-----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, OSAAGcyz4vZybHP/bk6rpIJGDS/GPxHNTfT5yZObVlrkwObuHoOYC0i1dLEHW+3X PcWgecITXsoJ8hW1BbZgCQ== 0000916641-01-000332.txt : 20010416 0000916641-01-000332.hdr.sgml : 20010416 ACCESSION NUMBER: 0000916641-01-000332 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED DOMINION REALTY TRUST INC CENTRAL INDEX KEY: 0000074208 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 540857512 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10524 FILM NUMBER: 1569385 BUSINESS ADDRESS: STREET 1: 400 EAST CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3802 BUSINESS PHONE: 8047802691 MAIL ADDRESS: STREET 1: 400 EAST CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3802 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION 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-K 1 0001.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 1-10524 ------- UNITED DOMINION REALTY TRUST, INC. ---------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-0857512 - - -------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 400 East Cary Street, Richmond, Virginia 23219 - - -------------------------------------------------------------------------------- (Address of principal executive offices - zip code) (804) 780-2691 -------------- (Registrant's telephone number, including area code) 10 South Sixth Street, Richmond, Virginia 23219 - - -------------------------------------------------------------------------------- (Former address, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered - - ------------------- ------------------------------------ Common Stock, $1 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 9.25% Series A Cumulative Redeemable Preferred Stock New York Stock Exchange 8.60% Series B Cumulative Redeemable Preferred Stock New York Stock Exchange 7.50% Series D Cumulative Convertible Redeemable Preferred Stock None
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days. Yes X No _________ ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference into Part III of this Form 10-K ( ). The aggregate market value of the shares of common stock held by non-affiliates (based upon the closing sales price on the New York Stock Exchange) on March 1, 2001 was approximately $1 billion. * As of March 1, 2001 there were 101,346,145 shares of common stock, $1 par value, outstanding. Part III incorporates certain information by reference from the Proxy Statement to be filed with respect to the Annual Meeting of Shareholders on May 8, 2001. *In determining this figure, the Company has assumed that all of its officers & directors, and persons known to the Company to be beneficial owners of more than 5% of the Company's shares, are affiliates. Such assumptions should not be deemed conclusive for any other purpose. UNITED DOMINION REALTY TRUST, INC. TABLE OF CONTENTS
PAGE ---- PART I. Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 18 Item 6. Selected Financial Data 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 34 Item 8. Financial Statements and Supplementary Data 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34 PART III. Item 10. Directors and Executive Officers of the Registrant 35 Item 11. Executive Compensation 35 Item 12. Security Ownership of Certain Beneficial Owners and Management 35 Item 13. Certain Relationships and Related Transactions 35 PART IV. Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 36
2 Part I Item 1. BUSINESS - - ------------------ General United Dominion Realty Trust, Inc. ("United Dominion"), a Virginia corporation, is a self-administered equity real estate investment trust that owns, acquires, renovates, develops and manages middle market apartment communities nationwide. Formed in 1972, United Dominion is headquartered in Richmond, Virginia with regional offices in Richmond, Dallas and Atlanta. The regional offices are responsible for the operation and management of the Company's 277 apartment communities in their respective geographic regions. United Dominion, which owns over 77,000 apartment homes, had approximately 2,400 employees as of January 31, 2001. The Company operates as a real estate investment trust under the applicable provisions of the Internal Revenue Code of 1986, as amended. To qualify, the Company must meet certain tests which, among other things, require that its assets consist primarily of real estate, its income be derived primarily from real estate and at least 95% of its taxable income be distributed to its preferred and common shareholders. Because the Company qualifies as a REIT, it is generally not subject to federal income taxes. Business Overview With an objective to be a national company and one of the largest apartment REITs, from 1996 through 1998, United Dominion acquired other REITs, private portfolios and individual communities, growing its apartment portfolio from 34,000 to over 87,000 apartment homes by the end of 1998. Following this significant acquisition period, the Company has spent the last two years building infrastructure to catch up with the rapid growth, upgrading its portfolio and focusing on operational issues. The goals have been to strengthen and better position the Company to sustain above-average net operating income growth, steadily increase cash flow per apartment home, generate more predictable earnings and strengthen the capital structure. In 2000, United Dominion upgraded its portfolio, increased its financial flexibility and refined its strategy. During the year, the Company sold $215 million of non-core properties that included 26 communities with 5,835 apartment homes. These divestitures were designed to increase the long-term profitability of the portfolio. The properties sold included slower growing communities in several of the Company's core markets, as well as properties located within markets which United Dominion exited such as Galveston, Texas, Montgomery, Alabama and Roanoke, Virginia. The majority of the proceeds were used to reduce debt, strengthen the capital structure and increase financial flexibility. A lesser part of the proceeds were used to buyback equity securities, both common and preferred stock. Changing demographics will have a significant impact on the apartment industry over the next two decades. The number of young people entering the workforce and creating households will be significantly higher over the next 17 years as compared to the number who entered the workforce over the past 12 years. The number of single people and single parent households continues to grow significantly. There is also higher growth in immigration than had been expected. Each of the above-mentioned population segments has a high propensity to rent. For the first time in more than a decade, the growth in demand for rental housing will exceed the growth in demand for owner occupied housing. Customers United Dominion focuses on the broad middle-market segment of the apartment market which generally consists of renters-by-necessity. This group includes young professionals, blue collar families, single parent households, older singles, non-related parties and families renting while waiting to purchase a home. The Company believes that this segment provides the highest profit potential in terms of rent growth, stability of occupancy, desired level of service and amenities and investment opportunities. Recognizing the significant increase in younger renters over the next decade and a half, the Company plans to target some of its incremental investments to communities that will be attractive to young households. These communities will often be located close to where young people work, shop and play. 3 Markets At the end of 2000, United Dominion owned apartments in more than 60 MSAs, but derived 70% of its net operating income in 2000 from its 20 largest markets. The Company has a geographically diverse portfolio both by region and market. This diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of United Dominion's earnings. In any given year, the Company will have some markets that are strong, some that are balanced and some that are weak. In 2000, new supply continued to come into the market as demand was slowing. The excess supply exerted pressure on occupancy and rents in some of the Company's key markets, particularly Raleigh, Charlotte and Wilmington in North Carolina and Columbus, Ohio. Offsetting this, some of the Company's markets experienced above-average NOI growth for the year, including Richmond, Dallas/Fort Worth, Atlanta, Greensboro and Baltimore. The Company's West Coast markets including its markets in California and the Pacific Northwest were exceptionally strong throughout the year. Communities At December 31, 2000, United Dominion's apartment portfolio included 277 communities having a total of 77,219 completed apartment homes (see Item 2, Properties). In addition, United Dominion had 1,238 apartment homes under development at two new communities and three additional phases to existing owned communities. The overall quality of the portfolio has significantly improved since 1997 with the disposition of more than 21,000 apartment homes and the upgrading of most of the core communities. The upgrading of the portfolio provides several key benefits related to portfolio profitability. It reduces capital expenditures per apartment, and therefore increases cash flow. It enables the Company to attract residents with higher levels of disposable income, and these are customers that are more likely to accept the transfer of expenses from the landlord to the resident, such as water and sewer costs, and will generally want additional services from the landlord that will generate additional revenue. During the past four years, United Dominion's same community NOI growth averaged above 5%. The Company grew rental and other income and increased occupancy while controlling operating expenses. This is a direct result of the overall improvement to the quality of the portfolio. For 2001, the Company expects same community net operating income growth in a majority of its markets. NOI growth is the Company's primary earnings driver. New CEO With the Company's repositioning substantially complete, United Dominion began a search for a new CEO in the fourth quarter. This search culminated with the hiring of Thomas W. Toomey on February 13, 2001 to replace John P. McCann who served in this role for more than 26 years. Mr. Toomey has begun a review of the organizational structure and strategy of the Company. This review could result in changes that may require the Company to incur expenses for severance and termination benefits. Additionally, the review may result in a change of intent with regard to anticipated holding periods of certain assets which could require the write down of these assets. Technology Primarily over the past two years, United Dominion has invested in technology to improve business processes, communications with constituencies and to become a better marketer. The Company believes that technology can provide competitive advantages in the future. Key technology initiatives over the past year have included a redeveloped corporate web site, an e-training initiative to take training out of the classroom and directly to associates at their workstations, and the co-development of a web-based property management system. 2000 Accomplishments . Net operating income (property operating income less property operating expenses) from same communities (those acquired, developed or stabilized prior to January 1, 1999 and held on January 1, 2000) increased 4.1% in 2000 compared to 1999; . Completed four development projects aggregating $68.1 million with 992 apartment homes in five different markets. Lease-ups were ahead of projected absorption at two of these communities; 4 . Completed the formation with a financial partner of a development joint venture for five new communities containing 1,438 apartment homes at a budgeted cost of $103 million . United Dominion earns fee income by providing development, construction and property management services to each of the joint venture projects; . Completed the disposition of 26 apartment communities representing $215 million of gross sales proceeds and consisting of communities that no longer met the Company's investment criteria. This included exiting certain non-core markets; . Reduced debt by $135 million using divestiture proceeds; . Repurchased $29 million of common and preferred stock and operating partnership units (OP Units) using divestiture proceeds; . Arranged a new $375 million, three-year revolving credit agreement in order to enhance the Company's financial flexibility; . Paid dividends of $1.07 per share, which represents United Dominion's 24th year of consecutive dividend increases to shareholders, and; . Formed Realeum, Inc. with two other apartment REITs to complete the development of a web-based on-site apartment management system. Acquisitions and Mergers Over the past five years, United Dominion acquired over 60,000 apartment homes as part of its strategy to have a national portfolio. Over the past two years, the amount of United Dominion's dispositions exceeded its acquisitions, with acquisitions limited to using disposition proceeds to complete 1031 tax-deferred exchanges. During 2000, using the proceeds from its disposition program, United Dominion acquired one community with 267 apartment homes at a total cost of $14.8 million, including the assumption of debt and the use of tax free exchange funds. When evaluating potential acquisitions, United Dominion considers geographic location, construction quality, condition and design of the community, asset quality and current and projected cash flow of the property, ability to increase the value and profitability of the property through upgrades and repositioning, potential for rent growth, competition from existing multifamily communities, anticipated new construction and the potential for economic growth in the market and sub-market. The following table summarizes United Dominion's apartment acquisitions (including mergers) during the last five years (dollars in thousands):
2000 1999 1998 (a) 1997 1996 (b) ---------- ---------- ---------- ---------- ---------- Homes acquired 267 1,230 28,510 8,628 22,032 Homes owned at December 31, 77,219 82,154 86,893 62,789 55,664 Total real estate owned, at carrying value $3,836,320 $3,953,045 $3,952,752 $2,517,398 $2,099,641 Total rental income $ 616,825 $ 618,749 $ 478,718 $ 386,672 $ 241,260
(a) Includes 7,550 apartment homes acquired in the ASR Merger on March 27, 1998 and 14,001 apartment homes acquired in the American Apartment Communities Merger on December 7, 1998. (b) Includes 14,320 completed apartment homes and 675 homes under development acquired in connection with the SouthWest Merger on December 31, 1996. 5 Prior to 1990, United Dominion was the only major publicly held REIT focusing predominantly on apartment investments. Since then, a number of multifamily REITs have been formed. The apartment sector of the real estate industry has undergone modest but steady consolidation over the past decade. Some apartment REITs and privately owned portfolios may seek to be acquired by large, well capitalized REITs that have superior access to the capital markets. United Dominion has been a participant in this consolidation process, completing the following mergers: On December 31, 1996, United Dominion completed the acquisition of SouthWest Property Trust Inc. ("SouthWest") in a statutory merger (the "SouthWest Merger"). SouthWest was a publicly traded multifamily REIT that owned 44 communities with 14,320 apartment homes primarily located in Texas. The SouthWest Merger provided the Company with diversification beyond its traditional southeast and mid-atlantic markets, expanding the Company into the southwestern markets. On March 27, 1998, United Dominion completed the acquisition of ASR Investments Corporation ("ASR") in a statutory merger (the "ASR Merger"). ASR was a publicly traded multifamily REIT that owned 39 communities with 7,550 apartment homes located in Arizona, Texas, New Mexico and the state of Washington. The ASR Merger furthered the Company's investment in southwestern markets, provided an initial presence in the Pacific northwest, and added communities in Houston and Phoenix. On December 7, 1998, United Dominion completed the acquisition of American Apartment Communities II, Inc. ("AAC") in a statutory merger (the "AAC Merger"). In connection with the acquisition of AAC, the Company acquired 53 communities with 14,001 apartment homes located primarily in California, the Pacific northwest, the midwest and Florida. The AAC Merger allowed United Dominion to enter into new major markets, many of which are strong growth markets. Through the AAC merger, the Company entered Portland, San Francisco, Sacramento, San Jose, Monterey, Los Angeles, Denver, Indianapolis and Detroit. In addition, AAC added communities to the Company's portfolios in Columbus, Tampa, South Florida and Seattle. Development/Upgrading Activity During 2000, United Dominion continued to reposition properties in targeted markets where there was a perceived opportunity to add value and achieve greater than inflationary increases in rents over the long term. Over the past three years, the Company has shifted capital into development that could provide returns on investment (property operating income less property operating expenses and a capital expenditure allowance, divided by the average investment) in excess of 9.5% and away from lower yielding acquisitions. In 2000, United Dominion spent over $90 million on direct development projects. This included $68.1 million to finish 992 apartment homes in one new community and three second phases and $26.8 million to start 1,238 apartment homes in two new communities and three second phases. During 2000, United Dominion completed the formation of a development joint venture with an institutional partner. The joint venture allows the Company to reduce its development capital commitment and generate fee income as the developer, general contractor and project manager. United Dominion expects to further reduce the capital committed to development in 2001 and to do most new development in joint ventures where the Company can generate fee income and increased participation based on performance. In 2001, the Company will reduce its development activity in suburban, low barrier to entry sub-markets and sell off several suburban development sites. In determining whether to develop in a certain market, United Dominion analyzes demographic and market data such as income levels, occupancy rates, household formation, employment growth and supply demand ratios. United Dominion will spend less on development in 2001 than it spent in either 1999 or 2000. Same Communities United Dominion's primary earnings driver is same apartment community operations. During 2000, the Company's same communities provided 94% of the Company's property operating income. Rental growth was 4.2% and resulted primarily from a 2.9% increase in rental rates and a 1.2% increase in physical occupancy. Operating expenses also grew by 4.2%, much of which resulted from a 63.4% increase in property insurance costs and a 5.3% increase in real estate taxes. Average physical occupancy, rental rates and operating margins at United Dominion's same communities during the past three years as set forth below: 6 2000 1999 1998 ----- ----- ----- Physical occupancy 94.2% 93.0% 92.9% Average monthly rental rates $ 667 $ 631 $ 602 Operating margin 61.2% 61.3% 59.6% While the Company continues to add features to its apartment communities, United Dominion completed most of its same community upgrade program in 1999, as part of its plan to improve the quality of the portfolio. During 2000, the Company's investment in revenue enhancing and recurring capital expenditures significantly decreased. As a result of the portfolio upgrade, recurring and overall capital expenditures declined in 2000. For the mature apartments, recurring capital expenditures were $311 versus $386 per mature apartment in 1999. The Company, in 2000, also spent $203 per mature apartment on revenue enhancing capital expenditures, mostly on communities acquired in 1998, where the upgrade work was not completed in 1999. In 1999, the Company spent $253 per mature apartment on revenue enhancing capital expenditures. Revenue enhancing improvements include sub-metering of water and sewer to residents, gating and fencing of communities, installing intrusion alarms, adding business and fitness centers and constructing carports, garages and self storage units. Divestiture Activity During the past three years, United Dominion has sold more than 21,000 of its slower growing, non-core apartment homes while exiting some markets. These sales were done to increase the performance of the portfolio. They allowed United Dominion to exit slower growing markets and increase the quality of the portfolio, including reducing the average age of the portfolio. Proceeds from the disposition program were used to strengthen the Company's capitalization structure by paying down debt, as well as to fund new development projects and to selectively repurchase shares of United Dominion's preferred and common stock. At December 31, 2000, there was one community with 132 apartment homes, three commercial properties and one parcel of land classified as real estate held for disposition. The Company regularly monitors and adjusts its assets in order to increase portfolio profitability. Proceeds from the 2001 sales, currently planned to be lower than 2000, are expected to be used to reduce debt, repurchase common and preferred stock, fund development and acquire communities through 1031 exchanges. The Company's divestitures in 2001 are currently expected to be substantially non-dilutive to earnings. Financing Activity As part of United Dominion's plan to strengthen its capital structure in 2000, the Company used a majority of its disposition proceeds to reduce debt. The Company anticipates using a significant portion of its 2001 disposition proceeds to reduce debt and further increase its financial flexibility. During 2000, United Dominion's major financing activities consisted of: (i) issuing $100 million of unsecured notes with an interest rate of 8.625%; (ii) refinancing $46.7 million of tax-exempt notes at a blended rate of 6.32%; (iii) closing on a $60 million revolving credit facility with the Federal National Mortgage Association with an initial interest rate of 7.12%; (iv) borrowing $100 million in the form of an unsecured term loan from a consortium of banks; and (v) repurchasing approximately 1.4 million of common shares and over 700,000 shares of preferred stock. Taxable REIT Subsidiary In December 1999, the REIT Modernization Act ("RMA") was signed into law. The RMA contains several provisions that, when effective in 2001, will allow REIT's to compete more effectively in the real estate industry by allowing REIT's to offer the same types of services as other competitors in the marketplace. The most important feature of the RMA is the allowance for REIT's to create a taxable REIT subsidiary ("TRS") that can provide services to residents and others without disqualifying the rents that a REIT receives from its residents. Under the prior law, REIT's were not allowed to provide non-customary or tenant specific services to its residents, such as concierge services, beyond a de minimus amount. As the apartment industry has become a competitive customer focused business, these constraints inhibited REIT's from maintaining a competitive edge in attracting and maintaining residents. As such, the RMA has several significant benefits for the REIT industry. REIT's will be allowed, through a TRS, to provide a wide range of increasingly important services that residents have come to expect. In addition, the TRS will allow REIT's to generate new sources of income for REIT shareholders. Effective January 1, 2001, a REIT can own 100% of the stock of a TRS. However, the legislation contains a number of safeguards that would limit the size of a TRS to ensure that REIT's remain focused on their core business of owning and operating real estate assets. The RMA provides another significant change to the existing law. THE RMA changes the minimum distribution requirement from 95% to 90% of the REIT's taxable income. This will allow REIT's to retain a greater level of capital that can be used to invest back into expenditures to maintain the quality of their real estate assets as well as repay outstanding debt. United Dominion will determine the best uses of the TRS in order to be in a position to take full advantage of the opportunities the new legislation has to offer in 2001. Competition In most of United Dominion's markets, the competition for new residents is intense. Some competing communities offer features that United Dominion's communities do not have. Some competing communities may use concessions or lower rents to obtain competitive advantages. Also, some competing communities are larger or newer than United Dominion's communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. Management believes that United Dominion, in general, is well positioned in terms of economic and other resources to compete effectively for residents and investments. 7 United Dominion believes it has certain competitive advantages that include: . a fully integrated organization with property management, development, acquisition, redevelopment, marketing and financing expertise; . geographic diversification with presence in more than 32 major markets across the country, and; . local presence in many of its major markets which allows it to be a local operating expert. Environmental Regulations To date, compliance with federal, state, and local environmental protection regulations has not had a material effect on the capital expenditures, earnings or competitive position of United Dominion. However, over the past 15 years, the issue has been raised regarding the presence of asbestos and other hazardous materials in existing real estate properties. United Dominion has a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigation and reports have been completed for each property owned. In addition, all proposed acquisitions are inspected prior to acquisition. Acquisitions through merger are inspected on a case by case basis given historical information available. The inspections are conducted by qualified environmental consultants, and the report issued is reviewed by United Dominion prior to the purchase or development of any property. Nevertheless, it is possible that United Dominion's environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of which United Dominion is unaware. In some cases, United Dominion has abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or United Dominion has been unwilling to accept the potential risks involved. United Dominion does not believe it will be required to engage in any large-scale abatement at any of its properties. Management believes that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a conservative posture toward accepting known risk, United Dominion can minimize its exposure to potential liability associated with environmental hazards. Recently enacted federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and will impose treble damages for failure to so notify. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and United Dominion may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities. United Dominion is unaware of any environmental hazards at any of its properties which individually or in the aggregate may have a material adverse impact on its operations or financial position. United Dominion has not been notified by any governmental authority, and is not otherwise aware, of any material non- compliance, liability or claim relating to environmental liabilities in connection with any of its properties. United Dominion does not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on the Company or its financial condition or results of operations. There can be no assurance, however, that future environmental laws, regulations or ordinances will not require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed on United Dominion in the future, the costs of compliance could have a material adverse effect on United Dominion or its financial condition. To the best of its knowledge, United Dominion is in compliance with all applicable environmental rules and regulations. Operating Partnership - United Dominion Realty, L.P. On October 23, 1995, United Dominion organized United Dominion Realty, L.P. (the "Partnership") under the Virginia Revised Uniform Limited Partnership Act, as amended (the "Partnership Act"). United Dominion is the sole General Partner of the Partnership and currently holds a 90.8% interest. The Partnership is intended to assist United Dominion in competing for the acquisition of properties that meet United Dominion's investment strategies from seller partnerships, some or all of whose partners may wish to defer taxation of gain realized on sale through an exchange of partnership interests. 8 The Partnership was organized under a First Amended and Restated Agreement of Limited Partnership dated as of December 31, 1995 which was subsequently amended in the Second Amended and Restated Agreement of Limited Partnership dated as of August 30, 1997 and later amended by the Third Amended and Restated Agreement of Limited Partnership dated as of December 7, 1998 (the "Partnership Agreement"). A summary of certain provisions of the Partnership Agreement is set forth below. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to applicable provisions of the Partnership Act and the complete Partnership Agreement. The Partnership Agreement is filed as an exhibit to United Dominion's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Admission of Limited Partners; Investment Agreements United Dominion presently intends to limit admission to the Partnership to Limited Partners who are "accredited investors," as defined in Rule 501(a) under the Securities Act of 1933, as amended (the "Securities Act"). Limited Partners will be admitted upon executing and delivering to United Dominion an Investment Agreement (the "Investment Agreement") and delivering to the Partnership the consideration prescribed therein. In the Investment Agreement, the prospective Limited Partner makes both representations as to his status as an accredited investor and other representations and agreements regarding the Units (defined below) to be issued to him, thus, assuring compliance with the Securities Act. Any rights to Securities Act registration of the Common Stock of United Dominion issued to such Limited Partner upon redemption of his Units (see "Redemption Rights" below), will also be set forth in the Investment Agreement or a separate registration rights agreement. Units The interests in the Partnership of the Partnership's limited partners (the "Limited Partners") are represented by units of limited partnership interest (the "Units"). All holders of Units are entitled to share in the cash distributions from, and in the profits and losses of, the Partnership. Distributions by the Partnership are made equally for each Unit outstanding except that outside partners have first priority as described in the "Distributions" section. As the Partnership's sole General Partner, United Dominion intends to make distributions per Unit in the same amount as the cash dividends paid by United Dominion on each share of Common Stock. However, because Partnership properties, which are the primary source of cash available for distribution to Unit holders, are significantly fewer than properties held directly by United Dominion and may not perform as well, there can be no assurance that distributions per Unit will always equal Common Stock dividends per share. A distribution made to United Dominion that enables it to maintain its REIT status (see "Management and Operations" below) may deplete cash otherwise available to Unit holders. The Partnership may borrow from United Dominion for the purpose of equalizing per Unit and per Common share distributions, but neither the Partnership nor United Dominion is under any obligation regarding Partnership borrowings for this or any other purpose. The Limited Partners have the rights to which limited partners are entitled under the Partnership Act. The Units are illiquid, they are not registered for secondary sale under any securities laws, state or federal, and they cannot be transferred by a holder except as provided in the Partnership Agreement and unless they are registered as such or an exemption from such registration is available. Except as provided in any Investment Agreement or other agreement with a partner, neither the Partnership nor United Dominion is under any obligation to effect any such registration or to establish any such exemption. The Partnership Agreement imposes additional restrictions on the transfer of Units, as described below under "Transferability of Interests." Management and Operations United Dominion, as the sole General Partner of the Partnership, has full, exclusive and complete responsibility and discretion in the management and control of the Partnership. The Limited Partners have no authority to transact business for, or participate in the management activities or decisions of the Partnership. The Partnership Agreement requires that the Partnership be operated in a manner that will enable United Dominion to both satisfy the requirements for being classified as a REIT and avoid any federal income tax liability. The General Partner is expressly directed, notwithstanding anything to the contrary in the Partnership Agreement, to cause the Partnership to distribute amounts (including proceeds of Partnership borrowings) that sufficiently enable United Dominion to pay distributions to its shareholders that are required in order to maintain REIT status and to avoid income tax or excise tax liability. 9 Ability to Engage in Other Businesses; Conflicts of Interest United Dominion and other persons (including officers, directors, employees, agents and other affiliates of United Dominion) are not prohibited under the Partnership Agreement from engaging in other business activities, including business activities substantially similar or identical to those of the Partnership. United Dominion will not be required to present any business opportunities to the Partnership or to any Limited Partner. Borrowing by the Partnership The General Partner is authorized under the Partnership Agreement to cause the Partnership to borrow money and to issue and guarantee debt as it deems necessary for the conduct of the activities of the Partnership. Such debt may be secured by mortgages, deeds of United Dominion, pledges or other liens on the assets of the Partnership. Reimbursement of General Partner; Transactions with the General Partner and its Affiliates The General Partner will receive no compensation for its services as General Partner of the Partnership. However, as a partner in the Partnership, the General Partner has the same right to allocations of profit and loss and distributions as other partners of the Partnership. In addition, the Partnership will reimburse the General Partner for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Partnership and any offering of Units or other partnership interests, and for the pro rata share of the expenses of any offering of securities of United Dominion some or all of the proceeds of which are contributed to the Partnership. Liability of General Partner and Limited Partners The General Partner is liable for all general obligations of the Partnership to the extent not paid by the Partnership. The General Partner is not liable for the non-recourse obligations of the Partnership. The Limited Partners are not required to make further capital contributions to the Partnership after their respective initial contributions are fully paid. Assuming that a Limited Partner acts in conformity with the provisions of the Partnership Agreement, the liability of the Limited Partner for obligations of the Partnership under the Partnership Agreement and Partnership Act will be limited to, subject to certain possible exceptions, the loss of the Limited Partner's investment in the Partnership. The Partnership is qualified to conduct business in each state in which it owns property and may qualify to conduct business in other jurisdictions. Maintenance of limited liability may require compliance with certain legal requirements of those jurisdictions and certain other jurisdictions. Limitations on the liability of a limited partner for the obligations of a limited partnership have not clearly been established in many states. Accordingly, if it were determined that the right, or exercise of the right by the Limited Partners, to make certain amendments to the Partnership Agreement or to take other action pursuant to the Partnership Agreement constituted "control" of the Partnership's business for the purposes of the statutes of any relevant state, the Limited Partners might be held personally liable for the Partnership's obligations. The Partnership will operate in a manner the General Partner deems reasonable, necessary and appropriate to preserve the limited liability of the Limited Partners. Exculpation and Indemnification of the General Partner If acting in good faith, the Partnership Agreement provides that the General Partner will incur no liability for monetary damages to the Partnership or any Limited Partner for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission. In addition, the General Partner is not responsible for any misconduct or negligence on the part of its agents, provided the General Partner appointed such agents in good faith. The Partnership Agreement also provides for indemnification of the General Partner, the directors, officers and employees of the General Partner, and such other persons as the General Partner may from time to time designate, against any and all losses, claims, damages, liabilities (joint or several), expenses (including reasonable legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that relate to the operations of the Partnership in which any such indemnitee may be involved, or is threatened to be involved, unless it is established that (i) the act or omission of such indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) such indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, such indemnitee had reasonable cause to believe that the act or omission was unlawful. 10 Sale of Assets; Merger Under the Partnership Agreement, the General Partner generally has the exclusive authority to determine whether, when and on what terms the assets of the Partnership will be sold or on which the Partnership will merge or consolidate with another entity. Removal of the General Partner; Transfer of General Partner's Interest The Partnership Agreement does not authorize the Limited Partners to remove the General Partner and the Limited Partners have no right to remove the General Partner under the Partnership Act. The General Partner may not transfer any of its interest as General Partner and withdraw as General Partner, except (a) to a wholly-owned subsidiary of the General Partner or the owner of all the ownership interests in the General Partner, (b) in connection with a merger or sale of all or substantially all of the assets of the General Partner or (c) as a result of the bankruptcy of the General Partner. A substitute or additional General Partner may be admitted upon compliance with the applicable provisions of the Partnership Agreement, including delivery by counsel for the Partnership of an opinion that admission of such General Partner will not cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes or (ii) the loss of any Limited Partner's limited liability. The General Partner may not sell all or substantially all of its assets, or enter into a merger, unless the sale or merger includes the sale of all or substantially all of the assets of, or the merger of, the Partnership and the Limited Partners receive for each Unit substantially the same consideration as the holder of one share of Common Stock. Transferability of Interests A Limited Partner generally may not transfer his interest in the Partnership without the consent of the General Partner which may be withheld at its absolute discretion. The General Partner may require, as a condition of any transfer, that the transferring Limited Partner assume all costs incurred by the Partnership in connection with such a transfer. Redemption Rights Each Limited Partner has the right (the "Redemption Right"), subject to the purchase right of the General Partner described below, to cause the redemption of such Limited Partner's Units for cash in an amount per Unit equal to the average of the closing sale prices of the Common Stock of United Dominion on the New York Stock Exchange (the "NYSE") for the ten trading days immediately preceding the date of receipt by the General Partner of notice of such Limited Partner's exercise of the Redemption Right provided that such Units have been outstanding for at least one year. Subject to certain restrictions intended to prevent undesirable tax consequences and assure compliance with the Securities Act, a Limited Partner may exercise the Redemption Right at any time but not more than twice within the same calendar year and not with respect to less than 1,000 Units (or all Units owned by such Limited Partner, if less than 1,000). A Limited Partner that exercises the Redemption Right shall be deemed to have offered to sell the Units to be redeemed to the General Partner, and the General Partner may elect to purchase such Units by paying to such Limited Partner either the redemption price in cash or by delivering to such Limited Partner a number of shares of Common Stock of the Company equal to the product of the number of such Units, multiplied by the "Conversion Factor," which is 1.0, subject to customary antidilution provisions in the event of stock dividends on or subdivisions or combinations of the Common Stock subsequent to issuance of such Units. Any Common Stock issued to the redeeming Limited Partner will be listed on the NYSE and, if to the extent provided in such Redeeming Partner's Investment Agreement or other agreement, registered under the Securities Act and/or entitled to rights to Securities Act registration. No Withdrawal of Capital by Limited Partners No Limited Partner has the right to withdraw any part of his capital contribution to the Partnership or interest thereon or to receive any distribution, except as provided in the Partnership Agreement. Issuance of Additional Limited Partnership Interests and Other Partnership Securities The General Partner is authorized, without the consent of the Limited Partners, to cause the Partnership to issue additional Units or other Partnership securities to the partners or to other persons on such terms and conditions and for such consideration, including cash or any property or other assets permitted by the Partnership Act, as the General Partner deems appropriate. Meetings The Partnership Agreement does not provide for annual meetings of the Limited Partners, and the General Partner does not anticipate calling such meetings. 11 Amendment of Partnership Agreement Amendments to the Partnership Agreement may, with four exceptions, be made by the General Partner without the consent of the Limited Partners. Any amendment to the Partnership Agreement which would (i) affect the Conversion Factor or the Redemption Rights of the Limited Partners, (ii) adversely affect the rights of the Limited Partners to receive distributions payable to them under the Partnership Agreement, or (iii) alter the Partnership's profit and loss allocations shall require the consent of Limited Partners. Any amendment that would impose any obligation upon the Limited Partners to make additional capital contributions to the Partnership shall require the consent of each Limited Partner owning more than 50% of the percentage interests in the Partnership. Books and Reports The General Partner is required to keep at the specified office of the Partnership the Partnership's books and records, including copies of the Partnership's federal, state and local tax returns, a list of the partners and their last known business addresses, the Partnership Agreement, the Partnership certificate and all amendments thereto and any other documents and information required under the Partnership Act. Any partner or his duly authorized representative, upon paying duplicating, collection and mailing costs, is entitled to inspect or copy such records during ordinary business hours. The General Partner will furnish to each Limited Partner, as soon as practicable after the close of each fiscal year, an annual report containing financial statements of the Partnership (or United Dominion, if consolidated financial statements including the Partnership are prepared) for such fiscal year. The financial statements will be audited by accountants selected by the General Partner. In addition, as soon as practicable after the close of each fiscal quarter (other than the last quarter of the fiscal year), the General Partner will furnish to each Limited Partner a quarterly report containing unaudited financial statements of the Partnership (or the Company and the Partnership, consolidated). The General Partner will furnish to each Limited Partner, within 75 days after the close of each fiscal year of the Partnership, the tax information necessary to file such Limited Partner's individual tax returns. Loans to Partnership The Partnership Agreement provides that the General Partner may borrow additional Partnership funds for any Partnership purpose from the General Partner or a subsidiary or subsidiaries of the General Partner or otherwise. Adjustments of Capital Accounts and Percentage Interests A separate capital account will be established and maintained for each Partner. The General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole discretion) in accordance with applicable federal income tax regulations if: (i) a new or existing general or limited partner of the Partnership (a Partner or collectively Partners) acquires an additional interest in the Partnership in exchange for more than a de minimis capital contribution, (ii) the Partnership -- ------- distributes to a Partner more than a de minimis amount of Partnership property -- ------- as consideration for a Partnership interest or (iii) the Partnership is liquidated for federal income tax purposes. When the Partnership's property is revalued by the General Partner, the capital accounts of the partners shall be adjusted in accordance with such regulations, which generally requires such capital accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the capital accounts previously) would be allocated among the Partners pursuant to the Partnership Agreement if there were a taxable disposition of such property for its fair market value on the date of the revaluation. If the number of outstanding Units increases or decreases during a taxable year, each Partner's percentage interest in the Partnership shall be adjusted by the General Partner as of the effective date of each such increase or decrease to a percentage equal to the number of Units held by such Partner divided by the aggregate number of Units outstanding, after giving effect to such increase or decrease, and profits and losses for the year will be allocated among the Partners in a manner selected by the General Partner to give appropriate effect to such adjustments. Registration Rights Limited Partners have no rights to Securities Act registration of any Common Stock of United Dominion received in connection with redemption of Units except as provided in their respective Investment Agreements or other agreements with United Dominion. 12 Tax Matters; Profit and Loss Allocations Pursuant to the Partnership Agreement, the General Partner is the "tax matters" partner of the Partnership and, as such, has the authority to handle tax audits and to make tax elections under the Code on behalf of the Partnership. Profits of the Partnership are to be allocated first to partners in proportion to and up to the amount of cash distributions, and second in accordance with the respective partnership interests. Losses are allocated in accordance with each partners percentage interest. Distributions The Partnership Agreement provides that the General Partner shall distribute cash quarterly, in amounts determined by the General Partner in its sole discretion (i) first to the outside limited partners, (ii) second to United Dominion (or appropriate subsidiary) until United Dominion has received an amount equal to prior distributions to the outside limited partners, and (iii) third, to the outside limited partners and United Dominion (or the appropriate subsidiary) in accordance with their percentage interests in the Partnership. Also, the amount of cash distributable to a Limited Partner who has not been a Limited Partner for the full quarter for which the distribution is paid is subject to pro rata reduction. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership will be distributed to all Partners with positive capital accounts in accordance with their respective positive capital account balances. If the General Partner has a negative balance in its capital account following a liquidation of the Partnership, it will be obligated to contribute cash to the Partnership equal to the negative balance in its capital account. Term The Partnership will continue until December 31, 2051, or until sooner dissolved upon (i) the bankruptcy, dissolution, death or withdrawal of a General Partner (unless the Limited Partners elect to continue the Partnership by electing by unanimous consent a substitute General Partner within 90 days of such occurrence), (ii) the passage of 90 days after the sale or other disposition of all or substantially all the assets of the Partnership, (iii) the redemption of all Limited Partners' interests in the Partnership or (iv) election by the General Partner. Upon dissolution of the Partnership, the General Partner will proceed to liquidate the assets of the Partnership and distribute the proceeds remaining after payment or adequate provision for payment of all debts and obligations of the Partnership as provided in the Partnership Agreement. 13 Item 2. Properties Real Estate Owned The table below sets forth a summary by major georgraphic market of United Dominion's real estate portfolio at December 31, 2000. See also Notes 1 and 2 to the Consolidated Financial Statements and Schedule III - Summary of Real Estate Owned.
Number of Number of Percentage of Carrying Apartment Apartment Carrying Value Encumbrances Communities Homes Value (in thousands) (in thousands) ---------------------------------------------------------------------------------- NORTHERN REGION: Raleigh, NC 9 2,951 3.7% $140,725 $31,327 Charlotte, NC 10 2,710 3.5% 133,652 12,267 Columbus, OH 5 2,175 3.2% 122,281 42,703 Greensboro, NC 8 2,123 2.7% 102,574 - Richmond, VA 8 2,372 2.5% 94,633 60,682 (a) Wilmington, NC 6 1,869 2.3% 88,200 - Baltimore, MD 6 1,421 1.7% 66,380 28,657 (a) Other Northern Markets 38 8,383 9.5% 366,179 56,194 (a) SOUTHERN REGION: Orlando, FL 14 4,140 5.2% 198,761 76,736 (a) Tampa, FL 10 3,372 3.9% 149,907 51,665 (a) Nashville, TN 8 2,220 3.1% 117,978 - South Florida 6 1,638 2.7% 103,335 20,620 (a) Memphis, TN 6 1,956 2.5% 95,752 32,724 Atlanta, GA 6 1,426 1.8% 69,964 17,714 (a) Columbia, SC 6 1,584 1.6% 61,472 5,000 Other Southern Markets 16 4,760 5.8% 220,993 43,696 (a) WESTERN REGION: Houston, TX 22 5,722 5.8% 222,164 47,499 Dallas, TX 14 4,533 5.4% 208,238 10,349 Phoenix, AZ 10 3,460 5.2% 199,500 19,086 San Antonio, TX 12 3,827 4.9% 187,470 37,627 Fort Worth, TX 11 3,561 3.8% 145,046 18,711 San Francisco, CA 4 980 3.6% 139,462 21,709 Monterey Peninsula, CA 11 1,827 2.7% 104,041 - (a) Southern California 5 1,414 2.3% 89,863 5,937 Seattle, WA 3 628 0.9% 33,473 16,661 Other Western Markets 22 6,167 7.6% 290,068 66,178 (a) Land n/a n/a 0.9% 33,633 n/a Real Estate Under Development n/a n/a 0.7% 26,735 n/a ---------------------------------------------------------------------------------- Total Apartments 276 77,219 99.4% $3,812,478 $859,285 ---------------------------------------------------------------------------------- Real Estate Held for Disposition (c) 5 n/a 0.4% 16,980 6,830 Richmond - Corporate n/a n/a 0.2% 6,863 - ---------------------------------------------------------------------------------- Total Real Estate Owned 281 77,219 100.0% $3,836,320 $866,115 ================================================================================== Physical Average Monthly Rental Average Cost Occupancy Rates for the Year Ended Unit Size Per Home Full Year 2000 December 31, 2000 (b) (Square Feet) ------------------------------------------------------------------------------------ NORTHERN REGION: Raleigh, NC $47,687 90.8% $707 914 Charlotte, NC 49,318 92.0% 686 983 Columbus, OH 56,221 95.0% 656 886 Greensboro, NC 48,315 92.5% 631 981 Richmond, VA 39,896 96.2% 684 945 Wilmington, NC 47,191 89.5% 648 951 Baltimore, MD 46,713 98.3% 731 872 Other Northern Markets 43,681 94.9% 643 912 SOUTHERN REGION: Orlando, FL 48,010 94.4% 721 937 Tampa, FL 44,457 94.7% 676 951 Nashville, TN 53,143 94.8% 657 850 South Florida 63,086 92.9% 847 847 Memphis, TN 48,953 94.5% 610 835 Atlanta, GA 49,063 94.6% 718 908 Columbia, SC 38,808 94.0% 540 838 Other Southern Markets 46,427 92.5% 624 904 WESTERN REGION: Houston, TX 38,826 92.8% 602 819 Dallas, TX 45,938 95.2% 669 713 Phoenix, AZ 57,659 93.3% 693 905 San Antonio, TX 48,986 93.7% 650 835 Fort Worth, TX 40,732 96.1% 610 803 San Francisco, CA 142,308 99.5% 1,602 776 Monterey Peninsula, CA 56,947 94.8% 829 707 Southern California 63,552 95.2% 818 745 Seattle, WA 53,300 96.0% 701 823 Other Western Markets 47,035 94.7% 636 810 Land n/a n/a n/a n/a Real Estate Under Development n/a n/a n/a n/a ------------------------------------------------------------------------------------ Total Apartments $48,591 94.2% $674 869 ------------------------------------------------------------------------------------ Real Estate Held for Disposition (c) n/a n/a n/a n/a Richmond - Corporate n/a n/a n/a n/a ------------------------------------------------------------------------------------ Total Real Estate Owned $48,591 94.2% $674 869 =====================================================================================
(a) There are 88 communities encumbererd by fixed rate debt aggregating $723.7 million. The amount of this debt is included in the encumbrances shown for the individual markets. There are 27 communities encumbered by fixed rate debt aggregating $135.5 million that is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (b) Average Monthly Rental Rates for the Year Ended December 31, 2000, represents potential rent collections (gross potential rents less market adjustments), which approximate net effective rents, based on weighted average number of homes. (c) Includes three commercial properties, one parcel of land and one apartment community. 14 Item 3. LEGAL PROCEEDINGS - - ---------------------------- United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The ultimate liability in respect of such litigations and claims cannot be determined at this time. United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion. In October 2000, United Dominion reached an agreement to settle a class action lawsuit concerning water usage billing in Texas. The settlement was for $2.7 million and is subject to final court approval (see Note 9 - Contingencies). Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - -------------------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of United Dominion's fiscal year ended December 31, 2000. Executive Officers of the Registrant - - ------------------------------------ The executive officers of United Dominion, listed below, serve in their respective capacities for approximate one-year terms. Name Age Office Since - - ---- --- ------- ----- John P. McCann 56 Chairman of the Board 1974 Thomas W. Toomey 40 President and Chief Executive 2001 Officer John S. Schneider 62 Senior Executive Vice President 1996 and Chief Operating Officer A. William Hamill 53 Executive Vice President 1999 and Chief Financial Officer Richard A. Giannotti 45 Senior Vice President and Director 1985 of Development-East Mark E. Wood 49 Senior Vice President and Director 1996 of Development-West Katheryn E. Surface 42 Senior Vice President, Corporate 1992 Secretary and General Counsel Kevin W. Walsh 46 Senior Vice President of 1999 Finance Curt W. Carter 44 Senior Vice President and Director 1985 of Apartment Operations-Northern Region Robert L. Landis 42 Senior Vice President and Director 1996 of Apartment Operations-Western Region 15 Walter J. Lamperski 43 Senior Vice President and Director 1996 of Apartment Operations-Southern Region Blake W. Clemens 43 Senior Vice President and Director 1998 of Acquisitions Thomas J. Corcoran 54 Senior Vice President and Director of Human Resources 1997 Patrick S. Gregory 51 Senior Vice President and Director of Information Technology 1997 Mr. McCann was United Dominion's Chief Executive Officer starting in 1974. Mr. McCann was elected Chairman of the Board in 1996. Mr. McCann retired as Chief Executive Officer of the Company in February 2001. Mr. Toomey joined United Dominion as President and Chief Executive Officer in February 2001. Prior to joining the Company, Mr. Toomey was the Chief Operating Officer of Apartment Investment Management Company. Before becoming Chief Operating Officer, Mr. Toomey was Executive Vice President - Finance Administration. Prior to joining AIMCO in November 1995, Mr. Toomey was Senior Vice President and Treasurer with Lincoln Property Company from 1990 to 1995 and an Audit Manager with Arthur Andersen & Co. from 1984 to 1990. Mr. Schneider is the former Chief Executive Officer and Chairman of the Board of South West Property Trust Inc. (South West). Mr. Schneider was employed with the investment banking firm of Donaldson, Lufkin and Jenrette from 1967 until 1973, when he co-founded a predecessor firm to South West. Mr. Schneider was elected Vice Chairman of the Board and Executive Vice President in 1996 in connection with the merger with South West and President in 1998. Mr. Hamill joined United Dominion as Executive Vice President and Chief Financial Officer in October 1999. Prior to joining United Dominion, Mr. Hamill was the Chief Financial Officer of Union Camp Corporation. Mr. Hamill also previously served as an investment banker with Morgan Stanley & Co. Incorporated, where he was a managing director. Mr. Giannotti joined United Dominion as Director of Development and Construction in September 1985. He was elected Assistant Vice President in 1988, Vice President in 1989 and Senior Vice President in 1996. In 1998, Mr. Giannotti was elected Director of Development-East. Mr. Wood joined United Dominion as Vice President of Construction in connection with the merger of South West in 1996. He was promoted to Senior Vice President and Director of Development-West in 2000. Ms. Surface joined United Dominion in 1992 as Assistant Vice President and Legal Counsel, elected General Counsel, Corporate Secretary and Vice President in 1994 and elected to Senior Vice President in 1997. Mr. Walsh joined United Dominion as Vice President of Finance in May 1998. In 1999, Mr. Walsh was elected to Senior Vice President. Prior to joining United Dominion, Mr. Walsh was the Vice President of Finance and Treasurer of Tultex Corporation. His experience also includes fifteen years in corporate banking with predecessors to both First Union and NationsBank. 16 Mr. Carter joined United Dominion in 1991 as an Assistant Vice President of Apartment Operations. In 1992, he was promoted to Vice President of Apartment Operations. In 1995, he was elected Regional Vice President-Northern Region, and in 1997 was promoted to Senior Vice President and Director of Apartment Operations- Northern Region. Mr. Landis joined United Dominion in 1996 as Regional Vice President- Florida Region and was promoted in 1997 to Senior Vice President and Director of Apartment Operations-Florida Region. During 1998, Mr. Landis became the Senior Vice President and Director of Apartment Operations-Western Region. Prior to joining United Dominion, he was Vice President of Asset Management and Property Management for CRI/CAPREIT, Inc. Mr. Lamperski joined United Dominion in 1996 as the Regional Vice President-Southern Region and was promoted in 1997 to Senior Vice President and Director of Apartment Operations-Southern Region. From February 1990 to August 1996, he was Vice President and Director of Property Management for Steven D. Bell, a property management company located in Greensboro, North Carolina. Mr. Clemens joined United Dominion in 1998 as a Vice President and Director of Acquisitions and was promoted to Senior Vice President in 1999. Prior to joining United Dominion, Mr. Clemens was the Vice President of Acquisitions for McNeil Real Estate Management Company from 1996 to 1998. Prior to this, Mr. Clemens was the Vice President of Acquisitions and Finance at Insignia Commercial Group, Incorporated. Mr. Corcoran joined United Dominion in 1997 as the Assistant Vice President of Human Resources and was promoted to Vice President in 1998 and Senior Vice President in 1999. Prior to joining United Dominion, Mr. Corcoran was the Vice President of Human Resources for Acordia, Inc., a national insurance brokerage firm from 1993 to 1995. Mr. Gregory joined United Dominion in 1997 as the Vice President and Director of Information Technology and was promoted to Senior Vice President in 1999. From 1976 to 1997, Mr. Gregory was employed by Crestar Bank as a New Technology Analyst. 17 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - - ------------------------------------------------------------------------------- United Dominion's Common Stock is traded on the New York Stock Exchange (NYSE) under the symbol UDR. The following tables set forth the quarterly high and low sale prices per common share reported on the NYSE for each quarter of the last two years. Distribution information for Common Stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month. COMMON STOCK
Distributions High Low Declared 1999 1st Quarter $ 11 1/4 $ 9 1/16 $ .2650 2nd Quarter 11 15/16 9 13/16 .2650 3rd Quarter 12 1/16 10 3/4 .2650 4th Quarter 11 5/8 9 1/8 .2650 2000 1st Quarter $ 10 1/2 $ 9 7/16 $ .2675 2nd Quarter 11 3/4 9 3/4 .2675 3rd Quarter 11 3/4 10 11/16 .2675 4th Quarter 11 1/8 9 3/8 .2675
United Dominion determined that, for federal income tax purposes, approximately 76% of the distributions for each of the four quarters of 2000 represented ordinary income to its shareholders and 24% represented long-term capital gain to its shareholders. On March 1, 2001, the closing sale price of the Common Stock was $12 per share on the NYSE, and there were 8,265 holders of record of the 101,346,145 shares of Common Stock. United Dominion pays regular quarterly distributions to holders of shares of Common Stock. Future distributions by United Dominion will be at the discretion of its Board of Directors after considering the Company's actual funds from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors. The annual distribution payment for calendar year 2000 necessary for United Dominion to maintain its status as a REIT was approximately $1.04 per share. United Dominion paid total distributions of $1.07 per share for 2000. 18 SERIES A PREFERRED STOCK United Dominion's Series A Preferred Stock ("Series A Preferred") and Series B Preferred Stock ("Series B Preferred") is traded on the New York Stock Exchange (NYSE) under the symbol "UDRpfa" and "UDRpfb", respectively. The following tables set forth the quarterly high and low sale prices per share reported on the NYSE for each quarter of the last two years for the Series A Preferred and Series B Preferred. Distribution information for the Series A Preferred and Series B Preferred reflects distributions declared per share for each calendar quarter and paid at the end of the following month.
