results of Operations Net Income Available to Common Shareholders 2001-vs-2000 Net income available to common shareholders was $27.1 million ($.27 per share) for the year ended December 31, 2001 compared to $42.7 million ($.41 per share) for 2000, representing a decrease of $15.6 million ($.14 per share). Excluding non-recurring charges (see discussion that follows under "Restructuring Charges" and "Impairment Loss on Real Estate and Investments") and extraordinary items, net income available to common shareholders was $41.5 million ($.41 per share) for the year ended December 31, 2001 compared to $45.5 million ($.44 per share) for 2000, representing a decrease of $4.0 million ($.04 per share). Excluding non-recurring charges and extraordinary items, the decrease for the period was primarily due to the overall decrease in the Company's portfolio of assets that generated rental income of $618.6 million, representing a decrease of 29 $8.0 million from 2000. In addition, the Company recognized lower gains on the sale of investments during 2001 and incurred the write-off of unamortized original issuance costs associated with the Company's 9.25% Series A Cumulative Redeemable Preferred shares during the second quarter of 2001. This decrease was moderated, in part, by a decrease in rental expenses of $4.2 million to $246.2 million and lower interest costs of $144.4 million during 2001 compared to $156.0 million in 2000. 2000-vs-1999 Net income available to common shareholders was $42.7 million ($.41 per share) for the year ended December 31, 2000 compared to $55.9 million ($.54 per share) for 1999, representing a decrease of $13.2 million ($.13 per share). The decrease was primarily due to the following factors: (i) property operating income growth generated from the performance of the portfolio during 2000 was offset by the decrease in the size of the portfolio due to the disposition program; (ii) United Dominion recognized $31.5 million ($.31 per share) of gains on the sales of investments in 2000 compared to $38.0 million ($.37 per share) for the comparable period in 1999 and; (iii) real estate depreciation increased significantly in 2000 as a result of the recognition of catch-up depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 and, to a lesser extent, the impact of completed development communities, acquisitions and capital expenditures (see Note 2--Real Estate Owned). Apartment Community Operations United Dominion's net income is primarily generated from the 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):
Year Ended December 31, Year Ended December 31, ----------------------------- ----------------------------- 2001 2000 % Change 2000 1999 % Change --------- --------- -------- --------- --------- -------- Property rental income............ $ 617,179 $ 625,171 -1.3% $ 625,171 $ 609,064 2.6% Property rental expense (excluding depreciation and amortization).. (227,309) (230,179) -1.2% (230,179) (227,097) 1.4% --------- --------- ---- --------- --------- ---- Property operating income......... $ 389,870 $ 394,992 -1.3% $ 394,992 $ 381,967 3.4% ========= ========= ==== ========= ========= ==== Weighted average number of homes.. 76,487 80,253 -4.7% 80,253 85,926 -6.6% Physical occupancy................ 93.9% 94.2% -0.3% 94.2% 92.6% 1.6%
The decrease in property operating income provided by the Company's apartment community operations is due to the disposition of 7,724 apartment homes during 2000 and 2001. As a result of these dispositions, the weighted average number of apartment homes declined 4.7% from 2000 to 2001. 2001-vs-2000 Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to January 1, 2000 and held on January 1, 2001 which consisted of 72,997 weighted average apartment homes) provided 95% of the Company's property operating income for the year ended December 31, 2001. In 2001, property operating income for the same communities increased 2.3% or $8.5 million compared to the same period in 2000. The growth in property operating income resulted from a $17.5 million or 3.1% increase in property rental income over the same period in the prior year. The increase was driven by a $22.9 million or 3.9% increase in rental rates. The increased rental rates were partially offset by higher concessions and an increase in bad debt expense. Physical occupancy decreased 0.2% to 94.0% in 2001 compared to 2000. 30 For 2001, property operating expenses at these same communities increased $9.0 million or 4.4%. The increase in property operating expenses resulted primarily from a $3.3 million or 10.6% increase in utility costs experienced by the Company as a result of the increase in prices for natural gas and overall increases in electricity costs. In addition, the Company experienced a $3.0 million or 9.4% increase in repair and maintenance, a $1.6 million or 3.1% increase in taxes and a $1.2 million or 2.1% increase in personnel costs. As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property operating income divided by property rental income) decreased 0.5% to 63.2%. Non-Mature Communities The remaining 5% of United Dominion's property operating income during 2001 was generated from its non-mature communities (those communities acquired or developed during 2000 and 2001). United Dominion's development communities, which included 2,022 apartment homes constructed since January 1, 2000, provided an additional $9.5 million of property operating income for the year ended December 31, 2001. In addition, the six communities with 1,571 apartment homes acquired by United Dominion during 2000 and 2001 provided an additional $3.8 million of property operating income during 2001. 2000-vs-1999 Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to January 1, 1999 and held on January 1, 2000 which consisted of 76,267 weighted average apartment homes) provided 94% of its property operating income for the year ended December 31, 2000. In 2000, property operating income for the same communities increased 4.2% or $15.2 million compared to 1999. The growth in property operating income resulted from a $26.8 million or 4.8% increase in property rental income which was driven by a $17.1 million or 2.9% increase in rental rates coupled with a $5.8 million or 1.2% increase in physical occupancy. The increase in rental rates and occupancy was partially offset by higher concessions and bad debt expense. For 2000, property operating expenses at these same communities increased $11.6 million or 5.6%. The increase in property operating expenses was due to (i) a $2.6 million or 5.3% increase in real estate taxes related to the $1.4 billion of real estate acquired in 1998 which had undergone reassessment; (ii) a $4.1 million or 76.3% increase in property insurance costs attributable to a combination of the Company's loss history plus overall increases in market rates; (iii) a $3.1 million or 5.3% increase in personnel costs due to higher salaries and benefit costs and; (iv) a $1.9 million or 6.1% increase in utilities expense. These increases were offset by a $1.3 million or 3.7% decrease in repair and maintenance expense. As a result of the increase in property rental income and increase in property operating expenses, the operating margin decreased 0.4% to 63.1%. Non-Mature Communities The remaining 6% of United Dominion's property operating income during 2000 was generated from its non-mature communities (those communities acquired or developed during 1999 and 2000). United Dominion's development communities, which included 2,470 apartment homes constructed since January 1, 1999, provided an additional $12.3 million of property operating income for the year ended December 31, 2000. In addition, the six communities with 1,497 apartment homes acquired by United Dominion during 1999 and 2000 provided an additional $7.6 million of property operating income during 2000. 31 Real Estate Depreciation During the year ended December 31, 2001, real estate depreciation decreased $1.1 million or 0.8% compared to 2000. The decrease in depreciation expense is attributable to the overall decrease in the weighted average number of apartment homes partially offset by the impact of completed development communities, acquisitions and capital expenditures. During the year ended December 31, 2000, real estate depreciation increased $31.3 million or 25.7% over 1999. This increase was primarily attributable to (i) the recapture of approximately $10 million in depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 and approximately $5 million of additional depreciation expense recognized on these assets during 2000 after they were reclassified into real estate held for investment; (ii) over $150 million in development completions in late 1999 and 2000 and; (iii) the effect of approximately $200 million in acquisitions and capital improvements in 1999 and 2000 (see Note 2--Real Estate Owned). Interest Expense During 2001, interest expense decreased $11.7 million from the corresponding amount in 2000 primarily due to decreasing interest rates and, to a lesser extent, the overall decrease in the weighted average level of debt outstanding. For the year ended December 31, 2001, the weighted average amount of debt outstanding decreased 2.9% or $60.2 million from 2000 levels and the weighted average interest rate decreased from 7.6% in 2000 to 7.1% in 2001. The weighted average amount of debt employed during 2001 is lower as a portion of disposition proceeds was used to repay outstanding debt. The decrease in the average interest rate during 2001 reflects the ability of the Company to take advantage of declining interest rates through refinancing and the utilization of variable rate debt. During 2000, interest expense increased $2.3 million over 1999 as the weighted average amount of debt outstanding decreased 6.0% or $124.7 million from 1999 levels ($2.1 billion in 2000 versus $2.2 billion in 1999) and the weighted average interest rate increased from 7.4% in 1999 to 7.6% in 2000. The weighted average amount of debt employed during 2000 was lower as disposition proceeds were used to repay outstanding debt. The increase in the average interest rate during 2000 reflects the reliance on short-term bank borrowings that had higher interest rates when compared to the prior year. For 2001, 2000 and 1999, total interest capitalized was $2.9 million, $3.6 million and $5.2 million, respectively. Restructuring Charge During the quarter ended March 31, 2001, United Dominion undertook a comprehensive review of the organizational structure of the Company and its operations subsequent to the appointment of a new senior management team and CEO. As a result, the Company recorded $4.5 million of expense related to the termination of approximately 10% of United Dominion's workforce (ultimately approximately 230 full-time equivalent positions) in operations and at the corporate headquarters. These reductions will impact both personnel and general and administrative expenses. As of December 31, 2001, all of the accrued charge has been paid. In addition, United Dominion recognized expense in the aggregate of $0.9 million related to relocation costs associated with the new executive offices in Denver and other miscellaneous costs. All charges came under consideration subsequent to the appointment of the Company's new CEO in February 2001 and were approved by management and the Board of Directors in March 2001 (see Note 9--Restructuring Charges). Impairment Loss on Real Estate and Investments In connection with the evaluation of the Company's real estate assets and operations during the first quarter of 2001, senior management determined that it was in the Company's best interest to dispose of a majority of its 32 undeveloped tracts of land at an accelerated pace and redeploy the proceeds elsewhere. This represented a change from prior management in the holding period of these assets and their respective values. Prior management had purchased these tracts of land in 1999 and 2000 with the intent to build apartment communities on them. In order to accelerate the disposition of these undeveloped land sites, the Company recorded an aggregate $2.8 million impairment loss during the first quarter for the write-down of seven undeveloped sites in selected markets. The $2.8 million charge represents the discount necessary to dispose of these assets in a short time frame coupled with decreases in market value in 2001 for these properties (see Note 2--Real Estate Owned). In addition, the Company recognized a $0.4 million charge for the write-down of United Dominion's investment in an online apartment leasing company. During the fourth quarter of 2001, Realeum, Inc., a technology venture through which the Company and two other multifamily REIT entities have been co-developing a web-based property management system, successfully completed a secondary equity offering in which it raised approximately $15 million of new capital in exchange for a 45.6% ownership stake. The additional capital provides Realeum more flexibility as it rolls the product out for beta testing and continues its marketing and system enhancement processes. As a result of the equity offering, the market value of the Company's ownership stake was established at approximately $1.3 million. Although management believes the potential revenue enhancements and cost efficiencies to be derived from an implementation of the system would enable United Dominion to recover its full investment in Realeum, a more conservative accounting treatment that requires a write-down of this investment to market value is appropriate. As a result, the Company's $3.5 million aggregate investment was adjusted to $1.3 million. General and Administrative For the year ended December 31, 2001, general and administrative expenses increased $6.0 million or 38.2% over 2000. The increase was primarily due to an increase in incentive compensation expense and adjustments to the Company's accruals for various employee benefits and state and local taxes. During the year ended December 31, 2000, general and administrative expenses increased $1.9 million or 13.5% over 1999, reflecting a full year's impact of United Dominion's investment in professional staff, technology and scaleable accounting and information systems and the effect of additional franchise taxes in Tennessee as a result of a change in the state law regarding franchise taxes. Gains on Sales of Investments For the years ended December 31, 2001 and 2000, United Dominion recognized gains for financial reporting purposes of $24.7 million and $31.5 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of United Dominion's divestiture activity from period to period as well as the extent of gains related to specific properties sold. Inflation United Dominion believes that the direct effects of inflation on the Company's operations have been inconsequential. Substantially all of the Company's leases are for a term of one year or less which generally minimizes United Dominion's risk from the adverse effects of inflation. 33 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item is included in and incorporated by reference from Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Report. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and related financial information required to be filed are attached to this Report. Reference is made to page 37 of this Report for the Index to Consolidated Financial Statements and Schedule. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from our definitive proxy statement to be filed with respect to our Annual Meeting of Shareholders to be held on May 7, 2002. Information required by this item regarding our executive officers is included in Part I of this Report in the section entitled "Business--Executive Officers of the Company." Item 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from our definitive proxy statement to be filed with respect to our Annual Meeting of Shareholders to be held on May 7, 2002. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from our definitive proxy statement to be filed with respect to our Annual Meeting of Shareholders to be held on May 7, 2002. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from our definitive proxy statement to be filed with respect to our Annual Meeting of Shareholders to be held on May 7, 2002. 34 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements. See Index to Consolidated Financial Statements and Schedule on page 37 of this Report. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedule on page 37 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto. 3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index. (b) Reports on Form 8-K. We filed the following Current Reports on Form 8-K during the quarter ended December 31, 2001. The information provided under Item 9. Regulation FD Disclosure is not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934. . Current Report on Form 8-K dated October 10, 2001, filed with the Securities and Exchange Commission on October 12, 2001, under Item 7. Financial Statements, Pro Forma Financial Information and Exhibits, and Item 9. Regulation FD Disclosure. . Current Report on Form 8-K dated October 22, 2001, filed with the Securities and Exchange Commission on October 25, 2001, under Item 5. Other Events. . Current Report on Form 8-K dated November 28, 2001, filed with the Securities and Exchange Commission on November 30, 2001, under Item 7. Financial Statements, Pro Forma Financial Information and Exhibits, and Item 9. Regulation FD Disclosure. . Current Report on Form 8-K/A dated October 22, 2001, filed with the Securities and Exchange Commission on December 17, 2001, under Item 5. Other Events, and Item 9. Regulation FD Disclosure. . Current Report on Form 8-K/A dated July 23, 2001, filed with the Securities and Exchange Commission on December 17, 2001, under Item 5. Other Events, and Item 9. Regulation FD Disclosure. . Current Report on Form 8-K dated December 17, 2001, filed with the Securities and Exchange Commission on December 17, 2001, under Item 5. Other Events. . Current Report on Form 8-K dated December 18, 2001, filed with the Securities and Exchange Commission on December 20, 2001, under Item 5. Other Events. . Current Report on Form 8-K dated December 18, 2001, filed with the Securities and Exchange Commission on December 22, 2001, under Item 5. Other Events, and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED DOMINION REALTY TRUST, INC. By: /s/ Thomas W. Toomey ----------------------------- Thomas W. Toomey President and Chief Executive Officer Date: March 29, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 29, 2002 by the following persons on behalf of the registrant and in the capacities indicated. /s/ Thomas W. Toomey President, Chief Executive - ----------------------------- Officer and Director Thomas W. Toomey /s/ Christopher D. Genry Executive Vice President and - ----------------------------- Chief Financial Officer Christopher D. Genry /s/ Scott A. Shanaberger Senior Vice President, - ----------------------------- Corporate Controller and Scott A. Shanaberger Chief Accounting Officer /s/ Robert C. Larson Chairman of the Board - ----------------------------- Robert C. Larson /s/ James D. Klingbeil Vice Chairman of the Board - ----------------------------- James D. Klingbeil /s/ John P. McCann Chairman Emeritus - ----------------------------- John P. McCann /s/ R. Toms Dalton, Jr. - ----------------------------- R. Toms Dalton, Jr. Director /s/ Robert P. Freeman - ----------------------------- Robert P. Freeman Director /s/ Jon A. Grove - ----------------------------- Jon A. Grove Director /s/ Lynne B. Sagalyn - ----------------------------- Lynne B. Sagalyn Director /s/ Mark J. Sandler - ----------------------------- Mark J. Sandler Director /s/ Robert W. Scharar - ----------------------------- Robert W. Scharar Director 36 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................................................. 38 Consolidated Balance Sheets at December 31, 2001 and 2000......................................... 39 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2001............................................................................................ 40 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2001............................................................................................ 41 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2001................................................................................ 42 Notes to Consolidated Financial Statements........................................................ 43 SCHEDULE FILED AS PART OF THIS REPORT Schedule III--Summary of Real Estate Owned........................................................ 66
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 37 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders United Dominion Realty Trust, Inc. We have audited the accompanying consolidated balance sheets of United Dominion Realty Trust, Inc. (the "Company") as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Dominion Realty Trust, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative financial instruments. ERNST & YOUNG LLP Richmond, Virginia January 31, 2002 38 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share data)
December 31, ---------------------- 2001 2000 ---------- ---------- ASSETS Real estate owned: Real estate held for investment (Note 2)....................................................... $3,858,579 $3,758,974 Less: accumulated depreciation.............................................................. (646,366) (506,871) ---------- ---------- 3,212,213 3,252,103 Real estate under development.................................................................. 40,240 60,366 Real estate held for disposition (net of accumulated depreciation of $0 and $2,534) (Note 2)... 8,848 14,446 ---------- ---------- Total real estate owned, net of accumulated depreciation....................................... 3,261,301 3,326,915 Cash and cash equivalents.......................................................................... 4,641 10,305 Restricted cash.................................................................................... 26,830 44,943 Deferred financing costs, net...................................................................... 15,802 14,271 Investment in unconsolidated development joint venture (Note 3).................................... 3,355 8,088 Other assets....................................................................................... 36,162 49,435 ---------- ---------- Total assets................................................................................... $3,348,091 $3,453,957 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Secured debt (Note 4).............................................................................. $ 974,177 $ 866,115 Unsecured debt (Note 5)............................................................................ 1,090,020 1,126,215 Real estate taxes payable.......................................................................... 28,099 30,554 Accrued interest payable........................................................................... 16,779 18,059 Security deposits and prepaid rent................................................................. 20,481 22,524 Distributions payable.............................................................................. 33,457 36,128 Accounts payable, accrued expenses and other liabilities........................................... 66,688 47,144 ---------- ---------- Total liabilities.............................................................................. 2,229,701 2,146,739 Minority interests................................................................................. 75,665 88,326 Shareholders' equity: (Note 6) Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 0 shares 9.25% Series A Cumulative Redeemable issued and outstanding (3,969,120 in 2000)...................................................................................... -- 99,228 5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,439,109 in 2000)........................................................................ 135,400 135,978 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding (8,000,000 in 2000)............................................................ 175,000 175,000 Common stock, $1 par value; 150,000,000 shares authorized 103,133,279 shares issued and outstanding (102,219,250 in 2000)............................... 103,133 102,219 Additional paid-in capital..................................................................... 1,098,029 1,081,387 Distributions in excess of net income.......................................................... (448,345) (366,531) Deferred compensation--unearned restricted stock awards........................................ (1,312) (828) Notes receivable from officer-shareholders..................................................... (4,309) (7,561) Accumulated other comprehensive loss, net (Note 7)............................................. (14,871) -- ---------- ---------- Total shareholders' equity.................................................................. 1,042,725 1,218,892 ---------- ---------- Total liabilities and shareholders' equity..................................................... $3,348,091 $3,453,957 ========== ==========
See accompanying notes to consolidated financial statements. 39 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years Ended December 31, ---------------------------- 2001 2000 1999 -------- -------- -------- Revenues Rental income................................................... $618,590 $626,594 $625,115 Non-property income............................................. 4,593 5,326 1,942 -------- -------- -------- Total revenues.............................................. 623,183 631,920 627,057 Expenses Rental expenses: Real estate taxes and insurance............................. 67,671 69,071 63,425 Personnel................................................... 63,043 65,666 66,968 Repair and maintenance...................................... 36,844 36,469 41,339 Utilities................................................... 36,707 35,560 36,472 Administrative and marketing................................ 23,315 23,771 25,410 Property management......................................... 17,107 18,392 18,475 Other operating expenses.................................... 1,477 1,426 1,539 Real estate depreciation........................................ 151,845 152,994 121,727 Interest........................................................ 144,379 156,040 153,748 General and administrative...................................... 21,730 15,724 13,850 Severance costs and other organizational charges (Note 9)....... 5,404 1,020 -- Litigation settlement charges................................... -- 2,700 -- Impairment loss on real estate and investments (Note 2)......... 5,436 -- 19,300 Other depreciation and amortization............................. 3,482 4,367 4,425 -------- -------- -------- Total expenses.............................................. 578,440 583,200 566,678 Income before gains on sales of investments, minority interests and extraordinary item............................................... 44,743 48,720 60,379 Gains on sales of depreciable property............................. 24,748 30,618 37,995 Gains on sales of land............................................. -- 832 -- -------- -------- -------- Income before minority interests and extraordinary item............ 69,491 80,170 98,374 Minority interests of unitholders in operating partnership......... (1,967) (2,885) (4,434) Minority interests in other partnerships........................... (2,225) (1,501) (1,245) -------- -------- -------- Income before extraordinary item................................... 65,299 75,784 92,695 Extraordinary item--early extinguishment of debt................... (3,471) 831 927 -------- -------- -------- Net income......................................................... 61,828 76,615 93,622 Distributions to preferred shareholders--Series A and B............ (15,762) (21,591) (22,560) Distributions to preferred shareholders--Series D (Convertible).... (15,428) (15,300) (15,154) (Premium)/discount on preferred share repurchases.................. (3,496) 2,929 -- -------- -------- -------- Net income available to common shareholders........................ $ 27,142 $ 42,653 $ 55,908 ======== ======== ======== Earnings per common share: (Note 1) Basic........................................................... $ 0.27 $ 0.41 $ 0.54 ======== ======== ======== Diluted......................................................... $ 0.27 $ 0.41 $ 0.54 ======== ======== ======== Common distributions declared per share............................ $ 1.08 $ 1.07 $ 1.06 ======== ======== ======== Weighted average number of common shares outstanding-basic......... 100,339 103,072 103,604 Weighted average number of common shares outstanding-diluted....... 101,037 103,208 103,639
See accompanying notes to consolidated financial statements. 40 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, ------------------------------- 2001 2000 1999 --------- --------- --------- Operating Activities Net income................................................................................... $ 61,828 $ 76,615 $ 93,622 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization............................................................. 155,327 157,361 126,152 Impairment loss on real estate and investments............................................ 5,436 -- 19,300 Gains on sales of investments............................................................. (24,748) (31,450) (37,995) Minority interests........................................................................ 4,192 4,386 5,679 Extraordinary item-early extinguishment of debt........................................... 3,471 (831) (927) Amortization of deferred financing costs and other........................................ 965 2,551 5,184 Changes in operating assets and liabilities:.............................................. Decrease in operating liabilities...................................................... (3,188) (2,333) (4,777) Decrease/(increase) in operating assets................................................ 21,128 17,861 (15,636) --------- --------- --------- Net cash provided by operating activities....................................................... 224,411 224,160 190,602 Investing Activities Proceeds from sales of real estate investments, net.......................................... 109,713 160,257 161,140 Proceeds received for excess expenditures over investment contribution in development joint venture..................................................................................... -- 30,176 -- Acquisition of real estate assets, net of liabilities assumed................................ (74,372) (4,635) (69,969) Development of real estate assets and other major improvements............................... (53,607) (84,431) (121,073) Capital expenditures-real estate assets, net of escrow reimbursement......................... (53,096) (41,496) (67,004) Capital expenditures-non-real estate assets.................................................. (1,442) (1,166) (8,062) Other investing activities................................................................... 8,749 -- 1,132 --------- --------- --------- Net cash (used in)/provided by investing activities............................................. (64,055) 58,705 (103,836) Financing Activities Proceeds from the issuance of secured notes payable.......................................... 225,171 67,285 201,861 Scheduled principal payments on secured notes payable........................................ (55,130) (62,575) (19,100) Non-scheduled principal payments on secured notes payable.................................... (52,182) (100,793) (184,993) Proceeds from the issuance of unsecured notes payable........................................ -- 248,035 197,345 Payments on unsecured notes payable.......................................................... (21,307) (214,984) (151,117) Net (repayment)/borrowing of short-term bank debt............................................ (14,200) (33,200) 37,600 Payment of financing costs................................................................... (4,807) (5,648) (6,719) Proceeds from the issuance of common stock................................................... 66,319 7,660 17,250 Proceeds from the issuance of out-performance partnership shares............................. 1,236 -- -- Distributions paid to minority interests..................................................... (12,868) (10,272) (9,200) Distributions paid to preferred shareholders................................................. (34,308) (36,909) (34,958) Distributions paid to common shareholders.................................................... (108,511) (110,098) (109,608) Repurchases of operating partnership units and other minority interests...................... (4,267) (341) (11,967) Repurchases of common and preferred stock.................................................... (151,166) (28,398) (31,563) --------- --------- --------- Net cash used in financing activities........................................................... (166,020) (280,238) (105,169) Net (decrease)/increase in cash and cash equivalents............................................ (5,664) 2,627 (18,403) Cash and cash equivalents, beginning of year.................................................... 10,305 7,678 26,081 --------- --------- --------- Cash and cash equivalents, end of year.......................................................... $ 4,641 $ 10,305 $ 7,678 ========= ========= ========= Supplemental Information: Interest paid during the period.............................................................. $ 148,863 $ 152,434 $ 162,236 Conversion of operating partnership units to common stock.................................... 74 247 3,947 Issuance of restricted stock awards.......................................................... 1,363 830 460 Non-cash transactions: Secured debt assumed with the acquisition of properties................................... 18,230 10,130 5,750 Reduction in secured debt from the disposition of properties.............................. 28,315 45,088 75,566
See accompanying notes to consolidated financial statements. 41 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except for share data)
Preferred Stock Common Stock -------------------- --------------------- Shares Amount Shares Amount ---------- -------- ----------- -------- Balance, December 31, 1998................................................. 18,200,000 $430,000 103,639,117 $103,639 Comprehensive Income Net income................................................................ Comprehensive income...................................................... Issuance of common shares to employees, officers and director-shareholders 71,998 72 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 1,597,841 1,598 Purchase of common and preferred stock.................................... (85,140) (2,128) (2,687,984) (2,688) Issuance of restricted stock awards....................................... 46,000 46 Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 73,805 74 Principal repayments on notes receivable from officer-shareholders........ Notes issued for common shares............................................ Common stock distributions declared ($1.06 per share)..................... Preferred stock distributions declared Series A ($2.31 per share)......... Preferred stock distributions declared Series B ($2.15 per share)......... Preferred stock distributions declared Series D ($1.89 per share)......... Amortization of deferred compensation..................................... ---------- -------- ----------- -------- Balance, December 31, 1999................................................. 18,114,860 $427,872 102,740,777 $102,741 ========== ======== =========== ======== Comprehensive Income Net income................................................................ Comprehensive income...................................................... Issuance of common shares to employees, officers and director-shareholders 5,000 5 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 767,513 767 Purchase of common and preferred stock.................................... (706,631) (17,666) (1,398,866) (1,399) Issuance of restricted stock awards....................................... 85,670 86 Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 19,156 19 Principal repayments on notes receivable from officer-shareholders........ Common stock distributions declared ($1.07 per share)..................... Preferred stock distributions declared Series A ($2.31 per share)......... Preferred stock distributions declared Series B ($2.15 per share)......... Preferred stock distributions declared Series D ($1.91 per share)......... Amortization of deferred compensation..................................... ---------- -------- ----------- -------- Balance, December 31, 2000................................................. 17,408,229 $410,206 102,219,250 $102,219 ========== ======== =========== ======== Comprehensive Income Net income................................................................ Other comprehensive income: Cumulative effect of a change in accounting principle (Note 7)......... Unrealized loss on derivative financial instruments (Note 7)........... Comprehensive income...................................................... Issuance of common shares to employees, officers and director-shareholders 257,158 258 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 332,243 332 Issuance of common shares through public offering......................... 4,100,000 4,100 Purchase of common and preferred stock.................................... (91,900) (2,298) (3,962,076) (3,962) Redemption of Series A preferred stock.................................... (3,900,320) (97,508) Issuance of restricted stock awards....................................... 112,433 112 Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 74,271 74 Principal repayments on notes receivable from officer-shareholders........ Common stock distributions declared ($1.08 per share)..................... Preferred stock distributions declared Series A ($1.05 per share)......... Preferred stock distributions declared Series B ($2.15 per share)......... Preferred stock distributions declared Series D ($1.93 per share)......... Amortization of deferred compensation..................................... ---------- -------- ----------- -------- Balance, December 31, 2001................................................. 13,416,009 $310,400 103,133,279 $103,133 ========== ======== =========== ========
Deferred Compensation- Distributions Unearned Paid-in in Excess of Restricted Capital Net Income Stock Awards ------- ------------- ------------- Balance, December 31, 1998................................................. $1,090,432 $(242,331) $ -- Comprehensive Income Net income................................................................ 93,622 --------- Comprehensive income...................................................... 93,622 --------- Issuance of common shares to employees, officers and director-shareholders 665 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 15,049 Purchase of common and preferred stock.................................... (26,746) Issuance of restricted stock awards....................................... 414 (460) Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 3,873 Principal repayments on notes receivable from officer-shareholders........ Notes issued for common shares............................................ Common stock distributions declared ($1.06 per share)..................... (109,607) Preferred stock distributions declared Series A ($2.31 per share)......... (9,688) Preferred stock distributions declared Series B ($2.15 per share)......... (12,872) Preferred stock distributions declared Series D ($1.89 per share)......... (15,154) Amortization of deferred compensation..................................... 155 ---------- --------- ------- Balance, December 31, 1999................................................. $1,083,687 $(296,030) $ (305) ========== ========= ======= Comprehensive Income Net income................................................................ 76,615 --------- Comprehensive income...................................................... 76,615 --------- Issuance of common shares to employees, officers and director-shareholders 158 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 6,538 Purchase of common and preferred stock.................................... (9,333) Issuance of restricted stock awards....................................... 744 (830) Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... (407) Principal repayments on notes receivable from officer-shareholders........ Common stock distributions declared ($1.07 per share)..................... (110,225) Preferred stock distributions declared Series A ($2.31 per share)......... (9,473) Preferred stock distributions declared Series B ($2.15 per share)......... (12,118) Preferred stock distributions declared Series D ($1.91 per share)......... (15,300) Amortization of deferred compensation..................................... 307 ---------- --------- ------- Balance, December 31, 2000................................................. $1,081,387 $(366,531) $ (828) ========== ========= ======= Comprehensive Income Net income................................................................ 61,828 Other comprehensive income: Cumulative effect of a change in accounting principle (Note 7)......... Unrealized loss on derivative financial instruments (Note 7)........... --------- Comprehensive income...................................................... 61,828 --------- Issuance of common shares to employees, officers and director-shareholders 2,318 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 4,054 Issuance of common shares through public offering......................... 52,316 Purchase of common and preferred stock.................................... (47,362) Redemption of Series A preferred stock.................................... 3,496 (3,496) Issuance of restricted stock awards....................................... 1,251 (1,363) Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 569 Principal repayments on notes receivable from officer-shareholders........ Common stock distributions declared ($1.08 per share)..................... (108,956) Preferred stock distributions declared Series A ($1.05 per share)......... (4,111) Preferred stock distributions declared Series B ($2.15 per share)......... (11,651) Preferred stock distributions declared Series D ($1.93 per share)......... (15,428) Amortization of deferred compensation..................................... 879 ---------- --------- ------- Balance, December 31, 2001................................................. $1,098,029 $(448,345) $(1,312) ========== ========= =======
Accumulated Notes Receivable Other from Officer- Comprehensive Shareholders Loss Total ---------------- ------------- ----- Balance, December 31, 1998................................................. $(7,619) $ -- $1,374,121 Comprehensive Income Net income................................................................ 93,622 ---------- Comprehensive income...................................................... 93,622 ---------- Issuance of common shares to employees, officers and director-shareholders 737 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 16,647 Purchase of common and preferred stock.................................... (31,562) Issuance of restricted stock awards....................................... -- Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 3,947 Principal repayments on notes receivable from officer-shareholders........ 139 139 Notes issued for common shares............................................ (273) (273) Common stock distributions declared ($1.06 per share)..................... (109,607) Preferred stock distributions declared Series A ($2.31 per share)......... (9,688) Preferred stock distributions declared Series B ($2.15 per share)......... (12,872) Preferred stock distributions declared Series D ($1.89 per share)......... (15,154) Amortization of deferred compensation..................................... 155 ------- -------- ---------- Balance, December 31, 1999................................................. $(7,753) $ -- $1,310,212 ======= ======== ========== Comprehensive Income Net income................................................................ 76,615 ---------- Comprehensive income...................................................... -- 76,615 ---------- Issuance of common shares to employees, officers and director-shareholders 163 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 7,305 Purchase of common and preferred stock.................................... (28,398) Issuance of restricted stock awards....................................... -- Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... (388) Principal repayments on notes receivable from officer-shareholders........ 192 192 Common stock distributions declared ($1.07 per share)..................... (110,225) Preferred stock distributions declared Series A ($2.31 per share)......... (9,473) Preferred stock distributions declared Series B ($2.15 per share)......... (12,118) Preferred stock distributions declared Series D ($1.91 per share)......... (15,300) Amortization of deferred compensation..................................... 307 ------- -------- ---------- Balance, December 31, 2000................................................. $(7,561) $ -- $1,218,892 ======= ======== ========== Comprehensive Income Net income................................................................ 61,828 Other comprehensive income: Cumulative effect of a change in accounting principle (Note 7)......... (3,848) (3,848) Unrealized loss on derivative financial instruments (Note 7)........... (11,023) (11,023) -------- ---------- Comprehensive income...................................................... (14,871) 46,957 -------- ---------- Issuance of common shares to employees, officers and director-shareholders 2,576 Issuance of common shares through dividend reinvestment and stock purchase plan............................................................ 4,386 Issuance of common shares through public offering......................... 56,416 Purchase of common and preferred stock.................................... (53,622) Redemption of Series A preferred stock.................................... (97,508) Issuance of restricted stock awards....................................... -- Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships.................................... 643 Principal repayments on notes receivable from officer-shareholders........ 3,252 3,252 Common stock distributions declared ($1.08 per share)..................... (108,956) Preferred stock distributions declared Series A ($1.05 per share)......... (4,111) Preferred stock distributions declared Series B ($2.15 per share)......... (11,651) Preferred stock distributions declared Series D ($1.93 per share)......... (15,428) Amortization of deferred compensation..................................... 879 ------- -------- ---------- Balance, December 31, 2001................................................. $(4,309) $(14,871) $1,042,725 ======= ======== ==========
See accompanying notes to consolidated financial statements. 42 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Formation United Dominion Realty Trust, Inc., a Virginia corporation, was formed in 1972. United Dominion operates within one defined business segment with activities related to the ownership, management, development, acquisition, renovation and disposition of multifamily apartment communities nationwide. At December 31, 2001, United Dominion owned 274 communities with 77,567 completed apartment homes and had two additional phases to existing communities with 462 apartment homes under development. Basis of presentation The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P., (the "Operating Partnership"), and Heritage Communities L.P. (the "Heritage OP"), (collectively, "United Dominion"). As of December 31, 2001, there were 74,962,675 units in the Operating Partnership outstanding, of which 68,509,601 units or 91.4% were owned by United Dominion and 6,453,074 units or 8.6% were owned by non-affiliated limited partners. As of December 31, 2001, there were 3,492,889 units in the Heritage OP outstanding, of which 3,108,001 units or 89.0% were owned by United Dominion and 384,888 units or 11.0% were owned by non-affiliated limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the operating partnerships. All significant inter-company accounts and transactions have been eliminated in consolidation. Income taxes United Dominion is operated as, and elects to be taxed as, a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a REIT complies with the provisions of the Code if it distributes at least 90% (95% prior to 2001) of its REIT taxable income to its shareholders and will not be subject to U.S. federal income taxes if it distributes at least 100% of its income. Accordingly, no provision has been made for federal income taxes. However, United Dominion is subject to certain state and local excise or franchise taxes, for which provision has been made. The differences between net income available to common shareholders for financial reporting purposes and taxable income before dividend deductions relate primarily to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The temporary differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets. 43 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The following table reconciles the Company's net income to REIT taxable income for the three years ended December 31, 2001 (dollars in thousands):
2001 2000 1999 -------- -------- -------- Net income........................................ $ 61,828 $ 76,615 $ 93,622 Minority interest expense, less than distributions (1,442) (2,851) (181) Depreciation and amortization expense............. 45,327 62,828 27,573 Gain on the disposition of properties............. 343 10,120 (24,654) Revenue recognition timing differences............ 589 780 1,060 Impairment loss, not deductible for tax........... 2,788 -- 18,300 Investment loss, not deductible for tax........... 2,648 -- 1,000 Other expense timing differences.................. 2,787 (2,414) (4,034) -------- -------- -------- REIT taxable income before dividends.............. $114,868 $145,078 $112,686 ======== ======== ======== Dividends paid.................................... $140,146 $147,116 $147,321 ======== ======== ========
For income tax purposes, distributions paid to common shareholders consist of ordinary income, capital gains and return of capital, or a combination thereof. For the three years ended December 31, 2001, distributions paid per common share were taxable as follows:
2001 2000 1999 ----- ----- ----- Ordinary income............... $0.74 $0.81 $0.62 Long-term capital gain........ 0.11 0.15 0.13 Unrecaptured section 1250 gain 0.07 0.11 -- Return of capital............. 0.16 -- 0.31 ----- ----- ----- $1.08 $1.07 $1.06 ===== ===== =====
