-----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, Quc7BEruoerIqWhKwctsROmpd2m27s4bOMZO2amc89gUExIt4BdVsdAHvk8uXsVp ZCs1Y1UbloNQOg45IycWNQ== 0000916641-97-000848.txt : 19970815 0000916641-97-000848.hdr.sgml : 19970815 ACCESSION NUMBER: 0000916641-97-000848 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10524 FILM NUMBER: 97662661 BUSINESS ADDRESS: STREET 1: 10 S 6TH ST STE 203 CITY: RICHMOND STATE: VA ZIP: 23219-3802 BUSINESS PHONE: 8047802691 MAIL ADDRESS: STREET 1: 10 SOUTH SIXTH STREET STREET 2: SUITE 203 CITY: RICHMOND STATE: VA ZIP: 23219-3802 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19850110 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 10-Q 1 UNITED DOMINION REALTY TRUST, INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-10524 UNITED DOMINION REALTY TRUST, INC. (Exact name of registrant as specified in its charter) Virginia 54-0857512 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10 South Sixth Street, Richmond, Virginia 23219-3802 (Address of principal executive offices - zip code) (804) 780-2691 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days. Yes X No ____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 88,143,261 shares of common stock outstanding as of August 5, 1997 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands,except for share data) (Unaudited)
June 30, December 31, 1997 1996 -------------- ------------ Assets Real estate owned: Real estate held for investment (Note 3) $ 2,135,654 $ 2,007,612 Less: accumulated depreciation 181,662 173,291 ------------ ----------- 1,953,992 1,834,321 Real estate under development 62,716 37,855 Real estate held for disposition 85,431 39,556 Cash and cash equivalents 8,296 13,452 Other assets 33,220 41,720 ------------ ----------- Total assets $ 2,143,655 $ 1,966,904 ============ =========== Liabilities and shareholders' equity Notes payable-secured (Note 4) $ 389,106 $ 376,560 Notes payable-unsecured (Note 5) 626,242 668,275 Distributions payable to common shareholders 22,037 19,699 Accounts payable, accrued expenses and other liabilities 54,511 49,962 ------------ ----------- Total liabilities 1,091,896 1,114,496 Minority interest of unitholders in operating partnership 2,021 2,029 Shareholders' equity: Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000 6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 -- Common stock, $1 par value; 150,000,000 shares authorized 87,274,566 shares issued and outstanding (81,982,551 in 1996) 87,275 81,983 Additional paid-in-capital 882,257 814,795 Notes receivable from officer-shareholders (9,198) (5,926) Distributions in excess of net income (165,596) (147,529) Unrealized gain on securities available-for-sale -- 2,056 ------------ ----------- Total shareholders' equity 1,049,738 850,379 ------------ ----------- Total liabilities and shareholders' equity $ 2,143,655 $ 1,966,904 ============ ===========
See accompanying notes. 2 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1997 1996 1997 1996 --------- ---------- --------- ----------- Revenues Rental income $ 95,382 $ 57,197 $ 185,366 $ 112,036 Interest and other non-property income 137 445 388 795 --------- --------- --------- ----------- 95,519 57,642 185,754 112,831 Expenses Rental expenses: Utilities 5,658 3,857 12,124 8,385 Repairs and maintenance 14,206 10,597 26,179 19,136 Real estate taxes 7,796 4,209 14,907 8,189 Property management 3,297 1,247 6,074 2,748 Other rental expenses 10,000 5,279 19,289 10,453 Real estate depreciation 19,127 10,805 35,289 21,365 Interest 19,769 11,237 38,919 21,883 General and administrative 1,820 1,549 3,653 2,932 Other depreciation and amortization 395 276 845 560 Impairment loss on real estate held for disposition -- 290 -- 290 --------- --------- --------- ----------- 82,068 49,346 157,279 95,941 Income before gains (losses) on sales of investments and minority interest of unitholders in operating partnership 13,451 8,296 28,475 16,890 Gains on sales of investments 1,254 (129) 3,374 836 Minority interest of unitholders in operating partnership (28) (1) (59) (1) --------- --------- --------- ----------- Net income 14,677 8,166 31,790 17,725 Dividends to preferred shareholders 3,611 2,428 6,039 4,856 --------- --------- --------- ----------- Net income available to common shareholders $ 11,066 $ 5,738 $ 25,751 $ 12,869 ========= ========= ========= =========== Net income per common share $ .13 $ .10 $ .30 $ .23 ========= ========= ========= =========== Dividends declared per common share $ .2525 $ .24 $ .5050 $ .48 ========= ========= ========= =========== Weighted average number of common shares outstanding 86,877 56,666 85,967 56,566
See accompanying notes. 3 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, 1997 1996 - ------------------------------------------------------------------------------------ -------------- ----------- Operating Activities Net income $ 31,790 $ 17,725 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 36,134 21,925 Minority interest of unitholders in operating partnership 59 1 Impairment loss on real estate held for disposition -- 290 Gains on sales of investments (3,374) (836) Amortization of deferred financing costs 810 617 Changes in operating assets and liabilities: Increase in operating liabilities 2,473 8,555 Increase in operating assets (4,572) (1,184) ---------- -------- Net cash provided by operating activities 63,320 47,093 Investing Activities Acquisition of real estate, net of debt and liabilities assumed (150,615) (77,723) Capital expenditures (45,966) (24,856) Development of real estate assets (24,861) (2,955) Net proceeds from sales of investments 27,089 15,794 Proceeds from interest rate hedge transaction 1,538 -- Payments on notes receivable 2,142 2 ---------- -------- Net cash used in investing activities (190,673) (89,738) Financing Activities Net proceeds from the issuance of common stock 59,670 1,141 Net proceeds from the sale of preferred stock 145,275 -- Net proceeds from the sale of common stock through the dividend reinvestment and stock purchase plan 14,538 3,733 Gross proceeds from the issuance of unsecured notes payable 125,000 111 Net borrowings (repayments) of short-term bank borrowings (104,750) 82,400 Distributions paid to preferred shareholders (4,856) (4,856) Distributions paid to common shareholders (41,482) (26,257) Distributions paid to minority interest unitholders (67) -- Scheduled mortgage principal payments (2,773) (1,213) Mortgage financing proceeds released from construction funds -- 2,665 Payments on unsecured notes (63,414) (10,000) Non-scheduled payments on secured notes payable (3,350) (77) Payment of financing costs (1,594) (314) ---------- -------- Net cash provided by financing activities 122,197 47,333 Net increase (decrease) in cash and cash equivalents (5,156) 4,688 Cash and cash equivalents, beginning of period 13,452 2,904 ---------- -------- Cash and cash equivalents, end of period $ 8,296 $ 7,592 ========== ======== Supplemental Information Interest paid during the period $ 37,628 $ 22,087 Secured debt assumed through the acquisition of properties 22,063 15,748
See accompanying notes. 4 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1997 (In thousands, except share and per share amounts) (unaudited)
Common Stock, $1 Par Value Preferred Stock -------------------------- ------------------------ Number Number of Shares Amount of Shares Amount - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 81,982,551 $81,983 4,200,000 $105,000 Common shares issued in public offering 4,000,000 4,000 - - Preferred shares-Series B issued in public offering - - 6,000,000 150,000 Exercise of common share options 30,697 30 - - Common shares purchased by officers, net of repayments 230,000 230 - - Common shares issued through dividend reinvestment and stock purchase plan 1,030,680 1,031 - - Common shares issued through employee stock purchase plan 638 1 - - Net income - - - - Preferred stock-Series A distributions declared ($1.16 per share) - - - - Preferred stock-Series B distributions declared ($.56 per share) - - - - Common stock distributions declared ($.5050 per share) - - - - Realized gain on securities available-for-sale - - - - =========== ============ ============ ============= Balance at June 30, 1997 87,274,566 $87,275 10,200,000 $255,000 ========== ============ ============ =============
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1997 (In thousands, except share and per share amounts) (unaudited)
Unrealized Gain on Additional Receivable Distributions Securities Total Paid-in from Officer in Excess of Available- Shareholders' Capital Shareholders Net Income for-Sale Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $814,795 ($5,926) ($147,529) $2,056 $850,379 Common shares issued in public offering 55,420 - - - 59,420 Preferred shares-Series B issued in public offering (4,908) - - - 145,092 Exercise of common share options 284 - - - 314 Common shares purchased by officers, net of repayments 3,149 (3,272) - - 107 Common shares issued through dividend reinvestment and stock purchase plan 13,507 - - - 14,538 Common shares issued through employee stock purchase plan 10 - - - 11 Net income - - 31,790 - 31,790 Preferred stock-Series A distributions declared ($1.16 per share) - - (4,856) - (4,856) Preferred stock-Series B distributions declared ($.56 per share) - - (1,183) - (1,183) Common stock distributions declared ($.5050 per share) - - (43,818) - (43,818) Realized gain on securities available-for-sale - - - (2,056) (2,056) ========= ========== ============== ============ ============== Balance at June 30, 1997 $882,257 ($9,198) ($165,596) $0 $1,049,738 ========= ========== ============== ============ ==============
See accompanying notes. 5 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of presentation The accompanying consolidated financial statements include the accounts of United Dominion Realty Trust, Inc. and its wholly owned subsidiaries, including United Dominion Realty, L.P., its Operating Partnership, (collectively, the "Company"). The financial statements of the Company include the minority interest of unitholders in the operating partnership. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of financial position at June 30, 1997 and results of operations for the interim periods ended June 30, 1997 and 1996. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in the Company's December 31, 1996 Annual Report on Form 10-K filed with the Securities and Exchange Commission. 2. Reclassifications Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. 3. Real estate held for investment The following table summarizes real estate held for investment: June 30, December 31, Dollars in thousands 1997 1996 - ---------------------------------------------------------------------- Land and land improvements $ 376,185 $ 353,092 Buildings and improvements 1,631,006 1,537,387 Furniture, fixtures and equipment 124,215 115,308 Construction in progress 4,248 1,825 ----------- ------------ Real estate held for investment $ 2,135,654 $ 2,007,612 =========== =========== 4. Notes payable - secured Notes payable-secured, which encumber $756.6 million or 33% of the Company's real estate owned ($1.6 billion or 67% of the Company's real estate owned is unencumbered) consist of the following at June 30, 1997:
Principal Weighted Average Weighted Average No. Communities Dollars in thousands Balance Interest Rate Years to Maturity Encumbered - ----------------------------------------------------------------------------------------------------- Fixed-Rate Mortgage Notes $ 122,132 8.3% 3.7 20 Fixed-Rate Tax-Exempt Notes 116,732 6.9% 23.8 17 Fixed-Rate REMIC Financings 90,022 7.8% 3.5 27 Fixed-Rate Secured Notes (a) 45,000 7.3% 2.1 6 ------------------------------------------------------------------- Total Fixed-Rate Notes 373,886 7.7% 10.9 70 Variable-Rate Secured Notes 13,020 6.3% 2.2 2 Variable-Rate Tax-Exempt Notes 2,200 5.4% 5.4 1 ------------------------------------------------------------------- Total Variable-Rate Notes 15,220 6.2% 2.6 3 ------------------------------------------------------------------- Total notes payable - secured $ 389,106 7.7% 9.5 73 ===================================================================
(a) Variable-rate secured notes payable which have been effectively swapped to a fixed-rate at June 30, 1997 consist of a $40 million variable-rate secured senior credit facility which encumbers six apartment communities and a $5 million variable-rate construction note payable. The interest rate swap agreements have an aggregate notional value of $45 million under which the Company pays a fixed-rate of interest and receives a variable-rate on the notional amounts. The interest rate swap agreements effectively change the Company's interest rate exposure on $45 million from a variable-rate to a weighted average fixed-rate of approximately 7.3%. 6 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Notes payable - unsecured A summary of notes payable - unsecured is as follows:
June 30, December 31, Dollars in thousands 1997 1996 ------------- ------------ Commercial Banks Borrowings outstanding under revolving credit facilities and other bank debt $ 20,500 (a) $ 125,250 Insurance Companies--Senior Unsecured Notes 7.98% due March, 1997-2003 44,571 (b) 52,000 8.72% due November, 1996-1998 (c) 4,000 4,000 --------- --------- 48,571 56,000 Other (d) 7,171 6,040 Senior Unsecured Notes - Other 7.00% Note due January 15, 1997 (e) -- 55,985 7.25% Notes due April 1, 1999 75,000 75,000 8.50% Debentures due September 15, 2024 (f) 150,000 150,000 7.95% Medium-Term Notes due July 12, 2006 125,000 125,000 7.25% Notes due January 15, 2007 125,000 -- 7.07% Medium-Term Notes due November 15, 2006 25,000 25,000 7.02% Medium-Term Notes due November 15, 2005 50,000 50,000 --------- --------- 550,000 480,985 --------- --------- Total Unsecured Notes Payable $ 626,242 $ 668,275 ========= =========