Distributions High Low Declared 1999 1st Quarter $ 25 1/8 $ 24 $ .5775 2nd Quarter 25 1/4 23 13/16 .5775 3rd Quarter 25 1/16 20 9/16 .5775 4th Quarter 22 3/8 17 13/16 .5775 2000 1st Quarter $ 21 11/16 $ 19 1/16 $ .5781 2nd Quarter 23 3/8 18 3/4 .5781 3rd Quarter 24 7/8 22 5/8 .5781 4th Quarter 24 9/16 20 3/4 .5781
On or after April 24, 2000, the Series A Preferred Stock may be redeemed for cash at a redemption price of $25 per share, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). SERIES B PREFERRED STOCK
Distributions High Low Declared 1999 1st Quarter $ 26 1/16 $ 24 $ .5375 2nd Quarter 25 1/2 23 5/8 .5375 3rd Quarter 25 5/16 20 1/4 .5375 4th Quarter 22 5/8 15 5/8 .5375 2000 1st Quarter $ 20 9/16 $ 17 5/8 $ .5375 2nd Quarter 22 18 .5375 3rd Quarter 23 15/16 20 11/16 .5375 4th Quarter 23 1/4 19 1/4 .5375
The Series B Preferred Stock may be redeemed beginning May 29, 2007 at the sole option of United Dominion at a redemption price of $25 per share, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). SERIES D PREFERRED STOCK On December 7, 1998, in connection with the acquisition of American Apartment Communities II, Inc. (AAC), United Dominion issued eight million shares of Series D Convertible Redeemable Preferred Stock (Series D) to one of the sellers of AAC. The Series D is convertible into 1.5385 shares of common stock at the option of the holder at any time at $16.25 per share. The Series D is not redeemable prior to December 7, 2003. On or after this date, United Dominion may, at its option, redeem all or part of the Series D at a price per share of $25, plus accrued and unpaid dividends from the proceeds from the sale of additional capital stock (common or preferred). Distributions declared for 2000 were 19 $1.91 per share or $.4777 per quarter. The Series D is not listed on any exchange. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN United Dominion has a Dividend Reinvestment and Stock Purchase Plan under which holders of common and preferred stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of United Dominion's common stock. OPERATING PARTNERSHIP UNITS From time to time, United Dominion issues shares of its common stock in exchange for operating partnership units (OP Units) tendered to United Dominion's operating partnerships, United Dominion Realty L.P. and Heritage Communities L.P., for redemption in accordance with the provisions of their respective agreements. Such shares are issued based on the exchange ratio of one share for each OP Unit. During 2000, United Dominion issued a total of 41,490 shares of common stock in exchange for OP Units. Item 6. SELECTED FINANCIAL DATA - - --------------------------------- The following table sets forth selected consolidated financial and other information for United Dominion as of and for each of the years in the five-year period ended December 31, 2000. The table should be read in conjunction with the Consolidated Financial Statements of United Dominion Realty Trust, Inc. and the Notes thereto included elsewhere herein. 20 Selected Financial Data
Years ended December 31, 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ In thousands, except per share data and apartment homes owned Operating Data (a) Rental income $ 616,825 $ 618,749 $ 478,718 $ 386,672 $ 241,260 Income before gains on sales of investments, minority interests and extraordinary item 48,720 60,379 47,339 57,813 33,726 Gains on sales of investments 31,450 37,995 26,672 12,664 4,346 Extraordinary item-early extinguishment of debt 831 927 (138) (50) (23) Net income 76,615 93,622 72,332 70,149 37,991 Distributions to preferred shareholders 36,891 37,714 23,593 17,345 9,713 Net income available to common shareholders 42,653 55,908 48,739 52,804 28,278 Common distributions declared 110,225 109,607 107,758 88,587 55,493 Weighted average number of common shares outstanding- basic 103,072 103,604 99,966 87,145 57,482 Weighted average number of common shares outstanding- diluted 103,208 103,639 100,062 87,339 57,655 Weighted average number of common shares, OP Units and common share equivalents-diluted 123,005 124,127 103,793 87,656 57,724 Per share: Basic earnings per share $ 0.41 $ 0.54 $ 0.49 $ 0.61 $ 0.49 Diluted earnings per share 0.41 0.54 0.49 0.60 0.49 Common distributions declared 1.07 1.06 1.05 1.01 0.96 - - ------------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data (a) Real estate owned, at carrying value $ 3,836,320 $ 3,953,045 $ 3,952,752 $ 2,517,398 $ 2,099,641 Accumulated depreciation 509,405 395,864 316,630 245,367 187,909 Total real estate owned, net of accumulated depreciation 3,326,915 3,557,181 3,636,122 2,272,031 1,911,732 Total assets 3,453,957 3,688,317 3,762,940 2,313,725 1,966,904 Secured debt 866,115 1,000,136 1,072,185 417,325 376,560 Unsecured debt 1,126,215 1,127,169 1,045,564 738,901 668,275 Total debt 1,992,330 2,127,305 2,117,749 1,156,226 1,044,835 Shareholders' equity 1,218,892 1,310,212 1,374,121 1,058,357 850,379 Number of common shares outstanding 102,219 102,741 103,639 89,168 81,983 - - ------------------------------------------------------------------------------------------------------------------------------------ Other Data (a) Cash Flow Data Cash provided by operating activities $ 224,160 $ 190,602 $ 140,597 $ 137,903 $ 90,064 Cash provided by/(used in) investing activities 103,793 (34,020) (263,864) (342,273) (161,572) Cash (used in)/provided by financing activities (325,326) (174,985) 148,875 191,391 82,056 Funds from Operations (b) Net income $ 76,615 $ 93,622 $ 72,332 $ 70,149 $ 37,991 Adjustments: Distributions to preferred shareholders (36,891) (37,714) (23,593) (17,345) (9,713) Real estate depreciation, net of other partnerships' interest 151,520 120,543 99,588 76,688 47,410 Gains on sales of depreciable property, net of other partnerships' interest (30,300) (37,995) (26,672) (12,664) (4,346) Minority interests of unitholders in operating partnership 2,885 4,434 1,430 278 58 Real estate depreciation related to unconsolidated entities 251 181 24 -- -- Extraordinary item-early extinguishment of debt (831) (927) 138 50 23 Impairment loss on real estate and investments -- 19,300 -- 1,400 290 ----------------------------------------------------------------------- Funds from operations-basic $ 163,249 $ 161,444 $ 123,247 $ 118,556 $ 71,713 ======================================================================= Adjustment: Distributions to preferred shareholders-Series D (Convertible) 15,300 15,154 986 -- -- ----------------------------------------------------------------------- Funds from operations-diluted $ 178,549 $ 176,598 $ 124,233 $ 118,556 $ 71,713 ======================================================================= Apartment Homes Owned Total apartment homes owned at December 31 77,219 82,154 86,893 62,789 55,664 Weighted average number of apartment homes owned during the year 80,253 85,926 70,724 58,038 37,481
(a) From 1996 to 1998, United Dominion completed the following statutory mergers: (i) South West Property Trust, Inc. on December 31, 1996 for an aggregate purchase price of $572 million; (ii) ASR Investments Corporation Inc. on March 27, 1998 for an aggregate purchase price of $323 million and; (iii) American Apartment Communities II on December 7, 1998 for an aggregate purchase price of $794 million. (b) Funds from operations ("FFO") is defined as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciable property, plus depreciation and amortization, less preferred dividends and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust's definition issued in October 1999 which was effective beginning January 1, 2000. United Dominion considers FFO in evaluating property acquisitions and its operating performance and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of United Dominion's activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 2000, FFO includes a non- recurring net charge of $2.9 million related to the settlement of litigation and an organizational charge which was partially offset by a gain on the sale of land. For 1998, FFO includes a non-recurring charge of $15.6 million related to the loss on the termination of a risk management agreement. 21 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - - ------------------------------------------------------------------------------- OF OPERATIONS ------------- Forward-Looking Statements This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of United Dominion to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting United Dominion, or its properties, adverse changes in the real estate markets and general and local economies and business conditions. Although United Dominion believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by United Dominion or any other person that the results or conditions described in such statements or the objectives and plans of United Dominion will be achieved. Overview United Dominion is a real estate investment trust (REIT) with activities related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities nationwide. Over the past four years, United Dominion has diversified into new markets to create a national platform, upgraded the quality of the portfolio and invested in infrastructure and technology. The Company continues to review its strategy with a goal of enhancing long-term earnings growth. At December 31, 2000, United Dominion owned 277 communities with 77,219 apartment homes nationwide. 22 The following table summarizes United Dominion's apartment market information by major geographic markets within each region (including real estate held for disposition):
As of December 31, 2000 December 31, 2000 ---------------------------------------------------------- ---------------------------- Number of Number of Percentage of Carrying Year Ended Quarter Ended Apartment Apartment Carrying Value Physical Physical Communities Homes Value (in thousands) Occupancy Occupancy ---------------------------------------------------------- ---------------------------- NORTHERN REGION: Raleigh, NC 9 2,951 3.7% $ 140,725 90.8% 89.9% Charlotte, NC 10 2,710 3.6% 133,652 92.0% 91.7% Columbus, OH 5 2,175 3.3% 122,281 95.0% 95.0% Greensboro, NC 8 2,123 2.7% 102,574 92.5% 91.5% Richmond, VA 8 2,372 2.5% 94,633 96.2% 96.1% Wilmington, NC 6 1,869 2.3% 88,200 89.5% 89.3% Baltimore, MD 7 1,421 1.9% 71,076 98.0% 98.6% Other Northern Markets 38 8,383 9.8% 366,179 94.9% 94.9% SOUTHERN REGION: Orlando, FL 14 4,140 5.3% 198,761 94.4% 94.1% Tampa, FL 10 3,372 4.0% 149,907 94.7% 95.5% Nashville, TN 8 2,220 3.1% 117,978 94.8% 94.9% South Florida 6 1,638 2.8% 103,335 92.9% 94.8% Memphis, TN 6 1,956 2.5% 95,752 94.5% 93.1% Atlanta, GA 6 1,426 1.9% 69,964 94.6% 95.6% Columbia, SC 6 1,584 1.6% 61,472 94.0% 95.0% Other Southern Markets 16 4,760 5.9% 220,993 92.5% 91.7% WESTERN REGION: Houston, TX 22 5,722 5.9% 222,164 92.8% 92.8% Dallas, TX 14 4,533 5.5% 208,238 95.2% 95.5% Phoenix, AZ 10 3,460 5.3% 199,500 93.3% 91.9% San Antonio, TX 12 3,827 5.0% 187,470 93.7% 93.3% Fort Worth, TX 11 3,561 3.9% 145,046 96.1% 96.9% San Francisco, CA 4 980 3.7% 139,462 99.5% 99.5% Monterey Peninsula, CA 11 1,827 2.8% 104,041 94.8% 96.7% Southern California 5 1,414 2.4% 89,863 95.2% 95.6% Seattle, WA 3 628 0.9% 33,473 96.0% 95.7% Other Western Markets 22 6,167 7.7% 290,068 94.7% 95.7% ---------------------------------------------------------- -------------------------- Total Apartments 277 77,219 100.0% $3,756,807 94.2% 94.2% ========================================================== ==========================
23 Liquidity and Capital Resources United Dominion's primary source of liquidity is its cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to its portfolio of apartment homes. United Dominion routinely uses its unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sales of real estate have been used for both investing and financing activities. United Dominion regularly reviews its short and long-term liquidity requirements and considers the adequacy of its cash flow from operations as well as other liquidity sources to meet these requirements. United Dominion believes that it can fund its short-term liquidity needs such as normal recurring operating expenses, debt service payments, recurring capital expenditures and distributions to common and preferred shareholders through cash provided by operating activities and borrowings from the Company's unsecured bank credit facility, as needed (see discussion that follows under "Financing Activities"). To facilitate future financing activities in the public capital markets, management believes that it is prudent to maintain shelf registration statement capacity. In this regard, United Dominion filed a shelf registration statement in December 1999 providing for the issuance of up to $700 million in common shares, preferred shares and debt securities. In March 2000, United Dominion utilized this shelf registration statement to sell $100 million of senior unsecured notes due March 2003 at an interest rate of 8.625%. The proceeds from the offering were used to repay certain mortgage debt and repay revolving bank debt. Future Capital Needs Future development expenditures are expected to be funded through joint ventures or with proceeds from the sale of property. Acquisition activity is expected to be primarily limited to the reinvestment of proceeds from the sale of property in order to defer large tax gains and reinvested in targeted markets and sub- markets. During 2001, United Dominion has approximately $63 million of maturing debt which the Company anticipates repaying using proceeds from the sale of apartment communities, mortgage refinancing activity or borrowings under the Company's unsecured credit facility. The following discussion explains the changes in net cash provided by operating and investing activities and net cash used in financing activities which are presented in United Dominion's Consolidated Statements of Cash Flows. Operating Activities For the year ended December 31, 2000, United Dominion's cash flow from operating activities was $224.2 million compared to $190.6 million for 1999, an increase of $33.6 million. The increase in cash flow from operating activities resulted primarily from a change in the level of operating assets as a result of collections on escrow accounts and property insurance receivables during 2000. Investing Activities For the year ended December 31, 2000, net cash provided by investing activities was $103.8 million compared to net cash used in investing activities of $34.0 million for 1999. Changes in the level of investing activities from period to period reflects United Dominion's strategy as it relates to its acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities. Real Estate under Development During 2000, development activity was focused in core markets that have strong operations managers in place. For the year ended December 31, 2000, United Dominion invested approximately $80.1 million on real estate projects, down $33.9 million from its 1999 level of $114.0 million. 24 The following projects were complete as of December 31, 2000:
Development No. of Costs Cost Per Date Apt. Homes (In thousands) Home Completed % Leased ------------ ------------------ ------------ ------------ ------------ New Community: - - -------------- Ashton at Waterford Lakes 292 $21,500 $73,600 2/00 97.9% Orlando, FL Additional Phases: - - ------------------ Dominion Crown Pointe II 220 14,700 66,800 6/00 89.1% Charlotte, NC Escalante II 312 19,100 61,200 11/00 82.1% San Antonio, TX Ashlar II 168 12,800 76,200 12/00 29.2% Ft. Myers, FL ------------ ------------------ ------------ Total 992 $68,100 $68,600 ============ ================== ============
The following projects were under development at December 31, 2000:
Cost to Budgeted Expected No. of Apt. Completed Date Cost Est. Cost Completion Homes Apt. Homes (In thousands) (In thousands) Per Home Date ------------- -------------- ---------------- ---------------- ------------ ------------ New Communities: - - ---------------- Dominion Place at Kildaire Farm 332 -- $11,400 $25,700 $77,400 1Q02 Raleigh, NC Red Stone Ranch 324 -- 8,600 21,700 67,000 4Q01 Austin, TX ------------- -------------- ---------------- ---------------- ------------ 656 -- 20,000 47,400 72,300 ------------- -------------- ---------------- ---------------- ------------ Additional Phases: - - ------------------ Greensview II 192 -- 3,200 16,700 87,000 4Q01 Denver, CO Manor at England Run III 120 -- 900 8,800 73,300 4Q01 Fredericksburg, VA The Meridian II 270 -- 2,700 17,400 64,400 1Q02 Dallas, TX ------------- -------------- ---------------- ---------------- ------------ 582 -- 6,800 42,900 73,700 ------------- -------------- ---------------- ---------------- ------------ Total 1,238 -- $26,800 $90,300 $72,900 ============= ============== ================ ================ ============
In addition to the apartment homes under development at December 31, 2000, United Dominion has land held for future development with a carrying value of $33.6 million, a significant portion of which the Company expects to sell during 2001 as these locations do not meet the investment criteria as a result of the refinement of the Company's strategy during 2000. United Dominion anticipates funding approximately $63.5 million on internal development activity in 2001, which would include the development of two new communities and second phases at three existing communities. Development Joint Venture On June 21, 2000, United Dominion completed the formation of a joint venture that will invest approximately $103 million to develop five apartment communities with a total of 1,438 apartment homes. United Dominion owns a 25% interest in the joint venture and is serving as the managing partner of the joint venture as well as the developer, general contractor and property manager. Prior to completing the joint venture, United Dominion had commenced construction on all five of the projects. Upon closing of the venture, United Dominion contributed the projects in return for its equity interest of approximately $8 million in the venture and was reimbursed for approximately $35 million of development outlays that were incurred prior to closing the joint venture. The proceeds were used to reduce outstanding debt balances. In addition, during 2000, United Dominion recognized fee income of 25 approximately $3 million for general contracting and developer services provided by the Company to the joint venture. The Company has the option, but not the obligation, to purchase these properties for fair value upon completion of the projects. The following joint venture project was complete as of December 31, 2000:
Development No. of Apt. Cost Cost Per Date Homes (In thousands) Home Completed % Leased ------------ ---------------- ------------ ------------ ------------ New Community: - - -------------- The Meridian 250 $16,400 $65,600 6/00 100.0% Dallas, TX ------------ ---------------- ------------ Total 250 $16,400 $65,600 ============ ================ ============
The following joint venture projects were under development at December 31, 2000:
Cost to Budgeted Expected No. of Apt. Completed Date Cost Est. Cost Completion Homes Apt. Homes (In thousands) (In thousands) Per Home Date ------------- ------------- ----------------- ----------------- ------------ ------------- New Communities: - - ---------------- Oaks at Weston 380 280 $26,300 $30,100 $79,200 2Q01 Raleigh, NC Sierra Canyon 236 92 13,900 16,700 70,800 1Q01 Phoenix, AZ Parke 33 264 244 16,700 17,400 65,900 1Q01 Lakeland, FL Mandolin 308 -- 12,600 22,100 71,800 3Q01 Dallas, TX ------------- ------------- ----------------- ----------------- ------------ Total 1,188 616 $69,500 $86,300 $72,600 ============= ============= ================= ================= ============
Disposition of Investments For the year ended December 31, 2000, United Dominion sold 26 communities with 5,835 apartment homes, one commercial property and a parcel of land for an aggregate sales price of approximately $214.5 million and recognized gains for financial reporting purposes of $31.5 million. These sales allowed the Company to dispose of older, non-core communities, to exit certain markets that had limited growth opportunities and to improve the average age of the apartment portfolio. During 1999, United Dominion sold 36 communities with 7,443 apartment homes for an aggregate sales price of $241.2 million, which resulted in gains for financial reporting purposes of $38.0 million. During 2001, United Dominion plans to sell non-core communities at levels somewhat below that of 2000. Proceeds from the 2001 dispositions are currently planned to be used to improve the Company's financial flexibility and opportunistically reinvest a portion of the proceeds in acquisitions and the repurchase of equity securities. Acquisitions During the year ended December 31, 2000, United Dominion acquired one community with 267 apartment homes at a total cost (including closing costs) of $14.8 million which included the assumption of debt and the use of tax free exchange funds as the Company further curtailed its acquisition activity from 1999 and 1998 levels. During 2001, in order to complete 1031 exchange requirements, United Dominion expects to invest 25% to 30% of the Company's disposition proceeds in targeted markets and sub-markets. These acquisitions will focus on communities where there is the opportunity to add value by repositioning the property to be attractive to the Company's middle-market customer. 26 Capital Expenditures United Dominion capitalizes those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. During 2000, $39.2 million or $514 per home was spent on capital expenditures for United Dominion's same communities (those acquired or developed prior to January 1, 1999). These capital improvements included recurring capital expenditures, including floor coverings, HVAC equipment, roofs, appliances, landscaping, siding, parking lots and other non-revenue enhancing capital expenditures, which aggregated $23.7 million or $311 per home. In addition, non-recurring revenue enhancing capital expenditures, including water sub- metering, gating and access systems, the addition of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $15.5 million or $203 per home for the year ended December 31, 2000. United Dominion will continue to selectively add revenue-enhancing improvements which are budgeted to provide a high return on investment. Capital expenditures during 2001 are currently expected to be at levels somewhat higher than those experienced in 2000. Financing Activities Net cash used in financing activities during 2000 was $325.3 million compared to $175.0 million for 1999, an increase of $150.3 million. During 2000, as part of the plan to improve its balance sheet position, United Dominion used 77% of the net proceeds from its disposition program to pay down secured and unsecured debt and 14% to repurchase shares of common and preferred stock. The remaining 9% of the net proceeds were used to complete an acquisition. During 2000, using the net proceeds from its disposition program, United Dominion repurchased $64.7 million of certain of its higher rate outstanding unsecured debt with a weighted average yield of 8.39%. In addition, the Company repaid $70.9 million of mortgage debt and $22.4 million of revolving bank debt. During the first quarter of 2000, United Dominion issued $100 million of 8.625% unsecured notes due 2003. Net proceeds of $99.5 million were used to repay outstanding bank debt. In addition, United Dominion completed the refinancing of tax-exempt notes aggregating $46.7 million at a blended rate of 6.32% and with a final maturity of August 2008. In conjunction with this refinancing, the Company removed the liens on $86 million of real estate which had previously secured the tax-exempt notes. In September 2000, United Dominion closed on the first part of a $60 million revolving credit facility (the "FNMA Credit Facility") with the Federal National Mortgage Association. The $38.3 million initially borrowed under the terms of the FNMA Credit Facility has an initial interest rate of 7.12%, which is fixed through April 1, 2001. The FNMA Credit Facility is for an initial term of five years, bears interest at a floating rate which can be fixed for periods of up to 270 days, and can be extended for an additional five or ten years at United Dominion's discretion. The proceeds from the FNMA Credit Facility were used to repay a $28.6 million REMIC financing that matured during the third quarter and the remaining proceeds were used to repay revolving bank debt. In November 2000, United Dominion borrowed $100 million in the form of an unsecured term loan from a consortium of banks. The term loan will initially mature in May 2003 but may be extended at the Company's option for two additional twelve-month periods. Proceeds from the term loan were used to partially repay a $140.9 million unsecured note payable that matured in the fourth quarter of 2000 with the remaining balance repaid from borrowings under United Dominion's existing unsecured credit facility. Also during the fourth quarter of 2000, a $23.9 million secured note payable matured and was repaid using proceeds from additional borrowings under an existing revolving credit facility with the Federal National Mortgage Association and borrowings under the Company's unsecured credit facility. As of December 31, 2000, approximately $14.5 million of United Dominion's preferred shares have been repurchased under the $25 million preferred share repurchase program. For the year ended December 31, 2000, United Dominion repurchased 199,440 Series A preferred shares at an average price of $23.22 per share and 507,191 Series B preferred shares at an average price of $19.46 per share. 27 For the year ended December 31, 2000, the Company repurchased 1,398,659 common shares at an average price of $10.03 and repurchased 10,097 operating partnership units. As of December 31, 2000, approximately seven million common shares remained available for purchase under the common share repurchase program. Repurchases of shares will be made from time to time in the open market or in privately negotiated transactions. The timing, volume and purchase price will be at the discretion of the Company. Credit Facilities In June 2000, United Dominion closed on a $375 million three-year unsecured revolving credit facility (the "Credit Facility") with a consortium of banks. The Credit Facility, which extends until August 2003, replaces two lines of credit that allowed the Company to borrow in aggregate up to $310 million. At December 31, 2000, $244.4 million was outstanding under the Credit Facility leaving $130.6 million available for use. Under the Credit Facility, the Company may borrow at a rate of LIBOR plus 100 basis points for LIBOR-based borrowings. This rate is equal to the rate the Company was able to borrow under a $110 million line of credit arranged in 1999 that was replaced by the new, expanded and longer-term Credit Facility. Under the Credit Facility, the Company pays a facility fee, which is equal to 0.20% of the commitment. The Credit Facility is subject to customary financial covenants and limitations. Derivative Instruments As part of United Dominion's overall interest rate risk management strategy, the Company uses off-balance sheet derivatives as a means to modify the interest rate characteristics of on-balance sheet debt obligations or to hedge anticipated financing transactions. The Company's off-balance sheet derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. The Company believes that it has appropriately controlled the risk so that derivatives used for interest rate risk management will not have any material unintended effect on consolidated earnings. Derivative contracts did not have a material impact on the results of operations during 2000 (see Note 6 - Financial Instruments). Effective January 1, 2001, United Dominion will be required to adopt the provisions of Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Derivative Instruments and Hedging Activities." All of the Company's derivatives qualify as cash flow hedges under the provisions of the statements (see Note 1 - Summary of Significant Accounting Policies). Market Risk United Dominion is exposed to market risk principally from interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. United Dominion does not hold financial instruments for trading or other speculative purposes, but rather issues these financial instruments to finance its portfolio of real estate assets. United Dominion's interest rate sensitivity position is managed by the Company's finance department. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. United Dominion's earnings are affected by changes in short-term interest rates on its variable rate debt and the refinancing of fixed rate debt. A large portion of United Dominion's market risk is exposure to short-term interest rates from variable rate borrowings outstanding under its Credit Facility, which totaled $244.4 million at December 31, 2000. The impact on United Dominion's financial statements of refinancing fixed rate debt that matured during 2000 was not material. At December 31, 2000, the notional value of United Dominion's derivative products for the purpose of managing interest rate risk was $247 million of interest rate swaps under which United Dominion pays a fixed rate of interest and receives a variable rate. These agreements effectively fix $247 million of United Dominion's variable rate notes payable to a weighted average fixed rate of 7.38%. At December 31, 2000, the fair market value of the interest rate swaps in an unfavorable value position to United Dominion was $3.8 million (see Note 6 - Financial Instruments). If interest rates were 100 basis points more or less at December 31, 2000, the fair market value of the interest rate swaps would have increased or decreased approximately $5.9 million and $6.1 million, respectively. 28 If market interest rates for variable rate debt average 100 basis points more in 2001 than they did during 2000, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $3.8 million. Comparatively, if market interest rates for variable rate debt averaged 100 basis points more in 2000 than it did in 1999, United Dominion's interest expense, after considering the effects of its interest rate swap agreements, would increase, and income before taxes would decrease by $4.0 million. If market rates for fixed rate debt were 100 basis points higher at December 31, 2000, the fair value of fixed rate debt would have decreased from $1.39 billion to $1.33 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 2000, the fair value of fixed rate debt would have increased from $1.39 billion to $1.45 billion. These amounts are determined by considering the impact of hypothetical interest rates on United Dominion's borrowing cost and interest rate swap agreements. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in United Dominion's financial structure. Results of Operations 2000-vs-1999 Net income available to common shareholders was $42.7 million ($.41 per share) for the year ended December 31, 2000 compared to $55.9 million ($.54 per share) for 1999, representing a decrease of $13.2 million ($.13 per share). The decrease was primarily due to the following factors: (i) property operating income growth generated from the performance of the portfolio during 2000 was offset by the decrease in the size of the portfolio due to the disposition program; (ii) United Dominion recognized $31.5 million ($.31 per share) of gains on the sales of investments in 2000 compared to $38.0 million ($.37 per share) for the comparable period in 1999 and; (iii) real estate depreciation increased significantly in 2000 as a result of the recognition of catch-up depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 and, to a lesser extent, the impact of completed development communities and capital expenditures (see Note 2 - Real Estate Owned). 1999-vs-1998 For 1999, net income available to common shareholders increased $7.2 million, with a corresponding increase of $.05 for both basic and diluted earnings per share, compared to 1998. The increase per share was primarily attributable to aggregate gains on the sales of investments of $38.0 million ($.37 per share) for the year ended December 31, 1999, compared to $26.7 million ($.27 per share) in 1998. However, the increases associated with the gain on sales of investments were moderated in part due to the $19.3 million of impairment losses recorded during 1999. United Dominion's non-mature communities with 31,454 apartment homes at December 31, 1999 provided a substantial portion of the increase in United Dominion's operating income during 1999. Apartment Community Operations United Dominion's net income is primarily generated from the operations of its apartment communities. The following table summarizes the operating performance for United Dominion's total apartment portfolio for each of the periods presented (dollars in thousands):
Year Ended December 31, Year Ended December 31, ----------------------------------- --------------------------------- 2000 1999 % Change 1999 1998 % Change ----------------------------------- --------------------------------- Property rental income $ 615,401 $ 617,298 -0.3% $ 617,298 $ 477,279 29.3% Property rental expenses (excluding depreciation and amortization) (238,717) (245,173) -2.6% (245,173) (198,877) 23.2% ----------------------------------- --------------------------------- Property operating income $ 376,684 $ 372,125 1.2% $ 372,125 $ 278,402 33.7% ======================================================================== Weighted average number of homes 80,253 85,926 -6.6% 85,926 70,724 21.5% Physical occupancy 94.2% 92.6% 1.2% 92.6% 92.5% 0.1%
29 The increase in property operating income provided by the same communities, development communities and acquisition communities since December 31, 1999, was partially offset by the loss of property operating income due to the disposition of 13,278 apartment homes during 1999 and 2000. As a result of United Dominion's disposition program, the weighted average number of apartment homes declined 6.6% during 2000. 2000-vs-1999 Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to January 1, 1999 and held on January 1, 2000 which consisted of 76,267 weighted average apartment homes) provided 94% of its property operating income for the year ended December 31, 2000. In 2000, property operating income for the same communities increased 4.1% or $14.1 million compared to 1999. The growth in property operating income resulted from a $23.3 million or 4.2% increase in property rental income which was driven by a $17.1 million or 2.9% increase in rental rates coupled with a $5.8 million or 1.2% increase in physical occupancy. The increase in rental rates and occupancy was partially offset by higher concessions and bad debt expense. For 2000, property operating expenses at these same communities increased $9.2 million or 4.2%. The increase in property operating expenses was due to (i) a $2.6 million or 5.3% increase in real estate taxes related to the portion of the $1.4 billion of real estate acquired in 1998 that has undergone reassessment; (ii) a $4.5 million or 63.4% increase in property insurance costs attributable to a combination of the Company's loss history plus overall increases in market rates; (iii) a $3.1 million or 5.3% increase in personnel costs due to higher salaries and benefit costs and; (iv) a $1.1 million or 6.5% increase in property management as a result of added infrastructure costs in areas such as information technology, human resources and training. These increases were offset by a $1.6 million or 6.0% decrease in utilities expense due to the continued transfer of water and sewer costs to residents and a $1.4 million or 3.8% decrease in repair and maintenance expense as the Company continues to benefit from the upgrade program and centralized purchasing initiatives. As a result of the percentage changes in total property operating income and total property operating expenses, the operating margin (property operating income divided by property rental income) declined 0.1% to 61.2%. Non-Mature Communities The remaining 6% of United Dominion's property operating income during 2000 was generated from its non-mature communities (those communities acquired or developed during 1999 and 2000). United Dominion's development communities which included 2,470 apartment homes constructed since January 1, 1999 provided an additional $12.3 million of property operating income for the year ended December 31, 2000. In addition, the six communities with 1,497 apartment homes acquired by United Dominion during 1999 and 2000 provided an additional $7.6 million of property operating income during 2000. 1999-vs-1998 Same Communities United Dominion's same communities (those communities acquired, developed or stabilized prior to January 1, 1998 and held on January 1, 1999 which consisted of 51,316 weighted average apartment homes) provided 60% of its property operating income for the year ended December 31, 1999. In 1999, property operating income increased 5.6% or $12.0 million compared to 1998. The growth in property operating income resulted primarily from a $11.1 million or 3.1% increase in property rental income, reflecting an increase in average monthly rental rates of 3.4% while physical occupancy remained constant at 93.1%. For 1999, property operating expenses at these same communities decreased 0.6% or $827 thousand compared to 1998. Utility expense decreased due to the continued transfer of water and sewer costs to residents, repair and maintenance expense decreased as a result of the upgrade program and taking more turnover work in-house and property management expenses decreased due to better economies of scale. However, these decreases were offset by an increase in personnel costs due to higher salaries and 30 benefit costs, an increase in real estate taxes, the addition of monitored alarms in more communities and higher technology costs. As a result of the increase in property rental income and the decrease in property operating expenses, the operating margin improved 1.5% to 61.3%. Non-Mature Communities The remaining 40% of United Dominion's property operating income during 1999 was generated from its non-mature communities (those communities acquired or developed during 1998 and 1999). United Dominion's non-mature apartment portfolio consisted of (i) American Apartment Communities II, Inc., consisting of 13,728 homes (net of sales), which provided a first year return on investment (property rental income less property operating expenses divided by the average capital investment in real estate) of 9.1% on an average investment of $761 million and achieved an operating margin of 62.7%; (ii) 13,577 homes (net of sales) acquired in 1998, which provided an 8.4% return on investment on an average investment of $611 million with an operating margin of 57.8%; (iii) five communities with 1,230 apartment homes acquired by United Dominion during 1999 on an initial investment of $74 million that did not have a material impact on 1999 results of operation; (iv) 12,761 apartment homes sold for an aggregate sales price of $398 million as part of United Dominion's strategic repositioning since January 1, 1998 and; (v) 2,404 homes developed at various times since January 1, 1998, which included the completion of six new communities and one additional phase to an existing community during 1999. Interest Expense During 2000, interest expense increased $2.3 million over the corresponding amount in 1999 as the weighted average interest rate increased from 7.4% in 1999 to 7.6% in 2000, which more than offset the decrease of $124.7 million in the weighted average amount of debt outstanding ($2.1 billion in 2000 versus $2.2 billion in 1999). The weighted average amount of debt employed during 2000 was lower as disposition proceeds were used to repay outstanding debt. The increase in the average interest rate during 2000 reflects short-term bank borrowings that had higher interest rates when compared to the prior year. For 2000, 1999 and 1998, total interest capitalized was $3.6 million, $5.2 million and $3.4 million, respectively. During 1999, interest expense increased $47.5 million over the corresponding amount in 1998 as the weighted average amount of debt employed during 1999 was higher than it was in 1998 ($2.1 billion in 1999 versus $1.5 billion in 1998). The increase in the weighted average amount of debt employed in 1999 was primarily due to debt assumed during 1998 to fund United Dominion's investment activities. The weighted average interest rate on this debt was 7.4% in both 1999 and 1998. Real Estate Depreciation During the year ended December 31, 2000, real estate depreciation increased $31.3 million or 25.7% over 1999. This increase was primarily attributable to the recognition of catch-up depreciation expense on communities transferred from real estate held for disposition to real estate held for investment during the second quarter of 2000 and, to a lesser extent, the impact of completed development communities (see Note 2 - Real Estate Owned) and capital expenditures. During the year ended December 31, 1999, real estate depreciation increased $22.1 million or 22.2% over 1998. The increase was primarily due to the recognition of a full year of depreciation on United Dominion's 1998 acquired properties, and to a lesser extent, the recognition of depreciation on the Company's 1999 acquisitions. General and Administrative During the year ended December 31, 2000, general and administrative expenses increased $1.9 million or 13.5% over 1999, excluding a $2.7 million charge recognized in the third quarter of 2000 related to the settlement of a class action lawsuit concerning water usage billing in Texas (see Note 10 - Contingencies) and a $1.0 million charge to recognize expenses under employment agreements for certain executives of United Dominion as a result of planned organizational changes. The $1.9 million increase was primarily due to a $0.8 million increase in franchise taxes in Tennessee as a result of a change in the state law 31 regarding franchise taxes with the remaining increase due to recruiting and tuition costs and consulting costs incurred throughout the strategic planning process. During the year ended December 31, 1999, general and administrative expenses increased $3.7 million or 36.6% over 1998, primarily due to the expanded operations of United Dominion and its continued investment in professional staff, technology and scaleable accounting and information systems. Impairment Loss United Dominion did not recognize any impairment loss on its real estate portfolio for the year ended December 31, 2000. For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate portfolio. As a result of the review of its real estate apartment portfolio, 21 properties included in real estate held for investment were moved to real estate held for disposition during the second quarter. Through the review and analysis of communities targeted for strategic disposition, an aggregate $7.1 million impairment loss was recognized on five communities in the second quarter and an additional $11.2 million impairment loss was recognized in the fourth quarter of 1999, related principally to communities acquired in the ASR merger in 1998. Gains on Sales of Investments For the years ended December 31, 2000 and 1999, United Dominion recognized gains for financial reporting purposes of $31.5 million and $38.0 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of United Dominion's divestiture activity from period to period as well as the extent of gains related to specific properties sold. Distributions to Preferred Shareholders Distributions to preferred shareholders totaled $36.9 million for the year ended December 31, 2000 compared to $37.7 million for 1999. The decrease was due to the repurchase of 199,440 Series A preferred shares and 507,191 Series B preferred shares during 2000. Distributions to preferred shareholders totaled $37.7 million for 1999 compared to $23.6 million for 1998. The increase was a result of the issuance of eight million shares of Series D 7.50% Cumulative Convertible Redeemable Preferred Stock in December 1998. Discount on Preferred Share Repurchases For the year ended December 31, 2000, United Dominion recognized $2.9 million of discount on preferred share repurchases. The discount on preferred share repurchases represents the difference between the carrying value and the purchase price of the preferred shares. Inflation United Dominion believes that the direct effects of inflation on the Company's operations have been inconsequential. Substantially all of the Company's leases are for a term of one year or less which generally minimizes United Dominion's risk from the adverse effects of inflation. Technology Initiatives United Dominion is committed to technology initiatives that will allow the Company to improve its operating efficiencies, gain marketing advantages and provide the electronic services its customers demand. Among the key technology initiatives underway are: . United Dominion is developing a comprehensive eCommerce plan. As part of this plan, the Company has created a new corporate home page, and is in the process of creating home pages for each of its communities and community portals for residents. The resident portals will allow United Dominion to offer additional products and services to residents, accessing a previously untapped revenue source for the Company. 32 . United Dominion has approximately a 15% interest in Realeum, Inc. Realeum is currently developing an innovative web-based property management and leasing system. United Dominion believes this system will enable the Company to capture, review and analyze data in a manner that is not currently available on the commercial market. In addition, the Company expects this system to make the leasing process more convenient for residents and more efficient for leasing associates. This system will also lay the foundation for the fulfillment of online leasing transactions. . United Dominion is continuing the implementation of a virtual private network (VPN) that will connect all of the Company's apartment communities and offices. This network will improve the efficiency of United Dominion's operations and its internal communications. . United Dominion is implementing a web-based learning center that will give all associates access to key corporate training courses and reference materials. Management Transition With the Company's repositioning substantially complete, United Dominion began a search for a new CEO in the fourth quarter. This search culminated with the hiring of Thomas W. Toomey on February 13, 2001 to replace John P. McCann who served in this role for more than 26 years. Mr. Toomey has begun a review of the organizational structure and strategy of the Company. This review could result in changes that may require the Company to incur expenses for severance and termination benefits. Additionally, the review may result in a change of intent with regard to anticipated holding periods of certain assets which could require the write down of these assets. 33 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - - -------------------------------------------------------------------- Information required by this regarding Quantitative and Qualitative Disclosures about Market Risk is included in Part II, Item 7 of this Annual Report on Form 10-K included in Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - - ---------------------------------------------------- See Index to Consolidated Financial Statements and Schedule on page 44 of this Annual Report on Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE -------------------- None. 34 Part III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------------------------------ Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 8, 2001. Information required by this item regarding the executive officers of United Dominion is included in Part I of this Annual Report on Form 10-K in the section entitled "Executive Officers of the Registrant". Item 11. EXECUTIVE COMPENSATION - - -------------------------------- Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 8, 2001. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - - ------------------------------------------------------------------------ Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 8, 2001. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - -------------------------------------------------------- Incorporated herein by reference from United Dominion's Proxy Statement to be filed with respect to its Annual Meeting of Shareholders to be held on May 8, 2001. 35 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - - -------------------------------------------------------------------------- (a) (1&2) See Index to Consolidated Financial Statements and Schedule on page 44 of this Annual Report on Form 10-K. (3) Exhibits The exhibits listed below are filed as part of this Annual Report. References under the caption Location to exhibits, forms, or other filings indicate that the form or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference.
Exhibit Description Location - - --------- ------------------------------------ --------------------------------------------------- 2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration as of December 19, 1997, between Statement (Registration No. 333-45305) filed with the Company, ASR Investment the Commission on January 30, 1998. Corporation and ASR Acquisition Sub, Inc. 2(b) Agreement of Plan of Merger dated as Exhibit 2(c) to the Company's Form S-3 Registration of September 10, 1998, between the Statement (Registration No. 333-64281) filed with Company and American Apartment the Commission on September 25, 1998. Communities II, Inc. including as exhibits thereto the proposed terms of the Series D Preferred Stock and the proposed form of Investment Agreement between the Company, United Dominion Realty, L.P., American Apartment Communities II, Inc., American Apartment Communities Operating Partnership, L.P., Schnitzer Investment Corp., AAC Management LLC and LF Strategic Realty Investors, L.P. 2(c) Partnership Interest Purchase and Exhibit 2(d) to the Company's Form S-3 Exchange Agreement dated as of Registration Statement (Registration No. 333-64281) September 10, 1998, between the filed with the Commission on September 25, 1998. Company, United Dominion Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. 3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement (Registration No. 333-72885) filed with the Commission on February 24, 1999. 3(b) Restated By-Laws Filed herewith.
36 4(i)(a) Specimen Common Stock Certificate Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares of Exhibit 1(e) to the Company's Form 8-A 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995. Redeemable Preferred Stock 4(i)(c) Form of Certificate for Shares of Exhibit 1(e) to the Company's Form 8-A 8.60% Series B Cumulative Registration Statement dated June 11, 1997. Redeemable Preferred Stock 4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A January 27, 1998, between the Registration Statement dated February 4, 1998. Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 4(i)(d)(a) First Amended and Restated Rights Exhibit 4(i)(d)(a) to the Company's Quarterly Agreement dates as of September Report on Form 10-Q for the quarter ended 14, 1999, between the Company and September 30, 1999. ChaseMellon Shareholders Services, L.L.C., as Rights Agent 4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A Registration Statement dated February 4, 1998. 4(ii)(e) Note Purchase Agreement dated as of Exhibit 6(c)(5) to the Company's Form 8-A February 15, 1993, between the Registration Statement dated April 19, 1990. Company and CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 4(ii)(f) 364-day Credit Agreement dated Exhibit 4(ii)(f) to the Company's Quarterly as of June 1, 2000, between the Report on Form 10-Q for the quarter ended June 30, Company and certain subsidiaries 2000. and a syndicate of banks represented by Bank of America, N.A. 4(ii)(g) Credit Agreement dated as of Filed herewith. November 14, 2000, between the Company and certain subsidiaries and a syndicate of banks represented by First Union Nation Bank 10(i) Amended Employment Agreement Filed herewith.