Use of estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to amounts in prior years' financial statements to conform with current year presentation. Cash and cash equivalents Cash and cash equivalents include all cash and liquid investments with maturities of three months or less when purchased. 44 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 Investments in unconsolidated joint venture The Company accounts for investments in unconsolidated joint ventures using the equity method when major business decisions require approval by the other partners and the Company does not have control of the assets. Investments are recorded at cost and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. United Dominion eliminates intercompany profits on sales of services that are provided to the venture. Differences between the carrying value of investments and the underlying equity in net assets of the investee are due to capitalized interest on the investment balance and capitalized development and leasing costs that are recovered by the Company through fees during construction (see Note 3--Investment in Unconsolidated Joint Venture). Real estate Real estate assets held for investment are carried at historical cost less accumulated depreciation and any recorded impairment losses. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to the acquisition and improvement of real estate assets are capitalized at cost and depreciated over their estimated useful lives if the value of the existing asset will be materially enhanced or the life of the related asset will be substantially extended beyond the original life expectancy. United Dominion recognizes impairment losses on long-lived assets used in operations when there is an event or change in circumstance that indicates an impairment in the value of an asset and the undiscounted future cash flows are not sufficient to recover the asset's carrying value. If such indicators of impairment are present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Prior to 2000, properties were classified as real estate held for disposition when management had committed to sell and was actively marketing the property, and United Dominion expected to dispose of these properties within the next twelve months. Beginning in 2000, properties classified as real estate held for disposition generally represent properties that are under contract for sale. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to dispose, determined on an asset by asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition and gains (losses) from initial and subsequent adjustments to the carrying value of the assets, if any, are recorded as a separate component of income from continuing operations. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which is 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment and other assets. All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheet as "real estate under development" until such time as the development project is completed. Upon completion, the total cost of the building and associated land is transferred to real estate held for investment and the assets are depreciated over their estimated useful lives. The cost of development projects includes interest, real estate taxes, insurance and allocated development overhead during the construction period. 45 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 Interest, real estate taxes and incremental labor and support costs for personnel working directly on the development site are capitalized as part of the real estate under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 2001, 2000 and 1999, total interest capitalized was $2.9 million, $3.6 million and $5.2 million, respectively. Revenue recognition United Dominion's apartment homes are leased under operating leases with terms generally of one year or less. Rental income is recognized after it is earned and collectibility is reasonably assured. Restricted cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits. Deferred financing costs Deferred financing costs include fees and other external costs incurred to obtain debt financings and are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt. Unamortized financing costs are written-off when debt is retired before its maturity date. During 2001, 2000 and 1999, amortization expense was $3.6 million, $5.0 million and $4.0 million, respectively. Advertising costs All costs are expensed as incurred. During 2001, 2000 and 1999, total advertising expense was $9.6 million, $9.3 million and $9.7 million, respectively. Interest rate swap agreements Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Certain Derivative Instruments and Hedging Activities" became effective on January 1, 2001. The accounting standards require companies to carry all derivative instruments, including certain embedded derivatives, in the Consolidated Balance Sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based on the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. At December 31, 2001, all of the Company's derivative financial instruments are interest rate swap agreements that are designated as cash flow hedges of debt with variable interest rate features, and are qualifying hedges for financial reporting purposes. For derivative instruments that qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings during the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The adoption of Statements 133 and 138 on January 1, 2001 resulted in a cumulative effect of an accounting change of a $3.8 million loss, all of which was recorded directly to other comprehensive income. 46 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 As part of United Dominion's overall interest rate risk management strategy, the Company uses derivative financial instruments as a means to artificially fix variable rate debt or to hedge anticipated financing transactions. The Company's derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. Because of the close correlation between the hedging instrument and the underlying cash flow exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the cash flow of the underlying exposures. As a result, United Dominion believes that it has appropriately controlled the risk so that derivatives used for interest rate risk management will not have a material unintended effect on consolidated earnings. The Company does not enter into derivative financial instruments for trading purposes. The fair value of the Company's derivative instruments is reported on balance sheet at their current fair value. Estimated fair values for interest rate swaps rely on prevailing market interest rates. These fair value amounts should not be viewed in isolation, but rather in relation to the values of the underlying hedged transactions and investments and to the overall reduction in exposure to adverse fluctuations in interest rates. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. The interest rate swaps involve the periodic exchange of payments over the life of the related agreements. Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively. Prior to the adoption of Statements 133 and 138 on January 1, 2001, United Dominion also used interest rate swap contracts for hedging purposes. For interest rate swaps, the net amounts paid or received and net amounts accrued through the end of the accounting period were included in interest expense. The fair value of the interest rate swap contracts were not recorded on the Consolidated Balance Sheet and unrealized gains or losses were not recognized in the Consolidated Statements of Operations. Gains and losses on any contracts terminated early were deferred and amortized to income over the remaining average life of the terminated contract. Comprehensive income Comprehensive income, which is defined as all changes in equity during each period except for those resulting from investments by or distributions to shareholders, is displayed in the accompanying Statements of Shareholders' Equity. Other comprehensive income consists of gains or losses from derivative financial instruments. Earnings per share Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion's average stock price. 47 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts):
2001 2000 1999 -------- -------- -------- Numerator for basic and diluted earnings per share--net income available to common shareholders............................ $ 27,142 $ 42,653 $ 55,908 Denominator: Denominator for basic earnings per share--weighted average shares...................................................... 100,339 103,072 103,604 Effect of dilutive securities: Employee stock options and awards............................. 698 136 35 -------- -------- -------- Denominator for dilutive earnings per share................... 101,037 103,208 103,639 ======== ======== ======== Basic earnings per share...................................... $ 0.27 $ 0.41 $ 0.54 ======== ======== ======== Diluted earnings per share.................................... $ 0.27 $ 0.41 $ 0.54 ======== ======== ========
The effect of the conversion of the operating partnership units and convertible preferred stock is not dilutive and is therefore not included as a dilutive security in the earnings per share computation. The weighted average effect of the conversion of the operating partnership units for the years ended December 31, 2001, 2000 and 1999 was 7,281,835 shares, 7,489,435 shares and 8,180,409 shares, respectively. The weighted average effect of the conversion of the convertible preferred stock for the years ended December 31, 2001, 2000 and 1999 was 12,307,692 shares. Minority interests in operating partnerships Interests in operating partnerships held by limited partners are represented by operating partnership units ("OP Units"). The operating partnerships' income is allocated to holders of OP Units based upon net income available to common shareholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions and profits and losses are allocated to minority interests in accordance with the terms of the individual partnership agreements. OP Units can be exchanged for cash or shares of United Dominion's common stock on a one-for-one basis, at the option of United Dominion. OP Units as a percentage of total OP Units and shares outstanding were 6.8% at December 31, 2001 and 2000 and 7.3% at December 31, 1999. Minority interests in other partnerships United Dominion has limited partners in certain real estate partnerships acquired as part of the acquisition of American Apartment Communities II on December 7, 1998. Net income for these partnerships is allocated based on the percentage interest owned by these limited partners in each respective real estate partnership. Stock based compensation United Dominion has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its employee stock options because the alternative fair value accounting provided for under Statement 123, "Accounting for Stock Based Compensation," requires the 48 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of United Dominion's employee stock options equals the market price of the underlying stock on the date of grant, no compensation cost has been recognized. Impact of recently issued accounting standards In August 2001, the FASB issued Statement 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). The Statement supercedes Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121") and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30"), for segments of a business to be disposed of. SFAS No. 144 retains the requirements of SFAS No. 121 relating to the recognition and measurement of an impairment loss and resolves certain implementation issues resulting from SFAS No. 121. The Company does not anticipate that SFAS No. 144 will materially change the way it accounts for long-lived assets. This Statement is effective for fiscal years beginning after December 15, 2001. In February 2002, the FASB rescinded Statement 4, "Reporting Gains and Losses from Extinguishment of Debt" ("SFAS No. 4"). The rescission of SFAS No. 4 will be applied in accordance with the guidance of the FASB, but once applied, United Dominion will be required to reclassify prior period items that do not meet the extraordinary classification criteria in APB 30. The Company from time to time incurs such charges and is currently assessing the impact that these statements will have on the consolidated financial position or results of operations of United Dominion. 2. REAL ESTATE OWNED United Dominion operates in 62 markets dispersed throughout 21 states. At December 31, 2001, the Company's largest apartment market was Dallas, Texas, where it owned 6.7% of its apartment homes, based upon carrying value. Excluding Dallas, United Dominion did not own more than 5.9% of its apartment homes in any one market, based upon carrying value. The following table summarizes real estate held for investment at December 31, (dollars in thousands):
2001 2000 ---------- ---------- Land and land improvements.......... $ 695,923 $ 668,003 Buildings and improvements.......... 2,945,741 2,902,386 Furniture, fixtures and equipment... 216,637 188,321 Construction in progress............ 278 264 ---------- ---------- Real estate held for investment..... 3,858,579 3,758,974 Accumulated depreciation............ (646,366) (506,871) ---------- ---------- Real estate held for investment, net $3,212,213 $3,252,103 ========== ==========
49 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The following is a summary of real estate held for investment by major market (in order of carrying value and excluding real estate under development) at December 31, 2001 (dollars in thousands):
Number of Initial Apartment Acquisition Carrying Accumulated Communities Cost Value Depreciation Encumbrances ----------- ----------- ---------- ------------ ------------ Dallas, TX............ 16 $ 221,734 $ 255,437 $ 34,449 $ 40,850 Houston, TX........... 22 178,188 227,217 33,007 27,336 Phoenix, AZ........... 12 189,273 225,997 28,374 56,893 Orlando, FL........... 14 167,524 202,676 42,242 89,823 San Antonio, TX....... 12 171,241 190,182 25,794 37,072 Raleigh, NC........... 10 146,686 166,411 34,675 57,754 Tampa, FL............. 10 132,927 151,867 27,829 57,315 Fort Worth, TX........ 11 134,671 148,888 23,580 22,786 Columbus, OH.......... 6 111,315 148,012 13,661 43,897 San Francisco, CA..... 4 136,504 140,995 10,769 21,423 Charlotte, NC......... 10 109,961 136,303 31,512 12,159 Nashville, TN......... 8 83,987 119,805 20,254 -- Greensboro, NC........ 8 85,362 103,703 19,438 -- Monterey Peninsula, CA 9 95,091 97,304 8,394 44,416 Memphis, TN........... 6 88,467 96,909 15,546 27,092 Richmond, VA.......... 8 74,856 96,117 30,537 66,657 Southern California... 5 87,442 90,989 8,512 11,627 Wilmington, NC........ 6 64,213 89,015 20,305 -- Metropolitan DC....... 5 57,334 74,599 12,813 38,011 Atlanta, GA........... 6 57,669 71,202 16,377 19,113 Baltimore, MD......... 6 58,846 67,102 16,014 29,011 Columbia, SC.......... 6 52,795 62,230 17,337 5,000 Jacksonville, FL...... 3 44,787 58,329 13,959 23,202 Norfolk, VA........... 6 42,741 54,095 17,879 7,359 Lansing, MI........... 4 50,237 48,668 4,397 24,889 Seattle, WA........... 3 31,953 34,031 3,775 13,311 Other Western......... 6 122,225 127,729 13,159 42,239 Other Florida......... 8 69,719 101,208 20,574 -- Other Southwestern.... 9 90,295 98,136 13,479 19,102 Other Midwestern...... 10 88,281 93,803 9,149 36,148 Other Pacific......... 7 86,601 87,156 9,578 45,605 Other North Carolina.. 8 61,677 74,453 22,659 9,876 Other Mid-Atlantic.... 5 37,618 42,397 9,123 12,542 Other Southeastern.... 3 28,691 37,428 8,699 19,285 Other Northeastern.... 2 14,732 18,119 4,485 5,167 Commercial............ 10,482 12,448 3,657 3,221 Richmond Corporate.... 6,597 7,619 375 3,996 --- ---------- ---------- -------- -------- 274 $3,292,722 $3,858,579 $646,366 $974,177 === ========== ========== ======== ========
At December 31, 2001, real estate held for disposition included four parcels of land with an initial acquisition cost of $9.9 million and a carrying value of $8.8 million. 50 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The management of United Dominion periodically reviews its divestiture program, which is designed to better position the Company for achieving more consistent earnings growth and increasing shareholder value over the long-term. The factors considered in these reviews include the age, quality and projected operating income of communities that might be sold, the expected market value for the communities, the estimated timing for completion of sales and the pro forma effect of sales upon United Dominion's earnings and financial position. During the first quarter of 2001, management performed an analysis of the carrying value of all undeveloped land parcels in connection with the Company's plans to accelerate the disposition of these sites. As a result, an aggregate $2.8 million impairment loss was recognized on seven undeveloped sites in selected markets. An impairment loss was indicated as a result of the net book value of the assets being greater than the estimated fair market value less the cost of disposal. During the second quarter of 2000, management transferred approximately $197 million of assets from real estate held for disposition to real estate held for investment and, as a result, approximately $10 million in depreciation expense was recognized on the communities transferred in order to reflect depreciation on these properties while they were classified in real estate held for disposition. Furthermore, approximately $5 million of additional depreciation expense was recognized on these assets during 2000 subsequent to their transfer to real estate held for investment. Depreciation expense in 2000 was further inflated by the impact of over $150 million in development completions in late 1999 and 2000 and approximately $200 million in acquisitions and capital improvements in 1999 and 2000. For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate owned. Through the review and analysis of communities targeted for strategic disposition, an aggregate $14.8 million impairment loss was recognized on assets held for disposition. An impairment loss was indicated as a result of the net book value of the assets held for disposition being greater than the estimated fair market value less the cost of disposal. In addition, United Dominion recorded a $3.5 million impairment loss on three communities acquired in the ASR merger in 1998 which were classified in real estate held for investment. An impairment loss was indicated as the sum of the estimated future cash flows from the assets were deemed to be less than the carrying amounts. The following is a reconciliation of the carrying amount of real estate held for investment at December 31, (dollars in thousands):
2001 2000 1999 ---------- ---------- ---------- Balance at beginning of year................. $3,758,974 $3,577,848 $3,643,245 Real estate acquired......................... 91,093 14,898 75,719 Capital expenditures......................... 58,402 46,299 72,096 Transfers from development................... 51,561 68,025 116,787 Transfers (to) from held for disposition, net (98,663) 58,068 (326,499) Impairment loss on real estate............... (2,788) -- (3,500) Disposal of fully depreciated assets......... -- (6,164) -- ---------- ---------- ---------- Balance at end of year....................... $3,858,579 $3,758,974 $3,577,848 ========== ========== ==========
51 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands):
2001 2000 1999 -------- -------- -------- Balance at beginning of year.......... $506,871 $373,164 $280,663 Depreciation expense for the year*.... 153,113 154,419 122,884 Transfers to held for disposition, net (13,618) (14,548) (30,383) Disposal of fully depreciated assets.. -- (6,164) -- -------- -------- -------- Balance at end of year................ $646,366 $506,871 $373,164 ======== ======== ========
* Includes $1,268, $1,425 and $1,157 for 2001, 2000 and 1999, respectively, related to depreciation on non-real estate assets located at the Company's apartment communities, classified as "Other depreciation and amortization" in the Consolidated Statements of Operations. 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE At December 31, 2001, United Dominion's investment in an unconsolidated joint venture ("the venture") consisted of a 25% partnership interest in a development joint venture in which the Company is serving as the managing partner. No gain or loss was recognized on the Company's contribution to the development joint venture. The venture was created to develop five apartment communities with a total of 1,438 homes for an aggregate total cost of approximately $101 million. Upon closing of the venture in June 2000, United Dominion contributed the projects in return for its equity interest of approximately $8 million in the venture and was reimbursed for approximately $35 million of development outlays that were incurred prior to closing the joint venture. United Dominion serves as the developer, general contractor and property manager for the venture and recognized fee income for services provided by the Company to the joint venture, to the extent of the outside partner's interest, of approximately $2.6 million and $3.0 million for the years ended December 31, 2001 and 2000, respectively. As of September 2001, construction of all five of the joint venture properties was complete. On December 28, 2001, United Dominion purchased three of the five apartment communities for a total aggregate cost of $61.3 million. The three communities purchased were Mandolin, a 308 home community located in Dallas, Texas, Meridian, a 250 home community located in Dallas, Texas and Sierra Canyon, a 236 home community located in Phoenix, Arizona. The Company has the option, but not the obligation, to purchase the remaining two communities for fair value through December 31, 2006. If neither the Company nor the joint venture partner elects to purchase these properties, the joint venture will then dispose of the assets to a third party at the then market price. Although the legal termination date of the joint venture is December 2006, the Company does not anticipate that the venture's useful life will exceed three years. 52 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The following is a summary of the financial position of the joint venture as of December 31, (dollars in thousands):
2001 2000 ------- ------- Assets: Real estate, net.......................... $44,290 $85,644 Other assets.............................. 930 6,507 ------- ------- Total assets........................... $45,220 $92,151 ======= ======= Liabilities and partners' equity: Mortgage notes payable (a)................ $30,488 $49,785 Other liabilities......................... 1,720 11,436 Partners' equity.......................... 13,012 30,930 ------- ------- Total liabilities and partners' equity. $45,220 $92,151 ======= =======
(a) Non-recourse to United Dominion with an interest rate of LIBOR plus 250 basis points and a maturity of December 2003. The following is a summary of the operating results of the joint venture as of December 31, (dollars in thousands):
2001 2000 ------- ------ Rental income.............................. $ 9,841 $1,930 Expenses: Depreciation and amortization.............. 3,684 268 Mortgage interest.......................... 3,826 1,557 Operating and other expenses............... 4,260 549 ------- ------ Total expenses.......................... 11,770 2,374 ------- ------ Income before gains on sales of investments (1,929) (444) Gains on sales of depreciable property..... 913 -- ------- ------ Net loss................................... $(1,016) $ (444) ======= ======
53 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 4. SECURED DEBT Secured debt, which encumbers $1.6 billion or 41.0% of United Dominion's real estate owned, ($2.3 billion or 59.0% of United Dominion's real estate owned is unencumbered) consists of the following at December 31, 2001 (dollars in thousands):
Weighted Weighted Average Average Number of Interest Years to Communities Principal Outstanding Rate Maturity Encumbered --------------------- -------- -------- ----------- 2001 2000 2001 2001 2001 -------- -------- -------- -------- ----------- Fixed Rate Debt Mortgage notes payable (a).......... $450,643 $513,962 7.79% 4.9 67 Tax-exempt secured notes payable.... 65,806 79,756 6.73% 12.1 9 Secured credit facilities........... 17,000 17,000 7.04% 12.1 -- -------- -------- ---- ---- --- Total fixed rate secured debt.... 533,449 610,718 7.64% 6.0 76 Variable Rate Debt Secured credit facilities........... 405,731 216,960 3.56% 11.6 31 Tax-exempt secured notes payable.... 19,915 19,916 1.38% 23.5 3 Mortgage notes payable.............. 15,082 18,521 3.71% 6.7 4 -------- -------- ---- ---- --- Total variable rate secured debt. 440,728 255,397 3.46% 11.9 38 -------- -------- ---- ---- --- Total Secured Debt.................. $974,177 $866,115 5.75% 8.7 114 ======== ======== ==== ==== ===
- -------- (a) Includes fair value adjustments aggregating $7.9 million in 2001 and $10.2 million in 2000 that were recorded in connection with the assumption of debt associated with two acquisitions consummated in 1998. Fixed Rate Debt Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from February 2002 through June 2034 and carry interest rates ranging from 6.66% to 9.58%. Tax-exempt secured notes payable. Fixed rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates through November 2025 and carry interest rates ranging from 6.09% to 7.90%. Interest on these notes is generally payable in semi-annual installments. Secured credit facilities. At December 31, 2001, United Dominion's fixed rate secured credit facilities consisted of $17.0 million of the $422.7 million outstanding under four revolving secured credit facilities with the Federal National Mortgage Association (the "FNMA Credit Facilities"). The FNMA Credit Facilities are for an initial term of five or ten years, bear interest at a floating rate and can be extended for an additional five years at United Dominion's discretion. In order to limit a portion of its interest rate exposure, United Dominion has two interest rate swap agreements associated with the FNMA Credit Facilities. These agreements have an aggregate notional value of $17.0 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreements effectively change United Dominion's interest rate exposure on $17.0 million of secured debt from a variable rate to a weighted average fixed rate of 7.04%. Variable Rate Debt Secured credit facilities. At December 31, 2001, United Dominion's variable rate secured credit facilities consisted of $405.7 million of the $422.7 million outstanding on the FNMA Credit Facilities. At December 31, 2001, the variable rate FNMA Credit Facilities had a weighted average floating rate of interest of 3.56%. 54 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 Tax-exempt secured notes payable. Variable rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates from December 2002 to October 2028. At December 31, 2001, these notes had interest rates ranging from 1.15% to 1.65%. Interest on these notes is generally payable in semi-annual installments. Mortgage notes payable. Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from January 2002 through September 2027. At December 31, 2001, these notes had interest rates ranging from 3.33% to 4.52%. The aggregate maturities of secured debt for the fifteen years subsequent to December 31, 2001 are as follows (dollars in thousands):
Fixed Variable --------------------------- ------------------------------------- Mortgage Tax-Exempt Secured Secured Tax-Exempt Mortgage Year Notes Bonds Notes Notes Notes Notes Total ---- -------- ---------- ------- -------- ---------- -------- -------- 2002 $ 47,409 $ 833 -- $ 2,200 $ 3,168 $ 53,610 2003 25,381 13,326 -- -- -- 370 39,077 2004 119,467 9,422 -- -- -- 392 129,281 2005 119,297 875 -- -- -- 5,139 125,311 2006 42,061 935 -- -- -- 3,795 46,791 2007 17,335 632 -- -- -- 95 18,062 2008 2,949 5,455 -- -- -- 102 8,506 2009 25,607 581 -- -- -- 108 26,296 2010 26,598 628 -- -- -- 116 27,342 2011 824 673 -- $138,875 -- 123 140,495 2012 889 725 -- -- -- 132 1,746 2013 960 3,850 -- -- -- 141 4,951 2014 1,036 838 $17,000 183,000 -- 150 202,024 2015 1,119 13,354 -- 52,956 -- 160 67,589 2016 2,942 583 -- 30,900 -- 171 34,596 Thereafter 16,769 13,096 -- -- 17,715 920 48,500 -------- ------- ------- -------- ------- ------- -------- $450,643 $65,806 $17,000 $405,731 $19,915 $15,082 $974,177 ======== ======= ======= ======== ======= ======= ========
For the years ended December 31, 2001 and 2000, United Dominion recognized $3.5 million ($.03 per share) in extraordinary losses and $831 thousand ($.01 per share) in extraordinary gains related to the write-off of deferred financing costs and prepayment penalties. 55 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 5. UNSECURED DEBT A summary of unsecured debt at December 31, 2001 and 2000 is as follows (dollars in thousands):
2001 2000 ------------ ------------ Commercial Banks Borrowings outstanding under an unsecured credit facility due August 2003 (a)................................................. $ 230,200 $ 244,400 Borrowings outstanding under an unsecured term loan due May 2004--2005 (b).................................................. 100,000 100,000 Senior Unsecured Notes--Other 7.60% Medium-Term Notes due January 2002.......................... 46,750 48,750 7.65% Medium-Term Notes due January 2003 (c)...................... 10,000 10,000 7.22% Medium-Term Notes due February 2003......................... 11,815 11,900 5.05% City of Portland, OR Bonds due October 2003................. 7,345 7,345 8.63% Notes due March 2003........................................ 78,030 79,030 7.98% Notes due March 2002-2003 (d)............................... 14,857 22,285 7.67% Medium-Term Notes due January 2004.......................... 53,510 54,000 7.73% Medium-Term Notes due April 2005............................ 22,400 22,400 7.02% Medium-Term Notes due November 2005......................... 49,760 50,000 7.95% Medium-Term Notes due July 2006............................. 103,179 107,398 7.07% Medium-Term Notes due November 2006......................... 25,000 25,000 7.25% Notes due January 2007...................................... 105,020 110,080 ABAG Tax-Exempt Bonds due August 2008............................. 46,700 46,700 8.50% Monthly Income Notes due November 2008...................... 57,400 57,400 8.50% Debentures due September 2024 (e)........................... 124,920 125,500 Other (f)......................................................... 3,134 4,027 ------------ ------------ 759,820 781,815 ------------ ------------ Total Unsecured Debt.............................................. $ 1,090,020 $ 1,126,215 ============ ============
- -------- (a) As of December 31, 2001 and 2000, United Dominion had eight interest rate swap agreements associated with commercial bank borrowings with an aggregate notional value of $155 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on the $155 million of borrowings from a variable rate to a weighted average fixed rate of approximately 6.98%. The weighted average interest rate of the total $230.2 million in commercial borrowings, after giving effect to swap agreements, was 6.1% and 7.5% at December 31, 2001 and 2000, respectively. (b) As of December 31, 2001, United Dominion had five interest rate swap agreements associated with borrowings under the term loan with an aggregate notional value of $100 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 7.53%. (c) United Dominion has one interest rate swap agreement associated with these unsecured notes with an aggregate notional value of $10 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreement effectively changes United Dominion's interest rate exposure on the $10 million from a variable rate to a fixed rate of 7.65%. (d) Payable annually in three equal principal installments of $7.4 million, one of which was paid in 2001. (e) Includes an investor put feature which grants a one-time option to redeem the debentures in September 2004. 56 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (f) Includes $3.0 million and $3.8 million at December 31, 2001 and 2000, respectively, of deferred gains from the termination of interest rate risk management agreements. Information concerning short-term bank borrowings is summarized in the table that follows (dollars in thousands):
2001 2000 1999 -------- -------- -------- Total revolving credit facilities at December 31.................. $375,000 $375,000 $310,000 Borrowings outstanding at December 31............................. 230,200 244,400 277,600 Weighted average daily borrowings during the year................. 248,367 195,128 223,629 Maximum daily borrowings during the year.......................... 347,200 308,000 283,000 Weighted average interest rate during the year.................... 5.2% 7.3% 5.8% Weighted average interest rate at December 31..................... 3.2% 7.7% 6.7% Weighted average interest rate at December 31, after giving effect to swap agreements.............................................. 6.1% 7.5% 6.8%
United Dominion has a $375 million three-year unsecured revolving credit facility (the "Bank Credit Facility") which matures August 2003. As of December 31, 2001, $230.2 million was outstanding under the Bank Credit Facility. The Company may borrow at a rate of LIBOR plus 110 basis points for LIBOR-based borrowings under the Bank Credit Facility. In addition, the Company pays a facility fee, which is equal to 0.25% of the commitment. The Bank Credit Facility is subject to customary financial covenants and limitations. 6. SHAREHOLDERS' EQUITY Preferred Stock The Series B Cumulative Redeemable Preferred Stock (Series B) has no stated par value and a liquidation preference of $25 per share. With no voting rights and no stated maturity, the Series B is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of United Dominion. The Series B is not redeemable prior to May 29, 2007. On or after this date, the Series B may be redeemed for cash at the option of United Dominion, in whole or in part, at a redemption price of $25 per share plus accrued and unpaid dividends. The redemption price is payable solely out of the sales proceeds of other capital stock of United Dominion. All dividends due and payable on the Series B have been accrued or paid as of the end of each fiscal year. The Series D Convertible Redeemable Preferred Stock (Series D) has no stated par value and a liquidation preference of $25 per share. The Series D has no voting rights, no stated maturity and is not subject to any sinking fund or mandatory redemption and is convertible into 1.5385 shares of common stock at the option of the holder of the Series D at any time at $16.25 per share. The Company has the right to cause the holder of the Series D to convert the Series D to common shares at $16.25 based on twenty trading days at or above $17.06 for the life of the security (the "Option Shares"). The Company has the right to purchase 2 million shares of the Option Shares in accordance with a predetermined schedule, provided that the volume weighted average price of the Company's common shares is $16.25 for a twenty day trading period. The repurchase price payable will be computed in accordance with the table below, expressed as a percentage of the liquidation preference, determined by the period in which the Option Shares repurchase date occurs, together with all accrued and unpaid dividends to and including the repurchase date: 57 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001
Option Share Repurchase Date Occurs During Period: Repurchase Price -------------------------- ---------------- January 1, 2002 to June 30, 2002 102.0% July 1, 2002 to December 31, 2002 101.5% January 1, 2003 to June 30, 2003 101.0% July 1, 2003 to December 6, 2003 100.5%
After December 7, 2003, United Dominion may, at its option, redeem at any time all or part of the Series D at a price per share of $25, payable in cash, plus all accrued and unpaid dividends, provided that the current market price of the common stock at least equals the conversion price, initially set at $16.25 per share. The redemption is payable solely out of the sale proceeds of other capital stock. In addition, United Dominion may not redeem in any consecutive twelve-month period a number of shares of Series D having an aggregate liquidation preference of more than $100 million. On June 15, 2001, the Company completed the redemption of all of its outstanding 9.25% Series A Cumulative Redeemable Preferred Stock at $25 per share plus accrued dividends. Officers' Stock Purchase and Loan Plan Under the Officer Stock Purchase and Loan Plan (the "Loan Plan"), certain officers have purchased common stock at the then current market price with financing provided by United Dominion at an interest rate of 7%. The underlying notes, totaling $4.3 million, mature between December 2002 and October 2005. A total of 602,000 shares have been issued and 813,000 shares are available for future issuance under the Loan Plan. Dividend Reinvestment and Stock Purchase Plan United Dominion's Dividend Reinvestment and Stock Purchase Plan (the "Stock Purchase Plan") allows common and preferred shareholders the opportunity to purchase, through the reinvestment of cash dividends, additional shares of United Dominion's common stock. As of December 31, 2001, 9,437,717 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 4,562,283 were reserved for further issuance under the Stock Purchase Plan at December 31, 2001. During 2001, 332,243 shares were issued under the Stock Purchase Plan for a total consideration of approximately $4.4 million. Restricted Stock Awards United Dominion's 1999 Long-Term Incentive Plan ("LTIP") authorizes the granting of restricted stock awards to employees, officers and directors of United Dominion. The total restricted stock awards under the LTIP may not exceed 15% of the total number of available shares, or 600,000. Deferred compensation expense is recorded over the vesting period and is based upon the value of the common stock on the date of issuance. As of December 31, 2001, 244,103 shares of restricted stock have been issued under the LTIP. Shareholder Rights Plan United Dominion's 1998 Shareholder Rights Plan is intended to protect long-term interests of shareholders in the event of an unsolicited, coercive, or unfair attempt to take over the Company. The plan authorized a dividend of one Preferred Share Purchase Right (the "Rights) on each share of common stock outstanding. Each Right, which is not currently exercisable, will entitle the holder to purchase 1/1,000 of a share of a new series of 58 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 the Company's preferred stock, to be designated as Series C Junior Participating Cumulative Preferred Stock, at a price to be determined upon the occurrence of the event, and for which the holder must be paid $45 should the take over occur. Under the Plan, the rights will be exercisable if a person or group acquires more than 15% of United Dominion's common stock, or announces a tender offer that would result in the ownership of 15% of the Company's common stock. 7. FINANCIAL INSTRUMENTS The following estimated fair values of financial instruments were determined by United Dominion using available market information and appropriate valuation methodologies. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts United Dominion would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair value of United Dominion's financial instruments at December 31, 2001 and 2000, are summarized as follows (dollars in thousands):
2001 2000 --------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- Secured debt................. $ 974,177 $1,013,136 $ 866,115 $ 887,430 Unsecured debt............... 1,090,020 1,109,380 1,126,215 1,130,100 Interest rate swap agreements -- (14,931) -- (3,847)
The following methods and assumptions were used by United Dominion in estimating the fair values set forth above. Cash and cash equivalents The carrying amount of cash and cash equivalents approximates fair value. Secured and unsecured debt Estimated fair value is based on mortgage rates, tax-exempt bond rates and corporate unsecured debt rates believed to be available to United Dominion for the issuance of debt with similar terms and remaining lives. The carrying amount of United Dominion's variable rate secured debt approximates fair value at December 31, 2001 and 2000. The carrying amounts of United Dominion's borrowings under variable rate unsecured debt arrangements, short-term revolving credit agreements and lines of credit approximate their fair values at December 31, 2001 and 2000. 59 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 Derivative financial instruments The following table presents the fair values of the Company's derivative financial instruments outstanding, based on external market quotations, as of December 31, 2001 (dollars in thousands):
Notional Fixed Type of Effective Contract Fair Amount Rate Contract Date Maturity Value -------------------- ----- -------- --------- -------- -------- Secured Debt: FNMA $ 7,000 6.78% Swap 06/30/99 06/30/04 $ (396) 10,000 7.22% Swap 12/01/99 04/01/04 (626) -------------------- ----- -------- 17,000 7.04% (1,022) Unsecured Debt: Bank Credit Facility 5,000 7.32% Swap 06/26/95 07/01/04 (315) 10,000 7.14% Swap 10/18/95 10/03/02 (386) 5,000 6.98% Swap 11/21/95 10/03/02 (185) 25,000 7.39% Swap 11/01/00 08/01/03 (1,461) 25,000 7.39% Swap 11/01/00 08/01/03 (1,461) 25,000 7.21% Swap 12/01/00 08/01/03 (1,330) 25,000 7.21% Swap 12/04/00 08/01/03 (1,330) 35,000 5.98% Swap 03/13/01 04/01/03 (1,100) -------------------- ----- -------- 155,000 6.98% (7,568) Bank Term Loan 25,000 7.49% Swap 11/15/00 05/15/03 (1,295) 20,000 7.49% Swap 11/15/00 05/15/03 (1,037) 23,500 7.62% Swap 11/15/00 05/15/04 (1,568) 23,000 7.62% Swap 11/15/00 05/15/04 (1,535) 8,500 7.26% Swap 12/04/00 05/15/03 (426) -------------------- ----- -------- 100,000 7.53% (5,861) Medium-Term Notes 10,000 7.65% Swap 01/26/99 01/27/03 (480) -------------------- -------- $282,000 $(14,931) ==================== ========
For the year ended December 31, 2001, the Company recognized $11.0 million of unrealized losses in accumulated other comprehensive income, a $60.0 thousand loss in net income related to the ineffective portion of the Company's hedging instruments and a $3.8 million loss as a cumulative effect of a change in accounting principle. In addition, United Dominion recognized $14.9 million of derivative financial instrument liabilities on the Consolidated Balance Sheet. As of December 31, 2001, United Dominion expects to reclassify $9.4 million of net losses on derivative instruments from accumulated other comprehensive income to earnings (interest expense) during the next twelve months on the related hedged transactions. Risk of counterparty non-performance United Dominion has not obtained collateral or other security to support financial instruments. In the event of non-performance by the counterparty, United Dominion's credit loss on its derivative instruments is limited to the value of the derivative instruments that are favorable to United Dominion at December 31, 2001, of which the 60 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 Company has none. However, such non-performance is not anticipated as the counterparties are highly rated credit quality U.S. financial institutions and management believes that the likelihood of realizing material losses from counterparty non-performance is remote. 8. EMPLOYEE BENEFIT PLANS Profit Sharing Plan The United Dominion Realty Trust, Inc. Profit Sharing Plan (the "Plan") is a defined contribution plan covering all eligible full-time employees. Under the Plan, United Dominion makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in United Dominion's Consolidated Statements of Operations for the three years ended December 31, 2001, 2000 and 1999 were $0.7 million, $1.3 million and $2.2 million, respectively. Stock Option Plan In May 2001, the shareholders of United Dominion approved the 1999 Long-Term Incentive Plan (the "LTIP"), which supersedes the Company's 1985 Stock Option Plan. With the approval of the LTIP, no additional grants will be made under the 1985 Stock Option Plan. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, any other right or interest relating to common stock or cash. The Board of Directors reserved 4 million shares for issuance upon the grant or exercise of awards under the LTIP. Of the 4 million shares reserved, 3.4 million shares are for stock-based awards, such as stock options, with the remaining 600,000 shares reserved for restricted stock awards. The LTIP generally provides, among other things, that options are granted at exercise prices not lower than the market value of the shares on the date of grant and that options granted must be exercised within ten years. The maximum number of shares of stock that may be issued subject to incentive stock options is 10 million shares. Shares under options that expire or are cancelable are available for subsequent grant. Pro forma information regarding net income and earnings per share is required by Statement 123 "Accounting for Stock Based Compensation" ("SFAS No. 123"), and has been determined as if United Dominion had accounted for its employee stock options under the fair value method of accounting as defined in SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2001, 2000 and 1999:
2001 2000 1999 ----- ----- ----- Risk free interest rate............... 3.2% 5.2% 6.7% Dividend yield........................ 9.1% 7.2% 6.9% Volatility factor..................... 0.171 0.164 0.144 Weighted average expected life (years) 3 7 9
The weighted average fair value of options granted during 2001, 2000 and 1999 was $0.46, $0.65 and $0.76 per option, respectively. 61 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. United Dominion's pro forma information is as follows (dollars in thousands, except per share amounts):
2001 2000 1999 ------- ------- ------- Net income available to common shareholders As reported............................. $27,142 $42,653 $55,908 Pro forma............................... 26,693 41,705 54,847 Earnings per common share--diluted As reported............................. $ 0.27 $ 0.41 $ 0.54 Pro forma............................... 0.26 0.40 0.53
A summary of United Dominion's stock option activity during the three years ended December 31, 2001 is provided in the following table:
Number Weighted Average Range of Outstanding Exercise Price Exercise Prices ----------- ---------------- --------------- Balance, December 31, 1998. 3,359,013 $12.89 $7.44 - $15.38 Granted.................... 1,192,333 10.02 9.63 - 11.19 Exercised.................. (46,998) 9.87 9.19 - 10.25 Forfeited.................. (288,756) 13.46 10.88 - 15.38 ---------- ------ -------------- Balance, December 31, 1999. 4,215,592 $12.09 $9.19 - $15.38 Granted.................... 653,300 9.91 9.88 - 10.75 Exercised.................. (11,584) 9.19 9.19 Forfeited.................. (364,363) 12.95 9.63 - 15.25 ---------- ------ -------------- Balance, December 31, 2000. 4,492,945 $11.71 $9.19 - $15.38 Granted.................... 1,289,484 11.96 10.81 - 14.20 Exercised.................. (356,408) 11.02 9.19 - 14.25 Forfeited.................. (1,200,802) 11.52 9.63 - 15.38 ---------- ------ -------------- Balance, December 31, 2001. 4,225,219 $11.90 $9.63 - $15.38 ========== ====== ============== Exercisable at December 31, 1999....................... 2,042,505 $13.28 $9.19-$15.38 2000....................... 2,692,997 12.35 9.19-15.38 2001....................... 1,968,265 12.38 9.63-15.38
The weighted average remaining contractual life on all options outstanding is 9 years. 1,032,002 of share options had exercise prices between $13.50 and $15.38, 1,509,272 of share options had exercise prices between $11.15 and $13.13 and 1,683,945 of share options had exercise prices between $9.63 and $10.94. At December 31, 2001, stock-based awards for 3,278,500 shares of common stock were available for future grants under the 1999 LTIP's existing authorization and no option shares were available for future grants under the 1985 Stock Option Plan. At December 31, 2000 and 1999, options for 3,684,595 and 4,028,539 shares of common stock, respectively, were available for future grants under the 1985 Stock Option Plan. 62 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 9. RESTRUCTURING CHARGES During the first quarter of 2001, United Dominion announced the appointment of a new chief executive officer and senior management structure. The new management team began a comprehensive review of the organizational structure of the Company and its operations. As a result of this review, the Company recorded a charge of $5.4 million related to workforce reductions and other miscellaneous costs. These charges are included in the Consolidated Statements of Operations within the line item "Severance costs and other organizational charges." All charges came under consideration subsequent to the appointment of the Company's new CEO in February 2001 and were approved by management and the Board of Directors in March 2001. All of the $5.4 million charge was paid during 2001. The planned workforce reductions resulted in a charge of $4.5 million during the first quarter of 2001 and in the planned termination of approximately 200 full-time equivalent positions, or 10% of total staffing in corporate functions, including senior management and general and administrative functions, and in apartment operations. Employee termination benefits included severance packages and related benefits and outplacement services for employees terminated. As of December 31, 2001, approximately 230 employees have been terminated. In connection with senior management's review of the Company during the first quarter, United Dominion also recognized $0.4 million related to relocation costs associated with the new executive offices in Denver and $0.5 million related to other miscellaneous costs. 10. COMMITMENTS AND CONTINGENCIES Land and Other Leases United Dominion is party to several ground leases relating to operating communities. In addition, United Dominion is party to various other operating leases related to the operation of its regional offices. Future minimum lease payments for non-cancelable land and other leases at December 31, 2001 are as follows (dollars in thousands): 2002...... $ 1,792 2003...... 1,594 2004...... 1,530 2005...... 1,386 2006...... 1,210 Thereafter 24,128 ------- Total.. $31,640 =======
United Dominion incurred $2.3 million, $2.6 million and $2.8 million, of rent expense for the years ended December 31, 2001, 2000 and 1999, respectively. Contingencies In May 2001, the shareholders of United Dominion approved the Out-Performance Program (the "Program") pursuant to which executives and other key officers of the Company were given the opportunity to invest in the Company by purchasing performance shares ("Out-Performance Partnership Shares" or "OPPSs") of the Operating Partnership for an initial investment of $1.27 million. To begin the Program, the Company's performance will be measured over a 28 month period beginning February 2001. The Program is designed to provide participants with the possibility of substantial returns on their investment if the Company's total return, 63 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 defined as dividend income plus share price appreciation, on its common stock during the measurement period exceeds the greater of industry average (defined as the total cumulative return of the Morgan Stanley REIT Index over the same period) or a 30% total return (12% annualized) (the "minimum return"). At the conclusion of the measurement period, if United Dominion's total return satisfies these criteria, the holders of the OPPSs will receive distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of interests in the Operating Partnership ("OP Units") obtained by: (i) determining the amount by which the cumulative total return of the Company's common stock over the measurement period exceeds the greater of the cumulative total return of the peer group index (the Morgan Stanley REIT Index) or the minimum return (such being the "excess return"); (ii) multiplying 4% of the excess return by the Company's market capitalization (defined as the average number of shares outstanding over the 28 month period multiplied by the daily closing price of the Company's common stock); and (iii) dividing the number obtained in (ii) by the market value of one share of the Company common stock on the valuation date, as the weighted average price per day of the common stock for the 20 trading days immediately preceding the valuation date. If, on the valuation date, the cumulative total return of United Dominion's common stock does not meet the minimum return or the total return of the peer group and there is no excess return, then the holders of the OPPSs will forfeit their entire initial investment of $1.27 million. The OPPSs, unlike United Dominion's other OP Units, are not convertible into common stock except upon a change of control of the Company. Accordingly, the contingently issuable OPPSs are not included in common stock and common stock equivalents in the calculation of earnings per share. Based upon results through December 31, 2001, 370,718 OPPSs would have been issued. However, since the ultimate determination of OPPSs to be issued will not occur until June 2003, and the number of OPPSs is determinable only upon future events, the financial statements do not reflect any additional impact for these events. United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The ultimate liability in respect of such litigations and claims cannot be determined at this time. United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion. Commitments United Dominion is committed to completing its real estate currently under development, which has an estimated cost to complete of $6.7 million at December 31, 2001. 11. INDUSTRY SEGMENTS United Dominion owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment units to a diverse base of tenants. United Dominion separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single apartment communities segment. All segment disclosure is included in or can be derived from United Dominion's consolidated financial statements. There are no tenants that contributed 10% or more of United Dominion's total revenues during 2001, 2000 or 1999. 64 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Summarized consolidated quarterly financial data for the year ended December 31, 2001 is as follows (dollars in thousands, except per share amounts):