(a) The weighted average balance outstanding for the three months ended June 30, 1997 was $78.9 million and carried a weighted average daily interest rate of 6.2%. The weighted average balance outstanding for the six months ended June 30, 1997 was $75.1 million and carried a weighted average daily interest rate of 6.2%. The weighted average interest rate at June 30, 1997 was 6.4%. (b) Payable in six equal annual principal installments of $7.4 million. (c) Payable in two equal annual principal installments of $2 million. (d) Includes $6.7 million and $5.6 million at June 30, 1997 and December 31, 1996, respectively, of deferred gain from the termination of interest rate hedge transactions. (e) Represents an unsecured note assumed in connection with the South West Property Trust Inc. statutory merger (the "South West Merger") on December 31, 1996. The note was repaid on January 3, 1997. (f) Debentures include an investor put feature which grants a one time option to redeem debentures in September 2004. 6. Accounting Pronouncements During the first quarter of 1997, the Financial Accounting Standards Board issued a new statement on the calculation of earnings per share (SFAS No. 128) which is effective beginning in the fourth quarter of 1997. Early adoption is prohibited. Under the new statement, primary and fully dilutive earnings per share are replaced with basic and diluted earnings per share. The Company's basic earnings per share and diluted earnings per share for the three month and six month periods ended June 30, 1997 and 1996 according to the new statements would not change from the reported amounts. 7. Subsequent Events On August 1, 1997, the Company sold a portfolio of six apartment communities containing 1,204 apartment homes which had a weighted average age of 26 years for an aggregate sales price of approximately $34.7 million. For financial reporting purposes, the Company will recognize an approximate $9.6 million gain on the sale. The transaction was structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, so the related capital gains can be deferred for federal income tax purposes. A seventh property included in the portfolio is scheduled to close in September 1997. 7 PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. The Company is an owner and operator of primarily middle income apartment communities across the Sunbelt. The communities are located in 22 major markets dispersed throughout a 15 state area extending from Delaware to Nevada where it seeks to be a market leader by operating a sufficiently sized portfolio of apartments within each market. The Company believes this market diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies. The Company's investment strategy focuses on acquiring apartment communities in its major markets where it can add value. The following table summarizes the Company's major apartment market information:
Three Months Ended Six Months Ended As of June 30, 1997 June 30, 1997 June 30, 1997 ----------------------------------------- ------------------------ ---------------------- Average Average Number of Number of % of Monthly Monthly Apartment Apartment Apartment Economic Rental Economic Rental Market Communities Homes Homes Occupancy** Rates* Occupancy** Rates - ----------------------------------------------------------- ------------------------ ---------------------- Held for investment Dallas, TX 22 8,117 14% 93.7% $ 544 93.4% $ 538 Richmond, VA 10 3,253 5% 91.5% 551 90.8% 547 Columbia, SC 11 3,234 5% 92.5% 498 90.9% 498 Raleigh, NC 10 2,951 5% 94.0% 649 94.9% 646 Charlotte, NC 13 2,915 5% 94.5% 573 93.2% 570 Tampa, FL 10 2,913 5% 93.4% 572 93.9% 568 Orlando, FL 9 2,816 5% 96.5% 570 95.3% 568 Eastern NC 10 2,530 4% 95.9% 560 95.5% 558 Greensboro, NC 9 2,222 4% 84.2% 545 84.7% 544 Nashville, TN 8 2,116 4% 91.6% 584 91.6% 581 San Antonio, TX 5 1,983 3% 92.7% 614 92.5% 614 Baltimore, MD 7 1,614 3% 92.0% 656 92.4% 653 Greenville, SC 7 1,566 3% 85.6% 526 85.5% 525 Atlanta, GA 6 1,462 2% 90.2% 600 89.2% 600 Houston, TX 4 1,450 2% 91.1% 465 90.5% 464 Hampton Roads, VA 6 1,428 2% 90.3% 556 89.8% 554 Jacksonville, FL 3 1,157 2% 85.2% 596 86.3% 595 Washington, DC 5 1,113 2% 86.3% 736 86.6% 734 Ft. Lauderdale, FL 4 960 2% 94.1% 786 94.3% 783 Memphis, TN 4 935 2% 89.3% 514 90.3% 511 Austin, TX 3 867 1% 87.7% 533 88.9% 532 Phoenix, AZ 3 712 1% 91.4% 643 90.6% 643 Other 33 7,624 13% 91.4% 559 91.1% 558 ----------------------------------- ---------------------- -------------------- 202 55,938 94% 91.9% 572 91.7% 570 Held for disposition 16 3,499 6% 91.4% 506 91.2% 504 --------------------------------- ---------------------- -------------------- Total 218 59,437 100% 91.9% $568 91.6% $566 ================================= ====================== ====================
* Average monthly rental rates represent potential rent collections (gross potential rents less market adjustments), which approximate net effective rents. These figures exclude 1997 acquisitions. ** Economic occupancy is defined as rental income (gross potential rent less vacancy loss, management units, units held out of service, move-in concessions and credit loss) divided by potential collections (gross potential rent less management units, units held out of service and move-in concessions) for the period, expressed as a percentage. These figures exclude 1997 acquisitions. 8 Liquidity and Capital Resources As a qualified real estate investment trust ("REIT"), the Company distributes a substantial portion of its cash flow to its shareholders in the form of quarterly distributions. The Company seeks to retain sufficient cash to cover normal operating needs, including routine replacements and to help fund additional acquisitions and development activity. For the six months ended June 30, 1997, the Company's cash flow from operating activities exceeded cash distributions paid to preferred and common shareholders by approximately $17.0 million. The Company utilizes a variety of primarily external financing sources to fund portfolio growth, major capital improvement programs and balloon debt payments. The Company's bank lines of credit generally have been used to temporarily finance these expenditures and subsequently this short-term bank debt has been replaced with longer term debt or equity. Operating Activities For the six months ended June 30, 1997, the Company's cash flow from operating activities increased approximately $16.2 million over the same period last year. This increase was primarily a result of the significant expansion of the Company's portfolio of apartment communities as discussed below and under "Results of Operations". The Company considers its cash provided by operating activities adequate to meet its operating requirements and payments of distributions to both common and preferred shareholders. Investing Activities During the six months ended June 30, 1997, net cash used for investing activities was approximately $190.7 million compared to approximately $89.7 million for the same period last year. The level of investing activities primarily reflects the increased levels of the Company's acquisition, capital expenditure and development programs. Acquisitions The Company expects to purchase between 7,000 and 9,000 apartment homes at an aggregate purchase price between $300 million and $400 million during 1997. The Company's seeks to acquire apartment communities that can provide a first year weighted average return on average investment of approximately 9.7% which may vary depending on market conditions. During the first six months of 1997, the Company acquired 12 apartment communities containing 4,106 apartment homes and the second phase of an apartment community acquired in 1996 containing 100 apartment homes at a total cost of approximately $176.1 million, including closing costs. All of the apartment communities acquired were located in the Company's major markets. The apartment communities acquired were as follows:
Purchase Purchase No. Apt. Year Price Cost Date Name/Location Homes Built (000's) per Home - ---------------------------------------------------------------------------------------------- 02/19/97 Club at Hickory Hollow/Nashville, TN 406 1987 $17,371 $42,800 02/28/97 Stoney Pointe/ Charlotte, NC* 400 1991 17,355 43,400 02/28/97 Crosswinds/Wilmington, NC 380 1990 19,326 50,900 02/28/97 Dominion Trinity Park/ Raleigh, NC* 380 1994 22,155 58,300 03/25/97 Anderson Mill/Austin, TX 350 1984 14,305 40,900 03/27/97 Oak Ridge/Dallas, TX 486 1983 17,290 35,600 03/27/97 Breckenridge/Nashville, TN 190 1986 8,480 44,600 04/22/97 Northwinds II/Greensboro, NC** 100 1997 4,765 47,700 05/09/97 Green Oaks I/Houston, TX*** 440 1985 15,260 34,700 05/09/97 Skyhawk/Houston, TX 224 1984 9,456 42,200 06/06/97 Cambridge Woods/Tampa, FL 274 1985 8,957 32,700 06/18/97 Kelly Crossing/Dallas, TX 304 1984 11,653 38,300 06/25/97 Green Oaks II/Houston, TX*** 272 1985 9,680 35,600 ---------------------------------------- 1997 Total/Weighted Average 4,206 1987 $176,053 $41,900 ========================================
9 * In connection with the acquisition of Dominion Trinity Park and Stoney Pointe, the Company assumed two mortgage notes payable aggregating $22 million with a weighted average interest rate of approximately 8.4%. ** This represents the second phase of an apartment community acquired by the Company in August, 1996. *** These two properties will be operated as one apartment community under the name Green Oaks Apartments. On July 1, 1997, the Company acquired a portfolio of five apartment communities containing 934 apartment homes for an aggregate purchase price of approximately $36.0 million, including closing costs. All of the properties are located in Florida. Real estate under development At June 30, 1997, the Company had 1,234 apartment homes under development as outlined below (dollars in thousands):
Total Development Estimated Expected No. Apt. Completed Costs Development Cost Completion Property Location Homes Apt. Homes to Date Cost per Home Date - -------------------------------------------------------------------------------------------------------------------- Apartment Communities Providence Court Charlotte, NC 420 326 $ 27,801 $ 29,698 $ 70,700 4Q `97 Dominion Franklin Nashville, TN 360 -- 2,888 23,236 64,500 4Q `98 ------------------------------------------------------------ 780 326 30,689 52,934 67,900 Additional Phases England Run II Fredericksburg, VA 168 -- 6,139 10,740 63,900 3Q `97 Brantley Pines II Ft. Myers, FL 96 96 6,637 6,755 70,400 2Q `97 Oak Park II Dallas, TX 80 80 4,332 4,581 57,300 1Q `97 Oak Forest II Dallas, TX 260 24 7,948 10,612 40,800 1Q `98 Steeplechase II Greensboro, NC 176 -- 4,325 11,616 66,000 3Q `97 Greenway Park II Phoenix, AZ 20 -- 641 1,282 64,100 4Q `97 Mill Creek II Wilmington, NC 180 -- 1,357 11,719 65,100 3Q `98 Other -- -- 648 -- -- ------------------------------------------------------------ 980 200 32,027 57,305 $ 58,500 ------------------------------------------------------------ 1,760 526 $ 62,716 $110,239 $ 62,600 =============================================================
Consistent with the Company's acquisition strategy, development activity is expected to be focused primarily in its major markets. During the first six months of 1997, the Company invested approximately $24.9 million in nine properties currently under development, which includes two apartment communities and seven additional phases to existing apartment communities. The Company expects to spend in excess of $60 million on development activity during 1997. At various times during the first six months of 1997, 421 apartment homes were completed and became available for occupancy, including the completion of the additional phase at Oak Park Apartments and Brantley Pines Apartments. Development activity is generally progressing on schedule and on budget. Absorption at the completed apartment homes in Charlotte, North Carolina and Ft. Myers, Florida has been slower than projected year to date, however, absorption has been very good at the Dallas, Texas property. These additions did not have a material impact on results of operations for the quarter or six months ended June 30, 1997. Capital Expenditures During the six months ended June 30, 1997, the Company spent approximately $46.0 million on capital improvements to its apartment portfolio. The Company has a policy of capitalizing expenditures related to acquisitions and the enhancement of the value, or the substantial extenuation of the useful life of an existing asset. Some of these capital expenditures relate to an upgrade program that began in 1996 to modernize certain of the Company's older apartment communities. These upgrades primarily involve updating kitchens and bathrooms and are designed to enhance rent growth and add value to the apartment communities. In addition, the Company has several initiatives in place such as: (i) submetering of water and sewer to residents where local and state regulations allow the cost to be passed to the resident, (ii) gating and fencing apartment communities, (iii) installing monitoring devices such as intrusion alarms or controlled access devices, (iv) enlarging fitness centers and (v) adding business centers. Capital expenditures 10 during 1997 are expected to be similar to 1996 levels with the Company spending approximately $400 per mature apartment home on revenue enhancing expenditures and $400 to $500 per unit on recurring capital expenditures. Disposition of investments Securities available-for-sale During the first quarter of 1997, the Company sold its investment in the preferred stock of First Washington Realty Trust, Inc. obtained as partial consideration in the 1995 sale of four commercial properties. The Company received approximately $9.9 million in cash proceeds from the sale of the stock and recognized approximately a $2.1 million gain on the sale for financial reporting purposes. Real estate held for disposition During the first quarter of 1997, the Company transferred seven apartment communities aggregating $33.7 million, net of accumulated depreciation, from real estate held for investment to real estate held for disposition. During the second quarter of 1997, the Company transferred six apartment communities aggregating $29.6 million net of accumulated depreciation, from real estate held for investment to real estate held for disposition. These six properties are encumbered by tax-exempt bonds and are being offered for sale in a portfolio transaction. On August 7, 1997, the Company executed a contingent contract to sell these communities at an aggregate sales price of $47.9 million. There is no assurance that transaction will be consummated. The Company continually undertakes portfolio review analyses with the objective of identifying properties that do not meet the long-term investment objectives of the Company which are then to be sold. The Company does not anticipate any losses from the sales of any of these properties. Real estate held for disposition included in the Consolidated Balance Sheet in the aggregate amount of $85.4 million, net of accumulated depreciation and valuation allowance includes: (i) 16 apartment communities containing 3,499 apartment homes aggregating $72.6 million, (ii) two shopping centers aggregating $8.8 million, (iii) three other commercial properties aggregating $2.4 million and (iv) one parcel of land in the amount of $1.6 million. Real estate held for disposition contributed net rental income (rental income less rental expenses and depreciation expense) in the aggregate amount of approximately $3.2 million and $6.8 million for the three and six months ended June 30, 1997, respectively. The Company expects to dispose of these properties within the next twelve months. During the second quarter of 1997, the Company sold three apartment communities containing 822 apartment homes and one shopping center for an aggregate sales price of $20.8 million and received net cash proceeds of approximately $17.1 million. For financial reporting purposes, the Company recognized an approximate $1.3 million gain on the sale of investments in connection with these sales. One of these properties was structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, so the related capital gain was deferred for federal income tax purposes. On August 1, 1997, the Company sold a portfolio of six apartment communities containing 1,204 apartment homes which had a weighted average age of 26 years for an aggregate sales price of approximately $34.7 million. For financial reporting purposes, the Company will recognize an approximate $9.6 million gain on the sale. The transaction was structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, so the related capital gains can be deferred for federal income tax purposes. A seventh property included in the portfolio is scheduled to close in September 1997. 11 Financing Activities Financial Structure The following table outlines the Company's financial structure at June 30, 1997:
Balance at Weighted Average Capitalization June 30, 1997 Interest Rate Percentage ------------- ---------------- -------------- Fixed Rate Secured Debt $ 373,886 7.7% 14.9% Fixed Rate Unsecured Debt 605,742 7.5% 24.1% ------------- ---- ----- 979,628 7.6% 39.0% Variable Rate Secured Debt 15,220 6.2% 0.6% Variable Rate Unsecured Debt 20,500 6.4% 0.8% ------------- ---- ----- 35,720 6.3% 1.4% ------------- ---- ----- Total Debt 1,015,348 7.6% 40.4% Preferred stock at market 260,952 8.9%* 10.3% Common stock at market 1,238,497 n/a 49.3% ------------- ----- Equity capitalization at market 1,499,449 n/a 59.6% ------------- ---- ----- Total market capitalization (debt & equity) $ 2,514,797 n/a 100.0% ============= ======
*Represents the weighted average dividend rate. Net cash provided by financing activities during the six months ended June 30, 1997 was approximately $122.2 million compared to $47.3 million for the same period last year, reflecting the significant debt and equity financing activities during the first six months of 1997. On January 28, 1997, the Company issued 4,000,000 shares of its common stock at $15.75 per share for an aggregate value of approximately $63 million. Net proceeds of approximately $59.7 million were used to repay an unsecured credit facility assumed in connection with the South West Merger. The Company also received approximately $14.5 million under its Dividend Reinvestment and Stock Purchase Plan (the "Plan") during the six months ended June 30, 1997 which included approximately $10.4 million in optional cash investments and $4.1 million of reinvested dividends. The Company expects to generate in excess of $35 million in proceeds from the Plan during 1997. In anticipation of the issuance of unsecured debt in early 1997, the Company entered into a $100 million (notional amount) Treasury rate lock agreement in November 1996. On January 27, 1997, the Company issued $125 million of 7.25% Notes due January 15, 2007 under its $462.5 million shelf registration statement. The Notes were priced to yield 7.31% which was 79 basis points over the 10 year Treasury at the time of issuance. The interest rate protection agreement was terminated simultaneously with the $125 million Note issuance and the Company received $1.5 million in cash. This had the economic effect of lowering the interest rate on the Notes to approximately 7.14%. Net proceeds of approximately $124 million were used to curtail bank debt and purchase apartment communities. On May 29, 1997, the Company sold 6,000,000 shares of 8.60% Series B Redeemable Preferred Stock at $25 per share. Net proceeds of approximately $145.3 million were primarily used to repay short-term bank debt. Derivative Instruments The Company has, from time to time, used derivative instruments to synthetically alter on-balance sheet liabilities or to hedge anticipated financing transactions. Derivative contracts did not have a material impact on the results of operations during the three and six months ended June 30, 1997 and 1996. 12 On May 1, 1997, the Company terminated an interest rate swap agreement with a commercial lender with notional amounts from $79 million to $83 million which effectively changed the Company's interest exposure from a variable rate to a weighted average fixed rate of 6.45%. No gain or loss was recognized on this termination. Credit facilities At June 30, 1997, the Company had the following credit facilities:
Three Months Ended June 30, 1997 Six Months Ended June 30, 1997 ----------------------------------- ---------------------------------- Weighted Average Weighted Average Weighted Average Interest Rate Weighted Average Interest Rate Amount of Amount Three Months Amount Six Months Credit facility facility Outstanding June 1997 Outstanding June 1997 - ----------------------------- ----------------------------------- ---------------------------------- Revolving credit $ 70,000 $ 46,465 6.2% $ 52,107 6.2% Line of credit 33,500 -- -- -- -- Interim credit 75,000 32,516 6.2% 22,954 6.2% ----------- ----------------------------------- ---------------------------------- $ 178,500 $ 78,981 6.2% $ 75,061 6.2% =========== =================================== ==================================
On August 4, 1997, the Company closed on a new $200 million three year revolving credit facility and a $50 million one year unsecured line of credit. Under the new facility, pricing is based upon the higher of the Company's senior unsecured debt ratings from S & P and Moody's which are currently BBB+ and Baa1, respectively. At these rating levels, contractual interest under the new revolving credit facility is LIBOR plus 42 1/2 basis points. The credit facility also includes a $100 million competitive bid option which allows the Company to solicit bids from participating banks at rates below the contractual rate. The Company's liquidity and capital resources are believed to be more than adequate to meet its cash requirements for the next several years. The Company expects to meet its short- and long-term capital requirements, such as balloon debt maturities, property acquisitions, development activity and significant capital improvements, primarily through the public and private sale of capital stock and the issuance of medium and long-term unsecured notes payable. The Company may also fund its capital requirements through (i) the assumption of mortgage indebtedness, (ii) sales of properties, (iii) common shares sold through the Company's Dividend Reinvestment and Stock Purchase Plan, (iv) retained operating cash flow and (v) the issuance of operating partnership units. The Company's senior debt is currently rated BBB+ by Standard & Poor's and Baa1 by Moody's. As a result of its investment grade debt ratings, the Company expects to use unsecured debt as its primary debt funding source. Depending upon the volume and timing of acquisition activity, the Company anticipates raising additional debt and equity capital during the next twelve months to finance capital requirements while striving to minimize the overall cost of capital. During the second quarter of 1997, the Company filed a shelf registration statement for approximately $675 million of debt and preferred and common equity securities. Funds from Operations Funds from operations ("FFO") is defined as income before gains (losses) on sales of investments, minority interest of unitholders in operating partnership and extraordinary items (computed in accordance with generally accepted accounting principles) plus real estate depreciation, less preferred dividends and after adjustment for significant non-recurring items, if any. The Company computes FFO in accordance with the recommendations set forth by the National Association of Real Estate Investment Trusts ("NAREIT"). The Company considers FFO in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company's operating performance and liquidity. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. 13 For the three months ended June 30, 1997, FFO increased 70.8% to $29.0 million, compared with $17.0 million for the same period last year. For the six months ended June 30, 1997, FFO increased 71.3% to $57.7 million, compared with $33.7 million for the same period last year. The increase in FFO was principally due to the increased net rental income from the Company's 26,719 non-mature apartment homes in 86 apartment communities acquired and developed subsequent to January 1, 1996.
Three Months Ended Six Months Ended June 30, June 30, (In thousands) (In thousands) 1997 1996 % Change 1997 1996 % Change -------------------------------- ------------------------------- Calculation of funds from operations: Income before gains (losses) on sales of investments, minority interest of unitholders in operating partnership and extraordinary item $ 13,451 $ 8,296 62.1% $ 28,475 $ 16,890 68.6% Adjustments: Real estate depreciation 19,127 10,805 77.0% 35,289 21,365 65.2% Dividends to preferred shareholders (3,611) (2,428) 48.7% (6,039) (4,856) 24.4% Impairment loss on real estate held for disposition -- 290 -- -- 290 -- -------------------------------- ------------------------------- Funds from operations $ 28,967 $ 16,963 70.8% $ 57,725 $ 33,689 71.3% ================================ ===============================
Results of Operations The Company's net income is primarily generated from the operations of its apartment communities. For purposes of evaluating the Company's comparative operating performance, the Company categorizes its apartment communities into two categories (i) mature-those communities acquired, developed and stabilized prior to January 1, 1996 and held throughout both 1997 and 1996 and (ii) non-mature-those communities acquired, developed or sold subsequent January 1, 1996. For the three and six months ended June 30, 1997, the Company reported increases over the same period last year in rental income, income before gains (losses) on sales of investments and minority interest of unitholders in operating partnership and net income. For the six months ended June 30, 1997, net income available to common shareholders increased $12.9 million, with a corresponding increase of $.07 per share compared to the same period last year and for the three months ended June 30, 1997, net income available to common shareholders increased $5.3 million, with a corresponding increase of $.03 per share compared to the same period last year . Since the beginning of 1996, the Company acquired and developed a total of 26,719 apartment homes in 86 apartment communities (including 14,320 completed apartment homes in 44 apartment communities acquired in the South West Merger) and sold seven apartment communities containing 1,474 apartment homes, representing a net 73.8% expansion in the number of apartment homes owned during that period. These non-mature apartment homes provided a substantial portion of the aggregate reported increases. All Apartment Communities The operating performance for the Company's 218 apartment communities containing 59,437 completed apartment homes (and 1,474 apartment homes in seven apartment communities sold since January 1, 1996) for the three and six months ended June 30, 1997 and 148 apartment communities containing 36,361 apartment homes for the three and six months ended June 30, 1996, respectively, is summarized as follows: 14
Three Months Ended Six Months Ended June 30, June 30, (In thousands) (In thousands) -------------------------------- ---------------------------------- 1997 1996 % Change 1997 1996 % Change -------------------------------- ---------------------------------- Rental income $ 94,632 $ 55,602 70.2% $ 183,867 $ 108,698 69.2% Rental expenses (40,740) (24,502) 66.3% (78,134) (47,541) 64.3% Real estate depreciation (19,127) (10,805) 77.0% (35,289) (21,271) 65.9% -------------------------------- ---------------------------------- Net rental income (1) $ 34,765 $ 20,295 71.3% $ 70,444 $ 39,886 76.6% ================================ ================================== Weighted average number of apartment homes 58,678 35,423 65.6% 57,545 34,942 64.7% Economic occupancy (2) 91.9% 93.3% (1.4%) 91.6% 93.2% (1.6%) Average monthly rents $ 568 $ 548 3.6% $ 566 $ 545 3.9%
(1) Net rental income for an apartment community is defined as total rental income, less rental expenses, less real estate depreciation. (2) Economic occupancy is defined as rental income (gross potential rent less vacancy loss, management units, units held out of service, move-in concessions and credit loss) divided by potential collections (gross potential rent less management units, units held out of service and move-in concessions) for the period, expressed as a percentage. Due to the acquisition and development of 26,719 apartment homes since January 1, 1996 (the Company also sold seven apartment communities containing 1,474 apartment homes during this same period), the weighted average number of apartment homes increased 64.7% to 57,545 for the six months ended June 30, 1997 and 65.6% to 58,678 for the three months ended June 30, 1997 . As a result of the increase in the number of apartment homes acquired since January 1, 1996, the Company has experienced significant increases in rental income, rental expenses and real estate depreciation for the three and six months ended June 30, 1997. Mature Apartment Communities The operating performance for the Company's 135 mature apartment communities containing 33,163 apartment homes for the three and six months ended June 30, 1997 and 1996 is summarized as follows:
Three Months Ended Six Months Ended June 30, June 30, (In thousands) (In thousands) ---------------------------------- -------------------------------- 1997 1996 % Change 1997 1996 % Change ---------------------------------- -------------------------------- Rental income $ 53,767 $ 51,946 3.5% $106,847 $103,104 3.6% Rental expenses (23,666) (22,970) 3.0% (46,622) (45,204) 3.1% Real estate depreciation (11,750) (10,288) 14.2% (20,699) (20,381) 1.6% ---------------------------------- -------------------------------- Net rental income $ 18,351 $ 18,688 (1.8%) $ 39,526 $ 37,519 5.3% ================================== ================================ Economic occupancy 92.4% 93.3% (0.9%) 92.1% 93.1% (1.0%) Average monthly rents $ 567 $ 545 4.0% $ 563 $ 541 4.1%