37 between the Company and John P. McCann dated December 5, 2000. 10(ii) Amended Employment Agreement between Filed herewith. the Company and John S. Schneider dated December 5, 2000. 10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual Report the Company and Richard Giannotti on Form 10-K for the year ended December 31, 1998. dated December 8, 1998. 10(iv) Employment Agreement between Exhibit 10(iv) to the Company's Quarterly Report the Company and A. William Hamill on Form 10-Q for the quarter ended dated September 30, 1999. September 30, 1999. 10(v) 1985 Stock Option Plan, as amended. Exhibit 10(iv) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 10(vi) 1991 Stock Purchase and Loan Plan. Exhibit 10(viii) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. 10(vii) Third Amended and Restated Exhibit 10(vi) to the Company's Annual Report Agreement of Limited Partnership of on Form 10-K for the year ended December 31, 1998. United Dominion Realty, L.P. Dated as of December 7, 1998. 10(vii)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Quarterly April 16, 1998, between the Report on Form 10-Q for the quarter ended Company and United Dominion March 31, 1998. Realty, L.P. 10(viii) Servicing and Purchase Exhibit 10(vii) to the Company's Quarterly Agreement dated as of June 24, Report on Form 10-Q for the quarter ended 1999, including as an exhibit June 30, 1999. thereto the Note and Participation Agreement forms. 10(ix) Description of Restricted Stock Exhibit 10(ix) to the Company's Annual Report Awards Program. on Form 10-K for the year ended December 31, 1999. 10(x) Description of United Dominion Exhibit 10(x) to the Company's Annual Realty Trust, Inc. Shareholder Report on Form 10-K for the year ended Value Plan. December 31, 1999. 10(xi) Description of United Dominion Exhibit 10(xi) to the Company's Annual Realty Trust, Inc. Executive Report on Form 10-K for the year ended Deferral Plan. December 31, 1999. 10(xii) Employment Agreement between Exhibit 10(xii) to the Company's Annual the Company and Curtis W. Carter Report on Form 10-K for the year ended
38 dated December 8, 1998. December 31, 1999. 10(xiii) Employment Agreement between Exhibit 10(xiii) to the Company's Annual the Company and Mark E. Wood Report on Form 10-K for the year ended dated March 21, 2000. December 31, 1999. 12 Computation of Ratio of Earnings Filed herewith. to Fixed Charges.
21 The Company has the following subsidiaries, all of which but United Dominion Realty, L.P. are wholly owned. The Company owns general and limited partnership interests in United Dominion Realty, L.P. and Heritage Communities L.P., constituting 90.9% of the aggregate partnership interest. United Dominion Realty Trust, Inc. The Commons of Columbia, Inc. UDRT of Virginia, Inc. United Dominion Residential, Inc. United Dominion Realty, L.P. UDRT of North Carolina, L.L.C. UDRT of Alabama, Inc. Cleary Court Property Owners' Association, Inc. UDR South Carolina Trust UDR Western Residential, Inc. SWPT II Arizona Properties, Inc. SRL Amarillo Investors, Inc. Little Rock Apartment Management, Inc. SWP Arkansas Properties, Inc. SWP Developers, Inc. SWP Depositor, Inc. South West REIT Holding, Inc. South West Properties, L.P. SWP REMIC Properties II, Inc. SWP REMIC Properties II-A, L.P. SWP Creeks Properties, Inc. UDR Summit Ridge, L.P. SWP Woodscape Properties, Inc. SWP Woodscape Properties I, L.P. SWP Properties, Inc. SWP Properties I, L.P. South West Property Apartments, L.P. UDR Pecan Grove, L.P. UDR Camino Village, L.P. United Sub, Inc. ASR Acquisition Sub, Inc. UDR Audubon, L.P. UDR Villages of Thousand Oaks, L.P. UDR Cimarron City, L.P. UDR Kenton, L.P. ASR Investments Corporation Heritage Communities L.P. Heritage SGP Corporation 39 Heritage - Aspen Court L.P. Heritage - Gentry Place L.P. Heritage - Greenwood Creek L.P. Heritage - Highlands of Preston L.P. Heritage - 14400 Montfort L.P. Heritage - Preston Park L.P. Heritage - Smith Summit L.P. Heritage - Springfield L.P. Heritage - Briar Park L.P. Heritage - Chelsea Park L.P. Heritage - Country Club Place L.P. Heritage - Ivystone L.P. Heritage - London Park L.P. Heritage - Marymont L.P. Heritage - Riverway L.P. Heritage - Timbercreek Landings L.P. Heritage - Campus Commons North, L.L.C. Heritage - Campus Commons South, L.L.C. Heritage - Court, L.L.C. Heritage - On The Boulevard, L.L.C. Heritage - Pacific South Center, L.L.C. Heritage - Arbor Terrace I, L.L.C. Heritage - Arbor Terrace II, L.L.C. ASR Properties, Inc. ASC Properties, Inc. ASC-I Properties, Inc. ASC-II Properties, Inc. ASC-III Properties, Inc. ASC-IV Properties, Inc. ASC-V Properties, Inc. Rescap Manager Limited Partnership Contempo Heights L.L.C. La Privada L.L.C. Finisterra Apartments L.L.C. ASV-I Properties, Inc. ASV-II Properties, Inc. ASV-III Properties, Inc. ASV-IV Properties, Inc. ASV-V Properties, Inc. ASV-VI Properties, Inc. ASV-VII Properties, Inc. ASV-VIII Properties, Inc. ASV-IX Properties, Inc. ASV-X Properties, Inc. ASV-XI Properties, Inc. ASV-XII Properties, Inc. ASV-XIII Properties, Inc. ASV-XIV Properties, Inc. ASV-XV Properties, Inc. ASV-XVI Properties, Inc. ASV-XVII Properties, Inc. Heritage Residential Group, Inc. RMA Investments Holdings, Inc. 40 CIMSA Financial Corporation RMA Investments I, Inc. RMA Investments II, Inc. Cholla Estates Construction L.L.C. ASR Finance Corporation Southwest Capital Mortgage Funding L.P. ASR Mortgage Acceptance, Inc. UDR Developers, Inc. UDR Texas Properties, L.P. UDR of Tennessee, L.P. UDR Seniors Housing, L.P. UDR Aspen Creek, LLC United Dominion Residential Ventures, L.L.C. American Apartment Communities Holdings, Inc. AAC Funding II, Inc. AAC Funding III, Inc. AAC Funding IV, Inc. AAC Seattle I, Inc. FMP Member, Inc. AAC Funding IV LLC AAC Funding Partnership II AAC Funding Partnership III AAC Vancouver I, L.P. AAC/FSC Crown Pointe Investors, LLC AAC/FSC Hilltop Investors, LLC AAC/FSC Seattle Properties, LLC CMP-1, LLC Coastal Anaheim Properties, LLC Coastal Long Beach Properties, LLC Coastal Monterey Properties LLC Fountainhead Apartments Limited Partnership Governour's Square of Columbus Co. Jamestown of St. Matthews Co. Northbay Properties II, L.P. Parker's Landing Venture I Parker's Landing Venture II Polo Chase Venture Limited Partnership Regency Park, L.P. Sunset Company Tivoli of Columbus Limited Partnership Windward Point, LLC Winterland San Francisco Partners Woodlake Village, L.P. UDR Virginia Properties, LLC UDR California Properties, LLC UDR Florida Properties, LLC UDR Holdings, LLC UDR Lakeside Mills, LLC UDR Maryland Properties, LLC UDR Beaumont, LLC UDR/CSFB JV, LLC UDR/CSFB Holdings, LLC 41 UDR Mandolin, L.P. UDR Meridian, L.P. UDR Mortgage Capital-1 (CSFB) LLC UDR Oaks @ Weston, LLC UDR Parke 33, LLC UDR Sierra Canyon, LLC 23 Consent of Independent Filed herewith. Auditors Exhibits 10(i) through 10(xiii), inclusive, are management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 14(c) of this report. (b) Reports on Form 8-K A Form 8-K was filed with the Securities and Exchange Commission on March 9, 2001. The filing reported United Dominion's 2000 fourth quarter and year to date results of operations as reported on its Press Release issued on February 1, 2001. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. United Dominion Realty Trust, Inc. - - ---------------------------------- (registrant) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 9, 2001 by the following persons on behalf of the registrant and in the capacities indicated. /s/ John P. McCann /s/ Robert C. Larson - - ---------------------------------- ------------------------------------ John P. McCann Robert C. Larson Chairman of the Board Director /s/ Thomas W. Toomey /s/ Lynne B. Sagalyn - - ---------------------------------- ------------------------------------ Thomas W. Toomey Lynne B. Sagalyn President and Chief Executive Director Officer /s/ Mark J. Sandler - - ---------------------------------- ------------------------------------ John S. Schneider Mark J. Sandler Senior Executive Vice President Director and Chief Operating Officer /s/ Robert W. Scharar - - ---------------------------------- ------------------------------------ R. Toms Dalton Robert W. Scharar Director Director /s/ Robert P. Freeman /s/ A. William Hamill - - ---------------------------------- ------------------------------------ Robert P. Freeman A. William Hamill Director Executive Vice President and Chief Financial Officer /s/ Scott A. Shanaberger - - ---------------------------------- ------------------------------------ Jon A. Grove Scott A. Shanaberger Director Vice President, Corporate Controller and Chief Accounting Officer /s/ James D. Klingbeil - - ---------------------------------- James D. Klingbeil Director 43 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE UNITED DOMINION REALTY TRUST, INC.
Page ---- FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT Report of Ernst & Young LLP, Independent Auditors 45 Consolidated Balance Sheets at December 31, 2000 and 1999 46 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2000 47 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000 48 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2000 49 Notes to Consolidated Financial Statements 50 SCHEDULE FILED AS PART OF THIS REPORT Schedule III - Summary of Real Estate Owned 66
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 44 Report of Independent Auditors ------------------------------ The Board of Directors and Shareholders United Dominion Realty Trust, Inc. We have audited the accompanying consolidated balance sheets of United Dominion Realty Trust, Inc. (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Dominion Realty Trust, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information set forth therein. Ernst & Young LLP Richmond, Virginia January 31, 2001 45 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share data)
December 31, 2000 1999 - - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Real estate owned: Real estate held for investment (Note 2) $ 3,758,974 $ 3,577,848 Less: accumulated depreciation (506,871) (373,164) ---------------- ---------------- 3,252,103 3,204,684 Real estate under development 60,366 91,914 Real estate held for disposition (net of accumulated depreciation of $2,534 and $22,700) (Note 2) 14,446 260,583 ---------------- ---------------- Total real estate owned, net of accumulated depreciation 3,326,915 3,557,181 Cash and cash equivalents 10,305 7,678 Restricted cash 44,943 56,969 Deferred financing costs 14,271 13,511 Investment in unconsolidated development joint venture (Note 3) 8,088 - Other assets 49,435 52,978 ---------------- ---------------- Total assets $ 3,453,957 $ 3,688,317 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Secured debt (Note 4) $ 866,115 $ 1,000,136 Unsecured debt (Note 5) 1,126,215 1,127,169 Real estate taxes payable 30,554 30,887 Accrued interest payable 18,059 17,867 Security deposits and prepaid rent 22,524 20,738 Distributions payable 36,128 36,020 Accounts payable, accrued expenses and other liabilities 47,144 51,121 ---------------- ---------------- Total liabilities 2,146,739 2,283,938 Minority interests 88,326 94,167 Shareholders' equity: (Note 8) Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 3,969,120 shares 9.25% Series A Cumulative Redeemable issued and outstanding (4,168,560 in 1999) 99,228 104,214 5,439,109 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,946,300 in 1999) 135,978 148,658 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding (8,000,000 in 1999) 175,000 175,000 Common stock, $1 par value; 150,000,000 shares authorized 102,219,250 shares issued and outstanding (102,740,777 in 1999) 102,219 102,741 Additional paid-in capital 1,081,387 1,083,687 Distributions in excess of net income (366,531) (296,030) Notes receivable from officer-shareholders (7,561) (7,753) Deferred compensation - unearned restricted stock awards (828) (305) ---------------- ---------------- Total shareholders' equity 1,218,892 1,310,212 ---------------- ---------------- Total liabilities and shareholders' equity $ 3,453,957 $ 3,688,317 ================ ================
See accompanying notes to consolidated financial statements. 46 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year ended December 31, 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------- Revenues Rental income $616,825 $618,749 $478,718 Non-property income 5,326 1,942 3,382 -------------- -------------- -------------- Total revenues 622,151 620,691 482,100 Expenses Rental expenses: Real estate taxes and insurance 69,071 63,425 48,898 Personnel 65,666 66,968 51,219 Repair and maintenance 36,469 41,339 36,827 Utilities 25,791 30,106 26,361 Administrative and marketing 23,771 25,410 19,066 Property management 18,392 18,475 16,945 Other operating expenses 1,426 1,539 244 Real estate depreciation 152,994 121,727 99,588 Interest 156,040 153,748 106,238 Impairment loss on real estate and investments (Note 2) - 19,300 - General and administrative 19,444 13,850 10,139 Other depreciation and amortization 4,367 4,425 3,645 Loss on termination of interest rate risk management agreement (Note 6) - - 15,591 -------------- -------------- -------------- Total expenses 573,431 560,312 434,761 -------------- -------------- -------------- Income before gains on sales of investments, minority interests and extraordinary item 48,720 60,379 47,339 Gains on sales of depreciable property 30,618 37,995 26,672 Gains on sales of land 832 - - -------------- -------------- -------------- Income before minority interests and extraordinary item 80,170 98,374 74,011 Minority interests of unitholders in operating partnership (2,885) (4,434) (1,430) Minority interests in other partnerships (1,501) (1,245) (111) -------------- -------------- -------------- Income before extraordinary item 75,784 92,695 72,470 Extraordinary item - early extinguishment of debt 831 927 (138) -------------- -------------- -------------- Net income 76,615 93,622 72,332 Distributions to preferred shareholders - Series A and B (21,591) (22,560) (22,607) Distributions to preferred shareholders - Series D (Convertible) (15,300) (15,154) (986) Discount on preferred share repurchases 2,929 - - -------------- -------------- -------------- Net income available to common shareholders $42,653 $55,908 $48,739 ============== ============== ============== Earnings per common share: (Note 1) Basic $0.41 $0.54 $0.49 ============== ============== ============== Diluted $0.41 $0.54 $0.49 ============== ============== ============== Common distributions declared per share $1.07 $1.06 $1.05 ============== ============== ============== Weighted average number of common shares outstanding-basic 103,072 103,604 99,966 Weighted average number of common shares outstanding-diluted 103,208 103,639 100,062
See accompanying notes to consolidated financial statements. 47 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year ended December 31, 2000 1999 1998 - - ----------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 76,615 $ 93,622 $ 72,332 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 157,361 126,152 103,233 Impairment loss on real estate and investments - 19,300 -- Gains on sales of investments (31,450) (37,995) (26,672) Minority interests 4,386 5,679 1,541 Extraordinary item-early extinguishment of debt (831) (927) 138 Amortization of deferred financing costs and other 2,551 5,184 2,061 Changes in operating assets and liabilities: (Decrease)/increase in operating liabilities (2,333) (4,777) 30,682 Decrease/(Increase) in operating assets 17,861 (15,636) (42,718) ------------- ------------ ------------- Net cash provided by operating activities 224,160 190,602 140,597 Investing Activities Proceeds from sales of real estate investments, net 205,345 236,706 155,459 Proceeds received for excess expenditures over investment contribution in development joint venture 30,176 - - Development of real estate assets (80,131) (114,028) (97,222) Capital expenditures - real estate assets, net of escrow reimbursement (45,796) (74,049) (88,120) Acquisition of real estate assets, net of liabilities assumed (4,635) (75,719) (169,808) Capital expenditures - non-real estate assets (1,166) (8,062) (2,876) Net cash paid in mergers - - (59,446) Other investing activities - 1,132 (1,851) ------------- ------------ ------------- Net cash provided by/(used in) investing activities 103,793 (34,020) (263,864) Financing Activities Proceeds from the issuance of secured notes payable 67,285 207,611 7,700 Scheduled principal payments on secured notes payable (62,575) (19,100) (18,255) Non-scheduled principal payments on secured notes payable (145,881) (260,559) (88,237) Proceeds from the issuance of unsecured notes payable 248,035 197,345 212,500 Payments on unsecured notes payable (214,984) (151,117) (9,418) Net (repayment)/borrowing of short-term bank debt (33,200) 37,600 104,400 Payment of financing costs (5,648) (6,719) (4,875) Proceeds from the issuance of common stock 7,660 17,250 76,686 Distributions paid to minority interests (10,272) (9,200) (2,413) Distributions paid to preferred shareholders (36,909) (34,958) (22,611) Distributions paid to common shareholders (110,098) (109,608) (103,074) Repurchase of operating partnership units (341) (11,967) (3,528) Repurchase of common and preferred stock (28,398) (31,563) - ------------- ------------ ------------- Net cash (used in)/provided by financing activities (325,326) (174,985) 148,875 Net increase (decrease) in cash and cash equivalents 2,627 (18,403) 25,608 Cash and cash equivalents, beginning of year 7,678 26,081 473 ------------- ------------ ------------- Cash and cash equivalents, end of year $ 10,305 $ 7,678 $ 26,081 ============= ============ ============= Supplemental Information: Interest paid during the period $ 152,434 $ 162,236 $ 104,858 Conversion of operating partnership units to common stock 247 3,947 7,542 Issuance of restricted stock awards 830 460 - Non-cash transactions associated with the acquisition of properties: Secured debt assumed 10,130 - 116,326 Issuance of common stock - - 7,099 Issuance of operating partnership units - - 18,477 Non-cash transactions associated with mergers: Real estate assets acquired - - 1,080,696 Other operating assets acquired - - 26,845 Issuance of preferred stock - - 175,000 Issuance of common stock - - 108,456 Issuance of operating partnership units - - 88,831 Secured debt assumed - - 637,188 Operating liabilities assumed - - 36,026 Minority interests in partnerships assumed - - 5,382
See accompanying notes to consolidated financial statements. 48 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share data)
Year ended December 31 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Stock Balance, beginning of year $ 427,872 $ 430,000 $ 255,000 Issuance of 7.50% Series D Cumulative Convertible Redeemable in connection with the acquisition of American Apartment Communities II - - 175,000 Purchase of preferred stock (17,666) (2,128) - -------------- -------------- ------------- Balance, end of year $ 410,206 $ 427,872 $ 430,000 ============== ============== ============= Common Stock, $1 Par Value Balance, beginning of year $ 102,741 $ 103,639 $ 89,168 Issuance of common shares in public offerings - - 2,804 Issuance of common shares in the acquisition of ASR Investment Corporation - - 7,743 Issuance of common shares to employees, officers and director-shareholders 5 72 78 Issuance of common shares through dividend reinvestment and stock purchase plan 767 1,598 2,825 Issuance of common shares in connection with the acquisition of properties - - 482 Purchase of common stock (1,399) (2,688) - Issuance of restricted stock awards 86 46 - Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships 19 74 539 -------------- -------------- ------------- Balance, end of year $ 102,219 $ 102,741 $ 103,639 ============== ============== ============= Additional Paid-in Capital Balance, beginning of year $ 1,083,687 $ 1,090,432 $ 906,307 Issuance of common shares in public offerings, net of issuance costs - - 35,170 Issuance of common shares in the acquisition of ASR Investment Corporation - - 100,713 Issuance of common shares to employees, officers and director-shareholders 158 665 801 Issuance of common shares through dividend reinvestment and stock purchase plan 6,538 15,049 33,821 Issuance of common shares in connection with the acquisition of properties - - 6,617 Purchase of common and preferred stock (9,333) (26,746) - Issuance of restricted stock awards 744 414 - Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships (407) 3,873 7,003 -------------- -------------- ------------- Balance, end of year $ 1,081,387 $ 1,083,687 $ 1,090,432 ============== ============== ============= Notes Receivable from Officer-Shareholders Balance, beginning of year $ (7,753) $ (7,619) $ (8,806) Principal repayments 192 139 1,413 Notes issued for common shares - (273) (226) -------------- -------------- ------------- Balance, end of year $ (7,561) $ (7,753) $ (7,619) ============== ============== ============= Distributions in Excess of Net Income Balance, beginning of year $ (296,030) $ (242,331) $ (183,312) Net income 76,615 93,622 72,332 Common stock distributions declared ($1.07 per share for 2000, $1.06 per share for 1999 and $1.05 per share for 1998) (110,225) (109,607) (107,758) Preferred stock distributions declared-Series A ($2.31 per share for 2000, 1999 and 1998) (9,473) (9,688) (9,704) Preferred stock distributions declared-Series B ($2.15 per share for 2000, 1999 and 1998) (12,118) (12,872) (12,903) Preferred stock distributions declared-Series D ($1.91 per share for 2000, $1.89 per share for 1999 and $.12 per share for 1998) (15,300) (15,154) (986) -------------- -------------- ------------- Balance, end of year $ (366,531) $ (296,030) $ (242,331) ============== ============== ============= Deferred Compensation - Unearned Restricted Stock Awards Balance, beginning of year $ (305) $ - $ - Issuance of restricted stock awards (830) (460) - Amortization of deferred compensation 307 155 - -------------- -------------- ------------- Balance, end of year $ (828) $ (305) $ - ============== ============== ============= Total Shareholders' Equity $ 1,218,892 $ 1,310,212 $ 1,374,121 ============== ============== =============
See accompanying notes to consolidated financial statements. 49 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Formation United Dominion Realty Trust, Inc., a Virginia corporation, was formed in 1972. United Dominion operates within one defined business segment with activities related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities nationwide. At December 31, 2000, United Dominion owned 277 communities with 77,219 completed apartment homes and had two communities and three additional phases to existing communities with 1,238 apartment homes under development. Basis of presentation The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P., (the "Operating Partnership"), and Heritage Communities L.P. (the "Heritage OP"), (collectively, "United Dominion"). As of December 31, 2000, there were 74,486,812 units in the Operating Partnership outstanding, of which 67,686,662 units or 90.9% were owned by United Dominion and 6,800,150 units or 9.1% were owned by non-affiliated limited partners. As of December 31, 2000, there were 4,535,845 units in the Heritage OP outstanding, of which 3,879,880 units or 85.5% were owned by United Dominion and 655,965 units or 14.5% were owned by non-affiliated limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the operating partnerships. All significant inter-company accounts and transactions have been eliminated in consolidation. Income taxes United Dominion is operated as, and elects to be taxed as, a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a REIT complies with the provisions of the Code if it distributes at least 95% of its taxable income and will avoid and will not be subject to U.S. federal income taxes if it distributes 100% of its income. Accordingly, no provision has been made for federal income taxes. However, United Dominion is subject to certain state and local excise or franchise taxes. The differences between net income available to common shareholders for financial reporting purposes and taxable income before dividend deductions relate primarily to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The temporary differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets. For income tax purposes, distributions paid to common shareholders consist of ordinary income, capital gains, return of capital or a combination thereof. For the three years ended December 31, 2000, distributions paid per common share were taxable as follows: 2000 1999 1998 ------ ------ ------ Ordinary income $ .811 $ .620 $ .913 Long-term capital gain .257 .129 --- Return of capital --- .309 .127 ------ ------ ------ $1.068 $1.058 $1.040 ====== ====== ====== Use of estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to amounts in prior years' financial statements to conform with current year presentation. Cash and cash equivalents Cash and cash equivalents include all cash and liquid investments with maturities of three months or less when purchased. Investments in Unconsolidated Joint Ventures The Company accounts for investments in unconsolidated joint ventures using the equity method when major business decisions require approval by the other partners. Investments are recorded at cost and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. United Dominion eliminates intercompany profits on sales of services that are capitalized by the venture. Differences between the carrying value of investments and the underlying equity in net assets of the 50 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 investee are due to capitalized interest on the investment balance and capitalized development and leasing costs that are recovered by the Company through fees during construction. Such differences are amortized on a straight- line basis over the estimated useful life of the investment. During 2000, United Dominion recognized development and general contractor fees from its venture of approximately $3.0 million. Real estate Real estate assets held for investment are carried at historical cost less accumulated depreciation and any recorded impairment losses. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Significant expenditures for improvements, renovations and replacements related to the acquisition and improvement of real estate assets are capitalized at cost and depreciated over their estimated useful lives. United Dominion recognizes impairment losses on long-lived assets used in operations when there is an event or change in circumstance that indicates an impairment in the value of an asset and the undiscounted future cash flows are not sufficient to recover the asset's carrying value. If such indicators of impairment are present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Prior to 2000, properties were classified as real estate held for disposition when management had committed to sell and was actively marketing the property, and United Dominion expected to dispose of these properties within the next twelve months. Beginning in 2000, properties classified as real estate held for disposition represent properties that are under contract. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation or fair value less the cost to dispose, determined on an asset by asset basis. Depreciation is not recorded on real estate held for disposition and gains (losses) from initial and subsequent adjustments to the carrying value of the assets, if any, are recorded as a separate component of income from continuing operations. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which is 35 years for buildings, 10 to 35 years for major improvements, and 3 to 20 years for furniture, fixtures, equipment and other assets. All development projects and related carrying costs are capitalized and reported on the balance sheet as "real estate under development" until such time as the development project is completed. Upon completion, the total cost of the building and associated land is transferred to real estate held for investment and the assets are depreciated over their estimated useful lives. The cost of development projects includes interest, real estate taxes, insurance and allocated development overhead during the construction period. Interest and real estate taxes incurred during the development period are capitalized as part of the real estate under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 2000, 1999 and 1998, total interest capitalized was $3.6 million, $5.2 million and $3.4 million, respectively. Revenue recognition United Dominion's apartment homes are leased under operating leases with terms generally of one year or less. Rental income is recognized after it is earned and collectibility is reasonably assured. Restricted cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves and security deposits. Deferred financing costs Deferred financing costs include fees and other external costs incurred to obtain debt financings and are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt. Unamortized financing costs are written-off when debt is retired before its maturity date. Advertising costs All costs are expensed as incurred. 51 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Interest rate swap agreements United Dominion enters into interest rate swap agreements to alter the interest rate characteristics of outstanding debt instruments. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. The interest rate swaps involve the periodic exchange of payments over the life of the related agreements. Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively. The fair value of and changes in the fair value as a result of changes in market interest rates for the interest rate swap agreements are not reflected in the basic financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized into interest expense over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. There were no gains or losses on terminations of interest rate swap agreements recognized by United Dominion for the periods presented. Any interest rate swap agreements that are not designated with outstanding debt or notional amounts of interest rate swap agreements in excess of the original amounts of the underlying debt obligations are recorded as an asset or liability at fair value, with the changes in the fair value recorded in other income or expense (fair value method). Interest rate risk management agreements United Dominion enters into interest rate futures contracts to hedge interest rate risk associated with anticipated debt transactions. United Dominion follows SFAS No. 80, "Accounting for Futures Contracts," which permits hedge accounting for anticipatory transactions meeting certain criteria. Gains and losses, if any, on these transactions are deferred as an adjustment to the carrying amount of the outstanding debt and amortized over the term of the related debt as an adjustment to interest expense. The fair values of interest rate risk management agreements are not recognized in the financial statements. At the time the anticipated transaction is no longer likely to occur, United Dominion would record the derivative instrument at its market value and would recognize any adjustment in the consolidated statement of operations. Earnings per share Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based on common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion's average stock price. The early extinguishment of debt does not have an effect on the earnings per share calculation for the periods presented. The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts): 2000 1999 1998 - - ---------------------------------------------------------------------------- Numerator for basic and diluted earnings per share-net income available to common shareholders $ 42,653 $ 55,908 $ 48,739 Denominator: Denominator for basic earnings per share- weighted average shares 103,072 103,604 99,966 Effect of dilutive securities: Employee stock options and awards 136 35 96 -------- -------- -------- Denominator for dilutive earnings per share 103,208 103,639 100,062 ======== ======== ======== Basic earnings per share $ .41 $ .54 $ .49 ======== ======== ======== Diluted earnings per share $ .41 $ .54 $ .49 ======== ======== ======== 52 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 The effect of the conversion of the operating partnership units and convertible preferred stock is not dilutive and is therefore not included as a dilutive security in the earnings per share computation. The weighted average effect of the conversion of the operating partnership units for the years ended December 31, 2000, 1999 and 1998 was 7,489,435 units, 8,180,409 units and 2,963,427 units, respectively. The weighted average effect of the conversion of the convertible preferred stock for the years ended December 31, 2000 and 1999 was 12,307,692 shares and 809,273 shares at December 31, 1998. Minority interests in operating partnerships Interests in operating partnerships held by limited partners are represented by operating partnership units (OP Units). The operating partnerships' income is allocated to holders of OP Units based upon net income available to common shareholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions and profits and losses are allocated to minority interests in accordance with the terms of the individual partnership agreements. OP Units can be exchanged for cash or shares of United Dominion's common stock on a one-for-one basis, at the option of United Dominion. OP Units as a percentage of total OP Units and shares outstanding were 6.8% at December 31, 2000 and 1999 and 7.7% at December 31, 1998. Minority interest in other partnerships United Dominion has limited partners in certain real estate partnerships acquired as part of the acquisition of American Apartment Communities II on December 7, 1998. Net income for these partnerships is allocated based on the percentage interest owned by these limited partners in each respective real estate partnership. Stock based compensation United Dominion has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of United Dominion's employee stock options equals the market price of the underlying stock on the date of grant, no compensation cost has been recognized. Impact of recently issued accounting standards United Dominion will adopt Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. The new accounting standards require companies to carry all derivative instruments, including certain embedded derivatives, in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, companies might elect to designate a derivative instrument as a hedge of exposures to changes in fair values or cash flows. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported as a component of equity and reclassified into earnings when the hedged transaction affects earnings. If the hedged exposure is a fair value exposure, the gain or loss on the derivative is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. A gain or loss is recognized in earnings when a derivative is not designated as a hedge, or when any ineffectiveness is measured in the derivative when compared to the hedged item or anticipated transaction. United Dominion estimates that upon adoption of Statements 133 and 138 in January 2001, the Company will record a $3.8 million net transition loss adjustment in accumulated other comprehensive income (equity). Adoption of the standards also will result in the Company recognizing $134.0 thousand of derivative instrument assets and $3.9 million of derivative instrument liabilities. In general, the amount of volatility will vary with the level of derivative activities during any period. 53 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 2. REAL ESTATE OWNED United Dominion operates in over 32 major markets dispersed throughout 21 states. At December 31, 2000, the Company's largest apartment market was Houston, Texas, where it owned 5.9% of its apartment homes, based upon carrying value. Excluding Houston, United Dominion did not own more than 5.5% of its apartment homes in any one market, based upon carrying value. The following table summarizes real estate held for investment at December 31, (dollars in thousands): 2000 1999 - - ----------------------------------------------------------------------------- Land and land improvements $ 668,003 $ 636,905 Buildings and improvements 2,902,386 2,767,940 Furniture, fixtures and equipment 188,321 166,826 Construction in progress 264 6,177 ------------------------------ Real estate held for investment 3,758,974 3,577,848 Accumulated depreciation (506,871) (373,164) ------------------------------ Real estate held for investment, net $3,252,103 $3,204,684 ============================== The following is a summary of real estate held for investment by major market within each geographic region (in order of carrying value and excluding real estate under development) at December 31, 2000 (dollars in thousands):
Initial Number of Acquisition Carrying Accumulated Communities Cost Value Depreciation Encumbrances - - ----------------------------------------------------------------------------------------------------------------- NORTHERN REGION: Raleigh, NC 9 $ 123,071 $ 140,725 $ 28,793 $ 31,327 Charlotte, NC 10 109,961 133,652 24,942 12,267 Columbus, OH 5 88,625 122,281 10,049 42,703 Greensboro, NC 8 85,362 102,574 14,917 - Richmond, VA 8 74,856 94,633 25,219 60,682 (a) Wilmington, NC 6 64,213 88,200 15,540 - Baltimore, MD 6 58,846 66,380 14,752 28,657 (a) Other Northern Markets 38 318,407 366,179 63,506 56,194 (a) SOUTHERN REGION: Orlando, FL 14 167,524 198,761 32,513 76,736 (a) Tampa, FL 10 132,927 149,907 21,859 51,665 (a) Nashville, TN 8 83,987 117,978 13,012 - South Florida 6 95,637 103,335 13,588 20,620 (a) Memphis, TN 6 88,467 95,752 11,727 32,724 Atlanta, GA 6 57,669 69,964 13,307 17,714 (a) Columbia, SC 6 52,795 61,472 14,942 5,000 Other Southern Markets 16 168,885 220,993 35,955 43,696 (a)
54 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
Initial Number of Acquisition Carrying Accumulated Communities Cost Value Depreciation Encumbrances - - ----------------------------------------------------------------------------------------------------------------- WESTERN REGION: Houston, TX 22 178,188 222,164 24,255 47,499 Dallas, TX 14 177,414 208,238 23,930 10,349 Phoenix, AZ 10 165,191 199,500 21,104 19,086 San Antonio, TX 12 171,241 187,470 18,166 37,627 Fort Worth, TX 11 134,671 145,046 17,511 18,711 San Francisco, CA 4 136,504 139,462 6,855 21,709 Monterey Peninsula, CA 11 102,442 104,041 5,574 - (a) Southern California 5 87,442 89,863 6,752 5,937 Seattle, WA 3 31,953 33,473 2,694 16,661 Other Western Markets 22 279,699 290,068 25,376 66,178 (a) Richmond - Corporate 6,597 6,863 33 - ---------------------------------------------------------------------------------- 276 $3,242,574 $3,758,974 $506,871 $859,285 ==================================================================================
The following is a summary of real estate held for disposition by major category at December 31, 2000 (dollars in thousands): Initial Number of Acquisition Carrying Accumulated Properties Cost Value Depreciation Encumbrances - - -------------------------------------------------------------------------------- Apartments (b) 1 $ 3,817 $ 4,696 $ 1,036 $ 3,506 Commercial (b) 4 10,482 12,284 1,498 3,324 ------------------------------------------------------------- 5 $ 14,299 $ 16,980 $ 2,534 $ 6,830 ============================================================= Total 281 $3,256,873 $3,775,954 $509,405 $866,115 ============================================================= (a) There are 88 communities encumbered by fixed rate debt aggregating $723.7 million. The amount of this debt is included in the encumbrances shown for the individual markets. There are 27 communities encumbered by fixed rate debt aggregating $135.5 million that is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (b) Real estate held for disposition included one apartment community with 132 homes, three commercial properties and one parcel of land totaling $14.5 million, which is net of $2.5 million of accumulated depreciation. Real estate held for disposition contributed property operating income (property rental income less property operating expense) of $1.7 million for the year ended December 31, 2000. The properties classified as held for disposition reflect properties that were under contract at December 31, 2000. The management of United Dominion periodically reviews its divestiture program, which is designed to better position the Company for achieving more consistent earnings growth and increasing shareholder value over the long-term. The factors considered in these reviews include the age, quality and projected operating income of communities that might be sold, the expected market value for the communities, the estimated timing for completion of sales and the pro forma effect of sales upon United Dominion's earnings and financial position. After a review undertaken in the second quarter of 2000, management transferred approximately $197 million of assets from real estate held for disposition to real estate held for investment and, as a result, approximately $10 million in depreciation expense was recognized on the communities transferred in order to reflect depreciation on these properties while they were classified in real estate held for disposition. For the year ended December 31, 1999, United Dominion recognized $18.3 million in impairment losses on its real estate owned. Through the review and analysis of communities targeted for strategic disposition, an aggregate $14.8 million impairment loss was recognized on assets held for disposition. An impairment loss was indicated as a result of the net book value of the assets held for disposition being greater than the estimated fair market value less the cost of disposal. In addition, United Dominion recorded a $3.5 million impairment loss on three communities acquired in the ASR merger in 1998 which were classified in real estate held for investment. An impairment loss 55 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 was indicated as the sum of the estimated future cash flows from the assets was deemed to be less than their carrying amounts. The following is a reconciliation of the carrying amount of real estate held for investment at December 31, (dollars in thousands):
2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------- Balance at January 1 $3,577,848 $3,643,245 $2,281,438 Real estate acquired 14,898 75,719 1,388,514 Capital expenditures 46,299 72,096 98,872 Transferred from development 68,025 116,787 23,350 Transferred from (to) real estate held for disposition 58,068 (326,499) (148,929) Impairment loss on real estate - (3,500) - Disposal of fully depreciated assets (6,164) - - ---------------------------------------------------------- Balance at December 31 $3,758,974 $3,577,848 $3,643,245 ==========================================================
The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands):
2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------- Balance at January 1 $ 373,164 $ 280,663 $ 200,506 Depreciation expense for the year* 154,419 122,884 100,683 Transferred to held for disposition (14,548) (30,383) (20,526) Disposal of fully depreciated assets (6,164) - - ---------------------------------------------------------- Balance at December 31 $ 506,871 $ 373,164 $ 280,663 ==========================================================
* Includes $1,425, $1,157 and $1,095 for 2000, 1999 and 1998, respectively, classified as "Other depreciation and amortization" in the consolidated statements of operations. 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE At December 31, 2000, United Dominion's investment in an unconsolidated joint venture consisted of a 25% partnership interest in a development joint venture in which the Company is serving as the managing partner. No gain or loss was recognized on the Company's contribution to the development joint venture. The venture will develop five apartment communities with a total of 1,438 homes for an aggregate total cost of approximately $103 million. United Dominion serves as the developer, general contractor and property manager for the venture. The operating results for the joint venture were not material for the year ended December 31, 2000. The following is a summary of the financial position of the joint venture as of December 31, 2000 (dollars in thousands): Assets: Real estate, net $85,644 Other assets 6,507 ----------- Total assets $92,151 =========== Liabilities and partners' equity: Mortgage notes payable $49,785 Other liabilities 11,436 Partners' equity 30,930 ----------- Total liabilities and partners' equity $92,151 =========== 56 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 4. SECURED DEBT Secured debt, which encumbers $1.5 billion or 38.8% of United Dominion's real estate owned, ($2.3 billion or 61.2% of United Dominion's real estate owned is unencumbered) consists of the following at December 31, 2000 (dollars in thousands):
No. of Weighted Avg. Weighted Avg. Communities Principal Outstanding Interest Rate Years to Maturity Encumbered ----------------------------- ------------------------------------------------ 2000 1999 2000 2000 2000 - - ------------------------------------------------------------------- ------------------------------------------------ Fixed Rate Debt Mortgage Notes Payable (a) $513,962 $ 555,414 7.96% 5.8 76 Tax-Exempt Secured Notes Payable 79,756 96,699 6.83% 13.1 13 REMIC Financings -- 59,167 -- -- -- Secured Credit Facilities 17,000 57,000 7.04% 13.0 -- ----------------------------- ------------------------------------------------ Total Fixed Rate Secured Debt 610,718 768,280 7.79% 7.0 89 Variable Rate Debt Secured Credit Facilities 216,960 138,675 7.22% 13.3 22 Tax-Exempt Secured Notes Payable 19,916 66,616 4.98% 24.5 3 Mortgage Notes Payable 18,521 26,565 7.71% 11.7 5 ----------------------------- ------------------------------------------------ Total Variable Rate Secured Debt 255,397 231,856 7.08% 14.1 30 ----------------------------- ------------------------------------------------ Total Secured Debt $866,115 $1,000,136 7.58% 9.0 119 ============================= ================================================
(a) Includes fair value adjustments aggregating $10.2 million in 2000 and $14.8 million in 1999 that were recorded in connection with two acquisitions consummated in 1998. Fixed Rate Debt Mortgage Notes Payable Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from January 2001 through June 2034 and carry interest rates ranging from 7.13% to 9.58%. Tax-Exempt Secured Notes Payable Fixed rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates through November 2025 and carry interest rates ranging from 6.13% to 8.10%. Interest on these notes is generally payable in semi-annual installments. Secured Credit Facilities On December 31, 2000, United Dominion had $234.0 million outstanding under two revolving secured credit facilities with the Federal National Mortgage Association (the "FNMA Credit Facilities"). The FNMA Credit Facilities are for an initial term of five years, bear interest at a floating rate which can be fixed for periods of up to 270 days, and can be extended for an additional five or ten years at United Dominion's discretion. At December 31, 2000, the FNMA Credit Facilities had a weighted average floating rate of interest of 7.21%. In order to limit a portion of its interest rate exposure, United Dominion has two interest rate swap agreements associated with the FNMA Credit Facilities. These agreements have an aggregate notional value of $17 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreements effectively change United Dominion's interest rate exposure on $17 million of secured debt from a variable rate to a weighted average fixed rate of 7.04% (Financial Instruments - Note 6). Variable Rate Debt Secured Credit Facilities Variable rate secured credit facilities consist of $217.0 million of the $234.0 million outstanding on the FNMA Credit Facilities. Tax-Exempt Secured Notes Payable Variable rate mortgage notes payable which secure tax-exempt housing bond issues mature at various dates from December 2002 to October 2028. At December 31, 2000, these notes had interest rates ranging from 4.80% to 5.50%. 57 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Mortgage Notes Payable Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from July 2003 through September 2027. At December 31, 2000, these notes had interest rates ranging from 7.30% to 8.37%. The extraordinary loss for the year ended December 31, 1998 resulted from the write-off of deferred financing costs on mortgage debt extinguished. The aggregate maturities of secured debt for the five years subsequent to December 31, 2000 are as follows (dollars in thousands):
Fixed Rate Variable Rate ------------------------------------------------ ------------------------------------------------ Mortgage Tax-Exempt Secured Secured Tax-Exempt Mortgage Year Notes Bonds Notes Notes Notes Notes TOTAL - - ------------ ------------------------------------------------ ------------------------------------------------ ----------- 2001 $ 53,251 $ 1,062 - - - $ 281 $ 54,594 2002 47,446 1,215 - - $ 2,200 302 51,163 2003 40,855 1,246 - - - 5,886 47,987 2004 114,365 4,800 - - - 205 119,370 2005 119,406 1,236 - - - 5,489 126,131 Thereafter 138,639 70,197 $17,000 $216,960 17,716 6,358 466,870 ------------------------------------------------ ------------------------------------------------ ----------- $513,962 $79,756 $17,000 $216,960 $19,916 $18,521 $866,115 ================================================ ================================================ ===========
5. UNSECURED DEBT A summary of unsecured debt at December 31, 2000 and 1999 is as follows (dollars in thousands):
2000 1999 ---------- ---------- Commercial Banks Borrowings outstanding under an unsecured credit facility (a) (b) $ 244,400 $ 277,600 Borrowings outstanding under an unsecured term loan (c) 100,000 -- Senior Unsecured Notes - Other 8.13% Senior Notes due November 2000 -- 146,150 7.60% Medium-Term Notes due January 2002 48,750 55,000 7.65% Medium-Term Notes due January 2003 (d) 10,000 10,000 7.22% Medium-Term Notes due February 2003 11,900 12,000 5.05% City of Portland, OR Bonds due October 2003 7,345 7,345 8.63% Notes due March 2003 79,030 -- 7.98% Notes due March 2000-2003 (e) 22,285 29,800 7.67% Medium-Term Notes due January 2004 54,000 54,000 7.73% Medium-Term Notes due April 2005 22,400 23,400 7.02% Medium-Term Notes due November 2005 50,000 50,000 7.95% Medium-Term Notes due July 2006 107,398 120,340 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.25% Notes due January 2007 110,080 111,825 ABAG Tax-Exempt Bonds due August 2008 46,700 -- 8.50% Monthly Income Notes due November 2008 57,400 59,778 8.50% Debentures due September 2024 (f) 125,500 140,000 Other (g) 4,027 4,931 ---------- ---------- 781,815 849,569 ---------- ---------- Total Unsecured Debt $1,126,215 $1,127,169 ========== ==========
58 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (a) Weighted average interest rate of 7.5% and 6.7% at December 31, 2000 and 1999, respectively. (b) As of December 31, 2000, United Dominion had seven interest rate swap agreements associated with commercial bank borrowings with an aggregate notional value of $120 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 7.27%. (c) As of December 31, 2000, United Dominion had five interest rate swap agreements associated with borrowings under the term loan with an aggregate notional value of $100 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swaps effectively change United Dominion's interest rate exposure on these borrowings from a variable rate to a weighted average fixed rate of approximately 7.53%. (d) United Dominion has one interest rate swap agreement associated with these unsecured notes with an aggregate notional value of $10 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreement effectively changes United Dominion's interest rate exposure on the $10 million from a variable rate to a fixed rate of 7.65%. (e) Payable annually in three equal principal installments of $7.4 million. (f) Includes an investor put feature which grants a one-time option to redeem the debentures in September 2004. (g) Includes $3.8 million and $4.6 million at December 31, 2000 and 1999, respectively, of deferred gains from the termination of interest rate risk management agreements. For the years ended December 31, 2000 and 1999, United Dominion recognized $831 thousand and $927 thousand in extraordinary gains related to the write-off of deferred financing costs and the repurchase of unsecured notes at less than face value, respectively. Information concerning short-term bank borrowings is summarized in the table that follows (dollars in thousands):
2000 1999 1998 - - -------------------------------------------------------------------------------------- Total revolving credit facilities at December 31 $375,000 $310,000 $265,000 Borrowings outstanding at December 31 244,400 277,600 240,000 Weighted average daily borrowings during the year 195,128 223,629 238,587 Maximum daily borrowings during the year 308,000 283,000 334,500 (a) Weighted average daily interest rate during the year 7.3% 5.8% 6.1% (a) Weighted average daily interest rate at December 31 7.7% 6.7% 6.0%