Three Months Ended ------------------------------------------------ March 31(a) June 30 September 30 December 31(b) ----------- -------- ------------ -------------- Rental income (c)........................... $155,369 $153,570 $153,814 $155,837 Income before gains on sales of investments, minority interests and extraordinary item.. 2,577 13,731 14,590 13,845 Gains on the sales of investments........... 4,102 20,646 -- -- Net income available to common shareholders. (3,308) 20,136 6,778 3,536 Earnings per common share: Basic....................................... $ (0.03) $ 0.20 $ 0.07 $ 0.04 Diluted..................................... (0.03) 0.20 0.07 0.04
- -------- (a) The first quarter of 2001 includes $8.6 million of non-recurring charges related to workforce reductions, other severance costs, executive relocation costs and the write-down of land and the Company's investment in an online apartment leasing company. (b) The fourth quarter of 2001 includes a $2.2 million charge related to the write-down of the Company's investment in a web-based property management and leasing system. (c) Rental income for the first and second quarters are restated to include water sub-metering reimbursements previously classified as a reduction in rental expense. Summarized consolidated quarterly financial data for the year ended December 31, 2000 is as follows (dollars in thousands, except per share amounts):
Three Months Ended ------------------------------------------------- March 31 June 30 (a) September 30 (b) December 31 -------- ----------- ---------------- ----------- Rental income (c)........................... $156,401 $157,402 $157,041 $155,750 Income before gains on sales of investments, minority interests and extraordinary item.. 17,120 7,617 10,199 13,784 Gains on the sales of investments........... 2,533 5,928 11,261 11,728 Net income available to common shareholders. 9,172 6,233 11,161 16,087 Earnings per common share: Basic....................................... $ 0.09 $ 0.06 $ 0.11 $ 0.16 Diluted..................................... 0.09 0.06 0.11 0.16
- -------- (a) The second quarter of 2000 includes $9.9 million of catch-up depreciation expense related to the transfer of properties from real estate held for disposition to real estate held for investment. (b) The third quarter of 2000 includes a $2.7 million charge related to water usage billing litigation and a $1.0 million charge for changes to executive employment agreements. (c) Rental income has been restated to include water sub-metering reimbursements previously classified as a reduction in rental expense. 65 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Initial Costs Capitalized Which Carried at Close of Period ------------------------- Total Subsequent to -------------------------------- Land and Buildings Initial Acquisition Land and Buildings Land and Acquisition (Net of Land and Encumbrances Improvements Improvements Costs(a) Disposals) Improvements Improvements ------------ ------------ ------------ ----------- ------------- ------------ ------------ Woodtrail................. $ -- $ 1,543 $ 5,457 $ 7,000 $ 2,337 $ 1,752 $ 7,585 Park Trails............... -- 1,145 4,105 5,250 848 1,212 4,887 Green Oaks................ -- 5,314 19,626 24,940 2,767 5,821 21,886 Sky Hawk.................. -- 2,298 7,158 9,456 1,935 2,712 8,679 South Grand At Pecan Grove -- 4,058 14,756 18,814 4,306 4,819 18,301 Breakers.................. -- 1,527 5,298 6,825 2,142 1,885 7,083 Braesridge................ -- 3,048 10,962 14,010 1,837 3,378 12,469 Skylar Pointe............. -- 3,604 11,592 15,197 4,018 3,706 15,509 Stone Canyon.............. -- 900 -- 900 9,447 1,289 9,058 Briar Park................ 1,352 329 2,794 3,123 172 346 2,949 Chelsea Park.............. 3,141 1,991 5,788 7,779 1,929 2,412 7,296 Clear Lake Falls.......... 2,973 1,090 4,534 5,624 (163) 1,127 4,335 Country Club Place........ 3,379 499 6,520 7,019 911 646 7,284 Arbor Ridge............... 3,635 1,689 6,684 8,373 296 2,043 6,626 London Park............... 4,370 2,018 6,667 8,686 1,687 2,434 7,939 Marymont.................. -- 1,151 4,155 5,306 716 1,164 4,858 Nantucket Square.......... 2,619 1,068 4,833 5,901 (530) 1,075 4,297 Riverway.................. 1,144 523 2,828 3,352 194 551 2,995 Riviera Pines............. 3,162 1,414 6,454 7,868 923 1,439 7,352 The Gallery............... 1,561 769 3,358 4,127 226 791 3,562 Towne Lake................ -- 1,334 5,309 6,643 1,243 1,576 6,310 The Legend at Park 10..... -- 1,995 -- 1,995 11,786 3,895 9,885 HOUSTON, TX............... 27,336 39,307 138,881 178,188 49,029 46,073 181,144 Preston Oaks.............. -- 1,784 6,416 8,200 719 1,926 6,993 Preston Trace............. -- 2,196 8,305 10,500 915 2,385 9,029 Rock Creek................ -- 4,077 15,823 19,900 4,463 4,577 19,786 Windridge................. -- 3,414 14,027 17,442 2,957 4,037 16,362 Catalina.................. -- 1,543 5,632 7,175 794 1,654 6,314 Wimbledon Court........... -- 1,809 10,930 12,739 2,174 2,828 12,086 Lakeridge................. -- 1,631 5,669 7,300 1,042 1,813 6,529 Summergate................ -- 1,171 3,929 5,100 835 1,399 4,536 Oak Forest................ 23,540 5,631 23,294 28,925 10,503 6,368 33,059 Oaks Of Lewisville........ 12,265 3,727 13,563 17,290 3,624 4,501 16,414 Kelly Crossing............ -- 2,497 9,156 11,653 1,567 2,981 10,239 Highlands Of Preston...... -- 2,151 8,168 10,319 1,745 2,472 9,591 The Summit................ -- 1,932 9,041 10,973 1,283 2,319 9,938 Springfield............... 5,045 3,075 6,823 9,898 1,082 3,266 7,714 Meridian I................ -- 2,160 18,523 20,683 -- 2,160 18,523 Mandolin I................ -- 2,663 20,975 23,638 -- 2,663 20,975 DALLAS, TX................ 40,850 41,460 180,274 221,734 33,704 47,349 208,089
Total Accumulated Carrying Depreciation Date of Date Value (b) (c) Construction Acquired --------- ------------ ------------ -------- Woodtrail................. $ 9,337 $ 2,069 1978 12/31/96 Park Trails............... 6,098 1,087 1983 12/31/96 Green Oaks................ 27,707 4,227 1985 06/25/97 Sky Hawk.................. 11,391 2,000 1984 05/08/97 South Grand At Pecan Grove 23,120 3,526 1985 09/26/97 Breakers.................. 8,968 1,532 1985 09/26/97 Braesridge................ 15,847 2,403 1982 09/26/97 Skylar Pointe............. 19,215 3,132 1979 11/20/97 Stone Canyon.............. 10,347 920 1998 12/17/97 Briar Park................ 3,295 411 1987 03/27/98 Chelsea Park.............. 9,708 1,247 1983 03/27/98 Clear Lake Falls.......... 5,462 645 1980 03/27/98 Country Club Place........ 7,929 1,162 1985 03/27/98 Arbor Ridge............... 8,669 1,222 1983 03/27/98 London Park............... 10,373 1,448 1983 03/27/98 Marymont.................. 6,022 699 1983 03/27/98 Nantucket Square.......... 5,371 586 1983 03/27/98 Riverway.................. 3,546 514 1985 03/27/98 Riviera Pines............. 8,791 910 1979 03/27/98 The Gallery............... 4,353 431 1968 03/27/98 Towne Lake................ 7,886 1,157 1984 03/27/98 The Legend at Park 10..... 13,781 1,679 1998 05/19/98 HOUSTON, TX............... 227,217 33,007 Preston Oaks.............. 8,919 1,438 1980 12/31/96 Preston Trace............. 11,415 1,773 1984 12/31/96 Rock Creek................ 24,363 4,248 1979 12/31/96 Windridge................. 20,399 3,577 1980 12/31/96 Catalina.................. 7,969 1,300 1982 12/31/96 Wimbledon Court........... 14,914 2,328 1983 12/31/96 Lakeridge................. 8,342 1,443 1984 12/31/96 Summergate................ 5,935 1,000 1984 12/31/96 Oak Forest................ 39,428 6,832 1996/98 12/31/96 Oaks Of Lewisville........ 20,914 3,832 1983 03/27/97 Kelly Crossing............ 13,220 2,045 1984 06/18/97 Highlands Of Preston...... 12,063 1,633 1985 03/27/98 The Summit................ 12,257 1,624 1983 03/27/98 Springfield............... 10,980 1,353 1985 03/27/98 Meridian I................ 20,683 23 2000 12/28/01 Mandolin I................ 23,638 -- 2001 12/28/01 DALLAS, TX................ 255,437 34,449
66 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Total Subsequent -------------------------- Land and Buildings Initial to Acquisition Land and Buildings Total Land and Acquisition (Net Land and Carrying Encumbrances Improvements Improvements Costs(a) of Disposals) Improvements Improvements Value (b) ------------ ------------ ------------ ----------- -------------- ------------ ------------ --------- Fisherman's Village. $ -- $ 2,387 $ 7,459 $ 9,846 $ 3,472 $ 3,116 $ 10,202 $ 13,318 Seabrook............ -- 1,846 4,155 6,001 2,749 2,256 6,494 8,750 Dover Village....... -- 2,895 6,456 9,351 3,693 3,365 9,678 13,044 Lakeside North...... 12,440 1,533 11,076 12,609 4,691 2,238 15,061 17,299 Regatta Shore....... -- 757 6,607 7,364 2,666 1,505 8,525 10,030 Alafaya Woods....... 8,725 1,653 9,042 10,695 2,181 2,106 10,770 12,876 Vinyards............ 8,640 1,840 11,572 13,412 2,975 2,416 13,971 16,387 Andover Place....... 13,320 3,692 7,757 11,449 3,163 4,501 10,111 14,612 Los Altos........... 12,199 2,804 12,348 15,152 2,734 3,315 14,571 17,886 Lotus Landing....... -- 2,185 8,639 10,823 1,949 2,405 10,367 12,773 Seville On The Green -- 1,283 6,498 7,781 1,849 1,455 8,174 9,629 Arbors @ Lee Vista.. 13,383 3,976 16,920 20,896 1,718 4,372 18,242 22,614 Heron Lake.......... 6,171 1,447 9,288 10,734 1,025 1,615 10,144 11,760 Ashton @ Waterford.. 14,945 3,872 17,538 21,410 289 3,892 17,807 21,699 ORLANDO, FL......... 89,823 32,168 135,356 167,524 35,152 38,558 164,118 202,676 Paradise Falls...... -- 1,623 6,171 7,794 2,942 1,832 8,903 10,735 Vista Point......... -- 1,587 5,613 7,200 1,409 1,717 6,891 8,609 Sierra Palms........ -- 4,639 17,361 22,000 515 4,745 17,770 22,515 Northpark Village... -- 1,519 13,537 15,056 1,706 1,832 14,930 16,762 Stonegate........... 3,603 735 7,940 8,675 767 905 8,536 9,442 Finisterra.......... -- 1,274 26,392 27,666 542 1,339 26,869 28,208 La Privada.......... 15,336 7,303 18,508 25,811 1,915 7,841 19,885 27,726 Terracina........... 22,413 3,757 34,781 38,538 6,395 4,550 40,383 44,933 Woodland Park....... -- 3,017 6,706 9,723 985 3,224 7,484 10,709 Sierra Foothills.... 12,691 2,728 -- 2,728 18,869 4,840 16,757 21,597 Tower Apartments.... 2,850 3,333 5,975 9,309 679 3,713 6,274 9,988 Sierra Canyon....... -- 1,810 12,964 14,773 -- 1,810 12,964 14,773 PHOENIX, AZ......... 56,893 33,326 155,947 189,273 36,724 38,350 187,647 225,997 Promontory Pointe... -- 7,548 28,052 35,600 2,689 7,824 30,465 38,289 The Bluffs.......... -- 1,901 6,899 8,800 1,470 2,098 8,172 10,270 Ashley Oaks......... -- 4,591 16,809 21,400 812 4,725 17,486 22,212 Sunflower........... -- 2,209 7,891 10,100 750 2,341 8,509 10,850 Escalante........... 3,816 2,702 24,033 26,735 2,183 2,776 26,143 28,919 Cimarron City....... 3,062 488 4,535 5,023 1,122 585 5,560 6,145 Kenton.............. 7,187 2,345 8,917 11,262 1,835 2,458 10,640 13,097 Peppermill.......... 4,221 773 6,873 7,647 2,329 939 9,036 9,976 Sunset Canyon....... 8,655 3,201 10,670 13,871 3,984 3,598 14,258 17,855 Audubon............. 4,499 771 6,124 6,895 2,262 1,025 8,133 9,157 Grand Cypress....... 5,631 749 8,609 9,359 993 816 9,536 10,352 Inn @ Los Patios.... -- 3,005 11,545 14,550 (1,489) 3,005 10,055 13,061 SAN ANTONIO, TX..... 37,072 30,284 140,957 171,241 18,940 32,190 157,992 190,182
Accumulated Depreciation Date of Date (c) Construction Acquired ------------ ------------ ------------------- Fisherman's Village. $ 3,363 1984 12/29/95 Seabrook............ 2,420 1984 02/20/96 Dover Village....... 3,999 1981 03/31/93 Lakeside North...... 4,700 1984 04/14/94 Regatta Shore....... 3,122 1988 06/30/94 Alafaya Woods....... 3,509 1988/90 10/21/94 Vinyards............ 4,445 1984/86 10/31/94 Andover Place....... 3,233 1988 09/29/95 & 09/30/96 Los Altos........... 3,285 1990 10/31/96 Lotus Landing....... 1,917 1985 07/01/97 Seville On The Green 1,538 1986 10/21/97 Arbors @ Lee Vista.. 2,910 1991 12/31/97 Heron Lake.......... 1,581 1989 03/27/98 Ashton @ Waterford.. 2,219 2000 05/28/98 ORLANDO, FL......... 42,242 Paradise Falls...... 1,764 1986 12/31/96 Vista Point......... 1,512 1986 12/31/96 Sierra Palms........ 3,241 1996 12/31/96 Northpark Village... 2,517 1983 03/27/98 Stonegate........... 1,365 1978 03/27/98 Finisterra.......... 3,601 1997 03/27/98 La Privada.......... 3,002 1987 03/27/98 Terracina........... 6,272 1984 05/28/98 Woodland Park....... 1,405 1979 06/09/98 Sierra Foothills.... 2,927 1998 02/18/98 Tower Apartments.... 769 1980 01/18/01 Sierra Canyon....... -- 2001 12/28/01 PHOENIX, AZ......... 28,374 Promontory Pointe... 5,970 1997 12/31/96 The Bluffs.......... 2,091 1978 12/31/96 Ashley Oaks......... 3,175 1993 12/31/96 Sunflower........... 1,738 1980 12/31/96 Escalante........... 2,287 1986/2000 04/16/98 Cimarron City....... 774 1983 04/16/98 Kenton.............. 1,600 1983 04/16/98 Peppermill.......... 1,504 1984 04/16/98 Sunset Canyon....... 2,640 1984 04/16/98 Audubon............. 1,522 1985 04/16/98 Grand Cypress....... 1,338 1995 04/16/98 Inn @ Los Patios.... 1,153 1990 08/15/98 SAN ANTONIO, TX..... 25,794
67 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Total Subsequent -------------------------- Total Land and Buildings Initial to Acquisition Land and Buildings Carrying Encum- Land and Acquisition (Net of Land and Value brances Improvements Improvements Costs(a) Disposals Improvements Improvements (b) ------- ------------ ------------ ----------- -------------- ------------ ------------ -------- Bay Cove................. $ -- $ 2,929 $ 6,578 $ 9,507 $ 3,247 $ 3,288 $ 9,466 $ 12,754 Summit West.............. -- 2,177 4,710 6,886 2,485 2,458 6,914 9,371 Pinebrook................ -- 1,780 2,458 4,239 3,010 2,004 5,245 7,249 Lakewood Place........... 10,300 1,395 10,647 12,042 1,406 1,628 11,820 13,448 Hunters Ridge............ 10,232 2,462 10,942 13,404 1,510 2,965 11,949 14,914 Bay Meadow............... -- 2,893 9,254 12,146 2,598 3,437 11,307 14,744 Cambridge................ -- 1,791 7,166 8,957 1,477 2,090 8,344 10,434 Laurel Oaks.............. -- 1,362 6,542 7,904 1,234 1,539 7,599 9,138 Parker's Landing......... 30,465 10,178 37,869 48,047 1,361 9,272 40,136 49,408 Sugar Mill Creek......... 6,319 2,242 7,553 9,794 613 2,385 8,022 10,407 TAMPA, FL................ 57,315 29,207 103,719 132,927 18,941 31,065 120,802 151,867 Autumnwood............... -- 2,412 8,688 11,100 1,245 2,723 9,622 12,345 Cobblestone.............. -- 2,925 10,528 13,453 2,990 3,154 13,289 16,443 Pavillion................ -- 4,428 19,033 23,461 1,584 4,750 20,296 25,045 Oak Park................. 16,236 3,966 22,228 26,194 (16) 5,509 20,669 26,178 Southern Oaks............ -- 1,565 5,335 6,900 839 1,621 6,117 7,739 Hunter's Ridge........... -- 1,613 5,837 7,450 866 1,822 6,494 8,316 Parc Plaza............... -- 1,684 5,279 6,963 1,476 2,136 6,303 8,439 Summit Ridge............. -- 1,726 6,308 8,034 1,497 2,198 7,333 9,531 Greenwood Creek.......... 4,645 1,958 8,551 10,509 1,577 2,298 9,788 12,086 Derby Park............... 52 3,121 11,765 14,886 1,232 3,750 12,368 16,118 Aspen Court.............. 1,852 777 4,945 5,722 926 1,094 5,554 6,648 FORT WORTH, TX........... 22,786 26,175 108,496 134,671 14,217 31,056 117,832 148,888 2000 Post Street......... -- 9,861 44,578 54,438 634 9,919 45,154 55,073 Birch Creek.............. 7,653 4,365 16,696 21,061 1,326 4,607 17,780 22,387 Highlands Of Marin....... -- 5,996 24,868 30,864 904 6,078 25,690 31,768 Marina Playa............. 13,770 6,224 23,916 30,141 1,627 6,455 25,313 31,768 SAN FRANCISCO, CA........ 21,423 26,446 110,058 136,504 4,491 27,059 113,936 140,995 Dominion On Spring Forest -- 1,258 8,586 9,844 3,528 1,710 11,662 13,372 Dominion Park Green...... -- 500 4,322 4,822 1,567 701 5,688 6,389 Dominion On Lake Lynn.... 16,250 3,622 12,405 16,027 3,296 4,136 15,188 19,324 Dominion Courtney Place.. -- 1,115 5,119 6,234 2,958 1,442 7,750 9,192 Dominion Walnut Ridge.... 9,515 1,791 11,969 13,760 2,217 2,171 13,806 15,977 Dominion Walnut Creek.... 17,050 3,170 21,717 24,888 3,319 3,720 24,487 28,207 Dominion Ramsgate........ -- 908 6,819 7,727 882 1,030 7,578 8,608 Copper Mill.............. -- 1,548 16,067 17,615 974 1,813 16,775 18,589 Trinity Park............. 14,939 4,580 17,576 22,155 983 4,620 18,518 23,138 Meadows at Kildaire...... -- 2,846 20,768 23,614 -- 6,863 16,752 23,614 RALEIGH, NC.............. 57,754 21,337 125,349 146,686 19,725 28,207 138,204 166,411
Accumulated Depreciation Date of Date (c) Construction Acquired ------------ ------------ -------- Bay Cove................. $ 3,992 1972 12/16/92 Summit West.............. 2,997 1972 12/16/92 Pinebrook................ 2,665 1977 09/28/93 Lakewood Place........... 3,498 1986 03/10/94 Hunters Ridge............ 3,286 1992 06/30/95 Bay Meadow............... 2,637 1985 12/09/96 Cambridge................ 1,755 1985 06/06/97 Laurel Oaks.............. 1,553 1986 07/01/97 Parker's Landing......... 4,478 1991 12/07/98 Sugar Mill Creek......... 966 1988 12/07/98 TAMPA, FL................ 27,829 Autumnwood............... 1,999 1984 12/31/96 Cobblestone.............. 2,667 1984 12/31/96 Pavillion................ 3,828 1979 12/31/96 Oak Park................. 4,652 1982/98 12/31/96 Southern Oaks............ 1,344 1982 12/31/96 Hunter's Ridge........... 1,413 1992 12/31/96 Parc Plaza............... 1,410 1986 10/30/97 Summit Ridge............. 1,456 1983 03/27/98 Greenwood Creek.......... 1,624 1984 03/27/98 Derby Park............... 2,229 1984 03/27/98 Aspen Court.............. 958 1986 03/27/98 FORT WORTH, TX........... 23,580 2000 Post Street......... 3,780 1987 12/07/98 Birch Creek.............. 1,839 1968 12/07/98 Highlands Of Marin....... 2,452 1991 12/07/98 Marina Playa............. 2,697 1971 12/07/98 SAN FRANCISCO, CA........ 10,769 Dominion On Spring Forest 5,482 1978/81 05/21/91 Dominion Park Green...... 2,454 1987 09/27/91 Dominion On Lake Lynn.... 4,324 1986 12/01/92 Dominion Courtney Place.. 2,789 1979/81 07/08/93 Dominion Walnut Ridge.... 4,163 1982/84 03/04/94 Dominion Walnut Creek.... 6,933 1985/86 05/17/94 Dominion Ramsgate........ 1,625 1988 08/15/96 Copper Mill.............. 3,090 1997 12/31/96 Trinity Park............. 3,333 1987 02/28/97 Meadows at Kildaire...... 482 2000 05/25/00 RALEIGH, NC.............. 34,675
68 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Total Subsequent -------------------------- Land and Buildings Initial to Acquisition Land and Buildings Total Encum- Land and Acquisition (Net of Land and Carrying brances Improvements Improvements Costs(a) Disposals Improvements Improvements Value (b) ------- ------------ ------------ ----------- -------------- ------------ ------------ --------- Dominion Olde West........ $ -- $ 1,965 $ 12,204 $ 14,169 $ 1,950 $ 2,380 $ 13,738 $ 16,119 Dominion Creekwood........ -- -- -- -- 1,052 49 1,003 1,052 Dominion Laurel Springs... -- 464 3,120 3,584 1,139 633 4,090 4,723 Dominion English Hills.... 20,044 1,979 11,524 13,503 5,129 2,806 15,827 18,633 Dominion Gayton Crossing.. 10,400 826 5,148 5,974 6,302 1,165 11,111 12,276 Dominion West End......... 16,493 2,059 15,049 17,108 2,697 2,647 17,159 19,806 Courthouse Green.......... 8,085 732 4,702 5,434 2,202 1,079 6,557 7,636 Waterside At Ironbridge... 11,635 1,844 13,239 15,082 791 1,972 13,901 15,873 RICHMOND, VA.............. 66,657 9,870 64,986 74,856 21,262 12,731 83,386 96,117 Boronda Manor............. 5,101 1,946 8,982 10,928 246 1,966 9,208 11,174 Garden Court.............. 2,382 888 4,188 5,076 142 892 4,326 5,218 Harding Park Townhomes.... 1,215 549 2,051 2,601 61 559 2,103 2,662 Cambridge Court........... 7,501 3,039 12,883 15,922 511 3,096 13,337 16,433 Laurel Tree............... 2,993 1,304 5,115 6,419 138 1,314 5,244 6,558 Pine Grove................ 3,313 1,383 5,784 7,167 92 1,388 5,871 7,259 The Pointe At Harden Ranch 14,081 6,388 23,854 30,242 607 6,412 24,437 30,849 The Pointe At Northridge.. 4,718 2,044 8,028 10,072 263 2,060 8,274 10,335 The Pointe At Westlake.... 3,111 1,329 5,334 6,663 153 1,331 5,485 6,816 MONTEREY PENINSULA, CA.... 44,416 18,870 76,220 95,091 2,213 19,020 78,285 97,304 Sycamore Ridge............ -- 4,068 15,433 19,501 1,016 4,215 16,302 20,517 Heritage Green............ -- 2,990 11,392 14,382 9,318 3,098 20,602 23,700 Alexander Court........... -- 1,573 -- 1,573 21,413 6,190 16,797 22,986 Governour's Square........ 28,730 7,513 28,695 36,208 2,571 7,763 31,015 38,778 Hickory Creek............. -- 3,421 13,539 16,961 826 3,492 14,295 17,787 Britton Woods............. 15,168 3,477 19,213 22,690 1,553 3,979 20,264 24,243 COLUMBUS, OH.............. 43,897 23,042 88,272 111,315 36,697 28,736 119,276 148,012 The Highlands............. -- 321 2,830 3,152 2,707 693 5,165 5,858 Emerald Bay............... -- 626 4,723 5,349 3,614 1,207 7,756 8,963 Dominion Peppertree....... -- 1,546 7,699 9,245 1,652 1,860 9,038 10,898 Dominion Crown Point...... -- 2,122 22,339 24,461 2,098 3,893 22,665 26,558 Dominion Harris Pond...... -- 887 6,728 7,615 1,349 1,228 7,736 8,964 Dominion Mallard Creek.... -- 699 6,488 7,187 702 777 7,112 7,889 Chateau Village........... -- 1,047 6,980 8,026 2,322 1,432 8,916 10,348 Dominion At Sharon........ -- 667 4,856 5,523 1,021 903 5,641 6,545 Providence Court.......... -- -- 22,048 22,048 9,526 7,489 24,085 31,574 Stoney Pointe............. 12,159 1,500 15,856 17,355 1,352 1,754 16,953 18,707 CHARLOTTE, NC............. 12,159 9,415 100,546 109,961 26,342 21,236 115,068 136,303
Accumulated Depreciation Date of Date (c) Construction Acquired ------------ ------------ ---------- 1978/82/ 12/31/84 & Dominion Olde West........ $ 6,449 84/85/87 08/27/91 Dominion Creekwood........ 147 1984 08/27/91 Dominion Laurel Springs... 1,833 1972 09/06/91 Dominion English Hills.... 6,986 1969/76 12/06/91 Dominion Gayton Crossing.. 5,113 1973 09/28/95 Dominion West End......... 4,375 1989 12/28/95 Courthouse Green.......... 3,433 1974/78 12/31/84 Waterside At Ironbridge... 2,202 1987 09/30/97 RICHMOND, VA.............. 30,537 Boronda Manor............. 948 1979 12/07/98 Garden Court.............. 460 1973 12/07/98 Harding Park Townhomes.... 222 1984 12/07/98 Cambridge Court........... 1,493 1974 12/07/98 Laurel Tree............... 597 1977 12/07/98 Pine Grove................ 582 1963 12/07/98 The Pointe At Harden Ranch 2,601 1986 12/07/98 The Pointe At Northridge.. 895 1979 12/07/98 The Pointe At Westlake.... 596 1975 12/07/98 MONTEREY PENINSULA, CA.... 8,394 Sycamore Ridge............ 2,168 1997 07/02/98 Heritage Green............ 2,693 1998 07/02/98 Alexander Court........... 2,329 1999 07/02/98 Governour's Square........ 3,592 1967 12/07/98 Hickory Creek............. 1,694 1988 12/07/98 Britton Woods............. 1,185 1991 04/20/01 COLUMBUS, OH.............. 13,661 The Highlands............. 3,539 1970 01/17/84 Emerald Bay............... 4,087 1972 02/06/90 Dominion Peppertree....... 3,092 1987 12/14/93 Dominion Crown Point...... 4,713 1987/2000 07/01/94 Dominion Harris Pond...... 2,261 1987 07/01/94 Dominion Mallard Creek.... 1,923 1989 08/16/94 Chateau Village........... 2,458 1974 08/15/96 Dominion At Sharon........ 1,321 1984 08/15/96 Providence Court.......... 4,884 1997 09/30/97 Stoney Pointe............. 3,235 1991 02/28/97 CHARLOTTE, NC............. 31,512
69 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Total Subsequent to -------------------------- Land and Buildings Initial Acquisition Land and Buildings Total Land and Acquisition (Net of Land and Carrying Encumbrances Improvements Improvements Costs (a) Disposals) Improvements Improvements Value (b) ------------ ------------ ------------ ----------- ------------- ------------ ------------ --------- Legacy Hill........... $ -- $ 1,148 $ 5,868 $ 7,015 $ 2,872 $ 1,431 $ 8,457 $ 9,887 Hickory Run........... -- 1,469 11,584 13,053 1,872 1,726 13,198 14,924 Carrington Hills...... -- 2,117 -- 2,117 24,643 3,718 23,043 26,761 Brookridge............ -- 708 5,461 6,169 1,277 928 6,518 7,445 Club At Hickory Hollow -- 2,140 15,231 17,371 2,045 2,697 16,719 19,416 Breckenridge.......... -- 766 7,714 8,480 860 980 8,359 9,340 Williamsburg.......... -- 1,376 10,931 12,307 1,627 1,641 12,293 13,934 Colonnade............. -- 1,460 16,015 17,475 622 1,609 16,488 18,097 NASHVILLE, TN......... -- 11,183 72,804 83,987 35,818 14,729 105,076 119,805 Pine Avenue........... 11,627 2,158 8,888 11,046 262 2,168 9,140 11,308 The Grand Resort...... -- 8,884 35,707 44,591 808 8,946 36,453 45,399 Grand Terrace......... -- 2,144 6,595 8,739 1,182 2,226 7,695 9,921 Windward Point........ -- 1,768 7,118 8,886 316 1,804 7,398 9,202 Rancho Vallecitos..... -- 3,303 10,877 14,180 980 3,393 11,767 15,160 SOUTHERN CALIFORNIA... 11,627 18,258 69,184 87,442 3,547 18,537 72,452 90,989 Beechwood............. -- 1,409 6,087 7,496 1,041 1,665 6,872 8,537 Steeplechase.......... -- 3,208 11,514 14,722 12,397 3,871 23,248 27,119 Northwinds............ -- 1,558 11,736 13,293 1,075 1,743 12,625 14,368 Deerwood Crossings.... -- 1,540 7,989 9,529 1,202 1,671 9,060 10,731 Dutch Village......... -- 1,198 4,826 6,024 739 1,282 5,481 6,763 Lake Brandt........... -- 1,547 13,489 15,036 861 1,809 14,089 15,898 Park Forest........... -- 680 5,770 6,450 602 864 6,188 7,052 Deep River Pointe..... -- 1,671 11,140 12,811 423 1,804 11,430 13,234 GREENSBORO, NC........ -- 12,810 72,552 85,362 18,341 14,709 88,994 103,703 Dominion Middle Ridge. 14,198 3,311 13,283 16,595 1,061 3,423 14,232 17,655 Dominion Lake Ridge... 9,142 2,366 8,386 10,753 1,085 2,511 9,326 11,837 Knolls At Newgate..... -- 1,726 3,530 5,256 1,717 1,846 5,126 6,972 Greens At Falls Run... -- 2,731 5,300 8,031 860 2,877 6,014 8,891 Manor At England Run.. 14,671 3,195 13,505 16,700 12,544 4,821 24,423 29,244 METROPOLITAN DC....... 38,011 13,329 44,005 57,334 17,266 15,478 59,121 74,599 Cape Harbor........... -- 1,892 18,113 20,005 1,039 2,254 18,790 21,043 Mill Creek............ -- 1,404 4,489 5,894 13,497 1,911 17,480 19,391 The Creek............. -- 418 2,506 2,924 1,737 489 4,172 4,661 Forest Hills.......... -- 1,028 5,420 6,448 2,066 1,202 7,313 8,514 Clear Run............. -- 875 8,741 9,615 5,370 1,281 13,705 14,986 Crosswinds............ -- 1,096 18,230 19,326 1,094 1,210 19,210 20,420 WILMINGTON, NC........ -- 6,713 57,500 64,213 24,802 8,346 80,669 89,015
Accumulated Depreciation Date of Date (c) Construction Acquired ------------ ------------ -------- Legacy Hill........... $ 2,681 1977 11/06/95 Hickory Run........... 3,223 1989 12/29/95 Carrington Hills...... 3,520 1999 12/06/95 Brookridge............ 1,795 1986 03/28/96 Club At Hickory Hollow 3,468 1987 02/21/97 Breckenridge.......... 1,623 1986 03/27/97 Williamsburg.......... 2,021 1986 05/20/98 Colonnade............. 1,923 1998 01/07/99 NASHVILLE, TN......... 20,254 Pine Avenue........... 935 1987 12/07/98 The Grand Resort...... 4,082 1971 12/07/98 Grand Terrace......... 783 1986 06/30/99 Windward Point........ 773 1983 12/07/98 Rancho Vallecitos..... 1,938 1988 10/13/99 SOUTHERN CALIFORNIA... 8,512 Beechwood............. 2,318 1985 12/22/93 Steeplechase.......... 4,377 1990/97 03/07/96 Northwinds............ 2,725 1989/97 08/15/96 Deerwood Crossings.... 2,258 1973 08/15/96 Dutch Village......... 1,438 1970 08/15/96 Lake Brandt........... 3,112 1995 08/15/96 Park Forest........... 1,266 1987 09/26/96 Deep River Pointe..... 1,944 1997 10/01/97 GREENSBORO, NC........ 19,438 Dominion Middle Ridge. 3,002 1990 06/25/96 Dominion Lake Ridge... 2,180 1987 02/23/96 Knolls At Newgate..... 1,872 1972 07/01/94 Greens At Falls Run... 1,584 1989 05/04/95 Manor At England Run.. 4,175 1990/2000 05/04/95 METROPOLITAN DC....... 12,813 Cape Harbor........... 4,070 1996 08/15/96 Mill Creek............ 4,058 1986/98 09/30/91 The Creek............. 1,945 1973 06/30/92 Forest Hills.......... 2,857 1964/69 06/30/92 Clear Run............. 3,690 1987/89 07/22/94 Crosswinds............ 3,684 1990 02/28/97 WILMINGTON, NC........ 20,305
70 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Total Subsequent to -------------------------- Land and Buildings Initial Acquisition Land and Buildings Land and Acquisition (Net of Land and Encumbrances Improvements Improvements Costs(a) Disposals Improvements Improvements ------------ ------------ ------------ ----------- ------------- ------------ ------------ Gatewater Landing.............. $ -- $ 2,078 $ 6,085 $ 8,163 $ 1,296 $ 2,182 $ 7,277 Dominion Kings Place........... 4,430 1,565 7,007 8,572 914 1,653 7,832 Dominion At Eden Brook......... 7,565 2,361 9,384 11,745 1,338 2,465 10,618 Dominion Great Oaks............ 11,446 2,919 9,100 12,019 3,483 4,278 11,224 Dominion Constant Freindship... -- 903 4,669 5,572 767 1,043 5,296 Lakeside Mill.................. 5,570 2,666 10,109 12,775 458 2,674 10,560 BALTIMORE, MD.................. 29,011 12,493 46,353 58,846 8,256 14,297 52,806 Stanford Village............... -- 885 2,808 3,692 1,347 1,182 3,858 Griffin Crossing............... -- 1,510 7,544 9,054 1,671 1,869 8,857 Gwinnett Square................ 8,851 1,924 7,376 9,301 1,730 2,200 8,831 Dunwoody Pointe................ 5,465 2,763 6,903 9,666 4,500 3,324 10,842 Riverwood...................... 4,797 2,986 11,088 14,074 3,807 3,429 14,452 Waterford Place................ -- 1,579 10,303 11,882 478 1,649 10,711 ATLANTA, GA.................... 19,113 11,647 46,022 57,669 13,533 13,652 57,550 Briar Club..................... -- 1,214 6,929 8,143 2,290 1,564 8,869 Hunters Trace.................. -- 888 6,677 7,565 1,555 1,186 7,934 Cinnamon Trails................ -- 1,887 7,645 9,531 30 2,089 7,473 The Trails at Mt. Moriah....... 17,147 5,931 22,095 28,026 2,899 6,477 24,447 The Trails at Kirby Parkway.... 9,945 4,457 12,300 16,757 825 4,650 12,932 Dogwood Creek.................. -- 2,772 15,674 18,446 842 2,986 16,302 MEMPHIS, TN.................... 27,092 17,149 71,319 88,467 8,441 18,951 77,957 Forest Lake At Oyster Point.... -- 780 8,862 9,642 1,960 1,167 10,435 Woodscape...................... -- 799 7,210 8,008 2,486 1,800 8,694 Eastwind....................... -- 155 5,317 5,472 1,343 378 6,436 Dominion Waterside At Lynnhaven -- 1,824 4,107 5,931 1,261 2,033 5,158 Heather Lake................... -- 617 3,401 4,017 3,562 1,016 6,564 Dominion Yorkshire Downs....... 7,359 1,089 8,582 9,671 742 1,250 9,163 NORFOLK, VA.................... 7,359 5,263 37,477 42,741 11,354 7,644 46,451 Gable Hill..................... -- 825 5,307 6,132 1,511 1,189 6,455 St. Andrews Commons............ -- 1,429 9,371 10,800 1,762 1,877 10,685 Forestbrook.................... 5,000 396 2,902 3,298 1,925 654 4,569 Waterford...................... -- 958 6,948 7,906 1,526 1,264 8,167 Hampton Greene................. -- 1,363 10,118 11,481 1,458 1,895 11,045 Rivergate...................... -- 1,123 12,056 13,178 1,252 1,437 12,993 COLUMBIA, SC................... 5,000 6,093 46,703 52,795 9,435 8,316 53,913
Total Carrying Accumulated Value Depreciation Date of Date (b) (c) Construction Acquired -------- ------------ ------------ -------- Gatewater Landing.............. $ 9,459 $ 2,729 1970 12/16/92 Dominion Kings Place........... 9,485 2,595 1983 12/29/92 Dominion At Eden Brook......... 13,083 3,529 1984 12/29/92 Dominion Great Oaks............ 15,502 4,010 1974 07/01/94 Dominion Constant Freindship... 6,339 1,426 1990 05/04/95 Lakeside Mill.................. 13,233 1,725 1989 12/10/99 BALTIMORE, MD.................. 67,102 16,014 Stanford Village............... 5,040 2,088 1985 09/26/89 Griffin Crossing............... 10,725 2,798 1987/89 06/08/94 Gwinnett Square................ 11,030 2,379 1985 03/29/95 Dunwoody Pointe................ 14,167 3,562 1980 10/24/95 Riverwood...................... 17,880 4,067 1980 06/26/96 Waterford Place................ 12,360 1,482 1985 04/15/98 ATLANTA, GA.................... 71,202 16,377 Briar Club..................... 10,433 2,754 1987 10/14/94 Hunters Trace.................. 9,120 2,412 1986 10/14/94 Cinnamon Trails................ 9,561 1,272 1989 01/09/98 The Trails at Mt. Moriah....... 30,924 4,379 1990 01/09/98 The Trails at Kirby Parkway.... 17,582 2,022 1990 01/09/98 Dogwood Creek.................. 19,287 2,707 1997 02/06/98 MEMPHIS, TN.................... 96,909 15,546 Forest Lake At Oyster Point.... 11,602 2,938 1986 08/15/95 Woodscape...................... 10,494 4,416 1974/76 12/29/87 Eastwind....................... 6,814 2,863 1970 04/04/88 Dominion Waterside At Lynnhaven 7,191 1,442 1966 08/15/96 Heather Lake................... 7,580 4,728 1972/74 03/01/80 Dominion Yorkshire Downs....... 10,413 1,492 1987 12/23/97 NORFOLK, VA.................... 54,095 17,879 Gable Hill..................... 7,643 2,900 1985 12/04/89 St. Andrews Commons............ 12,562 3,788 1986 05/20/93 Forestbrook.................... 5,223 2,176 1974 07/01/93 Waterford...................... 9,432 2,527 1985 07/01/94 Hampton Greene................. 12,940 3,202 1990 08/19/94 Rivergate...................... 14,430 2,744 1989 08/15/96 COLUMBIA, SC................... 62,230 17,337
71 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Total Subsequent to -------------------------- Land and Buildings Initial Acquisition Land and Buildings Land and Acquisition (Net of Land and Encumbrances Improvements Improvements Costs(a) Disposals Improvements Improvements ------------ ------------ ------------ ----------- ------------- ------------ ------------ 2900 Place......................... $ -- $ 1,819 $ 5,593 $ 7,412 $ 264 $ 1,823 $ 5,853 Brandywine Creek................... 11,999 4,666 17,514 22,180 (2,417) 4,748 15,015 Lakewood........................... 3,171 1,113 3,878 4,991 231 1,231 3,991 Nemoke Trail....................... 9,719 3,431 12,223 15,654 353 3,495 12,512 LANSING, MI........................ 24,889 11,029 39,208 50,237 (1,569) 11,298 37,370 Greentree.......................... 12,455 1,634 11,227 12,861 3,938 2,343 14,456 Westland........................... 10,747 1,835 14,865 16,699 3,846 2,668 17,877 Antlers............................ -- 4,034 11,193 15,227 5,758 4,903 16,082 JACKSONVILLE, FL................... 23,202 7,503 37,285 44,787 13,542 9,914 48,415 Arbor Terrace...................... 4,124 1,453 11,995 13,448 571 1,482 12,537 Crowne Pointe...................... 4,765 2,486 6,437 8,924 1,065 2,520 7,469 Hilltop............................ 4,422 2,174 7,408 9,582 441 2,313 7,710 SEATTLE, WA........................ 13,311 6,114 25,840 31,953 2,077 6,315 27,716 Sunset Point, Las Vegas, NV........ -- 4,295 15,705 20,000 1,301 4,450 16,851 Greensview, Aurora, CO............. -- 2,974 12,490 15,464 617 2,452 13,629 Mountain View, Aurora, CO.......... -- 6,402 21,569 27,971 1,473 6,350 23,095 Foothills Tennis Village, Roseville, CA..................... 11,339 3,618 14,542 18,160 516 3,709 14,966 Woodlake Village, Sacramento, CA... 30,900 6,772 26,967 33,739 1,339 6,981 28,097 Silk Oak, Fresno, CA............... -- 2,325 4,566 6,891 259 2,368 4,782 OTHER WESTERN...................... 42,239 26,385 95,839 122,225 5,504 26,310 101,419 Mallards Of Wedgewood, Lakeland, FL -- 959 6,865 7,824 1,746 1,252 8,318 Brantley Pines, Ft. Myers, FL...... -- 1,893 8,248 10,141 4,982 835 14,287 Santa Barbara, Naples, FL.......... -- 1,134 8,020 9,154 1,728 1,740 9,142 Ashlar, Ft. Myers, FL.............. -- 3,952 11,718 15,670 16,489 7,592 24,567 The Groves, Port Orange, FL........ -- 790 4,767 5,557 1,779 1,444 5,892 Lakeside, Port Orange, FL.......... -- 2,404 6,420 8,824 1,345 2,585 7,585 Mallards Of Brandywine, Deland, FL. -- 766 5,408 6,174 1,177 990 6,361 LakePointe, Melbourne, FL.......... -- 1,434 4,940 6,375 2,244 1,778 6,841 OTHER FLORIDA...................... -- 13,333 56,385 69,719 31,490 18,216 82,992 Lancaster Commons, Salem, OR....... 6,268 2,485 7,451 9,936 387 2,507 7,816 Tualatin Heights, Tualatin, OR..... 8,608 3,273 9,134 12,407 711 3,370 9,748 University Park, Portland, OR...... -- 3,007 8,191 11,199 361 3,020 8,540 Evergreen Park, Vancouver, WA...... 5,174 3,878 9,973 13,851 643 3,915 10,579 Aspen Creek, Puyallup, WA.......... 6,832 1,178 9,116 10,294 260 1,264 9,290 Beaumont, Tacoma, WA............... 9,817 2,339 12,559 14,898 446 2,389 12,955 Campus Commons, Pullman, WA........ 8,907 1,143 12,873 14,016 (2,254) 1,224 10,538 OTHER PACIFIC...................... 45,605 17,304 69,298 86,601 555 17,688 69,468
Total Carrying Accumulated Value Depreciation Date of Date (b) (c) Construction Acquired -------- ------------ ------------ -------- 2900 Place......................... $ 7,676 $ 621 1966 12/07/98 Brandywine Creek................... 19,763 1,821 1974 12/07/98 Lakewood........................... 5,222 502 1974 12/07/98 Nemoke Trail....................... 16,007 1,453 1978 12/07/98 LANSING, MI........................ 48,668 4,397 Greentree.......................... 16,799 4,554 1986 07/22/94 Westland........................... 20,546 4,737 1990 05/09/96 Antlers............................ 20,985 4,668 1985 05/28/96 JACKSONVILLE, FL................... 58,329 13,959 Arbor Terrace...................... 14,019 1,903 1996 03/27/98 Crowne Pointe...................... 9,989 968 1987 12/07/98 Hilltop............................ 10,023 905 1985 12/07/98 SEATTLE, WA........................ 34,031 3,775 Sunset Point, Las Vegas, NV........ 21,301 3,113 1990 12/31/96 Greensview, Aurora, CO............. 16,081 1,610 1987 12/07/98 Mountain View, Aurora, CO.......... 29,445 2,756 1973 12/07/98 Foothills Tennis Village, Roseville, CA..................... 18,675 1,596 1988 12/07/98 Woodlake Village, Sacramento, CA... 35,078 3,209 1979 12/07/98 Silk Oak, Fresno, CA............... 7,150 875 1985 12/07/98 OTHER WESTERN...................... 127,729 13,159 Mallards Of Wedgewood, Lakeland, FL 9,570 2,378 1985 07/27/95 Brantley Pines, Ft. Myers, FL...... 15,122 4,983 1986 08/11/94 Santa Barbara, Naples, FL.......... 10,882 2,920 1987 09/01/94 Ashlar, Ft. Myers, FL.............. 32,159 2,797 1999/ 2000 12/24/97 The Groves, Port Orange, FL........ 7,336 1,891 1989 12/13/95 Lakeside, Port Orange, FL.......... 10,169 1,537 1985 07/01/97 Mallards Of Brandywine, Deland, FL. 7,351 1,369 1985 07/01/97 LakePointe, Melbourne, FL.......... 8,619 2,699 1984 09/24/93 OTHER FLORIDA...................... 101,208 20,574 Lancaster Commons, Salem, OR....... 10,323 1,020 1992 12/07/98 Tualatin Heights, Tualatin, OR..... 13,118 1,269 1989 12/07/98 University Park, Portland, OR...... 11,560 997 1987 03/27/98 Evergreen Park, Vancouver, WA...... 14,494 1,460 1988 03/27/98 Aspen Creek, Puyallup, WA.......... 10,554 1,038 1996 12/07/98 Beaumont, Tacoma, WA............... 15,344 1,881 1996 06/14/00 Campus Commons, Pullman, WA........ 11,763 1,913 1972 03/27/98 OTHER PACIFIC...................... 87,156 9,578
72 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Initial Costs Capitalized ------------------------- Total Subsequent to Land and Buildings Initial Acquisition Land and Acquisition (Net of Encumbrances Improvements Improvements Costs(a) Disposals ------------ ------------ ------------ ----------- ------------- Washing Park, Centerville, OH........... $ -- $ 2,012 $ 7,565 $ 9,577 $ 1,030 Fountainhead, Dayton, OH................ 1,485 391 1,420 1,811 134 Jamestown Of Toledo, Toledo, OH......... 5,764 1,800 7,054 8,854 640 Sunset Village, Flint, MI............... -- 797 1,829 2,626 199 American Heritage, Waterford, MI........ 3,097 1,021 3,958 4,979 122 Ashton Pines, Waterford, MI............. -- 1,822 8,014 9,836 498 Kings Gate, Sterling Heights, MI........ 3,767 1,181 4,828 6,009 196 Lancaster Lake, Clarkston, MI........... 11,957 4,238 14,663 18,901 793 International Village, Speedway, IN..... 10,078 3,934 11,479 15,413 1,185 Regency Park South, Indianapolis, IN.... -- 2,643 7,632 10,275 725 OTHER MIDWESTERN........................ 36,148 19,839 68,442 88,281 5,522 Colony Village, New Bern, NC............ -- 346 3,037 3,383 1,968 Brynn Marr, Jacksonville, NC............ -- 433 3,822 4,254 2,589 Liberty Crossing, Jacksonville, NC...... -- 840 3,873 4,713 2,898 Bramblewood, Goldsboro, NC.............. -- 402 3,151 3,552 1,556 Cumberland Trace, Fayetteville, NC...... -- 632 7,896 8,528 835 Village At Cliffdale, Fayetteville, NC.. 9,876 941 15,498 16,440 1,196 Morganton Place, Fayetteville, NC....... -- 819 13,217 14,036 616 Woodberry, Asheville, NC................ -- 389 6,381 6,770 1,118 OTHER NORTH CAROLINA.................... 9,876 4,802 56,874 61,677 12,776 Pecan Grove, Austin, TX................. -- 1,407 5,293 6,700 470 Anderson Mill, Austin, TX............... 9,765 3,135 11,170 14,305 3,232 Red Stone Ranch, Cedar Park, TX......... -- 1,897 17,526 19,422 -- Turtle Creek, Little Rock, AR........... -- 1,913 7,087 9,000 995 Shadow Lake, Little Rock, AR............ -- 2,524 8,976 11,500 1,433 Desert Springs, Tuscan, AZ.............. 4,382 1,118 7,094 8,213 685 Posada Del Rio, Tuscan, AZ.............. -- 844 4,288 5,132 (329) Alvarado, Albuquerque, NM............... -- 1,930 5,970 7,900 700 Dorado Heights, Albuquerque, NM......... 4,955 1,568 6,555 8,123 654 OTHER SOUTHWESTERN...................... 19,102 16,335 73,960 90,295 7,841 Greens At Hollymead, Charlottesville, VA -- 965 5,250 6,215 679 Brittingham Square, Salisbury, MD....... -- 650 4,962 5,612 666 Greens At Schumaker Pond, Salisbury, MD. -- 710 6,118 6,827 927 Greens At Cross Court, Easton, MD....... -- 1,182 4,544 5,726 1,052 Greens At Hilton Run, Lexington Park, MD 12,542 2,754 10,483 13,237 1,454 OTHER MID-ATLANTIC...................... 12,542 6,262 31,357 37,618 4,778
Gross Amount at Which Carried at Close of Period -------------------------- Total Land and Buildings Carrying Accumulated Land and Value Depreciation Date of Date Improvements Improvements (b) (c) Construction Acquired ------------ ------------ -------- ------------ ------------ -------- Washing Park, Centerville, OH........... $ 2,115 $ 8,491 $10,607 $ 1,162 1998 12/07/98 Fountainhead, Dayton, OH................ 391 1,555 1,945 201 1966 12/07/98 Jamestown Of Toledo, Toledo, OH......... 1,892 7,603 9,494 919 1965 12/07/98 Sunset Village, Flint, MI............... 814 2,011 2,825 350 1940 12/07/98 American Heritage, Waterford, MI........ 1,031 4,070 5,101 476 1968 12/07/98 Ashton Pines, Waterford, MI............. 1,846 8,489 10,334 889 1987 12/07/98 Kings Gate, Sterling Heights, MI........ 1,218 4,987 6,205 551 1973 12/07/98 Lancaster Lake, Clarkston, MI........... 4,316 15,378 19,693 1,724 1988 12/07/98 International Village, Speedway, IN..... 3,999 12,599 16,598 1,754 1968 12/07/98 Regency Park South, Indianapolis, IN.... 2,713 8,287 11,000 1,123 1968 12/07/98 OTHER MIDWESTERN........................ 20,332 73,471 93,803 9,149 Colony Village, New Bern, NC............ 560 4,791 5,351 3,026 1972/74 12/31/84 Brynn Marr, Jacksonville, NC............ 724 6,120 6,844 3,681 1973/77 12/31/84 Liberty Crossing, Jacksonville, NC...... 1,419 6,192 7,611 3,680 1972/74 11/30/90 Bramblewood, Goldsboro, NC.............. 588 4,521 5,109 2,813 1980/82 12/31/84 Cumberland Trace, Fayetteville, NC...... 668 8,694 9,362 1,845 1973 08/15/96 Village At Cliffdale, Fayetteville, NC.. 1,123 16,513 17,636 3,309 1992 08/15/96 Morganton Place, Fayetteville, NC....... 887 13,765 14,652 2,632 1994 08/15/96 Woodberry, Asheville, NC................ 655 7,233 7,888 1,674 1987 08/15/96 OTHER NORTH CAROLINA.................... 6,623 67,830 74,453 22,659 Pecan Grove, Austin, TX................. 1,464 5,706 7,170 1,008 1984 12/31/96 Anderson Mill, Austin, TX............... 3,478 14,059 17,537 3,552 1984 03/27/97 Red Stone Ranch, Cedar Park, TX......... 5,380 14,043 19,422 744 2000 06/14/00 Turtle Creek, Little Rock, AR........... 2,189 7,806 9,995 1,664 1985 12/31/96 Shadow Lake, Little Rock, AR............ 2,850 10,082 12,933 2,218 1984 12/31/96 Desert Springs, Tuscan, AZ.............. 1,136 7,762 8,898 1,145 1985 03/27/98 Posada Del Rio, Tuscan, AZ.............. 942 3,861 4,803 730 1980 03/27/98 Alvarado, Albuquerque, NM............... 1,978 6,622 8,600 1,340 1984 12/31/96 Dorado Heights, Albuquerque, NM......... 1,627 7,150 8,777 1,078 1986 03/27/98 OTHER SOUTHWESTERN...................... 21,044 77,092 98,136 13,479 Greens At Hollymead, Charlottesville, VA 1,058 5,837 6,895 1,491 1990 05/04/95 Brittingham Square, Salisbury, MD....... 814 5,465 6,279 1,431 1991 05/04/95 Greens At Schumaker Pond, Salisbury, MD. 871 6,883 7,754 1,780 1988 05/04/95 Greens At Cross Court, Easton, MD....... 1,363 5,416 6,779 1,445 1987 05/04/95 Greens At Hilton Run, Lexington Park, MD 3,083 11,608 14,691 2,976 1988 05/04/95 OTHER MID-ATLANTIC...................... 7,188 35,208 42,397 9,123
73 Schedule III Summary of Real Estate Owned (in thousands)
Improvements Initial Costs Capitalized ------------------------- Subsequent to Land and Buildings Total Initial Acquisition Land and Acquisition (Net of Encumbrances Improvements Improvements Costs(a) Disposals ------------ ------------ ------------ ------------- ------------- Jamestown Of St. Matthews, St. Matthews, KY $ 10,943 $ 3,866 $ 14,422 $ 18,288 $ 922 Patriot Place, Florence, SC................ 2,200 213 1,601 1,813 5,744 River Place, Macon, GA..................... 6,142 1,097 7,492 8,590 2,071 OTHER SOUTHEASTERN......................... 19,285 5,175 23,516 28,691 8,737 Dover Country, Dover, DE................... -- 2,008 6,365 8,373 2,636 Greens At Cedar Chase, Dover, DE........... 5,167 1,529 4,831 6,359 751 OTHER NORTHEASTERN......................... 5,167 3,537 11,196 14,732 3,386 -------- -------- ---------- ---------- -------- TOTAL APARTMENTS........................ $966,960 $593,463 $2,682,180 $3,275,643 $562,869 ======== ======== ========== ========== ======== REAL ESTATE UNDER DEVELOPMENT ADDITIONS TO EXISTING COMMUNITIES.......... Greensview II, Aurora, CO.................. $ -- $ 3,476 $ 11,915 $ 15,391 $ -- Meridian II, Carrollton, TX................ -- 2,370 9,600 11,970 -- Copper Mill II............................. -- 831 -- 831 -- Parkers Landing II......................... -- 1,116 -- 1,116 -- Parke 33 Apartments II..................... -- 1,646 -- 1,646 -- Wimbledon Court II......................... -- 667 -- 667 -- Coit Road.................................. -- 2,849 -- 2,849 -- Mandolin II................................ -- 1,351 -- 1,351 -- Coit Road II............................... -- 1,861 -- 1,861 -- Kenton Place II............................ -- 483 -- 483 -- Mountain View II........................... -- 220 -- 220 -- 2000 Post III.............................. -- 1,855 -- 1,855 -- LAND HELD FOR FUTURE DEVELOPMENT............................... -- 12,879 -- 12,879 -- -------- -------- ---------- ---------- -------- $ -- $ 18,725 $ 21,515 $ 40,240 $ -- -------- -------- ---------- ---------- --------
Gross Amount at Which Carried at Close of Period -------------------------- Total Land and Buildings Carrying Accumulated Land and Value Depreciation Date of Date Improvements Improvements (b) (c) Construction Acquired ------------ ------------ ---------- ------------ ------------ -------- Jamestown Of St. Matthews, St. Matthews, KY $ 3,975 $ 15,235 $ 19,210 $ 1,754 1968 12/07/98 Patriot Place, Florence, SC................ 1,506 6,052 7,557 3,852 1974 10/23/85 River Place, Macon, GA..................... 1,796 8,864 10,660 3,093 1988 04/08/94 OTHER SOUTHEASTERN......................... 7,276 30,151 37,428 8,699 Dover Country, Dover, DE................... 2,359 8,650 11,009 2,990 1970 07/01/94 Greens At Cedar Chase, Dover, DE........... 1,722 5,388 7,110 1,495 1988 05/04/95 OTHER NORTHEASTERN......................... 4,082 14,037 18,119 4,485 -------- ---------- ---------- -------- TOTAL APARTMENTS........................ $692,575 $3,145,937 $3,838,512 $642,334 ======== ========== ========== ======== REAL ESTATE UNDER DEVELOPMENT ADDITIONS TO EXISTING COMMUNITIES.......... Greensview II, Aurora, CO.................. $ 3,476 $ 11,915 $ 15,391 $ -- 2000 12/07/98 Meridian II, Carrollton, TX................ 2,370 9,600 11,970 -- 2000 01/27/98 Copper Mill II............................. 831 -- 831 -- Parkers Landing II......................... 1,116 -- 1,116 -- Parke 33 Apartments II..................... 1,646 -- 1,646 -- Wimbledon Court II......................... 667 -- 667 -- Coit Road.................................. 2,849 -- 2,849 -- Mandolin II................................ 1,351 -- 1,351 -- Coit Road II............................... 1,861 -- 1,861 -- Kenton Place II............................ 483 -- 483 -- Mountain View II........................... 220 -- 220 -- 2000 Post III.............................. 1,855 -- 1,855 -- LAND HELD FOR FUTURE DEVELOPMENT............................... 12,879 -- 12,879 -- -------- ---------- ---------- -------- $ 18,725 $ 21,515 $ 40,240 $ -- -------- ---------- ---------- --------
74 Schedule III Summary of Real Estate (in thousands)
Improvements Gross Amount at Which Initial Costs Capitalized Carried at Close of Period ------------------------- Subsequent to -------------------------- Land and Buildings Total Initial Acquisition Land and Buildings Total Land and Acquisition (Net of Land and Carrying Encumbrances Improvements Improvements Costs (a) Disposals Improvements Improvements Value (b) ------------ ------------ ------------ ------------- ------------- ------------ ------------ ---------- LAND HELD FOR DISPOSITION Copperfield......... $ -- $ 1,620 $ -- $ 1,620 $ -- $ 1,620 $ -- $ 1,620 Copperfield II...... -- 1,144 -- 1,144 -- 1,144 -- 1,144 Palazzo............. -- 3,251 -- 3,251 (767) 2,484 -- 2,484 Fossil Creek........ -- 3,889 -- 3,889 (289) 3,600 -- 3,600 COMMERCIAL PROPERTY Hanover Village..... -- 1,624 -- 1,624 -- 1,104 520 1,624 Gloucester Exchange. -- 403 2,279 2,682 646 608 2,720 3,328 Tri-County.......... -- 276 900 1,176 1,310 364 2,122 2,486 Pacific South Center 3,221 1,000 4,000 5,000 10 1,000 4,010 5,010 Richmond Corporate.. 3,996 245 6,352 6,597 1,022 273 7,346 7,619 -------- -------- ---------- ---------- -------- -------- ---------- ---------- $ 7,217 $ 13,452 $ 13,531 $ 26,983 $ 1,932 $ 12,197 $ 16,718 $ 28,915 ======== ======== ========== ========== ======== ======== ========== ========== TOTAL REAL ESTATE OWNED............. $974,177 $625,640 $2,717,226 $3,342,866 $564,801 $723,497 $3,184,170 $3,907,667 ======== ======== ========== ========== ======== ======== ========== ==========
Accumulated Depreciation Date of Date (c) Construction Acquired ------------ ------------ -------- LAND HELD FOR DISPOSITION Copperfield......... $ -- Copperfield II...... -- Palazzo............. -- Fossil Creek........ -- COMMERCIAL PROPERTY Hanover Village..... 450 -- 06/30/86 Gloucester Exchange. 1,419 1974 11/12/87 Tri-County.......... 1,362 1976/79 01/21/81 Pacific South Center 426 1965 08/28/86 Richmond Corporate.. 375 1999 11/30/99 -------- $ 4,032 ======== TOTAL REAL ESTATE OWNED............. $646,366 ========
a Includes a purchase price adjustment of $8.5 million. b The aggregate cost for federal income tax purposes was approximately $3.1 billion at December 31, 2001. c The depreciable life for all buildings is 35 years. 75 EXHIBIT INDEX The exhibits listed below are filed as part of this 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.