For the six months ended June 30, 1997, the Company's mature communities provided approximately 58% of the Company's apartment rental income and 56% of its net rental income. During the first six months of 1997, the Company's mature apartment communities experienced good rent and other income growth. Compared to the same period last year, total rental income from these apartment homes grew 3.6%, or approximately $3.7 million, reflecting an increase in average monthly rents of 4.1% to $563 per month. In addition, other income, primarily fee income, increased approximately $802,000 or 23.8%. The rental rate increase was offset by a 1.0% decline in economic occupancy to 92.1%, which resulted from a decrease in physical occupancy of 1.0%. The economic occupancy declined due to the weakening of certain major southeastern markets during the last half of 1996 including Columbia and Greenville, South Carolina, Washington DC, Jacksonville, Florida, Richmond and Hampton Roads, Virginia and Atlanta, Georgia. Overall, economic occupancy bottomed out in January 1997 at 90.7% and has trended upward during 15 the remainder of the year to 92.2% for June 1997. The Company attributes the market softness primarily to increased home buying, a slowdown in job growth and an oversupply of apartment homes in certain of the southeastern markets. For the quarter ended June 30, 1997, total rental income from these apartment homes grew 3.5%, or approximately $1.8 million, reflecting an increase in average monthly rents of approximately $2.2 million or 4.0% to $567. Other income increased approximately $374,000 or 21.3%, over the same period last year while economic occupancy declined .9% to 92.4%. The Company expects to maintain rent growth in the 4% range and economic occupancy in the 92% range during the remainder of 1997. For the six months ended June 30, 1997, rental expenses at these communities increased 3.1%, or $1.4 million, resulting in an improvement in the operating expense ratio (the ratio of rental expenses to rental income) of .2% to 43.6%. The 3.1% increase in operating expenses is attributable to higher real estate taxes, marketing and advertising, personnel and the Company's cost of self-management. Real estate taxes increased approximately $201,000 or 2.7% over the same period last year as the Company has experienced continuing pressure on this expense item over the past year due to tax reassessments in certain markets. Marketing and advertising costs increased 46.5% or approximately $580,000 over the same period last year as a direct result of softening in certain major markets. Personnel costs increased 5.3% or approximately $519,000 primarily due to the fact that the Company was understaffed at some of its properties during much of 1996. The cost of self-management increased 36.0% or approximately $912,000 as the Company invested heavily in its personnel and technological infrastructure during 1997 in response to the significant growth the Company has experienced during the past year. In addition, incentive compensation earned by the site associates increased due to the better performance compared to budget achieved by these communities compared to the same period last year. These rental expense increases were somewhat offset by a decrease in repairs and maintenance expense of 4.5% or approximately $549,000 primarily as a result of less exterior painting, extraordinary repairs and mechanical repairs during the 1997 period. For the quarter ended June 30, 1997, rental expenses increased $696,000 or 3.0% over the same period last year for the same reasons discussed above. The Company's objective is to maintain rental expense growth below the 2% range during the remainder of 1997. For the three and six months ended June 30, 1997, depreciation expense increased partly as a result of the upgrade and improvement process in place at the Company's mature apartment communities discussed under "Capital Expenditures" in Liquidity and Capital Resources. Non-Mature Communities The operating performance for the three and six months ended June 30, 1997 for the Company's 86 non-mature apartment communities which includes: (i) the 30 apartment communities containing 7,712 apartment homes acquired during 1996 and a 253 home community acquired in 1995 and not stabilized due to significant rehabilitation, (ii) the 44 apartment communities containing 14,215 apartment homes acquired on December 31, 1996 in connection with the South West Merger (excluding 105 newly developed apartment homes), (iii) the 12 apartment communities containing 4,106 apartment homes and the second phase of an apartment community acquired in 1996 containing 100 apartment homes acquired since January 1, 1997, (iv) the seven apartment communities containing 1,474 apartment homes sold since January 1, 1996 and (v) the 586 apartment homes developed since January 1, 1996 is summarized as follows (dollars in thousands): Three Months Ended June 30, 1997 and 1996:
1997 Acquisitions and Former 1997 and 1996 1996 Acquisitions South West Development & Sales Total Non-Mature 1997 1996 1997 1996 1997 1996 1997 1996 ------------------- -------------------- -------------------- --------------------- Rental income $ 12,613 $ 2,503 $ 21,644 $ -- $ 6,608 $ 1,153 $ 40,865 $ 3,656 Rental expenses (5,137) (992) (9,411) -- (2,526) (540) (17,074) (1,532) Real estate depreciation (2,527) (517) (3,316) -- (1,534) -- (7,377) (517) ------------------- -------------------- -------------------- --------------------- Net rental income $ 4,949 $ 994 $ 8,917 $ -- $ 2,548 $ 613 $ 16,414 $ 1,607 =================== ==================== ==================== =====================
16 Six Months Ended June 30, 1997 and 1996:
1997 Acquisitions Former 1997 and 1996 1996 Acquisitions South West Development & Sales Total Non-Mature 1997 1996 1997 1996 1997 1996 1997 1996 -------------------- -------------------- ------------------- --------------------- Rental income $ 25,067 $ 3,278 $ 42,894 $ -- $ 9,059 $ 2,316 $ 77,020 $ 5,594 Rental expenses (10,085) (1,259) (17,954) -- (3,473) (1,078) (31,512) (2,337) Real estate depreciation (5,269) (859) (7,423) -- (1,898) (31) (14,590) (890) -------------------- -------------------- ------------------- --------------------- Net rental income $ 9,713 $ 1,160 $ 17,517 $ -- $ 3,688 $ 1,207 $ 30,918 $ 2,367 ==================== ==================== =================== =====================
For the six months ended June 30, 1997, the Company's non-mature apartment communities provided approximately 42% of the Company's apartment rental income and 44% of its net rental income. Rental income, rental expenses and real estate depreciation increased from 1996 to 1997 directly as a result of the increase in the weighted average number of apartment homes owned during 1997. For the 26,719 apartments homes in the 86 non-mature communities acquired and developed and the 1,474 apartment homes in seven communities sold since January 1, 1996, average economic occupancy was 90.2% and the operating expense ratio was 40.9% during the first six months of 1997. For the quarter ended June 30, 1997, average economic occupancy was 90.8% and the operating expense ratio was 41.8% 1996 Acquisitions The 30 apartment communities containing 7,712 apartment homes that were acquired during 1996 (excluding the South West Merger) and a 253 home community acquired in 1995 and not stabilized due to significant rehabilitation provided a significant increase in rental income, rental expenses and depreciation expense for the Company's apartment portfolio for the three and six months ended June 30, 1997. For the first six months of 1997, these apartment communities had economic occupancy of 88.8% and an operating expense ratio of 40.2%. For the quarter ended June 30, 1997, these apartment communities had economic occupancy of 89.3% and an operating expense ratio of 40.7%. The first year return on investment for these communities was projected at 9.5%, however, the actual return on investment for the six months ended June 30, 1997, on an average investment of approximately $306 million, was 9.2% (excluding two communities under renovation). This was primarily due to the under-performance of nine apartment communities that were acquired in August 1996, as part of a portfolio transaction which had a concentration of communities in the Greensboro/Winston-Salem, North Carolina market. Occupancy levels in this region peaked in the 93% to 94% range in August 1996 when the Company acquired these properties and has fallen to approximately 84.7% for the first six months of 1997 reflecting an oversupply of apartment product in this market. South West Property Trust Inc. (SWP) The acquisition of the 44 apartment communities containing 14,215 completed apartment homes included in the SWP Merger on December 31, 1996, provided the largest increases in rental income, rental expenses and depreciation expenses for the Company's entire apartment portfolio for the three and six months ended June 30, 1997. For the six months ended June 30, 1997, these apartment communities had economic occupancy of 92.1% and an operating expense ratio of 41.9%. The first year return on investment for the SWP Portfolio was projected to be 9.5% which approximates the 9.6% return on investment posted during the first six months of of 1997. Included in the SWP communities are 12,361 stabilized apartment communities (those acquired, developed and stabilized prior to January 1, 1996) which experienced rent growth of 4.9% over the amounts reported last year by SWP, an average economic occupancy of 92.1% and an operating expense ratio of 44.1%. For the quarter ended June 30, 1997, these apartment communities had economic occupancy of 92.4% and an operating expense ratio of 43.5%. 1997 Acquisitions, Development and Sales Included in this category are the following: (i) the twelve apartment communities containing 4,106 apartment homes and the second phase of an existing apartment community containing 100 apartment homes acquired by the Company during the first six months of 1997 which are projected to have a first year return on investment of approximately 9.73%, (ii) the 586 apartment homes developed since January 1, 1996 and (iii) the seven apartment communities containing 1,474 apartment sold since January 1, 1996. These communities did not have a material impact on the Company's results of operations for the three and six month periods ended June 30, 1997. 17 Commercial Properties Rental income and rental expenses from commercial properties decreased $621,000 and $248,000, respectively during the three months ended June 30, 1997, compared to the same period last year. For the six month period, rental income, rental expenses and depreciation expense decreased $1.4 million, $523,000 and $94,000 compared to the same period last year. These decreases were directly attributable to the sale of five shopping centers and one industrial park since the beginning of 1996. Interest Expense Interest expense increased $8.5 million and $17.0 million for the three and six months ended June 30, 1997 over the same periods last year. The weighted average amount of debt employed during the first six months of 1997 was higher than it was in 1996 ($1.1 billion in 1997 versus $563.3 million in 1996). The weighted average interest rate on this debt was slightly lower than it was during the same period last year, decreasing from 7.6% in 1996 to 7.5%. For the quarter ended June 30, 1997, the weighted average debt outstanding was higher than the same period last year ($1.1 billion in 1997 versus $600.1 million in 1996). The weighted average interest rate on this debt was slightly lower than it was during the same period last year, decreasing from 7.6% in 1996 to 7.5% in 1997. For the three and six months ended June 30, 1997, total interest capitalized was $721,000 and $1.2 million, respectively. General and Administrative During the three and six months ended June 30, 1997, general and administrative expenses increased by $271,000 and $721,000 over the same periods last year. In 1997, the Company incurred increases in most of its general and administrative expense categories which is directly attributable to the increased size of the Company. The largest increases occurred in payroll and payroll related expenses and investor relations expense which are directly attributable to the increased size of the Company. General and administrative expense as a percentage of rental revenues decreased .8% from 2.7% during the second quarter of 1996 period to 1.9% during the second quarter of 1997 primarily due to economies of scale. During the second quarter of 1997, general and administrative expenses grew approximately 17% while rental income grew by approximately 67% over the same period last year. For the six month period ended June 30, 1997, general and administrative expense as a percentage of rental revenues decreased .6% from 2.6% to 2.0%. During this same period, general and administrative expenses grew by approximately 25% while rental income grew by 65%. Gains on Sales of Investments During the six months ended June 30, 1997, the Company recognized gains on the sales of investments aggregating $3.4 million as a result of the following transactions: (i) the first quarter sale of the Company's investment in the preferred stock of First Washington Realty Trust, Inc. obtained as partial consideration in the 1995 sale of four commercial properties on which the Company recognized a gain for financial reporting purposes of $2.1 million and (ii) the second quarter sale of three apartment communities containing 844 apartment homes and one shopping center for an aggregate sales price of $20.8 million on which the Company recognized aggregate gains for financial reporting purposes of $1.3 million. Dividends to Preferred Shareholders Dividends to preferred shareholders totaled $3.6 million and $6.0 million for the three and six month periods ended June 30, 1997 compared to $2.4 million and $4.9 million for the same periods last year. The increases in dividends to preferred shareholders is a result of the issuance of six million shares of Series B 8.60% Cumulative Redeemable Preferred Stock on May 29, 1997. Inflation The Company believes that the direct effects of inflation on the Company's operations have been inconsequential. 18 PART II Item 1. LEGAL PROCEEDINGS Neither the Company nor any of its apartment communities is presently subject to any material litigation nor, to the Company's knowledge, is any litigation threatened against the Company or any of the communities, other than routine actions arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the business or financial condition or results of operations of the Company. Item 2. CHANGES IN SECURITIES None Item 3. DEFAULT UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits listed on the accompanying index to exhibits are filed as part of this quarterly report. (b) A Form 8-K dated July 1, 1997 was filed with the Securities and Exchange Commission on July 15, 1997. The filing reported the acquisition by the Company of properties which were in the aggregate were "significant". 19 EXHIBIT INDEX Item 6 (a) . The exhibits listed below are filed as part of this quarterly report. References under the caption "Location" to exhibits, forms, or other filings indicate that the form or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference.