(a) Includes balances on a $75 million bridge facility funded in July 1998 that matured in November 1998. In June 2000, United Dominion closed on a $375 million three-year unsecured revolving credit facility (the "Credit Facility") with a consortium of banks. The Credit Facility, which extends until August 2003, replaces two lines of credit that allowed the Company to borrow in aggregate up to $310 million. Under the Credit Facility, the Company may borrow at a rate of LIBOR plus 100 basis points for LIBOR-based borrowings and pays a facility fee which is equal to 0.20% of the commitment. The Credit Facility is subject to customary financial covenants and limitations. 6. FINANCIAL INSTRUMENTS Fair Value of Financial Instruments The following estimated fair values of financial instruments were determined by United Dominion using available market information and appropriate valuation methodologies. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts United Dominion would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair value of United Dominion's financial instruments at December 31, 2000 and 1999, both on and off-balance sheet, are summarized as follows (dollars in thousands): 59 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 2000 1999 --------------------- ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value --------------------- ------------------------ Secured debt $ 866,115 $ 887,430 $1,000,136 $1,031,074 Unsecured debt 1,126,215 1,130,100 1,127,169 1,102,605 Interest rate swap agreements - (unfavorable) / favorable -- (3,847) -- 626 The following methods and assumptions were used by United Dominion in estimating fair values: Cash and cash equivalents The carrying amount of cash and cash equivalents - - ------------------------- approximates fair value. Secured and unsecured debt Estimated fair value is based on mortgage rates, - - -------------------------- tax-exempt bond rates and corporate unsecured debt rates believed to be available to United Dominion for the issuance of debt with similar terms and remaining lives. The carrying amount of United Dominion's variable rate secured debt approximates fair value at December 31, 2000 and 1999. The carrying amounts of United Dominion's borrowings under variable rate unsecured debt arrangements, short-term revolving credit agreements and lines of credit approximate their fair values at December 31, 2000 and 1999. Interest rate swap agreements Fair value is based on external market - - ----------------------------- quotations. Derivative Instruments The following table summarizes certain information pursuant to interest rate swap contracts at December 31, 2000 (dollars in thousands): Notional Fixed Type of Underlying Effective Contract Fair Amount Rate Contract Debt Date Maturity Value - - -------------------------------------------------------------------------------- $ 5,000 7.32% Swap Bank Credit Facility 06/26/95 07/01/04 $ (95) 10,000 7.14% Swap Bank Credit Facility 10/18/95 10/03/02 (59) 5,000 6.98% Swap Bank Credit Facility 11/21/95 10/03/02 (11) 10,000 7.65% Swap Medium-Term Notes 01/26/99 01/27/03 134 7,000 6.78% Swap FNMA 06/30/99 06/30/04 (44) 10,000 7.22% Swap FNMA 12/01/99 04/01/04 (211) 25,000 7.39% Swap Bank Credit Facility 11/01/00 08/01/03 (428) 25,000 7.39% Swap Bank Credit Facility 11/01/00 08/01/03 (428) 25,000 7.49% Swap Bank Term Loan 11/15/00 05/15/03 (433) 20,000 7.49% Swap Bank Term Loan 11/15/00 05/15/03 (347) 23,500 7.62% Swap Bank Term Loan 11/15/00 05/15/04 (602) 23,000 7.62% Swap Bank Term Loan 11/15/00 05/15/04 (589) 25,000 7.21% Swap Bank Credit Facility 12/01/00 08/01/03 (315) 8,500 7.26% Swap Bank Term Loan 12/04/00 05/15/03 (103) 25,000 7.21% Swap Bank Credit Facility 12/04/00 08/01/03 (316) - - -------------------------------------------------------------------------------- $247,000 $(3,847) ================================================================================ For all periods presented, United Dominion had no deferred gains or losses relating to terminated swap contracts. Interest Rate Risk Management Agreements In order to reduce the interest rate risk associated with the anticipated issuance of unsecured debt during 1998, United Dominion entered into a $100 million (notional amount) fixed pay forward starting swap agreement (interest rate risk management agreement) with an investment banking firm in July 1997. United Dominion settled the interest rate risk management agreement on November 9, 1998 by paying $15.6 million to the counterparty. United Dominion was unable to issue the unsecured debt contemplated by the interest rate risk management agreement, and 60 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 accordingly, the cost associated with this settlement is reflected in the 1998 statement of operations. United Dominion has no interest rate risk management agreements outstanding at December 31, 2000. Risk of Counterparty Non-Performance United Dominion has not obtained collateral or other security to support financial instruments. In the event of non-performance by the counterparty, United Dominion's credit loss on its derivative instruments is limited to the value of the derivative instruments that are favorable to United Dominion at December 31, 2000. However, such non-performance is not anticipated as the counterparties are highly rated credit quality U.S. financial institutions and management believes that the likelihood of realizing material losses from counterparty non-performance is remote. 7. EMPLOYEE BENEFIT PLANS Profit Sharing Plan The United Dominion Realty Trust, Inc. Profit Sharing Plan (the "Plan") is a defined contribution plan covering all eligible full-time employees. Under the Plan, United Dominion makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate contributions, both matching and discretionary, which are included in United Dominion's consolidated statements of operations for the three years ended December 31, 2000, 1999 and 1998 were $1.3 million, $2.2 million and $550,000, respectively. Stock Option Plan United Dominion's 1985 Stock Option Plan, (the "Option Plan"), authorizes the grant of options, at the discretion of the Board of Directors, to certain officers, directors and key employees of United Dominion, for up to ten million shares of United Dominion's common stock which is limited to 8% of the number of shares of common stock issued and outstanding. The Option Plan generally provides, among other things, that options be granted at exercise prices not lower than the market value of the shares on the date of grant. Shares under options which expire or are canceled are available for subsequent grant. For options granted prior to December 12, 1995, the optionee has up to five years from the date on which the options first become exercisable during which to exercise the options. For options granted on or after December 12, 1995, the options have a ten-year term. Options granted prior to December 9, 1997 vest on December 31 of the year subsequent to grant while options granted on and after this date vest ratably over a three-year period beginning on December 31 of the year subsequent to grant. On December 8, 1998, United Dominion canceled 1,047,165 options which were granted on December 9, 1997 at $14.25. United Dominion subsequently issued options on December 8, 1998, which vest over a three-year period, at United Dominion's then market price of $10.875. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS No. 123"), and has been determined as if United Dominion had accounted for its employee stock options under the fair value method of accounting as defined in SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Risk free interest rate 5.2% 6.7% 4.9% Dividend yield 7.2% 6.9% 6.6% Volatility factor .164 .144 .150 Weighted average expected life (years) 7 9 9 The weighted average fair value of options granted during 2000, 1999 and 1998 was $.65, $.76 and $.66, respectively. 61 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. United Dominion's pro forma information is as follows (dollars in thousands, except per share amounts): 2000 1999 1998 ------- ------- ------- Net income available to common shareholders As reported $42,653 $55,908 $48,739 Pro forma 41,705 54,847 47,841 Earnings per common share-diluted As reported $ .41 $ .54 $ .49 Pro forma .40 .53 .48 A summary of United Dominion's stock option activity during the three years ended December 31, 2000 is provided in the following table (dollars in thousands, except per share amounts):
Options Outstanding ------------------------------------------------------- Shares Available Weighted Average Range of For Future Grant Options Exercise Price Exercise Prices - - ---------------------------------------------------------- ----------------- ---------------- --------------- Balance, December 31, 1997 180,040 3,448,721 $13.89 $7.44-$15.38 Granted (1,137,665) 1,137,665 11.16 10.88-14.13 Exercised -- (73,490) 11.47 7.44-13.88 Forfeited 1,153,883 (1,153,883) 14.28 7.44-15.38 Additional shares authorized (a) 4,735,858 -- -- -- ---------- ---------- ------ ------------ Balance, December 31, 1998 4,932,116 3,359,013 12.89 7.44-15.38 Granted (1,192,333) 1,192,333 10.02 9.63-11.19 Exercised -- (46,998) 9.87 9.19-10.25 Forfeited 288,756 (288,756) 13.46 10.88-15.38 ---------- ---------- ------ ------------ Balance, December 31, 1999 4,028,539 4,215,592 12.09 9.19-15.38 Granted (653,300) 653,300 9.91 9.88-10.75 Exercised -- (11,584) 9.19 9.19 Forfeited 364,363 (364,363) 12.95 9.63-15.25 Reduction in shares authorized (a) (55,007) -- -- -- ---------- ---------- ------ ------------ Balance, December 31, 2000 3,684,595 4,492,945 $11.71 $9.19-$15.38 ========== ========== ====== ============
(a) The number of shares of common stock issuable upon the exercise of options outstanding is limited to 8% of the number of shares of common stock issued and outstanding. Exercisable at December 31, 1998 1,691,863 $13.79 $7.44-$15.38 1999 2,042,505 13.28 9.19-15.38 2000 2,692,997 12.35 9.19-15.38 The weighted average remaining contractual life on all options outstanding is 7.2 years. 1,270,835 of share options had exercise prices between $13.94 and $15.38, 1,783,008 of share options had exercise prices between $10.75 and $13.50 and 1,439,102 of share options had exercise prices between $9.19 and $10.25. 8. SHAREHOLDERS' EQUITY Preferred Stock Both Series A and Series B Preferred Stock have no stated par value and a liquidation preference of $25 per share. With no voting rights and no stated maturity, the preferred stock in both series is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of United Dominion. The Series A Preferred Stock could not be redeemed prior to April 24, 2000 and the Series B Preferred Stock is not redeemable prior to May 29, 2007. On or after these dates, the Series A and Series B Preferred Stock may be redeemed for cash at the option of United Dominion, in whole or in part, at a redemption price of $25 per share plus accrued and unpaid dividends. The redemption price is payable solely out of the sales proceeds of other capital 62 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 stock of United Dominion. No Series A Preferred Stock was redeemed during 2000. All dividends due and payable on the Series A and Series B Preferred Stock have been accrued or paid as of the end of each fiscal year. On December 7, 1998, in connection with the AAC merger, United Dominion issued eight million shares of newly created Series D Convertible Redeemable Preferred Stock (Series D), with a liquidation preference of $25 per share. The Series D has no voting rights, no stated maturity and is not subject to any sinking fund or mandatory redemption. Series D is convertible into 1.5385 shares of common stock at the option of the holder of Series D at any time at $16.25 per share. The Series D is not redeemable prior to December 7, 2003. On or after this date, United Dominion may, at its option, redeem at any time all or part of the Series D at a price per share of $25, payable in cash, plus all accrued and unpaid dividends, provided that the current market price of the common stock at least equals the conversion price, initially set at $16.25 per share. The redemption is payable solely out of the sale proceeds of other capital stock. In addition, United Dominion may not redeem in any consecutive twelve-month period a number of shares of Series D having an aggregate liquidation preference of more than $100 million. Officers' Stock Purchase and Loan Plan Under the Officer Stock Purchase and Loan Plan (the "Loan Plan"), certain officers have purchased common stock at the then current market price with financing provided by United Dominion at an interest rate of 7%. The underlying notes mature between November 2001 and October 2006. A total of 858,500 shares have been issued and 556,500 shares are available for future issuance under the Loan Plan. Dividend Reinvestment and Stock Purchase Plan United Dominion's Dividend Reinvestment and Stock Purchase Plan (the "Stock Purchase Plan") allows common and preferred shareholders the opportunity to purchase, through the reinvestment of cash dividends and through optional cash purchases, additional shares of United Dominion's common stock. As of December 31, 2000, 9,105,474 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 4,894,526 were reserved for further issuance under the Stock Purchase Plan at December 31, 2000. During 2000, 767,513 shares were issued under the Stock Purchase Plan for a total consideration of approximately $7.3 million. Restricted Stock Awards United Dominion's 1999 Restricted Stock Awards Plan authorizes the granting of restricted stock awards to employees, officers and directors of United Dominion. The shares of common stock vest ratably over a three-year period. Deferred compensation expense is recorded over the vesting period and is based upon the value of the common stock on the date of issuance. A total of 132,000 shares of restricted stock have been issued under the Restricted Stock Awards Plan as of December 31, 2000. Purchase Rights On January 27, 1998, the Board of Directors authorized a Shareholders Rights Plan (the "Rights Plan") which will become exercisable only if a person or group (the "Acquiring Person") acquires or announces a tender offer for more than 15% of the outstanding common stock of United Dominion. Upon exercise, United Dominion may issue one share of common stock in exchange for each right. Each right will entitle the holder to purchase for $45 one thousandth of a share of Series C Preferred stock or, at the option of United Dominion, common stock of United Dominion having a value of $90. 9. COMMITMENTS AND CONTINGENCIES Land and Other Leases United Dominion is party to several ground leases relating to operating communities. In addition, United Dominion is party to various other operating leases related to the operation of its regional offices. Future minimum lease payments for non-cancelable land and other leases at December 31, 2000 are as follows (dollars in thousands): 2001 $ 1,860 2002 1,809 2003 1,627 2004 1,506 2005 1,358 Thereafter 25,289 ----------- Total $33,449 =========== 63 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 United Dominion incurred $2.6 million, $2.8 million and $1.6 million, respectively, of rent expense for the years ended December 31, 2000, 1999, and 1998. Contingencies United Dominion and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The ultimate liability in respect of such litigations and claims cannot be determined at this time. United Dominion is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be material in relation to the consolidated financial statements of United Dominion. During the third quarter of 2000, the Company agreed to settle a class action lawsuit concerning water usage billing in Texas in the amount of $2.7 million. The settlement is subject to final court approval. As a result of the settlement, the Company accrued $2.7 million for the settlement amount and estimated fees. The Company will pay the settlement amount when court approval is final. Individuals may opt out of the settlement and in the event that more than 125 persons opt out, United Dominion may elect to withdraw the settlement agreement. Management believes that the litigation will be resolved in accordance with the settlement agreement. Commitments United Dominion is committed to completing its real estate currently under development which has an estimated cost to complete of $63.5 million at December 31, 2000. For the joint venture development projects, United Dominion is committed to pay for all costs in excess of each individual project's budgeted costs. United Dominion does not anticipate any of the projects' costs to be in excess of their budget. 10. ACQUISITIONS On March 27, 1998, United Dominion completed the acquisition of ASR Investments Corporation in a statutory merger (the "ASR Merger"). In connection with the ASR Merger, United Dominion acquired 39 communities with 7,550 apartment homes. Each share of ASR's common stock was exchanged for 1.575 shares of United Dominion's common stock. The acquisition was structured as a tax-free transaction and was treated as a purchase for accounting purposes. In connection with the acquisition, United Dominion acquired primarily real estate assets totaling $313.7 million. Consideration given by United Dominion included 7,742,839 shares of United Dominion's common stock valued at $14 per share for an aggregate equity value of $108.4 million plus the issuance of 1,529,990 units in the ASR Operating Partnership valued at $21.4 million. In addition, United Dominion assumed, at fair value, mortgage debt totaling $179.4 million and other liabilities of $13.6 million. On December 7, 1998, United Dominion completed the acquisition of American Apartment Communities II ("AAC") in a statutory merger (the "AAC Merger"). In connection with the acquisition of AAC, United Dominion acquired 53 communities with 14,001 apartment homes. The AAC Merger was structured as a tax-free merger and exchange of partnership units and was treated as a purchase for accounting purposes. In connection with the AAC Merger, United Dominion acquired primarily real estate assets totaling $766.9 million. The aggregate purchase price consisted of the following: (i) 8,000,000 shares of United Dominion's 7.5% Series D Convertible Preferred Stock ($25 liquidation preference value) which is convertible into United Dominion's common stock at $16.25 per share with a fair market value of $175 million; (ii) the issuance of 5,614,035 units of limited partnership interest in the Partnership with an aggregate fair market value of $67.4 million; (iii) the assumption of $457.7 million of secured notes payable at fair market value; (iv) the assumption of liabilities and minority interest aggregating $27.8 million and; (v) $59.8 million of cash. The ASR Merger and the AAC Merger were accounted for as purchases of real estate and the operating results for those communities are reflected in the accompanying consolidated financial statements from their respective dates of acquisition. 11. INDUSTRY SEGMENTS United Dominion owns and operates multifamily apartment communities throughout the United States which generates rental and other property related income through the leasing of apartment units to a diverse base of tenants. United Dominion separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, 64 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 the apartment communities have been aggregated into a single apartment communities segment. All segment disclosure is included in or can be derived from United Dominion's consolidated financial statements. There is no tenant who contributed 10% or more of United Dominion's total revenues during 2000, 1999 or 1998. 12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Summarized consolidated quarterly financial data for the year ended December 31, 2000 is as follows (dollars in thousands, except per share amounts):
Three Months Ended --------------------------------------------------------------- March 31 June 30(a) September 30(b) December 31 -------- ---------- --------------- ----------- Rental income $154,057 $155,144 $154,645 $152,979 Income before gains on sales of investments, minority interests and extraordinary item 17,120 7,617 10,199 13,784 Gains on the sales of investments 2,533 5,928 11,261 11,728 Net income available to common shareholders 9,172 6,233 11,161 16,087 Earnings per common share: Basic $ .09 $ .06 $ .11 $ .16 Diluted $ .09 $ .06 $ .11 $ .16
(a) The second quarter of 2000 includes $9.9 million of catch-up depreciation expense related to the transfer of properties from real estate held for disposition to real estate held for investment. (b) The third quarter of 2000 includes a $2.7 million charge related to water usage billing litigation and a $1.0 million charge for changes to executive employment agreements. ________________________________________________________________________________ Summarized consolidated quarterly financial data for the year ended December 31, 1999 is as follows (dollars in thousands, except per share amounts):
Three Months Ended --------------------------------------------------------------- March 31 June 30(a) September 30 December 31b) -------- ---------- ------------ ------------- Rental income $153,791 $154,430 $155,523 $155,005 Income before gains on sales of investments, minority interests and extraordinary item 20,941 11,389 20,521 7,528 Gains on the sales of investments 191 32,214 48 5,542 Net income available to common shareholders 10,643 31,360 10,435 3,470 Earnings per common share: Basic $ .10 $ .30 $ .10 $ .03 Diluted $ .10 $ .30 $ .10 $ .03
(a) The second quarter of 1999 includes $32.2 million of gains on the sales of investments and a $7.1 million impairment loss on real estate and investments. (b) The fourth quarter of 1999 includes $5.5 million of gains on the sales of investments and a $12.2 million impairment loss on real estate and investments. 65 SCHEDULE III Summary of Real Estate Owned
Initial Costs Total ------------------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ------------------------------------------------------------------------------------ APARTMENTS REAL ESTATE HELD FOR INVESTMENT Northern Region: RALEIGH-DURHAM-CHAPEL HILL, NC Dominion On Spring Forest $ - $ 1,257,500 $ 8,586,255 $ 9,843,755 Dominion Park Green - 500,000 4,321,872 4,821,872 Dominion On Lake Lynn 16,250,000 1,723,363 5,303,760 7,027,123 Dominion Courtney Place - 1,114,600 5,119,259 6,233,859 Dominion Walnut Ridge - 1,791,215 11,968,852 13,760,067 Dominion Walnut Creek - 3,170,290 21,717,407 24,887,697 Dominion Ramsgate - 907,605 6,819,154 7,726,759 Harbour Pointe - 1,898,740 7,101,260 9,000,000 Copper Mill - 1,548,280 16,066,720 17,615,000 Trinity Park 15,076,889 4,579,648 17,575,712 22,155,360 RICHMOND-PETERSBURG, VA Dominion Olde West - 1,965,097 12,203,965 14,169,062 Dominion Creekwood - - - - Dominion Laurel Springs - 464,480 3,119,716 3,584,196 Dominion English Hills 16,640,000 1,979,174 11,524,313 13,503,487 Dominion Gayton Crossing 10,400,000 825,760 5,147,968 5,973,728 Dominion West End 14,597,100 2,059,252 15,049,088 17,108,340 Courthouse Green 7,410,000 732,050 4,702,353 5,434,403 Waterside At Ironbridge 11,635,000 1,843,819 13,238,590 15,082,409 CHARLOTTE-GASTONIA-ROCK HILL The Highlands - 321,400 2,830,346 3,151,746 Emerald Bay - 626,070 4,722,862 5,348,932 Dominion Peppertree - 1,546,267 7,699,221 9,245,488 Dominion Crown Point - 2,122,179 22,338,577 24,460,756 Dominion Harris Pond - 886,788 6,728,097 7,614,885 Dominion Mallard Creek 4,962 698,860 6,488,061 7,186,921 Chateau Village - 1,046,610 6,979,555 8,026,164 Dominion At Sharon - 667,368 4,856,103 5,523,471 Providence Court - - 22,047,803 22,047,803 Stoney Pointe 12,262,385 1,499,650 15,855,610 17,355,260 GREENSBORO-WINSTON-SALEM-H PNT Beechwood - 1,409,377 6,086,677 7,496,054 Steeplechase - 3,208,108 11,513,978 14,722,086 Northwinds - 1,557,654 11,735,787 13,293,441 Deerwood Crossings - 1,539,901 7,989,043 9,528,944 Dutch Village - 1,197,593 4,826,266 6,023,858 Lake Brandt - 1,546,950 13,489,466 15,036,416 Park Forest 378 679,671 5,770,413 6,450,084 Deep River Pointe - 1,670,648 11,140,329 12,810,977 WILMINGTON NC Cape Harbor - 1,891,671 18,113,109 20,004,780 Mill Creek - 1,404,498 4,489,398 5,893,895 The Creek - 417,500 2,506,206 2,923,706 Forest Hills - 1,028,000 5,420,478 6,448,478 Clear Run - 874,830 8,740,602 9,615,432 Crosswinds - 1,096,196 18,230,236 19,326,432 BALTIMORE Gatewater Landing - 2,078,422 6,084,526 8,162,948 Dominion Kings Place 4,525,000 1,564,942 7,006,574 8,571,516 Dominion At Eden Brook 7,730,000 2,361,167 9,384,171 11,745,339 Dominion Great Oaks 10,652,042 2,919,481 9,099,691 12,019,172 Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period -------------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ----------------------------------------------------------------------------------- APARTMENTS REAL ESTATE HELD FOR INVESTMENT Northern Region: RALEIGH-DURHAM-CHAPEL HILL, NC Dominion On Spring Forest $ 2,942,976 $ 1,620,092 $ 11,166,639 $ 12,786,731 Dominion Park Green 1,298,146 686,991 5,433,027 6,120,017 Dominion On Lake Lynn 2,712,747 2,237,052 7,502,818 9,739,870 Dominion Courtney Place 2,809,359 1,435,467 7,607,752 9,043,218 Dominion Walnut Ridge 2,092,322 2,166,192 13,686,197 15,852,389 Dominion Walnut Creek 3,109,641 3,693,110 24,304,228 27,997,338 Dominion Ramsgate 799,858 1,028,925 7,497,692 8,526,617 Harbour Pointe 127,062 1,898,796 7,228,266 9,127,062 Copper Mill 872,794 1,760,775 16,727,019 18,487,794 Trinity Park 888,403 4,696,853 18,346,911 23,043,763 RICHMOND-PETERSBURG, VA Dominion Olde West 1,784,328 2,378,396 13,574,994 15,953,390 Dominion Creekwood 453,599 45,423 408,176 453,599 Dominion Laurel Springs 1,040,630 632,047 3,992,779 4,624,826 Dominion English Hills 4,912,176 2,804,705 15,610,959 18,415,663 Dominion Gayton Crossing 6,252,057 1,164,893 11,060,892 12,225,785 Dominion West End 2,600,429 2,646,527 17,062,242 19,708,769 Courthouse Green 2,107,203 1,078,454 6,463,152 7,541,606 Waterside At Ironbridge 627,216 1,970,316 13,739,309 15,709,625 CHARLOTTE-GASTONIA-ROCK HILL The Highlands 2,551,906 690,791 5,012,860 5,703,652 Emerald Bay 2,722,321 1,179,772 6,891,482 8,071,253 Dominion Peppertree 1,487,446 1,844,832 8,888,102 10,732,934 Dominion Crown Point 1,653,268 3,802,672 22,311,352 26,114,024 Dominion Harris Pond 1,233,852 1,225,463 7,623,274 8,848,737 Dominion Mallard Creek 603,947 776,615 7,014,252 7,790,868 Chateau Village 2,067,104 1,405,669 8,687,599 10,093,268 Dominion At Sharon 965,963 897,820 5,591,614 6,489,433 Providence Court 9,281,912 7,409,295 23,920,420 31,329,715 Stoney Pointe 1,123,359 1,733,721 16,744,898 18,478,619 GREENSBORO-WINSTON-SALEM-H PNT Beechwood 930,458 1,614,690 6,811,822 8,426,512 Steeplechase 12,155,379 3,748,136 23,129,330 26,877,465 Northwinds 933,359 1,738,394 12,488,407 14,226,800 Deerwood Crossings 973,787 1,670,816 8,831,915 10,502,731 Dutch Village 567,861 1,282,479 5,309,240 6,591,719 Lake Brandt 720,578 1,782,363 13,974,632 15,756,994 Park Forest 555,165 859,257 6,145,992 7,005,249 Deep River Pointe 375,283 1,799,007 11,387,253 13,186,260 WILMINGTON NC Cape Harbor 950,768 2,265,135 18,690,413 20,955,549 Mill Creek 13,360,826 1,892,237 17,362,484 19,254,721 The Creek 1,632,568 488,728 4,067,546 4,556,275 Forest Hills 1,876,920 1,201,540 7,123,858 8,325,398 Clear Run 5,179,423 1,251,932 13,542,922 14,794,855 Crosswinds 987,071 1,202,881 19,110,623 20,313,503 BALTIMORE Gatewater Landing 1,259,919 2,175,367 7,247,500 9,422,867 Dominion Kings Place 853,607 1,645,423 7,779,700 9,425,123 Dominion At Eden Brook 1,204,443 2,462,172 10,487,609 12,949,782 Dominion Great Oaks 3,242,222 3,744,845 11,516,549 15,261,394 Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) ----------------------------------------------------------------------------------- APARTMENTS REAL ESTATE HELD FOR INVESTMENT Northern Region: RALEIGH-DURHAM-CHAPEL HILL, NC Dominion On Spring Forest $ 4,848,738 1978/81 05/21/91 35 Years Dominion Park Green 2,174,275 1987 09/27/91 35 Years Dominion On Lake Lynn 2,529,733 1986 12/01/92 35 Years Dominion Courtney Place 2,313,698 1979/81 07/08/93 35 Years Dominion Walnut Ridge 3,590,871 1982/84 03/04/94 35 Years Dominion Walnut Creek 5,949,152 1985/86 05/17/94 35 Years Dominion Ramsgate 1,289,101 1988 08/15/96 35 Years Harbour Pointe 1,039,246 1984 12/31/96 35 Years Copper Mill 2,442,624 1997 12/31/96 35 Years Trinity Park 2,615,545 1987 02/28/97 35 Years RICHMOND-PETERSBURG, VA Dominion Olde West 5,803,922 1978/82/84/85/87 12/31/84 & 8/27/91 35 Years Dominion Creekwood 64,594 1984 08/27/91 35 Years Dominion Laurel Springs 1,563,229 1972 09/06/91 35 Years Dominion English Hills 5,912,461 1969/76 12/06/91 35 Years Dominion Gayton Crossing 3,650,677 1973 09/28/95 35 Years Dominion West End 3,563,759 1989 12/28/95 35 Years Courthouse Green 3,003,466 1974/78 12/31/84 35 Years Waterside At Ironbridge 1,656,472 1987 09/30/97 35 Years CHARLOTTE-GASTONIA-ROCK HILL The Highlands 3,335,723 1970 01/17/84 35 Years Emerald Bay 3,760,153 1972 02/06/90 35 Years Dominion Peppertree 2,699,442 1987 12/14/93 35 Years Dominion Crown Point 2,898,158 1987/2000 07/01/94 35 Years Dominion Harris Pond 1,925,529 1987 07/01/94 35 Years Dominion Mallard Creek 1,663,639 1989 08/16/94 35 Years Chateau Village 1,806,472 1974 08/15/96 35 Years Dominion At Sharon 1,040,435 1984 08/15/96 35 Years Providence Court 3,296,574 1997 09/30/97 35 Years Stoney Pointe 2,515,970 1991 02/28/97 35 Years GREENSBORO-WINSTON-SALEM-H PNT Beechwood 2,016,469 1985 12/22/93 35 Years Steeplechase 3,385,125 1990/97 03/07/96 35 Years Northwinds 2,167,287 1989/97 08/15/96 35 Years Deerwood Crossings 1,586,060 1973 08/15/96 35 Years Dutch Village 1,009,162 1970 08/15/96 35 Years Lake Brandt 2,295,729 1995 08/15/96 35 Years Park Forest 987,884 1987 09/26/96 35 Years Deep River Pointe 1,469,221 1997 10/01/97 35 Years WILMINGTON NC Cape Harbor 3,132,026 1996 08/15/96 35 Years Mill Creek 2,291,769 1986/98 09/30/91 35 Years The Creek 1,686,047 1973 06/30/92 35 Years Forest Hills 2,454,927 1964/69 06/30/92 35 Years Clear Run 3,098,749 1987/89 07/22/94 35 Years Crosswinds 2,876,364 1990 02/28/97 35 Years BALTIMORE Gatewater Landing 2,420,401 1970 12/16/92 35 Years Dominion Kings Place 2,287,161 1983 12/29/92 35 Years Dominion At Eden Brook 3,116,140 1984 12/29/92 35 Years Dominion Great Oaks 3,586,816 1974 07/01/94 35 Years
Initial Costs Total -------------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ------------------------------------------------------------------------------ Dominion Constant Friendship - 903,122 4,668,956 5,572,078 Lakeside Mill 5,750,000 2,665,869 10,109,175 12,775,044 COLUMBUS OH Sycamore Ridge 13,702,434 4,067,900 15,433,285 19,501,185 Heritage Green - 2,990,199 11,391,797 14,381,996 Alexander Court - 1,573,412 - 1,573,412 Governour's Square 29,000,003 7,512,513 28,695,050 36,207,563 Hickory Creek - 3,421,413 13,539,402 16,960,815 OTHER MARKETS Forest Lake At Oyster Point, Newport News, VA - 780,117 8,861,878 9,641,995 Woodscape, Newport News, VA - 798,700 7,209,525 8,008,225 Eastwind, Virginia Beach, VA - 155,000 5,316,738 5,471,738 Dominion Waterside At Lynnhaven, Virginia Beach, VA - 1,823,983 4,106,710 5,930,693 Heather Lake, Hampton, VA - 616,800 3,400,672 4,017,472 Dominion Yorkshire Downs, Yorktown, VA 6,825,000 1,088,887 8,581,771 9,670,658 Dominion Middle Ridge, Woodbridge. VA 13,192,977 3,311,468 13,283,047 16,594,515 Dominion Lake Ridge, Lake Ridge, VA 8,970,000 2,366,061 8,386,439 10,752,500 Knolls At Newgate, Centreville, VA - 1,725,725 3,530,134 5,255,859 Greens At Falls Run, Fredericksburg, VA - 2,730,722 5,300,203 8,030,925 Manor At England Run, Fredericksburg, VA - 1,168,810 7,006,464 8,175,274 Greens At Hollymead, Charlottesville, VA - 965,114 5,250,374 6,215,488 Brittingham Square, Salisbury, MD - 650,143 4,962,246 5,612,389 Greens At Schumaker Pond, Salisbury, MD - 709,559 6,117,582 6,827,141 Greens At Cross Court, Easton, MD - 1,182,414 4,544,012 5,726,426 Greens At Hilton Run, Lexington Park, MD 11,520,000 2,754,447 10,482,579 13,237,026 Dover Country, Dover, DE - 2,007,878 6,365,053 8,372,931 Greens At Cedar Chase, Dover, DE 4,150,000 1,528,667 4,830,738 6,359,405 Washington Park, Centerville, OH - 2,011,520 7,565,279 9,576,799 Fountainhead, Dayton, OH 1,521,711 390,542 1,420,166 1,810,708 Jamestown Of Toledo, Toledo, OH - 1,800,271 7,053,585 8,853,856 Colony Village, New Bern, NC - 346,330 3,036,956 3,383,286 Brynn Marr, Jacksonville, NC - 432,974 3,821,508 4,254,482 Liberty Crossing, Jacksonville, NC - 840,000 3,873,139 4,713,139 Bramblewood, Goldsboro, NC - 401,538 3,150,912 3,552,450 Cumberland Trace, Fayetteville, NC - 632,281 7,895,674 8,527,955 Village At Cliffdale, Fayetteville, NC 10,014,218 941,284 15,498,216 16,439,501 Morganton Place, Fayetteville, NC - 819,090 13,217,086 14,036,176 Woodberry, Asheville, NC - 388,699 6,380,899 6,769,598 Sunset Village, Flint, MI - 796,994 1,829,226 2,626,220 2900 Place, East Lansing, MI - 1,818,957 5,593,327 7,412,284 Brandywine Creek, East Lansing, MI - 4,665,991 17,514,466 22,180,457 Lakewood, Haslett, MI - 1,113,126 3,877,503 4,990,629 Nemoke Trail, Haslett, MI - 3,430,631 12,222,526 15,653,157 American Heritage, Waterford, MI - 1,021,412 3,958,146 4,979,558 Ashton Pines, Waterford, MI - 1,822,351 8,013,902 9,836,253 Kings Gate, Sterling Heights, MI - 1,180,664 4,828,504 6,009,168 Lancaster Lake, Clarkston, MI - 4,237,887 14,662,797 18,900,684 Southern Region: ORLANDO Fisherman's Village - 2,387,368 7,458,897 9,846,265 Seabrook - 1,845,853 4,155,275 6,001,128 Dover Village - 2,894,702 6,456,100 9,350,802 Lakeside North 12,440,000 1,532,700 11,076,062 12,608,762 Regatta Shore - 757,008 6,607,367 7,364,375 Alafaya Woods 10,000,000 1,653,000 9,042,256 10,695,256 Vinyards 8,795,000 1,840,230 11,571,625 13,411,855 Andover Place 13,405,000 3,692,187 7,756,919 11,449,106 Los Altos 11,440,000 2,803,805 12,348,464 15,152,270 Lotus Landing - 2,184,723 8,638,664 10,823,387 Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period ---------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ------------------------------------------------------------------------------ Dominion Constant Friendship 693,335 1,043,201 5,222,212 6,265,413 Lakeside Mill 280,575 2,673,914 10,381,705 13,055,619 COLUMBUS OH Sycamore Ridge 849,659 4,172,041 16,178,802 20,350,844 Heritage Green 9,228,112 3,093,476 20,516,631 23,610,107 Alexander Court 21,342,176 1,642,866 21,272,723 22,915,588 Governour's Square 1,589,518 7,663,518 30,133,563 37,797,081 Hickory Creek 646,837 3,452,749 14,154,904 17,607,652 OTHER MARKETS Forest Lake At Oyster Point, Newport News, VA 1,897,758 1,166,789 10,372,964 11,539,752 Woodscape, Newport News, VA 2,357,904 1,103,568 9,262,561 10,366,129 Eastwind, Virginia Beach, VA 1,214,815 368,372 6,318,181 6,686,553 Dominion Waterside At Lynnhaven, Virginia Beach, VA 1,170,854 2,009,683 5,091,864 7,101,547 Heather Lake, Hampton, VA 3,429,085 1,015,545 6,431,012 7,446,557 Dominion Yorkshire Downs, Yorktown, VA 672,743 1,248,510 9,094,892 10,343,401 Dominion Middle Ridge, Woodbridge. VA 962,754 3,423,239 14,134,030 17,557,269 Dominion Lake Ridge, Lake Ridge, VA 760,043 2,511,181 9,001,362 11,512,543 Knolls At Newgate, Centreville, VA 1,637,046 1,846,268 5,046,637 6,892,905 Greens At Falls Run, Fredericksburg, VA 818,868 2,876,643 5,973,149 8,849,792 Manor At England Run, Fredericksburg, VA 13,178,991 2,794,885 18,559,380 21,354,265 Greens At Hollymead, Charlottesville, VA 638,962 1,056,498 5,797,953 6,854,451 Brittingham Square, Salisbury, MD 597,661 784,733 5,425,316 6,210,050 Greens At Schumaker Pond, Salisbury, MD 861,372 857,168 6,831,345 7,688,513 Greens At Cross Court, Easton, MD 985,831 1,362,893 5,349,364 6,712,257 Greens At Hilton Run, Lexington Park, MD 1,343,556 3,083,093 11,497,489 14,580,582 Dover Country, Dover, DE 2,369,190 2,359,250 8,382,870 10,742,121 Greens At Cedar Chase, Dover, DE 722,150 1,722,356 5,359,199 7,081,555 Washington Park, Centerville, OH 972,360 2,100,912 8,448,248 10,549,159 Fountainhead, Dayton, OH 68,744 390,542 1,488,910 1,879,452 Jamestown Of Toledo, Toledo, OH 499,396 1,874,443 7,478,809 9,353,252 Colony Village, New Bern, NC 1,865,002 552,767 4,695,521 5,248,288 Brynn Marr, Jacksonville, NC 2,528,323 723,818 6,058,987 6,782,805 Liberty Crossing, Jacksonville, NC 2,782,941 1,418,632 6,077,448 7,496,080 Bramblewood, Goldsboro, NC 1,453,075 576,414 4,429,111 5,005,525 Cumberland Trace, Fayetteville, NC 657,116 664,579 8,520,492 9,185,071 Village At Cliffdale, Fayetteville, NC 1,081,762 1,118,152 16,403,110 17,521,262 Morganton Place, Fayetteville, NC 584,479 886,825 13,733,830 14,620,655 Woodberry, Asheville, NC 983,036 554,427 7,198,206 7,752,634 Sunset Village, Flint, MI 59,350 796,994 1,888,576 2,685,570 2900 Place, East Lansing, MI 170,664 1,819,883 5,763,065 7,582,948 Brandywine Creek, East Lansing, MI (2,752,066) 4,691,285 14,737,106 19,428,391 Lakewood, Haslett, MI 114,808 1,162,755 3,942,683 5,105,437 Nemoke Trail, Haslett, MI 118,676 3,430,631 12,341,201 15,771,833 American Heritage, Waterford, MI 76,712 1,028,097 4,028,174 5,056,270 Ashton Pines, Waterford, MI 187,150 1,838,608 8,184,796 10,023,403 Kings Gate, Sterling Heights, MI 115,509 1,193,949 4,930,729 6,124,677 Lancaster Lake, Clarkston, MI 584,959 4,292,759 15,192,885 19,485,643 Southern Region: ORLANDO Fisherman's Village 2,945,691 3,090,614 9,701,343 12,791,956 Seabrook 2,674,836 2,241,118 6,434,846 8,675,964 Dover Village 3,334,730 3,359,514 9,326,019 12,685,532 Lakeside North 3,521,173 2,232,375 13,897,560 16,129,935 Regatta Shore 2,493,119 1,503,406 8,354,088 9,857,494 Alafaya Woods 1,993,331 2,097,999 10,590,589 12,688,588 Vinyards 2,735,670 2,379,143 13,768,382 16,147,525 Andover Place 2,947,660 4,456,793 9,939,973 14,396,766 Los Altos 2,426,454 3,306,774 14,271,949 17,578,724 Lotus Landing 1,793,437 2,384,771 10,232,053 12,616,824 Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) -------------------------------------------------------------------------- Dominion Constant Friendship 1,201,822 1990 05/04/95 35 Years Lakeside Mill 2,140,095 1989 12/10/99 35 Years COLUMBUS OH Sycamore Ridge 1,522,763 1997 07/02/98 35 Years Heritage Green 1,544,562 1998 07/02/98 35 Years Alexander Court 3,680,423 1999 07/02/98 35 Years Governour's Square 2,249,997 1967 12/07/98 35 Years Hickory Creek 1,050,874 1988 12/07/98 35 Years OTHER MARKETS Forest Lake At Oyster Point, Newport News, VA 2,433,357 1986 08/15/95 35 Years Woodscape, Newport News, VA 3,897,754 1974/76 12/29/87 35 Years Eastwind, Virginia Beach, VA 2,567,744 1970 04/04/88 35 Years Dominion Waterside At Lynnhaven, Virginia Beach, VA 1,115,488 1966 08/15/96 35 Years Heather Lake, Hampton, VA 4,246,120 1972/74 03/01/80 35 Years Dominion Yorkshire Downs, Yorktown, VA 1,101,616 1987 12/23/97 35 Years Dominion Middle Ridge, Woodbridge. VA 2,427,325 1990 06/25/96 35 Years Dominion Lake Ridge, Lake Ridge, VA 1,807,529 1987 02/23/96 35 Years Knolls At Newgate, Centreville, VA 1,596,876 1972 07/01/94 35 Years Greens At Falls Run, Fredericksburg, VA 1,356,223 1989 05/04/95 35 Years Manor At England Run, Fredericksburg, VA 2,903,977 1990 05/04/95 35 Years Greens At Hollymead, Charlottesville, VA 1,265,020 1990 05/04/95 35 Years Brittingham Square, Salisbury, MD 1,209,075 1991 05/04/95 35 Years Greens At Schumaker Pond, Salisbury, MD 1,500,105 1988 05/04/95 35 Years Greens At Cross Court, Easton, MD 1,211,651 1987 05/04/95 35 Years Greens At Hilton Run, Lexington Park, MD 2,502,809 1988 05/04/95 35 Years Dover Country, Dover, DE 2,501,838 1970 07/01/94 35 Years Greens At Cedar Chase, Dover, DE 1,273,486 1988 05/04/95 35 Years Washington Park, Centerville, OH 795,173 1998 12/07/98 35 Years Fountainhead, Dayton, OH 113,397 1966 12/07/98 35 Years Jamestown Of Toledo, Toledo, OH 556,014 1965 12/07/98 35 Years Colony Village, New Bern, NC 2,794,741 1972/74 12/31/84 35 Years Brynn Marr, Jacksonville, NC 3,324,316 1973/77 12/31/84 35 Years Liberty Crossing, Jacksonville, NC 3,284,032 1972/74 11/30/90 35 Years Bramblewood, Goldsboro, NC 2,627,219 1980/82 12/31/84 35 Years Cumberland Trace, Fayetteville, NC 1,463,266 1973 08/15/96 35 Years Village At Cliffdale, Fayetteville, NC 2,653,591 1992 08/15/96 35 Years Morganton Place, Fayetteville, NC 2,130,664 1994 08/15/96 35 Years Woodberry, Asheville, NC 1,328,960 1987 08/15/96 35 Years Sunset Village, Flint, MI 263,559 1940 12/07/98 35 Years 2900 Place, East Lansing, MI 395,404 1966 12/07/98 35 Years Brandywine Creek, East Lansing, MI 1,276,029 1974 12/07/98 35 Years Lakewood, Haslett, MI 323,424 1974 12/07/98 35 Years Nemoke Trail, Haslett, MI 959,233 1978 12/07/98 35 Years American Heritage, Waterford, MI 298,729 1968 12/07/98 35 Years Ashton Pines, Waterford, MI 517,080 1987 12/07/98 35 Years Kings Gate, Sterling Heights, MI 339,160 1973 12/07/98 35 Years Lancaster Lake, Clarkston, MI 1,144,008 1988 12/07/98 35 Years Southern Region: ORLANDO Fisherman's Village 2,571,996 1984 12/29/95 35 Years Seabrook 1,922,830 1984 02/20/96 35 Years Dover Village 3,391,517 1981 03/31/93 35 Years Lakeside North 3,917,847 1984 04/14/94 35 Years Regatta Shore 2,673,048 1988 06/30/94 35 Years Alafaya Woods 2,941,398 1988/90 10/21/94 35 Years Vinyards 3,754,574 1984/86 10/31/94 35 Years Andover Place 2,609,490 1988 09/29/95 & 09/30/96 35 Years Los Altos 2,546,376 1990 10/31/96 35 Years Lotus Landing 1,408,858 1985 07/01/97 35 Years
SCHEDULE III Summary of Real Estate Owned
Initial Costs Total ------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) --------------------------------------------------------------------------- Seville On The Green - 1,282,616 6,498,062 7,780,678 Arbors @ Lee Vista 14,350,000 3,975,679 16,920,454 20,896,133 Heron Lake 6,306,389 1,446,553 9,287,878 10,734,431 Ashton @ Waterford - 3,871,744 17,537,879 21,409,623 TAMPA-ST PETERSBURG-CLEARWATER Bay Cove - 2,928,847 6,578,257 9,507,104 Summit West - 2,176,500 4,709,970 6,886,470 Pinebrook - 1,780,375 2,458,172 4,238,547 Lakewood Place 10,250,000 1,395,051 10,647,377 12,042,428 Hunters Ridge 10,000,000 2,461,548 10,942,434 13,403,982 Bay Meadow - 2,892,526 9,253,525 12,146,051 Cambridge - 1,790,804 7,166,329 8,957,133 Laurel Oaks - 1,361,553 6,541,980 7,903,533 Parker's Landing 31,415,281 10,178,355 37,868,669 48,047,024 Sugar Mill Creek - 2,241,880 7,552,520 9,794,400 COLUMBIA SC Gable Hill - 824,847 5,307,194 6,132,041 St. Andrews Commons - 1,428,826 9,371,378 10,800,204 Forestbrook 5,000,000 395,516 2,902,040 3,297,556 Waterford - 957,980 6,947,939 7,905,919 Hampton Greene - 1,363,046 10,118,453 11,481,499 Rivergate - 1,122,500 12,055,625 13,178,125 NASHVILLE TN Legacy Hill - 1,147,660 5,867,567 7,015,227 Hickory Run - 1,468,727 11,583,786 13,052,513 Carrington Hills - 2,117,244 - 2,117,244 Brookridge - 707,508 5,461,251 6,168,760 Club At Hickory Hollow - 2,139,774 15,231,201 17,370,975 Breckenridge - 766,428 7,713,862 8,480,290 Williamsburg - 1,376,190 10,931,309 12,307,498 Colonnade - 1,459,754 16,014,857 17,474,612 MEMPHIS TN Briar Club - 1,214,400 6,928,959 8,143,359 Hunters Trace 5,412,083 888,440 6,676,552 7,564,992 Cinnamon Trails - 1,886,632 7,644,522 9,531,154 The Trails 27,311,519 10,387,416 34,394,843 44,782,259 Dogwood Creek - 2,771,868 15,673,846 18,445,714 ATLANTA GA Stanford Village - 884,500 2,807,839 3,692,339 Griffin Crossing - 1,509,633 7,544,018 9,053,651 Gwinnett Square 7,150,000 1,924,325 7,376,454 9,300,779 Dunwoody Pointe 5,580,829 2,763,324 6,902,996 9,666,320 Riverwood 4,983,254 2,985,599 11,087,903 14,073,502 Waterford Place - 1,579,478 10,302,679 11,882,157 SOUTH FLORIDA Copperfield 12,300,000 4,424,128 20,428,969 24,853,097 Mediterranean Village 8,320,000 2,064,788 11,939,113 14,003,901 Cleary Court - 2,399,848 7,913,450 10,313,298 University Club - 1,390,220 6,992,620 8,382,840 Polo Chase - 3,675,276 13,301,853 16,977,129 Pembroke Bay - 4,442,492 16,664,469 21,106,962 OTHER MARKETS Jamestown Of St. Matthews, St. Matthews, KY 11,235,576 3,865,596 14,422,383 18,287,979 Patriot Place, Florence, SC 2,200,000 212,500 1,600,757 1,813,257 Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period ---------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) -------------------------------------------------------------------------- Seville On The Green 1,763,132 1,442,318 8,101,492 9,543,810 Arbors @ Lee Vista 1,579,430 4,364,804 18,110,760 22,475,563 Heron Lake 921,005 1,591,825 10,063,611 11,655,436 Ashton @ Waterford 106,854 3,871,744 17,644,733 21,516,477 TAMPA-ST PETERSBURG-CLEARWATER Bay Cove 2,759,652 3,272,710 8,994,046 12,266,756 Summit West 2,380,213 2,446,995 6,819,689 9,266,683 Pinebrook 2,917,886 2,001,756 5,154,677 7,156,433 Lakewood Place 1,247,664 1,613,593 11,676,500 13,290,092 Hunters Ridge 1,384,461 2,948,973 11,839,470 14,788,443 Bay Meadow 2,463,507 3,424,786 11,184,772 14,609,557 Cambridge 1,367,588 2,069,587 8,255,134 10,324,721 Laurel Oaks 1,150,392 1,534,328 7,519,597 9,053,925 Parker's Landing 947,078 9,214,278 39,779,824 48,994,102 Sugar Mill Creek 362,264 2,383,861 7,772,803 10,156,664 COLUMBIA SC Gable Hill 1,347,428 1,184,326 6,295,143 7,479,469 St. Andrews Commons 1,615,500 1,851,322 10,564,382 12,415,704 Forestbrook 1,840,654 627,056 4,511,154 5,138,210 Waterford 1,404,693 1,253,454 8,057,158 9,310,612 Hampton Greene 1,362,842 1,871,519 10,972,822 12,844,341 Rivergate 1,105,359 1,430,844 12,852,639 14,283,484 NASHVILLE TN Legacy Hill 2,733,132 1,419,924 8,328,435 9,748,359 Hickory Run 1,446,005 1,638,812 12,859,706 14,498,518 Carrington Hills 24,316,537 2,719,118 23,714,662 26,433,781 Brookridge 1,206,524 922,455 6,452,829 7,375,284 Club At Hickory Hollow 1,884,544 2,681,185 16,574,334 19,255,519 Breckenridge 727,711 955,284 8,252,717 9,208,001 Williamsburg 1,240,439 1,537,718 12,010,219 13,547,938 Colonnade 435,493 1,601,222 16,308,882 17,910,104 MEMPHIS TN Briar Club 1,955,591 1,560,279 8,538,670 10,098,950 Hunters Trace 1,366,817 1,179,599 7,752,210 8,931,809 Cinnamon Trails (86,708) 2,054,103 7,390,342 9,444,446 The Trails 3,327,549 11,072,164 37,037,644 48,109,808 Dogwood Creek 721,652 2,937,407 16,229,959 19,167,366 ATLANTA GA Stanford Village 1,130,143 1,164,766 3,657,716 4,822,482 Griffin Crossing 1,445,351 1,805,742 8,693,260 10,499,002 Gwinnett Square 1,546,548 2,138,004 8,709,323 10,847,327 Dunwoody Pointe 4,394,708 3,305,952 10,755,076 14,061,028 Riverwood 3,396,877 3,340,776 14,129,603 17,470,379 Waterford Place 381,663 1,645,910 10,617,910 12,263,820 SOUTH FLORIDA Copperfield 1,741,384 4,976,042 21,618,439 26,594,481 Mediterranean Village 1,491,518 2,280,874 13,214,545 15,495,419 Cleary Court 1,590,125 2,633,617 9,269,806 11,903,423 University Club 1,710,713 1,758,874 8,334,678 10,093,553 Polo Chase 553,282 3,761,446 13,768,966 17,530,411 Pembroke Bay 610,308 4,630,954 17,086,316 21,717,270 OTHER MARKETS Jamestown Of St. Matthews, St. Matthews, KY 716,366 3,941,427 15,062,918 19,004,345 Patriot Place, Florence, SC 5,669,543 1,481,436 6,001,363 7,482,800 Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) --------------------------------------------------------------------- Seville On The Green 1,122,278 1986 10/21/97 35 Years Arbors @ Lee Vista 2,123,136 1991 12/31/97 35 Years Heron Lake 1,091,328 1989 03/27/98 35 Years Ashton @ Waterford 438,672 2000 05/28/98 35 Years TAMPA-ST PETERSBURG-CLEARWATER Bay Cove 3,348,738 1972 12/16/92 35 Years Summit West 2,519,809 1972 12/16/92 35 Years Pinebrook 2,228,633 1977 09/28/93 35 Years Lakewood Place 3,014,713 1986 03/10/94 35 Years Hunters Ridge 2,765,425 1992 06/30/95 35 Years Bay Meadow 1,996,174 1985 12/09/96 35 Years Cambridge 1,293,086 1985 06/06/97 35 Years Laurel Oaks 1,141,059 1986 07/01/97 35 Years Parker's Landing 2,900,441 1991 12/07/98 35 Years Sugar Mill Creek 651,092 1988 12/07/98 35 Years COLUMBIA SC Gable Hill 2,650,059 1985 12/04/89 35 Years St. Andrews Commons 3,306,427 1986 05/20/93 35 Years Forestbrook 1,875,622 1974 07/01/93 35 Years Waterford 2,167,790 1985 07/01/94 35 Years Hampton Greene 2,735,675 1990 08/19/94 35 Years Rivergate 2,205,971 1989 08/15/96 35 Years NASHVILLE TN Legacy Hill 2,158,124 1977 11/06/95 35 Years Hickory Run 2,632,416 1989 12/29/95 35 Years Carrington Hills 69,320 1999 12/06/95 35 Years Brookridge 1,455,483 1986 03/28/96 35 Years Club At Hickory Hollow 2,689,207 1987 02/21/97 35 Years Breckenridge 1,260,622 1986 03/27/97 35 Years Williamsburg 1,477,333 1986 05/20/98 35 Years Colonnade 1,269,212 1998 01/07/99 35 Years MEMPHIS TN Briar Club 2,395,205 1987 10/14/94 35 Years Hunters Trace 2,067,346 1986 10/14/94 35 Years Cinnamon Trails 916,584 1989 01/09/98 35 Years The Trails 4,280,014 1990 01/09/98 35 Years Dogwood Creek 2,067,610 1997 02/06/98 35 Years ATLANTA GA Stanford Village 1,912,758 1985 09/26/89 35 Years Griffin Crossing 2,389,006 1987/89 06/08/94 35 Years Gwinnett Square 1,971,405 1985 03/29/95 35 Years Dunwoody Pointe 2,831,981 1980 10/24/95 35 Years Riverwood 3,141,457 1980 06/26/96 35 Years Waterford Place 1,060,557 1985 04/15/98 35 Years SOUTH FLORIDA Copperfield 4,576,456 1991 09/21/94 35 Years Mediterranean Village 3,079,124 1989 09/30/94 35 Years Cleary Court 2,258,407 1984/85 11/30/94 35 Years University Club 1,759,178 1988 09/26/95 35 Years Polo Chase 1,099,810 1991 12/07/98 35 Years Pembroke Bay 815,485 1989 07/26/99 35 Years OTHER MARKETS Jamestown Of St. Matthews, St. Matthews, KY 1,129,765 1968 12/07/98 35 Years Patriot Place, Florence, SC 3,644,528 1974 10/23/85 35 Years
Initial Costs ----------------------------------- Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ------------------------------------------------------------------------------------- River Place, Macon, GA 5,000,000 1,097,280 7,492,385 8,589,665 Mallards Of Wedgewood, Lakeland, FL - 959,284 6,864,666 7,823,950 Greentree, Jacksonville, FL 12,455,000 1,634,330 11,226,990 12,861,320 Westland, Jacksonville, FL 12,805,000 1,834,535 14,864,742 16,699,276 Antlers, Jacksonville, FL - 4,034,039 11,192,842 15,226,880 Brantley Pines, Ft. Myers, FL - 1,892,888 8,247,621 10,140,509 Santa Barbara, Naples, FL - 1,134,120 8,019,814 9,153,934 Ashlar, Ft. Myers, FL - 3,952,234 11,718,186 15,670,420 The Groves, Port Orange, FL - 789,953 4,767,055 5,557,008 Lakeside, Port Orange, FL - 2,404,305 6,420,160 8,824,465 Mallards Of Brandywine, Deland, FL - 765,949 5,407,683 6,173,632 Lake Washington Downs, Melbourne, FL - 1,434,450 4,940,166 6,374,616 International Village, Speedway, IN - 3,934,102 11,478,908 15,413,010 Regency Park South, Indianapolis, IN - 2,643,025 7,632,098 10,275,123 Western Region: DALLAS TEXAS Preston Oaks - 1,783,626 6,416,374 8,200,000 Preston Trace - 2,195,500 8,304,500 10,500,000 Rock Creek - 4,076,680 15,823,320 19,900,000 Windridge - 3,414,311 14,027,310 17,441,621 Catalina - 1,543,321 5,631,679 7,175,000 Wimbledon Court - 1,809,183 10,930,306 12,739,489 Lakeridge - 1,631,350 5,668,650 7,299,999 Summergate - 1,171,300 3,928,700 5,100,000 Oak Forest - 5,630,740 23,293,922 28,924,662 Oaks Of Lewisville - 3,726,795 13,563,181 17,289,976 Kelly Crossing - 2,496,701 9,156,355 11,653,056 Highlands Of Preston - 2,151,056 8,167,630 10,318,686 The Summit 5,182,107 1,932,195 9,041,301 10,973,496 Springfield 5,167,275 3,074,511 6,823,120 9,897,631 HOUSTON Woodtrail - 1,543,000 5,457,000 7,000,000 Park Trails - 1,144,750 4,105,250 5,250,000 Green Oaks - 5,313,920 19,626,181 24,940,101 Sky Hawk - 2,297,741 7,157,965 9,455,706 South Grand At Pecan Grove 10,418,907 4,058,090 14,755,809 18,813,899 Breakers - 1,527,467 5,297,930 6,825,397 Braesridge 9,092,367 3,048,212 10,961,749 14,009,961 Skylar Pointe - 3,604,483 11,592,432 15,196,915 Stone Canyon - 899,515 - 899,515 Briar Park 1,391,437 329,002 2,794,131 3,123,133 Chelsea Park 3,192,625 1,991,478 5,787,626 7,779,104 Clear Lake Falls 3,054,749 1,090,080 4,534,335 5,624,415 Country Club Place 3,475,061 498,632 6,520,172 7,018,804 Arbor Ridge 3,734,476 1,688,948 6,684,229 8,373,177 London Park 4,455,643 2,018,478 6,667,450 8,685,928 Marymont - 1,150,696 4,155,411 5,306,107 Nantucket Square 2,688,551 1,067,617 4,833,402 5,901,019 Riverway 1,181,322 523,457 2,828,282 3,351,739 Riviera Pines 3,274,452 1,413,851 6,453,847 7,867,698 The Gallery 1,538,994 768,708 3,358,484 4,127,192 Towne Lake - 1,333,958 5,308,884 6,642,842 The Legend at Park 10 - 1,995,011 - 1,995,011 PHOENIX-MESA AZ Paradise Falls - 1,622,700 6,170,800 7,793,500 Vista Point - 1,587,400 5,612,600 7,200,000 Sierra Palms - 4,638,950 17,361,050 22,000,000 Northpark Village - 1,519,314 13,536,707 15,056,021 Cost of Gross Amount at Improvements Which Carried at Close of Period Capitalized ----------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ----------------------------------------------------------------------------------- River Place, Macon, GA 1,898,820 1,717,042 8,771,442 10,488,485 Mallards Of Wedgewood, Lakeland, FL 1,643,276 1,249,320 8,217,906 9,467,226 Greentree, Jacksonville, FL 3,575,811 2,270,802 14,166,330 16,437,131 Westland, Jacksonville, FL 3,506,505 2,607,242 17,598,540 20,205,782 Antlers, Jacksonville, FL 5,385,491 4,782,830 15,829,541 20,612,372 Brantley Pines, Ft. Myers, FL 4,861,958 820,127 14,182,340 15,002,467 Santa Barbara, Naples, FL 1,643,083 1,714,318 9,082,699 10,797,017 Ashlar, Ft. Myers, FL 16,111,886 7,593,378 24,188,928 31,782,306 The Groves, Port Orange, FL 1,725,606 1,443,512 5,839,102 7,282,614 Lakeside, Port Orange, FL 1,268,820 2,574,381 7,518,904 10,093,285 Mallards Of Brandywine, Deland, FL 1,099,309 980,636 6,292,306 7,272,941 Lake Washington Downs, Melbourne, FL 2,039,249 1,750,997 6,662,868 8,413,865 International Village, Speedway, IN 465,769 3,976,199 11,902,580 15,878,779 Regency Park South, Indianapolis, IN 496,876 2,688,317 8,083,682 10,771,999 Western Region: DALLAS TEXAS Preston Oaks 613,050 1,897,501 6,915,549 8,813,050 Preston Trace 761,953 2,349,946 8,912,007 11,261,953 Rock Creek 4,051,565 4,486,002 19,465,563 23,951,565 Windridge 2,568,127 4,001,213 16,008,534 20,009,748 Catalina 609,896 1,648,194 6,136,703 7,784,896 Wimbledon Court 2,010,590 2,825,054 11,925,025 14,750,079 Lakeridge 845,732 1,776,336 6,369,395 8,145,731 Summergate 701,529 1,380,065 4,421,464 5,801,529 Oak Forest 10,000,318 6,354,384 32,570,596 38,924,980 Oaks Of Lewisville 3,485,698 4,497,320 16,278,354 20,775,674 Kelly Crossing 1,442,413 2,965,259 10,130,210 13,095,469 Highlands Of Preston 1,607,813 2,463,053 9,463,446 11,926,499 The Summit 1,133,379 2,302,119 9,804,756 12,106,875 Springfield 992,593 3,260,450 7,629,774 10,890,224 HOUSTON Woodtrail 2,078,334 1,728,597 7,349,737 9,078,334 Park Trails 767,844 1,208,921 4,808,923 6,017,844 Green Oaks 2,383,195 5,758,011 21,565,285 27,323,296 Sky Hawk 1,872,546 2,698,250 8,630,002 11,328,252 South Grand At Pecan Grove 3,662,938 4,437,828 18,039,009 22,476,837 Breakers 2,038,067 1,873,522 6,989,942 8,863,464 Braesridge 1,705,322 3,349,650 12,365,633 15,715,283 Skylar Pointe 3,757,921 3,657,880 15,296,956 18,954,836 Stone Canyon 9,437,829 899,515 9,437,829 10,337,344 Briar Park 102,280 333,748 2,891,665 3,225,413 Chelsea Park 1,243,271 2,289,122 6,733,253 9,022,375 Clear Lake Falls (308,399) 1,106,162 4,209,854 5,316,016 Country Club Place 821,606 643,066 7,197,344 7,840,410 Arbor Ridge 148,635 2,029,720 6,492,092 8,521,812 London Park 1,374,895 2,299,585 7,761,238 10,060,823 Marymont 378,980 1,158,696 4,526,391 5,685,087 Nantucket Square (686,315) 1,070,242 4,144,462 5,214,704 Riverway 110,364 529,666 2,932,437 3,462,103 Riviera Pines 139,734 1,418,444 6,588,988 8,007,432 The Gallery 81,922 776,004 3,433,110 4,209,114 Towne Lake 1,106,694 1,563,625 6,185,911 7,749,536 The Legend at Park 10 11,758,419 2,018,039 11,735,391 13,753,430 PHOENIX-MESA AZ Paradise Falls 2,886,523 1,828,963 8,851,060 10,680,023 Vista Point 1,312,937 1,717,158 6,795,779 8,512,937 Sierra Palms 437,202 4,733,068 17,704,134 22,437,202 Northpark Village 1,565,066 1,819,190 14,801,897 16,621,087 Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) ------------------------------------------------------------------------------------ River Place, Macon, GA 2,642,789 1988 04/08/94 35 Years Mallards Of Wedgewood, Lakeland, FL 2,014,027 1985 07/27/95 35 Years Greentree, Jacksonville, FL 3,822,480 1986 07/22/94 35 Years Westland, Jacksonville, FL 3,723,824 1990 05/09/96 35 Years Antlers, Jacksonville, FL 3,680,912 1985 05/28/96 35 Years Brantley Pines, Ft. Myers, FL 3,813,602 1986 08/11/94 35 Years Santa Barbara, Naples, FL 2,497,039 1987 09/01/94 35 Years Ashlar, Ft. Myers, FL 1,057,966 1999/2000 12/24/97 35 Years The Groves, Port Orange, FL 1,541,419 1989 12/13/95 35 Years Lakeside, Port Orange, FL 1,134,518 1985 07/01/97 35 Years Mallards Of Brandywine, Deland, FL 995,046 1985 07/01/97 35 Years Lake Washington Downs, Melbourne, FL 2,289,531 1984 09/24/93 35 Years International Village, Speedway, IN 1,181,011 1968 12/07/98 35 Years Regency Park South, Indianapolis, IN 787,026 1968 12/07/98 35 Years Western Region: DALLAS TEXAS Preston Oaks 1,094,475 1980 12/31/96 35 Years Preston Trace 1,349,446 1984 12/31/96 35 Years Rock Creek 3,126,426 1979 12/31/96 35 Years Windridge 2,697,391 1980 12/31/96 35 Years Catalina 991,890 1982 12/31/96 35 Years Wimbledon Court 1,709,266 1983 12/31/96 35 Years Lakeridge 1,088,847 1984 12/31/96 35 Years Summergate 742,151 1984 12/31/96 35 Years Oak Forest 3,492,985 1996/98 12/31/96 35 Years Oaks Of Lewisville 2,872,774 1983 03/27/97 35 Years Kelly Crossing 1,525,524 1984 06/18/97 35 Years Highlands Of Preston 1,138,410 1985 03/27/98 35 Years The Summit 1,148,319 1983 03/27/98 35 Years Springfield 951,962 1985 03/27/98 35 Years HOUSTON Woodtrail 1,531,754 1978 12/31/96 35 Years Park Trails 806,361 1983 12/31/96 35 Years Green Oaks 3,160,374 1985 06/25/97 35 Years Sky Hawk 1,459,437 1984 05/08/97 35 Years South Grand At Pecan Grove 2,486,549 1985 09/26/97 35 Years Breakers 1,094,679 1985 09/26/97 35 Years Braesridge 1,744,605 1982 09/26/97 35 Years Skylar Pointe 2,208,604 1979 11/20/97 35 Years Stone Canyon 92,201 1998 12/17/97 35 Years Briar Park 293,683 1987 03/27/98 35 Years Chelsea Park 838,680 1983 03/27/98 35 Years Clear Lake Falls 478,335 1980 03/27/98 35 Years Country Club Place 760,109 1985 03/27/98 35 Years Arbor Ridge 775,659 1983 03/27/98 35 Years London Park 983,269 1983 03/27/98 35 Years Marymont 489,885 1983 03/27/98 35 Years Nantucket Square 448,369 1983 03/27/98 35 Years Riverway 365,345 1985 03/27/98 35 Years Riviera Pines 633,214 1979 03/27/98 35 Years The Gallery 297,475 1968 03/27/98 35 Years Towne Lake 799,194 1984 03/27/98 35 Years The Legend at Park 10 2,507,695 1998 05/19/98 35 Years PHOENIX-MESA AZ Paradise Falls 1,325,764 1986 12/31/96 35 Years Vista Point 1,149,554 1986 12/31/96 35 Years Sierra Palms 2,552,849 1996 12/31/96 35 Years Northpark Village 1,801,053 1983 03/27/98 35 Years