Exhibit Description Location - ------- ----------- -------- 2(a) Agreement and Plan of Merger dated as of Exhibit 2(a) to the Company's Form S-4 December 19, 1997, between the Company, Registration Statement (Registration No. ASR Investment Corporation and ASR 333-45305) filed with the Commission on Acquisition Sub, Inc. January 30, 1998. 2(b) Agreement of Plan of Merger dated as of Exhibit 2(c) to the Company's Form S-3 September 10, 1998, between the Company and Registration Statement (Registration No. American Apartment Communities II, Inc. 333-64281) filed with the Commission on including as exhibit thereto the proposed form September 25, 1998. 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 Agreement dated as of September 10, 1998, Registration Statement (Registration No. between the Company, United Dominion 333-64281) filed with the Commission on Realty, L.P., American Apartment September 25, 1998. 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. 4(i)(a) Specimen Common Stock Certificate. Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 4(i)(c) Form of Certificate for Shares of 8.60% Series Exhibit 1(e) to the Company's Form 8-A B Cumulative Redeemable Preferred Stock. Registration Statement dated June 11, 1997. 4(i)(d) Rights Agreement dated as of January 27, Exhibit 1 to the Company's Form 8-A 1998, between the Company and ChaseMellon Registration Statement dated February 4, 1998. Shareholder Services, L.L.C., as Rights Agent.
76
Exhibit Description Location - ------- ----------- -------- 4(i)(d)(a) First Amended and Restated Rights Agreement Exhibit 4(i)(d)(a) to the Company's Quarterly dates as of September 14, 1999, between the Report on Form 10-Q for the quarter ended Company and ChaseMellon Shareholders September 30, 1999. Services, L.L.C., as Rights Agent. 4(i)(e) Form of Rights Certificate. Exhibit 4(e) to the Company's Form 8-A Registration Statement dated February 4, 1998. 4(ii)(e) Note Purchase Agreement dated as of Exhibit 6(c)(5) to the Company's Form 8-A February 15, 1993, between the Company and Registration Statement dated April 19, 1990. 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 November 14, Exhibit 4(ii)(g) to the Company's Annual Report 2000, between the Company and certain on Form 10-K for the year ended December 31, subsidiaries and a syndicate of banks 2000. represented by First Union Nation Bank. 4(ii)(g) Credit Agreement dated as of August 14, 2001, Exhibit 4(ii)(g) to the Company's Quarterly between the Company and certain subsidiaries Report on Form 10-Q for the quarter ended and ARCS Commercial Mortgage Company, September 30, 2001. L.P., as Lender. 4(ii)(h) Credit Agreement dated as of December 12, Filed herewith. 2001, between the Company and certain subsidiaries and ARCS Commercial Mortgage Company, L.P., as Lender. 10(iii) Employment Agreement between the Company Exhibit 10(iii) to the Company's Annual Report and Richard Giannotti dated December 8, 1998. on Form 10-K for the year ended December 31, 1998. 10(v) 1985 Stock Option Plan, as amended. Exhibit 10(iv) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 10(vi) 1991 Stock Purchase and Loan Plan. Exhibit 10(viii) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. 10(vii) Third Amended and Restated Agreement of Exhibit 10(vi) to the Company's Annual Report Limited Partnership of United Dominion on Form 10-K for the year ended December 31, Realty, L.P. dated as of December 7, 1998. 1998. 10(vii)(a) Subordination Agreement dated April 16, 1998, Exhibit 10(vi)(a) to the Company's Quarterly between the Company and United Dominion Report on Form 10-Q for the quarter ended Realty, L.P. March 31, 1998. 10(vii)(b) First Amendment to Third Amended and Exhibit 10(vii)(b) to the Company's Quarterly Restated Agreement of Limited Partnership of Report on Form 10-Q for the quarter ended United Dominion Realty, L.P. September 30, 2001. 10(viii) Servicing and Purchase Agreement dated as of Exhibit 10(vii) to the Company's Quarterly June 24, 1999, including as an exhibit thereto Report on Form 10-Q for the quarter ended the Note and Participation Agreement forms. June 30, 1999.
77
Exhibit Description Location - ------- ----------- -------- 10(ix) Description of Restricted Stock Awards Exhibit 10(ix) to the Company's Annual Report Program. on Form 10-K for the year ended December 31, 1999. 10(x) Description of United Dominion Realty Trust, Exhibit 10(x) to the Company's Annual Report Inc. Shareholder Value Plan. on Form 10-K for the year ended December 31, 1999. 10(xi) Description of United Dominion Executive Exhibit 10(xi) to the Company's Annual Report Deferral Plan. on Form 10-K for the year ended December 31, 1999. 10(xiii) Employment Agreement between the Company Exhibit 10(xiii) to the Company's Annual Report and Mark E. Wood dated March 21, 2000. on Form 10-K for the year ended December 31, 1999. 10(xv) Retirement Agreement and Covenant Not to Exhibit 10(xv) to the Company's Quarterly Compete between the Company and John P. Report on Form 10-Q for the quarter ended McCann dated March 20, 2001. March 31, 2001. 10(xviii) Description of Out-Performance Program. Exhibit 10(xvii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. 10(xix) Description of Long Term Incentive Exhibit 10(xix) to the Company's Quarterly Compensation Plan. Report on Form 10-Q for the quarter ended September 30, 2001. 12 Computation of Ratio of Earnings to Fixed Filed herewith. Charges. 21 Subsidiaries. Filed herewith. 23 Consent of Independent Auditors. Filed herewith.
78 EX-4.(II)(H) 3 dex4iih.txt MASTER CREDIT FACILITY AGREEMENT DATED 12/12/2001 EXHIBIT 4(ii)(h) MASTER CREDIT FACILITY AGREEMENT among UNITED DOMINION REALTY TRUST, INC., a Virginia corporation, WOODLAKE VILLAGE, L.P., a California limited partnership and ARCS COMMERCIAL MORTGAGE CO., L.P., a California limited partnership, dated as of December 12, 2001 TABLE OF CONTENTS -----------------
Page ---- RECITALS ........................................................................ 1 - -------- ARTICLE I ....................................................................... 2 ARTICLE II ...................................................................... 18 SECTION 2.01 Revolving Facility Commitment ................................... 18 ----------------------------- SECTION 2.02 Requests for Revolving Advances ................................. 18 ------------------------------- SECTION 2.03 Maturity Date of Revolving Advances ............................. 19 ----------------------------------- SECTION 2.04 Interest on Revolving Facility Advances ......................... 19 --------------------------------------- SECTION 2.05 Coupon Rates for Revolving Advances ............................. 20 ----------------------------------- SECTION 2.06 Revolving Facility Note ......................................... 20 ----------------------- SECTION 2.07 Extension of Revolving Facility Termination Date ................ 20 ------------------------------------------------ ARTICLE III ..................................................................... 21 SECTION 3.01 Base Facility Commitment ........................................ 21 ------------------------ SECTION 3.02 Requests for Base Facility Advances ............................. 21 ----------------------------------- SECTION 3.03 Maturity Date of Base Facility Advances ......................... 21 --------------------------------------- SECTION 3.04 Interest on Base Facility Advances .............................. 21 ---------------------------------- SECTION 3.05 Coupon Rates for Base Facility Advances ......................... 22 --------------------------------------- SECTION 3.06 Base Facility Note .............................................. 22 ------------------ SECTION 3.07 Conversion of Commitment from Revolving Facility Commitment to -------------------------------------------------------------- Base Facility Commitment ........................................ 22 ------------------------ SECTION 3.08 Limitations on Right to Convert ................................. 22 ------------------------------- SECTION 3.09 Conditions Precedent to Conversion .............................. 23 ---------------------------------- SECTION 3.10 Defeasance ...................................................... 23 ---------- ARTICLE IV ...................................................................... 31 SECTION 4.01 Rate Setting for an Advance ..................................... 31 --------------------------- SECTION 4.02 Advance Confirmation Instrument for Revolving Advances .......... 32 ------------------------------------------------------ SECTION 4.03 Breakage and other Costs ........................................ 32 ------------------------ ARTICLE V ....................................................................... 32 SECTION 5.01 Initial Advance ................................................. 32 --------------- SECTION 5.02 Future Advances ................................................. 33 --------------- SECTION 5.03 Conditions Precedent to Future Advances ......................... 33 --------------------------------------- SECTION 5.04 Determination of Allocable Facility Amount and Valuations ....... 34 --------------------------------------------------------- ARTICLE VI ...................................................................... 34 SECTION 6.01 Right to Add Collateral ......................................... 34 ----------------------- SECTION 6.02 Procedure for Adding Collateral ................................. 34 ------------------------------- SECTION 6.03 Conditions Precedent to Addition of an Additional Mortgaged ----------------------------------------------------------- Property to the Collateral Pool ................................. 36 ------------------------------- ARTICLE VII ..................................................................... 37 SECTION 7.01 Right to Obtain Releases of Collateral .......................... 37 -------------------------------------- SECTION 7.02 Procedure for Obtaining Releases of Collateral .................. 37 ---------------------------------------------- SECTION 7.03 Conditions Precedent to Release of Collateral Release Property -------------------------------------------------------------- from the Collateral ............................................. 38 ------------------- SECTION 7.04 Substitutions ................................................... 39 ------------- ARTICLE VIII .................................................................... 40 SECTION 8.01 Right to Increase Commitment .................................... 40 ---------------------------- SECTION 8.02 Procedure for Obtaining Increases in Commitment ................. 40 -----------------------------------------------
i SECTION 8.03 Conditions Precedent to Increase in Commitment .................. 41 ---------------------------------------------- ARTICLE IX ...................................................................... 41 SECTION 9.01 Right to Complete or Partial Termination of Facilities .......... 41 ------------------------------------------------------ SECTION 9.02 Procedure for Complete or Partial Termination of Facilities ..... 41 ----------------------------------------------------------- SECTION 9.03 Conditions Precedent to Complete or Partial Termination of ---------------------------------------------------------- Facilities ...................................................... 42 ---------- ARTICLE X ....................................................................... 43 SECTION 10.01 Right to Terminate Credit Facility .............................. 43 ---------------------------------- SECTION 10.02 Procedure for Terminating Credit Facility ....................... 43 ----------------------------------------- SECTION 10.03 Conditions Precedent to Termination of Credit Facility .......... 43 ------------------------------------------------------ ARTICLE XI ...................................................................... 44 SECTION 11.01 Conditions Applicable to All Requests ........................... 44 ------------------------------------- SECTION 11.02 Delivery of Closing Documents Relating to Initial Advance --------------------------------------------------------- Request, Collateral Addition Request, Credit Facility Expansion --------------------------------------------------------------- Request or Future Advance Request ............................... 45 --------------------------------- SECTION 11.03 Delivery of Property-Related Documents .......................... 45 -------------------------------------- ARTICLE XII ..................................................................... 46 SECTION 12.01 Representations and Warranties of the Borrower .................. 46 ---------------------------------------------- SECTION 12.02 Representations and Warranties of the Borrower .................. 50 ---------------------------------------------- SECTION 12.03 Representations and Warranties of the Lender .................... 53 -------------------------------------------- ARTICLE XIII .................................................................... 53 SECTION 13.01 Compliance with Agreements; No Amendments ....................... 53 ----------------------------------------- SECTION 13.02 Maintenance of Existence ........................................ 53 ------------------------ SECTION 13.03 Maintenance of REIT Status ...................................... 54 -------------------------- SECTION 13.04 Financial Statements; Accountants' Reports; Other Information ... 54 ------------------------------------------------------------- SECTION 13.05 Certificate of Compliance ....................................... 56 ------------------------- SECTION 13.06 Maintain Licenses ............................................... 56 ----------------- SECTION 13.07 Access to Records; Discussions With Officers and Accountants .... 56 ------------------------------------------------------------ SECTION 13.08 Inform the Lender of Material Events ............................ 57 ------------------------------------ SECTION 13.09 Intentionally Omitted ........................................... 58 --------------------- SECTION 13.10 Inspection ...................................................... 58 ---------- SECTION 13.11 Compliance with Applicable Laws ................................. 58 ------------------------------- SECTION 13.12 Warranty of Title ............................................... 58 ----------------- SECTION 13.13 Defense of Actions .............................................. 58 ------------------ SECTION 13.14 Alterations to the Mortgaged Properties ......................... 59 --------------------------------------- SECTION 13.15 ERISA ........................................................... 59 ----- SECTION 13.16 Loan Document Taxes ............................................. 60 ------------------- SECTION 13.17 Further Assurances .............................................. 60 ------------------ SECTION 13.18 Monitoring Compliance ........................................... 60 --------------------- SECTION 13.19 Leases .......................................................... 60 ------ SECTION 13.20 Appraisals ...................................................... 60 ---------- SECTION 13.21 Transfer of Ownership Interests of the Borrower ................. 60 ----------------------------------------------- SECTION 13.22 Change in Senior Management ..................................... 62 --------------------------- SECTION 13.23 Date-Down Endorsements .......................................... 62 ---------------------- SECTION 13.24 Geographical Diversification .................................... 63 ---------------------------- SECTION 13.25 Ownership of Mortgaged Properties ............................... 63 --------------------------------- SECTION 13.26 Facility Balancing .............................................. 63 ------------------ ARTICLE XIV ..................................................................... 63 SECTION 14.01 Other Activities ................................................ 63 ---------------- SECTION 14.02 Value of Security ............................................... 64 -----------------
-ii- SECTION 14.03 Zoning ........................................................ 64 ------ SECTION 14.04 Liens ......................................................... 64 ----- SECTION 14.05 Sale .......................................................... 64 ---- SECTION 14.06 Intentionally Omitted ......................................... 64 --------------------- SECTION 14.07 Principal Place of Business ................................... 64 --------------------------- SECTION 14.08 Intentionally Omitted ......................................... 64 --------------------- SECTION 14.09 Change in Property Management ................................. 64 ----------------------------- SECTION 14.10 Condominiums .................................................. 64 ------------ SECTION 14.11 Restrictions on Distributions ................................. 65 ----------------------------- SECTION 14.12 Conduct of Business ........................................... 65 ------------------- SECTION 14.13 Limitation on Unimproved Real Property and New Construction ... 65 ----------------------------------------------------------- SECTION 14.14 No Encumbrance of Collateral Release Property ................. 65 --------------------------------------------- ARTICLE XV .................................................................... 65 SECTION 15.01 Financial Definitions ......................................... 65 --------------------- SECTION 15.02 Compliance with Debt Service Coverage Ratios .................. 70 -------------------------------------------- SECTION 15.03 Compliance with Loan to Value Ratios .......................... 70 ------------------------------------ SECTION 15.04 Compliance with Concentration Test ............................ 70 ---------------------------------- SECTION 15.05 Consolidated Adjusted Tangible Net Worth ...................... 70 ---------------------------------------- SECTION 15.06 Consolidated Funded Debt Ratio ................................ 70 ------------------------------ SECTION 15.07 Consolidated Total Fixed Charge Coverage Ratio ................ 70 ---------------------------------------------- SECTION 15.08 Consolidated Unencumbered Realty to Consolidated Unsecured Debt --------------------------------------------------------------- Ratio ..................................................................... 70 ----- SECTION 15.09 Consolidated Unencumbered Interest Coverage Ratio ............. 70 ------------------------------------------------- ARTICLE XVI ................................................................... 71 SECTION 16.01 Standby Fee ................................................... 71 ----------- SECTION 16.02 Origination Fees .............................................. 71 ---------------- SECTION 16.03 Due Diligence Fees ............................................ 71 ------------------ SECTION 16.04 Legal Fees and Expenses ....................................... 71 ----------------------- SECTION 16.05 MBS-Related Costs ............................................. 72 ----------------- SECTION 16.06 Failure to Close any Request .................................. 72 ---------------------------- SECTION 16.07 Other Fees .................................................... 72 ---------- ARTICLE XVII .................................................................. 73 SECTION 17.01 Events of Default ............................................. 73 ----------------- ARTICLE XVIII ................................................................. 75 SECTION 18.01 Remedies; Waivers ............................................. 75 ----------------- SECTION 18.02 Waivers; Rescission of Declaration ............................ 75 ---------------------------------- SECTION 18.03 The Lender's Right to Protect Collateral and Perform Covenants -------------------------------------------------------------- and Other Obligations ..................................................... 75 --------------------- SECTION 18.04 No Remedy Exclusive ........................................... 76 ------------------- SECTION 18.05 No Waiver ..................................................... 76 --------- SECTION 18.06 No Notice ..................................................... 76 --------- SECTION 18.07 Application of Payments ....................................... 76 ----------------------- ARTICLE XIX ................................................................... 76 SECTION 19.01 Special Pool Purchase Contract ................................ 76 ------------------------------ SECTION 19.02 Assignment of Rights .......................................... 76 -------------------- SECTION 19.03 Release of Collateral ......................................... 77 --------------------- SECTION 19.04 Replacement of Lender ......................................... 77 --------------------- SECTION 19.05 Fannie Mae and Lender Fees and Expenses ....................... 77 --------------------------------------- SECTION 19.06 Third-Party Beneficiary ....................................... 77 -----------------------
iii ARTICLE XX .................................................................... 77 SECTION 20.01 Insurance and Real Estate Taxes ............................... 77 ------------------------------- SECTION 20.02 Replacement Reserves .......................................... 77 -------------------- ARTICLE XXI ................................................................... 78 ARTICLE XXII .................................................................. 78 SECTION 22.01 Personal Liability of the Borrower ............................ 78 ---------------------------------- ARTICLE XXIII ................................................................. 78 SECTION 23.01 Counterparts .................................................. 78 ------------ SECTION 23.02 Amendments, Changes and Modifications ......................... 78 ------------------------------------- SECTION 23.03 Payment of Costs, Fees and Expenses ........................... 79 ----------------------------------- SECTION 23.04 Payment Procedure ............................................. 79 ----------------- SECTION 23.05 Payments on Business Days ..................................... 79 ------------------------- SECTION 23.06 Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial .. 80 ------------------------------------------------------------ SECTION 23.07 Severability .................................................. 81 ------------ SECTION 23.08 Notices ....................................................... 81 ------- SECTION 23.09 Further Assurances and Corrective Instruments ................. 83 --------------------------------------------- SECTION 23.10 Term of this Agreement ........................................ 84 ------------------------------- SECTION 23.11 Assignments; Third-Party Rights ............................... 84 ------------------------------- SECTION 23.12 Headings ...................................................... 84 -------- SECTION 23.13 General Interpretive Principles ............................... 84 ------------------------------- SECTION 23.14 Interpretation ................................................ 84 -------------- SECTION 23.15 Decisions in Writing .......................................... 84 -------------------- SECTION 23.16 Requests ...................................................... 84 --------
iv EXHIBIT A - Schedule of Initial Mortgaged Properties and Initial Valuations EXHIBIT B - Base Facility Note EXHIBIT C - Intentionally Omitted EXHIBIT D - Compliance Certificate EXHIBIT E - Sample Facility Debt Service EXHIBIT F - Organizational Certificate EXHIBIT G - Intentionally Omitted EXHIBIT H - Revolving Credit Endorsement EXHIBIT I - Revolving Facility Note EXHIBIT J - Tie-In Endorsement EXHIBIT K - Conversion Request EXHIBIT L - Conversion Amendment EXHIBIT M - Rate Setting Form EXHIBIT N - Rate Confirmation Instrument EXHIBIT O - Advance Confirmation Instrument EXHIBIT P - Future Advance Request EXHIBIT Q - Collateral Addition Request EXHIBIT R - Collateral Addition Description Package EXHIBIT S - Collateral Addition Supporting Documents EXHIBIT T - Collateral Release Request EXHIBIT U - Confirmation of Obligations EXHIBIT V - Credit Facility Expansion Request EXHIBIT W - Revolving Facility Termination Request EXHIBIT X - Revolving Facility Termination Document EXHIBIT Y - Credit Facility Termination Request EXHIBIT Z - Intentionally Omitted EXHIBIT AA - Independent Unit Encumbrances v MASTER CREDIT FACILITY AGREEMENT THIS MASTER CREDIT FACILITY AGREEMENT is made as of the 12/th/ day of December, 2001 by (i) UNITED DOMINION REALTY TRUST, INC., a Virginia corporation ("UDRT"), (ii) WOODLAKE VILLAGE, L.P., a California limited partnership ---- ("Woodlake") (individually and collectively, UDRT and Woodlake, the "Borrower"), -------- -------- and (iii) ARCS COMMERCIAL MORTGAGE CO., L.P., a California limited partnership (the "Lender"). ------ RECITALS -------- A. The Borrower owns one or more Multifamily Residential Properties (capitalized terms used but not defined shall have the meanings ascribed to such terms in Article I of this Agreement) as more particularly described in Exhibit ------- A to this Agreement. - - B. The Borrower has requested that the Lender establish a $300,000,000 Credit Facility in favor of the Borrower, comprised initially of a $300,000,000 Revolving Facility, all or part of which can be converted to a Base Facility in accordance with, and subject to, the terms and conditions of this Agreement and a $0 Base Facility. C. To secure the obligations of the Borrower under this Agreement and the other Loan Documents issued in connection with the Credit Facility, the Borrower shall create a Collateral Pool in favor of the Lender. The Collateral Pool shall be comprised of (i) Security Instruments on all of the Multifamily Residential Properties owned by the Borrower listed on Exhibit A to this Agreement and (ii) --------- any other Security Documents executed by the Borrower pursuant to this Agreement or any other Loan Documents. D. Each of the Security Documents shall be cross-defaulted (i.e., a default under any Security Document, or under this Agreement, shall constitute a default under each Security Document, and this Agreement) and cross-collateralized (i.e., each Security Instrument shall secure all of the Borrower's obligations under this Agreement and the other Loan Documents issued in connection with the Credit Facility) and it is the intent of the parties to this Agreement that the Lender may accelerate any Note without the necessity to accelerate any other Note and that in the exercise of its rights and remedies under the Loan Documents, Lender may exercise and perfect any and all of its rights in and under the Loan Documents with regard to any Mortgaged Property without the necessity to exercise and perfect its rights and remedies with respect to any other Mortgaged Property and that any such exercise shall be without regard to the Allocable Facility Amount assigned to such Mortgaged Property and that Lender may recover an amount equal to the full amount outstanding in respect of any of the Notes in connection with such exercise and any such amount shall be applied as determined by Lender in its sole and absolute discretion. E. Subject to the terms, conditions and limitations of this Agreement, the Lender has agreed to establish the Credit Facility. NOW, THEREFORE, the Borrower and the Lender, in consideration of the mutual promises and agreements contained in this Agreement, hereby agree as follows: -1- ARTICLE I DEFINITIONS For all purposes of this Agreement, the following terms shall have the respective meanings set forth below: "Acquiring Person" means a "person" or "group of persons" within the ---------------- meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended. "Additional Mortgaged Property" means each Multifamily Residential ----------------------------- Property owned by the Borrower (either in fee simple or as tenant under a ground lease meeting all of the requirements of the DUS Guide) and added to the Collateral Pool after the Initial Closing Date pursuant to Article VI. "Advance" means a Revolving Advance or a Base Facility Advance. ------- "Advance Confirmation Instrument" shall have the meaning set forth in ------------------------------- Section 4.02. "Affiliate" means, with respect to any Person, any other Person (i) --------- directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding five percent (5%) or more of the equity interest in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Debt Service Coverage Ratio for the Trailing 12 Month --------------------------------------------------------------- Period" means, for any specified date, the ratio (expressed as a ------ percentage) of-- (a) the aggregate of the Net Operating Income for the Trailing 12 Month Period for the Mortgaged Properties to -- (b) the Facility Debt Service on the specified date. "Aggregate Loan to Value Ratio for the Trailing 12 Month Period" -------------------------------------------------------------- means, for any specified date, the ratio (expressed as a percentage) of-- (a) the Advances Outstanding on the specified date, to -- (b) the aggregate of the Valuations most recently obtained prior to the specified date for all of the Mortgaged Properties. -2- "Agreement" means this Master Credit Facility Agreement, as it may be --------- amended, supplemented or otherwise modified from time to time, including all Recitals and Exhibits to this Agreement, each of which is hereby incorporated into this Agreement by this reference. "Allocable Facility Amount" means the portion of the Credit Facility ------------------------- allocated to a particular Mortgaged Property by Lender in accordance with this Agreement. Lender shall determine the Allocable Facility Amount for each Mortgaged Property on the Initial Closing Date and on or before January 1 of each year (commencing January 1, 2002) during the term of this Agreement and at such other times as provided by this Agreement (the "Determination Date"). Once determined by Lender as aforesaid, the Allocable Facility Amount for each Mortgaged Property shall be promptly disclosed to Borrower by Lender and shall remain in effect until the next Determination Date. The Allocable Facility Amount for any Additional Mortgaged Property shall be 70% of the Valuation of such Mortgaged Property on the date such Mortgaged Property is added to the Collateral Pool. "Amortization Period" means, with respect to each Base Facility ------------------- Advance, the period of 30 years. "Applicable Law" means (a) all applicable provisions of all -------------- constitutions, statutes, rules, regulations and orders of all governmental bodies, all Governmental Approvals and all orders, judgments and decrees of all courts and arbitrators, (b) all zoning, building, environmental and other laws, ordinances, rules, regulations and restrictions of any Governmental Authority affecting the ownership, management, use, operation, maintenance or repair of any Mortgaged Property, including the Americans with Disabilities Act (if applicable), the Fair Housing Amendment Act of 1988 and Hazardous Materials Laws, (c) any building permits or any conditions, easements, rights-of-way, covenants, restrictions of record or any recorded or unrecorded agreement affecting or concerning any Mortgaged Property including planned development permits, condominium declarations, and reciprocal easement and regulatory agreements with any Governmental Authority, (d) all laws, ordinances, rules and regulations, whether in the form of rent control, rent stabilization or otherwise, that limit or impose conditions on the amount of rent that may be collected from the units of any Mortgaged Property, and (e) requirements of insurance companies or similar organizations, affecting the operation or use of any Mortgaged Property or the consummation of the transactions to be effected by this Agreement or any of the other Loan Documents. "Appraisal" means an appraisal of a Multifamily Residential Property --------- or Multifamily Residential Properties conforming to the requirements of Chapter 5 of Part III of the DUS Guide, and accepted by the Lender. "Appraised Value" means the value set forth in an Appraisal. --------------- "Base Facility" means the agreement of the Lender to make Base ------------- Facility Advances to the Borrower pursuant to Section 3.01. -3- "Base Facility Advance" means a loan made by the Lender to the --------------------- Borrower under the Base Facility Commitment. "Base Facility Availability Period" means the period beginning on the --------------------------------- Initial Closing Date and ending on the date five (5) years after the Initial Closing Date. "Base Facility Commitment" means $0, plus such amount as the Borrower ------------------------ may elect to add to the Base Facility Commitment in accordance with Articles III or VIII. "Base Facility Fee" means (i) 50 basis points for a Base Facility ----------------- Advance drawn from the Base Facility Commitment initially available (whether drawn or undrawn) under this Agreement or converted from the Revolving Facility Commitment during the period ending on the date 12 months after the Initial Closing Date, and (ii) for any Base Facility Advance drawn from any portion of the Base Facility Commitment increased under Article VIII or converted from any portion of the Revolving Facility Commitment after the period ending on the date 12 months after the Initial Closing Date, the number of basis points determined at the time of such increase by the Lender as the Base Facility Fee for such Base Facility Advances, provided that in no event shall the Base Facility Fee for Base Facility Advances converted from the Revolving Facility Commitment (expressed as a number of basis points) exceed the Revolving Facility Fee. "Base Facility Note" means a promissory note, in the form attached as ------------------ Exhibit B to this Agreement, which will be issued by the Borrower to the --------- Lender, concurrently with the funding of each Base Facility Advance, to evidence the Borrower's obligation to repay the Base Facility Advance. "Borrower" means, individually and collectively, United Dominion -------- Realty Trust, Inc., a Virginia corporation, and Woodlake Village, L.P., a California limited partnership. "Business Day" means a day on which Fannie Mae is open for business. ------------ "Calendar Quarter" means, with respect to any year, any of the ---------------- following three month periods: (a) January-February-March; (b) April-May-June; (c) July-August-September; and (d) October-November-December. "Cap Rate" means, for each Mortgaged Property, a capitalization rate -------- reasonably selected by the Lender for use in determining the Valuations, as disclosed to the Borrower from time to time. "Change of Control" means the earliest to occur of: (a) the date on ----------------- which UDRT shall cease for any reason to be the holder, directly or indirectly, of at least 70% of the voting interests of any other Borrower or to own, directly or indirectly at least 70% of the equity, profits or other partnership interest in, or Voting Equity Capital (or any other Securities or ownership interests) of any other Borrower, (b) the date on which an Acquiring Person or Acquiring Persons becomes (by acquisition, consolidation, merger or otherwise), directly or indirectly, the beneficial owner of more than, in the aggregate, 30% of the total Voting Equity Capital (or of any other Securities or ownership interest) of the Borrower then outstanding, or (c) the replacement (other than solely by reason of retirement at age sixty -4- five or older, death or disability) of more than 50% (or such lesser percentage as is required for decision-making by the board of directors or an equivalent governing body) of the members of the board of directors (or an equivalent governing body) of the Borrower over a one-year period from the directors who constituted such board of directors at the beginning of such period and such replacement shall not have been approved by a vote of at least a majority of the board of directors of the Borrower then still in office who either were members of such board of directors at the beginning of such one-year period or whose election as members of the board of directors was previously so approved (it being understood and agreed that in the case of any entity governed by a trustee, board of managers, or other similar governing body, the foregoing clause (c) shall apply thereto by substituting such governing body and the members thereof for the board of directors and members thereof, respectively). "Closing Date" means the Initial Closing Date and each date after the ------------ Initial Closing Date on which the funding or other transaction requested in a Request is required to take place. "Collateral" means, the Mortgaged Properties and other collateral from ---------- time to time or at any time encumbered by the Security Instruments, or any other property securing any of the Borrower's obligations under the Loan Documents. "Collateral Addition Fee" means, with respect to a Multifamily ----------------------- Residential Property added to the Collateral Pool in accordance with Article VI-- (i) 75 basis points, multiplied by (ii) 70% of the Initial Valuation of the Multifamily Residential Property, as determined by the Lender. provided that no Collateral Addition Fee shall be due and payable until aggregate Advances (regardless of the amount of Advances Outstanding) in the amount of $300,000,000 have been made. "Collateral Addition Loan Documents" means the Security Instrument ---------------------------------- covering an Additional Mortgaged Property and any other documents, instruments or certificates required by the Lender in connection with the addition of the Additional Mortgaged Property to the Collateral Pool pursuant to Article VI. "Collateral Addition Request" shall have the meaning set forth in --------------------------- Section 6.02(a). "Collateral Pool" means the aggregate total of the Collateral. --------------- "Collateral Release Request" shall have the meaning set forth in -------------------------- Section 7.02(a). "Collateral Release Property" shall have the meaning set forth in --------------------------- Section 7.02(a). "Commitment" means, at any time, the sum of the Base Facility ---------- Commitment and the Revolving Facility Commitment. -5- "Complete Revolving Facility Termination" shall have the meaning set --------------------------------------- forth in Section 9.02(a). "Compliance Certificate" means a certificate of the Borrower in the ---------------------- form attached as Exhibit D to this Agreement. "Conversion Documents" has the meaning specified in Section 3.07(b) -------------------- hereof. "Conversion Request" has the meaning specified in Section 3.07(a) ------------------ hereof. "Coupon Rate" means, with respect a Revolving Advance, the imputed ----------- interest rate determined by the Lender pursuant to Section 2.05 for the Revolving Advance and, with respect a Base Facility Advance, the interest rate determined by the Lender pursuant to Section 3.05 for the Base Facility Advance. "Coverage and LTV Tests" mean, for any specified date, each of the ---------------------- following financial tests: (a) The Aggregate Debt Service Coverage Ratio for the Trailing 12 Month Period is not less than 130%. (b) The Aggregate Loan to Value Ratio for the Trailing 12 Month Period does not exceed 70%. "Credit Facility" means the Base Facility and the Revolving Facility. --------------- "Credit Facility Expansion" means an increase in the Commitment made ------------------------- in accordance with Article VIII. "Credit Facility Expansion Loan Documents" means amendments to the ---------------------------------------- Revolving Facility Note or the Base Facility Note, as the case may be, increasing the amount of such Note to the amount of the Commitment, as expanded in accordance with Article VIII and amendments to the Security Instruments, increasing the amount secured by such Security Instruments to the amount of the Commitment. "Credit Facility Expansion Request" shall have the meaning set forth --------------------------------- in Section 8.02(a). "Credit Facility Termination Request" shall have the meaning set forth ----------------------------------- in Section 10.02(a). "Debt Service Coverage Ratio for the Trailing 12 Month Period" means, ------------------------------------------------------------ for any Mortgaged Property, for any specified date, the ratio (expressed as a percentage) of -- (a) the aggregate of the Net Operating Income for the Trailing 12 Month Period for the subject Mortgaged Property to -- -6- (b) the Facility Debt Service on the specified date, assuming, for the purpose of calculating the Facility Debt Service for this definition, that Advances Outstanding shall be the Allocable Facility Amount for the subject Mortgaged Property. "Discount" means, with respect to any Revolving Advance, an amount -------- equal to the excess of -- (i) the face amount of the MBS backed by the Revolving Advance, over (ii) the Price of the MBS backed by the Revolving Advance. "DUS Guide" means the Fannie Mae Multifamily Delegated Underwriting --------- and Servicing (DUS) Guide, as such Guide may be amended from time to time, including exhibits to the DUS Guide and amendments in the form of Lender Memos, Guide Updates and Guide Announcements (and, if such Guide is no longer used by Fannie Mae, the term "DUS Guide" as used in this Agreement means the Fannie Mae Multifamily Negotiated Transactions Guide, as such Guide may be amended from time to time, including amendments in the form of Lender Memos, Guide Updates and Guide Announcements). All references to specific articles and sections of, and exhibits to, the DUS Guide shall be deemed references to such articles, sections and exhibits as they may be amended, modified, updated, superseded, supplemented or replaced from time to time. "DUS Underwriting Requirements" means the overall underwriting ----------------------------- requirements for Multifamily Residential Properties as set forth in the DUS Guide. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Event of Default" means any event defined to be an "Event of Default" ---------------- under Article XVII. "Facility Debt Service" means, as of any specified date, the sum of: --------------------- (a) the amount of interest and principal amortization, during the 12 month period immediately succeeding the specified date, with respect to the Advances Outstanding on the specified date, except that, for these purposes: (i) each Revolving Advance shall be deemed to require level monthly payments of principal and interest (at the Coupon Rate for the Revolving Advance) in an amount necessary to fully amortize the original principal amount of the Revolving Advance over a 30-year period, with such amortization deemed to commence on the first day of the 12 month period; and (ii) each Base Facility Advance shall require level monthly payments of principal and interest (at the Coupon Rate for the Base Facility Advance) in an amount necessary to fully amortize the original principal amount of the Base Facility Advance over a 30-year period, -7- with such amortization to commence on the first day of the 12 month period; and (b) the amount of the Standby Fees payable to the Lender pursuant to Section 16.01 during such 12 month period (assuming, for these purposes, that the Advances Outstanding throughout the 12 month period are always equal to the amount of Advances Outstanding on the specified date). Exhibit E to this Agreement contains an example of the determination of the --------- Facility Debt Service. "Facility Termination Fee" means, with respect to a reduction in the ------------------------ Revolving Facility Commitment pursuant to Articles IX or X, an amount equal to the product obtained by multiplying-- (1) the reduction in the Revolving Facility Commitment, by (2) the Revolving Facility Fee in effect at such time, by (3) the present value factor calculated using the following formula: 1 - (1 + r)/-n/ --------------- r [r = Yield Rate n= the number of years, and any fraction thereof, remaining between the Closing Date for the reduction in the Revolving Facility Commitment and the Revolving Facility Termination Date] The "Yield Rate" means the rate on the Three-Month LIBOR on the second Business Day preceding, as applicable, (x) the date of the reduction in the Commitment, (y) the date of the Complete Facility Termination or (z) the date of Lender's acceleration of the unpaid principal balance of the Facility Note. "Fannie Mae" means the federally-chartered and stockholder-owned ---------- corporation organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C. (S) 1716 et seq. "Financial Covenants" means the covenants set forth in Article XV. ------------------- "Future Advance" means an Advance made after the Initial Closing Date. -------------- "Future Advance Request" shall have the meaning set forth in Section ---------------------- 5.02. "GAAP" means generally accepted accounting principles in the United ---- States in effect from time to time, consistently applied. "General Conditions" shall have the meaning set forth in Article XI. ------------------ -8- "Geographical Diversification Requirements" means, from and ----------------------------------------- after the date on which the Collateral Pool first consists of ten (10) or more Mortgaged Properties, and prior to the occurrence of an increase in the Commitment pursuant to Article VIII, a requirement that the Collateral Pool consist of at least nine (9) Mortgaged Properties located in at least five (5) SMSA's and, upon the occurrence of any increase in the Commitment pursuant to Article VIII, such requirements as to the geographical diversity of the Collateral Pool as the Lender may reasonably determine and notify Borrower of prior to the time of the increase. "Governmental Approval" means an authorization, permit, --------------------- consent, approval, license, registration or exemption from registration or filing with, or report to, any Governmental Authority. "Governmental Authority" means any court, board, agency, ---------------------- commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "Gross Revenues" means, for any specified period, with respect -------------- to any Multifamily Residential Property, all income in respect of such Multifamily Residential Property, as determined by the Lender in accordance with the method described in paragraph 3 of Section 403.02 of Part III of the DUS Guide, except that for these purposes the financial statements to be used need not be audited and paragraph (b) of such paragraph 3 shall be taken into account in the Lender's discretion. "Hazardous Materials", with respect to any Mortgaged Property, ------------------- shall have the meaning given that term in the Security Instrument encumbering the Mortgaged Property. "Hazardous Materials Law", with respect to any Mortgaged ----------------------- Property, shall have the meaning given that term in the Security Instrument encumbering the Mortgaged Property. "Hazardous Substance Activity" means any storage, holding, ---------------------------- existence, release, spill, leaking, pumping, pouring, injection, escaping, deposit, disposal, dispersal, leaching, migration, use, treatment, emission, discharge, generation, processing, abatement, removal, disposition, handling or transportation of any Hazardous Materials from, under, into or on any Mortgaged Property in violation of Hazardous Materials Laws, including the discharge of any Hazardous Materials emanating from any Mortgaged Property in violation of Hazardous Materials Laws through the air, soil, surface water, groundwater or property and also including the abandonment or disposal of any barrels, containers and other receptacles containing any Hazardous Materials from or on any Mortgaged Property in violation of Hazardous Materials Laws, in each case whether sudden or nonsudden, accidental or nonaccidental. "Impositions" means, with respect to any Mortgaged Property, ----------- all (1) water and sewer charges which, if not paid, may result in a lien on all or any part of the Mortgaged Property, (2) premiums for fire and other hazard insurance, rent loss insurance and such other insurance as Lender may require under any Security Instrument, (3) Taxes, and (4) amounts for other charges and expenses which Lender at any time reasonably deems -9- necessary to protect the Mortgaged Property, to prevent the imposition of liens on the Mortgaged Property, or otherwise to protect Lender's interests. "Indebtedness" means, with respect to any Person, as of any ------------ specified date, without duplication, all: (a) indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices); (b) other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument; (c) obligations of such Person under any lease of property, real or personal, the obligations of the lessee in respect of which are required by GAAP to be capitalized on a balance sheet of the lessee or to be otherwise disclosed as such in a note to such balance sheet; (d) obligations of such Person in respect of acceptances (as defined in Article 3 of the Uniform Commercial Code of the Commonwealth of Virginia) issued or created for the account of such Person; (e) liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment of such liabilities; and (f) as to any Person ("guaranteeing person"), any ------------------- obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of a primary obligation (as defined below) with respect to which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing, or in effect guaranteeing, any indebtedness, lease, dividend or other obligation ("primary obligations") of any third person ("primary obligor") in any ------------------- --------------- manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, to (1) purchase any such primary obligation or any property constituting direct or indirect security therefor, (2) advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (3) purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (4) otherwise assure or hold harmless the owner of any such primary obligation against loss in respect of the primary obligation, provided, however, that the term "Contingent Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation of any guaranteeing person shall be deemed to be the lesser of (i) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made and (ii) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such -10- Contingent Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Contingent Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by Owner in good faith. "Initial Advance" means the Revolving Advance made on the --------------- Initial Closing Date in the amount of $30,900,000. "Initial Advance Request" shall have the meaning set forth in ----------------------- Section 5.01. "Initial Closing Date" means the date of this Agreement. -------------------- "Initial Mortgaged Properties" means the Multifamily ---------------------------- Residential Properties described on Exhibit A to this Agreement and which represent the Multifamily Residential Properties which are made part of the Collateral Pool on the Initial Closing Date. "Initial Security Instruments" means the Security Instruments ---------------------------- covering the Initial Mortgaged Properties. "Initial Valuation" means, when used with reference to ----------------- specified Collateral, the Valuation initially performed for the Collateral as of the date on which the Collateral was added to the Collateral Pool. The Initial Valuation for each of the Initial Mortgaged Properties is as set forth in Exhibit A to this Agreement. "Insurance Policy" means, with respect to a Mortgaged ---------------- Property, the insurance coverage and insurance certificates evidencing such insurance required to be maintained pursuant to the Security Instrument encumbering the Mortgaged Property. "Internal Revenue Code" means the Internal Revenue Code of --------------------- 1986, as amended. Each reference to the Internal Revenue Code shall be deemed to include (a) any successor internal revenue law and (b) the applicable regulations whether final, temporary or proposed. "Lease" means any lease, any sublease or subsublease, license, ----- concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Mortgaged Property, and every modification, amendment or other agreement relating to such lease, sublease, subsublease or other agreement entered into in connection with such lease, sublease, subsublease or other agreement, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "Lender" shall have the meaning set forth in the first ------ paragraph of this Agreement, but shall refer to any replacement Lender if the initial Lender is replaced pursuant to the terms of Section 19.04. "Lien" means any mortgage, pledge, hypothecation, assignment, ---- deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, -11- priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loan Documents" means this Agreement, the Notes, the Advance -------------- Confirmation Instruments for the Revolving Advances, the Security Documents, all documents executed by the Borrower pursuant to the General Conditions set forth in Article XI of this Agreement and any other documents executed by the Borrower from time to time in connection with this Agreement or the transactions contemplated by this Agreement. "Loan to Value Ratio for the Trailing 12 Month Period" means, ---------------------------------------------------- for a Mortgaged Property, for any specified date, the ratio (expressed as a percentage) of -- (a) the Allocable Facility Amount of the subject Mortgaged Property on the specified date, to -- (b) the Valuation most recently obtained prior to the specified date for the subject Mortgaged Property. "Loan Year" means the 12-month period from the first day of --------- the first calendar month after the Initial Closing Date to and including the last day before the first anniversary of the Initial Closing Date, and each 12-month period thereafter. "Material Adverse Effect" means, with respect to any ----------------------- circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, or circumstance or circumstances, whether or not related, a material adverse change in or a materially adverse effect upon any of (a) the business, operations, property or condition (financial or otherwise) of the Borrower, (b) the present or future ability of the Borrower to perform the Obligations for which it is liable, (c) the validity, priority, perfection or enforceability of this Agreement or any other Loan Document or the rights or remedies of the Lender under any Loan Document, or (d) the value of, or the Lender's ability to have recourse against, any Mortgaged Property. "MBS" means a mortgage-backed security which is "backed" by an --- Advance which is secured by an interest in the Notes and the Collateral Pool securing the Notes, which interest permits the holder of the MBS to participate in the Notes and the Collateral Pool to the extent of such Advance. "MBS Imputed Interest Rate" shall have the meaning set forth ------------------------- in Section 2.05(a). "MBS Issue Date" means the date on which a Fannie Mae MBS is -------------- issued by Fannie Mae. -12- "MBS Delivery Date" means the date on which a Fannie Mae MBS ----------------- is delivered by Fannie Mae. "MBS Pass-Through Rate" for a Base Facility Advance means the --------------------- interest rate as determined by the Lender (rounded to three places) payable in respect of the Fannie Mae MBS issued pursuant to the MBS Commitment backed by the Base Facility Advance as determined in accordance with Section 4.01. "Mortgaged Properties" means, collectively, the Additional -------------------- Mortgaged Properties and the Initial Mortgaged Properties, but excluding each Collateral Release Property from and after the date of the release of the Collateral Release Property from the Collateral Pool. "Multifamily Residential Property" means a residential -------------------------------- property, located in the United States, containing five or more dwelling units in which not more than twenty percent (20%) of the net rentable area is or will be rented to non-residential tenants, and conforming to the requirements of Sections 201 and 203 of Part III of the DUS Guide. "Net Operating Income" means, for any specified period, with -------------------- respect to any Multifamily Residential Property, the aggregate net income during such period equal to Gross Revenues during such period less the aggregate Operating Expenses during such period. If a Mortgaged Property is not owned by the Borrower for the entire specified period, the Net Operating Income for the Mortgaged Property for the time within the specified period during which the Mortgaged Property was owned by the Borrower shall be the Mortgaged Property's pro forma net operating income determined by the Lender in accordance with the underwriting procedures set forth in Chapter 4 of Part III of the DUS Guide. "Note" means a Base Facility Note or the Revolving Facility ---- Note. "Obligations" means the aggregate of the obligations of the ----------- Borrower under this Agreement and the other Loan Documents. "Operating Expenses" means, for any period, with respect to ------------------ any Multifamily Residential Property, all expenses in respect of the Multifamily Residential Property, as determined by the Lender in accordance with the method described in paragraph 3 of Section 403.02 of Part III of the DUS Guide (Estimated Expenses), including replacement reserves, if any, under the Replacement Reserve Agreements for the Mortgaged Properties. "Organizational Certificate" means a certificate of the -------------------------- Borrower in the form attached as Exhibit F to this Agreement. --------- "Organizational Documents" means all certificates, instruments ------------------------ and other documents pursuant to which an organization is organized or operates, including but not limited to, (i) with respect to a corporation, its articles of incorporation and bylaws, (ii) with respect to a limited partnership, its limited partnership certificate and partnership agreement, (iii) with respect to a general partnership or joint venture, its partnership or joint venture agreement and (iv) with respect to a limited liability company, its articles of organization and operating agreement. -13- "Outstanding" means, when used in connection with promissory notes, ----------- other debt instruments or Advances, for a specified date, promissory notes or other debt instruments which have been issued, or Advances which have been made, but have not been repaid in full as of the specified date. "Ownership Interests" means, with respect to any entity, any ownership ------------------- interests in the entity and any economic rights (such as a right to distributions, net cash flow or net income) to which the owner of such ownership interests is entitled. "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions under ERISA. "Permits" means all permits, or similar licenses or approvals issued ------- and/or required by an applicable Governmental Authority or any Applicable Law in connection with the ownership, use, occupancy, leasing, management, operation, repair, maintenance or rehabilitation of any Mortgaged Property or the Borrower's business. "Permitted Liens" means, with respect to a Mortgaged Property, (i) the --------------- exceptions to title to the Mortgaged Property set forth in the Title Insurance Policy for the Mortgaged Property which are approved by the Lender, (ii) the Security Instrument encumbering the Mortgaged Property, and (iii) any other Liens approved by the