Exhibit Description Location - ------- --------------------------------------- --------------------------------------------------- 2(b) Definitive Agreement and Plan of Exhibit 2(b) to the Company's Form S-4 Registration Merger dated as of October 1, 1996, Statement (Registration No. 333-13745) filed with the between the Company, United Sub, Commission on October 9, 1996. Inc. and South West Property Trust Inc. 3(a) Restated Articles of Incorporation Exhibit 4(i)(c) to the Company's Form S-3 Registration Statement (Registration No. 33-64275) 3(a)(i) Amendment of Restated Articles of Exhibit 6(a)(4) to the Company's Form 8-A Incorporation Registration Statements dated April 19, 1990 and April 24, 1995. 3(a)(ii) Amendment of Restated Articles of Exhibit 1(c) to the Company's Form 8-A Incorporation Registration Statements dated June 11, 1997. 3(b) Restated By-Laws Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. 4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report Certificate on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995. Redeemable Preferred Stock 4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 8.60% Series B Cumulative Registration Statement dated June 11, 1997. Redeemable Preferred Stock 4(ii)(a) Loan Agreement dated as of Exhibit 6(c)(i) to the Company's Form 8-A November 7, 1991, between the Registration Statement dated April 19, 1990. Company and Aid Association for Lutherans 4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A as of February 15, 1993, between Registration Statement dated April 19, 1990. the Company and CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, Connecticut General Life 20 Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 4(ii)(f) Credit Agreement dated as of Exhibit 6 (c)(6) to the Company's December 15, 1994 between the Form 8-A Registration Statement Company and First Union National Bank dated April 19, 1990. of Virginia 10(i) Employment Agreement between Exhibit 10(v)(i) to the Company's Annual Report on the Company and John P. McCann Form 10-K for the year ended December 31, 1982. dated October 29, 1982 10(ii) Employment Agreement between Exhibit 10(v)(ii) to the Company's Annual Report on the Company and James Dolphin Form 10-K for the year ended December 31, 1982. dated October 29, 1982. 10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual The Company and Barry M. Kornblau Report on Form 10-K for the year ended dated February 1, 1991. December 31, 1990. 10(iv) Employment Agreement between Exhibit 10(iv) to the Company's Annual. the Company and John S. Schneider Report on Form 10-K for the year ended dated December 14, 1996. December 31, 1996. 10(v) Employment Agreement between Exhibit 10(v) to the Company's Annual. the Company and Robert F. Sherman report on Form 10-K for the year ended dated December 19, 1996. December 31, 1996. 10(vi) Employment Agreement between Exhibit 10(vi) to the Company's Annual the Company and David L. Johnston Report on Form 10-K for the year ended dated December 19, 1996. December 31, 1996. 10(vii) 1985 Stock Option Plan, Exhibit 10(vii) to the Company's Quarterly as amended. Report on Form 10-Q for the quarter ended March 31, 1997. 10(viii) 1991 Stock Purchase and Loan Plan, Exhibit 10(vii) to the Company's Quarterly as amended. Report on Form 10-Q for the quarter ended March 31, 1997. 10(ix) Amended and Restated Agreement Exhibit 10(vi) to the Company's Annual Report on of Limited Partnership of Form 10-K for the year ended December 31, 1995. United Dominion Realty, L.P. Dated as of December 31, 1995. 21 10(x) Underwriting Agreement with respect Filed herewith. To 8.60% Series B Cumulative Redeemable Preferred Stock 12 Computation of Ratio of Earnings Filed herewith. to Fixed Charges
22 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. United Dominion Realty Trust, Inc. (registrant) Date: August 14, 1997 /s/ James Dolphin - --------------------- ----------------- James Dolphin Executive Vice President and Chief Financial Officer Date: August 14, 1997 /s/ Jerry A. Davis - --------------------- ------------------ Jerry A. Davis Vice-President , Corporate Controller and Principal Accounting Officer 23 EX-10 2 EXHIBIT 10(X) EXHIBIT 10(x) UNITED DOMINION REALTY TRUST, INC. (a Virginia corporation) Common Stock and Preferred Stock UNDERWRITING AGREEMENT May 23, 1997 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated A.G. EDWARDS & SONS, INC. MORGAN STANLEY & CO. INCORPORATED SCOTT & STRINGFELLOW, INC. As Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated World Financial center North Tower New York, New York 10281-1326 Dear Sirs: United Dominion Realty Trust, Inc., a Virginia corporation (the "Compa y"), proposes to issue and sell shares of common stock, par value $1.00 per share (the "Common Stock"), and shares of preferred stock without par value (the "Preferred Stock") from time to time, in one or more offerings on terms to be determined at the time of sale. Each series of Preferred Stock may vary as to the specific number of shares, title, stated value, liquidation preference, issuance price, ranking, dividend rate or rates (or method of calculation), dividend payment dates, any redemption or sinking fund requirements, any conversion provisions and any other variable terms as set forth in the applicable Articles of Amendment to the Company's Articles of Incorporation (each, the "Articles of Amendment") relating to such series of Preferred Stock. As used herein, "Securities" shall mean the Common Stock and the Preferred Stock. As used herein, "you" and "your", unless the context otherwise requires, shall mean the parties to whom this Agreement is addressed together with the other parties, if any, identified in the applicable Terms Agreement (as hereinafter defined) as additional co-managers with respect to Underwritten Securities (as hereinafter defined) purchased pursuant thereto. Whenever the Company determines to make an offering of Securities through you or through an underwriting syndicate managed by you, the Company will enter into an agreement (the "Terms Agreement") providing for the sale of such Securities (the "Underwritten Securities") to, and the purchase and offering thereof by, you and such other underwriters, if any, selected by you as have authorized you to enter into such Terms Agreement on their behalf (the "Underwriters", which term shall include you whether acting alone in the sale of the Underwritten Securities or as a member of an underwriting syndicate and any Underwriter substituted pursuant to Section 10 hereof). The Terms Agreement relating to the offering of Underwritten Securities shall specify the number of Underwritten Securities of each class or series to be initially issued (the "Initial Underwritten Securities"), the names of the Underwriters participating in such offering (subject to substitution as provided in Section 10 hereof), the number of Initial Underwritten Securities which each such Underwriter severally agrees to purchase, the names of such of you or such other Underwriters acting as co-managers, if any, in connection with such offering, the price at which the Initial Underwritten Securities are to be purchased by the Underwriters from the Company, the initial public offering price, the time, date and place of delivery and payment, any delayed delivery arrangements and any other variable terms of the Initial Underwritten Securities (including, but not limited to, current ratings (in the case of Preferred Stock only), designations, liquidation preferences, conversion provisions, redemption provisions and sinking fund requirements). In addition, each Terms Agreement shall specify whether the Company has agreed to grant to the 2 Underwriters an option to purchase additional Underwritten Securities to cover over-allotments, if any, and the number of Underwritten Securities subject to such option (the "Option Securities"). As used herein, the term "Underwritten Securities" shall include the Initial Underwritten Securities and all or any portion of the Option Securities agreed to be purchased by the Underwriters as provided herein, if any. The Terms Agreement, which shall be substantially in the form of Exhibit A hereto, may take the form of an exchange of any standard form of written telecommunication between you and the Company. Each offering of Underwritten Securities through you or through an underwriting syndicate managed by you will be governed by this Agreement, as supplemented by the applicable Terms Agreement. The Company has filed with the Securities and Exchange Com mission (the "Commission") a registration statement on Form S-3 (No. 333-27221) (which also constitutes post-effective amendment No. 1 to registration statement No. 33-64275) for the registration of the Securities (including the Underwritten Securities) and certain of the Company's debt securities under the Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), and the Company has filed such amendments thereto as may have been required prior to the execution of the applicable Terms Agreement. Such registration statement (as amended, if applicable) has been declared effective by the Commission. Such registration statement (as amended, if applicable), on the one hand, and the prospectus constituting a part thereof and each prospectus supplement relating to the offering of Underwritten Securities provided to the Underwriters for use (whether or not such prospectus supplement is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations) (the "Prospectus Supplement"), on the other hand, including in each case all documents incorporated therein by reference and the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) or Rule 434 of the 1933 Act Regulations, as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are referred to herein as the "Registration Statement" and the "Prospectus", respectively; 3 provided, however, that a Prospectus Supplement shall be deemed to have supplemented the Prospectus only with respect to the offering of Underwritten Securities to which it relates. All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include, without limitation, any document filed under the 1934 Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, all references to the Prospectus shall be deemed to include, without limitation, the form of prospectus and the abbreviated term sheet, taken together, provided to the Underwriters by the Company in reliance on Rule 434 under the 1933 Act (the "Rule 434 Prospectus"). If the Company files a registration statement to register a portion of the Securities and relies on Rule 462(b) for such registration statement to become effective upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to "Registration Statement" herein shall be deemed to be to both the registration statement referred to above (No. 333-27221) and the Rule 462 Registration Statement, as each such registration statement may be amended pursuant to the 1933 Act. Section 1. Representations and Warranties. (a) The Company represents and warrants to you, as of the date hereof, and to you and each other Underwriter named in the applicable Terms Agreement, as of the date thereof (such latter date being referred to herein as a "Representation Date"), as follows: (i) The Registration Statement and the Prospectus, at the time the Registration Statement became effective, complied, and as of the applicable Representation Date will 4 comply, in all material respects with the requirements of the 1933 Act and 1933 Act Regulations; the Registration Statement, at the time the Registration Statement became effective, did not and as of the applicable Representation Date will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; the Prospectus, as of the date hereof does not, and as of the applicable Representation Date and at Closing Time (as hereinafter defined) will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through you expressly for use in the Registration Statement or the Prospectus. (ii) The documents incorporated or deemed to be incorporated by reference in the Prospectus pursuant to Item 12 of Form S-3 under the 1933 Act, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and as of the applicable Representation Date or Closing Time or during the period specified in Section 3(f), did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (iii) The accountants who certified the financial statements and supporting schedules included in, or incorporated by reference into, the Registration Statement 5 and the Prospectus are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iv) The financial statements and supporting schedules included in, or incorporated by reference into, the Regis tration Statement and the Prospectus present fairly in all material respects the financial position of the Company and its subsidiaries as of the dates indicated and the results of their operations for the periods specified; except as otherwise stated in the Registration Statement and the Prospectus, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included or incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the information required to be stated therein. (v) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change or development involving a prospective material adverse change in or affecting the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not occurring in the ordinary course of business, (B) there have been no transactions or acquisitions entered into by the Company or any of its subsidiaries other than those arising in the ordinary course of business, and (C) except for regular quarterly dividends on the Company's shares of common stock, or dividends declared, paid or made in accordance with the terms of any series of the Company's preferred stock, there has been no dividend or distribution of any kind declared, paid or made by the Company on any series of its common stock or preferred stock. (vi) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the Commonwealth of Virginia, with full power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus; and the Company is 6 duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company. (vii) Each subsidiary of the Company has been duly organized and is validly existing as a corporation, limited liability company, limited partnership or real estate investment trust in good standing under the laws of the jurisdiction of its incorporation or organization, with power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus except where the failure to so be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise; each such subsidiary is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of such subsidiary; all of the issued and outstanding capital stock of each such corporate subsidiary and all of the issued and outstanding shares of beneficial interest of each such real estate investment trust subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; and the Company and one such corporate subsidiary are the only members of the Company's limited liability company or limited partnership subsidiaries and own the entire membership or general partnership interest in each such subsidiary free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (viii) The authorized, issued and outstanding shares of common and preferred stock of the Company are as set forth in the Prospectus under "Capitalization" (except for subsequent issuances, if any, pursuant to reservations, 7 agreements or the conversion of convertible securities referred to in the Registration Statement including, without limitation, the exercise or grant of stock options pursuant to the Company's stock option plan or the issuance of shares pursuant to the Company's dividend reinvestment plan, stock purchase and loan plan or employees' stock purchase plan); and such shares of common stock and preferred stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to preemptive or other similar rights. (ix) The applicable Underwritten Securities have been duly authorized by the Company for issuance and sale pursuant to this Agreement and, when issued and delivered pursuant to this Agreement against payment of the consideration therefor specified in the applicable Terms Agreement or any Delayed Delivery Contract (as hereinafter defined), such Underwritten Securities will be duly and validly issued, fully paid and non-assessable; the Preferred Stock, if applicable, conforms to the provisions of the Articles of Amendment; such Underwritten Securities conform in all material respects to all statements relating thereto contained in the Prospectus; and the issuance of such Underwritten Securities is not subject to preemptive or other similar rights. (x) If applicable, the shares of Common Stock issuable upon conversion of any of the Preferred Stock will have been duly and validly authorized and reserved for issuance upon such conversion or exercise by all necessary corporate action and such shares, when issued upon such conversion or exercise, will be duly and validly issued, fully paid and non-assessable, and the issuance of such shares upon such conversion or exercise will not be subject to preemptive or other similar rights; the Common Stock so issuable conforms in all material respects to all statements relating thereto contained in the Prospectus. (xi) Neither the Company nor any of its subsidiaries is in violation of its Articles of Incorporation or By-Laws or in default in the performance or observance of any 8 obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease (other than as disclosed in the Prospectus) or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject and which default is of material significance in respect of the business or financial condition of the Company and its subsidiaries considered as one enterprise; and the execution, delivery and performance of this Agreement and the applicable Terms Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action on the part of the Company, and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any property or assets of the Company or any of its subsidiaries is subject, or result in any violation of the Articles of Incorporation or By-Laws of the Company or any law, administrative regulation or administrative or court decree. (xii) With respect to all tax periods regarding which the Internal Revenue Service is or will be entitled to assert any claim, the Company has met the requirements for qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Company's present and contemplated operations, assets and income continue to meet such requirements. (xiii) The Company is not and, after giving effect to the offering and sale of the Underwritten Securities, will not be an "investment company" or an entity "controlled" by 9 an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). (xiv) The conditions for use of registration statements on Form S-3 set forth in the General Instructions on Form S-3 have been satisfied and the Company is entitled to use such form for the transaction contemplated herein and in any applicable Terms Agreement. (xv) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries which is required to be disclosed in the Prospectus (other than as disclosed therein) or which might result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, or which might materially and adversely affect the properties or assets thereof or which might materially and adversely affect the consummation of this Agreement or the applicable Terms Agreement or the transactions contemplated herein and therein; all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property is the subject which are not described in the Prospectus, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material; and there are no contracts or documents of the Company or any of its subsidiaries which would be required to be filed as