SCHEDULE III Summary of Real Estate Owned
Initial Costs ------------------------------ Cost of Improvements Total Capitalized Land and Buildings Initial Subsequent of Land and Acquisition to Acquisitioning Encumbrances (a) (b) Improvements Improvements Costs (c) (Net of Disposals) ------------------------------------------------------------------------------------------------- Stonegate 3,703,436 735,036 7,939,875 8,674,911 688,203 Finisterra - 1,273,798 26,392,207 27,666,005 307,400 La Privada 15,382,899 7,303,161 18,507,617 25,810,778 1,774,951 Terracina - 3,757,224 34,780,779 38,538,002 5,632,594 Woodland Park - 3,016,907 6,706,473 9,723,380 909,752 Sierra Foothills - 2,728,172 - 2,728,172 18,794,624 FORT WORTH-ARLINGTON TEXAS Autumnwood - 2,412,180 8,687,820 11,100,000 915,690 Cobblestone - 2,925,372 10,527,738 13,453,110 1,895,732 Pavillion - 4,428,258 19,032,881 23,461,139 1,016,798 Oak Park - 3,966,129 22,227,701 26,193,830 (385,559) Southern Oaks - 1,565,000 5,335,000 6,900,000 754,590 Hunter's Ridge - 1,613,000 5,837,000 7,450,000 790,643 Parc Plaza - 1,683,531 5,279,123 6,962,654 1,339,056 Summit Ridge 4,810,550 1,725,508 6,308,032 8,033,540 1,367,077 Greenwood Creek 4,768,424 1,958,378 8,551,018 10,509,396 1,127,672 Derby Park 7,218,225 3,121,153 11,764,974 14,886,127 773,887 Aspen Court 1,913,309 776,587 4,944,947 5,721,534 779,032 SAN ANTONIO Promontory Pointe - 7,548,219 28,051,781 35,600,000 2,431,666 The Bluffs - 1,901,146 6,898,854 8,800,000 1,340,666 Ashley Oaks - 4,590,782 16,809,218 21,400,000 471,484 Sunflower - 2,209,000 7,891,000 10,100,000 582,262 Escalante 3,913,340 2,701,992 24,033,196 26,735,188 1,581,401 Cimarron City 3,097,104 487,906 4,534,793 5,022,699 683,210 Kenton 7,288,859 2,344,962 8,917,376 11,262,338 1,676,573 Peppermill 4,306,088 773,405 6,873,146 7,646,551 2,034,322 Sunset Canyon 8,753,297 3,201,039 10,669,680 13,870,720 3,780,981 Audubon 4,550,997 771,037 6,123,917 6,894,953 2,189,611 Grand Cypress 5,717,531 749,341 8,609,353 9,358,694 945,959 Inn @ Los Patios - 3,005,300 11,544,700 14,550,000 (1,489,487) SAN FRANCISO-SAN JOSE, CA 2000 Post Street - 9,860,627 44,577,506 54,438,133 418,708 Birch Creek 7,670,278 4,365,315 16,695,509 21,060,824 943,028 Highlands Of Marin - 5,995,838 24,868,350 30,864,188 485,151 Marina Playa 14,038,935 6,224,383 23,916,283 30,140,666 1,111,432 MONTEREY PENINSULA SALINAS CA Boronda Manor - 1,946,423 8,981,742 10,928,165 160,447 Garden Court - 888,038 4,187,950 5,075,988 96,563 Glenridge - 415,284 1,952,934 2,368,218 23,297 Harding Park Townhomes - 549,393 2,051,322 2,600,715 43,215 Cambridge Court - 2,020,384 9,226,038 11,246,422 357,691 Laurel Tree - 1,303,902 5,115,356 6,419,258 86,900 Pine Grove - 1,383,161 5,783,993 7,167,154 55,604 Santanna - 957,079 4,026,117 4,983,196 72,924 The CaprI - 1,018,493 3,657,274 4,675,767 10,620 The Pointe At Harden Ranch - 6,388,446 23,853,534 30,241,980 418,154 The Pointe At Northridge - 2,043,736 8,028,443 10,072,179 176,828 The Pointe At Westlake - 1,329,064 5,334,004 6,663,068 96,931 SOUTHERN CALIFORNIA Pine Avenue 5,936,948 2,158,423 8,887,744 11,046,167 205,027 The Grand Resort - 8,884,151 35,706,606 44,590,757 592,157 Grand Terrace - 2,144,340 6,594,615 8,738,955 1,106,879 Windward Point - 1,767,970 7,117,879 8,885,849 209,105 Rancho Vallecitos - 3,302,967 10,877,286 14,180,254 307,466 Gross Amount at Which Carried at Close of Period ------------------------------------ Depreciable Land and Buildings Total Life of Land and Carrying Accumulated Date of Date Building Improvements Improvements Value (d) Depreciation Construction Acquired Component (e) -------------------------------------------------------------------------------------------------------- Stonegate 882,503 8,480,611 9,363,114 962,027 1978 03/27/98 35 Years Finisterra 1,323,764 26,649,641 27,973,405 2,609,099 1997 03/27/98 35 Years La Privada 7,837,148 19,748,581 27,585,729 2,123,550 1987 03/27/98 35 Years Terracina 4,518,578 39,652,018 44,170,597 4,269,616 1984 05/28/98 35 Years Woodland Park 3,224,377 7,408,755 10,633,132 949,074 1979 06/09/98 35 Years Sierra Foothills 2,790,490 18,732,306 21,522,796 3,361,015 1998 02/18/98 35 Years FORT WORTH-ARLINGTON TEXAS Autumnwood 2,651,258 9,364,432 12,015,690 1,529,956 1984 12/31/96 35 Years Cobblestone 3,133,873 12,214,969 15,348,842 1,981,408 1984 12/31/96 35 Years Pavillion 4,636,529 19,841,408 24,477,937 2,920,587 1979 12/31/96 35 Years Oak Park 4,819,330 20,988,942 25,808,271 3,487,599 1982/98 12/31/96 35 Years Southern Oaks 1,611,548 6,043,043 7,654,590 1,016,813 1982 12/31/96 35 Years Hunter's Ridge 1,804,518 6,436,124 8,240,643 1,083,635 1992 12/31/96 35 Years Parc Plaza 2,105,315 6,196,395 8,301,710 1,007,442 1986 10/30/97 35 Years Summit Ridge 2,185,547 7,215,071 9,400,618 1,054,202 1983 03/27/98 35 Years Greenwood Creek 2,112,719 9,524,349 11,637,068 1,127,923 1984 03/27/98 35 Years Derby Park 3,516,461 12,143,553 15,660,014 1,636,578 1984 03/27/98 35 Years Aspen Court 1,064,382 5,436,185 6,500,566 664,644 1986 03/27/98 35 Years SAN ANTONIO Promontory Pointe 7,799,506 30,232,160 38,031,666 4,623,781 1997 12/31/96 35 Years The Bluffs 2,083,860 8,056,806 10,140,666 1,587,336 1978 12/31/96 35 Years Ashley Oaks 4,682,717 17,188,767 21,871,484 2,467,545 1993 12/31/96 35 Years Sunflower 2,323,773 8,358,488 10,682,262 1,338,170 1980 12/31/96 35 Years Escalante 2,740,785 25,576,804 28,316,589 863,882 1986/2000 04/16/98 35 Years Cimarron City 584,930 5,120,979 5,705,909 534,650 1983 04/16/98 35 Years Kenton 2,446,157 10,492,755 12,938,912 1,131,061 1983 04/16/98 35 Years Peppermill 938,875 8,741,998 9,680,873 1,014,174 1984 04/16/98 35 Years Sunset Canyon 3,554,592 14,097,108 17,651,701 1,752,202 1984 04/16/98 35 Years Audubon 1,014,250 8,070,314 9,084,564 1,064,677 1985 04/16/98 35 Years Grand Cypress 797,794 9,506,858 10,304,653 969,564 1995 04/16/98 35 Years Inn @ Los Patios 3,005,300 10,055,213 13,060,513 819,281 1990 08/15/98 35 Years SAN FRANCISO-SAN JOSE, CA 2000 Post Street 9,914,645 44,942,195 54,856,841 2,402,441 1987 12/07/98 35 Years Birch Creek 4,606,705 17,397,147 22,003,852 1,184,643 1968 12/07/98 35 Years Highlands Of Marin 6,072,433 25,276,906 31,349,339 1,534,986 1991 12/07/98 35 Years Marina Playa 6,438,679 24,813,419 31,252,098 1,732,828 1971 12/07/98 35 Years MONTEREY PENINSULA SALINAS Boronda Manor 1,960,729 9,127,883 11,088,612 545,192 1979 12/07/98 35 Years Garden Court 891,220 4,281,331 5,172,551 261,684 1973 12/07/98 35 Years Glenridge 415,744 1,975,771 2,391,515 84,998 1989 12/07/98 35 Years Harding Park Townhomes 553,422 2,090,508 2,643,930 145,868 1984 12/07/98 35 Years Cambridge Court 2,073,342 9,530,771 11,604,113 623,208 1974 12/07/98 35 Years Laurel Tree 1,311,767 5,194,391 6,506,158 372,825 1977 12/07/98 35 Years Pine Grove 1,387,287 5,835,471 7,222,758 365,774 1963 12/07/98 35 Years Santanna 958,195 4,097,925 5,056,120 258,888 1989 12/07/98 35 Years The CaprI 1,018,544 3,667,843 4,686,387 273,774 1973 12/07/98 35 Years The Pointe At Harden Ranch 6,407,856 24,252,278 30,660,134 1,705,826 1986 12/07/98 35 Years The Pointe At Northridge 2,052,115 8,196,892 10,249,007 565,569 1979 12/07/98 35 Years The Pointe At Westlake 1,330,060 5,429,939 6,759,999 370,779 1975 12/07/98 35 Years SOUTHERN CALIFORNIA Pine Avenue 2,165,035 9,086,159 11,251,194 590,361 1987 12/07/98 35 Years The Grand Resort 8,929,646 36,253,268 45,182,914 2,624,356 1971 12/07/98 35 Years Grand Terrace 2,225,774 7,620,061 9,845,834 399,479 1986 06/30/99 35 Years Windward Point 1,797,416 7,297,537 9,094,954 484,513 1983 12/07/98 35 Years Rancho Vallecitos 3,359,502 11,128,217 14,487,719 2,652,866 1988 10/13/99 35 Years
Initial Costs Total ------------------------------------------ Land and Buildings Initial Land and Acquisition Encumbrances (a) (b) Improvements Improvements Costs (c) ---------------------------------------------------------------------------------- SEATTLE-BELLEVUE-EVERETT, WA Arbor Terrace 7,310,472 1,453,342 11,994,972 13,448,314 Crowne Pointe 4,849,763 2,486,252 6,437,256 8,923,508 Hilltop 4,500,269 2,173,969 7,407,628 9,581,597 OTHER MARKETS Pecan Grove, Austin, TX - 1,406,750 5,293,250 6,700,000 Anderson Mill, Austin, TX - 3,134,669 11,170,376 14,305,045 Turtle Creek, Little Rock, AR - 1,913,177 7,086,823 9,000,000 Shadow Lake, Little Rock, AR - 2,523,670 8,976,330 11,500,000 Desert Springs, Tuscon, AZ 4,503,289 1,118,402 7,094,431 8,212,833 Posada Del Rio, Tucson, AZ - 843,748 4,288,097 5,131,845 Sunset Point, Las Vegas., NV - 4,295,050 15,704,950 20,000,000 Alvarado, Albuquerque, NM - 1,930,229 5,969,771 7,900,000 Dorado Heights, Albuquerque, NM 5,094,107 1,567,762 6,555,395 8,123,157 Greensview, Aurora, CO - 2,974,024 12,489,598 15,463,622 Mountain View, Aurora, CO - 6,401,851 21,569,403 27,971,254 Lancaster Commons, Salem, OR - 2,485,291 7,451,165 9,936,456 Tualatin Heights, Tualatin, OR 8,815,206 3,272,585 9,134,089 12,406,674 University Park, Portland, OR - 3,007,202 8,191,307 11,198,509 Evergreen Park Apartments, Vancouver, WA 5,221,064 3,878,138 9,973,051 13,851,189 Aspen Creek, Puyallup, WA 6,911,618 1,177,714 9,115,789 10,293,503 Beaumont, Tacoma, WA 10,029,283 2,339,132 12,559,224 14,898,356 Campus Commons North, Pullman, WA 6,395,923 305,143 9,867,157 10,172,300 Campus Commons South, Pullman, WA 2,789,726 838,324 3,005,784 3,844,108 Foothills Tennis Village, Roseville, CA - 3,617,507 14,542,028 18,159,535 Woodlake Village, Sacramento, CA 16,417,907 6,772,438 26,966,750 33,739,188 Silk Oak, Fresno, CA - 2,324,562 4,566,446 6,891,008 -------------------------------------------------------------------------------- 723,741,843 $ 593,021,296 $ 2,642,956,043 $ 3,235,977,339 ================================================================================ REAL ESTATE UNDER DEVELOPMENT NEW APARTMENT COMMUNITIES Kildaire Farms Land, Cary, NC - 2,846,027 8,520,815 11,366,841 Red Stone Ranch, Cedar Park, TX - 1,896,723 6,699,073 8,595,796 ADDITIONS TO EXISTING COMMUNITIES Meridian II, Carrollton, TX - 1,547,129 1,111,644 2,658,773 Manor At England Run III, Fredericksburg, VA - - 369,673 369,673 Greensview Phase II, Aurora, CO - 540,915 2,654,551 3,195,466 LAND HELD FOR FUTURE DEVELOPMENT - 33,632,506 - 33,632,506 -------------------------------------------------------------------------------- $ - $ 40,463,300 $ 19,355,756 $ 59,819,056 ================================================================================ COMMERCIAL PROPERTY Richmond Corporate - 245,332 6,351,847 6,597,179 COMMERCIAL PROPERTY HELD FOR DISPOSITION Hanover Village, Richmond, VA - 1,623,910 - 1,623,910 Gloucester Exchange, Gloucester, VA - 403,688 2,278,553 2,682,241 Tri-County, Bristol, TN - 275,580 900,281 1,175,861 Pacific South Center, Seattle, WA 3,323,349 1,000,000 4,000,000 5,000,000 APARTMENTS HELD FOR DISPOSITION Twin Coves, Glen Burnie, MD 3,506,254 912,771 2,904,304 3,817,075 -------------------------------------------------------------------------------- $ 6,829,603 $ 4,461,281 $ 16,434,985 $ 20,896,266 ================================================================================ TOTAL REAL ESTATE OWNED $ 866,114,652 $ 637,945,877 $ 2,678,746,784 $ 3,316,692,661 ================================================================================ Cost of Improvements Gross Amount at Capitalized Which Carried at Close of Period ------------------------------------------- Subsequent Land and Buildings Total to Acquisition Land and Carrying (Net of Disposals) Improvements Improvements Value (d) ---------------------------------------------------------------------------------- SEATTLE-BELLEVUE-EVERETT, WA Arbor Terrace 500,291 1,478,876 12,469,729 13,948,605 Crowne Pointe 696,326 2,513,293 7,106,541 9,619,834 Hilltop 322,600 2,240,945 7,663,252 9,904,197 OTHER MARKETS Pecan Grove, Austin, TX 361,436 1,454,170 5,607,266 7,061,436 Anderson Mill, Austin, TX 2,804,234 3,468,727 13,640,552 17,109,279 Turtle Creek, Little Rock, AR 914,589 2,185,212 7,729,378 9,914,589 Shadow Lake, Little Rock, AR 1,220,904 2,743,019 9,977,885 12,720,904 Desert Springs, Tuscon, AZ 572,830 1,133,669 7,651,994 8,785,663 Posada Del Rio, Tucson, AZ (390,935) 938,382 3,802,529 4,740,910 Sunset Point, Las Vegas., NV 1,117,716 4,443,738 16,673,978 21,117,716 Alvarado, Albuquerque, NM 477,067 1,968,286 6,408,781 8,377,067 Dorado Heights, Albuquerque, NM 534,807 1,626,546 7,031,418 8,657,964 Greensview, Aurora, CO 415,868 2,450,457 13,429,033 15,879,490 Mountain View, Aurora, CO 1,028,829 6,268,502 22,731,581 29,000,083 Lancaster Commons, Salem, OR 266,092 2,504,452 7,698,096 10,202,548 Tualatin Heights, Tualatin, OR 636,663 3,368,922 9,674,414 13,043,337 University Park, Portland, OR 251,868 3,012,564 8,437,813 11,450,377 Evergreen Park Apartments, Vancouver, WA 487,162 3,911,688 10,426,663 14,338,351 Aspen Creek, Puyallup, WA 210,308 1,262,651 9,241,160 10,503,811 Beaumont, Tacoma, WA 269,726 2,378,591 12,789,491 15,168,082 Campus Commons North, Pullman, WA (1,833,580) 328,100 8,010,620 8,338,720 Campus Commons South, Pullman, WA (615,842) 895,743 2,332,524 3,228,266 Foothills Tennis Village, Roseville, CA 382,482 3,698,804 14,843,214 18,542,017 Woodlake Village, Sacramento, CA 1,068,668 6,945,744 27,862,112 34,807,856 Silk Oak, Fresno, CA 188,467 2,365,843 4,713,631 7,079,475 --------------------------------------------------------------------------------- $ 516,133,397 $ 667,754,240 $ 3,084,357,496 $ 3,752,110,736 ================================================================================= REAL ESTATE UNDER DEVELOPMENT NEW APARTMENT COMMUNITIES Kildaire Farms Land, Cary, NC - 2,846,027 8,520,815 11,366,841 Red Stone Ranch, Cedar Park, TX - 1,896,723 6,699,073 8,595,796 ADDITIONS TO EXISTING COMMUNITIES Meridian II, Carrollton, TX - 1,547,129 1,111,644 2,658,773 Manor At England Run III, Fredericksburg, VA 548,058 541,667 376,064 917,731 Greensview Phase II, Aurora, CO - 540,915 2,654,551 3,195,466 LAND HELD FOR FUTURE DEVELOPMENT - 33,632,506 - 33,632,506 --------------------------------------------------------------------------------- $ 548,058 $ 41,004,967 $ 19,362,147 $ 60,367,114 ================================================================================= COMMERCIAL PROPERTY Richmond Corporate 265,542 248,554 6,614,167 6,862,721 COMMERCIAL PROPERTY HELD FOR DISPOSITION Hanover Village, Richmond, VA - 1,103,600 520,310 1,623,910 Gloucester Exchange, Gloucester, VA 513,391 602,442 2,593,190 3,195,632 Tri-County, Bristol, TN 1,280,670 364,123 2,092,408 2,456,531 Pacific South Center, Seattle, WA 7,772 1,000,000 4,007,772 5,007,772 APARTMENTS HELD FOR DISPOSITION Twin Coves, Glen Burnie, MD 878,599 1,025,146 3,670,528 4,695,674 --------------------------------------------------------------------------------- $ 2,945,975 $ 4,343,864 $ 19,498,376 $ 23,842,241 ================================================================================= TOTAL REAL ESTATE OWNED $ 519,627,429 $ 713,103,071 $ 3,123,218,020 $ 3,836,320,090 ================================================================================= Depreciable Life of Accumulated Date of Date Building Depreciation Construction Acquired Component (e) --------------------------------------------------------------------------- SEATTLE-BELLEVUE-EVERETT, WA Arbor Terrace 1,362,540 1996 03/27/98 35 Years Crowne Pointe 715,809 1987 12/07/98 35 Years Hilltop 615,624 1985 12/07/98 35 Years OTHER MARKETS Pecan Grove, Austin, TX 748,248 1984 12/31/96 35 Years Anderson Mill, Austin, TX 2,722,711 1984 03/27/97 35 Years Turtle Creek, Little Rock, AR 1,273,301 1985 12/31/96 35 Years Shadow Lake, Little Rock, AR 1,679,685 1984 12/31/96 35 Years Desert Springs, Tuscon, AZ 773,792 1985 03/27/98 35 Years Posada Del Rio, Tucson, AZ 525,779 1980 03/27/98 35 Years Sunset Point, Las Vegas., NV 2,417,657 1990 12/31/96 35 Years Alvarado, Albuquerque, NM 1,039,555 1984 12/31/96 35 Years Dorado Heights, Albuquerque, NM 755,411 1986 03/27/98 35 Years Greensview, Aurora, CO 859,321 1987 12/07/98 35 Years Mountain View, Aurora, CO 1,857,474 1973 12/07/98 35 Years Lancaster Commons, Salem, OR 732,532 1992 12/07/98 35 Years Tualatin Heights, Tualatin, OR 930,089 1989 12/07/98 35 Years University Park, Portland, OR 778,197 1987 03/27/98 35 Years Evergreen Park Apartments, Vancouver, WA 1,106,331 1988 03/27/98 35 Years Aspen Creek, Puyallup, WA 684,955 1996 12/07/98 35 Years Beaumont, Tacoma, WA 1,366,911 1996 06/14/00 35 Years Campus Commons North, Pullman, WA 1,323,144 1972 03/27/98 35 Years Campus Commons South, Pullman, WA 173,657 1972 03/27/98 35 Years Foothills Tennis Village, Roseville, CA 986,712 1988 12/07/98 35 Years Woodlake Village, Sacramento, CA 1,953,472 1979 12/07/98 35 Years Silk Oak, Fresno, CA 687,450 1985 12/07/98 35 Years ------------------- $ 506,838,438 =================== REAL ESTATE UNDER DEVELOPMENT NEW APARTMENT COMMUNITIES Kildaire Farms Land, Cary, NC - 2000 05/25/00 Red Stone Ranch, Cedar Park, TX - 2000 06/14/00 ADDITIONS TO EXISTING COMMUNITIES Meridian II, Carrollton, TX - 2000 01/27/98 Manor At England Run III, Fredericksburg, VA - 2000 05/04/95 Greensview Phase II, Aurora, CO (849) 2000 12/07/98 LAND HELD FOR FUTURE DEVELOPMENT 962 - - ------------------- $ 114 =================== COMMERCIAL PROPERTY Richmond Corporate 33,177 1999 11/30/99 35 Years COMMERCIAL PROPERTY HELD FOR DISPOSITION Hanover Village, Richmond, VA - - 06/30/86 35 Years Gloucester Exchange, Gloucester, VA 764,072 1974 11/12/87 35 Years Tri-County, Bristol, TN 733,831 1976/79 01/21/81 35 Years Pacific South Center, Seattle, WA 227 1965 08/28/86 35 Years APARTMENTS HELD FOR DISPOSITION Twin Coves, Glen Burnie, MD 1,035,753 1974 08/16/94 35 Years ------------------- $ 2,567,060 =================== TOTAL REAL ESTATE OWNED $ 509,405,611 ===================
SCHEDULE III Summary of Real Estate Owned (a) There are 88 communities encumbererd by fixed rate debt aggregating $723.7 million. The amount of this debt is included in the encumbrances shown for the individual markets. There are 27 communities encumbered by fixed rate debt aggregating $135.5 million that is not included in the encumbrances shown for the individual markets or in real estate held for disposition. (b) Includes a fair market value adjustment of $10.2 milion. (c) Includes a purchase price reallocation of $8.5 million. (d) The aggregate cost for federal income tax purposes was approximately $3.0 billion at December 31, 2000. (e) The depreciable life for all buildings is 35 years. EX-3.B 2 0002.txt RESTATED BY-LAWS EXHIBIT 3(b) ------------ UNITED DOMINION REALTY TRUST, INC. RESTATEMENT OF BYLAWS 1. The name of the corporation is UNITED DOMINION REALTY TRUST, INC.. 2. The text of the restated Bylaws is attached hereto and is incorporated herein by reference. 3. The restatement does not contain an amendment to the Bylaws requiring shareholder approval. 4. The Board of Directors of the corporation adopted the restatement by a unanimous vote at its meeting held on February 12, 2001. UNITED DOMINION REALTY TRUST, INC. By: /s/ Katheryn E. Surface ---------------------------------- Katheryn E. Surface Senior Vice President Dated: February 15, 2001 1 AMENDED AND RESTATED BYLAWS of UNITED DOMINION REALTY TRUST, INC. ARTICLE I Stockholders= and Directors= Meetings The annual meeting of the stockholders of the corporation shall be held in May of each year on the date and at the time and place fixed by the Board of Directors. The date, time and place of all meetings of stockholders shall be stated in the notice of the meeting. Meetings of the stockholders shall be held whenever called by the Chairman of the Board, the President, a majority of the directors or stockholders holding at least 1/10 of the number of shares of stock entitled to vote then outstanding. The holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum at any meeting of the stockholders. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meting being required. Each stockholder shall be entitled to one vote in person or by proxy for each share entitled to vote then outstanding in his name on the books of the corporation. The transfer books for shares of stock of the corporation may be closed by order of the Board of Directors for not exceeding 70 days for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or in order to make a determination of stockholders for any other purpose. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date to be not more than 70 days preceding the date on which the particular action requiring such determination of the stockholders is to be taken. The Chairman of the Board shall preside over all meetings of the stockholders. If he is not present, the Vice Chairman of the Board shall preside. If neither the Chairman of the Board nor the Vice Chairman of the Board is present, the President shall preside, or, if none be present, a Chairman shall be elected by the meeting. The Secretary of the corporation shall act as Secretary of all the meetings, if he be present. If he is not present, the Chairman shall appoint a Secretary of the meeting. The Chairman of the meeting may appoint one or more inspectors of the election to determine the qualification of voters, the validity of proxies and the results of ballots. 2 ARTICLE II Board of Directors The Board of Directors shall be chosen at the annual meeting of the stockholders or any special meeting held in lieu thereof. The number of directors shall be eleven. This number may be increased or decreased at any time by amendment of these Bylaws, but shall always be a number of not less than three. Directors need not be stockholders. Directors shall hold office until removed or until the next annual meeting of the stockholders or until their successors are elected. A majority of the directors shall constitute a quorum. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. A director may not stand for re-election if he has attained age 70 on or before the date of the annual meeting at which directors are elected. The stockholders at any meeting, by a vote of the holders of a majority of all the shares of stock at the time outstanding and having voting power, may remove any director and fill the vacancy. Any vacancy arising among the directors, including a vacancy resulting from an increase by not more than two in the number of directors, may be filled by the remaining directors unless sooner filed by the stockholders in meeting. Meetings of the Board of Directors shall be held at times fixed by resolution of the Board upon the call of the Chairman of the Board of Directors, the President or a majority of the members of the Board. Notice of any meeting not held at a time fixed by a resolution of the Board shall be given to each director at least two days before the meeting at his residence or business address or by delivering such notice to him or by telephoning or telegraphing it to him at least one day before the meeting. Any such notice shall contain the time and place of the meeting. Meetings may be held without notice if all of the directors are present or those not present waive notice before or after the meeting. ARTICLE III Executive Committee The Board of Directors may designate by resolution adopted by a majority of all the directors two or more of the directors to constitute an Executive Committee. The Executive Committee, when the Board of Directors is not in session, may to the extent permitted by law exercise all of the powers of the Board of Directors. The Executive Committee may make rules for the holding and conduct of its meetings, the notice thereof required and the keeping of its records. Directors who are not members of the Executive committee shall be entitled to notice of and to attend meetings of the Executive Committee but shall not be entitled to vote or otherwise participate in the proceedings at such meetings. 3 ARTICLE IV Officers The Board of Directors, promptly after its election in each year, shall appoint a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors and a President (all of whom shall be directors) and a Secretary, and may appoint a Treasurer and one or more Vice Presidents and such other officers or assistant officers as it may deem proper. Any officer may hold more than one office. The term of an officer or assistant officer expires at the first meeting of the Board of Directors held after the annual meeting of the stockholders next following such officer's or assistant officer's appointment, but notwithstanding expiration of his term, an officer or assistant officer continues to serve until removed or until his successor is appointed. Any officer or assistant officer may be removed at any time with or without cause by the Board of Directors. Vacancies among the officers and assistant officers shall be filled by the Board of Directors. The President shall be the chief executive officer of the corporation. All officers and assistant officers shall have such duties as generally pertain to their respective offices as well as such powers and duties as from time to time may be delegated to them by the Board of Directors. ARTICLE V Stock Certificates Each stockholder shall be entitled to a certificate or certificates of stock in such form as may be approved by the Board of Directors, which shall be signed manually or by facsimile by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and which may bear the seal of the corporation or a facsimile thereof. All transfers of stock of the corporation shall be made upon its books by surrender of the certificate for the shares transferred accompanied by an assignment in writing by the holder and may be accomplished either by the holder in person or by a duly authorized attorney in fact. In case of the loss, mutilation or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms not in conflict with law as the Board of Directors may prescribe. The Board of Directors may also appoint one or more transfer agents and registrars and may require stock certificates to be countersigned by a transfer agent or registered by a registrar or may require stock certificates to be both countersigned by a transfer agent and registered by a registrar. If certificates for stock of the corporation are signed by a transfer agent or by a registrar (other than the corporation itself or one of its employees), the signature thereon of the officers of the corporation and the seal of the corporation thereon may be facsimiles, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the corporation, such certificate or certificates may nevertheless be issued and 4 delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the corporation. ARTICLE VI Seal The seal of the corporation shall be a flat-faced circular die, of which there may be any number of counterparts, with the word "SEAL" and the name of the corporation engraved thereon. ARTICLE VII Voting of Stock Held Unless otherwise provided by a vote of the Board of Directors, the Chairman of the Board, the President or any Vice President may appoint attorneys to vote any stock in any other corporation owned by the corporation or may attend any meeting of the holders of stock of such corporation and vote such shares in person. ARTICLE VIII Fiscal Year The fiscal year of the corporation shall be the calendar year. 5 EX-4.IIG 3 0003.txt CREDIT AGREEMENT EXHIBIT 4(ii)(g) ---------------- CREDIT AGREEMENT Dated as of November 14, 2000 among UNITED DOMINION REALTY TRUST, INC., as Borrower, UNITED DOMINION REALTY, L.P. and Certain Other Subsidiaries and Affiliates of the Borrower, as Guarantors, THE LENDERS NAMED HEREIN and FIRST UNION NATIONAL BANK, as Administrative Agent _______________________________________________________________________________ FIRST UNION SECURITIES, INC. as Joint Lead Arranger and Sole Book Manager BANC OF AMERICA SECURITIES LLC as Joint Lead Arranger BANK OF AMERICA, N.A. as Syndication Agent KEYBANK NATIONAL ASSOCIATION as Documentation Agent TABLE OF CONTENTS
SECTION 1 DEFINITIONS................................................... 1 ----------- 1.1 Definitions.................................................. 1 ----------- 1.2 Computation of Time Periods.................................. 18 --------------------------- 1.3 Accounting Terms............................................. 18 ---------------- SECTION 2 CREDIT FACILITIES............................................. 19 ----------------- 2.1 Loans........................................................ 19 ----- 2.2 [Intentionally Omitted]...................................... 20 2.3 [Intentionally Omitted]...................................... 20 2.4 [Intentionally Omitted]...................................... 20 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES................ 20 ---------------------------------------------- 3.1 Default Rate................................................. 20 ------------ 3.2 Extension and Conversion..................................... 20 ------------------------ 3.3 Prepayments.................................................. 21 ----------- 3.4 [Intentionally Omitted]...................................... 21 3.5 Fees......................................................... 21 ---- 3.6 Capital Adequacy............................................. 22 ---------------- 3.7 Inability To Determine Interest Rate......................... 22 ------------------------------------ 3.8 Illegality................................................... 22 ---------- 3.9 Requirements of Law.......................................... 23 ------------------- 3.10 Taxes........................................................ 24 ----- 3.11 Indemnity.................................................... 25 --------- 3.12 Pro Rata Treatment........................................... 25 ------------------ 3.13 Sharing of Payments.......................................... 26 ------------------- 3.14 Payments, Computations, Etc.................................. 26 --------------------------- 3.15 Evidence of Debt............................................. 28 ---------------- 3.16 Extension of Termination Date................................ 28 ----------------------------- SECTION 4 GUARANTY...................................................... 29 -------- 4.1 The Guarantee................................................ 29 ------------- 4.2 Obligations Unconditional.................................... 29 ------------------------- 4.3 Reinstatement................................................ 30 ------------- 4.4 Certain Additional Waivers................................... 31 -------------------------- 4.5 Remedies..................................................... 31 -------- 4.6 Rights of Contribution....................................... 31 ---------------------- 4.7 Continuing Guarantee......................................... 32 -------------------- 4.8 Release of Guarantors by Administrative Agent................ 32 --------------------------------------------- SECTION 5 CONDITIONS.................................................... 32 ---------- 5.1 Conditions to Closing........................................ 32 --------------------- 5.2 Conditions to All Extensions of Credit....................... 34 -------------------------------------- SECTION 6 REPRESENTATIONS AND WARRANTIES................................ 34 ------------------------------
-i- 6.1 Financial Condition......................................... 35 ------------------- 6.2 No Material Adverse Changes................................. 35 --------------------------- 6.3 Organization; Existence; Compliance with Law................ 35 -------------------------------------------- 6.4 Power; Authorization; Enforceable Obligations............... 35 --------------------------------------------- 6.5 No Legal Bar................................................ 36 ------------ 6.6 No Material Litigation...................................... 36 ---------------------- 6.7 No Default.................................................. 36 ---------- 6.8 Ownership of Property; Liens................................ 36 ---------------------------- 6.9 Taxes....................................................... 36 ----- 6.10 ERISA....................................................... 37 ----- 6.11 Governmental Regulations, Etc............................... 38 ----------------------------- 6.12 Subsidiaries................................................ 39 ------------ 6.13 Purpose of Extensions of Credit............................. 39 ------------------------------- 6.14 Environmental Matters....................................... 39 --------------------- SECTION 7 AFFIRMATIVE COVENANTS......................................... 40 --------------------- 7.1 Financial Statements........................................ 40 -------------------- 7.2 Certificates; Other Information............................. 41 ------------------------------- 7.3 Notices..................................................... 42 ------- 7.4 Payment of Obligations...................................... 43 ---------------------- 7.5 Conduct of Business and Maintenance of Existence............ 43 ------------------------------------------------ 7.6 Maintenance of Property; Insurance.......................... 43 ---------------------------------- 7.7 Inspection of Property; Books and Records; Discussions...... 43 ------------------------------------------------------ 7.8 Environmental Laws.......................................... 44 ------------------ 7.9 Financial Covenants......................................... 44 ------------------- 7.10 Agency Fees................................................. 46 ----------- 7.11 Additional Guaranties....................................... 46 --------------------- 7.12 Ownership of Subsidiaries................................... 47 ------------------------- 7.13 Use of Proceeds............................................. 47 --------------- SECTION 8 NEGATIVE COVENANTS............................................ 47 ------------------ 8.1 Limitations on Debt......................................... 47 ------------------- 8.2 Restriction on Liens........................................ 47 -------------------- 8.3 Consolidations, Mergers and Sales and Purchases of Assets... 48 --------------------------------------------------------- 8.4 Loans and Investments....................................... 49 --------------------- 8.5 Transactions with Affiliates................................ 49 ---------------------------- 8.6 Transactions with Other Persons regarding this Agreement.... 50 -------------------------------------------------------- 8.7 Limitation on Certain Restrictions on Subsidiaries.......... 50 -------------------------------------------------- SECTION 9 EVENTS OF DEFAULT............................................. 50 ----------------- 9.1 Events of Default........................................... 50 ----------------- 9.2 Acceleration; Remedies...................................... 53 ---------------------- SECTION 10 AGENCY PROVISIONS............................................ 53 ----------------- 10.1 Appointment................................................. 53 ----------- 10.2 Delegation of Duties........................................ 54 -------------------- 10.3 Exculpatory Provisions...................................... 54 ----------------------
-ii- 10.4 Reliance on Communications.................................. 54 -------------------------- 10.5 Notice of Default........................................... 55 ----------------- 10.6 Non-Reliance on Administrative Agent and Other Lenders...... 55 ------------------------------------------------------ 10.7 Indemnification............................................. 56 --------------- 10.8 Administrative Agent in its Individual Capacity............. 56 ----------------------------------------------- 10.9 Successor Administrative Agent.............................. 56 ------------------------------ SECTION 11 MISCELLANEOUS................................................ 57 ------------- 11.1 Notices..................................................... 57 ------- 11.2 Right of Set-Off............................................ 58 ---------------- 11.3 Benefit of Agreement........................................ 58 -------------------- 11.4 No Waiver; Remedies Cumulative.............................. 60 ------------------------------ 11.5 Payment of Expenses, etc.................................... 61 ------------------------ 11.6 Amendments, Waivers and Consents............................ 61 -------------------------------- 11.7 Counterparts................................................ 63 ------------ 11.8 Headings.................................................... 63 -------- 11.9 Survival.................................................... 63 -------- 11.10 Governing Law; Submission to Jurisdiction; Venue............ 63 ------------------------------------------------ 11.11 Severability................................................ 64 ------------ 11.12 Entirety.................................................... 64 -------- 11.13 Binding Effect; Termination................................. 64 --------------------------- 11.14 Source of Funds............................................. 64 --------------- 11.15 Conflict.................................................... 65 --------
-iii- SCHEDULES Schedule 2.1(a) Schedule of Lenders and Commitments Schedule 2.1(b)(i) Form of Notice of Borrowing Schedule 2.1(e) Form of Note Schedule 3.2 Form of Notice of Extension/Conversion Schedule 5.1(e)(v) Officer's Certificate Schedule 6.3 Qualifications Concerning Organization, Existence and Compliance with Law Schedule 6.6 Material Litigation Schedule 6.12 Subsidiaries Schedule 7.2(b) Form of Officer's Compliance Certificate Schedule 7.11 Form of Joinder Agreement Schedule 8.7 REMICs and Other Special Subsidiaries Schedule 11.1 Schedule of Lender's Addresses Schedule 11.3(b) Form of Assignment and Acceptance -iv- CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of November 14, 2000 (the "Credit ------ Agreement"), is by and among UNITED DOMINION REALTY TRUST, INC., a Virginia - - --------- corporation (the "Borrower"), UNITED DOMINION REALTY, L.P., a Virginia limited -------- partnership and the other subsidiaries and affiliates identified on the signature pages hereto and such other subsidiaries and affiliates as may from time to time become Guarantors hereunder in accordance with the provisions hereof (the "Guarantors"), the lenders named herein and such other lenders as ---------- may become a party hereto (the "Lenders") and FIRST UNION NATIONAL BANK, as ------- Administrative Agent (in such capacity, the "Administrative Agent"). -------------------- W I T N E S S E T H WHEREAS, the Borrower has requested that the Lenders provide $100 million in aggregate amount of term loans to the Borrower for the purposes hereinafter set forth; WHEREAS, the Guarantors acknowledge that such term loans inure to the mutual benefit of the Borrower and the Guarantors; WHEREAS, the Lenders have agreed to make the requested term loans available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS ----------- 1.1 Definitions. ----------- As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "Additional Credit Party" means each Person that becomes a Guarantor ----------------------- after the Closing Date by execution of a Joinder Agreement. "Administrative Agent" means First Union National Bank and its -------------------- successors and assigns. "Affiliate" means, with respect to any Person, any other Person (i) --------- directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding five percent (5%) or more of the equity interest in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Applicable Percentage" means for any day, the rate per annum set --------------------- forth below opposite the applicable rating for the Borrower's senior unsecured (non-credit enhanced) long term debt then in effect, it being understood that the Applicable Percentage for (i) Base Rate Loans shall be the percentage set forth under the column "Base Rate Margin", and (ii) Eurodollar Loans shall be the percentage set forth under the column "Eurodollar Margin": Pricing S&P Moody's Eurodollar Base Rate Level Rating Rating Margin Margin ----- ------ ------ ------ --------- I A- A3 0.750% 0% II BBB+ Baa1 0.925% 0% III BBB Baa2 1.05% 0% IV BBB- Baa3 1.20% 0% V below BBB- below Baa3 1.80% 0% or unrated or unrated The numerical classification set forth under the column "Pricing Level" shall be established based on the better of ratings by S&P and Moody's for the Borrower's senior unsecured (non-credit enhanced) long term debt; provided, however, that if the ratings of S&P and Moody's are two or more -------- ------- pricing levels apart, then the Applicable Percentage shall be the average of the two Applicable Percentages corresponding to the Pricing Levels for the applicable ratings of S&P and Moody's. The Applicable Percentage shall be determined and adjusted on the date five (5) Business Days after each change in debt rating. Adjustments in the Applicable Percentage shall be effective as to all Loans from the date of adjustment. The Administrative Agent shall promptly notify the Lenders of changes in the Applicable Percentage. Adjustments in the Applicable Percentage shall be effective as to existing Extensions of Credit as well as new Extensions of Credit made thereafter. "Attributed Principal Amount" means, on any day, with respect to any --------------------------- Securitization Transaction entered into by any member of the Consolidated Group, the aggregate amount (with respect to any such transaction, the "Invested Amount") paid to, or borrowed by, such Person as of such date --------------- under such Securitization Transaction, minus the aggregate amount received ----- by the applicable Receivables Financier and applied to the reduction of the Invested Amount under such Securitization Transaction. "Bank of America Credit Agreement" means that certain Credit Agreement -------------------------------- dated as of June 1, 2000 by and among the Borrower, United Dominion Realty, L.P. and certain other subsidiaries and affiliates of the Borrower, the lenders party thereto, and Bank of America, N.A., as Administrative Agent. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United --------------- States Code, as amended, modified, succeeded or replaced from time to time. -2- "Bankruptcy Event" means, with respect to any Person, the occurrence ---------------- of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of ninety (90) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "Base Rate" means, for any day, the rate per annum (rounded upwards, --------- if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1% ---- or (b) the Prime Rate in effect on such day. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable after due inquiry to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. "Base Rate Loan" means any Loan bearing interest at a rate determined -------------- by reference to the Base Rate. "Borrower" means the Person identified as such in the heading hereof, -------- together with any permitted successors and assigns. "Business Day" means a day other than a Saturday, Sunday or other day ------------ on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close, except that, when used in ------ ---- connection with a Eurodollar Loan, such day shall also be a day on which dealings between banks are carried on in U.S. dollar deposits in London, England. "Cash Equivalents" means (a) securities issued or directly and fully ---------------- guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided -3- that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time deposits and certificates of deposit of (i) any Lender, or (ii) any domestic commercial bank of recognized standing (y) having capital and surplus in excess of $500,000,000 and (z) whose short-term commercial paper rating from S&P is at least A-2 (and not lower than A-3) or the equivalent thereof or from Moody's is at least P-2 (and not lower than P-3) or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of ------------- of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated at least A-2 (and not lower than A-3) or the equivalent thereof by S&P or at least P-2 (and not lower than P-3) or the equivalent by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by a Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (e) obligations of any State of the United States or any political subdivision thereof, the interest with respect to which is exempt from federal income taxation under Section 103 of the Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within three years from the date of acquisition thereof, (f) Investments in municipal auction preferred stock (i) rated A- (or the equivalent thereof) or better by S&P or A3 (or the equivalent thereof) or better by Moody's and (ii) with dividends that reset at least once every 365 days and (g) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Borrower Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $100,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (f). "Change of Control" means the occurrence of any of the following ----------------- events: (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, or control over, voting stock of the Borrower (or other securities convertible into such voting stock) representing 35% or more of the combined voting power of all voting stock of the Borrower, or (ii) during any period of up to 24 consecutive months, commencing after the Closing Date, individuals who at the beginning of such 24 month period were directors of the Borrower (together with any new director whose election by the Borrower's Board of Directors or whose nomination for election by the Borrower's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Borrower then in office. As used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. -4- "Closing Date" means the date hereof. ------------ "Code" means the Internal Revenue Code of 1986, as amended, and any ---- successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to Sections of the Code shall be construed also to refer to any successor sections. "Commitment" means, with respect to each Lender, the commitment of ---------- such Lender to make a Loan to the Borrower on the Effective Date in the principal amount specified with respect to such Lender in Schedule 2.1(a) --------------- in accordance with the provisions of Section 2.1(a). "Commitment Percentage" means, for each Lender, a fraction (expressed --------------------- as a decimal) the numerator of which is the Commitment of such Lender at such time and the denominator of which is the aggregate amount of the Commitments of all Lenders at such time. The initial Commitment Percentage of each Lender is set out on Schedule 2.1(a). --------------- "Consolidated Adjusted EBITDA" means, for any period for the ---------------------------- Consolidated Group, the sum of Consolidated EBITDA for such period minus a ----- reserve equal to $62.50 per apartment unit per quarter ($250 per apartment unit per year). Except as expressly provided otherwise, the applicable period shall be for the single fiscal quarter ending as of the date of determination. "Consolidated Adjusted Tangible Net Worth" means at any date: ---------------------------------------- (i) the sum of (A) the consolidated shareholders' equity of the Consolidated Group (net of Minority Interests) plus (B) ---- accumulated depreciation of real estate owned to the extent reflected in the then book value of the Consolidated Assets minus, without duplication, ----- (ii) the Intangible Assets of the Consolidated Group. "Consolidated Assets" means the assets of the members of the ------------------- Consolidated Group determined in accordance with GAAP on a consolidated basis. "Consolidated EBITDA" means for any period for the Consolidated Group, ------------------- the sum of Consolidated Net Income plus Consolidated Interest Expense plus ---- all provisions for any Federal, state or other income taxes plus ---- depreciation, amortization and other non-cash charges, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis, but excluding in any event gains and losses on Investments and extraordinary gains and losses, and taxes on such excluded gains and tax deductions or credits on account of such excluded losses. Except as expressly provided otherwise, the applicable period shall be for the single fiscal quarter ending as of the date of determination. "Consolidated Funded Debt" means total Debt of the Consolidated Group ------------------------ on a consolidated basis determined in accordance with GAAP applied on a consistent basis. -5- "Consolidated Group" means the Borrower and its consolidated ------------------ Subsidiaries, as determined in accordance with GAAP. "Consolidated Interest Expense" means for any period for the ----------------------------- Consolidated Group, all interest expense, including the amortization of debt discount and premium, the interest component under capital leases and the implied interest component under Securitization Transactions, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated Net Income" means for any period, the net income of the ----------------------- Consolidated Group on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated Net Operating Income from Realty" means, for any period --------------------------------------------- for any Realty of the Consolidated Group, an amount equal to (i) the aggregate rental and other income from the operation of such Realty during such period; minus (ii) all expenses and other proper charges incurred in ----- connection with the operation of such Realty (including, without limitation, real estate taxes and bad debt expenses) during such period; but, in any case, before payment of or provision for debt service charges for such period, income taxes for such period, and depreciation, amortization and other non-cash expenses for such period, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Net Operating Income from Unencumbered Realty" means, ---------------------------------------------------------- for any period, an amount equal to (i) the aggregate rental and other income from the operation of Consolidated Unencumbered Realty during such period; minus (ii) all expenses and other proper charges incurred in ----- connection with the operation of Consolidated Unencumbered Realty (including, without limitation, real estate taxes and bad debt expenses) during such period; but, in any case, before payment of or provision for debt service charges for such period, income taxes for such period, and depreciation, amortization and other non-cash expenses for such period, all on a consolidated basis determined in accordance with GAAP on a consistent basis; minus (iii) a reserve equal to $62.50 per apartment unit per quarter ----- ($250 per apartment unit per year) for such period. "Consolidated Net Worth" means total stockholders' equity for the ---------------------- Consolidated Group on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated REO" shall have the meaning ascribed to such term in ---------------- Section 7.11(a) hereof. "Consolidated Secured Debt" means for the Consolidated Group on a ------------------------- consolidated basis, all secured Consolidated Funded Debt. "Consolidated Total Fixed Charges" means, as of the last day of each -------------------------------- fiscal quarter for the Consolidated Group, the sum of (i) the cash portion of Consolidated Interest Expense paid in the fiscal quarter ending on such day plus (ii) scheduled ---- -6- maturities of Consolidated Funded Debt (excluding the amount by which a final installment exceeds the next preceding principal installment thereon and further excluding amortization on Insurance Company Debt which shall not exceed $7.5 million annually) in the fiscal quarter ending on such day plus (iii) all cash dividends and distributions on preferred stock or other ---- preferred beneficial interests of members of the Consolidated Group paid in the fiscal quarter ending on such day, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Total Realty" means, for the Consolidated Group on a ------------------------- consolidated basis, the undepreciated cost of all Realty, whether improved or not. "Consolidated Unencumbered Realty" means, for the Consolidated Group -------------------------------- on a consolidated basis, all Realty which is not encumbered by a Lien securing Debt. For purposes of the covenant contained in Section 7.9(f), Consolidated Unencumbered Realty, as of any date for the Consolidated Group, shall be valued at the sum (without duplication) of (a) with respect to any Consolidated Unencumbered Realty purchased or developed prior to January 1 of the year preceding such date, (i) Consolidated Net Operating Income from Unencumbered Realty for the fiscal quarter most recently ended prior to such date multiplied by four, divided by (ii) 9.25%; plus (b) with ---- respect to any Consolidated Unencumbered Realty purchased or developed on or after January 1 of the year preceding such date, the actual costs of such Realty; plus (c) with respect to any Consolidated Unencumbered Realty ---- that also constitutes Consolidated Unimproved Realty, the sum of (i) fifty percent (50%) of the GAAP value of the land associated with such Realty plus (ii) an amount equal to fifty percent (50%) of the actual expenditures ---- for improvements on such Realty; plus (d) fifty percent (50%) of the ---- Consolidated Group's pro rata share of the GAAP value of any Realty contributed to or otherwise invested in joint ventures which is not encumbered by a Lien securing Debt. Notwithstanding the foregoing, the value of Consolidated Unencumbered Realty shall be determined without including (or otherwise giving credit to) any Realty owned by a Non- Guarantor Subsidiary if (A) the inclusion of such Realty would cause the portion of Consolidated Unencumbered Realty represented by Non-Guarantor Subsidiaries, as of the relevant date of determination, to exceed five percent (5%) of Consolidated Unencumbered Realty or (B) such Non-Guarantor Subsidiary is an obligor, as of the relevant date of determination, with respect to any unsecured Debt (other than those items of Debt set forth in clauses (iii) and (iv) of the definition of Debt). "Consolidated Unimproved Realty" means, for the Consolidated Group on ------------------------------ a consolidated basis, all raw unimproved land held for current or future development. For purposes hereof, property under development where construction and development is in progress shall not be considered to be unimproved to the extent that completed buildings are available for rent and are at least 75% leased. "Consolidated Unsecured Debt" means, for the Consolidated Group on a --------------------------- consolidated basis, all unsecured Consolidated Funded Debt. -7- "Contractual Obligation" means, as to any Person, any provision of any ---------------------- security issued by such Person or of any material agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Documents" means a collective reference to this Credit ---------------- Agreement, the Notes, each Joinder Agreement, and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto. "Credit Party" means any of the Borrower and the Guarantors. ------------ "Debt" of any Person means at any date, without duplication, (i) all ---- obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to purchase securities or other property which arise out of or in connection with the sale of the same or substantially similar securities or property, (vi) all obligations of such Person to reimburse any bank or other person in respect of amounts payable under a letter of credit or similar instrument (being the amount available to be drawn thereunder, whether or not then drawn), (vii) all obligations of others secured by a Lien on any asset of such Person, whether or not such obligation is assumed by such Person, (viii) all obligations of others Guaranteed by such Person, (ix) all obligations which in accordance with GAAP would be shown as liabilities on a balance sheet of such Person or which arise in connection with forward equity transactions, (x) the Attributed Principal Amount under any Securitization Transaction and (xi) all obligations of such Person owing under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes, but is classified as an operating lease in accordance with GAAP. Debt of any Person shall include Debt of any partnership or joint venture in which such Person is a general partner or joint venturer to the extent of such Person's pro rata share of the ownership of such partnership or joint venture (except if such Debt is recourse to such Person, in which case the greater of such Person's pro rata portion of such Debt or the amount of the recourse portion of the Debt, shall be included as Debt of such Person). "Default" means any event, act or condition which with notice or lapse ------- of time, or both, would constitute an Event of Default. "Defaulting Lender" means, at any time, any Lender that, at such time, ----------------- (i) has failed to make an Extension of Credit required pursuant to the terms of this Credit Agreement, (ii) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of the Credit Agreement or any other of the Credit Documents, or (iii) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar proceeding. "Dollars" and "$" means dollars in lawful currency of the United ------- - States of America. -8- "Domestic Credit Party" means any Credit Party which is incorporated --------------------- or organized under the laws of any State of the United States or the District of Columbia. "Domestic Subsidiary" means any Subsidiary which is incorporated or ------------------- organized under the laws of any State of the United States or the District of Columbia. "Effective Date" means the later of: (a) the Closing Date; and (b) the -------------- date on which all of the conditions precedent set forth in Section 5.1 and 5.2 shall have been fulfilled or waived in writing by the Required Lenders. "Eligible Assignee" means (i) a Lender; (ii) an affiliate of a Lender; ----------------- and (iii) any other commercial bank, financial institution, institutional lender or "accredited investor" (as defined in Regulation D of the Securities and Exchange Commission) with (a) total assets of at least $10 billion; (b) a long term unsecured debt rating of BBB+ or better from S&P or its equivalent and (c) an office in the United States. Neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Laws" means any and all lawful and applicable Federal, ------------------ state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "Equity Transaction" means, with respect to any member of the ------------------ Consolidated Group, any issuance of shares of its capital stock or other equity interest, other than an issuance (i) to a member of the Consolidated Group or (ii) in connection with exercise by a present or former employee, officer or director under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to Sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means an entity which is under common control with --------------- any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower and which is treated as a single employer under Sections 414(b) or (c) of the Code. "ERISA Event" means (i) with respect to any Plan, the occurrence of a ----------- Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial -9- employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (vi) the complete or partial withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (viii) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA. "Eurodollar Loan" means any Loan bearing interest at a rate determined --------------- by reference to the Eurodollar Rate. "Eurodollar Rate" means, for the Interest Period for each Eurodollar --------------- Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate determined pursuant to the following formula: Eurodollar Rate = Interbank Offered Rate ----------------------------------- 1 - Eurodollar Reserve Percentage "Eurodollar Reserve Percentage" means for any day, that percentage ----------------------------- (expressed as a decimal) which is in effect from time to time under Regulation D as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans is determined), whether or not Lender has any Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" means such term as defined in Section 9.1. ---------------- "Extension of Credit" means, as to any Lender, the making of a Loan by ------------------- such Lender. "Facility Fee" shall have the meaning given such term in Section ------------ 3.5(a). "Federal Funds Rate" means, for any day, the rate of interest per ------------------ annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (A) if such day is not a Business Day, the Federal Funds Rate -------- for such day shall be such rate -10- on such transactions on the next preceding Business Day and (B) if no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. "Fees" means all fees payable pursuant to Section 3.5. ---- "First Union" means First Union National Bank and its successors. ----------- "Foreign Credit Party" means a Credit Party which is not a Domestic -------------------- Credit Party. "Foreign Subsidiary" means a Subsidiary which is not a Domestic ------------------ Subsidiary. "Funds From Operations" for any period, with respect to any Person, --------------------- shall have the meaning given to such term in, and shall be calculated in accordance with, the "white paper" issued in March 1995 by the National Association of Real Estate Investment Trusts. "GAAP" means generally accepted accounting principles in the United ---- States applied on a consistent basis and subject to the terms of Section 1.3 hereof. "Governmental Authority" means any Federal, state, local or foreign ---------------------- court or governmental agency, authority, instrumentality or regulatory body. "Guarantee" by any Person, means any obligation, contingent or --------- otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or- pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided -------- that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Obligations" means, as to each Guarantor, without ---------------------- duplication, all obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Notes or the Credit Documents (including interest accruing after a Bankruptcy Event, regardless of whether such interest is allowed as a claim under the Bankruptcy Code). "Guarantor" means each of those Persons identified as a "Guarantor" on --------- the signature pages hereto, and each other Person which may hereafter become a Guarantor by execution of a Joinder Agreement, together with their successors and permitted assigns. -11- "Insurance Company Debt" means Debt owed by the Borrower with respect ---------------------- to the 7.98% Notes due March 2000 - 2003 pursuant to that certain Indenture dated as of February 24, 1993 among the Borrower, CIGNA Principal Mutual Life Insurance Co., and Aid Association for Lutherans, as more fully described in note 4 of the consolidated financial statements contained in the Borrower's report on form 10-K filed with the Securities and Exchange Commission for fiscal year 1999. "Intangible Assets" of any Person means at any date the amount of (i) ----------------- all write-ups (other than write-ups resulting from write-ups of assets of a going concern business made within twelve months after the acquisition of such business) in the book value of any asset owned by such Person and (ii) all unamortized debt discount and expense, unamortized deferred charges, capitalized start-up costs, goodwill, patents, licenses, trademarks, trade names, copyrights, organization or developmental expenses, covenants not to compete and other intangible items. "Interbank Offered Rate" means, for the Interest Period for each ---------------------- Eurodollar Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the rate of interest, determined by the Administrative Agent on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), appearing on Telerate Page 3750 (or, if, for any reason, Telerate Page 3750 is not available, the Reuters Screen LIBO Page) as of approximately 11:00 A.M. (London time) two (2) Business Days before the first day of such Interest Period. As used herein, "Telerate Page 3750" means the display designated as page 3750 by Dow Jones Telerate, Inc. (or such other page as may replace such page on that service for the purpose of displaying the British Bankers Association London interbank offered rates) and "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). "Interest Payment Date" means (i) as to any Base Rate Loan, the last --------------------- day of each calendar month and the Termination Date and (ii) as to any Eurodollar Loan, the last day of each Interest Period for such Loan, the date of repayment of principal of such Loan and the Termination Date, and in addition where the applicable Interest Period is more than three months, then also the date three months from the beginning of the Interest Period, and each three months thereafter. If an Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day. "Interest Period" means as to any Eurodollar Loan, a period of one, --------------- two, three, four or six month's duration, as the Borrower may elect, commencing in each case, on the date of the borrowing (including conversions, extensions and renewals); provided, however, (A) if any -------- ------- Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that in the case of Eurodollar Loans where the next succeeding Business Day falls in the next succeeding calendar month, then such Interest Period shall end on the next preceding Business Day), (B) no Interest Period shall extend beyond the Termination Date, and (C) in the case of Eurodollar Loans, -12- where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last day of such calendar month. "Invested Amount" shall have the meaning given such term in the --------------- definition of Attributed Principal Amount. "Investment", in any Person, means any loan or advance to such Person, ---------- any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of, or equity interest in, such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any Guarantee incurred for the benefit of such Person. "Joinder Agreement" means a Joinder Agreement substantially in the ----------------- form of Schedule 7.11 hereto, executed and delivered by an Additional ------------- Credit Party in accordance with the provisions of Section 7.11. "Lenders" means each of the Persons identified as a "Lender" on the ------- signature pages hereto, and their successors and assigns. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loan" or "Loans" shall have the meaning given such term in Section ---- ----- 2.1. "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Consolidated Group taken as a whole, (ii) the ability of the Credit Parties taken as a whole to perform any material obligation under the Credit Documents to which they are parties or (iii) the rights and remedies of the Lenders or the Borrower under the Credit Documents. "Materials of Environmental Concern" means any gasoline or petroleum ---------------------------------- (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, polychlorinated biphenyls and urea-formaldehyde insulation. "Minority Interests" means any shares of stock (or other equity ------------------ interests) of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Borrower and/or one or more Wholly-Owned Subsidiaries. Minority Interests constituting preferred stock shall be valued at the voluntary or involuntary liquidation value of such preferred stock, whichever is greater, and by valuing common stock at the book value of the capitalized surplus applicable thereto adjusted, if necessary, -13- to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "Moody's" means Moody's Investors Service, Inc., or any successor or ------- assignee of the business of such Borrower in the business of rating securities. "Mortgage Debt" of any Person means at any date the aggregate ------------- principal amount of all Debt of such Person secured by a Lien on any real property owned or leased by it. "Multiemployer Plan" means a Plan which is a multiemployer plan as ------------------ defined in Sections 3(37) or 4001(a)(3) of ERISA. "Multiple Employer Plan" means a Plan which the Borrower, any ---------------------- Subsidiary of the Borrower or any ERISA Affiliate and at least one employer other than the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate are contributing sponsors. "Non-Excluded Taxes" means such term as is defined in Section 3.10. ------------------ "Note" or "Notes" means the promissory notes of the Borrower in favor ---- ----- of each of the Lenders evidencing the Loans in substantially the form attached as Schedule 2.1(e), individually or collectively, as appropriate, --------------- as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time. "Notice of Borrowing" means a written notice of borrowing in ------------------- substantially the form of Schedule 2.1(b)(i), as required by Section 5.1. ------------------ "Notice of Extension/Conversion" means the written notice of extension ------------------------------ or conversion in substantially the form of Schedule 3.2, as required by ------------ Section 3.2. "Operating Partnership" means United Dominion Realty, L.P., together --------------------- with any permitted successors and assigns. "PBGC" means the Pension Benefit Guaranty Corporation established ---- pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "Permitted Investments" means Investments which are either (i) cash --------------------- and Cash Equivalents; (ii) Investments consisting of stock, obligations, securities or other property received in settlement of accounts receivable (created in the ordinary course of business) from bankrupt obligors; (iii) acquisitions and other Investments permitted by Section 8.3(c)(ii) or which do not cause a Default or Event of Default under Section 7.9(i)(ii), as appropriate; (iv) Investments by a member of the Consolidated Group or an Affiliate of a member of the Consolidated Group in connection with a Permitted Securitization Transaction; and (v) Investments by a member of the Consolidated Group in and to a Credit Party. "Permitted Securitization Transaction" means any Securitization ------------------------------------ Transaction which (i) the structure and documentation for such Securitization Transaction are reasonably satisfactory to the Administrative Agent and the Required Lenders, (ii) the terms of such -14- Securitization Transaction, including the discount applicable to the Receivables which are subject of such financing and any termination events, are (in the good faith understanding of the Administrative Agent and the Required Lenders) consistent with those prevailing in the market at the time of commitment thereto for similar transactions involving a receivables originator/servicer of similar credit quality and a receivables pool or other similar characteristics and (iii) the documentation for such Securitization Transaction shall not be amended or modified in any manner which is materially adverse to the interests of the Lenders without the prior written consent of the Administrative Agent and the Required Lenders. "Person" means any individual, partnership, joint venture, firm, ------ corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Plan" means any employee benefit plan (as defined in Section 3(3) of ---- ERISA) which is covered by ERISA and with respect to which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced ---------- from time to time by First Union as its prime rate in effect at its principal office in Charlotte, North Carolina, with each change in the Prime Rate being effective on the date such change is publicly announced as effective (it being understood and agreed that the Prime Rate is a reference rate used by First Union in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit by First Union to any debtor). "Pro Forma Basis" means, with respect to any transaction, that such --------------- transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction with respect to which the Administrative Agent and the Lenders have received the officer's certificate in accordance with the provisions of Section 7.2(b). As used herein, "transaction" means and includes (i) any corporate merger or consolidation as referred to in Section 8.3(a), and (ii) any acquisition of capital stock or securities or any purchase, lease or other acquisition of property as referred to in Section 8.3(c). "Property" means any interest in any kind of property or asset, -------- whether real, personal or mixed, or tangible or intangible. "Realty" means all real property and interests therein, together with ------ all improvements thereon. "Receivables" means any right of payment from or on behalf of any ----------- obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the sale or financing by a member of the Consolidated Group or merchandise or services, and monies due thereunder, security in the merchandise and -15- services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Receivables Financier" means, in connection with a Securitization --------------------- Transaction, the Person which provides financing for such transaction whether by purchase, loan or otherwise in respect of Receivables. "Register" shall have the meaning given such term in Section 11.3(c). -------- "Regulation T, U, or X" means Regulation T, U or X, respectively, of --------------------- the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "REIT" means a real estate investment trust as defined in Sections ---- 856-860 of the Code. "Release" means any spilling, leaking, pumping, pouring, emitting, ------- emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Materials of Environmental Concern). "REMIC" means a real estate mortgage investment conduit as defined in ----- Section 7701 of the Code. "Reportable Event" means any of the events set forth in Section ---------------- 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation. "Required Lenders" means Lenders having at least sixty-six and two- ---------------- thirds percent (66 2/3%) of the aggregate principal amount of the Loans outstanding; provided that outstanding principal amount of Loans owing to, -------- a Defaulting Lender shall be excluded for purposes hereof in making a determination of Required Lenders. "Requirement of Law" means, as to any Person, the certificate of ------------------ incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or Regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property is subject. "Responsible Officer" means the Chief Financial Officer, the ------------------- Controller, the Senior Vice President of Finance or the Treasurer. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw --- Hill Companies, Inc., or any successor or assignee of the business of such division in the business of rating securities. -16- "Securitization Subsidiary" shall have the meaning provided in the ------------------------- definition of "Securitization Transaction". "Securitization Transaction" means any financing transaction or series -------------------------- of financing transactions that have been or may be entered into by a member of the Consolidated Group pursuant to which such member of the Consolidated Group may sell, convey or otherwise transfer to (i) a Subsidiary or affiliate (a "Securitization Subsidiary"), or (ii) any other Person, or may ------------------------- grant a security interest in, any Receivables or interests therein secured by merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of such member of the Consolidated Group, and any assets related thereto, including without limitation, all security interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "Single Employer Plan" means any Plan which is covered by Title IV of -------------------- ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan. "Subordinated Debt" means any Debt which by its terms is specifically ----------------- subordinated in right of payment to the prior payment of the obligations of the Credit Parties under this Credit Agreement and the other Credit Documents on terms and conditions satisfactory to the Required Lenders. "Subordinated Funded Debt" means at any date all unsecured Debt (i) no ------------------------ part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption or otherwise) prior to the payment in full of the Loans hereunder and (ii) the payment of the principal of and interest on which, and any other obligations to the holder of such Debt, is subordinated to the prior payment in full of the Loans hereunder (including interest accruing after the date of commencement of any proceeding under any bankruptcy, insolvency, or similar law in which such Person is a debtor). "Subsidiary" means as to any Person, any corporation, partnership, ---------- limited liability company or other entity of which securities or other ownership interest having an ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless otherwise provided, references to a "Subsidiary" or "Subsidiaries" shall mean a Subsidiary or Subsidiaries of the Borrower. "Tangible Fair Market Value of Assets" means, as of any date for the ------------------------------------ Consolidated Group, the sum (without duplication) of (a) with respect to any Realty owned by a member of the Consolidated Group and purchased or developed prior to January 1 of the year preceding such date, (i) the sum of (A) Consolidated Net Operating Income from Realty for the fiscal quarter most recently ended prior to such date multiplied by four, minus (B) a ----- reserve of $250 per apartment unit, divided by (ii) 9.25%, plus (b) with ---- respect to any Realty owned by a member of the Consolidated Group and purchased or developed on or after January 1 of the year preceding such date, the actual cost of such Realty, plus (c) with respect to any ---- Consolidated Unimproved Realty, the -17- sum of (i) one hundred percent (100%) of the GAAP value of the land associated with such Realty plus (ii) an amount equal to one hundred ---- percent (100%) of the actual expenditures for improvements on such Realty, plus (d) cash and Cash Equivalents, in each case on a consolidated basis ---- determined in accordance with GAAP applied on a consistent basis, plus (e) ---- one hundred percent (100%) of the Consolidated Group's pro rata share of the GAAP value of any asset contributed to or otherwise invested in joint ventures; provided, however, that, in calculating Tangible Fair Market -------- ------- Value of Assets, no credit shall be given to any portion of the foregoing components of Tangible Fair Market Value of Assets that exceeds the corresponding maximum amount permitted for such component pursuant to clauses (iii) through (vii) of Section 7.9(i). "Termination Date" means May 14, 2003, or if extended pursuant to the ---------------- terms of this Agreement, such later date as to which the Termination Date may be extended. "Wholly-Owned Subsidiary" means as to any Person, any Subsidiary all ----------------------- of the voting stock or other similar voting interests are owned directly or indirectly by such Person. Unless otherwise provided, references to "Wholly-Owned Subsidiary" shall mean Wholly-Owned Subsidiaries of the Borrower. 1.2 Computation of Time Periods. --------------------------- For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.3 Accounting Terms. ---------------- Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. Financial statements, certificates and reports delivered hereunder shall be accompanied by a description of any changes in application of accounting principles and an estimation of the effects thereof. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 hereof (or, prior to the delivery of the first financial statements pursuant to Section 7.1 hereof, consistent with the annual audited financial statements referenced in Section 6.1 hereof); provided, however, if (a) the Borrower shall object to determining such - - -------- ------- compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Administrative Agent or the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, then in either case such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Borrower to the Lenders as to which no such objection shall have been made. -18- SECTION 2 CREDIT FACILITIES ----------------- 2.1 Loans. ----- (a) Term Loans. Subject to the terms and conditions hereof, each ---------- Lender severally agrees to make a term loan (a "Loan") to the Borrower on the ---- Effective Date in the amount of such Lender's Commitment for the purposes hereinafter set forth. Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request, and if repaid, a Loan may not be reborrowed hereunder. (b) Availability of Loan Proceeds. Each Lender will make the proceeds ----------------------------- of its Loan available to the Administrative Agent for the account of the Borrower as specified in Section 3.14(a), or in such other manner as the Administrative Agent may specify in writing, by 2:30 P.M. (Charlotte, North Carolina time) on the Effective Date in Dollars and in funds immediately available to the Administrative Agent. Such proceeds will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. (c) Repayment. The principal amount of all Loans shall be due and --------- payable in full on the Termination Date. (d) Interest. Subject to the provisions of Section 3.1, -------- (i) Base Rate Loans. During such periods as Loans shall be --------------- comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Base Rate plus the ---- Applicable Percentage; (ii) Eurodollar Loans. During such periods as Loans shall be ---------------- comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Eurodollar Rate plus ---- the Applicable Percentage. Interest on Loans shall be payable in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). (e) Notes. The Loans shall be evidenced by a duly executed Note in ----- favor of each Lender. (f) Maximum Number of Eurodollar Loans. The Borrower will be limited ---------------------------------- to a maximum number of three (3) Eurodollar Loans outstanding at any time. For purposes hereof, Eurodollar Loans with separate or different Interest Periods will be considered as separate Eurodollar Loans even if their Interest Periods expire on the same date. -19- 2.2 [Intentionally Omitted]. 2.3 [Intentionally Omitted]. 2.4 [Intentionally Omitted]. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES ---------------------------------------------- 3.1 Default Rate. ------------ Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then 2% greater than the Base Rate). 3.2 Extension and Conversion. ------------------------ Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans - - -------- ------- may be converted into Base Rate Loans only on the last day of the respective Interest Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate Loans may be converted into Eurodollar Loans, only if no Default or Event of Default is in existence on the date of extension or conversion, (iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall --------------- be in a minimum aggregate principal amount of $5,000,000, in the case of Eurodollar Loans, or $1,000,000 in the case of Base Rate Loans, and integral multiples of $100,000 in excess thereof, and (iv) any request for extension or conversion of a Eurodollar Loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephone notice promptly confirmed in writing) to the Administrative Agent (x) prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan, and (y) on the third Business Day prior to, in the case of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto; provided -------- that, with respect to clause (x) above, in the case of telephone notice given prior to 11:00 A.M. (Charlotte, North Carolina time), the Borrower shall have until 12:00 Noon (Charlotte, North Carolina time) to deliver the confirmatory written notice. Each request for extension or conversion shall be irrevocable and shall constitute a representation and warranty by the Borrower of the matters specified in subsections (a) through (e) of Section 5.2. In the event the Borrower fails to request the extension of any Eurodollar Loan in accordance with this Section, then the Interest Period for such Eurodollar Loan shall be automatically extended for one month at -20- the end of the current Interest Period for such Eurodollar Loan, so long as such extension would otherwise be permitted by this Section. In the event any conversion or extension of a Eurodollar Loan is not permitted or required by this Section, then such Eurodollar Loan shall be automatically converted into a Base Rate Loan at the end of the Interest Period applicable thereto. The Administrative Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 Prepayments. ----------- (a) Voluntary Prepayments. Loans may be repaid in whole or in part --------------------- without premium or penalty; provided that (i) Eurodollar Loans may be prepaid -------- only upon three (3) Business Days' prior written notice to the Administrative Agent and must be accompanied by payment of any amounts owing under Section 3.11, (ii) partial prepayments shall be minimum principal amounts of $5,000,000, in the case of Eurodollar Loans, and $1,000,000, in the case of Base Rate Loans, and in integral multiples of $1,000,000 in excess thereof; (iii) no Loan may be voluntarily prepaid prior to the date one year following the Closing Date; and (iv) if after giving effect to any such prepayment, the aggregate outstanding principal balance of the Loans would be less than $25,000,000, then the Borrower shall repay the entire outstanding principal balance of Loans. (b) [Intentionally Omitted]. (c) Application. Unless otherwise specified by the Borrower, ----------- prepayments made hereunder shall be applied first to Loans which are Base Rate Loans, and then to Loans which are Eurodollar Loans in direct order of Interest Period maturities. Amounts prepaid hereunder may not be reborrowed. 3.4 [Intentionally Omitted]. 3.5 Fees. ---- (a) Facility Fee. In consideration of the Commitments hereunder, the ------------ Borrower agrees to pay to the Administrative Agent for the benefit of each Lender a facility fee (collectively, the "Facility Fee") equal to three-eighths ------------ of one-percent (0.375%) of such Lender's Commitment. The Facility Fee shall be due and payable in full on the Effective Date. (b) Administrative Fees. The Borrower agrees to pay to the ------------------- Administrative Agent, for its own account, an annual administrative fee and such other fees, if any, as agreed to from time to time between the Administrative Agent and the Borrower. -21- (c) Extension Fee. If the Termination Date is extended pursuant to ------------- Section 3.16, the Borrower agrees to pay to the Administrative Agent for the benefit of each Lender an extension fee equal to one-fifteenth of one-percent (0.15%) of the outstanding principal amount of the Loans owing to such Lender (after giving effect to any prepayment of Loans being made by the Borrower in connection with such extension). 3.6 Capital Adequacy. ---------------- If any Lender has determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then, upon notice from such Lender to the Borrower, the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 3.7 Inability To Determine Interest Rate. ------------------------------------ If prior to the first day of any Interest Period, the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (a) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans and (b) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Loans shall be converted to or continued as Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Base Rate Loans to Eurodollar Loans. 3.8 Illegality. ---------- Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof occurring after the Closing Date shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such Lender shall promptly give written notice of such circumstances to the Borrower and the Administrative Agent (which notice shall be withdrawn whenever such circumstances no longer exist), (b) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Lender to make or -22- or maintain Eurodollar Loans, such Lender shall then have a commitment only to make a Base Rate Loan when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender, upon demand, without duplication, such amounts, if any, as may be reasonably required pursuant to Section 3.11. 3.9 Requirements of Law. ------------------- If, after the date hereof, the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to any Lender, or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Closing Date (or, if later, the date on which such Lender becomes a Lender): (a) shall subject such Lender to any tax of any kind whatsoever with respect to any Eurodollar Loans made by it or its obligation to make Eurodollar Loans, or change the basis of taxation of payments to such Lender in respect thereof (except for (i) Non-Excluded Taxes covered by Section 3.10 (including Non-Excluded Taxes imposed solely by reason of any failure of such Lender to comply with its obligations under Section 3.10(b)) and (ii) changes in taxes measured by or imposed upon the overall net income, or franchise tax (imposed in lieu of such net income tax), of such Lender or its applicable lending office, branch, or any affiliate thereof); (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (c) shall impose on such Lender any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender reasonably deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the Borrower from such Lender, through the Administrative Agent, in accordance herewith, the Borrower shall be obligated to promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable, provided that, in -------- any such case, the Borrower may elect to convert the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving the Administrative Agent at least one Business Day's notice of such election, in which case the Borrower shall promptly pay to such Lender, upon demand, without duplication, such amounts, if any, as may be reasonably required pursuant to Section 3.11. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the Borrower, through the Administrative Agent, certifying (x) that one of the events described in this -23- paragraph (a) has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by such Lender and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. This covenant shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.10 Taxes. ----- (a) Except as provided below in this subsection, all payments made by the Borrower under this Credit Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the overall net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any ------------------ amounts payable to the Administrative Agent or any Lender hereunder or under any Notes, (A) the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Notes, provided, however, that the Borrower shall be -------- ------- entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. -24- (b) Each Lender that is not a United States person under Section 7701(a)(30) of the Code, on or prior to the date of its execution and delivery of this Credit Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Administrative Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with (i) Internal Revenue Service Form W-8 BEN or W-8 ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces to zero the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Credit Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and/or (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Code), certifying that such Lender is entitled to an exemption from tax on payments pursuant to this Credit Agreement or any of the other Credit Documents. 3.11 Indemnity. --------- The Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur (other than through such Lender's gross negligence or willful misconduct) as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. With respect to Eurodollar Loans, such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Percentage included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The covenants of the Borrower set forth in this Section 3.11 shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.12 Pro Rata Treatment. ------------------ Except to the extent otherwise provided herein: (a) Loans. Each Loan, each payment or prepayment of principal of any ----- Loan, each payment of interest on the Loans, each payment of Facility Fees, each payment of extension fees payable under Section 3.5(c), and each conversion or extension of any Loan, shall be allocated -25- pro rata among the Lenders in accordance with the respective principal amounts of the outstanding Loans to which such payment or prepayment is to be applied. (b) Advances. No Lender shall be responsible for the failure or delay -------- by any other Lender in its obligation to make its ratable share of a borrowing hereunder (and further, no Lender shall be required to fulfill any obligation of a Defaulting Lender); provided, however, that the failure of any Lender to -------- ------- fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. 3.13 Sharing of Payments. ------------------- The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a participation in such Loans and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Administrative Agent shall fail to remit to the Administrative Agent or any other Lender an amount payable by such Lender or the Administrative Agent to the Administrative Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.13 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.13 to share in the benefits of any recovery on such secured claim. 3.14 Payments, Computations, Etc. ---------------------------- (a) Except as otherwise specifically provided herein, all payments hereunder shall be made to the Administrative Agent in dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, at the Administrative Agent's office specified -26- in Section 11.1 not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Administrative Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower maintained with the Administrative Agent (with notice to the Borrower). The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Administrative Agent the Loans, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent shall distribute such payment to the Lenders in such manner as the Administrative Agent may determine to be appropriate in respect of obligations owing by the Borrower hereunder, subject to the terms of Section 3.12(a)). The Administrative Agent will distribute such payments to such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Administrative Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Base Rate Loans which (unless the Base Rate is determined by reference to the Federal Funds Rate) shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. (b) Allocation of Payments After Event of Default. Notwithstanding --------------------------------------------- any other provisions of this Credit Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of the Guaranteed Obligations or any other amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Administrative Agent in connection with enforcing the rights of the Lenders under the Credit Documents; SECOND, to payment of any fees owed to the Administrative Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Loans or other Guaranteed Obligations hereunder owing to such Lender; FOURTH, to the payment of all accrued interest (pro rata based on proportions of accrued unpaid interest on Loans) and fees on or in respect of the Loans or other Guaranteed Obligations hereunder; -27- FIFTH, to the payment of the outstanding principal amount of the Guaranteed Obligations; SIXTH, to all other Loans and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; and (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans (or in the case of application under clause "FOURTH" pro rata based on accrued unpaid interest) held by such Lender bears to the aggregate then outstanding Loans) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above. 3.15 Evidence of Debt. ---------------- (a) Each Lender shall maintain an account or accounts evidencing the Loan made by such Lender to the Borrower, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary. (b) The Administrative Agent shall maintain the Register pursuant to Section 11.3(c) hereof, and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Administrative Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary. (c) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent with the entries of the Administrative Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the -------- ------- Administrative Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms hereof. 3.16 Extension of Termination Date. ----------------------------- (a) The Borrower may request that the Administrative Agent and the Lenders extend the current Termination Date by one year by executing and delivering to the Administrative Agent at least 30 days but not more than 90 days prior to the current Termination Date, a written request for such extension. The Administrative Agent shall forward to each Lender a copy of any -28- such request delivered to the Administrative Agent promptly upon receipt thereof. Subject to satisfaction of the conditions contained in the immediately following subsection (b), the Termination Date shall be extended for one year. (b) The effectiveness of any extension of the Termination Date is subject to the following conditions: (i) immediately prior to such extension, no Default or Event of Default shall have occurred and be continuing or would result after giving effect to such extension; (ii) the Borrower shall have paid the Fees payable under Section 3.5(c) hereof; (iii) if such extension is the second extension of the Termination Date, at least 50% of the initial aggregate balance of the Loans shall have been repaid on or prior to the effective date of such extension; and (iv) the Termination Date may be extended only two times pursuant to this Section. SECTION 4 GUARANTY -------- 4.1 The Guarantee. ------------- Each of the Guarantors hereby jointly and severally guarantees to each Lender and to the Administrative Agent as hereinafter provided the prompt payment of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Guaranteed Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 4.2 Obligations Unconditional. ------------------------- The obligations of the Guarantors under Section 4.1 hereof are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents, or any other agreement or instrument referred to therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor -29- agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Guaranteed Obligations for amounts paid under this Section 4 until such time as the Lenders have been irrevocably paid in full, all Commitments under the Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (iv) any Lien granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to attach or be perfected; or (v) any of the Guaranteed Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 4.3 Reinstatement. ------------- The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or -30- otherwise, and each Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.4 Certain Additional Waivers. -------------------------- Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Guaranteed Obligations, except through the exercise of the rights of subrogation pursuant to Section 4.2. 4.5 Remedies. -------- The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, the Guaranteed Obligations may be declared to be forthwith due and payable as provided in Section 9.2 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Guaranteed Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Guaranteed Obligations being deemed to have become automatically due and payable), the Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of said Section 4.1. 4.6 Rights of Contribution. ---------------------- The Guarantors hereby agree, as among themselves, that if any Guarantor shall become an Excess Funding Guarantor (as defined below), each other Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section 4.6), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Guarantor to any Excess Funding Guarantor under this Section 4.6 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Section 4, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations ------------------------ arising under the other provisions of this Section 4 (hereafter, the "Guarantied ---------- Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata - - ----------- Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in -------------- respect of any Guarantied Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and (iii) "Pro Rata Share", for the purposes of this Section 4.6, shall mean, for -------------- any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which the aggregate present fair saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but -31- excluding the obligations of such Guarantor hereunder) to (b) the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section 4.6 such subsequent Guarantor shall be deemed to have been a Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Guarantor as of the date such Guarantor became a Guarantor shall be deemed true as of the Closing Date). 4.7 Continuing Guarantee. -------------------- The guarantee in this Section 4 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. 