Lender. "Person" means an individual, an estate, a trust, a corporation, a ------ partnership, a limited liability company or any other organization or entity (whether governmental or private). "Potential Event of Default" means any event which, with the giving of -------------------------- notice or the passage of time, or both, would constitute an Event of Default. "Price" means, with respect to an Advance, the proceeds of the sale of ----- the MBS backed by the Advance. "Property" means any estate or interest in any kind of property or -------- asset, whether real, personal or mixed, and whether tangible or intangible. "Rate Confirmation Form" shall have the meaning set forth in Section ---------------------- 4.01(c). "Rate Setting Date" shall have the meaning set forth in Section ----------------- 4.01(b). "Rate Setting Form" shall have the meaning set forth in Section ----------------- 4.01(b). "Release Price" shall have the meaning set forth in Section 7.02(c). ------------- "Rent Roll" means, with respect to any Multifamily Residential --------- Property, a rent roll prepared and certified by the owner of the Multifamily Residential Property, on Fannie Mae Form 4243, as set forth in Exhibit III-3 of the DUS Guide, or on another form approved by the Lender and containing substantially the same information as Form 4243 requires. -14- "Replacement Reserve Agreement" means a Replacement Reserve and ----------------------------- Security Agreement, reasonably required by the Lender, and completed in accordance with the requirements of the DUS Guide. "Request" means a Collateral Addition Request, a Collateral Release ------- Request, a Conversion Request, a Credit Facility Expansion Request, a Credit Facility Termination Request, a Future Advance Request, an Initial Advance Request or a Revolving Facility Termination Request. "Revolving Advance" means a loan made by the Lender to the Borrower ----------------- under the Revolving Facility Commitment. "Revolving Credit Endorsement" means an endorsement to a Title ---------------------------- Insurance Policy which contains substantially the same coverages, and is subject to substantially the same or fewer exceptions (or such other exceptions as the Lender may approve), as the form attached as Exhibit H to --------- this Agreement. "Revolving Facility" means the agreement of the Lender to make ------------------ Advances to the Borrower pursuant to Section 2.01. "Revolving Facility Availability Period" means the period beginning on -------------------------------------- the Initial Closing Date and ending on the 90th day before the Revolving Facility Termination Date. "Revolving Facility Commitment" means an aggregate amount of ----------------------------- $300,000,000 which shall be evidenced by the Revolving Facility Note in the form attached hereto as Exhibit I, plus such amount as the Borrower may --------- elect to add to the Revolving Facility Commitment in accordance with Article VIII, and less such amount as the Borrower may elect to convert from the Revolving Facility Commitment to the Base Facility Commitment in accordance with Article III and less such amount by which the Borrower may elect to reduce the Revolving Facility Commitment in accordance with Article IX. "Revolving Facility Fee" means (i) 60 basis points per annum for a ---------------------- Revolving Advance drawn from the Revolving Facility Commitment available (whether drawn or undrawn) under this Agreement during the period ending on the date 12 months after the Initial Closing Date, (ii) for any extended term of the Revolving Facility, the number of basis points per annum determined by the Lender as the Revolving Facility Fee for such period, which fee shall be set by Lender not less than 30 days prior to the commencement of such period, and (iii) for any Revolving Advance drawn from any portion of the Revolving Facility Commitment increased under Article VIII after the date 12 months after the Initial Closing Date, the number of basis points per annum determined at the time of such increase by the Lender as the Revolving Facility Fee for such Revolving Advances. "Revolving Facility Note" means the promissory note, in the form ----------------------- attached as Exhibit I to this Agreement, which has been issued by the --------- Borrower to the Lender to evidence the Borrower's obligation to repay Revolving Advances. "Revolving Facility Termination Date" means the last day of the tenth ----------------------------------- Loan Year, as such date may be extended pursuant to Section 2.07 of this Agreement. -15- "Security" means a "security" as set forth in Section 2(1) of the -------- Securities Act of 1933, as amended. "Security Documents" means the Security Instruments, the Replacement ------------------ Reserve Agreements and any other documents executed by a Borrower from time to time to secure any of the Borrower's obligations under the Loan Documents. "Security Instrument" means, for each Mortgaged Property, a separate ------------------- Multifamily Mortgage, Deed of Trust or Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement given by the Borrower to or for the benefit of the Lender to secure the obligations of the Borrower under the Loan Documents. With respect to each Mortgaged Property owned by the Borrower, the Security Instrument shall be substantially in the form published by Fannie Mae for use in the state in which the Mortgaged Property is located. The amount secured by the Security Instrument shall be equal to the Commitment in effect from time to time. "Senior Management" means (i) the Chief Executive Officer, Chairman of ----------------- the Board, President, Chief Financial Officer and Chief Operating Officer of UDRT, and (ii) any other individuals with responsibility for any of the functions typically performed in a corporation by the officers described in clause (i). "SMSA" means a "standard metropolitan statistical area," as defined ---- from time to time by the United States Office of Management and Budget. "Standby Fee" means, for any month, an amount equal to the product ----------- obtained by multiplying: (i) 1/12, by (ii) 12.5 basis points, by (iii) the Unused Capacity for such month. "Subsidiary" means, as to any Person, any corporation, partnership, ---------- limited liability company or other entity of which securities or other ownership interest having an ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless otherwise provided, references to a "Subsidiary" or "Subsidiaries" shall mean a Subsidiary or Subsidiaries of the Borrower. "Surveys" means the as-built surveys of the Mortgaged Properties ------- prepared in accordance with the requirements of Section 113 of the DUS Guide, or otherwise approved by the Lender. "Taxes" means all taxes, assessments, vault rentals and other charges, ----- if any, general, special or otherwise, including all assessments for schools, public betterments and general or local improvements, which are levied, assessed or imposed by any public authority or quasi-public authority, and which, if not paid, will become a lien, on the Mortgaged Properties. "Term of this Agreement" shall be determined as provided in Section ---------------------- 23.10 to this Agreement. "Termination Date" means, at any time during which Base Facility ---------------- Advances are Outstanding, the latest maturity date for any Base Facility Advance Outstanding, and, at any -16- time during which Base Facility Advances are not Outstanding, the Revolving Facility Termination Date. "Three-Month LIBOR" means the London interbank offered rate for ----------------- three-month U.S. dollar deposits, as such rate is reported in The Wall Street Journal. In the event that a rate is not published for the Three-Month LIBOR, then the nearest equivalent duration London interbank offered rate for U.S. Dollar deposits shall be selected at Lender's reasonable discretion. If the publication of Three-Month LIBOR is discontinued, Lender shall determine such rate from another source reasonably selected by Lender which reasonably correlates (as to rate and volatility) historically to Three-Month LIBOR. "Tie-In Endorsement" means an endorsement to a Title Insurance Policy ------------------ which contains substantially the same coverages, and is subject to substantially the same or fewer exceptions (or such other exceptions as the Lender may approve), as the form attached as Exhibit J to this Agreement. "Title Company" means Fidelity National Title Insurance Corporation. ------------- "Title Insurance Policies" means the mortgagee's policies of title ------------------------ insurance issued by the Title Company from time to time relating to each of the Security Instruments, conforming to the requirements of Section 111 of the DUS Guide, together with such endorsements, coinsurance, reinsurance and direct access agreements with respect to such policies as the Lender may, from time to time, consider necessary or appropriate, whether or not required by the DUS Guide, including Revolving Credit Endorsements, if available, and Tie-In Endorsements, if available, and with a limit of liability under the policy (subject to the limitations contained in Sections 6(a)(i) and 6(a)(iii) of the Stipulations and Conditions of the policy) equal to the Commitment. "Trailing 12 Month Period" means, for any specified date, the 12 month ------------------------ period ending with the last day of the most recent Calendar Quarter for which financial statements have been delivered by the Borrower to the Lender pursuant to Sections 13.04(c) and (d). "Transfer" means a sale, assignment, lease, pledge, transfer or other -------- disposition (whether voluntary or by operation of law) of, or the granting or creating of a lien, encumbrance or security interest in, any estate, rights, title or interest in a Mortgaged Property, or any portion thereof. "Transfer" does not include (i) a conveyance of the Mortgaged Property at a judicial or non-judicial foreclosure sale under any Security Instrument or (ii) the Mortgaged Property becoming part of a bankruptcy estate by operation of law under the United States Bankruptcy Code. "Unused Capacity" means, for any month, the sum of the daily average --------------- during such month of the undrawn amount of the Commitment available under this Agreement, without regard to any unclosed Requests or to the fact that a Request must satisfy conditions precedent. "Valuation" means, for any specified date, with respect to a --------- Multifamily Residential Property, (a) if an Appraisal of the Multifamily Residential Property was more recently obtained than a Cap Rate for the Multifamily Residential Property, the Appraised Value of -17- such Multifamily Residential Property, or (b) if a Cap Rate for the Multifamily Residential Property was more recently obtained than an Appraisal of the Multifamily Residential Property, the value derived by dividing-- (i) the Net Operating Income of such Multifamily Residential Property for the Trailing 12 Month Period, by (ii) the most recent Cap Rate determined by the Lender. Notwithstanding the foregoing, any Valuation for a Multifamily Residential Property calculated for a date occurring before the first anniversary of the date on which the Multifamily Residential Property becomes a part of the Collateral Pool shall equal the Appraised Value of such Multifamily Residential Property, unless the Lender determines that changed market or property conditions warrant that the value be determined as set forth in the preceding sentence. Any special risk factors taken into account in connection with the Initial Valuation of a Multifamily Residential Property shall apply to any subsequent Valuation of such Multifamily Residential Property unless Lender shall determine that such special risk factor no longer applies to such Multifamily Residential Property. If the Borrower does not accept Lender's Valuation, the Borrower may require that the Lender obtain an additional Appraisal, if an Appraisal was the basis of the Valuation, or two Appraisals, if a Cap Rate was the basis of the Valuation. If the two appraisers do not agree on the valuation of the Mortgaged Property, the Lender shall appoint a third appraiser. If a third appraiser is appointed, such appraiser shall, within 30 days after appointment, decide which one of the valuations determined by the other two appraisers is closer to the valuation of the Mortgaged Property and the valuation so selected by the third appraiser shall be binding on the parties as the Valuation. The Borrower shall pay all of the Lender's costs of obtaining any Appraisal or engaging any appraiser pursuant to this Section. "Voting Equity Capital" means Securities or partnership interests of --------------------- any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the board of directors (or Persons performing similar functions). ARTICLE II THE REVOLVING FACILITY COMMITMENT SECTION 2.01 Revolving Facility Commitment. Subject to the terms, conditions and ----------------------------- limitations of this Agreement, the Lender agrees to make Revolving Advances to the Borrower from time to time during the Revolving Facility Availability Period. The aggregate unpaid principal balance of the Revolving Advances Outstanding at any time shall not exceed the Revolving Facility Commitment. Subject to the terms, conditions and limitations of this Agreement, the Borrower may re-borrow any amounts under the Revolving Facility which it has previously borrowed and repaid under the Revolving Facility. The Borrower shall be entitled to Revolving Advances based on increased Valuations of the Mortgaged Properties. SECTION 2.02 Requests for Revolving Advances. The Borrower shall request a ------------------------------- Revolving Advance by giving the Lender an Initial Advance Request in accordance with Section 5.01 or a Future Advance Request in accordance with Section 5.02, as applicable. -18- SECTION 2.03 Maturity Date of Revolving Advances. Regardless of the date on ----------------------------------- which a Revolving Advance is made, the maturity date of each Revolving Advance shall be a date selected by the Borrower in its Request for the Revolving Advance, which date shall be the first day of a calendar month occurring: (a) no earlier than the date which completes one full month after the Closing Date for the Revolving Advance; and (b) no later than the date which completes nine full months after the Closing Date for the Revolving Advance. For these purposes, a year shall be deemed to consist of 12 30-day months. For example, the date which completes three full months after September 15 shall be December 15; and the date which completes three full months after November 30 shall be February 28 or February 29 in 2000 and any leap year thereafter. SECTION 2.04 Interest on Revolving Facility Advances. --------------------------------------- (a) Discount. Each Revolving Advance shall be a discount loan. The -------- original stated principal amount of a Revolving Advance shall be the sum of the Price of the Revolving Advance and the Discount of the Revolving Advance. The Price and Discount of each Revolving Advance shall be determined in accordance with the procedures set out in Section 4.01. The proceeds of the Revolving Advance made available by the Lender to the Borrower will equal the Price of the Revolving Advance. The entire unpaid principal of each Revolving Advance shall be due and payable by the Borrower to the Lender on the maturity date of the Revolving Advance. However, if the Borrower has requested that the maturing Revolving Advance (in whole or in part) be renewed with a new Revolving Advance or converted to a Base Facility Advance, to take effect on the maturity date of the maturing Revolving Advance, then the amount the Borrower is required to pay on account of the maturing Revolving Advance will be reduced by, as the case may, that amount of the Price of the new Revolving Advance allocable to the principal of the maturing Revolving Advance being renewed, or that amount of the net proceeds of the MBS related to the Base Facility Advance then converted from the maturing Revolving Advance. (b) Partial Month Interest. Notwithstanding anything to the contrary ---------------------- in this Section, if a Revolving Advance is not made on the first day of a calendar month, and the MBS Issue Date for the MBS backed by the Revolving Advance is the first day of the month following the month in which the Revolving Advance is made, the Borrower shall pay interest on the original stated principal amount of the Revolving Advance for the partial month period commencing on the Closing Date for the Revolving Advance and ending on the last day of the calendar month in which the Closing Date occurs, at a rate per annum equal to the greater of (i) the Coupon Rate for the Revolving Advance as determined in accordance with Section 2.05(b) and (ii) a rate reasonably determined by the Lender, based on the Lender's cost of funds and approved in advance, in writing, by the Borrower, pursuant to the procedures mutually agreed upon by the Borrower and the Lender. (c) Revolving Facility Fee. In addition to paying the Discount and ---------------------- the partial month interest, if any, the Borrower shall pay monthly installments of the Revolving Facility Fee to the Lender on account of each Revolving Advance over the whole number of calendar months the -19- MBS backed by the Revolving Advance is to run from the MBS Issue Date to the maturity date of the MBS. The Revolving Facility Fee shall be payable in advance, in accordance with the terms of the Revolving Facility Note. The first installment shall be payable on or prior to the Closing Date for the Revolving Advance and shall apply to the first full calendar month of the MBS backed by the Revolving Advance. Subsequent installments shall be payable on the first day of each calendar month, commencing on the first day of the second full calendar month of such MBS, until the maturity of such MBS. Each installment of the Revolving Facility Fee shall be in an amount equal to the product of multiplying (i) the Revolving Facility Fee, by (ii) the amount of the Revolving Advance, by (iii) 1/12. SECTION 2.05 Coupon Rates for Revolving Advances. The Coupon Rate for a ----------------------------------- Revolving Advance shall be a rate, per annum, as follows: (a) The Coupon Rate for a Revolving Advance shall equal the sum of (i) an interest rate as determined by the Lender (rounded to three places) payable for the Fannie Mae MBS pursuant to the MBS Commitment backed by the Revolving Advance ("MBS Imputed Interest Rate") and (ii) the Revolving Facility Fee. (b) Notwithstanding anything to the contrary in this Section, if a Revolving Advance is not made on the first day of a calendar month, and the MBS Issue Date for the MBS backed by the Revolving Advance is the first day of the month following the month in which the Revolving Advance is made, the Coupon Rate for such Revolving Advance for such period shall be the greater of (i) the rate for the Revolving Advance determined in accordance with subsection (a) of this Section and (ii) a rate determined by the Lender, based on the Lender's cost of funds, and approved in advance, in writing, by the Borrower, pursuant to procedures mutually agreed upon by the Borrower and the Lender. SECTION 2.06 Revolving Facility Note. The obligation of the Borrower to repay ----------------------- the Revolving Advances will be evidenced by the Revolving Facility Note. The Revolving Facility Note shall be payable to the order of the Lender and shall be made in the aggregate amount of the Revolving Facility Commitment. SECTION 2.07 Extension of Revolving Facility Termination Date. The Borrower ------------------------------------------------ shall have the right to extend the Revolving Facility Termination Date for one (1) five (5) year period upon satisfaction of each of the following conditions: (a) The Borrower provides written notice to the Lender not less than thirty (30) nor more than ninety (90) days prior to the then effective Revolving Facility Termination Date requesting that the Revolving Facility Termination Date be extended. (b) No Event of Default or Potential Event of Default exists on either the date the notice required by paragraph (a) of this Section is given or on the then effective Revolving Facility Termination Date. (c) All of the representations and warranties of the Borrower set forth in Article XII of this Agreement and the Other Loan Documents are true and correct in all material respects on the date the notice required by paragraph (a) of this Section is given and on the then effective Revolving Facility Termination Date. -20- (d) The relevant Borrower is in compliance with all of the covenants set forth in Article XIII, Article XIV and Article XV on the date the notice required by paragraph (a) of this Section is given and on the then effective Revolving Facility Termination Date. Upon receipt of the notice required in paragraph (a) of this Section and upon compliance with the other conditions set forth above, the Revolving Facility Termination Date shall be extended for five (5) years on the terms and conditions set forth in this Agreement and the Other Loan Documents, provided that the maturity and pricing applicable to the Revolving Facility during the period after the then effective Revolving Facility Termination Date shall be acceptable to Lender in its discretion. ARTICLE III THE BASE FACILITY COMMITMENT SECTION 3.01 Base Facility Commitment. Subject to the terms, conditions and ------------------------ limitations set forth in this Article, the Lender agrees to make Base Facility Advances to the Borrower from time to time during the Base Facility Availability Period. The aggregate original principal of the Base Facility Advances shall not exceed the Base Facility Commitment. The borrowing of a Base Facility Advance shall permanently reduce the Base Facility Commitment by the original principal amount of the Base Facility Advance. The Borrower may not re-borrow any part of the Base Facility Advance which it has previously borrowed and repaid. The Borrower shall be entitled to Base Facility Advances based on increased Valuations of the Mortgaged Properties. SECTION 3.02 Requests for Base Facility Advances. The Borrower shall request a ----------------------------------- Base Facility Advance by giving the Lender an Initial Advance Request in accordance with Section 5.01 or a Future Advance Request in accordance with Section 5.02, as applicable. SECTION 3.03 Maturity Date of Base Facility Advances. The maturity date of each --------------------------------------- Base Facility Advance shall be the maturity date selected by the Borrower at the time of the making of each such Base Facility Advance, provided that such maturity date shall not be earlier than the 5th anniversary of such Base Facility Advance nor later than the 15/th/ anniversary of the Initial Closing Date. SECTION 3.04 Interest on Base Facility Advances. ---------------------------------- (a) Advances. Each Base Facility Advance shall bear interest at a -------- rate, per annum, equal to the sum of (i) the MBS Pass-Through Rate determined for such Base Facility Advance and (ii) the Base Facility Fee. (b) Partial Month Interest. Notwithstanding anything to the contrary ---------------------- in this Section, if a Base Facility Advance is not made on the first day of a calendar month, and the MBS Issue Date for the MBS backed by the Base Facility Advance is the first day of the month following the month in which the Base Facility Advance is made, the Borrower shall pay interest on the original stated principal amount of the Base Facility Advance for the partial month period commencing on the Closing Date for the Base Facility Advance and ending on the last day of the calendar month in which the Closing Date occurs at a rate, per annum, equal to the greater of (i) the interest rate for the Base Facility Advance described in the first sentence of this Section and (ii) a rate reasonably determined by the Lender, based on the Lender's cost of funds, and approved in -21- advance, in writing, by the Borrower, pursuant to procedures mutually agreed upon by the Borrower and the Lender. SECTION 3.05 Coupon Rates for Base Facility Advances. The Coupon Rate for a Base --------------------------------------- Facility Advance shall be the rate of interest applicable to such Base Facility Advance pursuant to Section 3.04. SECTION 3.06 Base Facility Note. The obligation of the Borrower to repay a Base ------------------ Facility Advance will be evidenced by a Base Facility Note. The Base Facility Notes shall be payable to the order of the Lender and shall be made in the original principal amount of each Base Facility Advance. SECTION 3.07 Conversion of Commitment from Revolving Facility Commitment to Base ------------------------------------------------------------------- Facility Commitment. The Borrower shall have the right, from time to time during - ------------------- the Base Facility Availability Period, to convert all or a portion of a Revolving Facility Commitment to the Base Facility Commitment, in which event the Revolving Facility Commitment shall be reduced by, and the Base Facility Commitment shall be increased by, the amount of the conversion. (a) Request. In order to convert all or a portion of the Revolving ------- Facility Commitment to the Base Facility Commitment, the Borrower shall deliver a written request for a conversion ("Conversion Request") to the Lender, in the ------------------ form attached as Exhibit K to this Agreement. Each Conversion Request shall be --------- accompanied by a designation of the amount of the conversion and a designation of any Revolving Advances Outstanding which will be prepaid on or before the Closing Date for the conversion as required by Section 3.08(c). (b) Closing. If none of the limitations contained in Section 3.08 is ------- violated, and all conditions contained in Section 3.09 are satisfied, the Lender shall permit the requested conversion, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within 30 Business Days after the Lender's receipt of the Conversion Request (or on such other date to which the Borrower and the Lender may agree), by executing and delivering, all at the sole cost and expense of the Borrower, an amendment to this Agreement, in the form attached as Exhibit L to this Agreement, together --------- with an amendment to each Security Document and other applicable Loan Documents, in form and substance satisfactory to the Lender, reflecting the change in the Base Facility Commitment and the Revolving Facility Commitment. The documents and instruments referred to in the preceding sentence are referred to in this Article as the "Conversion Documents." -------------------- SECTION 3.08 Limitations on Right to Convert. The right of the Borrower to ------------------------------- convert all or a portion of the Revolving Facility Commitment to the Base Facility Commitment is subject to the following limitations: (a) Closing Date. The Closing Date shall occur during the Base Facility ------------ Availability Period. (b) Minimum Request. Each Request for a conversion shall be in the minimum --------------- amount of $10,000,000. -22- (c) Obligation to Prepay Revolving Advances. If, after the conversion, the --------------------------------------- aggregate unpaid principal balance of all Revolving Advances Outstanding will exceed the Revolving Facility Commitment, the Borrower shall be obligated to prepay, as a condition precedent to the conversion, an amount of Revolving Advances Outstanding which is at least equal to the amount of the excess. SECTION 3.09 Conditions Precedent to Conversion. The conversion of all or a ---------------------------------- portion of the Revolving Facility Commitment to the Base Facility Commitment is subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) After giving effect to the requested conversion, the Coverage and LTV Tests will be satisfied; (b) Prepayment by the Borrower in full of any Revolving Advances Outstanding which the Borrower has designated for payment, together with any associated prepayment premiums and other amounts due with respect to the prepayment of such Revolving Advances; (c) The receipt by the Lender of an endorsement to each Title Insurance Policy, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (d) Receipt by the Lender of one or more counterparts of each Conversion Document, dated as of the Closing Date, signed by each of the parties (other than the Lender) who is a party to such Conversion Document; and (e) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 3.10 Defeasance. If at any time the Borrower elects to convert all or a ---------- portion of the Revolving Facility Commitment to a Base Facility Commitment pursuant to Section 3.07 of this Agreement, or elects that any portion of any expansion of the Commitment shall be a Base Facility Commitment, the Conversion Request or the Credit Facility Expansion Request for the first Base Facility Commitment shall select defeasance or yield maintenance with respect to prepayments of Base Facility Advances. If defeasance is selected, this Section 3.10 shall apply. The election of the Borrower as to defeasance or yield maintenance in the first Conversion Request or Credit Facility Expansion Request relating to a Base Facility Commitment shall apply to all Base Facility Advances during the term of this Agreement. Base Facility Advances are not prepayable at any time, provided that, notwithstanding the foregoing, Borrower may prepay any Base Facility Advance during the last one hundred eighty (180) days of the term of such Base Facility Advance and provided that Base Facility Advances may be defeased pursuant to the terms and conditions of this Section. This Section 3.10 shall not apply to Mortgaged Properties released from a Security Instrument in connection with a substitution of Collateral pursuant to Section 7.04 of this Agreement. (a) Conditions. Subject to Section 3.10(d), Borrower shall have the ---------- right to obtain the release of Mortgaged Properties from the lien of the related Security Instruments (and all collateral derived from such Mortgage Properties, including assignment of leases, fixture filings and other documents and instruments evidencing a lien or security interest in -23- Borrower's assets [except the Substitute Collateral] shall be released) upon the satisfaction of all of the following conditions: (1) Defeasance Notice. Borrower shall give Lender a notice (the ----------------- "Defeasance Notice", in the manner specified in Section 3.10(g)(4), on ----------------- a form provided by Lender, specifying a Business Day (the "Defeasance ---------- Closing Date") which Borrower desires to consummate the Defeasance. ------------ The Defeasance Closing Date specified by Borrower may not be more than 45 calendar days, nor less than 30 calendar days, after the date on which the Defeasance Notice is received by Lender. Borrower shall also specify in the Defeasance Notice the name, address and telephone number of Borrower for notices pursuant to Section 3.10(g)(4). The form Defeasance Notice provided by Lender specifies: (i) which Mortgaged Properties Borrower proposes to be released; (ii) the name, address and telephone number of Lender for notices pursuant to Section 3.10(g)(4); (iii) the account(s) to which payments to Lender are to be made; (iv) whether a Fannie Mae Investment Security will be offered for use as the Substitute Collateral and, if not, that U.S. Treasury Securities will be the Substitute Collateral; (v) whether the Successor Borrower will be designated by Lender or Borrower; and (vi) if a Fannie Mae Investment Security is offered for use as the Substitute Collateral, the Defeasance Notice shall also include the amount of the Defeasance Commitment Fee. Any applicable Defeasance Commitment fee must be paid by Borrower and received by Lender no later than the date and time when Lender receives the Defeasance Notice from Borrower. (2) Confirmation. After Lender has confirmed that the Defeasance ------------ is then permitted as provided in Section 3.10(d), and has confirmed that the terms of the Defeasance Notice are acceptable to Lender, Lender shall, with reasonable promptness, notify Borrower of such confirmation by signing the Defeasance Notice, attaching the Annual Yields for the Mortgage Payments beginning on the first day of the second calendar month after the Defeasance Closing Date and ending on the Stated Maturity Date (if a Fannie Mae Investment Security is offered as Substitute Collateral) and transmitting the signed Defeasance Notice to Borrower pursuant to Section 3.10(g)(4). If, after Lender has notified Borrower of its confirmation in accordance with the foregoing, Lender does not receive the Defeasance Commitment Fee within five (5) Business Days after the Defeasance Notice Effective Date, then Borrower's right to obtain Defeasance pursuant to that Defeasance Notice shall terminate. (3) Substitute Collateral. On or before the Defeasance Closing --------------------- Date, Borrower shall deliver to Lender a pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion (the "Pledge Agreement"), creating a first priority ---------------- perfected security interest in favor of Lender in substitute collateral constituting an Investment Security (the "Substitute ---------- Collateral"). The Pledge Agreement shall provide Borrower's ---------- authorization and direction that all interest on, principal of and other amounts payable with respect to the Substitute Collateral shall be paid directly to Lender to be applied to Mortgage Payments due -24- under the Base Facility Note subject to Defeasance. If the Substitute Collateral is issued in a certificated form and Borrower has possession of the certificate, the certificate shall be endorsed (either on the certificate or on a separate writing attached thereto) by Borrower as directed by Lender and delivered to Lender. If the Substitute Collateral is issued in an uncertificated form, or in a certificated form but Borrower does not have possession of the certificate, Borrower shall execute and deliver to Lender all documents and instruments required by Lender to create in Lender's favor a first priority perfected security interest in such Substitute Collateral, including a securities account control agreement or any other instrument or document required to perfect a security interest in each Substitute Collateral. (4) Closing Documents. Borrower shall deliver to Lender on or ----------------- before the Defeasance Closing Date the documents described in Section 3.10(b). (5) Amounts Payable by Borrower. On or before the Defeasance --------------------------- Closing Date, Borrower shall pay to Lender an amount equal to the sum of: (A) the Next Scheduled P&I Payment; (B) all other sums then due and payable under the Base Facility Note subject to Defeasance, the Security Instruments related to the Mortgaged Properties to be released; and (C) all costs and expenses incurred by Lender or Servicer in connection with the Defeasance, including the reasonable fees and disbursements of Lender's or Servicer's legal counsel. (6) Defeasance Deposit. If a Fannie Mae Investment Security will ------------------ be the Substitute Collateral, then, on or before 3:00 p.m., Washington, D.C. time, on the Defeasance Closing Date, Borrower shall pay the Defeasance Deposit (reduced by the Defeasance Commitment Fee) to Lender to be used by Lender to purchase the Fannie Mae Investment Security as Borrower's agent. (7) Covenants, Representations and Warranties. On the Defeasance ----------------------------------------- Closing Date, all of the covenants of the relevant Borrower set forth in Articles XIII, XIV and XV of this Agreement and all of the representations and warranties of the Borrower set forth in Article XII of this Agreement are true and correct in all material respects. (8) Geographical Diversification. If, as a result of the ---------------------------- Defeasance, Lender determines that the geographical diversification of the Collateral Pool is compromised (whether or not the Geographical Diversification Requirement is met), Lender may require that Borrower add or substitute Multifamily Residential Properties to the Collateral Pool in a number and having a valuation required to restore the geographical diversification of the Collateral Pool to a level at least as diverse as before the Defeasance. -25- (b) Closing Documents. The documents required to be delivered to ----------------- Lender on or before the Defeasance Closing Date pursuant to Section 3.10(a)(4) are: (1) an opinion of counsel for Borrower, in form and substance satisfactory to Lender, to the effect that Lender has a valid and perfected lien and security interest of first priority in the Substitute Collateral and the principal and interest payable thereunder; (2) an opinion of counsel for Borrower, in form and substance satisfactory to Lender, that the Defeasance, including both Borrower's granting to Lender of a lien and security interest in the Substitute Collateral and the assignment and assumption by Successor Borrower, and each of them, when considered in combination and separately, are not subject to avoidance under any applicable federal or state laws, including Sections 547 and 548 of the U.S. Bankruptcy Code; (3) if a Fannie Mae Investment Security is not used as Substitute Collateral, and unless waived by Lender, a certificate in form and substance satisfactory to Lender, issued by an independent certified public accountant, or financial institution, approved by Lender, to the effect that the Substitute Collateral will generate the Scheduled Defeasance Payments; (4) unless waived by Lender, an opinion of counsel for Borrower in form and substance satisfactory to Lender, that the Defeasance will not result in a "sale or exchange" of any Base Facility Note within the meaning of Section 1001(c) of the Internal Revenue Code and the temporary and final regulations promulgated thereunder; (5) such other opinions, certificates, documents or instruments as Lender may reasonably request; and (6) three counterparts of the executed Assignment and Assumption Agreement described in Section 3.10(e). (c) Release. Upon Borrower's compliance with the requirements of ------- Sections 3.10(a)(1) through (7), the Mortgaged Properties shall be released from the lien of the Security Instruments (and all collateral derived from such Mortgaged Properties, including assignments of leases, fixture filings and other documents and instruments evidencing a lien or security interest in Borrower's assets [except the Substitute Collateral] shall be released). Lender shall, with reasonable promptness, execute and deliver to Borrower, at Borrower's cost and expense, any additional documents reasonably requested by Borrower in order to evidence or confirm the release of Lender's liens and security interests described in the immediately preceding sentence. (d) Defeasance Not Allowed. Borrower shall not have the right to ---------------------- obtain Defeasance at any of the following times: (1) before the third anniversary of the date of the relevant Base Facility Note; -26- (2) after the expiration of the Defeasance Period; or (3) after Lender has accelerated the maturity of the unpaid principal balance of, accrued interest on, and other amounts payable under, any Note pursuant to Paragraph 6 of such Note. (e) Assignment and Assumption. Upon Borrower's compliance with the ------------------------- requirements of Section 3.10(a), Borrower shall assign all its obligations and rights under the relevant Base Facility Note, together with the Substitute Collateral, to a successor entity (the "Successor Borrower") ------------------ designated by Lender or, if not so designated by Lender, designated by Borrower and acceptable to Lender in its sole discretion. Borrower and Successor Borrower shall execute and deliver to Lender an assignment and assumption agreement on a form provided by Lender (the "Assignment and -------------- Assumption Agreement"). The Assignment and Assumption Agreement shall -------------------- provide for (i) the transfer and assignment by Borrower to Successor Borrower of the Substitute Collateral, subject to the lien and security interest in favor of Lender, (ii) the assumption by Successor Borrower of all liabilities and obligations of Borrower under the relevant Base Facility Note, and (iii) the release by Lender of Borrower from all liabilities and obligations under the relevant Base Facility Note. Lender shall, at Borrower's request and expense, execute and deliver releases, reconveyances and security interest terminations with respect to the released Mortgage Properties and all other collateral held by Lender (except the Defeasance Deposit). The Assignment and Assumption Agreement shall be executed by Lender with a counterpart to be returned by Lender to Borrower and Successor Borrower thereafter; provided, however, in all events that it shall not be a condition of Defeasance that the Assignment and Assumption Agreement be executed by Lender, or any Successor Borrower that is designated by Lender. (f) Agent. If the Defeasance Notice provides that Lender will make ----- available a Fannie Mae Investment Security for purchase by Borrower for use as the Substitute Collateral, Borrower hereby authorizes Lender to use, and appoints Lender as its agent and attorney-in-fact for the purpose of using, the Defeasance Deposit (including any portion thereof that constitutes the Defeasance Commitment Fee) to purchase a Fannie Mae Investment Security. (g) Administrative Provisions. ------------------------- (1) Fannie Mae Security Liquidated Damages. If Borrower timely -------------------------------------- pays the Defeasance Commitment Fee, and Lender and Borrower timely transmit a signed facsimile copy of the Defeasance Notice pursuant to Section 3.10(a)(2), but Borrower fails to perform its other obligations under Sections 3.10(a) and Section 3.10(e), Lender shall have the right to retain the Defeasance Commitment Fee as liquidated damages for Borrower's default, as Lender's sole and exclusive remedy, and, except as provided in Section 3.10(g)(2), Borrower shall be released from all further obligations under this Section 3.10. Borrower acknowledges that, from and after the date on which Lender has executed the Defeasance Notice under Section 3.10(a)(2) and Borrower has delivered the Defeasance Commitment Fee, Lender will incur financing costs in arranging and preparing for the purchase of the Substitute -27- Collateral and in arranging and preparing for the release of the Mortgaged Properties from the lien of the Security Instruments in reliance on the executed Defeasance Notice. Borrower agrees that the Defeasance Commitment Fee represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Agreement, of the damages Lender will incur by reason of Borrower's default. (2) Third Party Costs. In the event that the Defeasance is not ----------------- consummated on the Defeasance Closing Date for any reason, Borrower agrees to reimburse Lender and Servicer for all third party costs and expenses (other than financing costs covered by Section 3.10(g)(1) above), including attorneys' fees and expenses, incurred by Lender in reliance on the executed Defeasance Notice, within 10 Business Days after Borrower receives a written demand for payment, accompanied by a statement, in reasonable detail, of Lender's and Servicer's third party costs and expenses. (3) Payments. All payments required to be made by Borrower to Lender -------- or Servicer pursuant to this Section 3.10 shall be made by wire transfer of immediately available finds to the account(s) designated by Lender or Servicer, as the case may be, in the Defeasance Notice. (4) Notice. The Defeasance Notice delivered pursuant to this Section ------ 3.10(g)(4) shall be in writing and shall be sent by telecopier or facsimile machine which automatically generates a transmission report that states the date and time of the transmission, the length of the document transmitted and the telephone number of the recipient's telecopier or facsimile machine (or shall be sent by any distribution media, whether currently existing or hereafter developed, including electronic mail and internet distribution, as approved by Lender). Any notice so sent addressed to the parties at their respective addresses designated in the Defeasance Notice pursuant to Section 3.10(a), shall be deemed to have been received on the date and time indicated on the transmission report of recipient. To be effective, Borrower must send the Defeasance Notice (as described above) so that Lender receives the Defeasance Notice no earlier than 11:00 a.m. and no later than 3:00 p.m. Washington, D.C. time on a Business Day. (h) Definitions. For purposes of this Section 3.10, the following terms ----------- shall have the following meanings: (1) The term "Annual Yield" means the yield for the theoretical ------------ zero coupon U.S. Treasury Security as calculated from the current "on-the-run" U.S. Treasury yield curve with a term to maturity that most closely matches the Applicable Defeasance Term for the Mortgage Payment, as published by Fannie Mae on MORNET(R) (or in an alternative electronic format) at 2:00 p.m. Washington, D.C. time on the Business Day that Lender receives the Defeasance Notice in accordance with Section 3.10(g)(4). If the publication of yields on MORNET(R) is unavailable, Lender shall determine yields from another source reasonably determined by Lender. -28- (2) The term "Applicable Defeasance Term" means, in the case of each -------------------------- Mortgage Payment, the number of calendar months, based on a year containing 12 calendar months with 30 days each, in the period beginning on the first day of the first calendar month after the Defeasance Closing Date to the date on which such Mortgage Payment is due and payable. (3) The term "Defeasance" means the transaction in which all (but not ---------- less than all) of the Mortgaged Properties are released from the lien of the Security Instruments and Lender receives, as substitute collateral, a valid and perfected lien and security interest of first priority in the Substitute Collateral and the principal and interest payable thereunder. (4) The term "Defeasance Commitment Fee" means the amount specified in ------------------------- the Defeasance Notice as Borrower's good faith deposit to ensure performance of its obligations under this Section, which shall equal two percent (2%) of the aggregate unpaid principal balance of the Base Facility Note subject to Defeasance as of the Defeasance Notice Effective Date, if the Successor Borrower is designated by Borrower under Section 3.10(e), or one percent (1%) of the aggregate unpaid principal balance of the Base Facility Note subject to Defeasance as of the Defeasance Notice Effective Date if the Successor Borrower is designated by Lender under Section 3.10(e). No Defeasance Commitment Fee will be applicable if U.S. Treasury Securities are specified in the Defeasance Notice as the applicable Investment Security. (5) The term "Defeasance Deposit" means an amount equal to the sum of the present value of each Mortgage Payment that becomes due and payable during the period beginning on the first day of the second calendar month after the Defeasance Closing Date and ending on the Stated Maturity Date, where the present value of each Mortgage Payment is determined using the following formula: the amount of the Mortgage Payment ---------------------------------------------- (1 + (the Annual Yield/12))/n/ For this purpose, the last Mortgage Payment due and payable on the Stated Maturity Date shall include the amounts that would constitute the unpaid principal balance of the Base Facility Note subject to Defeasance on the Stated Maturity Date if all prior Mortgage Payments were paid on their due dates and "n" shall equal the Applicable Defeasance Term. (6) The term "Defeasance Period" means the period beginning on the ----------------- earliest permitted date determined under Section 3.10(d)(l) and ending on the 180th day before the Stated Maturity Date. (7) The term "Defeasance Notice Effective Date" means the date on -------------------------------- which Lender provides confirmation of the Defeasance Notice pursuant to Section 3.10(a)(2). -29- (8) The term "Fannie Mae Investment Security" means ------------------------------ any bond, debenture, note, participation certificate or other similar obligation issued by Fannie Mae in connection with the Defeasance which provides for Scheduled Defeasance Payments beginning in the second calendar month after the Defeasance Closing Date. (9) The term "Investment Security" means: ------------------- (A) If offered by Lender pursuant to the Defeasance Notice, a Fannie Mae Investment Security purchased in the manner described in Sections 3.10(a)(6) and 3.10(f), and (B) If no Fannie Mae Investment Security is offered by Lender pursuant to the Defeasance Notice, U.S. Treasury Securities. (10) The term "Mortgage Payment" means the amount of ---------------- each regularly scheduled monthly payment of principal and interest due and payable under the Base Facility Note subject to Defeasance during the period beginning on the first day of the second calendar month after the Defeasance Closing Date and ending on the Stated Maturity Date, and the amount that would constitute the aggregate unpaid principal balance of the Base Facility Note subject to Defeasance on the Stated Maturity Date if all prior Mortgage Payments were paid on their due dates. (11) The term "Next Scheduled P&I Payment" means an -------------------------- amount equal to the monthly installment of principal and interest due under the Base Facility Note subject to Defeasance on the first day of the first calendar month after the Defeasance Closing Date. (12) The term "Scheduled Defeasance Payments" means ----------------------------- payments prior and as close as possible to (but in no event later than) the successive scheduled dates on which Mortgage Payments are required to be paid under the Base Facility Note subject to Defeasance and in amounts equal to or greater than the scheduled Mortgage Payments due and payable on such dates under the Base Facility Note subject to Defeasance. (13) The term "Stated Maturity Date" means the -------------------- Maturity Date specified in the Base Facility Note subject to Defeasance determined without regard to Lender's exercise of any right of acceleration of the Base Facility Note subject to Defeasance. (14) The term "U.S. Treasury Securities" means ------------------------ direct, non-callable and non-redeemable obligations of the United States of America which provided for Scheduled Defeasance Payments beginning in the second calendar month after the Defeasance Closing Date. -30- ARTICLE IV RATE SETTING FOR THE ADVANCES SECTION 4.01 Rate Setting for an Advance. Rates for an Advance shall be set in --------------------------- accordance with the following procedures: (a) Preliminary, Nonbinding Quote. At the Borrower's request the ----------------------------- Lender shall quote to the Borrower an estimate of the MBS Pass-Through Rate (for a proposed Base Facility Advance) or MBS Imputed Interest Rate (for a proposed Revolving Advance) for a Fannie Mae MBS backed by a proposed Advance. The Lender's quote shall be based on (i) a solicitation of at least three (3) bids from institutional investors selected by the Lender and (ii) the proposed terms and amount of the Advance selected by the Borrower. The quote shall not be binding upon the Lender. (b) Rate Setting. If the Borrower satisfies all of the conditions ------------ to the Lender's obligation to make the Advance in accordance with Article V, then the Borrower may propose a MBS Pass-Through Rate (for a Base Facility Advance) or MBS Imputed Interest Rate (for a Revolving Advance) by submitting to the Lender by facsimile transmission a completed and executed document, in the form attached as Exhibit M to this Agreement ("Rate Setting Form"), before --------- ----------------- 1:00 p.m. Washington, D.C. time on any Business Day ("Rate Setting Date"). The ----------------- Rate Setting Form contains various factual certifications required by the Lender and specifies: (i) for a Revolving Advance, the amount, term, MBS Issue Date, Revolving Facility Fee and Closing Date for the Advance; and (ii) for a Base Facility Advance, the amount, term, MBS Issue Date, Base Facility Fee, Price (which will be in a range between 99-1/2 and 100-1/2), Yield Maintenance Period, if applicable, Yield Rate Security, if applicable, Amortization Period and Closing Date for the Advance. (c) Rate Confirmation. Within one Business Day after receipt ----------------- of the completed and executed Rate Setting Form, the Lender shall solicit bids from institutional investors selected by the Lender based on the information in the Rate Setting Form, shall obtain a commitment ("MBS Commitment") for the -------------- purchase of a Fannie Mae MBS having the bid terms described in the related Rate Setting Form, and shall immediately deliver to the Borrower by facsimile transmission a completed document, in the form attached as Exhibit N to this --------- Agreement ("Rate Confirmation Form"). The Rate Confirmation Form will confirm: ---------------------- (i) for a Revolving Advance, the amount, term, MBS Issue Date, MBS Delivery Date, MBS Imputed Interest Rate, Revolving Facility Fee, Coupon Rate, Discount, Price, and Closing Date for the Advance; and (ii) for a Base Facility Advance, the amount, term, MBS Issue Date, MBS Delivery Date, MBS Pass-Through Rate, Base Facility Fee, Coupon Rate, Price, Yield Maintenance Period, Specified U.S. Treasury Security, Amortization Period and Closing Date for the Advance. -31- SECTION 4.02 Advance Confirmation Instrument for Revolving Advances. On or ------------------------------------------------------ before the Closing Date for a Revolving Advance, the Borrower shall execute and deliver to the Lender an instrument ("Advance Confirmation Instrument"), in the ------------------------------- form attached as Exhibit O to this Agreement, confirming the amount, term, MBS --------- Issue Date, MBS Delivery Date, MBS Imputed Interest Rate, Revolving Facility Fee, Coupon Rate, Discount, Price and Closing Date for the Advance, and the Borrower's obligation to repay the Advance in accordance with the terms of the Notes and this Agreement. Upon the funding of the Revolving Advance, the Lender shall note the date of funding in the appropriate space at the foot of the Advance Confirmation Instrument and deliver a copy of the completed Advance Confirmation Instrument to the Borrower. The Lender's failure to do so shall not invalidate the Advance Confirmation Instrument or otherwise affect in any way any obligation of the Borrower to repay Revolving Advances in accordance with the Advance Confirmation Instrument, the Revolving Facility Note or the other Loan Documents, but is merely meant to facilitate evidencing the date of funding and to confirm that the Advance Confirmation Instrument is not effective until the date of funding. SECTION 4.03 Breakage and other Costs. In the event that the Lender obtains an ------------------------ MBS Commitment and the Lender fails to fulfill the MBS Commitment because the Advance is not made (for a reason other than the default of the Lender to make the Advance or the failure of the purchaser of the MBS to purchase such MBS), the Borrower shall pay all breakage and other costs, fees and damages incurred by the Lender in connection with its failure to fulfill the MBS Commitment. The Lender reserves the right to require that the Borrower post a deposit at the time the MBS Commitment is obtained. ARTICLE V MAKING THE ADVANCES SECTION 5.01 Initial Advance. The Borrower may make a request ("Initial Advance --------------- --------------- Request") for the Lender to make the Initial Advance. If all conditions - ------- contained in this Section are satisfied on or before the Closing Date for the Initial Advance, the Lender shall make the Initial Advance on the Initial Closing Date or on another date selected by the Borrower and approved by the Lender. The obligation of the Lender to make the Initial Advance is subject to the following conditions precedent: (a) Receipt by the Lender of the Initial Advance Request; (b) [Intentionally Deleted] (c) The delivery to the Title Company, for filing and/or recording in all applicable jurisdictions, of all applicable Loan Documents required by the Lender, including duly executed and delivered original copies of the Revolving Facility Note, a Base Facility Note, the Initial Security Instruments covering the Initial Mortgaged Properties and UCC-1 Financing Statements covering the portion of the Collateral comprised of personal property, and other appropriate instruments, in form and substance satisfactory to the Lender and in form proper for recordation, as may be necessary in the opinion of the Lender to perfect the Liens created by the applicable Security Instruments and any other Loan Documents creating a Lien in favor of the -32- Lender, and the payment of all taxes, fees and other charges payable in connection with such execution, delivery, recording and filing; (d) If the Advance is a Revolving Advance, the receipt by the Lender of the first installment of Revolving Facility Fee for the Revolving Advance and the entire Discount for the Revolving Advance payable by the Borrower pursuant to Section 2.04; (e) The receipt by the Lender of the Initial Origination Fee pursuant to Section 16.02(a), the Initial Due Diligence Fee pursuant to Section 16.03(a) to the extent calculated by Lender at such time (any portion of the Initial Due Diligence Fee not paid by the Borrower on the Initial Closing Date shall be paid promptly upon demand by Lender), all legal fees and expenses payable pursuant to Section 16.04(a) and all legal fees and expenses payable in connection with the Initial Advance pursuant to Section 16.04(b); and (f) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 5.02 Future Advances. In order to obtain a Future Advance, the Borrower --------------- may from time to time deliver a written request for a Future Advance ("Future ------ Advance Request") to the Lender, in the form attached as Exhibit P to this - --------------- --------- Agreement. Each Future Advance Request shall be accompanied by (a) a designation of the amount of the Future Advance requested, and (b) a designation of the maturity date of the Advance. Each Future Advance Request shall be in the minimum amount of $3,000,000. If all conditions contained in Section 5.03 are satisfied, the Lender shall make the requested Future Advance, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring on a date selected by the Borrower, which date shall be not more than three (3) Business Days, after the Lender's receipt of the Future Advance Request and the Borrower's receipt of the Rate Confirmation Form (or on such other date to which the Borrower and the Lender may agree). The Lender reserves the right to require that the Borrower post a deposit at the time the MBS Commitment is obtained as an additional condition to the Lender's obligation to make the Future Advance. SECTION 5.03 Conditions Precedent to Future Advances. The obligation of the --------------------------------------- Lender to make a requested Future Advance is subject to the following conditions precedent: (a) The receipt by the Lender of a Future Advance Request; (b) The Lender has delivered the Rate Setting Form for the Future Advance to the Borrower; (c) After giving effect to the requested Future Advance, the Coverage and LTV Tests will be satisfied; (d) If the Advance is a Base Facility Advance, delivery of a Base Facility Note, duly executed by the Borrower, in the amount of the Advance, reflecting all of the terms of the Base Facility Advance; (e) If the Advance is a Revolving Advance, delivery of the Advance Confirmation Instrument, duly executed by the Borrower; -33- (f) For any Title Insurance Policy not containing a Revolving Credit Endorsement, the receipt