exhibits to the Registration Statement by the 1933 Act or by the 1933 Act Regulations which have not been filed as exhibits to the Registration Statement. (xvi) No authorization, approval or consent of any governmental authority or agency is necessary in connection with the consummation by the Company of the transactions contemplated by this Agreement or the applicable Terms Agreement, except such as may be required under the 1933 Act 10 or the 1933 Act Regulations or state securities or Blue Sky laws. (xvii) The Company has full right, power and authority to enter into this Agreement, the applicable Terms Agreement and the Delayed Delivery Contracts, if any, and this Agreement has been, and as of the applicable Representation Date, the applicable Terms Agreement and the Delayed Delivery Contracts, if any, will have been, duly authorized, executed and delivered by the Company. (xviii) The Company and its subsidiaries have good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property referred to in the Prospectus as owned or leased by them, in each case free and clear of all liens, encumbrances, claims, security interests and defects, other than those referred to in the Prospectus or which are not material in amount. Each lease of real property by the Company or any of its subsidiaries as lessor requiring annual lease payments in excess of $100,000 is the legal, valid and binding obligation of the lessee in accordance with its terms (except that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and to the Bankruptcy Act) and the rents which at present have remained due and unpaid for more than 30 days are not payable under leases such that, were no further rental payments to be received under such leases, the financial condition or results of operations of the Company and its subsidiaries would be materially adversely affected thereby. The Company has no reason to believe that the lessee under any lease (excluding leases for which rent payments due for the remainder of such lease are less than $500,000) calling for annual lease payments in excess of $500,000 is not financially capable of performing its obligations thereunder. (xix) The Company has filed all Federal, local and foreign income tax returns which have been required to be 11 filed and has paid all taxes indicated by said returns and all assessments received by it to the extent that such taxes have become due and are not being contested in good faith. (xx) The Company and each of its subsidiaries hold all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their respective businesses; and neither the Company nor any of its subsidiaries has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company or any of its subsidiaries. (xxi) The Company has no knowledge of (a) the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, "Hazardous Materials") on any of the properties owned by it or any of its subsidiaries, or of (b) any unlawful spills, releases, discharges or disposal of Hazardous Materials that have occurred or are presently occurring off such properties as a result of any construction on or operation and use of such properties which presence or occurrence would materially adversely affect the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company or any of its subsidiaries. In connection with the construction on or operation and use of the properties owned by the Company or any of its subsidiaries, the Company represents that it has no knowledge of any material failure to comply with all applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials. (b) Any certificate signed by any officer of the Company and delivered to you or to counsel for the Underwriters in connection with the offering of the Underwritten Securities shall be deemed a representation and warranty by the Company to each Underwriter participating in such offering as to the matters covered thereby 12 on the date of such certificate and, unless subsequently amended or supplemented, at the applicable Representation Date subsequent thereto. Section 2. Purchase and Sale. (a) The several commitments of the Underwriters to purchase the Underwritten Securities pursuant to the applicable Terms Agreement shall be deemed to have been made on the basis of the representations and warranties herein contained and shall be subject to the terms and conditions herein set forth. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company may grant, if so provided in the applicable Terms Agreement relating to the Initial Underwritten Securities, an option to the Underwriters named in such Terms Agreement, severally and not jointly, to purchase up to the number of Option Securities set forth therein at the same price per Option Security as is applicable to the Initial Underwritten Securities less an amount equal to any dividend paid by the Company and payable on the Initial Underwritten Securities and not payable on such Option Securities. Such option, if granted, will expire 30 days (or such lesser number of days as may be specified in the applicable Terms Agreement) after the Representation Date relating to the Initial Underwritten Securities, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Underwritten Securities upon notice by you to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time, date and place of delivery (a "Date of Delivery") shall be determined by you, but shall not be later than seven full business days nor earlier than two full business days after the exercise of said option, nor in any event prior to Closing Time, unless otherwise agreed upon by you and the Company. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase 13 that proportion of the total number of Option Securities then being purchased which the number of Initial Underwritten Securities each such Underwriter has severally agreed to purchase as set forth in the applicable Terms Agreement bears to the total number of Initial Underwritten Securities (except as otherwise provided in the applicable Terms Agreement), subject to such adjustments as you in your discretion shall make to eliminate any sales or purchases of fractional Underwritten Securities. (c) Payment of the purchase price for, and delivery of, the Underwritten Securities to be purchased by the Underwriters shall be made at the office of Brown & Wood LLP, 58th Floor, One World Trade Center, New York, New York 10048-0557, or at such other place as shall be agreed upon by you and the Company, at 10:00 A.M., New York City time, on the third business day (unless postponed in accordance with the provisions of Section 10 herein) following the date of the applicable Terms Agreement or, if pricing takes place after 4:30 P.M., New York City time, on the date of the applicable Terms Agreement, on the fourth business day (unless postponed in accordance with the provisions of Section 10) following the date of the applicable Terms Agreement or at such other time as shall be agreed upon by you and the Company (each such time and date of payment and delivery being referred to herein as the "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates representing, such Option Securities, shall be made at the above-mentioned offices of Brown & Wood LLP, or at such other place as shall be agreed upon by you and the Company on each Date of Delivery as specified in the notice from you to the Company. Unless otherwise specified in the applicable Terms Agreement, payment shall be made to the Company by certified or official bank check or checks in New York Clearing House funds payable to the order of the Company against delivery to you for the respective accounts of the Underwriters of the certificates for the Underwritten Securities to be purchased by them. The Underwritten Securities shall be in such authorized denominations and registered in such names as you may request in writing at least one business day prior to the Closing Time or Date of Delivery, as the case may be. The Underwritten Securities, which may be in temporary form, will be made available for examination 14 and packaging by you on or before 3:00 P.M. on the first business day prior to the Closing Time or the Date of Delivery, as the case may be. If authorized by the applicable Terms Agreement, the Underwriters named therein may solicit offers to purchase Underwritten Securities from the Company pursuant to delayed delivery contracts ("Delayed Delivery Contracts") substantially in the form of Exhibit B hereto with such changes therein as the Company may approve. As compensation for arranging Delayed Delivery Contracts, the Company will pay to you at Closing Time, for the respective accounts of the Underwriters, a fee specified in the applicable Terms Agreement for each of the Underwritten Securities for which Delayed Delivery Contracts are made at the Closing Time as is specified in the applicable Terms Agreement. Any Delayed Delivery Contracts are to be with institutional investors of the types described in the Prospectus. At the Closing Time, the Company will enter into Delayed Delivery Contracts (for not less than the minimum number of Underwritten Securities per Delayed Delivery Contract specified in the applicable Terms Agreement) with all purchasers proposed by the Underwriters and previously approved by the Company as provided below, but not for an aggregate number of Underwritten Securities in excess of that specified in the applicable Terms Agreement. The Underwriters will not have any responsibility for the validity or performance of Delayed Delivery Contracts. You shall submit to the Company, at least two business days prior to the Closing Time, the names of any institutional investors with which it is proposed that the Company will enter into Delayed Delivery Contracts and the number of Underwritten Securities to be purchased by each of them, and the Company will advise you, at least one business day prior to the Closing Time, of the names of the institutions with which the making of Delayed Delivery Contracts is approved by the Company and the number of Underwritten Securities to be covered by each such Delayed Delivery Contract. The number of Underwritten Securities agreed to be purchased by the several Underwriters pursuant to the applicable Terms Agreement shall be reduced by the number of Underwritten 15 Securities covered by Delayed Delivery Contracts, as to each Underwriter as set forth in a written notice delivered by you to the Company; provided, however, that the total number of Underwritten Securities to be purchased by all Underwriters shall be the total number of Underwritten Securities covered by the applicable Terms Agreement, less the number of Underwritten Securities covered by Delayed Delivery Contracts. SECTION 3. Covenants of the Company. The Company covenants with you, and with each Underwriter participating in the offering of Underwritten Securities, as follows: (a) If the Company does not elect to rely on Rule 434 under the 1933 Act Regulations, immediately following the execution of the applicable Terms Agreement, the Company will prepare a Prospectus Supplement setting forth the number of Underwritten Securities covered thereby and their terms not otherwise specified in the Prospectus pursuant to which the Underwritten Securities are being issued, the names of the Underwriters participating in the offering and the number of Underwritten Securities which each severally has agreed to purchase, the names of the Underwriters acting as co-managers in connection with the offering, the price at which the Underwritten Securities are to be purchased by the Underwriters from the Company, the initial public offering price, if any, the selling concession and reallowance, if any, any delayed delivery arrangements, and such other information as you and the Company deem appropriate in connection with the offering of the Underwritten Securities; and the Company will promptly transmit copies of the Prospectus Supplement to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations and will furnish to the Underwriters named therein as many copies of the Prospectus (including such Prospectus Supplement) as you shall reasonably request. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, immediately following the execution of the applicable Terms Agreement, the Company will prepare an abbreviated term sheet that complies with the requirements of Rule 434 under the 1933 Act Regulations and will provide the Underwriters with copies of the form of Rule 434 Prospectus, in such number as you shall reasonably request, and, if necessary, promptly file or transmit for filing with the Commission the form 16 of Prospectus complying with Rule 434(c)(2) of the 1933 Act Regulations in accordance with Rule 424(b) of the 1933 Act Regulations. (b) The Company will notify you immediately, and confirm such notice in writing, of (i) the effectiveness of any amendment to the Registration Statement, (ii) the transmittal to the Commission for filing of any Prospectus Supplement or other supplement or amendment to the Prospectus to be filed pursuant to the 1934 Act, (iii) the receipt of any comments from the Commission, (iv) any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (v) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; and the Company will make every reasonable effort to prevent the issuance of any such stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (c) At any time when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act in connection with sales of the Underwritten Securities, the Company will give you notice of its intention to file or prepare any amendment to the Registration Statement or any amendment or supplement to the Prospectus, whether pursuant to the 1933 Act, 1934 Act or otherwise (including any revised prospectus which the Company proposes for use by the Underwriters in connection with an offering of Underwritten Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement first becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations, or any abbreviated term sheet prepared in reliance on Rule 434 of the 1933 Act Regulations), and will furnish you with copies of any such amendment or supplement or other documents proposed to be used or filed a reasonable amount of time prior to such proposed filing and, unless required by law, will not file or use any such amendment or supplement or other documents in a form to which you or counsel for the Underwriters shall reasonably object. 17 (d) The Company will deliver to you a signed copy of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith and documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act) as you reasonably request and will also deliver to each Underwriter a conformed copy of the Registration Statement as originally filed and of each amendment thereto (including documents incorporated by reference but without exhibits). (e) The Company will furnish to each Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act in connection with sales of the Underwritten Securities, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations. (f) If at any time when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act in connection with sales of the Underwritten Securities any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Underwriters, to amend or supplement the Prospectus in order that the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend or supplement the Registration Statement or the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, then the Company will promptly prepare and file with the Commission such amendment or supplement, whether by filing documents pursuant to the 1933 Act, the 1934 Act or otherwise, as may be necessary to correct such untrue statement or omission or to make the Registration Statement and Prospectus comply with such requirements. (g) If applicable, the Company will endeavor, in cooperation with the Underwriters, to qualify the Underwritten 18 Securities and the Common Stock issuable upon conversion of the Preferred Stock, if any, for offering and sale under the applicable securities laws and real estate syndication laws of such states and other jurisdictions of the United States as you may designate; and in each jurisdiction in which the Underwritten Securities and the Common Stock issuable upon conversion of the Preferred Stock, if any, have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as may be required for the distribution of the Underwritten Securities and the Common Stock issuable upon conversion of the Preferred Stock, if any; provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction where it is not so qualified. (h) With respect to each sale of Underwritten Securities, the Company will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in such Rule 158) of the Regis tration Statement. (i) The Company will continue to elect to qualify as a "real estate investment trust" under the Code and will use its best efforts to continue to meet the requirements to qualify as a "real estate investment trust." (j) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act in connection with sales of the Underwritten Securities, will file promptly all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the time periods prescribed by the 1934 Act and the 1934 Act Regulations. (k) The Company will not, during a period of 90 days from the date of the applicable Terms Agreement, with respect to the Underwritten Securities covered thereby, without your prior written consent, offer or sell, grant any option for the sale of, 19 or enter into any agreement to sell, any securities of the same class or series or ranking on a parity with such Underwritten Securities (other than the Underwritten Securities which are to be sold pursuant to such Terms Agreement), or if such Terms Agreement relates to Preferred Stock that is convertible into Common Stock, any Common Stock or any security convertible into Common Stock (except for Common Stock issued pursuant to reservations, agreements, employee benefit plans, dividend reinvestment plans, or employee and director stock option plans), except as may otherwise be provided in the applicable Terms Agreement. (l) If the applicable Terms Agreement relates to Common Stock, the Company will cause each officer of the Company who owns Common Stock to agree not to offer for sale, sell or otherwise dispose of any shares of Common Stock during the 90 days following the date of such Terms Agreement without your prior written consent. (m) If the Preferred Stock is convertible into Common Stock, the Company will reserve and keep available at all times, free of preemptive rights or other similar rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to satisfy any obligations to issue such shares upon conversion of the Preferred Stock. (n) If the Preferred Stock is convertible into Common Stock, the Company will use its best efforts to list the shares of Common Stock issuable upon conversion of the Preferred Stock on the New York Stock Exchange or such other national exchange on which the Company's Common Stock is then listed. (o) The Company will use its best efforts to list the Underwritten Securities on the New York Stock Exchange. (p) The Company will use the net proceeds received by it from the sale of the Underwritten Securities in the manner specified in the Prospectus under the caption "Use of Proceeds." Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement or the applicable Terms Agreement, including (i) 20 the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the cost of printing, filing and distributing to the Underwriters copies of this Agreement and the applicable Terms Agreement, (iii) the preparation, issuance and delivery of the Underwritten Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel and accountants, (v) if applicable, the qualification of the Underwritten Securities and the Common Stock issuable upon conversion of the Preferred Stock, if any, under securities laws and real estate syndication laws in accordance with the provisions of Section 3(g), including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey, (vi) the printing and delivery to the Under writers of copies of the Registration Statement as originally filed and of each amendment thereto, and of the Prospectus and any amendments or supplements thereto, including each abbreviated term sheet delivered by the Company pursuant to Rule 434 of the 1933 Act Regulations, (vii) the cost of reproducing and distributing to the Underwriters copies of the Blue Sky Survey, (viii) any fees charged by nationally recognized statistical rating organizations for the rating of the Underwritten Securities, (ix) the fees and expenses, if any, incurred with respect to the listing of the Underwritten Securities or the Common Stock issuable upon conversion of the Preferred Stock, if any, on any national securities exchange, and (x) the fees and expenses, if any, incurred with respect to any filing with the National Association of Securities Dealers, Inc. If the applicable Terms Agreement is canceled or terminated by you in accordance with the provisions of Section 5 or Section 9(b)(i), the Company shall reimburse the Underwriters named in such Terms Agreement for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. Section 5. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase Underwritten Securities pursuant to the applicable Terms Agreement are subject to the accuracy of the representations and warranties of the Company herein contained, to the accuracy of the statements of 21 the Company's officers made in any certificate pursuant to the provisions hereof, to the performance by the Company of all of its covenants and other obligations hereunder, and to the following further conditions: (a) At Closing Time, (i) no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission and (ii) if Preferred Stock is being offered, the rating assigned by any nationally recognized statistical rating organization to any preferred stock of the Company as of the date of the applicable Terms Agreement shall not have been lowered since such date nor shall any such rating organization have publicly announced that it has placed the Company on what is commonly termed a "watch list" for possible downgrading. (b) At Closing Time, you shall have received: (1) The favorable opinion, dated as of Closing Time, of Hunton & Williams, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) The Company has been duly organized and is validly existing as a corporation and in good standing under the laws of the Commonwealth of Virginia, with corporate power and authority to own its properties and conduct its business as described in the Prospectus as amended or supplemented. (ii) The Company is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company. (iii) Each subsidiary of the Company has been duly organized and is validly existing as a corporation, limited liability company, limited partnership or real estate investment trust in good standing under the laws 22 of the jurisdiction of its incorporation or organization, with power and authority to own its properties and conduct its business as described in the Prospectus as amended or supplemented except where the failure to so be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise; each such subsidiary is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of such subsidiary; all of the issued and outstanding capital stock of each such corporate subsidiary and all of the issued and outstanding shares of beneficial interest of each such real estate investment trust subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company or a corporate subsidiary of the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; and the Company and/or one such corporate subsidiary are the only members or general partners of the Company's limited liability company or limited partnership subsidiaries and own the entire membership or general partnership interest in each such subsidiary free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (iv) The Company has authorized and outstanding capital stock as set forth in the Prospectus under "Capitalization" (except for subsequent issuances, if any, pursuant to reservations, agreements or the conversion of convertible securities referred to in the Registration Statement including, without limitation, the exercise or grant of stock options pursuant to the Company's stock option plan or the issuance of shares pursuant to the Company's dividend reinvestment plan, stock purchase and loan plan or employees' stock purchase plan); the authorized capital stock of the 23 Company has been duly authorized; and the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to preemptive or other similar rights arising by operation of law or, to the best of such counsel's knowledge, otherwise. (v) The applicable Underwritten Securities have been duly and validly authorized by all necessary corporate action and, when issued and delivered pursuant to this Agreement against payment of the consideration therefor specified in the applicable Terms Agreement or the Delayed Delivery Contracts, the applicable Underwritten Securities will be validly issued, fully paid and non-assessable; the Underwritten Securities are not subject to preemptive or other similar rights arising by operation of law or, to the best of such counsel's knowledge, otherwise; and the Preferred Stock, if applicable, conforms to the provisions of the Articles of Amendment. (vi) If applicable, the shares of Common Stock issuable upon conversion of any of the Preferred Stock have been duly and validly authorized and reserved for issuance upon such conversion or exercise by all necessary corporate action and such shares, when issued upon such conversion or exercise, will be duly and validly issued and will be fully paid and non-assessable, and the issuance of such shares upon such conversion or exercise will not be subject to preemptive or other similar rights arising by operation of law or, to the best of such counsel's knowledge, otherwise. (vii) Each of this Agreement, the applicable Terms Agreement and the Delayed Delivery Contracts, if any, has been duly authorized, executed and delivered by the Company. (viii) The Registration Statement is effective under the 1933 Act and, to the best of such counsel's 24 knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (ix) The Registration Statement and the Prospectus, excluding the documents incorporated by reference therein, as of their respective effective or issue dates, comply as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations; it being understood, however, that no opinion need be rendered with respect to the financial statements, schedules and other financial and statistical data included or incorporated by reference in the Registration Statement or the Prospectus. If applicable, the Rule 434 Prospectus conforms in all material aspects to the requirements of Rule 434 under the 1933 Act Regulations. (x) Each document filed pursuant to the 1934 Act (other than the financial statements, schedules and other financial and statistical data included therein, as to which no opinion need be rendered) and incorporated or deemed to be incorporated by reference in the Prospectus complied when so filed (or as when amended prior to the Representation Date) as to form in all material respects with the 1934 Act and the 1934 Act Regulations. (xi) If applicable, the relative rights, preferences, interests and powers of the Preferred Stock are as set forth in the Articles of Amendment relating thereto, and all such provisions are valid under applicable Virginia law; and the form of certificate used to evidence the Preferred Stock is in due and proper form under applicable Virginia law, and complies in all material respects with all applicable statutory requirements. (xii) The Underwritten Securities and, if applicable, the Common Stock issuable upon conversion 25 of the Preferred Stock conform in all material respects to the statements relating thereto contained in the Prospectus. (xiii) To the best of such counsel's knowledge and information, there are no legal or governmental proceedings pending or threatened which are required to be disclosed in the Prospectus, other than those dis closed therein, and all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of the property of the Company or its subsidiaries is the subject which are not described in the Prospectus, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material to the business of the Company and its subsidiaries considered as one enterprise. (xiv) To the best of such counsel's knowledge and information, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement other than those described or referred to therein or filed as exhibits thereto, the descriptions thereof or references thereto are correct, and, to the best of such counsel's knowledge and information, no default exists in the due performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to or filed which would have a material adverse effect on the condition, financial or otherwise, or on the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xv) No authorization, approval or consent of any court or governmental authority or agency is required that has not been obtained in connection with the 26 consummation by the Company of the transactions contemplated by this Agreement and the applicable Terms Agreement, except such as may be required under the 1933 Act, the 1934 Act and state securities laws or real estate syndication laws. (xvi) To the best of such counsel's knowledge and information, the execution and delivery of this Agreement and the applicable Terms Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder will not conflict with or constitute a breach of, or default under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which they may be bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in violation of the provisions of the Articles of Incorporation or By-Laws of the Company or any law, administrative regulation or court decree. (xvii) The Company is not required to be registered under the 1940 Act. (xviii) The statements under the caption "Description of Capital Stock" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present the information called for with respect to such documents and matters. (2) The favorable opinion, dated as of Closing Time, of Hunton & Williams, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that the Company has qualified to be taxed as a real estate investment trust pursuant to Sections 856 through 860 of the Code for its most recently ended fiscal 27 year and for the four fiscal years immediately preceding such year, and the Company's organization and contemplated method of operation are such as to enable it to continue to so qualify for its current fiscal year. (3) The favorable opinion, dated as of the Closing Time, of Brown & Wood LLP, counsel for the Underwriters, with respect to the due organization of the Company and the matters set forth in (v) to (ix), inclusive, and (xii), (xv) and (xviii) of subsection (b)(1) of this Section. In rendering their opinion, Brown & Wood LLP may rely as to matters of Virginia law upon the opinion of Hunton & Williams. (4) In giving their opinions required by subsections (b)(1) and (b)(3), respectively, of this Section, Hunton & Williams and Brown & Wood LLP shall each additionally state that nothing has come to their attention that would lead them to believe that the Registration Statement or any amendment thereto (excluding the financial statements and financial schedules included or incorporated by reference therein, as to which such counsel need express no belief), at the time it became effective or at the time an Annual Report on Form 10-K was filed by the Company with the Commission (whichever is later), or at the Representation Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (excluding the financial statements and financial schedules included or incorporated by reference therein, as to which such counsel need express no belief), at the Representation Date or at Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) At Closing Time, there shall not have been, since the date of the applicable Terms Agreement or since the respective dates 28 as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business; and you shall have received a certificate of the President, Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company, dated as of such Closing Time, to the effect that (i) there has been no such material adverse change and (ii) the representations and warranties in Section 1 are true and correct with the same force and effect as though such Closing Time were a Representation Date. As used in this Section 5(c), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Underwritten Securities. (d) At the time of execution of the applicable Terms Agreement, you shall have received from Ernst & Young LLP a letter dated such date, in form and substance satisfactory to you, to the effect that (i) they are independent accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the 1934 Act and the applicable published rules and regulations thereunder; (ii) it is their opinion that the consolidated financial statements and supporting schedules of the Company and its subsidiaries included or incorporated by reference in the Registration Statement and the Prospectus and covered by their opinions therein comply in form in all material respects with the applicable accounting requirements of the 1933 Act and the 1934 Act and the related published rules and regulations thereunder; (iii) based upon limited procedures set forth in detail in such letter (which shall include, without limitation, the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in SAS No. 71, Interim Financial Information, with respect to the unaudited condensed consolidated financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement), nothing came to their attention that caused them to believe that (A) any material modifications should be made to the unaudited financial statements and financial statement schedules of the Company and its subsidiaries included or incorporated by 29 reference in the Registration Statement and the Prospectus for them to be in conformity with generally accepted accounting principles, (B) the unaudited financial statements and financial statement schedules of the Company included or incorporated by reference in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the related published rules and regulations thereunder, or (C) at a specified date not more than three days prior to the date of the applicable Terms Agreement, there has been any change in the capital stock of the Company or in the notes payable or mortgage notes payable of the Company or any decrease in the total assets of the Company, as compared with the amounts shown in the most recent consolidated balance sheet included or incorporated by reference in the Registration Statement and the Prospectus or, during the period from the date of the most recent consolidated statement of operations included or incorporated by reference in the Registration Statement and the Prospectus to a specified date not more than three days prior to the date of the applicable Terms Agreement, there were any decreases, as compared with the corresponding period in the preceding year, in rental income or in the total or per share amounts of net income or income before gains (losses) on investments and extraordinary items of the Company, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur; (iv) they have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 402 and 503(d) of Regulation S-K; and (v) in addition to the audit referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included or incorporated by reference in the Registration Statement and the Prospectus and which are specified by you, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other 30 records of the Company and its subsidiaries identified in such letter. (e) At Closing Time, you shall have received from Ernst & Young LLP a letter dated as of such Closing Time to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the "specified date" referred to shall be a date not more than three days prior to such Closing Time. (f) At Closing Time, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Underwritten Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Underwritten Securities as herein contemplated shall be satisfactory in form and substance to you and counsel for the Underwriters. (g) In the event the Underwriters exercise their option provided in a Terms Agreement as set forth in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of each Date of Delivery, and you shall have received: (1) A certificate, dated such Date of Delivery, of the President, Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company, in their capacities as such, confirming that the certificate delivered at Closing Time pursuant to Section 5(c) hereof remains true and correct as of such Date of Delivery. (2) The favorable opinions of Hunton & Williams, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of 31 Delivery, relating to the Option Securities and otherwise substantially to the same effect as the opinions required by Sections 5(b)(1) and 5(b)(2) hereof. (3) The favorable opinion of Brown & Wood LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(3) hereof. (4) A letter from Ernst & Young LLP, in form and substance satisfactory to you and dated such Date of Delivery, substantially the same in scope and substance as the letter furnished to you pursuant to Section 5(e) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(g)(4) shall be a date not more than three days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, the applicable Terms Agreement may be terminated by you by notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. Section 6. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act as follows: (1) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any un true statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be a part of the Registration Statement pursuant to Rule 430A(b) or Rule 434 of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the 32 Prospectus (or any amendment or supplement thereto) or the omission, or alleged omission therefrom, of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (2) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission referred to in subsection (1) above, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (3) against any and all expense whatsoever, as incurred (including, the fees and disbursements of counsel chosen by you), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (1) or (2) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through you expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and 33 expense described in the indemnity contained in subsection (a) of this Section, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through you expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters with respect to the offering of the Underwritten Securities shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and one or more of the Underwriters in respect of such offering, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the applicable Prospectus Supplement in respect of such offering bears to the initial public offering price appearing thereon and the Company is 34 responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Underwritten Securities purchased by it pursuant to the applicable Terms Agreement and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or the applicable Terms Agreement, or contained in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any termination of this Agreement, or investigation made by or on behalf of any Underwriter or any controlling person, or by or on behalf of the Company and shall survive delivery of and payment for the Underwritten Securities to the Underwriters. Section 9. Termination of Agreement. (a) This Agreement (excluding the applicable Terms Agreement) may be terminated for any reason at any time by the Company or by you upon the giving of 30 days' written notice of such termination to the other party hereto; provided that this Agreement may not be terminated prior to the Closing Time set forth in any applicable Terms Agreement. (b) You may also terminate the applicable Terms Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the date of such Terms 35 Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or other calamity or crisis or escalation of any existing hostilities, the effect of which is such as to make it, in your judgment, impracticable to market the Underwritten Securities or enforce contracts for the sale of the Underwritten Securities, or (iii) if trading in any of the securities of the Company has been suspended by the Commission or the New York Stock Exchange, or if trading generally on either the New York Stock Exchange or the American Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal, New York or Virginia authorities, or (iv) if Preferred Stock is being offered and the rating assigned by any nationally recognized statistical rating organization to any preferred stock or debt of the Company as of the date of the applicable Terms Agreement shall have been lowered since such date or if any such rating organization shall have publicly announced that it has placed any preferred stock or debt of the Company on what is commonly termed a "watch list" for possible downgrading. As used in this Section 9(b), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Underwritten Securities. (c) In the event of any such termination, (x) the covenants set forth in Section 3 with respect to any offering of Underwritten Securities shall remain in effect so long as any Underwriter owns any such Underwritten Securities purchased from the Company pursuant to the applicable Terms Agreement and (y) the covenant set forth in Section 3(h) hereof, the provisions of Section 4 hereof, the indemnity and contribution agreements set forth in Sections 6 and 7 hereof, and the provisions of Sections 8 and 13 hereof shall remain in effect. 36 Section 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time to purchase the Underwritten Securities which it or they are obligated to purchase under the applicable Terms Agreement (the "Defaulted Securities"), then you shall have the right, within 48 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, you shall not have completed such arrangements within such 48-hour period, then: (a) if the total number of Defaulted Securities does not exceed 10% of the total number of Underwritten Securities to be purchased pursuant to such Terms Agreement, the non-defaulting Underwriters named in such Terms Agreement shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the total number of Defaulted Securities exceeds 10% of the total number of Underwritten Securities to be purchased pursuant to such Terms Agreement, the applicable Terms Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default under this Agreement and the applicable Terms Agreement. In the event of any such default which does not result in a termination of the applicable Terms Agreement, either you or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or the Prospectus or in any other documents or arrangements. Section 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed 37 c/o Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World Financial Center, New York, New York 10281, attention of Tjarda van S. Clagett, Director; and notices to the Company shall be directed to it at 10 South 6th Street, Richmond, Virginia 23219, attention of John P. McCann, President, Chairman and Chief Executive Officer. Section 12. Parties. This Agreement and the applicable Terms Agreement shall inure to the benefit of and be binding upon you and the Company and any Underwriter who becomes a party to such Terms Agreement, and their respective successors. Nothing expressed or mentioned in this Agreement or the applicable Terms Agreement is intended or shall be construed to give any person, firm or corporation, other than those referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or such Terms Agreement or any provision herein or therein contained. This Agreement and the applicable Terms Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Underwritten Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. Section 13. Governing Law and Time. This Agreement and the applicable Terms Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. Section 14. Counterparts. This Agreement and the applicable Terms Agreement may be executed in one or more counterparts, and if executed in more than one counterpart the executed counterparts shall constitute a single instrument. 38 2 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counter part hereof, whereupon this instrument along with all counter parts will become a binding agreement between you and the Company in accordance with its terms. Very truly yours, UNITED DOMINION REALTY TRUST, INC. By: -------------------------------- Name: James Dolphin Title: Executive Vice President and Chief Financial Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated A.G. EDWARDS & SONS, INC. MORGAN STANLEY & CO. INCORPORATED SCOTT & STRINGFELLOW, INC. For themselves and as Representatives of the several Underwriters named in the Terms Agreement By: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: ------------------------------------------ 39 Name: Tjarda van S. Clagett Title: Director 40 Exhibit A _______ Shares UNITED DOMINION REALTY TRUST, INC. (a Virginia corporation) [Title of Securities] TERMS AGREEMENT Dated: _____________, 199__ To: United Dominion Realty Trust, Inc. 10 South 6th Street Richmond, Virginia 23219 Attention: President, Chairman and Chief Executive Officer Dear Sirs: We (the "Representative[s]") understand that United Dominion Realty Trust, Inc., a Virginia corporation (the "Company"), proposes to issue and sell the number of its [shares of common stock (the "Common Stock")] [shares of preferred stock (the "Preferred Stock")] (such [Common Stock]) [Preferred Stock] being collectively hereinafter [also] referred to as the "Underwritten Securities"). Subject to the terms and conditions set forth or incorporated by reference herein, the underwriters named below (the "Underwriters") offer to purchase, severally and not jointly, the respective numbers of [Initial Underwritten Securities (as defined in the Underwriting Agreement referred to below)] set forth below opposite their respective names, and a proportionate share of Option Securities (as defined in the Underwriting Agreement referred to below) to the extent any are purchased, at the purchase price set forth below. A-1 Number of Shares of Initial Underwriter Underwritten Securities ---------- Total $ ==========
The Underwritten Securities shall have the following terms: [Common Stock] [Preferred Stock] Title of Securities: Number of Shares: [Current Ratings:] [Dividend Rate: [$ ] [ %], Payable:] [Stated Value:] [Liquidation Preference:] [Ranking:] Public Offering Price Per Share: $ [, plus accumulated dividends, if any, from , 19 .] Purchase Price Per Share: $ [, plus accumulated dividends, if any, from , 19 .] [Conversion Provisions:] [Redemption Provisions:] [Sinking Fund Requirements:] Number of Option Securities, if any, that may be purchased by the Underwriters: Delayed Delivery Contracts: [authorized] [not authorized] [Date of Delivery: Minimum Contract: Maximum Number of Shares: Fee:] Additional co-managers, if any: Other terms: Closing time, date and location:
All the provisions contained in the document attached as Annex A hereto entitled "United Dominion Realty Trust, Inc.- Common Stock and Preferred Stock-Underwriting Agreement" are hereby incorporated by reference in their entirety herein and shall be deemed to be a part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Terms defined in such document are used herein as therein defined. A-2 Please accept this offer no later than o'clock P.M. (New York City time) on by signing a copy of this Terms Agreement in the space set forth below and returning the signed copy to us. Very truly yours, [NAME[S] OF REPRESENTATIVE[S] By:_________________________ Acting on behalf of [itself] [themselves] and the other named Underwriters. Accepted: UNITED DOMINION REALTY TRUST, INC. By:_________________________ Name: Title: A-3 Exhibit B UNITED DOMINION REALTY TRUST, INC. (a Virginia corporation) [Title of Securities] DELAYED DELIVERY CONTRACT _____________, 19__ United Dominion Realty Trust, Inc. 10 South 6th Street Richmond, Virginia 23219 Attention: President, Chairman and Chief Executive Officer Dear Sirs: The undersigned hereby agrees to purchase from United Dominion Realty Trust, Inc. (the "Company"), and the Company agrees to sell to the undersigned on __________, 19__ (the "Delivery Date"), of the Company's [insert title of security] (the "Securities"), offered by the Company's Prospectus dated __________, 19__, as supplemented by its Prospectus Supplement dated ___________, 19__, receipt of which is hereby acknowledged, at a purchase price of [$__________], on the Delivery Date, and on the further terms and conditions set forth in this contract. Payment for the Securities which the undersigned has agreed to purchase on the Delivery Date shall be made to the Company or its order by certified or official bank check in New York Clearing House funds at the office of B-1 , on the Delivery Date, upon delivery to the undersigned of the Securities to be purchased by the undersigned in definitive form and in such denominations and registered in such names as the undersigned may designate by written or telegraphic communication addressed to the Company not less than five full business days prior to the Delivery Date. The obligation of the undersigned to take delivery of and make payment for Securities on the Delivery Date shall be subject only to the conditions that (1) the purchase of Securities to be made by the undersigned shall not on the Delivery Date be prohibited under the laws of the jurisdiction to which the undersigned is subject and (2) the Company, on or before __________, 199_, shall have sold to the Underwriters of the Securities (the "Underwriters") such principal amount of the Securities as is to be sold to them pursuant to the Terms Agreement dated __________, 199_ between the Company and the Underwriters. The obligation of the undersigned to take delivery of and make payment for Securities shall not be affected by the failure of any purchaser to take delivery of and make payments for Securities pursuant to other contracts similar to this contract. The undersigned represents and warrants to you that its investment in the Securities is not, as of the date hereof, prohibited under the laws of any jurisdiction to which the undersigned is subject and which govern such investment. Promptly after completion of the sale to the Underwriters, the Company will mail or deliver to the undersigned at its address set forth below notice to such effect, accompanied by a copy of the opinion of counsel for the Company delivered to the Underwriters in connection therewith. By the execution hereof, the undersigned represents and warrants to the Company that all necessary action for the due execution and delivery of this contract and the payment for and purchase of the Securities has been taken by it and no further authorization or approval of any governmental or other regulatory authority is required for such execution, delivery, payment or purchase, and that, upon acceptance hereof by the Company and mailing or delivery of a copy as provided below, this contract B-2 will constitute a valid and binding agreement of the undersigned in accordance with its terms. This contract will inure to the benefit of and be binding upon the parties hereto and their respective successors, but will not be assignable by either party hereto without the written consent of the other. It is understood that the Company will not accept Delayed Delivery Contracts for a number of Securities in excess of ________ and that the acceptance of any Delayed Delivery Contract is in the Company's sole discretion and, without limiting the foregoing, need not be on a first-come, first-served basis. If this contract is acceptable to the Company, it is requested that the Company sign the form of acceptance on a copy hereof and mail or deliver a signed copy hereof to the undersigned at its address set forth below. This will become a binding contract between the Company and the undersigned when such copy is so mailed or delivered. This Agreement shall be governed by the laws of the State of New York. Yours very truly, ----------------------------- (Name of Purchaser) By:__________________________ (Title) ----------------------------- ----------------------------- (Address) Accepted as of the date first above written. UNITED DOMINION REALTY TRUST, INC. B-3 By:__________________________ (Title) PURCHASER-PLEASE COMPLETE AT TIME OF SIGNING The name and telephone number of the representative of the Purchaser with whom details of delivery on the Delivery Date may be discussed are as follows: (Please print.) Telephone No. (including Name Area Code) B-4 6,000,000 Shares UNITED DOMINION REALTY TRUST, INC. (a Virginia corporation) 8.60% Series B Cumulative Redeemable Preferred Stock (No Par Value) (Liquidation Preference $25.00 Per Share TERMS AGREEMENT Dated: May 23, 1997 To: United Dominion Realty Trust, Inc. 10 South 6th Street Richmond, Virginia 23219 Attention: President, Chairman and Chief Executive Officer Ladies and Gentlemen: We (the "Representatives") understand that United Dominion Realty Trust, Inc., a Virginia corporation (the "Company"), proposes to issue and sell shares of its Series B Cumulative Redeemable Preferred Stock, no par value (the "Preferred Stock") (such Preferred Stock being hereinafter referred to as the "Underwritten Securities"). Subject to the terms and conditions set forth or incorporated by reference herein, the underwriters named below (the "Underwriters") offer to purchase, severally and not jointly, the respective numbers of Initial Underwritten Securities (as defined in the Underwriting Agreement dated May 23, 1997 (the "Underwriting Agreement")) set forth below opposite their respective names, and a proportionate share of Option Securities (as defined in the Underwriting Agreement) to the extent any are purchased, at the purchase price set forth below. Number of Shares of Initial Underwriter Underwritten Securities - ----------- ----------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,320,000 A.G. Edwards & Sons, Inc. 1,320,000 Morgan Stanley & Co. Incorporated 1,320,000 Scott & Stringfellow, Inc. 1,320,000 Alex. Brown & Sons Incorporated 60,000 Cowen & Company 60,000 Dain Bosworth Incorporated 60,000 Davenport & Company LLC 60,000 Dean Witter Reynolds Inc. 60,000 EVEREN Securities, Inc. 60,000 The Ohio Company 60,000 Oppenheimer & Co., Inc. 60,000 Piper Jaffray Inc. 60,000 Raymond James & Associates, Inc. 60,000 Tucker Anthony Incorporated 60,000 Wheat, First Securities, Inc. 60,000 --------- 6,000,000 ========= The Underwritten Securities shall have the following terms: Title of Securities: 8.60% Series B Cumulative Redeemable Preferred Stock Number of Shares: 6,000,000 Current Ratings: Standard & Poor's Ratings Services - BBB; Moody's Investors Service, Inc. - Baa2. Dividend Rate: 8.60% per annum Dividend Payment Dates: The last day of February, May, August, and November of each year, commencing August 31, 1997. Liquidation Preference: $25.00 per share Public Offering Price Per Share: $25.00, plus accrued dividends, if any, from May 23, 1997. 2 Purchase Price Per Share: $24.2125, plus accrued dividends, if any, from May 23, 1997. Conversion Provisions: Not convertible into any other securities of the Company. Optional Redemption Provisions: The Preferred Stock is not redeemable prior to May 29, 2007. On and after May 29, 2007, the Preferred Stock may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price of $25.00 per share plus accrued and unpaid dividends, if any, thereon. The redemption price (other than the portion thereof consisting of accrued and unpaid dividends) is payable solely out of the sale proceeds of other capital stock of the Company. Mandatory Redemption Provisions: None, except in connection with a violation of certain ownership restrictions. Sinking Fund Requirements: None Number of Option Securities, if any, that may be purchased by the Underwriters: 900,000 Delayed Delivery Contracts: Not authorized Closing time, date and location: 9:00 a.m. New York City time on May 29, 1997 at the offices of Brown & Wood LLP, One World Trade Center, New York, New York 10048. All the provisions contained in the document attached as Annex A hereto entitled "United Dominion Realty Trust, Inc. Common Stock and Preferred Stock - Underwriting Agreement" are hereby incorporated by reference in their entirety herein and shall be deemed to be a part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Terms defined in such document are used herein as therein defined. 3 Please accept this offer no later than five o'clock P.M. (New York City time) on May 23, 1997 by signing a copy of this Terms Agreement in the space set forth below and returning the signed copy to us. Very truly yours, MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated A.G. EDWARDS & SONS, INC. MORGAN STANLEY & CO. INCORPORATED SCOTT & STRINGFELLOW, INC. By: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: _____________________________ Name: Tjarda van S. Clagett Title: Director Acting on behalf of themselves and the other named Underwriters. Accepted: UNITED DOMINION REALTY TRUST, INC. By:_________________________ Name: James Dolphin Title: Executive Vice President and Chief Financial Officer 4 EX-12 3 EXHIBIT 12 Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Dollars in thousands)
Three Months ended June 30, Six Months Ended June 30, --------------------------- -------------------------- 1997 1996 1997 1996 ---------- --------- -------- -------- Income before extraordinary item $14,677 $8,166 $31,790 $17,725 Add: Portion of rents representative of the interest factor 105 88 194 176 Interest on indebtedness 19,769 11,237 38,919 21,883 --------- --------- -------- ------- Earnings $34,551 $19,491 $70,903 $39,784 ========== ========= ======== ======== Fixed charges and preferred stock dividend: Interest on indebtedness $19,769 $11,237 $38,919 $21,883 Capitalized interest 721 124 1,230 254 Portion of rents representative of the interest factor 105 88 194 176 ---------- --------- -------- -------- Fixed charges 20,595 11,449 40,343 22,313 ---------- --------- -------- -------- Add: Preferred stock dividend 3,611 2,428 6,039 4,856 ---------- --------- -------- -------- Combined fixed charges and preferred stock dividend $24,206 $13,877 $46,382 $27,169 ========== ========= ======== ======== Ratio of earnings to fixed charges 1.68x 1.70x 1.76x 1.78x Ratio of earnings to combined fixed charges and preferred stock dividend 1.43 1.40 1.53 1.46
EX-27 4 EXHIBIT 27
5 6-MOS DEC-31-1997 JUN-30-1997 8,296 0 0 0 0 33,220 2,283,801 181,662 2,143,655 76,548 1,015,348 0 255,000 87,275 707,463 2,143,655 185,366 185,754 0 78,573 39,787 0 38,919 25,751 0 25,751 0 0 0 25,751 .30 .30
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