4.8 Release of Guarantors by Administrative Agent. --------------------------------------------- Upon the written request (and at the expense) of the Borrower, the Administrative Agent shall execute a writing releasing, on behalf of the Lenders, one or more Subsidiaries designated by the Borrower from their obligations as Guarantors hereunder, provided that on or prior to the effective -------- date of such release the Borrower shall have delivered to the Administrative Agent (x) a certificate of a Responsible Officer certifying that (a) on a pro forma basis after giving effect to such release (and the addition of any new Guarantors pursuant to Section 7.11(a) on such effective date), the Credit Parties would have been in compliance with the financial covenant contained in Section 7.9(f) as of the last day of the most recently ended fiscal quarter, (b) as of such effective date, the Credit Parties will be in compliance with Section 7.11(a) and (c) no other Default or Event of Default then exists or shall occur as a result of such release and (y) evidence satisfactory to the Administrative Agent that the Subsidiaries to be released have been, or will be simultaneously with their release hereunder, released as "Guarantors" under and as defined in the Bank of America Credit Agreement. Such certificate shall include the calculations required to indicate compliance with Section 7.9(f). SECTION 5 CONDITIONS ---------- 5.1 Conditions to Closing. --------------------- This Credit Agreement shall become effective, and the Extensions of Credit may be made, upon the satisfaction of the following conditions precedent: (a) Execution of Credit Agreement and Credit Documents. Receipt of -------------------------------------------------- (i) multiple counterparts of this Credit Agreement, and (ii) a Note for each Lender. (b) Financial Information. Receipt of financial information regarding --------------------- the Borrower and its subsidiaries, as may be requested by, and in each case in form and substance satisfactory to the Administrative Agent and the Lenders, including, without limitation, a Borrower-prepared consolidated balance sheet of the Borrower and its consolidated Subsidiaries -32- dated as of June 30, 2000, together with related consolidated statements of operations and cash flows. (c) Absence of Legal Proceedings. The absence of any action, suit, ---------------------------- investigation or proceeding pending in any court or before any arbitrator or governmental instrumentality which could reasonably be expected to have a Material Adverse Effect. (d) Legal Opinions. Receipt of multiple counterparts of opinions of -------------- counsel for the Credit Parties relating to the Credit Documents and the transactions contemplated herein, in form and substance satisfactory to the Administrative Agent and the Required Lenders. (e) Corporate Documents. Receipt of the following (or their ------------------- equivalent) for each of the Credit Parties: (i) Articles of Incorporation. Copies of the articles of ------------------------- incorporation or charter documents certified to be true and complete by the appropriate governmental authority of the state of its incorporation or organization. (ii) Resolutions. Copies of resolutions of the Board of ----------- Directors or other governing body approving and adopting the respective Credit Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary as of the Closing Date to be true and correct and in force and effect as of such date. (iii) Bylaws. Copies of the bylaws certified by a secretary or ------ assistant secretary as of the Closing Date to be true and correct and in force and effect as of such date. (iv) Good Standing. Copies of (A) certificates of good ------------- standing, existence or its equivalent issued by the appropriate governmental authorities of the respective states of incorporation or organization and of each other state in which the failure to qualify and be in good standing would have a Material Adverse Effect and (B) where available, certificates indicating payment of all corporate franchise taxes issued as of a recent date by the appropriate governmental taxing authorities of such states. (v) Officer's Certificate. An officer's certificate for each --------------------- of the Credit Parties dated as of the Closing Date substantially in the form of Schedule 5.1(e)(v) with appropriate insertions and attachments. ------------------ (f) Fees. Receipt of all fees, if any, owing pursuant to (i) any ---- prior agreement between the Administrative Agent and the Borrower and (ii) Section 3.5. (g) Subsection 5.2 Conditions. The conditions specified in Section ------------------------- 5.2 shall be satisfied. (h) Notice of Borrowing. The Administrative Agent shall have ------------------- received from the Borrower a Notice of Borrowing not later than 11:00 A.M. (Charlotte, North Carolina time) on the Effective Date if the Loans are initially to be Base Rate Loans, or on the third Business Day -33- prior to the Effective Date if the Loans are initially to be Eurodollar Loans, and if Eurodollar Loans are requested, the Interest Period(s) therefor. (i) Additional Matters. All other documents and legal matters in ------------------ connection with the transactions contemplated by this Credit Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders. 5.2 Conditions to All Extensions of Credit. -------------------------------------- The obligation of each Lender to make any Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit: (a) Representations and Warranties. The representations and ------------------------------ warranties made by the Credit Parties herein or in any other Credit Documents or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct in all material respects on and as of the date of such Extension of Credit as if made on and as of such date (except for those which expressly relate to an earlier date). (b) No Default or Event of Default. No Default or Event of Default ------------------------------ shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Credit Agreement. (c) No Material Adverse Effect. No circumstances, events or -------------------------- conditions shall have occurred since the date of the audited financial statements referenced in Section 6.1 which would have or have had a Material Adverse Effect. (d) Additional Conditions to Loans. All conditions set forth in ------------------------------ Section 2.1 shall have been satisfied. Each request for Extension of Credit (including extensions and conversions) and each acceptance by the Borrower of an Extension of Credit (including extensions and conversions) shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Extension of Credit that the applicable conditions in paragraphs (a), (b), (c), and (d) of this subsection have been satisfied. SECTION 6 REPRESENTATIONS AND WARRANTIES ------------------------------ To induce the Lenders to enter into this Credit Agreement and to make Extensions of Credit herein provided for, each of the members of the Consolidated Group parties hereto (in the case of the Borrower, for itself and for each of the other members of the Consolidated Group; and in the case of each of the other Credit Parties, for itself) hereby represents and warrants to the Administrative Agent and to each Lender that: -34- 6.1 Financial Condition. ------------------- As to the Borrower, the audited consolidated balance sheet of the Borrower and its consolidated subsidiaries dated as of December 31, 1999, together with related statements of operations, cash flows and shareholders' equity certified by Ernst & Young LLP, independent auditors (copies of which have heretofore been provided to the Administrative Agent for distribution to the Lenders), have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby, are complete and correct in all material respects and present fairly the financial condition and results from operations of the entities and for the periods specified, subject in the case of interim Borrower-prepared statements to normal year-end adjustments. 6.2 No Material Adverse Changes. --------------------------- Since the date of the audited financial statements referenced in Section 6.1, there has been no circumstance, development or event relating to or affecting the members of the Consolidated Group which has had or would be reasonably expected to have a Material Adverse Effect. 6.3 Organization; Existence; Compliance with Law. -------------------------------------------- Except as disclosed on Schedule 6.3, each of the members of the ------------ Consolidated Group (a) is duly organized, validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, except in such jurisdictions where the failure to be so qualified and in good standing would not, in the aggregate, have a Material Adverse Effect, (b) has the corporate or other necessary power and authority, and the legal right to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing would not, in the aggregate, have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law, except to the extent that the failure to comply therewith would not, in the aggregate, be reasonably expected to have a Material Adverse Effect. The Borrower is a "real estate investment trust" within the meaning provided under the Code. 6.4 Power; Authorization; Enforceable Obligations. --------------------------------------------- Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party and has taken all necessary corporate or other action to authorize the execution, delivery and performance by it of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with acceptance of extensions of credit or the making of the guaranties hereunder or with the execution, delivery or performance of any Credit Documents by the Credit Parties (other than those which have been obtained, such filings as are required by the Securities and Exchange Commission and to fulfill other reporting requirements with Governmental Authorities) or with -35- the validity or enforceability of any Credit Document against the Credit parties. Each Credit Document to which it is a party constitutes a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 No Legal Bar. ------------ The execution, delivery and performance of the Credit Documents, the borrowings hereunder and the use of the Extensions of Credit will not violate any Requirement of Law or any Contractual Obligation of any member of the Consolidated Group (except those as to which waivers or consents have been obtained), and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation other than the Liens arising under or contemplated in connection with the Credit Documents. No member of the Consolidated Group is in default under or with respect to any of its Contractual Obligations in any respect which would reasonably be expected to have a Material Adverse Effect. 6.6 No Material Litigation. ---------------------- Except to the extent disclosed on Schedule 6.6, no claim, litigation, ------------ investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Credit Parties, threatened by or against, any members of the Consolidated Group or against any of their respective properties or revenues which (a) relate to the Credit Documents or any of the transactions contemplated hereby or thereby, or (b) if adversely determined, would reasonably be expected to have a Material Adverse Effect. 6.7 No Default. ---------- No Default or Event of Default has occurred and is continuing. 6.8 Ownership of Property; Liens. ---------------------------- Each of the members of the Consolidated Group has good title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien, except for liens permitted under Section 8.2. 6.9 Taxes. ----- Each of the members of the Consolidated Group has filed or caused to be filed all United States federal income tax returns and all other material tax returns which, to the best knowledge of the Credit Parties, are required to be filed and has paid or received extensions regarding (a) all taxes shown to be due and payable on said returns or (b) all taxes shown to be due and payable on any assessments of which it has received notice made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any (i) taxes, fees or other charges with respect to which the failure to pay, in the aggregate, -36- would not have a Material Adverse Effect or (ii) taxes, fees or other charges the amount or validity of which are currently being contested and with respect to which reserves in conformity with GAAP have been provided on the books of such Person), and no tax Lien has been filed, and, to the best knowledge of the Credit Parties, no claim is being asserted, with respect to any such tax, fee or other charge. 6.10 ERISA. ----- Except as would not reasonably be expected to have a Material Adverse Effect: (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, in accordance with Financial Accounting Standards Board Statement 87, utilizing the actuarial assumptions used in such Plan's most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan. (c) No member of the Consolidated Group nor any ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. No member of the Consolidated Group nor any ERISA Affiliate would become subject to any withdrawal liability under ERISA if any member of the Consolidated Group or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No member of the Consolidated Group nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject any member of the Consolidated Group or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any member of the Consolidated Group or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability. -37- (e) No member of the Consolidated Group nor any ERISA Affiliates has any material liability with respect to "expected post-retirement benefit obligations" within the meaning of the Financial Accounting Standards Board Statement 106. Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects of such sections. 6.11 Governmental Regulations, Etc. ----------------------------- (a) No part of the proceeds of Extensions of Credit hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. No indebtedness being reduced or retired out of the proceeds of Extensions of Credit hereunder was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meanings of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrower and its Subsidiaries. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation T, U or X. (b) None of the members of the Consolidated Group is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. In addition, none of the members of the Consolidated Group is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) Each of the members of the Consolidated Group has obtained all material licenses, permits, franchises or other governmental authorizations necessary to the ownership of its respective Property and to the conduct of its business. (d) None of the members of the Consolidated Group is in violation of any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or any other jurisdiction, or of any agency thereof (including without limitation, environmental laws and regulations), which violation could reasonably be expected to have a Material Adverse Effect. (e) Each of the members of the Consolidated Group is current with all material reports and documents, if any, required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions. -38- 6.12 Subsidiaries. ------------ Set forth on Schedule 6.12 are all the Subsidiaries of the Borrower at the Closing Date, the jurisdiction of their incorporation and the direct or indirect ownership interest of the Borrower therein and whether or not such subsidiary is a Guarantor. Each "Guarantor" under and as defined in the Bank of America Credit Agreement is a Guarantor hereunder. 6.13 Purpose of Extensions of Credit. ------------------------------- The Extensions of Credit will be used to fund acquisitions and development, to refinance existing Debt, and to finance working capital and other corporate purposes. 6.14 Environmental Matters. --------------------- Except as would not reasonably be expected to have a Material Adverse Effect: (a) Each of the facilities and properties owned, leased or operated by the members of the Consolidated Group (the "Properties") and all operations ---------- at the Properties are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Properties or the businesses operated by the members of the Consolidated Group (the "Businesses"), and there are no conditions relating to the Businesses or ---------- Properties that could give rise to material liability under any applicable Environmental Laws. (b) To the knowledge of the members of the Consolidated Group, none of the Properties contains any Materials of Environmental Concern at, on or under the Properties in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws. (c) None of the members of the Consolidated Group has received any written notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Businesses. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties, or generated, treated, stored or disposed of at, on or under any of the Properties or any other location, in each case by or on behalf any members of the Consolidated Group during their ownership of the Properties in violation of, or in a manner that would be reasonably likely to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of any Credit Party, threatened, under any Environmental Law to which any member of the Consolidated Group is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any member of the Consolidated Group, the Properties or the Businesses. (f) There has been no release or, threat of release of Materials of Environmental Concern at or from the Properties or arising from or related to the operations (including, without -39- limitation, disposal) of any member of the Consolidated Group in connection with the Properties or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. SECTION 7 AFFIRMATIVE COVENANTS --------------------- Each of the Credit Parties (in the case of the Borrower, for itself and each of the other members of the Consolidated Group, and in the case of each of the other Credit Parties, for itself) covenants and agrees that on the Closing Date, and so long as this Credit Agreement is in effect and until no Loans remain outstanding and all amounts owing hereunder or in connection herewith have been paid in full: 7.1 Financial Statements. -------------------- The Borrower shall furnish, or cause to be furnished, to the Administrative Agent for distribution to the Lenders: (a) Audited Financial Statements. As soon as available, but in any ---------------------------- event within 90 days after the end of each fiscal year, an audited consolidated balance sheet of the Borrower and its subsidiaries as of the end of the fiscal year and the related consolidated statements of operations, shareholders' equity and cash flows for the year, audited by Ernst & Young LLP, or other firm of independent certified public accountants of nationally recognized standing, setting forth in each case in comparative form the figures for the previous year, reported without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification. (b) Borrower-Prepared Financial Statements. As soon as available, but -------------------------------------- in any event within 60 days after the end of each of the first three fiscal quarters, a Borrower-prepared consolidated balance sheet of the Borrower and its subsidiaries as of the end of the quarter and related Borrower-prepared consolidated statements of operations and cash flows for such quarterly period and for the fiscal year to date, in each case setting forth in comparative form the consolidated figures for the corresponding period or periods of the preceding fiscal year or the portion of the fiscal year ending with such period, as applicable, in each case subject to normal recurring year-end audit adjustments. All such financial statements shall be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year- end audit adjustments) and shall be prepared in reasonable detail and, in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change in the application of accounting principles as provided in Section 1.3. -40- 7.2 Certificates; Other Information. ------------------------------- The Borrower shall furnish, or cause to be furnished, to the Administrative Agent for distribution to the Lenders: (a) Accountant's Certificate and Reports. If the financial statements ------------------------------------ referred to in Section 7.1(a) above contain a qualified auditor's opinion, then concurrently with the delivery of the financial statements referred to in subsection 7.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate. (b) Officer's Certificate. Concurrently with the delivery of the --------------------- financial statements referred to in Sections 7.1(a) and 7.1(b) above, a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge and belief, (i) the financial statements fairly present in all material respects the financial condition of the parties covered by such financial statements, (ii) during such period the members of the Consolidated Group have observed or performed in all material respects the covenants and other agreements hereunder and under the other Credit Documents relating to them, and satisfied in all material respects the conditions, contained in this Credit Agreement to be observed, performed or satisfied by them, and (iii) such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate. Such certificate shall include the calculations required to indicate (A) compliance with Section 7.9, (B) compliance with Section 7.11(a) and (C) the portion of Consolidated Unencumbered Realty represented by Non-Guarantor Subsidiaries. A form of Officer's Certificate is attached as Schedule 7.2(b). --------------- (c) Accountants' Reports. Promptly upon receipt, a copy of any final -------------------- (as distinguished from a preliminary or discussion draft) "management letter" or other similar report submitted by independent accountants or financial consultants to the members of the Consolidated Group in connection with any annual, interim or special audit. (d) Public Information. Within thirty days after the same are sent, ------------------ copies of all reports (other than those otherwise provided pursuant to subsection 7.1) and other financial information which any member of the Consolidated Group sends to its public stockholders, and within thirty days after the same are filed, copies of all financial statements and non- confidential reports which any member of the Consolidated Group may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority. (e) Other Information. Promptly, such additional financial and other ----------------- information as the Administrative Agent, at the request of any Lender, may from time to time reasonably request. -41- 7.3 Notices. ------- Each of the Credit Parties shall give notice (in accordance with Section 11.1) to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (a) Defaults. Immediately (and in any event within two (2) Business -------- Days) after any Responsible Officer of any Credit Party knows or has reason to know thereof, the occurrence of any Default or Event of Default (such notice shall expressly state that it is a "notice of default"). (b) Contractual Obligations. Promptly, the occurrence of any default ----------------------- or event of default under any Contractual Obligation of any member of the Consolidated Group which would reasonably be expected to have a Material Adverse Effect. (c) Legal Proceedings. Promptly, any litigation, or any investigation ----------------- or proceeding (including without limitation, any environmental proceeding) known to any member of the Consolidated Group, or any material development in respect thereof, affecting any member of the Consolidated Group which, if adversely determined, would reasonably be expected to have a Material Adverse Effect. (d) ERISA. Promptly, after any Responsible Officer of the Borrower ----- knows or has reason to know of (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against any of their ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which the members of the Consolidated Group or any ERISA Affiliate are required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (iv) any change in the funding status of any Plan that reasonably could be expected to have a Material Adverse Effect; together with a description of any such event or condition or a copy of any such notice and a statement by the chief financial officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the members of the Consolidated Group shall furnish the Administrative Agent and the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). (e) Other. Promptly, any other development or event which a ----- Responsible Officer of the Borrower determines could reasonably be expected to have a Material Adverse Effect. -42- Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the relevant Credit Parties propose to take with respect thereto. 7.4 Payment of Obligations. ---------------------- Each member of the Consolidated Group shall pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, in accordance with prudent business practice (subject, where applicable, to specified grace periods) all material obligations of each member of the Consolidated Group of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, other than (i) obligations with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect, or (ii) obligations the amount or validity of which are being contested and with respect to which reserves in conformity with GAAP have been provided on the books of the appropriate members of the Consolidated Group. 7.5 Conduct of Business and Maintenance of Existence. ------------------------------------------------ Each member of the Consolidated Group shall (a) continue to engage in business of the same general type as now conducted by it on the date hereof and similar or related businesses, and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges, licenses and franchises necessary or desirable in the normal conduct of its business and (b) comply with all Contractual Obligations and Requirements of Law applicable to it, except, with respect to each of clauses (a) and (b) above, to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. 7.6 Maintenance of Property; Insurance. ---------------------------------- Each member of the Consolidated Group shall keep all material property useful and necessary in its business in reasonably good working order and condition (ordinary wear and tear excepted); maintain with financially sound and reputable insurance companies casualty (on a full replacement cost basis), liability and such other insurance (which may include plans of self-insurance) with such coverage and deductibles, and in such amounts as may be consistent with prudent business practice and in any event consistent with normal industry practice (except to any greater extent as may be required by the terms of any of the other Credit Documents); and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. 7.7 Inspection of Property; Books and Records; Discussions. ------------------------------------------------------ Each member of the Consolidated Group shall keep proper books of records and account in which full, true, correct and consolidated (if applicable) entries and are consolidated in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent, the Administrative Agent to visit and inspect any of its properties and examine and make abstracts (including photocopies) from any of -43- its books and records (other than materials protected by the attorney-client privilege and materials which the Credit Parties may not disclose without violation of a confidentiality obligation binding upon them) at any reasonable time, and to discuss the business, operations, properties and financial and other condition of the members of the Consolidated Group with officers and employees of the members of the Consolidated Group and with their independent certified public accountants. The cost of the inspection referred to in the preceding sentence shall be for the account of the Lenders unless an Event of Default has occurred and is continuing, in which case the cost of such inspection shall be for the account of the Credit Parties. 7.8 Environmental Laws. ------------------ Each member of the Consolidated Group shall: (a) Comply in all material respects with all applicable Environmental Laws and obtain and comply in all material respects with and maintain any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the failure to do or the pendency of such proceedings would not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the members of the Consolidated Group or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Loans and all other amounts payable hereunder, and termination of the Commitments. 7.9 Financial Covenants. ------------------- (a) Consolidated Adjusted Tangible Net Worth. Consolidated Adjusted ---------------------------------------- Tangible Net Worth will at all times be not less than the sum of (i) $1,500,000,000 plus (ii) 90% of the net proceeds (after customary underwriting ---- discounts and commissions and reasonable offering expenses) from Equity Transactions occurring after December 31, 1999. (b) Consolidated Funded Debt Ratio. Consolidated Funded Debt shall ------------------------------ (i) as of the last day of the fiscal quarter ending September 30, 2000, be not more than 57.50% of -44- Tangible Fair Market Value of Assets; and (ii) as of the last day of all subsequent fiscal quarters, be not more than 55.00% of Tangible Fair Market Value of Assets. (c) Consolidated Secured Debt. Consolidated Secured Debt will at all ------------------------- times be not more than 35.00% of Tangible Fair Market Value of Assets. (d) Consolidated Interest Coverage Ratio. As of the last day of the ------------------------------------ fiscal quarter ending September 30, 2000, the ratio of Consolidated Adjusted EBITDA to Consolidated Interest Expense for the fiscal quarter then ending shall be not less than 1.90:1.0. As of the last day of each subsequent fiscal quarter, the ratio of Consolidated Adjusted EBITDA to Consolidated Interest Expense for the fiscal quarter then ending shall be not less than 2.0:1.0. (e) Consolidated Total Fixed Charge Coverage Ratio. As of the end of ---------------------------------------------- each fiscal quarter, the ratio of Consolidated Adjusted EBITDA to Consolidated Total Fixed Charges for the fiscal quarter then ending shall be not less than 1.5:1.0. (f) Consolidated Unsecured Debt to Consolidated Unencumbered Realty. --------------------------------------------------------------- The ratio of Consolidated Unsecured Debt to Consolidated Unencumbered Realty shall : (i) as of the last day of the fiscal quarter ending September 30, 2000, be not more than 57.50% for the fiscal quarter then ending; and (ii) as of the last day of all subsequent fiscal quarters, be not more than 55.00% for the fiscal quarter then ending. (g) Consolidated Unencumbered Interest Coverage Ratio. As of the end ------------------------------------------------- of each fiscal quarter, the ratio of (i) Consolidated Net Operating Income from Unencumbered Realty to (ii) Consolidated Interest Expense relating to Consolidated Unsecured Debt for the fiscal quarter then ending shall be not less than 2.0:1.0. (h) Dividend Payout. The Borrower shall ensure that distributions on --------------- common stock (excluding dividends paid resulting from extraordinary gains, which extraordinary gains are excluded from the calculation of Funds From Operations) during any fiscal quarter do not exceed, in the aggregate, ninety-five percent (95.00%) of Funds From Operations attributable to such fiscal quarter; provided, -------- however, the Borrower may pay dividends or distributions that exceed the amount - - ------- permitted by the preceding subclause if such larger distribution is required in order for the Borrower to maintain its status as a REIT. (i) Investments and Acquisitions. ---------------------------- (i) The aggregate cost of all acquisitions made by the Consolidated Group of the assets, property and/or operations of any other Person shall, during any calendar year, be not more than ten percent (10%) of Tangible Fair Market Value of Assets as of the first day of such calendar year. (ii) The aggregate amount of all loans, advances or Investments (including, for purposes hereof, Guarantees) made by the Consolidated Group to or in respect of any other Person where, after giving effect thereto, such Person will not be a Subsidiary (and excluding Investments permitted pursuant to clauses (i),(ii),(iv), and (v) of the definition of Permitted Investments) shall, during any calendar year, be not more -45- than five percent (5%) of Tangible Fair Market Value of Assets as of the first day of such calendar year. (iii) The aggregate cost of the actual expenditures for improvements on Consolidated Unimproved Realty shall, as of the end of any fiscal quarter, be not more than ten percent (10%) of Tangible Fair Market Value of Assets. (iv) The GAAP value of Consolidated Unimproved Realty shall, as of the end of any fiscal quarter, be not more than five percent (5%) of Tangible Fair Market Value of Assets. (v) The aggregate amount of the Consolidated Group's pro rata share of the GAAP value of any asset contributed to or otherwise invested in joint ventures shall, as of the end of any fiscal quarter, be not more than fifteen percent (15%) of Tangible Fair Market Value of Assets. (vi) The sum of (a) the aggregate cost of the actual expenditures for improvements on Consolidated Unimproved Realty; plus (b) the GAAP value of ---- Consolidated Unimproved Realty, shall, as of the end of any fiscal quarter, be not more than ten percent (10%) of Tangible Fair Market Value of Assets. (vii) The sum of (a) the aggregate cost of the actual expenditures for improvements on Consolidated Unimproved Realty; plus (b) the GAAP value of ---- Consolidated Unimproved Realty; plus (c) the aggregate amount of the ---- Consolidated Group's pro rata share of the GAAP value of any asset contributed to or otherwise invested in joint ventures, shall, as of the end of any fiscal quarter, be not more than twenty percent (20%) of Tangible Fair Market Value of Assets. 7.10 Agency Fees. ----------- The Borrower shall pay to the Administrative Agent the annual agency fee and comply with the other fee agreements between the Administrative Agent and the Borrower as agreed to from time to time. 7.11 Additional Guaranties. --------------------- (a) Where the portion of the undepreciated value of the Realty directly owned by the members of the Consolidated Group ("Consolidated REO") ---------------- represented by the Realty directly owned by one or more Subsidiaries which are not Guarantors hereunder (the "Non-Guarantor Subsidiaries") shall, at any time, -------------------------- exceed (A) five percent (5%) of Consolidated REO in any instance (that is, with respect to the Realty directly owned by any individual Non-Guarantor Subsidiary), or (B) twenty-five percent (25%) of Consolidated REO collectively as a group (that is, with respect to the Realty directly owned by all Non- Guarantor Subsidiaries) (each such percentage is referred to herein as a "Threshold Requirement"), then the Borrower shall promptly notify the --------------------- Administrative Agent thereof, and cause one or more Non-Guarantor Subsidiaries to become a Guarantor hereunder by way of execution of a Joinder Agreement such that immediately after the joinder of such Subsidiaries as Guarantors hereunder, the remaining Non-Guarantor Subsidiaries shall not exceed the applicable Threshold Requirement. -46- (b) Delivery of any such Joinder Agreement shall be accompanied by supporting resolutions, incumbency certificates, corporation formation and organizational documentation and opinions of counsel as the Administrative Agent may reasonably request. 7.12 Ownership of Subsidiaries. ------------------------- Except (a) to the extent otherwise permitted in Section 8.7 and to the extent as would not cause a Change of Control and (b) as set forth on Schedule -------- 6.12, the Borrower shall, directly or indirectly, own at all times 100% of the - - ---- voting stock of each of its Subsidiaries. 7.13 Use of Proceeds. --------------- Extensions of Credit will be used solely for the purposes provided in Section 6.13. SECTION 8 NEGATIVE COVENANTS Each of the Credit Parties (in the case of the Borrower, for itself and each of the other members of the Consolidated Group, and in the case of each of the other Credit Parties, for itself) covenants and agrees that on the Closing Date, and so long as this Credit Agreement is in effect and until no Loans remain outstanding and all amounts owing hereunder or in connection herewith, have been paid in full, no member of the Consolidated Group shall: 8.1 Limitations on Debt. ------------------- Create, incur, assume or suffer to exist any Debt, except Debt the existence or incurrence of which would not violate the financial covenants of Section 7.9. 8.2 Restriction on Liens. -------------------- Create, assume, incur or suffer to exist any Lien on any Property or asset of any kind, real or personal, tangible or intangible, now owned or hereafter acquired by it or assign or subordinate any present or future right to receive assets except: (a) Liens securing Debt the existence or incurrence of which would not violate the financial covenants of Section 7.9; (b) Liens securing taxes, assessments or governmental charges or levies or the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons; provided that (A) with respect -------- to Liens securing state and local taxes, such taxes are not yet payable, (B) with respect to Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and the like, such liens are (1) unfiled and no other action has been taken to enforce the same and (2) the cumulative effect of all such Liens will not have a Material Adverse Effect, or (C) with respect to taxes, assessments or governmental charges or levies or claims or demand secured by such Liens, payment is not at the time required; -47- (c) Liens not securing Debt which are incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance, unemployment insurance, social security and other like laws; (d) any Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereto are being contested in good faith by appropriate proceedings; (e) zoning restrictions, easements, licenses, reservations, covenants, conditions, waivers, restrictions on the use of property or other minor encumbrances or irregularities of title which do not materially impair the use of any property in the operation or business of the Borrower or such Subsidiary or the value of such property for the purpose of such business; and (f) Liens on property or assets of such Subsidiary to secure obligations of such Subsidiary solely to the Borrower or a Wholly-Owned Subsidiary. 8.3 Consolidations, Mergers and Sales and Purchases of Assets. --------------------------------------------------------- (a) Enter into a transaction of merger or consolidation, except ------ (i) a member of the Consolidated Group may be a party to a transaction of merger or consolidation with another member of the Consolidated Group, provided that (A) if the Borrower is a party thereto, -------- it is the surviving corporation, or (B) if a Guarantor is a party thereto, it shall be the surviving corporation or the surviving corporation shall be a Domestic Subsidiary and shall become a Guarantor hereunder as an Additional Credit Party pursuant to Section 7.11 concurrently therewith, and (C) no Default or Event of Default shall exist either immediately prior to or immediately after giving effect thereto; and (ii) a member of the Consolidated Group (other than the Borrower) may be a party to a transaction of merger or consolidation with any other Person, provided that (A) the provisions of Section 7.11 regarding joinder -------- of certain Subsidiaries as Additional Credit Parties hereunder shall be complied with, (B) no Default or Event of Default shall exist either immediately prior to or immediately after giving effect thereto, and (C) the provisions of subsection (c) of this Section shall be complied with. (b) Other than as between Credit Parties, sell, lease, transfer or otherwise dispose of assets, property and/or operations which in the aggregate in any fiscal year shall constitute more than fifteen percent (15%) of Tangible Fair Market Value of Assets at the end of the immediately preceding fiscal year or contributed more than fifteen percent (15%) of Consolidated EBITDA for the immediately preceding fiscal year, without the prior written consent of the Required Lenders (which consent shall not be unreasonably withheld or delayed). (c) Acquire all or any portion of the capital stock or other ownership interest in any Person which is not a Subsidiary or all or any portion of the assets, property and/or -48- operations of a Person which is not a Subsidiary, without the prior written consent of the Required Lenders (which consent shall not be unreasonably withheld or delayed), unless ------ (i) in the case of an acquisition of capital stock or other ownership interest where, after giving effect thereto, such Person will not be a Subsidiary, then such acquisition will not cause a violation of Section 8.4; (ii) in the case of an acquisition of capital stock or other ownership interest where, after giving effect thereto, such Person will be a Subsidiary, then (A) the aggregate cost of all such acquisitions during any calendar year shall not exceed an amount equal to twenty-five percent (25%) of Tangible Fair Market Value of Assets at the end of the immediately preceding fiscal year; (B) the Board of Directors (or functional equivalent) of the Person which is the subject of such acquisition shall have approved the acquisition; and (C) no Default or Event of Default would exist after giving effect thereto on a Pro Forma Basis; (iii) in the case of an acquisition of the assets, property and/or operations of a Person, then no Default or Event of Default would exist after giving effect thereto on a Pro Forma Basis. (d) In the case of the Borrower, liquidate, wind-up or dissolve, whether voluntarily or involuntarily (or suffer to permit any such liquidation or dissolution). (e) Alter the character of their business in any material respect from that conducted as of the Closing Date and similar or related businesses. (f) The foregoing provisions of this Section shall not apply to leases of property and assets by members of the Consolidated Group to individual tenants in the ordinary course of business. 8.4 Loans and Investments. --------------------- Make loans, advances or Investments (including, for purposes hereof, Guarantees) to or in respect of any other Person, except for Permitted Investments. 8.5 Transactions with Affiliates. ---------------------------- Enter into any transaction, directly or indirectly, including without limitation, the purchase, sale or exchange of property or the rendering of any service to, any Affiliate or shareholder of the Borrower, except in the ordinary course of business pursuant to the reasonable requirements of the business of the Borrower or such Subsidiary and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtainable in a -49- comparable arms-length transaction with a person not an Affiliate or shareholder; provided that the foregoing restrictions shall not apply to -------- extensions of credit by the Borrower to its officers and directors pursuant to the Borrower's Stock Purchase and Loan Plan in an aggregate amount not to exceed at any time 5% of Consolidated Adjusted Tangible Net Worth. 8.6 Transactions with Other Persons regarding this Agreement. -------------------------------------------------------- Enter into any agreement with any Person whereby any of them would agree to any restriction on the Borrower's right with the Lenders' consent to amend or waive any of the provisions of this Credit Agreement. 8.7 Limitation on Certain Restrictions on Subsidiaries. -------------------------------------------------- Other than as presently exist in respect of REMICs and other special Subsidiaries listed on Schedule 8.7, create or otherwise cause or suffer to ------------ exist or become effective, directly or indirectly, any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by any member of the Consolidated Group, (ii) make loans or advances to any member of the Consolidated Group, or (iii) transfer any of its properties or assets to any member of the Consolidated Group, except for encumbrances or restrictions existing under or by reason of (A) applicable law or (B) this Credit Agreement unless, after giving effect thereto on a Pro Forma Basis, the aggregate amount of Consolidated EBITDA attributable to all such REMICs and other special Subsidiaries shall be less than 25% of Consolidated EBITDA. SECTION 9 EVENTS OF DEFAULT ----------------- 9.1 Events of Default. ----------------- An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): ---------------- (a) Payment. Any Credit Party shall ------- (i) default in the payment when due of any principal of any of the Loans, or (ii) default, and such default shall continue for five (5) or more Business Days, in the payment when due of any interest on the Loans or of any Fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or (b) Representations. Any representation, warranty or statement made --------------- or deemed to be made herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was made or deemed to have been made; or -50- (c) Covenants. --------- (i) Default in the due performance or observance of any term, covenant or agreement contained in Section 7.3(a), 7.9, 7.11, 7.13 or 8.1 through 8.7 (except in the case of negative covenants contained in Sections 8.1 through 8.7, those Defaults which may occur or arise other than on account of or by affirmative or intentional act of the Borrower or event or condition which the Borrower shall with knowledge permit to exist, all of which shall be subject to the provisions of clause (ii) hereof), inclusive, or (ii) Default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this Section 9.1) contained in this Credit Agreement and such default shall continue unremedied for a period of at least 30 days after the earlier of a Responsible Officer of a Credit Party becoming aware of such default or notice thereof by the Administrative Agent or such longer period not to exceed an additional 30 days provided that the Borrower is diligently pursuing remedy of such default; or (d) Other Credit Documents. (i) Any Credit Party shall default in the ---------------------- due performance or observance of any material term, covenant or agreement in any of the other Credit Documents (subject to applicable grace or cure periods, if any), or (ii) any Credit Document shall fail to be in full force and effect or to give the Administrative Agent and/or the Lenders any material part of the rights, powers and privileges purported to be created thereby; or (e) Guaranties. The guaranty given by any Guarantor hereunder or any ---------- material provision thereof shall cease to be in full force and effect, or any Guarantor hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty; or (f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to --------------- any member of the Consolidated Group; or (g) Defaults under Other Agreements. ------------------------------- (i) Any member of the Consolidated Group shall default in the performance or observance (beyond the applicable grace period with respect thereto, if any) of any material obligation or condition of any contract or lease material to the Consolidated Group, taken as a whole; or (ii) With respect to any Debt (other than Debt outstanding under this Credit Agreement) in excess of $25,000,000 in the aggregate for the Consolidated Group taken as a whole, (A) (1) any member of the Consolidated Group shall default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such Debt, or (2) the occurrence and continuance of a default in the observance or performance relating to such Debt or contained in any instrument or agreement -51- evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Debt (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Debt to become due prior to its stated maturity; or (B) any such Debt shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof. (h) Judgments. Any member of the Consolidated Group shall fail within --------- 30 days of the date due and payable to pay, bond or otherwise discharge any judgment, settlement or order for the payment of money which judgment, settlement or order, when aggregated with all other such judgments, settlements or orders due and unpaid at such time, exceeds $5,000,000, and which is not stayed on appeal (or for which no motion for stay is pending) or is not otherwise being executed; or (i) ERISA. Any of the following events or conditions, if such event ----- or condition could reasonably be expected to have a Material Adverse Effect shall occur: (1) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of a member of the Consolidated Group or any ERISA Affiliate in favor of the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Administrative Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (3) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Administrative Agent, likely to result in (i) the termination of such Plan for purposes of Title IV of ERISA, or (ii) a member of the Consolidated Group or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency of (within the meaning of Section 4245 of ERISA) such Plan; or (4) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject a member of the Consolidated Group or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which a member of the Consolidated Group or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or (j) Ownership. There shall occur a Change of Control; or --------- (k) Bank of America Credit Agreement. An Event of Default under and -------------------------------- as defined in the Bank of America Credit Agreement shall have occurred and be continuing. -52- 9.2 Acceleration; Remedies. ---------------------- Upon the occurrence of an Event of Default, and at any time thereafter, the Administrative Agent may and, upon the request and direction of the Required Lenders, shall by written notice to the Credit Parties take any of the following actions: (i) Termination of Commitments. Declare the Commitments -------------------------- terminated whereupon the Commitments shall be immediately terminated. (ii) Acceleration. Declare the unpaid principal of and any ------------ accrued interest in respect of all Loans and any and all other indebtedness or obligations of any and every kind owing by the Credit Parties to the Administrative Agent and/or any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each of the Credit Parties. (iii) Enforcement of Rights. Enforce any and all rights and --------------------- interests created and existing under the Credit Documents. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur, then the Commitments shall automatically terminate and all Loans, all accrued interest in respect thereof, all accrued and unpaid Fees and other indebtedness or obligations owing to the Administrative Agent and/or any of the Lenders hereunder automatically shall immediately become due and payable without presentment, demand, protest or the giving of any notice or other action by the Administrative Agent or the Lenders, all of which are hereby waived by the Credit Parties. SECTION 10 AGENCY PROVISIONS ----------------- 10.1 Appointment. ----------- Each Lender hereby designates and appoints First Union National Bank as contractual representative (in such capacity, the "Administrative Agent") of -------------------- such Lender to act as specified herein and the other Credit Documents, and each such Lender hereby authorizes the Administrative Agent as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated by the terms hereof and of the other Credit Documents, together with such other powers as are reasonably incidental thereto. Each Lender further directs and authorizes the Administrative Agent to execute releases (or similar agreements) to give effect to the provisions of this Credit Agreement and the other Credit Documents. Notwithstanding any provision to the contrary elsewhere herein and in the other Credit Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any of the other Credit Documents, or shall otherwise exist against the Administrative Agent. The provisions of this Section are solely for the benefit of the Administrative Agent and the -53- Lenders and none of the Credit Parties shall have any rights as a third party beneficiary of the provisions hereof. In performing its functions and duties under this Credit Agreement and the other Credit Documents, the Administrative Agent shall act solely as Administrative Agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for any Credit Party or any of their respective Affiliates. 10.2 Delegation of Duties. -------------------- The Administrative Agent may execute any of its duties hereunder or under the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. ---------------------- The Administrative Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection herewith or in connection with any of the other Credit Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any of the Credit Parties contained herein or in any of the other Credit Documents or in any certificate, report, document, financial statement or other written or oral statement referred to or provided for in, or received by the Administrative Agent under or in connection herewith or in connection with the other Credit Documents, or enforceability or sufficiency therefor of any of the other Credit Documents, or for any failure of any Credit Party to perform its obligations hereunder or thereunder. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Credit Agreement, or any of the other Credit Documents or for any representations, warranties, recitals or statements made herein or therein or made by the Borrower or any Credit Party in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Credit Parties to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans, the use of the Letters of Credit or of the existence or possible existence of any Default or Event of Default or to inspect the properties, books or records of the Credit Parties or any of their respective Affiliates. 10.4 Reliance on Communications. -------------------------- The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any of the Credit Parties, independent accountants and other experts selected by the Administrative Agent -54- with reasonable care). The Administrative Agent may deem and treat the Lenders as the owners of their respective interests hereunder for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent in accordance with Section 11.3(b) hereof. The Administrative Agent and the Borrower shall be fully justified in failing or refusing to take any action under this Credit Agreement or under any of the other Credit Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Credit Documents in accordance with a request of the Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders (including their successors and assigns). 