by the Lender of an endorsement to the Title Insurance Policy, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (g) If the Advance is a Revolving Advance, the receipt by the Lender of the first installment of Revolving Facility Fee for the Revolving Advance and the entire Discount for the Revolving Advance payable by the Borrower pursuant to Section 2.04; (h) The receipt by the Lender of all legal fees and expenses payable by the Borrower in connection with the Future Advance pursuant to Section 16.04(b); and (i) The satisfaction of all applicable General Conditions set forth in Article XI. SECTION 5.04 Determination of Allocable Facility Amount and Valuations. --------------------------------------------------------- (a) Initial Determinations. On the Initial Closing Date, Lender shall ---------------------- determine (i) the Allocable Facility Amount and Valuation for each Mortgaged Property and (ii) the Aggregate Debt Service Coverage Ratio for the Trailing 12 Month Period and the Aggregate Loan to Value Ratio for the Trailing 12 Month Period. The determinations made as of the Initial Closing Date shall remain unchanged until the first anniversary of the Initial Closing Date. (b) Future Determinations. (i) Once each Calendar Quarter or, if the --------------------- Commitment consists only of a Base Facility Commitment, once each Calendar Year, within twenty (20) Business Days after Borrower has delivered to Lender the reports required in Section 13.04, Lender shall determine the Aggregate Debt Service Coverage Ratio for the Trailing 12 Month Period and the Aggregate Loan to Value Ratio for the Trailing 12 Month Period with the other covenants set forth in the Loan Documents, and whether the Borrower is in compliance, (ii) after the first anniversary of the Initial Closing Date, on an annual basis, and if Lender reasonably decides that changed market or property conditions warrant, Lender shall determine Allocable Facility Amounts and Valuations, and (iii) Lender shall also redetermine Allocable Facility Amounts to take account of any addition, release or substitution of Collateral or other event which invalidates the outstanding determinations. ARTICLE VI ADDITIONS OF COLLATERAL SECTION 6.01 Right to Add Collateral. Subject to the terms and conditions of ----------------------- this Article, the Borrower shall have the right, from time to time during the Term of this Agreement, to add Multifamily Residential Properties to the Collateral Pool in accordance with the provisions of this Article. SECTION 6.02 Procedure for Adding Collateral. The procedure for adding ------------------------------- Collateral set forth in this Section 6.02 shall apply to all additions of Collateral in connection with this Agreement, including but not limited to additions of Collateral in connection with substitutions of Collateral and expansion of the Credit Facility. -34- (a) Request. The Borrower may deliver a written request ("Collateral ------- ---------- Addition Request") to the Lender, in the form attached as Exhibit Q to this - ---------------- --------- Agreement, to add one or more Multifamily Residential Properties to the Collateral Pool. Each Collateral Addition Request shall be accompanied by the following: (i) The information relating to the proposed Additional Mortgaged Property required by the form attached as Exhibit R to this --------- Agreement ("Collateral Addition Description Package"), as amended from time --------------------------------------- to time to include information required under the DUS Guide; and (ii) The payment of all Additional Collateral Due Diligence Fees pursuant to Section 16.03(b) to the extent calculated by Lender at such time (any portion of any Additional Collateral Due Diligence Fee not paid by Borrower with the Collateral Additional Request shall be paid promptly upon demand by Lender). (b) Additional Information. The Borrower shall promptly deliver to ---------------------- the Lender any additional information concerning the proposed Additional Mortgaged Property that the Lender may from time to time reasonably request. (c) Underwriting. The Lender shall evaluate the proposed Additional ------------ Mortgaged Property, and shall make underwriting determinations as to (A) the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period and the Aggregate Loan to Value Ratio for the Trailing 12 Month Period applicable to the Collateral Pool, and (B) the Debt Service Coverage Ratio for the Trailing 12 Month Period and the Loan to Value Ratio for the Trailing 12 Month Period applicable to the proposed Additional Property on the basis of the lesser of (i) the acquisition price of the proposed Additional Mortgaged Property or (ii) a Valuation made with respect to the proposed Additional Mortgaged Property, and otherwise in accordance with Fannie Mae's DUS Underwriting Requirements. Within 30 days after receipt of (i) the Collateral Addition Request for the Additional Mortgaged Property and (ii) all reports, certificates and documents set forth on Exhibit S to this Agreement, including a zoning analysis undertaken in - --------- accordance with Section 206 of the DUS Guide, the Lender shall notify the Borrower whether or not it shall consent to the addition of the proposed Additional Mortgaged Property to the Collateral Pool and, if it shall so consent, shall set forth the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period and the Aggregate Loan to Value Ratio for the Trailing 12 Month Period which it estimates shall result from the addition of the proposed Additional Mortgaged Property to the Collateral Pool. If the Lender declines to consent to the addition of the proposed Additional Mortgaged Property to the Collateral Pool, the Lender shall include, in its notice, a brief statement of the reasons for doing so. Within five Business Days after receipt of the Lender's notice that it shall consent to the addition of the proposed Additional Mortgaged Property to the Collateral Pool, the Borrower shall notify the Lender whether or not it elects to cause the proposed Additional Mortgaged Property to be added to the Collateral Pool. If the Borrower fails to respond within the period of five Business Days, it shall be conclusively deemed to have elected not to cause the proposed Additional Mortgaged Property to be added to the Collateral Pool. (d) Closing. If, pursuant to subsection (c), the Lender consents to ------- the addition of the proposed Additional Mortgaged Property to the Collateral Pool, the Borrower timely elects to cause the proposed Additional Mortgaged Property to be added to the Collateral Pool and all -35- conditions contained in Section 6.03 are satisfied, the Lender shall permit the proposed Additional Mortgaged Property to be added to the Collateral Pool, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within 30 Business Days after the Lender's receipt of the Borrower's election (or on such other date to which the Borrower and the Lender may agree), provided that in any Calendar Quarter, the Closing Date for any addition of an Additional Mortgaged Property to the Collateral Pool shall be on the same day as the Closing Date of any release or substitution pursuant to Article VII of this Agreement and any increase in the Credit Facility pursuant to Article VIII of this Agreement SECTION 6.03 Conditions Precedent to Addition of an Additional Mortgaged ----------------------------------------------------------- Property to the Collateral Pool. The addition of an Additional Mortgaged - ------------------------------- Property to the Collateral Pool on the Closing Date applicable to the Additional Mortgaged Property is subject to the satisfaction of the following conditions precedent: (a) If the Additional Mortgaged Property is being added to the Collateral Pool prior to the first anniversary of the Initial Closing Date, the Coverage and LTV Tests will be satisfied; (b) If the Additional Mortgaged Property is being added to the Collateral Pool after the first anniversary of the Initial Closing Date, the proposed Additional Mortgaged Property has a Debt Service Coverage Ratio for the Trailing 12 Month Period of not less than 130% and a Loan to Value Ratio for the Trailing 12 Month Period of not more than 70% and immediately after giving effect to the requested addition, the Coverage and LTV Tests will be satisfied, and in the case of any substitution effected pursuant to Section 7.04 of this Agreement, the Coverage and LTV Tests are not adversely affected after giving effect to the proposed substitution; (c) If the Collateral Addition Fee is due, the receipt by the Lender of the Collateral Addition Fee and all legal fees and expenses payable by the Borrower in connection with the Collateral Addition pursuant to Section 16.04(b); (d) The delivery to the Title Company, with fully executed instructions directing the Title Company to file and/or record in all applicable jurisdictions, all applicable Collateral Addition Loan Documents required by the Lender, including duly executed and delivered original copies of any Security Instruments and UCC-1 Financing Statements covering the portion of the Additional Mortgaged Property comprised of personal property, and other appropriate documents, in form and substance satisfactory to the Lender and in form proper for recordation, as may be necessary in the opinion of the Lender to perfect the Lien created by the applicable additional Security Instrument, and any other Collateral Addition Loan Document creating a Lien in favor of the Lender, and the payment of all taxes, fees and other charges payable in connection with such execution, delivery, recording and filing; (e) If required by the Lender, amendments to the Notes and the Security Instruments, reflecting the addition of the Additional Mortgaged Property to the Collateral Pool and, as to any Security Instrument so amended, the receipt by the Lender of an endorsement to the Title Insurance Policy insuring the Security Instrument, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; -36- (f) If the Title Insurance Policy for the Additional Mortgaged Property contains a Tie-In Endorsement, an endorsement to each other Title Insurance Policy containing a Tie-In Endorsement, adding a reference to the Additional Mortgaged Property; and (g) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE VII RELEASES OF COLLATERAL SECTION 7.01 Right to Obtain Releases of Collateral. Subject to the terms and -------------------------------------- conditions of this Article, the Borrower shall have the right to obtain a release of Collateral from the Collateral Pool in accordance with the provisions of this Article. SECTION 7.02 Procedure for Obtaining Releases of Collateral. ---------------------------------------------- (a) Request. In order to obtain a release of Collateral from the ------- Collateral Pool, the Borrower may deliver a written request for the release of Collateral from the Collateral Pool ("Collateral Release Request") to the -------------------------- Lender, in the form attached as Exhibit T to this Agreement. The Collateral --------- Release Request shall not result in a termination of all or any part of the Credit Facility. The Borrower may only terminate all or any part of the Credit Facility by delivering a Revolving Facility Termination Request or Credit Facility Termination Request pursuant to Articles IX or X. The Collateral Release Request shall be accompanied by (and shall not be effective unless it is accompanied by) the name, address and location of the Mortgaged Property to be released from the Collateral Pool ("Collateral Release Property"). --------------------------- (b) Closing. If all conditions contained in Section 7.03 are ------- satisfied, the Lender shall cause the Collateral Release Property to be released from the Collateral Pool, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within 30 days after the Lender's receipt of the Collateral Release Request (or on such other date to which the Borrower and the Lender may agree, provided that in any Calendar Quarter, the Closing Date for any release shall be on the same day as the Closing Date of any addition of an Additional Mortgaged Property to the Collateral Pool pursuant to Article VI of this Agreement or any increase in the Credit Facility pursuant to Article VIII of this Agreement), by executing and delivering, and causing all applicable parties to execute and deliver, all at the sole cost and expense of the Borrower, instruments, in the form customarily used by the Lender and reasonably satisfactory to the Title Company for releases in the jurisdiction governing the perfection of the security interest being released, releasing the applicable Security Instrument as a Lien on the Collateral Release Property, and UCC-3 Termination Statements terminating the UCC-1 Financing Statements perfecting a Lien on the portion of the Collateral Release Property comprised of personal property and such other documents and instruments as the Borrower may reasonably request evidencing the release of the applicable Collateral from any lien securing the Obligations (including a termination of any restriction on the use of any accounts relating to the Collateral Release Property) and the release and return to the Borrower of any and all escrowed amounts relating thereto. The instruments referred to in the preceding sentence are referred to in this Article as the "Collateral Release ------------------ Documents." - --------- -37- (c) Release Price. The "Release Price" for each Mortgaged Property ------------- ------------- other than Mortgaged Properties released from a Security Instrument in connection with a Substitution of Collateral pursuant to Section 7.04 of this Agreement means the greater of (i) the Allocable Facility Amount for the Mortgaged Property to be released and (ii) the amount, if any, of Advances Outstanding which are required to be repaid by the Borrower to the Lender in connection with the proposed release of the Mortgaged Property from the Collateral Pool, so that, immediately after the release, the Coverage and LTV Tests will be satisfied and neither the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period will be reduced nor the Aggregate Loan to Value Ratio for the Trailing 12 Month Period will be increased as a result of such release. In addition to the Release Price, the Borrower shall pay to the Lender all associated prepayment premiums and other amounts due under the Notes and any Advance Confirmation Instruments evidencing the Advances being repaid. (d) Application of Release Price. The Release Price shall be applied ---------------------------- against the Revolving Advances Outstanding until there are no further Revolving Advances Outstanding, and thereafter shall be held by the Lender (or its appointed collateral agent) as substituted Collateral ("Substituted Cash ---------------- Collateral"), in accordance with a security agreement and other documents in - ---------- form and substance acceptable to the Lender (or, at the Borrower's option, may be applied against the prepayment of Base Facility Advances, so long as the prepayment is permitted under the Base Facility Note for the Base Facility Advance). Any portion of the Release Price held as Substituted Cash Collateral may be released if, immediately after giving effect to the release, each of the conditions set forth in Section 7.03(a) below shall have been satisfied. If, on the date on which the Borrower pays the Release Price, Revolving Advances are Outstanding but are not then due and payable, the Lender shall hold the payments as additional Collateral for the Credit Facility, until the next date on which Revolving Advances are due and payable, at which time the Lender shall apply the amounts held by it to the amounts of the Revolving Advances due and payable. SECTION 7.03 Conditions Precedent to Release of Collateral Release Property from ------------------------------------------------------------------- the Collateral. The obligation of the Lender to release a Collateral Release - -------------- Property from the Collateral Pool by executing and delivering the Collateral Release Documents on the Closing Date, are subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) Immediately after giving effect to the requested release the Coverage and LTV Tests will be satisfied, and in the case of any substitution effected pursuant to Section 7.04 of this Agreement, the Coverage and LTV Tests are not adversely affected after giving effect to the proposed substitution; (b) Receipt by the Lender of the Release Price; (c) Receipt by the Lender of all legal fees and expenses payable by the Borrower in connection with the release pursuant to Section 16.04(b); (d) Receipt by the Lender on the Closing Date of one or more counterparts of each Collateral Release Document, dated as of the Closing Date, signed by each of the parties (other than the Lender) who is a party to such Collateral Release Document; -38- (e) If required by the Lender, amendments to the Notes and the Security Instruments, reflecting the release of the Collateral Release Property from the Collateral Pool and, as to any Security Instrument so amended, the receipt by the Lender of an endorsement to the Title Insurance Policy insuring the Security Instrument, amending the effective date of the Title Insurance Policy to the Closing Date and showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date and other exceptions approved by the Lender; (f) If the Lender determines the Collateral Release Property to be one phase of a project, and one or more other phases of the project are Mortgaged Properties which will remain in the Collateral Pool ("Remaining --------- Mortgaged Properties"), the Lender's determination that the Remaining Mortgaged - -------------------- Properties can be operated separately from the Collateral Release Property and any other phases of the project which are not Mortgaged Properties. In making this determination, the Lender shall evaluate whether the Remaining Mortgaged Properties comply with the terms of Sections 203 and 208 of the DUS Guide, which, as of the date of this Agreement, require, among other things, that a phase which constitutes collateral for a loan made in accordance with the terms of the DUS Guide (i) have adequate ingress and egress to existing public roadways, either by location of the phase on a dedicated, all-weather road or by access to such a road by means of a satisfactory easement, (ii) have access which is sufficiently attractive and direct from major thoroughfares to be conducive to continued good marketing, (iii) have a location which is not (A) inferior to other phases, (B) such that inadequate maintenance of other phases would have a significant negative impact on the phase, and (C) such that the phase is visible only after passing through the other phases of the project and (iv) comply with such other issues as are dictated by prudent practice; (g) Receipt by the Lender of endorsements to the Tie-In Endorsements of the Title Insurance Policies, if deemed necessary by the Lender, to reflect the release; (h) Receipt by the Lender on the Closing Date of a writing, dated as of the Closing Date, signed by the Borrower, in the form attached as Exhibit ------- U to this Agreement, pursuant to which the Borrower confirms that its - - obligations under the Loan Documents are not adversely affected by the release of the Collateral Release Property from the Collateral; (i) The remaining Mortgaged Properties in the Collateral Pool shall satisfy the then-existing Geographical Diversification Requirements; (j) The satisfaction of all applicable General Conditions set forth in Article XI; and (k) Notwithstanding the other provisions of this Section 7.03, no release of any of the Mortgaged Properties shall be made unless the Borrower has provided title insurance to Lender in respect of each of the remaining Mortgage Properties in the Collateral Pool in an amount equal to 150% of the Initial Value of each such Mortgaged Property. SECTION 7.04 Substitutions. Subject to the terms, conditions and limitations of ------------- Articles VI and VII, the Borrower may simultaneously add a Multifamily Residential Property to the Collateral Pool and release a Mortgaged Property from the Collateral Pool, thereby effecting a substitution of -39- Collateral, provided that Sections 7.02(c), 7.02(d) and 7.03(b) shall not apply to a substitution of Collateral. ARTICLE VIII EXPANSION OF CREDIT FACILITY SECTION 8.01 Right to Increase Commitment. Subject to the terms, conditions and ---------------------------- limitations of this Article, the Borrower shall have the right to increase the Base Facility Commitment, the Revolving Facility Commitment, or both. The Borrower's right to increase the Commitment is subject to the following limitations: (a) Commitment. After giving effect to the proposed increase, the ---------- Commitment (without regard to the actual amount of Revolving Advances Outstanding, but taking into account the aggregate original principal amount of all Base Facility Advances made under this Agreement to the Closing Date) shall not exceed $400,000,000. (b) Minimum Request. Each Request for an increase in the --------------- Commitment (other than an increase in the Commitment pursuant to Section 8.01(b), which shall be in the minimum amount of $3,000,000) shall be in the minimum amount of $10,000,000. (c) Terms and Conditions. The terms and conditions of this --------------------- Agreement shall apply to any increase in the Commitment. SECTION 8.02 Procedure for Obtaining Increases in Commitment. ----------------------------------------------- (a) Request. In order to obtain an increase in the Commitment, ------- the Borrower shall deliver a written request for an increase (a "Credit Facility --------------- Expansion Request") to the Lender, in the form attached as Exhibit V to this - ----------------- --------- Agreement. Each Credit Facility Expansion Request shall be accompanied by the following: (i) A designation of the amount of the proposed increase; (ii) A designation of the increase in the Base Facility Credit Commitment and the Revolving Facility Credit Commitment; (iii) A request that the Lender inform the Borrower of any change in the Geographical Diversification Requirements; and (iv) A request that the Lender inform the Borrower of the Base Facility Fee and the Revolving Facility Fee to apply to Advances drawn from such increase in the Commitment. (b) Closing. If all conditions contained in Section 8.03 are ------- satisfied, the Lender shall permit the requested increase in the Commitment, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, and occurring within fifteen (15) Business Days after the Lender's receipt of the Credit Facility Expansion Request (or on such other date to which the Borrower and the Lender may agree), provided that in any Calendar Quarter the Closing -40- Date for addition of an Additional Mortgaged Property to the Collateral Pool pursuant to Article VI of this Agreement and any increase of the Credit Facility shall be on the same day as the Closing Date for any release or substitution pursuant to Article VII of this Agreement. SECTION 8.03 Conditions Precedent to Increase in Commitment. The right of the ---------------------------------------------- Borrower to increase the Commitment is subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) After giving effect to the requested increase the Coverage and LTV Tests will be satisfied; (b) Payment by the Borrower of the Expansion Origination Fee in accordance with Section 16.02(b) and all legal fees and expenses payable by the Borrower in connection with the expansion of the Commitment pursuant to Section 16.04(b); (c) The receipt by the Lender of an endorsement to each Title Insurance Policy, amending the effective date of the Title Insurance Policy to the Closing Date, increasing the limits of liability to the Commitment, as increased under this Article, showing no additional exceptions to coverage other than the exceptions shown on the Initial Closing Date (or, if applicable, the last Closing Date with respect to which the Title Insurance Policy was endorsed) and other exceptions approved by the Lender, together with any reinsurance agreements required by the Lender; (d) The receipt by the Lender of fully executed original copies of all Credit Facility Expansion Loan Documents, each of which shall be in full force and effect, and in form and substance satisfactory to the Lender in all respects; (e) if determined necessary by the Lender, the Borrower's agreement to such geographical diversification requirements as the Lender may determine; and (f) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE IX COMPLETE OR PARTIAL TERMINATION OF FACILITIES SECTION 9.01 Right to Complete or Partial Termination of Facilities. Subject to ------------------------------------------------------ the terms and conditions of this Article, the Borrower shall have the right to permanently reduce the Revolving Facility Commitment and the Base Facility Commitment in accordance with the provisions of this Article. SECTION 9.02 Procedure for Complete or Partial Termination of Facilities. ----------------------------------------------------------- (a) Request. In order to permanently reduce the Revolving Facility ------- Commitment (other than in connection with a conversion of all or a portion of the Revolving Loan Commitment to a Base Facility Commitment, which reduction shall be automatic) or the Base Facility Commitment, the Borrower may deliver a written request for the reduction ("Facility Termination Request") to the ---------------------------- Lender, in the form attached as Exhibit W to this Agreement. A permanent --------- reduction of the Revolving Facility Commitment to $0 shall be referred to as a "Complete -------- -41- Revolving Facility Termination." A permanent reduction of the Base Facility - ------------------------------ Commitment to $0 shall be referred to as a "Complete Base Facility Termination." ---------------------------------- The Facility Termination Request shall be accompanied by the following: (i) A designation of the proposed amount of the reduction in the Commitment; and (ii) Unless there is a Complete Revolving Facility Termination or a Complete Base Facility Termination, a designation by the Borrower of any Revolving Advances which will be prepaid or Fixed Advances which will be prepaid, as the case may be. Any release of Collateral, whether or not made in connection with a Facility Termination Request, must comply with all conditions to a release which are set forth in Article VII. (b) Closing. If all conditions contained in Section 9.03 are ------- satisfied, the Lender shall permit the Revolving Facility Commitment or Base Facility Commitment, as the case may be, to be reduced to the amount designated by the Borrower, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, within fifteen (15) Business Days after the Lender's receipt of the Facility Termination Request (or on such other date to which the Borrower and the Lender may agree), by executing and delivering a counterpart of an amendment to this Agreement, in the form attached as Exhibit X --------- to this Agreement, evidencing the reduction in the Commitment. The document referred to in the preceding sentence is referred to in this Article as the "Facility Termination Document." ----------------------------- SECTION 9.03 Conditions Precedent to Complete or Partial Termination of ---------------------------------------------------------- Facilities. The right of the Borrower to reduce the Commitments and the - ---------- obligation of the Lender to execute the Facility Termination Document, are subject to the satisfaction of the following conditions precedent on or before the Closing Date: (a) Payment by the Borrower in full of all of the Revolving Advances Outstanding required to be paid in order that the aggregate unpaid principal balance of all Revolving Advances Outstanding is not greater than the Revolving Facility Commitment, including any associated prepayment premiums or other amounts due under the Notes (but if the Borrower is not required to prepay all of the Revolving Advances, the Borrower shall have the right to select which of the Revolving Advances shall be repaid); (b) If applicable, payment by the Borrower of the Facility Termination Fee; (c) Receipt by the Lender on the Closing Date of one or more counterparts of the Facility Termination Document, dated as of the Closing Date, signed by each of the parties (other than the Lender) who is a party to such Facility Termination Document; and (d) The satisfaction of all applicable General Conditions set forth in Article XI. -42- ARTICLE X TERMINATION OF CREDIT FACILITY SECTION 10.01 Right to Terminate Credit Facility. Subject to the terms and ---------------------------------- conditions of this Article, the Borrower shall have the right to terminate this Agreement and the Credit Facility and receive a release of all of the Collateral from the Collateral Pool in accordance with the provisions of this Article. SECTION 10.02 Procedure for Terminating Credit Facility. ----------------------------------------- (a) Request. In order to terminate this Agreement and the Credit ------- Facility, the Borrower shall deliver a written request for the termination ("Credit Facility Termination Request") to the Lender, in the form attached as ----------------------------------- Exhibit Y to this Agreement. - --------- (b) Closing. If all conditions contained in Section 10.03 are ------- satisfied, this Agreement shall terminate, and the Lender shall cause all of the Collateral to be released from the Collateral Pool, at a closing to be held at offices designated by the Lender on a Closing Date selected by the Lender, within 30 Business Days after the Lender's receipt of the Credit Facility Termination Request (or on such other date to which the Borrower and the Lender may agree), by executing and delivering, and causing all applicable parties to execute and deliver, all at the sole cost and expense of the Borrower, (i) instruments, in the form customarily used by the Lender for releases in the jurisdictions in which the Mortgaged Properties are located, releasing all of the Security Instruments as a Lien on the Mortgaged Properties, (ii) UCC Termination Statements terminating all of the UCC-1 Financing Statements perfecting a Lien on the personal property located on the Mortgaged Properties, in form customarily used in the jurisdiction governing the perfection of the security interest being released, (iii) such other documents and instruments as the Borrower may reasonably request evidencing the release of the Collateral from any lien securing the Obligations (including a termination of any restriction on the use of any accounts relating to the Collateral) and the release and return to the Borrower of any and all escrowed amounts relating thereto, (iv) instruments releasing the Borrower from its obligations under this Agreement and any and all other Loan Documents, and (v) the Notes, each marked paid and canceled. The instruments referred to in the preceding sentence are referred to in this Article as the "Facility Termination Documents." ------------------------------ SECTION 10.03 Conditions Precedent to Termination of Credit Facility. The right ------------------------------------------------------ of the Borrower to terminate this Agreement and the Credit Facility and to receive a release of all of the Collateral from the Collateral Pool and the Lender's obligation to execute and deliver the Facility Termination Documents on the Closing Date are subject to the following conditions precedent: (a) Payment by the Borrower in full of all of the Notes Outstanding on the Closing Date, including any associated prepayment premiums or other amounts due under the Notes and all other amounts owing by the Borrower to the Lender under this Agreement; (b) If applicable, defeasance by the Borrower, in accordance with the provisions of Section 3.10 of this Agreement, with respect to all Base Facility Notes Outstanding on the Closing Date; (c) If applicable, payment of the Facility Termination Fee; and -43- (d) The satisfaction of all applicable General Conditions set forth in Article XI. ARTICLE XI GENERAL CONDITIONS PRECEDENT TO ALL REQUESTS The obligation of the Lender to close the transaction requested in a Request shall be subject to the following conditions precedent ("General ------- Conditions") in addition to any other conditions precedent set forth in this - ---------- Agreement: SECTION 11.01 Conditions Applicable to All Requests. Each of the following ------------------------------------- conditions precedent shall apply to all Requests: (a) Payment of Expenses. The payment by the Borrower of the Lender's ------------------- reasonable fees and expenses payable in accordance with this Agreement for which the Lender has presented an invoice on or before the Closing Date for the Request. (b) No Material Adverse Change. There has been no material adverse -------------------------- change in the financial condition, business or prospects of the Borrower or in the physical condition, operating performance or value of any of the Mortgaged Properties since the Initial Closing Date (or, with respect to the conditions precedent to the Initial Advance, from the condition, business or prospects reflected in the financial statements, reports and other information obtained by the Lender during its review of the Borrower and the Initial Mortgaged Properties). (c) No Default. There shall exist no Event of Default or Potential ---------- Event of Default on the Closing Date for the Request and, after giving effect to the transaction requested in the Request, no Event of Default or Potential Event of Default shall have occurred. (d) No Insolvency. The Borrower is not insolvent (within the meaning ------------- of any applicable federal or state laws relating to bankruptcy or fraudulent transfers) nor will it be rendered insolvent by the transactions contemplated by the Loan Documents, including the making of a Future Advance, or, after giving effect to such transactions, will be left with an unreasonably small capital with which to engage in its business or undertakings, or will have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature or will have intended to hinder, delay or defraud any existing or future creditor. (e) No Untrue Statements. The Loan Documents shall not contain any -------------------- untrue or misleading statement of a material fact and shall not fail to state a material fact necessary in order to make the information contained therein not misleading. (f) Representations and Warranties. All representations and ------------------------------ warranties made by the Borrower in the Loan Documents shall be true and correct in all material respects on the Closing Date for the Request with the same force and effect as if such representations and warranties had been made on and as of the Closing Date for the Request. (g) No Condemnation or Casualty. There shall not be pending or --------------------------- threatened any condemnation or other taking, whether direct or indirect, against any Mortgaged Property and there shall not have occurred any casualty to any improvements located on any Mortgaged Property. -44- (h) Delivery of Closing Documents. The receipt by the Lender of the ----------------------------- following, each dated as of the Closing Date for the Request, in form and substance satisfactory to the Lender in all respects: (i) A Compliance Certificate; (ii) An Organizational Certificate; and (iii) Such other documents, instruments, approvals (and, if requested by the Lender, certified duplicates of executed copies thereof) and opinions as the Lender may request. (i) Covenants. The relevant Borrower is in full compliance with each --------- of the covenants set forth in Articles XIII, XIV and XV of this Agreement, without giving effect to any notice and cure rights of the relevant Borrower. SECTION 11.02 Delivery of Closing Documents Relating to Initial Advance Request, ------------------------------------------------------------------ Collateral Addition Request, Credit Facility Expansion Request or Future Advance - -------------------------------------------------------------------------------- Request. With respect to the closing of the Initial Advance Request, a - ------- Collateral Addition Request, a Credit Facility Expansion Request, or a Future Advance Request, it shall be a condition precedent that the Lender receives each of the following, each dated as of the Closing Date for the Request, in form and substance satisfactory to the Lender in all respects: (a) Loan Documents. Fully executed original copies of each Loan -------------- Document required to be executed in connection with the Request, duly executed and delivered by the parties thereto (other than the Lender), each of which shall be in full force and effect. (b) Opinion. Favorable opinions of counsel to the Borrower, as to the ------- due organization and qualification of the Borrower, the due authorization, execution, delivery and enforceability of each Loan Document executed in connection with the Request and such other matters as the Lender may reasonably require. SECTION 11.03 Delivery of Property-Related Documents. With respect to each of -------------------------------------- the Mortgaged Properties to be made part of the Collateral Pool on the Closing Date for the Initial Advance Request or a Collateral Addition Request, it shall be a condition precedent that the Lender receive each of the following, each dated as of the Closing Date for the Initial Advance Request or Collateral Addition Request, as the case may be, in form and substance satisfactory to the Lender in all respects: (a) A favorable opinion of local counsel to the Borrower or the Lender as to the enforceability of the Security Instrument, and any other Loan Documents, executed in connection with the Request. (b) A commitment for the Title Insurance Policy applicable to the Mortgaged Property and a pro forma Title Insurance Policy based on the Commitment. (c) The Insurance Policy (or a certified copy of the Insurance Policy) applicable to the Mortgaged Property. -45- (d) The Survey applicable to the Mortgaged Property. (e) Evidence satisfactory to the Lender of compliance of the Mortgaged Property with property laws as required by Sections 205 and 206 of Part III of the DUS Guide. (f) An Appraisal of the Mortgaged Property. (g) A Replacement Reserve Agreement, providing for the establishment of a replacement reserve account, to be pledged to the Lender, in which the owner shall (unless waived by the Lender) periodically deposit amounts for replacements for improvements at the Mortgaged Property and as additional security for the Borrower's obligations under the Loan Documents. (h) A Completion/Repair and Security Agreement, on the standard form required by the DUS Guide. (i) If no management agreement is in effect for a Mortgaged Property, an Agreement Regarding Management Agreement or, if a management agreement is in effect for a Mortgaged Property, an Assignment of Management Agreement, on the standard form required by the DUS Guide. (j) An Assignment of Leases and Rents, if the Lender determines one to be necessary or desirable, provided that the provisions of any such assignment shall be substantively identical to those in the Security Instrument covering the Collateral, with such modifications as may be necessitated by applicable state or local law. ARTICLE XII REPRESENTATIONS AND WARRANTIES SECTION 12.01 Representations and Warranties of the Borrower. The Borrower ---------------------------------------------- hereby represents and warrants to the Lender as follows: (a) Due Organization; Qualification. ------------------------------- (1) The Borrower is a duly formed and existing corporation. The Borrower is qualified to transact business and is in good standing in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of the Borrower to perform the Obligations under this Agreement and the other Loan Documents. The Borrower is qualified to transact business and is in good standing in each State in which it owns a Mortgaged Property. (2) The Borrower's principal place of business, principal office and office where it keeps its books and records as to the Collateral is located at its address set out in Section 23.08. (3) The Borrower has observed all customary formalities regarding its corporate existence. -46- (b) Power and Authority. The Borrower has the requisite power and ------------------- authority (i) to own its properties and to carry on its business as now conducted and as contemplated to be conducted in connection with the performance of the Obligations hereunder and under the other Loan Documents and (ii) to execute and deliver this Agreement and the other Loan Documents and to carry out the transactions contemplated by this Agreement and the other Loan Documents. (c) Due Authorization. The execution, delivery and performance of ----------------- this Agreement and the other Loan Documents have been duly authorized by all necessary action and proceedings by or on behalf of the Borrower, and no further approvals or filings of any kind, including any approval of or filing with any Governmental Authority, are required by or on behalf of the Borrower as a condition to the valid execution, delivery and performance by the Borrower of this Agreement or any of the other Loan Documents. (d) Valid and Binding Obligations. This Agreement and the other Loan ----------------------------- Documents have been duly authorized, executed and delivered by the Borrower and constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the enforcement of creditors' rights generally or by equitable principles or by the exercise of discretion by any court. (e) Non-contravention; No Liens. Neither the execution and delivery --------------------------- of this Agreement and the other Loan Documents, nor the fulfillment of or compliance with the terms and conditions of this Agreement and the other Loan Documents nor the performance of the Obligations: (1) does or will conflict with or result in any breach or violation of any Applicable Law enacted or issued by any Governmental Authority or other agency having jurisdiction over the Borrower, any of the Mortgaged Properties or any other portion of the Collateral or other assets of the Borrower, or any judgment or order applicable to the Borrower or to which the Borrower, any of the Mortgaged Properties or other assets of the Borrower are subject; (2) does or will conflict with or result in any material breach or violation of, or constitute a default under, any of the terms, conditions or provisions of the Borrower's Organizational Documents, any indenture, existing agreement or other instrument to which the Borrower is a party or to which the Borrower, any of the Mortgaged Properties or any other portion of the Collateral or other assets of the Borrower are subject; (3) does or will result in or require the creation of any Lien on all or any portion of the Collateral or any of the Mortgaged Properties, except for the Permitted Liens; or (4) does or will require the consent or approval of any creditor of the Borrower, any Governmental Authority or any other Person except such consents or approvals which have already been obtained. -47- (f) Pending Litigation or other Proceedings. There is no pending or, --------------------------------------- to the best knowledge of the Borrower, threatened action, suit, proceeding or investigation, at law or in equity, before any court, board, body or official of any Governmental Authority or arbitrator against or affecting any Mortgaged Property or any other portion of the Collateral or other assets of the Borrower, which, if decided adversely to the Borrower, would have, or may reasonably be expected to have, a Material Adverse Effect. The Borrower is not in default with respect to any order of any Governmental Authority. (g) Solvency. The Borrower is not insolvent and will not be rendered -------- insolvent by the transactions contemplated by this Agreement or the other Loan Documents and after giving effect to such transactions, the Borrower will not be left with an unreasonably small amount of capital with which to engage in its business or undertakings, nor will the Borrower have incurred, have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. The Borrower did not receive less than a reasonably equivalent value in exchange for incurrence of the Obligations. There (i) is no contemplated, pending or, to the best of the Borrower's knowledge, threatened bankruptcy, reorganization, receivership, insolvency or like proceeding, whether voluntary or involuntary, affecting the Borrower or any of the Mortgaged Properties and (ii) has been no assertion or exercise of jurisdiction over the Borrower or any of the Mortgaged Properties by any court empowered to exercise bankruptcy powers. (h) No Contractual Defaults. There are no defaults by the Borrower ----------------------- or, to the knowledge of the Borrower, by any other Person under any contract to which the Borrower is a party relating to any Mortgaged Property, including any management, rental, service, supply, security, maintenance or similar contract, other than defaults which do not permit the non-defaulting party to terminate the contract and which do not have, and are not reasonably expected to have, a Material Adverse Effect. Neither the Borrower nor, to the knowledge of the Borrower, any other Person, has received notice or has any knowledge of any existing circumstances in respect of which it could receive any notice of default or breach in respect of any contracts affecting or concerning any Mortgaged Property, which would have a Material Adverse Effect. (i) Compliance with the Loan Documents. The Borrower is in compliance ---------------------------------- with all provisions of the Loan Documents to which it is a party or by which it is bound. The representations and warranties made by the Borrower in the Loan Documents are true, complete and correct as of the Closing Date and do not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (j) ERISA. The Borrower is in compliance in all material respects ----- with all applicable provisions of ERISA and has not incurred any liability to the PBGC on a Plan under Title IV of ERISA. None of the assets of the Borrower constitute plan assets (within the meaning of Department of Labor Regulation (S) 2510.3-101) of any employee benefit plan subject to Title I of ERISA. (k) Financial Information. The financial projections relating to the --------------------- Borrower and delivered to the Lender on or prior to the date hereof, if any, were prepared on the basis of assumptions believed by the Borrower, in good faith at the time of preparation, to be reasonable and the Borrower is not aware of any fact or information that would lead it to believe that such -48- assumptions are incorrect or misleading in any material respect; provided, however, that no representation or warranty is made that any result set forth in such financial projections shall be achieved. The financial statements of the Borrower which have been furnished to the Lender are complete and accurate in all material respects and present fairly the financial condition of the Borrower, as of its date in accordance with GAAP, applied on a consistent basis, and since the date of the most recent of such financial statements no event has occurred which would have, or may reasonably be expected to have a Material Adverse Effect, and there has not been any material transaction entered into by the Borrower other than transactions in the ordinary course of business. The Borrower has no material contingent obligations which are not otherwise disclosed in its most recent financial statements. (l) Accuracy of Information. No information, statement or report ----------------------- furnished in writing to the Lender by the Borrower in connection with this Agreement or any other Loan Document or in connection with the consummation of the transactions contemplated hereby and thereby contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading; and the representations and warranties of the Borrower and the statements, information and descriptions contained in the Borrower's closing certificates, as of the Closing Date, are true, correct and complete in all material respects, do not contain any untrue statement or misleading statement of a material fact, and do not omit to state a material fact required to be stated therein or necessary to make the certifications, representations, warranties, statements, information and descriptions contained therein, in light of the circumstances under which they were made, not misleading; and the estimates and the assumptions contained herein and in any certificate of the Borrower delivered as of the Closing Date are reasonable and based on the best information available to the Borrower. (m) Intentionally Omitted. --------------------- (n) Governmental Approvals. No Governmental Approval not already ---------------------- obtained or made is required for the execution and delivery of this Agreement or any other Loan Document or the performance of the terms and provisions hereof or thereof by the Borrower. (o) Governmental Orders. The Borrower is not presently under any ------------------- cease or desist order or other orders of a similar nature, temporary or permanent, of any Governmental Authority which would have the effect of preventing or hindering performance of its duties hereunder, nor are there any proceedings presently in progress or to its knowledge contemplated which would, if successful, lead to the issuance of any such order. (p) No Reliance. The Borrower acknowledges, represents and warrants ----------- that it understands the nature and structure of the transactions contemplated by this Agreement and the other Loan Documents, that it is familiar with the provisions of all of the documents and instruments relating to such transactions; that it understands the risks inherent in such transactions, including the risk of loss of all or any of the Mortgaged Properties; and that it has not relied on the Lender or Fannie Mae for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by this Agreement or any other Loan Document or otherwise relied on the Lender or Fannie Mae in any manner in connection with interpreting, -49- entering into or otherwise in connection with this Agreement, any other Loan Document or any of the matters contemplated hereby or thereby. (q) Compliance with Applicable Law. The Borrower is in compliance ------------------------------ with Applicable Law, including all Governmental Approvals, if any, except for such items of noncompliance that, singly or in the aggregate, have not had and are not reasonably expected to cause, a Material Adverse Effect. (r) Contracts with Affiliates. Except as otherwise approved in ------------------------- writing by the Lender, the Borrower has not entered into and is not a party to any contract, lease or other agreement with any Affiliate of the Borrower for the provision of any service, materials or supplies to any Mortgaged Property (including any contract, lease or agreement for the provision of property management services, cable television services or equipment, gas, electric or other utilities, security services or equipment, laundry services or equipment or telephone services or equipment). (s) Lines of Business. Not less than sixty percent (60%) of the ----------------- Consolidated Total Assets of each Borrower consist of Multifamily Residential Properties. (t) Status as a Real Estate Investment Trust. UDRT is qualified, ---------------------------------------- and is taxed as, a real estate investment trust under Subchapter M of the Internal Revenue Code, and is not engaged in any activities which would jeopardize such qualification and tax treatment. SECTION 12.02 Representations and Warranties of the Borrower. The Borrower ---------------------------------------------- owning a Mortgaged Property hereby represents and warrants to the Lender as follows with respect to each of the Mortgaged Properties owned by it: (a) Title. The relevant Borrower has good, valid, marketable and ----- indefeasible title to each Mortgaged Property (either in fee simple or as tenant under a ground lease meeting all of the requirements of the DUS Guide), free and clear of all Liens whatsoever except the Permitted Liens. Each Security Instrument, if and when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create a valid, perfected first lien on the Mortgaged Property intended to be encumbered thereby (including the Leases related to such Mortgaged Property and the rents and all rights to collect rents under such Leases), subject only to Permitted Liens. Except for any Permitted Liens, there are no Liens or claims for work, labor or materials affecting any Mortgaged Property which are or may be prior to, subordinate to, or of equal priority with, the Liens created by the Loan Documents. The Permitted Liens do not have, and may not reasonably be expected to have, a Material Adverse Effect. (b) Impositions. The Borrower has filed all property and similar ----------- tax returns required to have been filed by it with respect to each Mortgaged Property and has paid and discharged, or caused to be paid and discharged, all installments for the payment of all Taxes due to date, and all other material Impositions imposed against, affecting or relating to each Mortgaged Property other than those which have not become due, together with any fine, penalty, interest or cost for nonpayment pursuant to such returns or pursuant to any assessment received by it. Except for any Tax, levy or other assessment or charge resulting from a reassessment of the value of a Mortgaged Property in the ordinary course of business, the Borrower has no knowledge of any new -50- proposed Tax, levy or other governmental or private assessment or charge in respect of any Mortgaged Property which has not been disclosed in writing to the Lender. (c) Zoning. Each Mortgaged Property complies in all material ------ respects with all Applicable Laws affecting such Mortgaged Property. Without limiting the foregoing, all material Permits, including certificates of occupancy, have been issued and are in full force and effect. Neither the Borrower nor, to the knowledge of the Borrower, any former owner of any Mortgaged Property, has received any written notification or threat of any actions or proceedings regarding the noncompliance or nonconformity of any Mortgaged Property with any Applicable Laws or Permits, nor is the Borrower otherwise aware of any such pending actions or proceedings. (d) Leases. The Borrower has delivered to the Lender a true and ------ correct copy of its form apartment lease for each Mortgaged Property (and, with respect to leases executed prior to the date on which the Borrower first owned the Mortgaged Property, the form apartment lease used for such leases), and each Lease with respect to such Mortgaged Property is in the form thereof, with no material modifications thereto, except as previously disclosed in writing to the Lender. Except as set forth in a Rent Roll, no Lease for any unit in any Mortgaged Property (i) is for a term in excess of one year, including any renewal or extension period unless such renewal or extension period is subject to termination by the Borrower upon not more than 30 days' written notice, (ii) provides for prepayment of more than one month's rent, or (iii) was entered into in other than the ordinary course of business. (e) Rent Roll. The Borrower has executed and delivered to the --------- Lender a Rent Roll for each Mortgaged Property, each dated as of and delivered within 30 days prior to the Closing Date. Each Rent Roll sets forth each and every unit subject to a Lease which is in full force and effect as of the date of such Rent Roll. The information set forth on each Rent Roll is true, correct and complete in all material respects as of its date and there has occurred no material adverse change in the information shown on any Rent Roll from the date of each such Rent Roll to the Closing Date. Except as disclosed in the Rent Roll with respect to each Mortgaged Property or otherwise previously disclosed in writing to the Lender, no Lease is in effect as of the date of the Rent Roll with respect to such Mortgaged Property. Notwithstanding the foregoing, any representation in this subsection (e) made with respect to a time period occurring prior to the date on which the Borrower owned the Mortgaged Property is made to the best of the Borrower's knowledge. (f) Status of Landlord under Leases. Except for any assignment of ------------------------------- leases and rents which is a Permitted Lien or which is to be released in connection with the consummation of the transactions contemplated by this Agreement, the Borrower is the owner and holder of the landlord's interest under each of the Leases of units in each Mortgaged Property and there are no prior outstanding assignments of any such Lease, or any portion of the rents, additional rents, charges, issues or profits due and payable or to become due and payable thereunder. (g) Enforceability of Leases. Each Lease constitutes the legal, ------------------------ valid and binding obligation of the Borrower and, to the knowledge of the Borrower, of each of the other parties thereto, enforceable in accordance with its terms, subject only to bankruptcy, insolvency, reorganization or other similar laws relating to creditors' rights generally, and equitable principles, and except as disclosed in writing to the Lender, no notice of any default by the Borrower which -51- remains uncured has been sent by any tenant under any such Lease, other than defaults which do not have, and are not reasonably expected to have, a Material Adverse Effect on the Mortgaged Property subject to the Lease. (h) No Lease Options. All premises demised to tenants under ---------------- Leases are occupied by such tenants as tenants only. No Lease contains any option or right to purchase, right of first refusal or any other similar provisions. No option or right to purchase, right of first refusal, purchase contract or similar right exists with respect to any Mortgaged Property. (i) Insurance. The Borrower has delivered to the Lender true and --------- correct certified copies of all Insurance Policies currently in effect as of the date of this Agreement with respect to the Mortgaged Property which it owns. Each such Insurance Policy complies in all material respects with the requirements set forth in the Loan Documents. (j) Tax Parcels. Each Mortgaged Property is on one or more ----------- separate tax parcels, and each such parcel (or parcels) is (or are) separate and apart from any other property. (k) Encroachments. Except as disclosed on the Survey with respect ------------- to each Mortgaged Property, none of the improvements located on any Mortgaged Property encroaches upon the property of any other Person or upon any easement encumbering the Mortgaged Property, nor lies outside of the boundaries and building restriction lines of such Mortgaged Property and no improvement located on property adjoining such Mortgaged Property lies within the boundaries of or in any way encroaches upon such Mortgaged Property. (l) Independent Unit. Except for Permitted Liens and as disclosed ---------------- on Exhibit AA to this Agreement, or as disclosed in a Title Insurance Policy or ---------- Survey for the Mortgaged Property, each Mortgaged Property is an independent unit which does not rely on any drainage, sewer, access, parking, structural or other facilities located on any Property not included either in such Mortgaged Property or on public or utility easements for the (i) fulfillment of any zoning, building code or other requirement of any Governmental Authority that has jurisdiction over such Mortgaged Property, (ii) structural support, or (iii) the fulfillment of the requirements of any Lease or other agreement affecting such Mortgaged Property. The Borrower, directly or indirectly, has the right to use all amenities, easements, public or private utilities, parking, access routes or other items necessary or currently used for the operation of each Mortgaged Property. All public utilities are installed and operating at each Mortgaged Property and all billed installation and connection charges have been paid in full. Each Mortgaged Property is either (x) contiguous to or (y) benefits from an irrevocable unsubordinated easement permitting access from such Mortgaged Property to a physically open, dedicated public street, and has all necessary permits for ingress and egress and is adequately serviced by public water, sewer systems and utilities. No building or other improvement not located on a Mortgaged Property relies on any part of the Mortgaged Property to fulfill any zoning requirements, building code or other requirement of any Governmental Authority that has jurisdiction over the Mortgaged Property, for structural support or to furnish to such building or improvement any essential building systems or utilities. (m) Condition of the Mortgaged Properties. Except as disclosed in ------------------------------------- any third party report delivered to the Lender prior to the date on which the Borrower's Mortgaged Property is added to the Collateral Pool, or otherwise disclosed in writing by the Borrower to the Lender -52- prior to such date, each Mortgaged Property is in good condition, order and repair, there exist no structural or other material defects in such Mortgaged Property (whether patent or, to the best knowledge of the Borrower, latent or otherwise) and the Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in such Mortgaged Property, or any part of it, which would adversely affect the insurability of such Mortgaged Property or cause the imposition of extraordinary premiums or charges for insurance or of any termination or threatened termination of any policy of insurance or bond. No claims have been made against any contractor, architect or other party with respect to the condition of any Mortgaged Property or the existence of any structural or other material defect therein. No Mortgaged Property has been materially damaged by casualty which has not been fully repaired or for which insurance proceeds have not been received or are not expected to be received except as previously disclosed in writing to the Lender. There are no proceedings pending for partial or total condemnation of any Mortgaged Property except as disclosed in writing to the Lender. SECTION 12.03 Representations and Warranties of the Lender. The Lender hereby -------------------------------------------- represents and warrants to the Borrower as follows: (a) Due Organization. The Lender is a corporation duly organized, ---------------- validly existing and in good standing under the laws of Ohio. (b) Power and Authority. The Lender has the requisite power and ------------------- authority to execute and deliver this Agreement and to perform its obligations under this Agreement. (c) Due Authorization. The execution and delivery by the Lender ----------------- of this Agreement, and the consummation by it of the transactions contemplated thereby, and the performance by it of its obligations thereunder, have been duly and validly authorized by all necessary action and proceedings by it or on its behalf. ARTICLE XIII AFFIRMATIVE COVENANTS OF THE BORROWER The Borrower agrees and covenants with the Lender that, at all times during the Term of this Agreement: SECTION 13.01 Compliance with Agreements; No Amendments. The Borrower shall ----------------------------------------- comply with all the terms and conditions of each Loan Document to which it is a party or by which it is bound; provided, however, that the Borrower's failure to comply with such terms and conditions shall not be an Event of Default until the expiration of the applicable notice and cure periods, if any, specified in the applicable Loan Document. SECTION 13.02 Maintenance of Existence. The Borrower shall maintain its ------------------------ existence and continue to be a corporation, limited liability company or limited partnership, as applicable, organized under the laws of the state of its organization. The Borrower shall continue to be duly qualified to do business in each jurisdiction in which such qualification is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability to perform, its obligations under this Agreement or any other Loan Document. -53- SECTION 13.03 Maintenance of REIT Status. During the Term of this Agreement, -------------------------- UDRT shall qualify, and be taxed as, a real estate investment trust under Subchapter M of the Internal Revenue Code, and will not be engaged in any activities which would jeopardize such qualification and tax treatment. SECTION 13.04 Financial Statements; Accountants' Reports; Other Information. The ------------------------------------------------------------- Borrower shall keep and maintain at all times complete and accurate books of accounts and records in sufficient detail to correctly reflect (x) all of the Borrower's financial transactions and assets and (y) the results of the operation of each Mortgaged Property and copies of all written contracts, Leases and other instruments which affect each Mortgaged Property (including all bills, invoices and contracts for electrical service, gas service, water and sewer service, waste management service, telephone service and management services). In addition, the Borrower shall furnish, or cause to be furnished, to the Lender: (a) Annual Financial Statements. As soon as available, and in any --------------------------- event within 90 days after the close of its fiscal year during the Term of this Agreement, the audited balance sheet of UDRT and its Subsidiaries as of the end of such fiscal year, the audited statement of income, UDRT's equity and retained earnings of the UDRT and its Subsidiaries for such fiscal year and the audited statement of cash flows of UDRT and its Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year, prepared in accordance with GAAP, consistently applied, and accompanied by a certificate of UDRT's independent certified public accountants to the effect that such financial statements have been prepared in accordance with GAAP, consistently applied, and that such financial statements fairly present the results of its operations and financial condition for the periods and dates indicated, with such certification to be free of exceptions and qualifications as to the scope of the audit or as to the going concern nature of the business. (b) Quarterly Financial Statements. As soon as available, and in ------------------------------ any event within 45 days after each of the first three fiscal quarters of each fiscal year during the Term of this Agreement, the unaudited balance sheet of UDRT and its Subsidiaries as of the end of such fiscal quarter, the unaudited statement of income and retained earnings of UDRT and its Subsidiaries and the unaudited statement of cash flows of UDRT and its Subsidiaries for the portion of the fiscal year ended with the last day of such quarter, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, accompanied by a certificate of the Chief Financial Officer or the Vice President of Finance of UDRT to the effect that such financial statements have been prepared in accordance with GAAP, consistently applied, and that such financial statements fairly present the results of its operations and financial condition for the periods and dates indicated subject to year end adjustments in accordance with GAAP. (c) Quarterly Property Statements. As soon as available, and in ----------------------------- any event within forty-five (45) days after each Calendar Quarter, a statement of income and expenses of each Mortgaged Property accompanied by a certificate of the Chief Financial Officer of UDRT to the effect that each such statement of income and expenses fairly, accurately and completely presents the operations of each such Mortgaged Property for the period indicated. (d) Annual Property Statements. On an annual basis within ninety -------------------------- (90) days of the end of its fiscal year, an annual statement of income and expenses of each Mortgaged Property -54- accompanied by a certificate of the Chief Financial Officer of UDRT to the effect that each such statement of income and expenses fairly, accurately and completely presents the operations of each such Mortgaged Property for the period indicated. (e) Updated Rent Rolls. As soon as available, and in any event ------------------ within forty-five (45) days after each Calendar Quarter, a current Rent Roll for each Mortgaged Property, showing the name of each tenant, and for each tenant, the space occupied, the lease expiration date, the rent payable, the rent paid and any other information requested by the Lender and accompanied by a certificate of the Chief Financial Officer of UDRT to the effect that each such Rent Roll fairly, accurately and completely presents the information required therein. (f) Security Deposit Information. Upon the Lender's request, ---------------------------- an accounting of all security deposits held in connection with any Lease of any part of any Mortgaged Property, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name and telephone number of the person to contact at such financial institution, along with any authority or release necessary for the Lender to access information regarding such accounts. (g) Security Law Reporting Information. So long as UDRT is a ---------------------------------- reporting company under the Securities and Exchange Act of 1934, promptly upon becoming available, (a) copies of all financial statements, reports and proxy statements sent or made available generally by UDRT, or any of its Affiliates, to its respective security holders, (b) all regular and periodic reports and all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or a similar form) and prospectuses, if any, filed by UDRT, or any of its Affiliates, with the Securities and Exchange Commission or other Governmental Authorities, and (c) all press releases and other statements made available generally by UDRT, or any of its Affiliates, to the public concerning material developments in the business of UDRT or other party. (h) Accountants' Reports. Promptly upon receipt thereof, -------------------- copies of any reports or management letters submitted to the Borrower by its independent certified public accountants in connection with the examination of its financial statements made by such accountants (except for reports otherwise provided pursuant to subsection (a) above); provided, however, that the Borrower shall only be required to deliver such reports and management letters to the extent that they relate to any Borrower or any Mortgaged Property. (i) Annual Budgets. Promptly, and in any event within 60 days -------------- after the start of its fiscal year, an annual budget for each Mortgaged Property for such fiscal year, setting forth an estimate of all of the costs and expenses, including capital expenses, of maintaining and operating each Mortgaged Property. (j) Borrower Plans and Projections. To the extent prepared in ------------------------------ the ordinary course of business of the Borrower and in the form prepared by the Borrower in the ordinary course of business, within 30 days after its preparation, copies of (1) the Borrower's business plan for the current and the succeeding two fiscal years, (2) the Borrower's annual budget (including capital expenditure budgets) and projections for each Mortgaged Property; and (3) the Borrower's financial projections for the current and the succeeding two fiscal years. -55- (k) Strategic Plan. To the extent prepared in the ordinary course -------------- of business of the Borrower and in the form prepared by the Borrower in the ordinary course of business, within 30 days after its preparation, a written narrative discussing the Borrower's short and long range plans, including its plans for operations, mergers, acquisitions and management, and accompanied by supporting financial projections and schedules, certified by a member of Senior Management as true, correct and complete ("Strategic Plan") If the Borrower's Strategic Plan materially changes, then such person shall deliver to the Lender the Strategic Plan as so changed. (l) Annual Rental and Sales Comparable Analysis. To the extent ------------------------------------------- prepared in the ordinary course of business of the Borrower and in the form prepared by the Borrower in the ordinary course of business, within 30 days after its preparation, a rental and sales comparable analysis of the local real estate market in which each Mortgaged Property is located. (m) Other Reports. Promptly upon receipt thereof, all schedules, ------------- financial statements or other similar reports delivered by the Borrower pursuant to the Loan Documents or requested by the Lender with respect to the Borrower's business affairs or condition (financial or otherwise) or any of the Mortgaged Properties. (n) Certification. All certifications required to be delivered ------------- pursuant to this Section 13.04 shall run directly to and be for the benefit of Lender and Fannie Mae. SECTION 13.05 Certificate of Compliance. The Borrower shall deliver to the ------------------------- Lender concurrently with the delivery of the financial statements and/or reports required to be delivered pursuant to Section 13.04 (a) and (b) above a certificate signed by the Chief Financial Officer, Treasurer or Vice President of Finance of UDRT stating that, to the best knowledge of such individual following reasonable inquiry, (i) setting forth in reasonable detail the calculations required to establish whether UDRT was in compliance with the requirements of Sections 15.02 through 15.09 on the date of such financial statements, and (ii) stating that, to the best knowledge of such individual following reasonable inquiry, no Event of Default or Potential Event of Default has occurred, or if an Event of Default or Potential Event of Default has occurred, specifying the nature thereof in reasonable detail and the action which UDRT is taking or proposes to take with respect thereto. Any certificate required by this Section 13.05 shall run directly to and be for the benefit of Lender and Fannie Mae. SECTION 13.06 Maintain Licenses. The Borrower shall procure and maintain in full ----------------- force and effect all licenses, Permits, charters and registrations which are material to the conduct of its business and shall abide by and satisfy all terms and conditions of all such licenses, Permits, charters and registrations. SECTION 13.07 Access to Records; Discussions With Officers and Accountants. To ------------------------------------------------------------ the extent permitted by law and in addition to the applicable requirements of the Security Instruments, the Borrower shall permit the Lender, upon reasonable notice to the Borrower and provided Lender observes reasonable security and confidentiality procedures of the Borrower: (a) to inspect, make copies and abstracts of, and have reviewed or audited, such of the Borrower's books and records as may relate to the Obligations or any Mortgaged Property; -56- (b) to discuss the Borrower's affairs, finances and accounts with any of UDRT's Chief Operating Officer, Chief Financial Officer, Vice President of Finance, Treasurer, Assistant Treasurer, Comptroller and any other person performing the functions of said officers; (c) to discuss the Borrower's affairs, finances and accounts with its independent public accountants, provided that the Chief Financial Officer of UDRT has been given the opportunity by the Lender to be a party to such discussions; and (d) to receive any other information that the Lender deems necessary or relevant in connection with any Advance, any Loan Document or the Obligations. Notwithstanding the foregoing, prior to an Event of Default or Potential Event of Default, all inspections shall be conducted at reasonable times during normal business hours. SECTION 13.08 Inform the Lender of Material Events. The Borrower shall promptly ------------------------------------ inform the Lender in writing of any of the following (and shall deliver to the Lender copies of any related written communications, complaints, orders, judgments and other documents relating to the following) of which the Borrower has actual knowledge: (a) Defaults. The occurrence of any Event of Default or any -------- Potential Event of Default under this Agreement or any other Loan Document; (b) Regulatory Proceedings. The commencement of any ----------------------- rulemaking or disciplinary proceeding or the promulgation of any proposed or final rule which would have, or may reasonably be expected to have, a Material Adverse Effect; (c) Legal Proceedings. The commencement or threat of, or ------------------ amendment to, any proceedings by or against the Borrower in any Federal, state or local court or before any Governmental Authority, or before any arbitrator, which, if adversely determined, would have, or at the time of determination may reasonably be expected to have, a Material Adverse Effect; (d) Bankruptcy Proceedings. The commencement of any ---------------------- proceedings by or against the Borrower under any applicable bankruptcy, reorganization, liquidation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, trustee or other similar official is sought to be appointed for it; (e) Regulatory Supervision or Penalty. The receipt of notice --------------------------------- from any Governmental Authority having jurisdiction over the Borrower that (A) the Borrower is being placed under regulatory supervision, (B) any license, Permit, charter, membership or registration material to the conduct of the Borrower's business or the Mortgaged Properties is to be suspended or revoked or (C) the Borrower is to cease and desist any practice, procedure or policy employed by the Borrower, as the case may be, in the conduct of its business, and such cessation would have, or may reasonably be expected to have, a Material Adverse Effect; (f) Environmental Claim. The receipt from any Governmental ------------------- Authority or other Person of any notice of violation, claim, demand, abatement, order or other order or direction (conditional or otherwise) for any damage, including personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential -57- damages, damage to the environment, pollution, contamination or other adverse effects on the environment, removal, cleanup or remedial action or for fines, penalties or restrictions, resulting from or based upon (a) the existence or occurrence, or the alleged existence or occurrence, of a Hazardous Substance Activity or (b) the violation, or alleged violation, of any Hazardous Materials Laws in connection with any Mortgaged Property or any of the other assets of the Borrower; (g) Material Adverse Effects. The occurrence of any act, ------------------------ omission, change or event which has a Material Adverse Effect, subsequent to the date of the most recent audited financial statements of the Borrower delivered to the Lender pursuant to Section 13.04; (h) Accounting Changes. Any material change in the Borrower's ------------------ accounting policies or financial reporting practices; and (i) Legal and Regulatory Status. The occurrence of any act, --------------------------- omission, change or event, including any Governmental Approval, the result of which is to change or alter in any way the legal or regulatory status of the Borrower. SECTION 13.09 Intentionally Omitted. --------------------- SECTION 13.10 Inspection. Subject to the rights of tenants and upon reasonable ---------- notice, the Borrower shall permit any Person designated by the Lender: (i) to make entries upon and inspections of the Mortgaged Properties; and (ii) to otherwise verify, examine and inspect the amount, quantity, quality, value and/or condition of, or any other matter relating to, any Mortgaged Property; provided, however, that prior to an Event of Default or Potential Event of Default, all such entries, examinations and inspections shall be conducted at reasonable times during normal business hours. SECTION 13.11 Compliance with Applicable Laws. The Borrower shall comply in all ------------------------------- material respects with all Applicable Laws now or hereafter affecting any Mortgaged Property or any part of any Mortgaged Property or requiring any alterations, repairs or improvements to any Mortgaged Property. The Borrower shall procure and continuously maintain in full force and effect, and shall abide by and satisfy all material terms and conditions of all Permits. SECTION 13.12 Warranty of Title. The Borrower shall warrant and defend (a) the ----------------- title to each Mortgaged Property and every part of each Mortgaged Property, subject only to Permitted Liens, and (b) the validity and priority of the lien of the applicable Loan Documents, subject only to Permitted Liens, in each case against the claims of all Persons whatsoever. The Borrower shall reimburse the Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by the Lender if an interest in any Mortgaged Property, other than with respect to a Permitted Lien, is claimed by others. SECTION 13.13 Defense of Actions. The Borrower shall appear in and defend ------------------ (whether or not such defense is provided by Borrower's insurance) any action or proceeding purporting to affect the security for this Agreement or the rights or power of the Lender hereunder, and shall pay all costs and expenses, including the cost of evidence of title and reasonable attorneys' fees, in any such action or proceeding in which the Lender may appear. If the claim is insured and Borrower's insurance company provides a defense, Borrower may rely on such defense. If the Borrower fails to perform any of the covenants or agreements contained in this Agreement, or if any action or -58- proceeding is commenced that is not diligently defended by the Borrower which affects in any material respect the Lender's interest in any Mortgaged Property or any part thereof, including eminent domain, code enforcement or proceedings of any nature whatsoever under any Applicable Law, whether now existing or hereafter enacted or amended, then the Lender may, but without obligation to do so and without notice to or demand upon the Borrower and without releasing the Borrower from any Obligation, make such appearances, disburse such sums and take such action as the Lender deems necessary or appropriate to protect the Lender's interest, including disbursement of attorney's fees, entry upon such Mortgaged Property to make repairs or take other action to protect the security of said Mortgaged Property, and payment, purchase, contest or compromise of any encumbrance, charge or lien which in the judgment of the Lender appears to be prior or superior to the Loan Documents. In the event (i) that any Security Instrument is foreclosed in whole or in part or that any Loan Document is put into the hands of an attorney for collection, suit, action or foreclosure, or (ii) of the foreclosure of any mortgage, deed to secure debt, deed of trust or other security instrument prior to or subsequent to any Security Instrument or any Loan Document in which proceeding the Lender is made a party or (iii) of the bankruptcy of the Borrower or an assignment by the Borrower for the benefit of their respective creditors, the Borrower shall be chargeable with and agrees to pay all costs of collection and defense, including actual attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use taxes. SECTION 13.14 Alterations to the Mortgaged Properties. Except as otherwise --------------------------------------- provided in the Loan Documents, the Borrower shall have the right to undertake any alteration, improvement, demolition, removal or construction (collectively, "Alterations") to the Mortgaged Property which it owns without the prior consent ----------- of the Lender; provided, however, that in any case, no such Alteration shall be -------- ------- made to any Mortgaged Property without the prior written consent of the Lender if (i) such Alteration could reasonably be expected to adversely affect the value of such Mortgaged Property or its operation as a multifamily housing facility in substantially the same manner in which it is being operated on the date such property became Collateral, (ii) the construction of such Alteration could reasonably be expected to result in interference to the occupancy of tenants of such Mortgaged Property such that tenants in occupancy with respect to five percent (5%) or more of the Leases would be permitted to terminate their Leases or to abate the payment of all or any portion of their rent, or (iii) such Alteration will be completed in more than 12 months from the date of commencement or in the last year of the Term of this Agreement. Notwithstanding the foregoing, the Borrower must obtain the Lender's prior written consent to construct Alterations with respect to the Mortgaged Property costing in excess of the lesser of (i) five percent (5%) of the Allocable Facility Amount of such Mortgaged Property and (ii) $250,000 and the Borrower must give prior written notice to the Lender of its intent to construct Alterations with respect to such Mortgaged Property costing in excess of $100,000; provided, however, that the preceding requirements shall not be applicable to Alterations made, conducted or undertaken by the Borrower as part of the Borrower's routine maintenance and repair of the Mortgaged Properties as required by the Loan Documents. SECTION 13.15 ERISA. The Borrower shall at all times remain in compliance in all ----- material respects with all applicable provisions of ERISA and similar requirements of the PBGC. -59- SECTION 13.16 Loan Document Taxes. If any tax, assessment or Imposition (other ------------------- than a franchise tax imposed on or measured by, the net income or capital (including branch profits tax) of the Lender (or any transferee or assignee thereof, including a participation holder)) ("Loan Document Taxes") is levied, ------------------- assessed or charged by the United States, or any State in the United States, or any political subdivision or taxing authority thereof or therein upon any of the Loan Documents or the obligations secured thereby, the interest of the Lender in the Mortgaged Properties, or the Lender by reason of or as holder of the Loan Documents, the Borrower shall pay all such Loan Document Taxes to, for, or on account of the Lender (or provide funds to the Lender for such payment, as the case may be) as they become due and payable and shall promptly furnish proof of such payment to the Lender, as applicable. In the event of passage of any law or regulation permitting, authorizing or requiring such Loan Document Taxes to be levied, assessed or charged, which law or regulation in the opinion of counsel to the Lender may prohibit the Borrower from paying the Loan Document Taxes to or for the Lender, the Borrower shall enter into such further instruments as may be permitted by law to obligate the Borrower to pay such Loan Document Taxes. SECTION 13.17 Further Assurances. The Borrower, at the request of the Lender, ------------------ shall execute and deliver and, if necessary, file or record such statements, documents, agreements, UCC financing and continuation statements and such other instruments and take such further action as the Lender from time to time may request as reasonably necessary, desirable or proper to carry out more effectively the purposes of this Agreement or any of the other Loan Documents or to subject the Collateral to the lien and security interests of the Loan Documents or to evidence, perfect or otherwise implement, to assure the lien and security interests intended by the terms of the Loan Documents or in order to exercise or enforce its rights under the Loan Documents. SECTION 13.18 Monitoring Compliance. Upon the request of the Lender, from time --------------------- to time, the Borrower shall promptly provide to the Lender such documents, certificates and other information as may be deemed necessary to enable the Lender to perform its functions under the Servicing Agreement. SECTION 13.19 Leases. Each unit in each Mortgaged Property will be leased ------ pursuant to the form lease delivered to, and acceptable to, the Lender, with no material modifications to such approved form lease, except as disclosed in writing to the Lender. SECTION 13.20 Appraisals. At any time and from time to time (but not to exceed ---------- once per calendar year), the Lender shall be entitled to obtain an Appraisal of any Mortgaged Property. At the time of the addition of a Mortgaged Property to the Collateral Pool, the Lender shall be entitled to obtain an Appraisal of such Mortgaged Property. The Borrower shall pay all of the Lender's costs of obtaining the Appraisal. SECTION 13.21 Transfer of Ownership Interests of the Borrower. ----------------------------------------------- (a) Prohibition on Transfers and Changes of Control. The ----------------------------------------------- Borrower shall not cause or permit a Transfer or a Change of Control. -60- (b) Permitted Acts. Notwithstanding the provisions of -------------- paragraph (a) of this Section 13.21, the following Transfers and transactions by the Borrower are permitted without the consent of the Lender: (i) The grant of a leasehold interest in individual dwelling units or commercial spaces in any Mortgaged Property in accordance with the Security Instrument. (ii) A sale or other disposition of obsolete or worn out personal property located in any Mortgaged Property which is contemporaneously replaced by comparable personal property of equal or greater value which is free and clear of liens, encumbrances and security interests other than those created by the Loan Documents. (iii) The creation of a mechanic's or materialmen's lien or judgment lien against a Mortgaged Property which is released of record or otherwise remedied to Lender's satisfaction within 30 days of the date of creation. (iv) The grant of an easement, if prior to the granting of the easement the Borrower causes to be submitted to Lender all information required by Lender to evaluate the easement, and if Lender consents to such easement based upon Lender's determination that the easement will not materially affect the operation of the Mortgaged Property or Lender's interest in the Mortgaged Property and Borrower pays to Lender, on demand, all costs and expenses incurred by Lender in connection with reviewing Borrower's request. Lender shall not unreasonably withhold its consent to or withhold its agreement to subordinate the lien of a Security Instrument to (A) the grant of a utility easement serving a Mortgaged Property to a publicly operated utility, or (B) the grant of an easement related to expansion or widening of roadways, provided that any such easement is in form and substance reasonably acceptable to Lender and does not materially and adversely affect the access, use or marketability of a Mortgaged Property. (v) The transfer of shares of common stock, membership interests, or other beneficial or ownership interest or other forms of securities in the Borrower, and the issuance of all varieties of convertible debt, equity and other similar securities of the Borrower, and the subsequent transfer of such securities; provided, however, that no Change in Control occurs as a result of such transfer, either upon such transfer or upon the subsequent conversion to equity or such convertible debt or other securities. (vi) The issuance by Borrower of additional limited partnership units or convertible debt, equity, membership interests, and other similar securities, and the subsequent transfer of such units or other securities; provided, however, that no Change in Control occurs as the result of such transfer, either upon such transfer or upon the subsequent conversion to equity of such convertible debt or other securities. (vii) A merger with or acquisition of another entity by Borrower, provided that (A) Borrower is the surviving entity after such merger or acquisition, (B) no Change in Control occurs, and (C) such merger or acquisition does not result in an Event of Default, as such terms are defined in this Agreement. -61- (viii) A Transfer in connection with any substitution or release pursuant to the terms and conditions of Article VII of this Agreement. (c) Consent to Prohibited Acts. Lender may, in its sole and -------------------------- absolute discretion, consent to a Transfer or Change of Control that would otherwise violate this Section 13.21 if, prior to the Transfer or Change of Control, Borrower has satisfied each of the following requirements: (i) the submission to Lender of all information required by Lender to make the determination required by this Section 13.21(c); (ii) the absence of any Event of Default; (iii) the transferee meets all of the eligibility, credit, management and other standards (including any standards with respect to previous relationships between Lender and the transferee and the organization of the transferee) customarily applied by Lender at the time of the proposed transaction to the approval of borrowers in connection with the origination or purchase of similar mortgages, deeds of trust or deeds to secure debt on multifamily properties; (iv) in the case of a transfer of direct or indirect ownership interests in Borrower, if transferor or any other person has obligations under any Loan Documents, the execution by the transferee of one or more individuals or entities acceptable to Lender of an assumption agreement that is acceptable to Lender and that, among other things, requires the transferee to perform all obligations of transferor or such person set forth in such Loan Document, and may require that the transferee comply with any provisions of this Instrument or any other Loan Document which previously may have been waived by Lender; (v) Lender's receipt of all of the following: (A) a transfer fee equal to 1 percent of the Commitment immediately prior to the transfer. (B) In addition, Borrower shall be required to reimburse Lender for all of Lender's out-of-pocket costs (including reasonable attorneys' fees) incurred in reviewing the Borrower's request. SECTION 13.22 Change in Senior Management. The Borrower shall give the Lender --------------------------- notice of any change in the identity of the Chief Executive Officer or the Chief Financial Officer of UDRT. SECTION 13.23 Date-Down Endorsements. At any time and from time to time, a ---------------------- Lender may obtain an endorsement to each Title Insurance Policy containing a Revolving Credit Endorsement, amending the effective date of the Title Insurance Policy to the date of the title search performed in connection with the endorsement. The Borrower shall pay for the cost and expenses incurred by the Lender to the Title Company in obtaining such endorsement, provided that, for each Title Insurance Policy, it shall not be liable to pay for more than one such endorsement in any consecutive 12 month period. -62- SECTION 13.24 Geographical Diversification. From and after the date on which the ---------------------------- Collateral Pool first consists of ten (10) or more Mortgaged Properties, the Borrower shall maintain Mortgaged Properties in the Collateral Pool so that the Collateral Pool consists of at least nine (9) Mortgaged Properties located in at least five (5) SMSA's, provided, however, that, upon the occurrence of any increase in the Commitment pursuant to Article VIII, the Borrower shall at all times thereafter cause the Collateral Pool to satisfy such other Geographical Diversification Requirements as the Lender may determine and notify Borrower of at the time of the increase. SECTION 13.25 Ownership of Mortgaged Properties. The Borrower shall be the sole --------------------------------- owner of each of the Mortgaged Properties free and clear of any Liens other than Permitted Liens. Each Mortgaged Property located in the State of California shall be owned by a Borrower that owns no assets other than (i) the Mortgaged Properties and (ii) assets incident to the ownership, maintenance or operation of such Mortgaged Property. SECTION 13.26 Facility Balancing. If the Borrower fails to meet the Coverage and ------------------ LTV Tests then, within 45 days of Lender's notice to Borrower of such failure, the Borrower shall (i) add Additional Mortgaged Properties to the Collateral Pool in accordance with Article VI so that after such addition the Coverage and LTV Tests are met, or (ii) prepay Advances Outstanding in an amount sufficient to cause the Borrower to be in compliance with the Coverage and LTV Tests. Any prepayments made pursuant to the preceding sentence shall be applied first against the Variable Advances Outstanding in the sequence specified by Borrower until there are no further Variable Advances Outstanding then against the prepayment of Fixed Advances Outstanding so long as the prepayment is permitted under the applicable Fixed Facility Note. If no prepayment is permitted under the applicable Fixed Facility Note, such prepayment amount shall be held by Lender (or its appointed collateral agent) as Substitute Cash Collateral in accordance with a security agreement and other documents in form and substance acceptable to Lender. Any Substitute Cash Collateral remaining will be returned to the Borrower on the earlier of the date when the Coverage and LTV Tests are again met or the Termination Date. If on the date the Borrower pays any amounts required by this Section, Variable Advances are Outstanding but are not then due and payable, Lender shall hold such amounts (which amounts shall bear interest at a rate determined by Lender) as additional collateral until the next date on the Variable Advances are due and payable at which time Lender shall apply the appropriate portion of such prepayment to such Variable Advances. ARTICLE XIV NEGATIVE COVENANTS OF THE BORROWER The Borrower agrees and covenants with the Lender that, at all times during the Term of this Agreement: SECTION 14.01 Other Activities. The Borrower shall not: ---------------- (a) either directly or indirectly sell, transfer, exchange or otherwise dispose of any of its assets if such sale, transfer, exchange or disposal would result in an Event of Default or Potential Event of Default; -63- (b) amend its Organizational Documents in any material respect without the prior written consent of the Lender except in connection with a stock split or the issuance of stock of the Borrower, provided such stock split or issuance does not result in an Event of Default or Potential Event of Default; (c) dissolve or liquidate in whole or in part, unless the surviving entity is in compliance with the terms and conditions of this Agreement and the Other Loan Documents; (d) merge or consolidate with any Person, unless the surviving entity is in compliance with the terms and conditions of this Agreement and the Other Loan Documents; or (e) use, or permit to be used, any Mortgaged Property for any uses or purposes other than as a Multifamily Residential Property. SECTION 14.02 Value of Security. The Borrower shall not take any action which ----------------- could reasonably be expected to have any Material Adverse Effect. SECTION 14.03 Zoning. The Borrower shall not initiate or consent to any zoning ------ reclassification of any Mortgaged Property or seek any variance under any zoning ordinance or use or permit the use of any Mortgaged Property in any manner that could result in the use becoming a nonconforming use under any zoning ordinance or any other applicable land use law, rule or regulation. SECTION 14.04 Liens. The Borrower shall not create, incur, assume or suffer to ----- exist any Lien on any Mortgaged Property or any part of any Mortgaged Property, except the Permitted Liens. SECTION 14.05 Sale. The Borrower shall not Transfer any Mortgaged Property or ---- any part of any Mortgaged Property without the prior written consent of the Lender (which consent may be granted or withheld in the Lender's discretion), or any interest in any Mortgaged Property, other than to enter into Leases for units in a Mortgaged Property to any tenant in the ordinary course of business. SECTION 14.06 Intentionally Omitted. --------------------- SECTION 14.07 Principal Place of Business. The Borrower shall not change its --------------------------- principal place of business or the location of its books and records, each as set forth in Section 12.01(a), without first giving 30 days' prior written notice to the Lender. SECTION 14.08 Intentionally Omitted. --------------------- SECTION 14.09 Change in Property Management. The Borrower shall not change the ----------------------------- management agent for any Mortgaged Property except to a management agent which the Lender determines is qualified in accordance with the criteria set forth in Section 701 of the DUS Guide. SECTION 14.10 Condominiums. The Borrower shall not submit any Mortgaged Property ------------ to a condominium regime during the Term of this Agreement. -64- SECTION 14.11 Restrictions on Distributions. The Borrower shall not make any ----------------------------- distributions of any nature or kind whatsoever to the owners of its Ownership Interests as such if, at the time of such distribution, a Potential Event of Default or an Event of Default has occurred and remains uncured. SECTION 14.12 Conduct of Business. The conduct of the Borrower's businesses ------------------- shall not violate the Organizational Documents pursuant to which it is formed. SECTION 14.13 Limitation on Unimproved Real Property and New Construction. The ----------------------------------------------------------- Borrower shall not permit: (a) the value of its real property which is not improved (except real property on which phases of a Mortgaged Property are contemplated to be constructed) by one or more buildings leased, or held out for lease, to third parties ("Unimproved Real Property") to exceed 10% of the value of all of its "Real Estate Assets" (as that term is defined in Section 856(c)(6)(B) of the Internal Revenue Code and the regulations thereunder); and (b) the sum of (i) the value of its Unimproved Real Property and (ii) the value of its Real Estate Assets which are under construction or subject to substantial rehabilitation to exceed 20% of the value of all of its Real Estate Assets. All of the foregoing values shall be reasonably determined by the Lender. SECTION 14.14 No Encumbrance of Collateral Release Property. Unless the Borrower --------------------------------------------- sells a Collateral Release Property to a Person who is not an Affiliate of the Borrower substantially simultaneously with the release of the Collateral Release Property from the Collateral Pool, the Borrower shall not encumber the Collateral Release Property for a period of 120 days following the release of the Collateral Release Property from the Collateral Pool. ARTICLE XV FINANCIAL COVENANTS OF THE BORROWER The Borrower agrees and covenants with the Lender that, at all times during the Term of this Agreement: SECTION 15.01 Financial Definitions. For all purposes of this Agreement, the --------------------- following terms shall have the respective meanings set forth below: "Cash Equivalents" means (a) securities issued or directly and fully ---------------- guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time deposits and certificates of deposit of (i) any Lender, or (ii) any domestic commercial bank of recognized standing (y) having capital and surplus in excess of $500,000,000 and (z) whose short-term commercial paper rating from S&P is at least A-2 (and not lower than A-3) or the equivalent thereof or from Moody's is at least P-2 (and not lower than P-3) or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more ------------- than 270 days from the date -65- of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated at least A-2 (and not lower than A-3) or the equivalent thereof by S&P or at least P-2 (and not lower than P-3) or the equivalent by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by a Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (e) obligations of any State of the United States or any political subdivision thereof, the interest with respect to which is exempt from federal income taxation under Section 103 of the Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within three years from the date of acquisition thereof, (f) Investments in municipal auction preferred stock (i) rated A- (or the equivalent thereof) or better by S&P or A3 (or the equivalent thereof) or better by Moody's and (ii) with dividends that reset at least once every 365 days and (g) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Borrower Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $100,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (f). "Consolidated Adjusted EBITDA" means for any period the Consolidated Group ---------------------------- the sum of Consolidated EBITDA for such period minus a reserve equal to $62.50 per apartment unit per quarter ($250 per apartment unit per year). Except as expressly provided otherwise, the applicable period shall be for the single fiscal quarter ending as of the date of determination. "Consolidated EBITDA" means for any period for the Consolidated Group, the ------------------- sum of Consolidated Net Income plus Consolidated Interest Expense plus all provisions for any Federal, state, or other income taxes plus depreciation, amortization and other non cash charges, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis, but excluding in any event gains and losses on Investments and extraordinary gains and losses, and taxes on such excluded gains and tax deductions or credit on account of such excluded losses. Except as expressly provided otherwise, the applicable period shall be for the single fiscal quarter ending as of the date of determination. "Consolidated Adjusted Tangible Net Worth" means at any rate: ---------------------------------------- (i) the sum of (A) the consolidated shareholders equity of the Consolidated Group (net of Minority Interests) plus (B) accumulated depreciation of real estate owned to the extent reflected in the then book value of the Consolidated Assets, minus without duplication (ii) the Intangible Assets of the Consolidated Group. "Consolidated Funded Debt" means total Debt of the Consolidated Group on a ------------------------ consolidated basis determined in accordance with GAAP applied on a consistent basis. -66- "Consolidated Group" means the Borrower and its consolidated Subsidiaries, ------------------ as determined in accordance with GAAP. "Consolidated Interest Expense" means for any period for the Consolidated ----------------------------- Group, all interest expense, including the amortization of debt discount and premium, the interest component under capital leases and the implied interest component under Securitization Transactions in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated Net Income" means for any period the net income of the ----------------------- Consolidated Group on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated Net Operating Income from Realty" means for any period for --------------------------------------------- any Realty of the Consolidated Group, an amount equal to the aggregate rental and other income from the operation of such Realty during such period; minus all expenses and other proper charges incurred in connection with the operation of such Realty (including, without limitation, real estate taxes and bad debt expenses) during such period; but in any case, before payment of provision for debt service charges for such period, income taxes for such period, and depreciation, amortization and other non-cash expenses for such period, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Net Operating Income from Unencumbered Realty" (i) the ---------------------------------------------------------- aggregate rental and other income from the operation of such Realty during such period; minus all expenses and other proper charges incurred in connection with the operation of such Realty (including, without limitation, real estate taxes and bad debt expenses) during such period; but in any case, before payment of provision for debt service charges for such period, income taxes for such period, and depreciation, amortization and other non-cash expenses for such period, all on a consolidated basis determined in accordance with GAAP on a consistent basis minus (ii) a reserve equal to $62.50 per apartment unit per quarter ($250 per apartment unit per year) for such period. "Consolidated Total Fixed Charges" means as of the last day of each fiscal -------------------------------- quarter for the Consolidated Group, the sum of (i) the cash portion of Consolidated Interest Expense paid in the fiscal quarter ending on such day plus (ii) scheduled maturities of Consolidated Funded Debt (excluding the amount by which a final installment exceeds the next preceding principal installment thereon and further excluding amortization on Insurance Company Debt which shall not exceed $7.5 million annually) in the fiscal quarter ending on such day plus (iii) all cash dividends and distributions on preferred stock or other preferred beneficial interests of members of the Consolidated Group paid in the fiscal quarter ending on such day, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Unsecured Debt" means, for the Consolidated Group on a --------------------------- consolidated basis, all unsecured Consolidated Funded Debt. "Consolidated Unencumbered Realty" means for the Consolidated Group on a -------------------------------- consolidated basis, all Realty which is not encumbered by a Lien securing Debt. For purposes of the covenant, Consolidated Unencumbered Realty as of any date, for the Consolidated Group, shall be valued at the sum (without duplication) of (a) with respect to any consolidated Unencumbered Realty -67- purchased or developed prior to January 1 of the year preceding such date, (i) Consolidated Net Operating Income from Unencumbered Realty for the fiscal quarter most recently ended prior to such date multiplied by four, divided by (ii) 9.25%; plus (b) with respect to any Consolidated Unencumbered Realty purchased or developed on or after January 1 of the year preceding such date, the actual costs of such Realty; plus (c) with respect to any Consolidated Unencumbered Realty that also constitutes consolidated Unimproved Realty, the sum of (i) fifty percent (50%) of the GAAP value of the land associated with such Realty plus (ii) an amount equal to fifty percent (50%) of the actual expenditures for improvements on such Realty; plus (d) fifty percent (50%) of the Consolidated Group's pro rata share of the GAAP value of any Realty contributed to or otherwise invested in joint ventures which is not encumbered by a Lien securing Debt. "Debt" of any Person means at any date, without duplication, (i) all ---- obligations of such Person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to purchase securities or other property which arise out of or in connection with the sale of the same or substantially similar securities or property, (vi) all obligations of such person to reimburse any bank or other person in respect of amounts payable under a letter of credit or similar instrument (being the amount available to be drawn thereunder, whether or not then drawn), (vii) all obligations of others secured by a Lien on any asset of such Person, whether or not such obligation is assumed by such Person, (viii) all obligations of others Guaranteed by such Person, (ix) all obligations which in accordance with GAAP would be shown as liabilities on a balance sheet of such Person, (x) the Attributed Principal Amount under any Securitization Transaction and (xi) all obligations of such person owing under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes, but classified as an operating lease in accordance with GAAP. Debt of any Person shall include Debt of any partnership or joint venture in which such Person is a general partner or joint venturer to the extent of such Person's pro rata portion of the ownership of such partnership or joint venture (except if such Debt is recourse to such Person, in which case the greater of such Person's pro rata portion of such Debt or the amount of the recourse portion of the Debt, shall be included as Debt of such Person). "Insurance Company Debt" means Debt owed by the Borrower with respect to ---------------------- the 7.98% Notes due March 2000-2003 as more fully described in note 4 of the consolidated financial statements contained in the Borrower's report on form 10 - - K filed with the Securities and Exchange commission for fiscal year 1999. "Intangible Assets" of any Person means at any date the amount of (i) all ----------------- write ups (other than write-ups resulting from write-ups of assets of a going concern business made within twelve months after the acquisition of such business) in the book value of any asset owned by such Person and (ii) all unamortized debt discount and expense, unamortized deferred charges, capitalized start up costs, goodwill, patents, licenses, trademarks, trade names, copyrights, organization or developmental expenses, covenants not to compete and other intangible items. -68- "Minority Interest" means any shares of stock (or other equity interests) ----------------- of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Borrower and/or one or more Wholly Owned Subsidiaries. Minority Interests constituting preferred stock shall be valued at the voluntary or involuntary liquidation value of such preferred stock, whichever is greater, and by valuing common stock at the book value of the capitalized surplus applicable thereto adjusted by the foregoing method of valuing Minority Interests in preferred stock. "Realty" means all real property and interests therein, together with all ------ improvements thereon. "Securitization Transaction" means any financing transaction or series of -------------------------- financing transactions that have been or may be entered into by a member of the Consolidated Group pursuant to which such member of the Consolidated Group may sell, convey or otherwise transfer to (i) a Subsidiary or affiliate (a "Securitization Subsidiary") or (ii) any other Person, or may grant a security interest in, any Receivables or interest therein secured by merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of such member of the Consolidated Group, and any assets related thereto, including without limitation, all security interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. (Receivables means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the sale or financing by a member of the Consolidated Group or merchandise or services, and monies due thereunder, security in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights.) "Tangible Fair Market Value of Assets" means, as of any date for the ------------------------------------ Consolidated Group, the sum (without duplication) of (a) with respect to any Realty owned by a member of the Consolidated Group and purchased or developed prior to January 1 of the year preceding such date, (i) the sum of (A) Consolidated Net Operating Income for Realty for the fiscal quarter most recently ended prior to such date multiplied by four, minus (B) a reserve of $250 per apartment unit, divided by (ii) 9.25%, plus (b) with respect to any Realty owned by a member of the Consolidated Group and purchased or developed on or after January 1 of the year preceding such date, the actual cost of such Realty, plus (c) with respect to any Consolidated Unimproved Realty, the sum of (i) one hundred percent (100%) of the GAAP value of the land associated with such Realty plus (ii) an amount equal to 100% (100%) of the actual expenditures for improvements on such Realty, plus (d) cash and Cash Equivalents, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis, plus (e) one hundred (100%) of the Consolidated Group's pro rata share of the GAAP value of any asset contributed to or otherwise invested in joint ventures. "Wholly Owned Subsidiary" means as to any person, any Subsidiary all of the ----------------------- voting stock or other similar voting interest are owned directly or indirectly by such Person. Unless otherwise provided, references to "Wholly Owned Subsidiary" shall mean Wholly Owned Subsidiaries of the Borrower. -69- SECTION 15.02 Compliance with Debt Service Coverage Ratios. The Borrower shall -------------------------------------------- at all times maintain the Aggregate Debt Service Coverage Ratio for the Trailing 12 Month Period so that it is not less than 1.30:1.0. SECTION 15.03 Compliance with Loan to Value Ratios. The Borrower shall at all ------------------------------------ times maintain the Aggregate Loan to Value Ratio for the Trailing 12 Month Period so that it is not greater than 70%. SECTION 15.04 Compliance with Concentration Test. ---------------------------------- (a) The Borrower shall at all times maintain the Collateral so that the aggregate Valuations of any group of Mortgaged Properties located within a one mile radius shall not exceed 30% of the aggregate Valuations of all Mortgaged Properties. (b) The Borrower shall at all times maintain the Collateral so that the Valuation of any one Mortgaged Property shall not exceed 30% of the aggregate Valuations of all Mortgaged Properties. (c) The Borrower shall at all times maintain the Collateral so that the Valuation of all Mortgaged Properties subject to review and underwriting under Section 305.09 of the DUS Guide (Projection Dependent on Military Bases) shall not exceed 20% of the aggregate Valuations of all Mortgaged Properties. Notwithstanding the preceding sentence, Lender may reject, in its sole discretion, any proposed Mortgaged Property subject to review and underwriting under Section 305.09 of the DUS Guide. SECTION 15.05 Consolidated Adjusted Tangible Net Worth. Consolidated Adjusted ---------------------------------------- Tangible Net Worth of UDRT will not at any time be less than the sum of (i) $1,500,000,000 plus (ii) 90% of the net proceeds (after customary underwriting ---- discounts and commissions and reasonable offering expenses) from Equity Transactions occurring after December 31, 1999. SECTION 15.06 Consolidated Funded Debt Ratio. As of the last day of each fiscal ------------------------------ quarter Consolidated Funded Debt of UDRT shall not exceed 60% of Tangible Fair Market Value of Assets. SECTION 15.07 Consolidated Total Fixed Charge Coverage Ratio. As of the end of ---------------------------------------------- each fiscal quarter, the ratio of Consolidated Adjusted EBITDA of UDRT to Consolidated Total Fixed Charges for the fiscal quarter then ended shall be not less than 1.4:1.0. SECTION 15.08 Consolidated Unencumbered Realty to Consolidated Unsecured Debt --------------------------------------------------------------- Ratio. As of the last day of each fiscal quarter, the ratio of Consolidated - ----- Unsecured Debt of UDRT to Consolidated Unencumbered Realty of UDRT shall not exceed 60%. SECTION 15.09 Consolidated Unencumbered Interest Coverage Ratio. As of the end ------------------------------------------------- of each fiscal quarter, the ratio of Consolidated Net Operating Income of UDRT from Unencumbered Realty of UDRT to Consolidated Interest Expense relating to Consolidated Unsecured Debt of UDRT for the fiscal quarter then ended shall not be less than 1.75:1.0. -70- ARTICLE XVI FEES SECTION 16.01 Standby Fee. The Borrower shall pay the Standby Fee to the Lender ----------- for the period from the date of this Agreement to the end of the Term of this Agreement. Notwithstanding the preceding sentence, the Standby Fee shall be waived for the period commencing on the Initial Closing Date and ending on March 31, 2002. The Standby Fee shall be payable monthly, in arrears, on the first Business Day following the end of the month, except that the Standby Fee for the last month during the Term