10.5 Notice of Default. ----------------- The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or a Credit Party referring to the Credit Document, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders. 10.6 Non-Reliance on Administrative Agent and Other Lenders. ------------------------------------------------------ Each Lender expressly acknowledges that each of the Administrative Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates has not made any representations or warranties to it and that no act by the Administrative Agent or any affiliate thereof hereinafter taken, including any review of the affairs of any Credit Party or any of their respective Affiliates, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower, the other Credit Parties or their respective Affiliates and made its own decision to make its Loans hereunder and enter into this Credit Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Credit Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower, the other Credit Parties and their respective Affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of the Borrower, the other Credit Parties or any of -55- their respective Affiliates which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. --------------- The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitments (or if the Commitments have expired or been terminated, in accordance with the respective principal amounts of outstanding Loans), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, reasonable costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the final payment of all of the obligations of the Borrower hereunder and under the other Credit Documents) be imposed on, incurred by or asserted against the Administrative Agent in its capacity as such in any way relating to or arising out of this Credit Agreement or the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any -------- portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the gross negligence or willful misconduct of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section shall survive the repayment of the Loans, and other obligations under the Credit Documents and the termination of the Commitments hereunder. 10.8 Administrative Agent in its Individual Capacity. ----------------------------------------------- The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower, its Subsidiaries or their respective Affiliates as though the Administrative Agent were not the Administrative Agent hereunder. With respect to the Loans made by and all obligations of the Borrower hereunder and under the other Credit Documents, the Administrative Agent shall have the same rights and powers under this Credit Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 Successor Administrative Agent. ------------------------------ The Administrative Agent may, at any time, resign upon 20 days' written notice to the Lenders and the Borrower, and may be removed, upon show of cause, by the Required Lenders upon 30 days' written notice to the Administrative Agent. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the notice of resignation or notice of removal, as appropriate, then the retiring Administrative Agent shall select a successor Administrative Agent -56- provided such successor is a Lender hereunder or a commercial bank organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $400,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations as Administrative Agent, as appropriate, under this Credit Agreement and the other Credit Documents and the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Credit Agreement. SECTION 11 MISCELLANEOUS ------------- 11.1 Notices. ------- Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrower, Guarantors and the Administrative Agent, set forth below, and, in the case of the Lenders, set forth on Schedule -------- 11.1, or at such other address as such party may specify by written notice to - - ---- the other parties hereto: if to the Borrower or the Guarantors: United Dominion Realty Trust, Inc. 400 East Cary Street Richmond, Virginia 23219-3816 Attn: Chief Financial Officer Telephone: (804) 819-1891 Telecopy: (804) 780-0431 with a copy to: United Dominion Realty Trust, Inc. 400 East Cary Street Richmond, Virginia 23219-3816 Attn: General Counsel Telephone: (804) 819-1885 Telecopy: (804) 788-4607 -57- if to the Administrative Agent: First Union National Bank One First Union Center, DC-6 301 South College Street Charlotte, North Carolina 28288-0166 Attn: John A. Schissel Telephone: (704) 383-1967 Telecopy: (704) 383-6205 11.2 Right of Set-Off. ---------------- In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply (subject to Section 3.13) any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of any Credit Party against obligations and liabilities of such Person to such Lender hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether such Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. Any Person purchasing a participation in the Loans and Commitments hereunder pursuant to Section 3.13 or Section 11.3(d) may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder. It is specifically acknowledged and agreed that no right of set-off shall be exercised against accounts identified as holding tenant deposit accounts or transfer agent accounts which represent obligations to third parties. 11.3 Benefit of Agreement. -------------------- (a) Generally. This Credit Agreement shall be binding upon and inure --------- to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that none of the Credit Parties may assign or -------- transfer any of its interests without prior written consent of the Lenders; provided further that the rights of each Lender to transfer, assign or grant - - -------- ------- participations in its rights and/or obligations hereunder shall be limited as set forth in this Section 11.3, provided however that nothing herein shall -------- prevent or prohibit any Lender from (i) pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, or (ii) granting assignments or selling participations in such Lender's Loans and/or Commitments hereunder to its parent company and/or to any Affiliate or Subsidiary of such Lender. (b) Assignments. Each Lender may with the prior written consent of ----------- the Administrative Agent and the Borrower (provided that the consent of the Borrower shall not be unreasonably delayed or withheld and provided further that the consent of the Borrower shall not be -58- required during the existence and continuation of an Event of Default), assign all or a portion of its rights and obligations hereunder, pursuant to an assignment agreement substantially in the form of Schedule 11.3(b), to an ---------------- Eligible Assignee provided that (i) any such assignment (other than any -------- assignment to an existing Lender) shall be in a minimum aggregate amount of $5,000,000 (or, if less, the remaining amount of the Commitment of the assigning Lender) of the Commitments and in integral multiples of $1,000,000 above such amount and (ii) each such assignment shall be of a constant, not varying, percentage of all such Lender's rights and obligations under this Credit Agreement. Any assignment hereunder shall be effective upon delivery to the Administrative Agent of written notice of the assignment together with a transfer fee of $5,000 payable to the Administrative Agent for its own account from and after the later of (i) the effective date specified in the applicable assignment agreement and (ii) the date of recording of such assignment in the Register pursuant to the terms of subsection (c) below. The assigning Lender will give prompt notice to the Administrative Agent and the Borrower of any such assignment. Upon the effectiveness of any such assignment (and after notice to, and (to the extent required pursuant to the terms hereof), with the consent of, the Borrower as provided herein), the assignee shall become a "Lender" for all purposes of this Credit Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder to the extent of the Loans and Commitment components being assigned. Along such lines the Borrower agrees that upon notice of any such assignment and surrender of the appropriate Note or Notes, it will promptly provide to the assigning Lender and to the assignee separate promissory notes in the amount of their respective interests substantially in the form of the original Note (but with notation thereon that it is given in substitution for and replacement of the original Note or any replacement notes thereof). If the assignee is not a United States person under Section 7701(a)(30) of the Code, it shall deliver to the Credit Parties and the Administrative Agent certification as to exemption from deduction or withholding of Non-Excluded Taxes in accordance with Section 3.10. By executing and delivering an assignment agreement in accordance with this Section 11.3(b), the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim; (ii) except as set forth in clause (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto or the financial condition of any Credit Party or any of their respective Affiliates or the performance or observance by any Credit Party of any of its obligations under this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such assignment agreement; (iv) such assignee confirms that it has received a copy of this Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such assignment agreement; (v) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement and the other Credit Documents; (vi) such assignee appoints and -59- authorizes the Administrative Agent to take such action on its behalf and to exercise such powers under this Credit Agreement or any other Credit Document as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Credit Agreement and the other Credit Documents are required to be performed by it as a Lender. (c) Maintenance of Register. The Administrative Agent shall maintain ----------------------- at one of its offices in Charlotte, North Carolina a copy of each Lender assignment agreement delivered to it in accordance with the terms of subsection (b) above and a register for the recordation of the identity of the principal amount, type and Interest Period of each Loan outstanding hereunder, the names, addresses and the Commitments of the Lenders pursuant to the terms hereof from time to time (the "Register"). The Administrative Agent will make reasonable -------- efforts to maintain the accuracy of the Register and to promptly update the Register from time to time, as necessary. The entries in the Register shall be conclusive in the absence of manifest error and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and each Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Participations. Each Lender may sell, transfer, grant or assign -------------- participations to any Person in all or any part of such Lender's interests and obligations hereunder; provided that (i) such selling Lender shall remain a -------- "Lender" for all purposes under this Credit Agreement (such selling Lender's obligations under the Credit Documents remaining unchanged) and the participant shall not constitute a Lender hereunder, (ii) no such participant shall have, or be granted, rights to approve any amendment or waiver relating to this Credit Agreement or the other Credit Documents except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on or Fees in respect of any Loans in which the participant is participating, (B) postpone the date fixed for any payment of principal (including extension of the Termination Date or the date of any mandatory prepayment), interest or Fees in which the participant is participating, or (C) except as expressly provided in the Credit Documents, release any Guarantor from its guaranty obligations hereunder, and (iii) sub-participations by the participant (except to an affiliate, parent company or affiliate of a parent company of the participant) shall be prohibited. In the case of any such participation, the participant shall not have any rights under this Credit Agreement or the other Credit Documents (the participant's rights against the selling Lender in respect of such participation to be those set forth in the participation agreement with such Lender creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided, however, -------- that such participant shall be entitled to receive additional amounts under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a Lender. 11.4 No Waiver; Remedies Cumulative. ------------------------------ No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Administrative Agent or any Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of -60- any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrower or any other Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 Payment of Expenses, etc. ------------------------ The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses (A) of the Administrative Agent in connection with the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and expenses of Alston & Bird LLP, special counsel to the Administrative Agent subject to any applicable agreement regarding such fees), and any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Credit Parties under this Credit Agreement and (B) of the Administrative Agent and the Lenders in connection with enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Administrative Agent and each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of (A) any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding or (B) the presence or Release of any Materials of Environmental Concern at, under or from any Property owned, operated or leased by the Borrower or any of its Subsidiaries, or the failure by the Borrower or any of its Subsidiaries to comply with any Environmental Law (but excluding, in the case of either of clause (A) or (B) above, any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified). 11.6 Amendments, Waivers and Consents -------------------------------- Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, the -61- Required Lenders and (except in the case of a waiver granted by the Required Lenders) the Borrower, provided, however, that: -------- ------- (a) without the consent of each Lender affected thereby, no such amendment may: (i) extend the final maturity of any Loan, or extend or waive any principal amortization payment of any Loan, or any portion thereof, (ii) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or Fees hereunder, (iii) reduce or waive the principal amount of any Loan, (iv) increase the Commitment of a Lender over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of Default (other than an Event of Default of the type described in Section 9.1(f) hereof) or mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender), (v) except (A) as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.3 or (B) in connection with the release of Guarantors pursuant to the terms of Section 4.8, release the Borrower or substantially all of the other Credit Parties from its or their obligations under the Credit Documents, (vi) amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a), 11.2, 11.3, 11.5 or 11.9, (vii) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders, or (viii) consent to the assignment or transfer by the Borrower (or another Credit Party) of any of its rights and obligations under (or in respect of) the Credit Documents except as permitted thereby; and (b) without the consent of the Administrative Agent, no provision of Section 10 may be amended. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding. -62- 11.7 Counterparts. ------------ This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. 11.8 Headings. -------- The headings of the Sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 Survival. -------- All indemnities set forth herein, including, without limitation, in Section 2.2(i), 3.9, 3.11, 10.7 or 11.5 shall survive the execution and delivery of this Credit Agreement, the making of the Loans, the repayment of the Loans and other obligations under the Credit Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive delivery of the Notes and the making of the Loans hereunder. 11.10 Governing Law; Submission to Jurisdiction; Venue. ------------------------------------------------ (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the Commonwealth of Virginia in the City of Richmond, or of the United States for the Eastern District of Virginia, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Administrative Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY -63- ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.11 Severability. ------------ If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.12 Entirety. -------- This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. 11.13 Binding Effect; Termination. --------------------------- (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrower, the Guarantors and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Administrative Agent and each Lender and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Loans or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding and until all of the Commitments hereunder shall have expired or been terminated. 11.14 Source of Funds. --------------- Each of the Lenders hereby represents and warrants to the Borrower that at least one of the following statements is an accurate representation as to the source of funds to be used by such Lender in connection with the financing hereunder: (a) no part of such funds constitutes assets allocated to any separate account maintained by such Lender in which any employee benefit plan (or its related trust) has any interest; (b) to the extent that any part of such funds constitutes assets allocated to any separate account maintained by such Lender, such Lender has disclosed to the Borrower the name of each employee benefit plan whose assets in such account exceed 10% of the total assets of such account as of the date of such purchase (and, for purposes of this subsection (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); -64- (c) to the extent that any part of such funds constitutes assets of an insurance company's general account, such insurance company has complied with all of the requirements of the regulations issued under Section 401(c)(1)(A) of ERISA; or (d) such funds constitute assets of one or more specific benefit plans which such Lender has identified in writing to the Borrower. As used in this Section 11.14, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 11.15 Conflict. -------- To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Credit Document, on the other hand, this Credit Agreement shall control. [Signature Pages to Follow] -65- Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWER: UNITED DOMINION REALTY TRUST, INC., - - -------- a Virginia corporation By:______________________________________ Name:____________________________________ Title:___________________________________ GUARANTORS: UNITED DOMINION REALTY, L.P., - - ---------- a Virginia limited partnership By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:___________________________________________ Name:_________________________________________ Title:________________________________________ UDRT OF NORTH CAROLINA, L.L.C., a North Carolina limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:___________________________________________ Name:_________________________________________ Title:________________________________________ UDR SOUTH CAROLINA TRUST, a Maryland real estate investment trust By:___________________________________________ Name:_________________________________________ Title:________________________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 UDR WESTERN RESIDENTIAL, INC., a Virginia corporation By:__________________________ Name:________________________ Title:_______________________ SOUTH WEST REIT HOLDING, INC., a Texas corporation By:__________________________ Name:________________________ Title:_______________________ UDR OF TENNESSEE, L.P., a Virginia limited partnership By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:__________________________ Name:________________________ Title:_______________________ UDR TEXAS PROPERTIES, L.P., a Delaware limited partnership By:_________________________ Name:_______________________ Title:______________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 UDR CALIFORNIA PROPERTIES, LLC, a Virginia limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:____________________________________ Name:__________________________________ Title:_________________________________ UDR VIRGINIA PROPERTIES, LLC, a Virginia limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:____________________________________ Name:__________________________________ Title:_________________________________ UDR FLORIDA PROPERTIES, LLC, a Virginia limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:____________________________________ Name:__________________________________ Title:_________________________________ ASR INVESTMENTS CORPORATION, a Maryland corporation By:____________________________________ Name:__________________________________ Title:_________________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 SWPT II ARIZONA PROPERTIES, INC., an Arizona corporation By:___________________________ Name:_________________________ Title:________________________ SOUTH WEST PROPERTIES, L.P., a Delaware limited partnership By: UDR Holdings, LLC, a Virginia limited liability company, general partner By: United Dominion Realty, L.P., a Virginia limited partnership, sole member By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_____________________________ Name:___________________________ Title:__________________________ AMERICAN APARTMENT COMMUNITIES HOLDINGS, INC., a Delaware corporation By:___________________________ Name:_________________________ Title:________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 AAC FUNDING PARTNERSHIP II, a Delaware partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_________________________________________ Name:_______________________________________ Title:______________________________________ AAC FUNDING PARTNERSHIP III, a Delaware partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_________________________________________ Name:_______________________________________ Title:______________________________________ FINISTERRA APARTMENTS L.L.C., an Arizona limited liability company By:______________________________________ Name:____________________________________ Title:___________________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 POLO CHASE VENTURE LIMITED PARTNERSHIP, a Delaware limited partnership By: American Apartment Communities Holdings, Inc., a Delaware corporation, general partner By:_________________________________ Name:_______________________________ Title:______________________________ GOVERNOUR'S SQUARE OF COLUMBUS CO., an Ohio limited partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_________________________________ Name:_______________________________ Title:______________________________ NORTHBAY PROPERTIES II, L.P. a California limited partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_________________________________ Name:_______________________________ Title:______________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 PARKER'S LANDING VENTURE I, a Florida partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By: _____________________________________________ Name: ___________________________________________ Title: __________________________________________ REGENCY PARK, L.P., an Indiana limited partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By: _____________________________________________ Name: ___________________________________________ Title: __________________________________________ WINTERLAND SAN FRANCISCO PARTNERS, a California limited partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By: _____________________________________________ Name: ___________________________________________ Title: __________________________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 WOODLAKE VILLAGE, L.P a California limited partnership By: United Dominion Realty, L.P., a Virginia limited partnership, general partner By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By: _____________________________________________ Name: ___________________________________________ Title: __________________________________________ UDRT OF ALABAMA, INC., an Alabama corporation By: _______________________________________ Name: _____________________________________ Title: ____________________________________ SUNSET COMPANY, an Ohio partnership By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By: ____________________________________________ Name: __________________________________________ Title: _________________________________________ Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 LENDERS: FIRST UNION NATIONAL BANK, - - ------- individually in its capacity as a Lender and in its capacity as Administrative Agent By: ____________________________________ Name: Title: Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 SUNTRUST BANK By: ____________________________________ Name: Title: Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 KEYBANK NATIONAL ASSOCIATION By: ____________________________________ Name: Title: Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 PNC BANK, NATIONAL ASSOCIATION By: ____________________________________ Name: Title: Signature Page to United Dominion Realty Trust, Inc. Credit Agreement dated as of November 14, 2000 BANK OF AMERICA, N.A. By: ____________________________________ Name: Title: Schedule 2.1(a) --------------- Schedule of Lenders and Commitments Lender Commitment Commitment % First Union National Bank $ 32,000,000.00 32.0% Bank of America, N.A. $ 25,000,000.00 25.0% KeyBank National Association $ 25,000,000.00 25.0% PNC Bank, National Association $ 13,000,000.00 13.0% SunTrust Bank $ 5,000,000.00 5.0% Total $100,000,000.00 100.0% Schedule 2.1(b)(i) ------------------ FORM OF NOTICE OF BORROWING First Union National Bank One First Union Center, DC-6 301 South College Street Charlotte, North Carolina 28288-0166 Attn: John A. Schissel Re: Credit Agreement dated as of November 14, 2000 (as amended and modified, the "Credit Agreement") among United Dominion Realty Trust, ---------------- Inc., the Guarantors and Lenders identified therein and First Union National Bank, as Administrative Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: The undersigned, UNITED DOMINION REALTY TRUST, INC., a Virginia corporation, being the Borrower under the above-referenced Credit Agreement hereby gives notice pursuant to Section 5.1 of the Credit Agreement of a request for Loans pursuant to the Credit Agreement as follows (A) Date of Borrowing (which is a Business Day) _______________________ (B) Principal Amount of Borrowing $100,000,000 (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. (c) As to any Credit Party, no involuntary action has been commenced under applicable bankruptcy, insolvency or other similar law in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) as to any Credit Party or as to any substantial part of the property of any Credit Party or for the winding up or liquidation of its affairs, and remains undismissed, undischarged or unbonded. (d) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. (e) All conditions set forth in Section 2.1 as to the making of the Loans have been satisfied. Very truly yours, UNITED DOMINION REALTY TRUST, INC. By: ________________________________ Name: ______________________________ Title: _____________________________ Schedule 2.1(e) --------------- FORM OF NOTE November 14, 2000 FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the order of ________________________, and its successors and assigns, on or before the Termination Date to the office of the Administrative Agent in immediately available funds as provided in the Credit Agreement, the aggregate unpaid principal amount of the Loan made by such Lender to the Borrower, together with interest thereon at the rates and as provided in the Credit Agreement. This Note is one of the Notes referred to in the Credit Agreement dated as of November 14, 2000 (as amended and modified, the "Credit Agreement") among ---------------- United Dominion Realty Trust, Inc., the Guarantors and Lenders identified therein and First Union National Bank, as Administrative Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. The holder may endorse and attach a schedule to reflect all payments and prepayments on this Note; provided that any failure to endorse such information -------- shall not affect the obligation of the Borrower to pay amounts evidenced hereby. Upon the occurrence of an Event of Default, all amounts evidenced by this Note may, or shall, become immediately due and payable as provided in the Credit Agreement without presentment, demand, protest or notice of any kind, all of which are waived by the Borrower. In the event payment of amounts evidenced by this Note is not made at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorneys' fees. This Note and the Loan and amounts evidenced hereby may be transferred only as provided in the Credit Agreement. This Note shall be governed by, and construed and interpreted in accordance with, the law of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed as of the date first above written. UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By: __________________________________ Name: ________________________________ Title: _______________________________ Schedule 3.2 ------------ Form of Notice of Extension/Conversion First Union National Bank, as Administrative Agent for the Lenders __________________________________ __________________________________ __________________________________ Attention: _________________________ Re: Credit Agreement dated as of November 14, 2000 (as amended and modified, the "Credit Agreement") among United Dominion Realty Trust, ---------------- Inc., the Guarantors and Lenders identified therein and First Union National Bank, as Administrative Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: The undersigned, UNITED DOMINION REALTY TRUST, INC. (the "Borrower"), -------- refers to the Credit Agreement. The Borrower hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an extension or conversion of a Loan outstanding under the Credit Agreement, and in connection therewith sets forth below the terms on which such extension or conversion is requested to be made: (A) Date of Extension or Conversion (which is the last day of the the applicable Interest Period) _______________________ (B) Principal Amount of Extension or Conversion _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. (c) As to any Credit Party, no involuntary action has been commenced under applicable bankruptcy, insolvency or other similar law in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) as to any Credit Party or as to any substantial part of the property of any Credit Party or for the winding up or liquidation of its affairs, and remains undismissed, undischarged or unbonded. (d) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. Very truly yours, UNITED DOMINION REALTY TRUST, INC. By: ______________________________ Name: ____________________________ Title: ___________________________ Schedule 5.1(e)(v) ------------------ Officer's Certificate Pursuant to Section 5.1(e)(v) of the Credit Agreement (the "Credit ------ Agreement"), dated as of November 14, 2000, among UNITED DOMINION REALTY TRUST, - - --------- INC., a Virginia corporation, the Guarantors and Lenders identified therein and First Union National Bank, as Administrative Agent, the undersigned ____________________ Secretary of _________________________ (the "Corporation") ----------- hereby certifies as follows: 1. Attached hereto as Annex I is a true and complete copy of resolutions duly adopted by the Board of Directors of the Corporation on __________________, _____. The attached resolutions have not been rescinded or modified and remain in full force and effect. The attached resolutions are the only corporate proceedings of the Corporation now in force relating to or affecting the matters referenced to therein. 2. Attached hereto as Annex II is a true and complete copy of the By-laws of the Corporation as in effect on the date hereof. 3. Attached hereto as Annex III is a true and complete copy of the Certificate of Incorporation of the Corporation and all amendments thereto as in effect on the date hereof. 4. The following persons are now duly elected and qualified officers of the Corporation, holding the offices indicated, and the signature appearing opposite his name below is his true and genuine signature, and such officer is duly authorized to execute and deliver on behalf of the Corporation the Credit Agreement, the Notes to be issued pursuant thereto and the other Credit Documents and to act as a Responsible Officer on behalf of the Corporation under the Credit Agreement: Name Office Signature ---- ------ --------- ___________________ _______________________ ____________________ IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and affixed the corporate seal of the Corporation. _______________________________, Secretary (CORPORATE SEAL) Date: __________________, _____ I, ___________________, ___________________ of ________________________, hereby certify that ______________________, whose genuine signature appears above, is, and has been at all times since ________________________, a duly elected, qualified and acting _________________ of ____________________________________. ___________________________________ of ___________________________________ _________________________, _____ Schedule 6.3 ------------ Qualifications Concerning Organization, Existence and Compliance with Law Schedule 6.6 ------------ Material Litigation Schedule 6.12 ------------- Subsidiaries Schedule 7.2(b) --------------- Form of Officer's Compliance Certificate This Certificate is delivered in accordance with the provisions of Section 7.2(b) of that Credit Agreement dated as of November 14, 2000 (as amended, modified and supplemented, the "Credit Agreement") among UNITED DOMINION REALTY ---------------- TRUST, INC., a Virginia corporation, the Guarantors and Lenders identified therein, and First Union National Bank, as Administrative Agent. Terms used but not otherwise defined herein shall have the same meanings provided in the Credit Agreement. The undersigned, being a Responsible Officer of UNITED DOMINION REALTY TRUST, INC., a Virginia corporation, hereby certifies, in my official capacity and not in my individual capacity, that to the best of my knowledge and belief: (a) the financial statements of the Borrower fairly present the financial condition of the parties covered by such financial statements in all material respects; (b) during the period the Credit Parties have observed or performed all of their covenants and other agreements in all material respects, and satisfied in all material respects every material condition, contained in the Credit Agreement to be observed, performed or satisfied by them; and (c) the undersigned has no actual knowledge of any Default or Event of Default. Detailed calculations demonstrating (A) compliance with the financial covenants set out in Section 7.9 of the Credit Agreement, (B) compliance with Section 7.11(a) and (C) the portion of Consolidated Unencumbered Realty represented by Non-Guarantor Subsidiaries, are attached to this Certificate. This the ___________ day of ___________________, 200___. UNITED DOMINION REALTY TRUST, INC. By: ______________________________ Name: ____________________________ Title: ___________________________ Attachment to Officer's Certificate ----------------------------------- Computation of Financial Covenants Schedule 7.11 ------------- Form of Joinder Agreement THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________, 200__, --------- is by and between _____________________, a ___________________ (the "Applicant --------- Guarantor"), and FIRST UNION NATIONAL BANK, in its capacity as Administrative - - --------- Agent under that certain Credit Agreement dated as of November 14, 2000 (as amended and modified, the "Credit Agreement") by and among UNITED DOMINION ---------------- REALTY TRUST, INC., a Virginia corporation, the Guarantors and Lenders identified therein and First Union National Bank, as Administrative Agent. All of the defined terms in the Credit Agreement are incorporated herein by reference. The Applicant Guarantor has indicated its desire to become a Guarantor or is required by the terms of Section 7.11 of the Credit Agreement to become, a Guarantor under the Credit Agreement. Accordingly, the Applicant Guarantor hereby agrees as follows with the Administrative Agent, for the benefit of the Lenders: 1. The Applicant Guarantor hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Applicant Guarantor will be deemed to be a party to the Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement and the other Credit Documents, and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement and the other Credit Documents. The Applicant Guarantor agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Documents, including without limitation (i) all of the affirmative and negative covenants set forth in Sections 7 and 8 of the Credit Agreement and (ii) all of the undertakings and waivers set forth in Section 4 of the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the Applicant Guarantor hereby (A) jointly and severally together with the other Guarantors, guarantees to each Lender and the Administrative Agent as provided in Section 4 of the Credit Agreement, the prompt payment and performance of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof and (B) agrees that if any of the Guaranteed Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Applicant Guarantor will, jointly and severally together with the other Guarantors, promptly pay and perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. 2. The Applicant Guarantor acknowledges and confirms that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto. The information on the Schedules to the Credit Agreement is amended to provide the information shown on the attached Schedule A. ---------- 3. The Applicant Guarantor hereby waives acceptance by the Administrative Agent and the Lenders of the guaranty by the Applicant Guarantor under Section 4 of the Credit Agreement upon the execution of this Joinder Agreement by the Applicant Guarantor. 4. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract. 5. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Applicant Guarantor has caused this Joinder Agreement to be duly executed by its authorized officers, and the Administrative Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written. APPLICANT GUARANTOR By: ____________________________________ Name: __________________________________ Title: _________________________________ Address for Notices: Attn: __________________________________ Telephone: _____________________________ Telecopy: ______________________________ Acknowledged and accepted: FIRST UNION NATIONAL BANK, as Administrative Agent By: ____________________________________ Name: __________________________________ Title: _________________________________ Schedule A ---------- to Joinder Agreement Address for Applicant Guarantor Notices - - ------------------- ------- Schedule 8.7 ------------ REMICs and Other Special Subsidiaries Schedule 11.1 ------------- Schedule of Lenders' Addresses First Union National Bank First Union National Bank One First Union Center, DC-6 301 South College Street Charlotte, North Carolina 28288-0166 Attn: John A. Schissel Telephone: (704) 383-1967 Telecopy: (704) 383-6205 Bank of America, N.A. 100 North Tryon Street 15/th/ Floor NC1-007-1508 Charlotte, NC 28255 Attn: Kevin M. McCullough Vice President Telephone: (704) 387-2707 Facsimile: (704) 388-8841 SunTrust Bank 8245 Boone Blvd. Suite 820 Vienna, VA 22182 Attn: Nancy B. Richards Vice President Telephone: (703) 902-9039 Facsimile: (703) 902-9245 KeyBank National Association 127 Public Square, 6/th/ floor Cleveland, Ohio 44114 Attn: Mary Ellen Fowler Vice President Telephone: (216) 689-4975 Facsimile: (216) 689-4997 PNC Bank, National Association 1401 Eye Street, NW, Suite 200 Washington, DC 20005 Attn: Timothy P. Gleeson Telephone: (202) 393-2226 Facsimile: (202) 393-1545 With copies to: 249 5th Avenue, 19th Floor Pittsburgh, PA 15222 Attn: Denise Giacomino Telephone: (412) 762-4319 Facsimile: (412) 762-5754 Schedule 11.3(b) ---------------- Form of Assignment and Acceptance THIS ASSIGNMENT AND ACCEPTANCE dated as of _________________________, 200__ is entered into between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNOR" (the "Assignor") and THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES AS -------- "ASSIGNEES" ("Assignee"). -------- Reference is made to that Credit Agreement dated as of November 14, 2000 (as amended and modified, the "Credit Agreement") among UNITED DOMINION REALTY ---------------- TRUST, INC., a Virginia corporation (the "Borrower"), the Guarantors and Lenders -------- identified therein and First Union National Bank, as Administrative Agent. Terms defined in the Credit Agreement are used herein with the same meanings. 1. The Assignor hereby sells and assigns, without recourse, to the Assignees, and the Assignees hereby purchase and assume, without recourse, from the Assignor, effective as of the Effective Date shown below, those rights and interests of the Assignor under the Credit Agreement identified below (the "Assigned Interests"), including the Loans relating thereto, together with - - -------------------- unpaid interest and fees relating thereto accruing from the Effective Date. The Assignor represents and warrants that it owns the interests assigned hereby free and clear of liens, encumbrances or other claims. Each of the Assignees represents that it is an Eligible Assignee within the meaning of the term in the Credit Agreement. The Assignor and each of the Assignees hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 11.3 of the Credit Agreement, a copy of which has been received by each such party. From and after the Effective Date (i) each Assignee, if it is not already a Lender under the Credit Agreement, shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) each Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement (other than the rights of indemnification referenced in Section 11.9 of the Credit Agreement). 2. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of Virginia. 3. Terms of Assignment (a) Date of Assignment: ___________________, 200__ (b) Legal Name of Assignor: SEE SIGNATURE PAGE (c) Legal Name of Assignee: SEE SIGNATURE PAGE (d) Effective Date of Assignment: ___________________, 200__ See Schedule I attached for a description of the Loans (and the percentage ---------- interests therein and relating thereto) which are the subject of this Assignment and Acceptance. 4. The fee payable to the Administrative Agent in connection with this Assignment is enclosed. IN WITNESS WHEREOF, the parties hereto have caused the execution of this instrument by their duly authorized officers as of the date first above written. ASSIGNOR: ASSIGNEE: -------- -------- By: ___________________________ By: _____________________________ Name: _________________________ Name: ___________________________ Title: ________________________ Title: __________________________ ACKNOWLEDGMENT AND CONSENT -------------------------- FIRST UNION NATIONAL BANK UNITED DOMINION REALTY TRUST, INC. as Administrative Agent By: ___________________________ By: _____________________________ Name: _________________________ Name: ___________________________ Title: ________________________ Title: __________________________ SCHEDULE I ---------- TO ASSIGNMENT AND ACCEPTANCE United Dominion Realty Trust, Inc. LOANS PRIOR TO ASSIGNMENT Loan Commitment Amount Percentage ------ ---------- ASSIGNOR - - -------- ASSIGNEES - - --------- __________________ __________________ $ LOANS SUBJECT OF THIS ASSIGNMENT Loan Commitment Amount Percentage ------ ---------- ASSIGNOR - - -------- ________________ ________________ $ SCHEDULE I ---------- TO ASSIGNMENT AND ACCEPTANCE United Dominion Realty Trust, Inc. LOANS AFTER ASSIGNMENT Loan Commitment Amount Percentage ------ ---------- ASSIGNOR - - -------- ASSIGNEES - - --------- ________________ ________________ $ EX-10.I 4 0004.txt AMENDED EMPLOYMENT AGREEMENT EXHIBIT 10(i) ------------- AMENDMENT TO ------------ EMPLOYMENT AGREEMENT -------------------- THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated as of December 5, 2000, between UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the "Company") and JOHN P. McCANN (the "Executive") recites and provides as follows: R E C I T A L S On December 8, 1998, the Company and the Executive entered into an employment agreement (the "Employment Agreement"). The Company and the Executive now wish to amend the Employment Agreement as set forth herein. A M E N D M E N T NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Defined Terms. Capitalized terms in this Amendment shall have the same ------------- meaning as set forth in the Agreement, unless otherwise modified hereby. All references in the Agreement to the Agreement shall be references to such document as modified hereby. 2. Severance Compensation. Section 4(c)(i) of the Agreement is hereby amended ---------------------- by adding the following sentence at the end thereof: Notwithstanding the above, in the event that this Agreement is terminated in accordance with Section 4(b) hereof, then the Executive shall be paid one-hundred and four (104) weeks of base salary and shall receive the other benefits described in this Section 4(c)(i) for a period of one-hundred and four (104) weeks. 3. Incentive Compensation. Section 4(c)(ii) of the Agreement is hereby ---------------------- amended by adding the following sentence at the end thereof: Notwithstanding the above, in the event that this Agreement is terminated in accordance with Section 4(b) hereof, then the "Average Annual Incentive Compensation" shall mean the Average Annual Incentive Compensation multiplied by two. 4. Agreement. Except as herein amended, the Employment Agreement remains in --------- full force and effect. [Signatures appear on the following page.] WE AGREE TO THIS: UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By: _______________________________ Its: ________________________________ EXECUTIVE ___________________________________ JOHN P. McCANN EX-10.II 5 0005.txt AMENDED EMPLOYMENT AGREEMENT DATED 12/05/2000 EXHIBIT 10(ii) -------------- AMENDMENT TO ------------ EMPLOYMENT AGREEMENT -------------------- THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated as of December 5, 2000, between UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the "Company") and JOHN S. SCHNEIDER (the "Executive") recites and provides as follows: R E C I T A L S On December 8, 1998, the Company and the Executive entered into an employment agreement (the "Employment Agreement"). The Company and the Executive now wish to amend the Employment Agreement as set forth herein. A M E N D M E N T NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Defined Terms. Capitalized terms in this Amendment shall have the same ------------- meaning as set forth in the Agreement, unless otherwise modified hereby. All references in the Agreement to the Agreement shall be references to such document as modified hereby. 2. Severance Compensation. Section 4(c)(i) of the Agreement is hereby amended ---------------------- by adding the following sentence at the end thereof: Notwithstanding the above, in the event that this Agreement is terminated in accordance with Section 4(b) hereof, then the Executive shall be paid one-hundred and four (104) weeks of base salary and shall receive the other benefits described in this Section 4(c)(i) for a period of one-hundred and four (104) weeks. 3. Incentive Compensation. Section 4(c)(ii) of the Agreement is hereby amended ---------------------- by adding the following sentence at the end thereof: Notwithstanding the above, in the event that this Agreement is terminated in accordance with Section 4(b) hereof, then the "Average Annual Incentive Compensation" shall mean the Average Annual Incentive Compensation multiplied by two. 4. Agreement. Except as herein amended, the Employment Agreement remains in --------- full force and effect. [Signatures appear on the following page.] WE AGREE TO THIS: UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By: _______________________________ Its: ________________________________ EXECUTIVE ___________________________________ JOHN S. SCHNEIDER EX-12 6 0006.txt RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Dollars in thousands)
Years ended December 31, 1996 1997 1998 1999 2000 ----------- ------------ ----------- ---------- ---------- Net income before extraordinary item $38,014 $ 70,199 $ 72,470 $ 92,695 $ 75,784 Add: Portion of rents representative of the interest factor 257 412 569 928 866 Minority interests 58 278 1,541 5,679 4,386 Interest on indebtedness 50,843 79,004 106,238 153,748 156,040 --------- ---------- ----------- ---------- ---------- Earnings $89,172 $ 149,893 $ 180,818 $ 253,050 $ 237,076 ========= ========== =========== ========== ========== Fixed charges and preferred stock dividend: Interest on indebtedness $50,843 $ 79,004 $ 106,238 $ 153,748 $ 156,040 Capitalized interest 541 2,634 3,360 5,153 3,650 Equity pick up from joint venture - - - - 3,098 Portion of rents representative of the interest factor 257 412 569 928 866 --------- ---------- ----------- ---------- ---------- Fixed charges 51,641 82,050 110,167 159,829 163,654 --------- ---------- ----------- ---------- ---------- Add: Preferred stock dividend 9,713 17,345 23,593 37,714 36,891 --------- ---------- ----------- ---------- ---------- Combined fixed charges and preferred stock dividend $61,354 $ 99,395 $ 133,760 $ 197,543 $ 200,545 ========= ========== =========== ========== ========== Ratio of earnings to fixed charges 1.73 x 1.83 x 1.64 x 1.58 x 1.45 x Ratio of earnings to combined fixed charges and preferred stock dividend 1.45 1.51 1.35 1.28 1.18
EX-23 7 0007.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the following Registration Statements of United Dominion Realty Trust, Inc. and in the related Prospectuses of our report dated January 31, 2001, with respect to the consolidated financial statements and schedule of United Dominion Realty Trust, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2000:
Registration Statement Number Description ----------------------------- ----------- 33-40433 Form S-3, pertaining to the private placement of 900,000 shares of the Company's common stock in May, 1991. 33-47296 Form S-8, pertaining to the Company's Stock Purchase and Loan Plan. 33-48000 Form S-8, pertaining to the Company's Stock Option Plan. 33-58201 Form S-8, pertaining to the Employee's Stock Purchase Plan. 333-11207 Form S-3, Shelf Registration Statement, pertaining to the private placement of 1,679,840 shares of the Company's Common Stock. 333-15133 Form S-3, pertaining to the Company's Dividend Reinvestment and Stock Purchase Plan. 333-32829 Form S-8, pertaining to the Company's Stock Purchase and Loan Plan. 333-42691 Form S-8, pertaining to the Company's Stock Option Plan. 333-44463 Form S-3, pertaining to the Company's Dividend Reinvestment and Stock Purchase Plan. 333-48557 Form S-3, Shelf Registration Statement, pertaining to the private placement of 104,920 shares of Common Stock and 104,920 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-53401 Form S-3, Shelf Registration Statement, pertaining to the private placement of 1,528,089 shares of Common Stock and 1,528,089 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-64281 Form S-3, Shelf Registration Statement, pertaining to the private placement of 849,498 shares of Common Stock and 849,498 rights to Purchase Series C Junior Participating Redeemable Preferred Stock. 333-72885 Form S-3, Shelf Registration Statement, pertaining to the private placement of 130,416 shares of Common Stock and 130,416 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-75897 Form S-8, pertaining to the Company's Long Term Incentive Plan. 333-77107 Form S-3, Shelf Registration Statement, pertaining to the private placement of 1,023,732 shares of Common Stock and 1,023,732 rights to purchase Series C Junior Participating Redeemable Preferred Stock.
Registration Statement Number Description ----------------------------- ----------- 333-77161 Form S-3, Shelf Registration Statement, pertaining to the private placement of 481,251 shares of Common Stock and 481,251 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-80279 Form S-8, pertaining to the Company's Open Market Purchase Program. 333-82929 Form S-3, Shelf Registration Statement, pertaining to the private placement of 95,119 shares of Common Stock and 95,119 rights to purchase Series C Junior Participating Redeemable Preferred Stock. 333-92667 Form S-3, Shelf Registration Statement, pertaining to the registration of $616,058,554 of Common Stock, Preferred Stock and Debt Securities.
Ernst & Young LLP Richmond, Virginia March 9, 2001 -----END PRIVACY-ENHANCED MESSAGE-----