of this Agreement shall be paid on the last day of the Term of this Agreement. SECTION 16.02 Origination Fees. ---------------- (a) Initial Origination Fee. The Borrower shall pay to the Lender ----------------------- an origination fee ("Initial Origination Fee") equal to $2,250,000 (which is ----------------------- equal to the product obtained by multiplying (i) the Commitment as of the date of this Agreement ($300,000,000), by (ii) .75%). The Borrower shall pay the Initial Origination Fee on the date of this Agreement. $1,687,500 of the Initial Origination Fee shall be paid on the Initial Closing Date. The remainder of the Initial Original Fee ($562,500) shall be paid on the earlier of (i) the date Advances exceed $225,000,000 (to the extent of such excess multiplied by .75%) and (ii) March 31, 2002. (b) Expansion Origination Fee. Upon the closing of a Credit ------------------------- Facility Expansion Request under Article VIII, the Borrower shall pay to the Lender an origination fee ("Expansion Origination Fee") equal to the product ------------------------- obtained by multiplying (i) the increase in the Commitment made on the Closing Date for the Credit Facility Expansion Request, by (ii) .75%. The Borrower shall pay the Expansion Origination Fee on or before the Closing Date for the Credit Facility Expansion Request. SECTION 16.03 Due Diligence Fees. ------------------ (a) Initial Due Diligence Fees. The Borrower shall pay to the -------------------------- Lender due diligence fees ("Initial Due Diligence Fees") with respect to the -------------------------- Initial Mortgaged Properties in an amount equal to Lender's reasonable actual out-of-pocket due diligence costs and expenses plus $1,000 per Mortgaged Property. The Borrower has previously paid to the Lender a portion of the Initial Due Diligence Fees and shall pay the remainder of the Initial Due Diligence Fees to the Lender on the Initial Closing Date. (b) Additional Due Diligence Fees for Additional Collateral. The ------------------------------------------------------- Borrower shall pay to the Lender additional due diligence fees (the "Additional ---------- Collateral Due Diligence Fees") with respect to each Additional Mortgaged - ----------------------------- Property in an amount equal to Lender's reasonable out-of-pocket due diligence costs and expenses plus $2,500. The Borrower shall pay Additional Collateral Due Diligence Fees for the Additional Mortgaged Property to the Lender on the date on which it submits the Collateral Addition Request for the addition of the Additional Mortgaged Property to the Collateral Pool. SECTION 16.04 Legal Fees and Expenses. ----------------------- -71- (a) Initial Legal Fees. The Borrower shall pay, or reimburse the ------------------ Lender for, all reasonable out-of-pocket legal fees and expenses incurred by the Lender and by Fannie Mae in connection with the preparation, review and negotiation of this Agreement and any other Loan Documents executed on the date of this Agreement based on the terms set forth in a separate letter from the Lender to the Borrower. On the date of this Agreement, the Borrower shall pay all such legal fees and expenses not previously paid or for which funds have not been previously provided. (b) Fees and Expenses Associated with Requests. The Borrower shall ------------------------------------------ pay, or reimburse the Lender for, all costs and expenses incurred by the Lender, including the reasonable out-of-pocket legal fees and expenses incurred by the Lender in connection with the preparation, review and negotiation of all documents, instruments and certificates to be executed and delivered in connection with each Request, the performance by the Lender of any of its obligations with respect to the Request, the satisfaction of all conditions precedent to the Borrower's rights or the Lender's obligations with respect to the Request, and all transactions related to any of the foregoing, including the cost of title insurance premiums and applicable recordation and transfer taxes and charges and all other costs and expenses in connection with a Request. The obligations of the Borrower under this subsection shall be absolute and unconditional, regardless of whether the transaction requested in the Request actually occurs. The Borrower shall pay such costs and expenses to the Lender on the Closing Date for the Request, or, as the case may be, after demand by the Lender when the Lender determines that such Request will not close. SECTION 16.05 MBS-Related Costs. The Borrower shall pay to the Lender, within 30 ----------------- days after demand, all fees and expenses incurred by the Lender or Fannie Mae in connection with the issuance of any MBS backed by an Advance, including the fees charged by Depository Trust Company and State Street Bank or any successor fiscal agent or custodian. SECTION 16.06 Failure to Close any Request. If the Borrower makes a Request and ---------------------------- fails to close on the Request for any reason other than the default by the Lender or, if applicable, the failure of the purchaser of an MBS to purchase such MBS, then the Borrower shall pay to the Lender and Fannie Mae all damages incurred by the Lender and Fannie Mae in connection with the failure to close. SECTION 16.07 Other Fees. The Borrower shall pay the following additional fees ---------- and payments, if and when required pursuant to the terms of this Agreement: (a) If applicable, the Collateral Addition Fee, pursuant to Section 6.03(c), in connection with the addition of an Additional Mortgaged Property to the Collateral Pool pursuant to Article VI; (b) The Release Price, pursuant to Section 7.02(c), in connection with the release of a Mortgaged Property from the Collateral Pool pursuant to Article VII; (c) The Facility Termination Fee, pursuant to Section 9.03(b) in connection with a complete or partial termination of the Revolving Facility pursuant to Article IX; and (d) The Facility Termination Fee, pursuant to Section 10.03(b), in connection with the termination of the Credit Facility pursuant to Article X. -72- ARTICLE XVII EVENTS OF DEFAULT SECTION 17.01 Events of Default. Each of the following events shall constitute ----------------- an "Event of Default" under this Agreement, whatever the reason for such event and whether it shall be voluntary or involuntary, or within or without the control of the Borrower, or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority: (a) the occurrence of a default under any Loan Document beyond the cure period, if any, set forth therein; or (b) the failure by the Borrower to pay when due any amount payable by the Borrower under any Note, any Mortgage, this Agreement or any other Loan Document, including any fees, costs or expenses; or (c) the failure by the Borrower to perform or observe any covenant set forth in Sections 13.01 through 13.25 or Sections 14.01 through 14.14 within thirty (30) days after receipt of notice from Lender identifying such failure, provided that such period shall be extended for up to forty-five (45) additional days if the Borrower, in the discretion of the Lender, is diligently pursuing a cure of such default; or (d) any warranty, representation or other written statement made by or on behalf of the Borrower contained in this Agreement, any other Loan Document or in any instrument furnished in compliance with or in reference to any of the foregoing, is false or misleading in any material respect on any date when made or deemed made; or (e) any other Indebtedness in an aggregate amount in excess of $5,000,000 of the Borrower or assumed by the Borrower (i) is not paid when due nor within any applicable grace period in any agreement or instrument relating to such Indebtedness or (ii) becomes due and payable before its normal maturity by reason of a default or event of default, however described, or any other event of default shall occur and continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or (f) (i) The Borrower shall (A) commence a voluntary case under the Federal bankruptcy laws (as now or hereafter in effect), (B) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up or composition or adjustment of debts, (C) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (D) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of a substantial part of its property, domestic or foreign, (E) admit in writing its inability to pay, or generally not be paying, its debts as they become due, (F) make a general assignment for the benefit of creditors, (G) assert that the Borrower has no liability or obligations under this Agreement or any other Loan Document to which it is a party; or (H) take any action for the purpose of effecting any of the foregoing; or (ii) a case or other proceeding shall be commenced against the Borrower in any court of competent jurisdiction seeking (A) relief under the Federal bankruptcy laws (as now or -73- hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding upon or composition or adjustment of debts, or (B) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower, or of all or a substantial part of the property, domestic or foreign, of the Borrower and any such case or proceeding shall continue undismissed or unstayed for a period of 60 consecutive calendar days, or any order granting the relief requested in any such case or proceeding against the Borrower (including an order for relief under such Federal bankruptcy laws) shall be entered; or (g) if any provision of this Agreement or any other Loan Document or the lien and security interest purported to be created hereunder or under any Loan Document shall at any time for any reason cease to be valid and binding in accordance with its terms on the Borrower, or shall be declared to be null and void, or the validity or enforceability hereof or thereof or the validity or priority of the lien and security interest created hereunder or under any other Loan Document shall be contested by the Borrower seeking to establish the invalidity or unenforceability hereof or thereof, or the Borrower shall deny that it has any further liability or obligation hereunder or thereunder; or (h) (i) the execution by the Borrower without the prior written consent of the Lender of a chattel mortgage or other security agreement on any materials, fixtures or articles used in the construction or operation of the improvements located on any Mortgaged Property or on articles of personal property located therein, or (ii) if, without the prior written consent of the Lender, any such materials, fixtures or articles are purchased pursuant to any conditional sales contract or other security agreement or otherwise so that the Ownership thereof will not vest unconditionally in the Borrower free from encumbrances, or (iii) if the Borrower does not furnish to the Lender upon request the contracts, bills of sale, statements, receipted vouchers and agreements, or any of them, under which the Borrower claims title to such materials, fixtures, or articles; or (i) the failure by the Borrower to comply with any requirement of any Governmental Authority within 30 days after written notice of such requirement shall have been given to the Borrower by such Governmental Authority; provided that, if action is commenced and diligently pursued by the Borrower within such 30 days, then the Borrower shall have an additional 45 days to comply with such requirement; or (j) a dissolution or liquidation for any reason (whether voluntary or involuntary) of the Borrower; or (k) any judgment against the Borrower, any attachment or other levy against any portion of the Borrower's assets with respect to a claim or claims in an amount in excess of $2,500,000 in the aggregate remains unpaid, unstayed on appeal undischarged, unbonded, not fully insured or undismissed for a period of 60 days; or (l) [Intentionally Deleted] (m) The failure of the Borrower to perform or observe any of the Financial Covenants, which failure shall continue for a period of 30 days after the date on which the Borrower receives a notice from the Lender specifying the failure; or -74- (n) the failure by the Borrower to perform or observe any term, covenant, condition or agreement hereunder, other than as set forth in subsections (a) through (m) above, or in any other Loan Document, within 30 days after receipt of notice from the Lender identifying such failure. ARTICLE XVIII REMEDIES SECTION 18.01 Remedies; Waivers. Upon the occurrence of an Event of Default, the ----------------- Lender may do any one or more of the following (without presentment, protest or notice of protest, all of which are expressly waived by the Borrower): (a) by written notice to the Borrower, to be effective upon dispatch, terminate the Commitment and declare the principal of, and interest on, the Advances and all other sums owing by the Borrower to the Lender under any of the Loan Documents forthwith due and payable, whereupon the Commitment will terminate and the principal of, and interest on, the Advances and all other sums owing by the Borrower to the Lender under any of the Loan Documents will become forthwith due and payable. (b) The Lender shall have the right to pursue any other remedies available to it under any of the Loan Documents. (c) The Lender shall have the right to pursue all remedies available to it at law or in equity, including obtaining specific performance and injunctive relief. SECTION 18.02 Waivers; Rescission of Declaration. The Lender shall have the ---------------------------------- right, to be exercised in its complete discretion, to waive any breach hereunder (including the occurrence of an Event of Default), by a writing setting forth the terms, conditions, and extent of such waiver signed by the Lender and delivered to the Borrower. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence which gave rise to the waiver and not to any other similar event or occurrence which occurs subsequent to the date of such waiver. SECTION 18.03 The Lender's Right to Protect Collateral and Perform Covenants and ------------------------------------------------------------------ Other Obligations. If the Borrower fails to perform the covenants and agreements - ----------------- contained in this Agreement or any of the other Loan Documents, then the Lender at the Lender's option may make such appearances, disburse such sums and take such action as the Lender deems necessary, in its sole discretion, to protect the Lender's interest, including (i) disbursement of attorneys' fees, (ii) entry upon the Mortgaged Property to make repairs and Replacements, (iii) procurement of satisfactory insurance as provided in paragraph 5 of the Security Instrument encumbering the Mortgaged Property, and (iv) if the Security Instrument is on a leasehold, exercise of any option to renew or extend the ground lease on behalf of the Borrower and the curing of any default of the Borrower in the terms and conditions of the ground lease. Any amounts disbursed by the Lender pursuant to this Section, with interest thereon, shall become additional indebtedness of the Borrower secured by the Loan Documents. Unless the Borrower and the Lender agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the weighted average, as determined by Lender, of the interest rates in effect -75- from time to time for each Advance unless collection from the Borrower of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from the Borrower under applicable law. Nothing contained in this Section shall require the Lender to incur any expense or take any action hereunder. SECTION 18.04 No Remedy Exclusive. Unless otherwise expressly provided, no ------------------- remedy herein conferred upon or reserved is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under the Loan Documents or existing at law or in equity. SECTION 18.05 No Waiver. No delay or omission to exercise any right or power --------- accruing under any Loan Document upon the happening of any Event of Default or Potential Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. SECTION 18.06 No Notice. In order to entitle the Lender to exercise any remedy --------- reserved to the Lender in this Article, it shall not be necessary to give any notice, other than such notice as may be required under the applicable provisions of this Agreement or any of the other Loan Documents. SECTION 18.07 Application of Payments. Except as otherwise expressly provided in ----------------------- the Loan Documents, and unless applicable law provides otherwise, (i) all payments received by the Lender from the Borrower under the Loan Documents shall be applied by the Lender against any amounts then due and payable under the Loan Documents by the Borrower, in any order of priority that the Lender may determine and (ii) the Borrower shall have no right to determine the order of priority or the allocation of any payment it makes to the Lender. ARTICLE XIX RIGHTS OF FANNIE MAE SECTION 19.01 Special Pool Purchase Contract. The Borrower acknowledges that ------------------------------ Fannie Mae is entering into an agreement with the Lender ("Special Pool Purchase --------------------- Contract"), pursuant to which, inter alia, (i) the Lender shall agree to assign - -------- ----- ---- all of its rights under this Agreement to Fannie Mae, (ii) Fannie Mae shall accept the assignment of the rights, (iii) subject to the terms, limitations and conditions set forth in the Special Pool Purchase Contract, Fannie Mae shall agree to purchase a 100% participation interest in each Advance issued under this Agreement by issuing to the Lender a Fannie Mae MBS, in the amount and for a term equal to the Advance purchased and backed by an interest in the Base Facility Note or the Revolving Facility Note, as the case may be, and the Collateral Pool securing the Notes, (iv) the Lender shall agree to assign to Fannie Mae all of the Lender's interest in the Notes and Collateral Pool securing the Notes, and (v) the Lender shall agree to service the loans evidenced by the Notes. SECTION 19.02 Assignment of Rights. The Borrower acknowledges and consents to -------------------- the assignment to Fannie Mae of all of the rights of the Lender under this Agreement and all other Loan Documents, including the right and power to make all decisions on the part of the Lender to be made under this Agreement and the other Loan Documents, but Fannie Mae, by virtue of this assignment, shall not be obligated to perform the obligations of the Lender under this Agreement or the other Loan Documents. -76- SECTION 19.03 Release of Collateral. The Borrower hereby acknowledges that, --------------------- after the assignment of Loan Documents contemplated in Section 19.02, the Lender shall not have the right or power to effect a release of any Collateral pursuant to Articles VII or X. The Borrower acknowledges that the Security Instruments provide for the release of the Collateral under Articles VII and X. Accordingly, the Borrower shall not look to the Lender for performance of any obligations set forth in Articles VII and X, but shall look solely to the party secured by the Collateral to be released for such performance. The Lender represents and warrants to the Borrower that the party secured by the Collateral shall be subject to the release and substitution provisions contained in Articles VII and X by virtue of the release provisions in each Security Instrument. SECTION 19.04 Replacement of Lender. At the request of Fannie Mae, the Borrower --------------------- and the Lender shall agree to the assumption by another lender designated by Fannie Mae, of all of the obligations of the Lender under this Agreement and the other Loan Documents, and/or any related servicing obligations, and, at Fannie Mae's option, the concurrent release of the Lender from its obligations under this Agreement and the other Loan Documents, and/or any related servicing obligations, and shall execute all releases, modifications and other documents which Fannie Mae determines are necessary or desirable to effect such assumption. SECTION 19.05 Fannie Mae and Lender Fees and Expenses. The Borrower agrees that --------------------------------------- any provision providing for the payment of fees, costs or expenses incurred or charged by the Lender pursuant to this Agreement shall be deemed to provide for the Borrower's payment of all reasonable fees, costs and expenses incurred or charged by the Lender or Fannie Mae in connection with the matter for which fees, costs or expenses are payable. SECTION 19.06 Third-Party Beneficiary. The Borrower hereby acknowledges and ----------------------- agrees that Fannie Mae is a third party beneficiary of all of the representations, warranties and covenants made by the Borrower to, and all rights under this Agreement conferred upon, the Lender, and, by virtue of its status as third-party beneficiary and/or assignee of the Lender's rights under this Agreement, Fannie Mae shall have the right to enforce all of the provisions of this Agreement against the Borrower. ARTICLE XX INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES SECTION 20.01 Insurance and Real Estate Taxes. The Borrower shall (unless waived ------------------------------- by Lender) establish funds for taxes, insurance premiums and certain other charges for each Mortgaged Property in accordance with Section 7(a) of the Security Instrument for each Mortgaged Property. The Borrower may provide a letter of credit in lieu of deposits required by the preceding sentence. Any letter of credit provided by the Borrower shall be (i) issued by a financial institution reasonably acceptable to the Lender, (ii) be an amount reasonably deferred, from time to time by the Lender and, (iii) in a form reasonably satisfactory to Lender. SECTION 20.02 Replacement Reserves. The Borrower shall execute a Replacement -------------------- Reserve Agreement for the Mortgaged Property which it owns and shall (unless waived by the Lender) make -77- all deposits for replacement reserves in accordance with the terms of the Replacement Reserve Agreement. ARTICLE XXI INTENTIONALLY OMITTED ARTICLE XXII PERSONAL LIABILITY OF THE BORROWER SECTION 22.01 Personal Liability of the Borrower. (a) Full Recourse. The Borrower is and shall remain personally liable ------------- to the Lender for the payment and performance of all Obligations throughout the term of this Agreement. (b) Transfer Not Release. No Transfer by any Person of its Ownership -------------------- Interests in the Borrower shall release the Borrower from liability under this Article, this Agreement or any other Loan Document, unless the Lender shall have approved the Transfer and shall have expressly released the Borrower in connection with the Transfer. (c) Miscellaneous. The Lender may exercise its rights against the ------------- Borrower personally without regard to whether the Lender has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to the Lender under the Loan Documents or applicable law. For purposes of this Article, the term "Mortgaged Property" shall not include any funds that (1) have been applied by the Borrower as required or permitted by the Loan Documents prior to the occurrence of an Event of Default, or (2) are owned by the Borrower and which the Borrower was unable to apply as required or permitted by the Loan Documents because of a bankruptcy, receivership, or similar judicial proceeding. ARTICLE XXIII MISCELLANEOUS PROVISIONS SECTION 23.01 Counterparts. To facilitate execution, this Agreement may be ------------ executed in any number of counterparts. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart, but it shall be sufficient that the signature of, or on behalf of, each party, appear on one or more counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than the number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. SECTION 23.02 Amendments, Changes and Modifications. This Agreement may be ------------------------------------- amended, changed, modified, altered or terminated only by written instrument or written instruments signed by all of the parties hereto. -78- SECTION 23.03 Payment of Costs, Fees and Expenses. The Borrower shall pay, on ----------------------------------- demand, all reasonable fees, costs, charges or expenses (including the fees and expenses of attorneys, accountants and other experts) incurred by the Lender in connection with: (a) Any amendment, consent or waiver to this Agreement or any of the Loan Documents (whether or not any such amendments, consents or waivers are entered into). (b) Defending or participating in any litigation arising from actions by third parties and brought against or involving the Lender with respect to (i) any Mortgaged Property, (ii) any event, act, condition or circumstance in connection with any Mortgaged Property or (iii) the relationship between the Lender and the Borrower in connection with this Agreement or any of the transactions contemplated by this Agreement. (c) The administration (to the extent of actual out-of-pocket fees, costs, charges or expenses) or enforcement of, or preservation of rights or remedies under, this Agreement or any other Loan Documents or in connection with the foreclosure upon, sale of or other disposition of any Collateral granted pursuant to the Loan Documents. (d) UDRT's Registration Statement, or similar disclosure documents, including fees payable to any rating agencies, including the fees and expenses of the Lender's attorneys and accountants. The Borrower shall also pay, on demand, any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution, delivery, filing, recordation, performance or enforcement of any of the Loan Documents or the Advances. However, the Borrower will not be obligated to pay any franchise, estate, inheritance, income, excess profits or similar tax on the Lender. Any attorneys' fees and expenses payable by the Borrower pursuant to this Section shall be recoverable separately from and in addition to any other amount included in such judgment, and such obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment. Any amounts payable by the Borrower pursuant to this Section, with interest thereon if not paid when due, shall become additional indebtedness of the Borrower secured by the Loan Documents. Such amounts shall bear interest from the date such amounts are due until paid in full at the weighted average, as determined by Lender, of the interest rates in effect from time to time for each Advance unless collection from the Borrower of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from the Borrower under applicable law. The provisions of this Section are cumulative with, and do not exclude the application and benefit to the Lender of, any provision of any other Loan Document relating to any of the matters covered by this Section. SECTION 23.04 Payment Procedure. All payments to be made to the Lender pursuant ----------------- to this Agreement or any of the Loan Documents shall be made in lawful currency of the United States of America and in immediately available funds by wire transfer to an account designated by the Lender before 1:00 p.m. (Washington, D.C. time) on the date when due. SECTION 23.05 Payments on Business Days. In any case in which the date of ------------------------- payment to the Lender or the expiration of any time period hereunder occurs on a day which is not a Business Day, -79- then such payment or expiration of such time period need not occur on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the day of maturity or expiration of such period, except that interest shall continue to accrue for the period after such date to the next Business Day. SECTION 23.06 Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial. ------------------------------------------------------------ NOTWITHSTANDING ANYTHING IN THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN DOCUMENTS TO THE CONTRARY, EACH OF THE TERMS AND PROVISIONS, AND RIGHTS AND OBLIGATIONS OF THE BORROWER UNDER THE NOTES, AND THE BORROWER UNDER THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY, INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF VIRGINIA (EXCLUDING THE LAW APPLICABLE TO CONFLICTS OR CHOICE OF LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO (1) THE CREATION, PERFECTION AND FORECLOSURE OF LIENS AND SECURITY INTERESTS, AND ENFORCEMENT OF THE RIGHTS AND REMEDIES, AGAINST THE MORTGAGED PROPERTIES, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE MORTGAGED PROPERTY IS LOCATED UNLESS SPECIFICALLY SET FORTH OTHERWISE IN THE RELEVANT SECURITY INSTRUMENT, (2) THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF SECURITY INTERESTS ON PERSONAL PROPERTY (OTHER THAN DEPOSIT ACCOUNTS), WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION DETERMINED BY THE CHOICE OF LAW PROVISIONS OF THE VIRGINIA UNIFORM COMMERCIAL CODE AND (3) THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF DEPOSIT ACCOUNTS, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE DEPOSIT ACCOUNT IS LOCATED. THE BORROWER AGREES THAT ANY CONTROVERSY ARISING UNDER OR IN RELATION TO THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER LOAN DOCUMENT SHALL BE, EXCEPT AS OTHERWISE PROVIDED HEREIN, LITIGATED IN VIRGINIA. THE LOCAL AND FEDERAL COURTS AND AUTHORITIES WITH JURISDICTION IN VIRGINIA SHALL, EXCEPT AS OTHERWISE PROVIDED HEREIN, HAVE JURISDICTION OVER ALL CONTROVERSIES WHICH MAY ARISE UNDER OR IN RELATION TO THE LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES RELATING TO THE EXECUTION, JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER ISSUE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. THE BORROWER IRREVOCABLY CONSENTS TO SERVICE, JURISDICTION, AND VENUE OF SUCH COURTS FOR ANY LITIGATION ARISING FROM THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN DOCUMENTS, AND WAIVES ANY OTHER VENUE TO WHICH IT MIGHT BE ENTITLED BY VIRTUE OF DOMICILE, HABITUAL RESIDENCE OR OTHERWISE. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST THE BORROWER AND AGAINST THE COLLATERAL IN ANY OTHER JURISDICTION. INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY OTHER JURISDICTION SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF VIRGINIA SHALL -80- GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND THE LENDER AS PROVIDED HEREIN OR THE SUBMISSION HEREIN BY THE BORROWER TO PERSONAL JURISDICTION WITHIN VIRGINIA. THE BORROWER (I) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE LOAN DOCUMENTS TRIABLE BY A JURY AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING, BUT NOT LIMITED TO, LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO THE BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THE PROVISIONS OF THIS SECTION. THE FOREGOING PROVISIONS WERE KNOWINGLY, WILLINGLY AND VOLUNTARILY AGREED TO BY THE BORROWER UPON CONSULTATION WITH INDEPENDENT LEGAL COUNSEL SELECTED BY THE BORROWER'S FREE WILL. SECTION 23.07 Severability. In the event any provision of this Agreement or in ------------ any other Loan Document shall be held invalid, illegal or unenforceable in any jurisdiction, such provision will be severable from the remainder hereof as to such jurisdiction and the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired in any jurisdiction. SECTION 23.08 Notices. ------- (a) Manner of Giving Notice. Each notice, direction, ----------------------- certificate or other communication hereunder (in this Section referred to collectively as "notices" and singly as a "notice") which any party is required or permitted to give to the other party pursuant to this Agreement shall be in writing and shall be deemed to have been duly and sufficiently given if: (1) personally delivered with proof of delivery thereof (any notice so delivered shall be deemed to have been received at the time so delivered); (2) sent by Federal Express (or other similar overnight courier) designating morning delivery (any notice so delivered shall be deemed to have been received on the Business Day it is delivered by the courier); (3) sent by United States registered or certified mail, return receipt requested, postage prepaid, at a post office regularly maintained by the United States Postal Service (any notice so sent shall be deemed to have been received on the Business Day it is delivered); or (4) sent by telecopier or facsimile machine which automatically generates a transmission report that states the date and time of the transmission, the length of the document transmitted, and the telephone number of the recipient's telecopier or facsimile machine (to be confirmed with a copy thereof sent in accordance with paragraphs (1), (2) or (3) above within two Business Days) (any notice so delivered shall be deemed to have been received (i) on the date of transmission, if so transmitted before 5:00 p.m. (local time of the -81- recipient) on a Business Day, or (ii) on the next Business Day, if so transmitted on or after 5:00 p.m. (local time of the recipient) on a Business Day or if transmitted on a day other than a Business Day); addressed to the parties as follows: As to [any] Borrower: c/o United Dominion Realty Trust, Inc. 1745 Shea Center Drive Fourth Floor Highlands Ranch, Colorado 80126 Attention: Ella S. Neyland Telecopy No.: (720) 344-5110 with a copy to: c/o United Dominion Realty Trust, Inc. 1745 Shea Center Drive Fourth Floor Highlands Ranch, Colorado 80126 Attention: Rod Neuheardt Telecopy No.: (720) 344-5110 with a copy to: Hirschler, Fleischer, Weinberg, Cox & Allen 701 East Byrd Street Richmond, Virginia 23219 Attention: Michael H. Terry, Esq. Telecopy No.: (804) 644-0957 As to the Lender: ARCS Commercial Mortgage Co., L.P. 144 2/nd/ Avenue North Suite 333 Nashville, Tennessee 37201 Attention: Joseph H. Torrence Telecopy No.: (615) 256-5085 with a copy to: ARCS Commercial Mortgage 26901 Agoura Road, #200 Calabasas, California 91301 Attn: Loan Administration Dept. -82- As to Fannie Mae: Fannie Mae 3939 Wisconsin Avenue, N.W. Washington, D.C. 20016-2899 Attention: Vice President for Multifamily Asset Management Telecopy No.: (202) 752-5016 with a copy to: Arter & Hadden LLP 1801 K Street, N.W. Third Floor, L Street Entrance Washington, D.C. 200006 Attention: Lawrence H. Gesner, Esq. Telecopy No.: (202) 857-0172 (b) Change of Notice Address. Any party may, by notice given pursuant to this Section, change the person or persons and/or address or addresses, or designate an additional person or persons or an additional address or addresses, for its notices, but notice of a change of address shall only be effective upon receipt. Each party agrees that it shall not refuse or reject delivery of any notice given hereunder, that it shall acknowledge, in writing, receipt of the same upon request by the other party and that any notice rejected or refused by it shall be deemed for all purposes of this Agreement to have been received by the rejecting party on the date so refused or rejected, as conclusively established by the records of the U.S. Postal Service, the courier service or facsimile. SECTION 23.09 Further Assurances and Corrective Instruments. --------------------------------------------- (a) Further Assurances. To the extent permitted by law, the ------------------ parties hereto agree that they shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as the Lender or the Borrower may request and as may be required in the opinion of the Lender or its counsel to effectuate the intention of or facilitate the performance of this Agreement or any Loan Document. (b) Further Documentation. Without limiting the generality of --------------------- subsection (a), in the event any further documentation or information is required by the Lender to correct patent mistakes in the Loan Documents, materials relating to the Title Insurance Policies or the funding of the Advances, the Borrower shall provide, or cause to be provided to the Lender, at its cost and expense, such documentation or information. The Borrower shall execute and deliver to the Lender such documentation, including any amendments, corrections, deletions or additions to the Notes, the Security Instruments or the other Loan Documents as is required by the Lender. (c) Compliance with Investor Requirements. Without limiting the ------------------------------------- generality of subsection (a), the Borrower shall do anything reasonably necessary to comply with the requirements of the Lender in order to enable the Lender to sell the MBS backed by an Advance. -83- SECTION 23.10 Term of this Agreement. This Agreement shall continue in effect ---------------------- until the Credit Facility Termination Date. SECTION 23.11 Assignments; Third-Party Rights. The Borrower shall not assign ------------------------------- this Agreement, or delegate any of its obligations hereunder, without the prior written consent of the Lender. The Lender may assign its rights and obligations under this Agreement separately or together, without the Borrower's consent, only to Fannie Mae, but may not delegate its obligations under this Agreement unless required to do so pursuant to Section 19.04. SECTION 23.12 Headings. Article and Section headings used herein are for -------- convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 23.13 General Interpretive Principles. For purposes of this Agreement, ------------------------------- except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in Article I, Section 15.01, Section 16.01 and elsewhere in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other genders; (ii) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (iii) references herein to "Articles," "Sections," "subsections," "paragraphs" and other subdivisions without reference to a document are to designated Articles, Sections, subsections, paragraphs and other subdivisions of this Agreement; (iv) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (v) a reference to an Exhibit or a Schedule without a further reference to the document to which the Exhibit or Schedule is attached is a reference to an Exhibit or Schedule to this Agreement; (vi) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (vii) the word "including" means "including, but not limited to." SECTION 23.14 Interpretation. The parties hereto acknowledge that each party -------------- and their respective counsel have participated in the drafting and revision of this Agreement and the Loan Documents. Accordingly, the parties agree that any rule of construction which disfavors the drafting party shall not apply in the interpretation of this Agreement and the Loan Documents or any amendment or supplement or exhibit hereto or thereto. SECTION 23.15 Decisions in Writing. Any approval, designation, determination, -------------------- selection, action or decision of the Lender must be in writing to be effective. SECTION 23.16 Requests. The Borrower may make up to a total of four (4) -------- Collateral Addition Requests, Collateral Release Requests and Collateral Substitution Requests in each Loan Year, provided that any Collateral Addition Requests closed by March 31, 2002 shall not count against such limit. In addition, the Borrower may make up to four (4) additional Collateral Addition Requests, Collateral Release Requests and Collateral Substitution Requests in each Loan Year upon payment of a fee, in addition to any fee due in connection with the subject Request, equal to the greater of (i) $10,000 and (ii) 25 basis points multiplied by the Allocable Facility Amount of the Mortgaged Property that is the subject of the Request. -84- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BORROWER UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By:_________________________________________ Name: Ella S. Neyland Title: Executive Vice President and Treasurer WOODLAKE VILLAGE, L.P., a California limited partnership By: UNITED DOMINION REALTY, L.P., a Virginia limited partnership, its General Partner By: UNITED DOMINION REALTY TRUST, INC., a Virginia corporation, its General Partner By:__________________________________ Name: Ella S. Neyland Title: Executive Vice President and Treasurer -85- LENDER ARCS COMMERCIAL MORTGAGE CO., L.P., a California limited partnership By: ACMC Realty, Inc., a California Corporation, its General Partner By:___________________________________ Name: Kathy Millhouse Title: Senior Vice President -86- EX-12 4 dex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Years Ended December 31, -------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Net income before extraordinary item............... $ 65,299 $ 75,784 $ 92,695 $ 72,470 $ 70,199 Add: Portion of rents representative of the interest factor........................................ 794 866 928 569 412 Minority interests.............................. 4,192 4,386 5,679 1,541 278 Loss on equity investment in joint venture...... 254 111 -- -- -- Interest on indebtedness........................ 144,379 156,040 153,748 106,238 79,004 -------- -------- -------- -------- -------- Earnings........................................ $214,918 $237,187 $253,050 $180,818 $149,893 ======== ======== ======== ======== ======== Fixed charges and preferred stock dividend: Interest on indebtedness........................ $144,379 $156,040 $153,748 $106,238 $ 79,004 Capitalized interest............................ 2,925 3,650 5,153 3,360 2,634 Portion of rents representative of the interest factor........................................ 794 866 928 569 412 -------- -------- -------- -------- -------- Fixed charges................................... 148,098 160,556 159,829 110,167 82,050 -------- -------- -------- -------- -------- Add: Preferred stock dividend........................ 31,190 36,891 37,714 23,593 17,345 -------- -------- -------- -------- -------- Combined fixed charges and preferred stock dividend $179,288 $197,447 $197,543 $133,760 $ 99,395 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges................. 1.45 x 1.48 x 1.58 x 1.64 x 1.83x Ratio of earnings to combined fixed charges and preferred stock dividend......................... 1.20 x 1.20 x 1.28 x 1.35 x 1.51x
1 EX-21 5 dex21.txt SUBSIDIARIES Exhibit 21 Subsidiaries The Registrant has the following subsidiaries, all of which are wholly owned except United Dominion Realty, L.P. and Heritage Communities L.P. The Registrant owns general and limited partnership interests in United Dominion Realty, L.P. and Heritage Communities L.P., constituting 91.4% and 89.0%, respectively, of the aggregate partnership interest. State of Incorporation Subsidiary or Organization =============================================================== AAC Funding II, Inc. Delaware - --------------------------------------------------------------- AAC Funding IV, Inc. Delaware - --------------------------------------------------------------- AAC Funding IV LLC California - --------------------------------------------------------------- AAC Funding Partnership II Delaware - --------------------------------------------------------------- AAC Funding Partnership III Delaware - --------------------------------------------------------------- AAC Seattle I, Inc. Delaware - --------------------------------------------------------------- AAC Vancouver I, L.P. Washington - --------------------------------------------------------------- AAC/FSC Crown Pointe Investors, LLC Washington - --------------------------------------------------------------- AAC/FSC Hilltop Investors, LLC Washington - --------------------------------------------------------------- AAC/FSC Seattle Properties, LLC Delaware - --------------------------------------------------------------- American Apt Communities Holdings, Inc. Delaware - --------------------------------------------------------------- ASC Properties, Inc. Arizona - --------------------------------------------------------------- ASC-I Properties, Inc. Arizona - --------------------------------------------------------------- ASC-II Properties, Inc. Arizona - --------------------------------------------------------------- ASC-III Properties, Inc. Arizona - --------------------------------------------------------------- ASC-IV Properties, Inc. Arizona - --------------------------------------------------------------- ASC-V Properties, Inc. Arizona - --------------------------------------------------------------- ASR Investments Corporation Maryland - --------------------------------------------------------------- ASR Properties, Inc Arizona - --------------------------------------------------------------- ASV-I Properties, Inc. Arizona - --------------------------------------------------------------- ASV-II Properties, Inc. Arizona - --------------------------------------------------------------- ASV-III Properties, Inc. Arizona - --------------------------------------------------------------- ASV-IV Properties, Inc. Arizona - --------------------------------------------------------------- ASV-IX Properties, Inc. Arizona - --------------------------------------------------------------- ASV-V Properties, Inc. Arizona - --------------------------------------------------------------- ASV-VI Properties, Inc. Arizona - --------------------------------------------------------------- ASV-VII Properties, Inc. Arizona - --------------------------------------------------------------- ASV-VIII Properties, Inc. Arizona - --------------------------------------------------------------- ASV-X Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XI Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XII Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XIII Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XIV Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XV Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XVI Properties, Inc. Arizona - --------------------------------------------------------------- ASV-XVII Properties, Inc. Arizona - --------------------------------------------------------------- CMP-1, LLC Delaware - --------------------------------------------------------------- Coastal Anaheim Properties, LLC Delaware - --------------------------------------------------------------- Coastal Long Beach Properties, LLC Delaware - --------------------------------------------------------------- Coastal Monterey Properties, LLC Delaware =============================================================== State Of Incorporation Subsidiary Or Organization ========================================================================= Contempo Heights L.L.C. Arizona - ------------------------------------------------------------------------- FMP Members, Inc. Delaware - ------------------------------------------------------------------------- Fountainhead Apartments, Limited Partnership Ohio - ------------------------------------------------------------------------- Governour's Square of Columbus Co. Ohio - ------------------------------------------------------------------------- Heritage Communities L.P. Delaware - ------------------------------------------------------------------------- Heritage Communities, LLC Virginia - ------------------------------------------------------------------------- Heritage SGP Corporation Arizona - ------------------------------------------------------------------------- Heritage-14400 Montfort L.P. Arizona - ------------------------------------------------------------------------- Heritage-Aspen Court L.P. Arizona - ------------------------------------------------------------------------- Heritage-Briar Park L.P. Arizona - ------------------------------------------------------------------------- Heritage-Campus Commons North, L.L.C. Arizona - ------------------------------------------------------------------------- Heritage-Campus Commons South, L.L.C. Arizona - ------------------------------------------------------------------------- Heritage-Chelsea Park L.P. Arizona - ------------------------------------------------------------------------- Heritage-Country Club Place L.P. Arizona - ------------------------------------------------------------------------- Heritage-Court, L.L.C. Arizona - ------------------------------------------------------------------------- Heritage-Gentry Place L.P. Arizona - ------------------------------------------------------------------------- Heritage-Greenwood Creek L.P. Arizona - ------------------------------------------------------------------------- Heritage-Highlands of Preston L.P. Arizona - ------------------------------------------------------------------------- Heritage-Ivystone L.P. Arizona - ------------------------------------------------------------------------- Heritage-London Park L.P. Arizona - ------------------------------------------------------------------------- Heritage-Marymont L.P. Arizona - ------------------------------------------------------------------------- Heritage-On The Boulevard, L.L.C. Arizona - ------------------------------------------------------------------------- Heritage-Pacific South Center, L.L.C. Arizona - ------------------------------------------------------------------------- Heritage-Preston Park L.P. Arizona - ------------------------------------------------------------------------- Heritage-Riverway L.P. Arizona - ------------------------------------------------------------------------- Heritage-Smith Summit L.P. Arizona - ------------------------------------------------------------------------- Heritage-Springfield L.P. Arizona - ------------------------------------------------------------------------- Heritage-Timbercreek Landings L.P. Arizona - ------------------------------------------------------------------------- Jamestown of St. Matthews Co. Ohio - ------------------------------------------------------------------------- La Privada Apartments L.L.C. Arizona - ------------------------------------------------------------------------- Northbay Properties II, L.P. California - ------------------------------------------------------------------------- Parker's Landing Venture I Florida - ------------------------------------------------------------------------- Parker's Landing Venture II Florida - ------------------------------------------------------------------------- Polo Chase Venture Limited Partnership Delaware - ------------------------------------------------------------------------- Regency Park, L.P. Indiana - ------------------------------------------------------------------------- South West Properties, L.P. Delaware - ------------------------------------------------------------------------- South West REIT Holding, Inc. Texas - ------------------------------------------------------------------------- SRL Amarillo Investors, Inc. Texas - ------------------------------------------------------------------------- Sunset Company Ohio - ------------------------------------------------------------------------- SWP Arkansas Properties, Inc. Arkansas - ------------------------------------------------------------------------- SWP Creeks Properties, Inc Delaware - ------------------------------------------------------------------------- SWP Depositor, Inc. Texas - ------------------------------------------------------------------------- SWP Developers, Inc. Texas - ------------------------------------------------------------------------- SWP Properties I, L.P. Delaware - ------------------------------------------------------------------------- SWP Properties, Inc. Texas - ------------------------------------------------------------------------- SWP REMIC Properties II, Inc. Texas - ------------------------------------------------------------------------- SWP REMIC Properties II-A, L.P. Delaware - ------------------------------------------------------------------------- SWP Woodscape Properties I, L.P. Delaware - ------------------------------------------------------------------------- SWP Woodscape Properties, Inc. Texas ========================================================================= State Of Incorporation Subsidiary Or Organization ============================================================================= SWPT II Arizona Properties, Inc. Texas - ----------------------------------------------------------------------------- UDR Arizona Properties, LLC Virginia - ----------------------------------------------------------------------------- UDR Aspen Creek, LLC Virginia - ----------------------------------------------------------------------------- UDR Audubon, L.P. Delaware - ----------------------------------------------------------------------------- UDR Beaumont, LLC Virginia - ----------------------------------------------------------------------------- UDR California Properties, LLC Virginia - ----------------------------------------------------------------------------- UDR Camino Village, L.P. Delaware - ----------------------------------------------------------------------------- UDR Florida Properties, LLC Virginia - ----------------------------------------------------------------------------- UDR Holdings, LLC Virginia - ----------------------------------------------------------------------------- UDR JV Holdings, LLC f/k/a UDR/CSFB Holdings, LLC Virginia - ----------------------------------------------------------------------------- UDR JV, LLC f/k/a UDR CSFB JV, LLC Virginia - ----------------------------------------------------------------------------- UDR Kenton, L.P. Delaware - ----------------------------------------------------------------------------- UDR Lakeside Mill, LLC Virginia - ----------------------------------------------------------------------------- UDR Mandolin, L.P. Delaware - ----------------------------------------------------------------------------- UDR Maryland Properties, LLC Virginia - ----------------------------------------------------------------------------- UDR Meridian, L.P. Delaware - ----------------------------------------------------------------------------- UDR Mortgage Capital-I, L.L.C. Virginia - ----------------------------------------------------------------------------- UDR Oaks @ Weston, LLC Delaware - ----------------------------------------------------------------------------- UDR Oaks @ Weston SPE, LLC Delaware - ----------------------------------------------------------------------------- UDR of NC, Limited Partnership North Carolina - ----------------------------------------------------------------------------- UDR of North Carolina, Inc. North Carolina - ----------------------------------------------------------------------------- UDR of Tennessee, L.P. Virginia - ----------------------------------------------------------------------------- UDR Ohio Properties, LLC Virginia - ----------------------------------------------------------------------------- UDR Out Performance-I, LLC Virginia - ----------------------------------------------------------------------------- UDR Parke 33, LLC Delaware - ----------------------------------------------------------------------------- UDR Parke 33 SPE, LLC Delaware - ----------------------------------------------------------------------------- UDR Pecan Grove, L.P. Delaware - ----------------------------------------------------------------------------- UDR Seniors Housing, L.P. Delaware - ----------------------------------------------------------------------------- UDR Sierra Canyon, LLC Virginia - ----------------------------------------------------------------------------- UDR South Carolina Trust Maryland - ----------------------------------------------------------------------------- UDR Summit Ridge, L.P. f/k/a SWP Creeks Properties I, L.P. Delaware - ----------------------------------------------------------------------------- UDR Texas Properties, L.P. Delaware - ----------------------------------------------------------------------------- UDR Trillium Holdings, Inc. Virginia - ----------------------------------------------------------------------------- UDR Villages of Thousand Oaks, L.P. Delaware - ----------------------------------------------------------------------------- UDR Virginia Properties, LLC Virginia - ----------------------------------------------------------------------------- UDR Western Residential, Inc. Virginia - ----------------------------------------------------------------------------- UDRT of Alabama, Inc. Alabama - ----------------------------------------------------------------------------- UDRT of North Carolina, L.L.C. North Carolina - ----------------------------------------------------------------------------- UDRT of Virginia, Inc. Virginia - ----------------------------------------------------------------------------- United Dominion Realty Trust, Inc. Virginia - ----------------------------------------------------------------------------- United Dominion Realty, L.P. Virginia - ----------------------------------------------------------------------------- United Dominion Residential Ventures, L.L.C. Virginia - ----------------------------------------------------------------------------- United Dominion Residential, Inc. Virginia - ----------------------------------------------------------------------------- United Sub, Inc. Virginia - ----------------------------------------------------------------------------- Winterland San Francisco Partners California - ----------------------------------------------------------------------------- Windward Point, LLC California - ----------------------------------------------------------------------------- Woodlake Village L.P. California ============================================================================= EX-23 6 dex23.txt CONSENT OF INDEPENDENT AUDITORS
Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the following Registration Statements of United Dominion Realty Trust, Inc. and in the related Prospectuses of our report dated January 31, 2002, with respect to the consolidated financial statements and schedule of United Dominion Realty Trust, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2001: Registration Statement Number Description ----------------------------- ----------- 33-40433 Form S-3, pertaining to the private placement of 900,000 shares of the Company's common stock in May, 1991. 33-48000 Form S-8, pertaining to the Company's Stock Option Plan. 33-58201 Form S-8, pertaining to the Employee's Stock Purchase Plan. 333-11207 Form S-3, Shelf Registration Statement, pertaining to the private placement of 1,679,840 shares of the Company's Common Stock. 333-15133 Form S-3, pertaining to the Company's Dividend Reinvestment and Stock Purchase Plan. 333-32829 Form S-8, pertaining to the Company's Stock Purchase and Loan Plan. 333-44463 Form S-3, pertaining to the Company's Dividend Reinvestment and Stock Purchase Plan. 333-48557 Form S-3, Shelf Registration Statement, pertaining to the private placement of 104,920 shares of Common Stock and 104,920 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-53401 Form S-3, Shelf Registration Statement, pertaining to the private placement of 1,528,089 shares of Common Stock and 1,528,089 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-58600 Form S-8, pertaining to the Employee's Stock Purchase Plan. 333-64281 Form S-3, Shelf Registration Statement, pertaining to the private placement of 849,498 shares of Common Stock and 849,498 rights to Purchase Series C Junior Participating Redeemable Preferred Stock. 333-72885 Form S-3, Shelf Registration Statement, pertaining to the private placement of 130,416 shares of Common Stock and 130,416 rights to purchase Series C Junior Participating Redeemable Preferred Stock.
Registration Statement Number Description ----------------------------- ----------- 333-75897 Form S-8, pertaining to the Company's Long Term Incentive Plan. 333-77107 Form S-3, Shelf Registration Statement, pertaining to the private placement of 1,023,732 shares of Common Stock and 1,023,732 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-77161 Form S-3, Shelf Registration Statement, pertaining to the private placement of 481,251 shares of Common Stock and 481,251 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-80279 Form S-8, pertaining to the Company's Open Market Purchase Program. 333-82929 Form S-3, Shelf Registration Statement, pertaining to the private placement of 95,119 shares of Common Stock and 95,119 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-92667 Form S-3, Shelf Registration Statement, pertaining to the registration of $616,058,554 of Common Stock, Preferred Stock and Debt Securities.
/s/ Ernst & Young LLP Richmond, Virginia March 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----