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Selected Financial Data


Years ended December 31,	2003			2002			2001			2000			1999
(In thousands, except per share data and apartment homes owned)
Operating Data (c)
Rental income	$	589,422		$	568,927		$	541,834		$	552,816		$	554,951
Income before minority interests and discontinued operations		48,938			9,603			24,626			25,903			56,026
Income from discontinued operations, net of minority interests		22,216			43,860			38,596			51,368			40,094
Net income		70,404			53,229			61,828			76,615			93,622
Distributions to preferred stockholders		26,326			27,424			31,190			36,891			37,714
Net income available to common stockholders		24,807			25,805			27,142			42,653			55,908
Common distributions declared		134,876			118,888			108,956			110,225			109,607
Weighted average number of common shares outstanding — basic		114,672			106,078			100,339			103,072			103,604
Weighted average number of common shares outstanding — diluted		115,648			106,078			100,339			103,072			103,639
Weighted average number of common shares, OP Units, and common stock equivalents — diluted		136,975			127,838			120,728			123,005			124,127
Per share — basic:
Income/(loss) from continuing operations available to common stockholders, net of minority interests	$	0.03		$	(0.17	)	$	(0.11	)	$	(0.09	)	$	0.15
Income from discontinued operations, net of minority interests		0.19			0.41			0.38			0.50			0.39
Net income available to common stockholders		0.22			0.24			0.27			0.41			0.54
Per share — diluted:
Income/(loss) from continuing operations available to common stockholders, net of minority interests		0.02			(0.17	)		(0.11	)		(0.09	)		0.15
Income from discontinued operations, net of minority interests		0.19			0.41			0.38			0.50			0.39
Net income available to common stockholders		0.21			0.24			0.27			0.41			0.54
Common distributions declared		1.14			1.11			1.08			1.07			1.06

Balance Sheet Data (c)
Real estate owned, at carrying value	$	4,351,551		$	3,967,483		$	3,907,667		$	3,836,320		$	3,953,045
Accumulated depreciation		896,630			748,733			646,366			509,405			395,864
Total real estate owned, net of accumulated depreciation		3,454,921			3,218,750			3,261,301			3,326,915			3,557,181
Total assets		3,543,643			3,276,136			3,348,091			3,453,957			3,688,317
Secured debt		1,018,028			1,015,740			974,177			866,115			1,000,136
Unsecured debt		1,114,009			1,041,900			1,090,020			1,126,215			1,127,169
Total debt		2,132,037			2,057,640			2,064,197			1,992,330			2,127,305
Stockholders’ equity		1,163,436			1,001,271			1,042,725			1,218,892			1,310,212
Number of common shares outstanding		127,295			106,605			103,133			102,219			102,741

Other Data
*Cash Flow Data*
Cash provided by operating activities	$	234,945		$	229,001		$	224,411		$	224,160		$	190,602
Cash (used in)/provided by investing activities		(304,217	)		(67,363	)		(64,055	)		58,705			(103,836	)
Cash provided by/(used in) financing activities		70,944			(163,127	)		(166,020	)		(280,238	)		(105,169	)
*Funds from Operations* (a)
Funds from operations — basic	$	192,938		$	153,016		$	159,202		$	162,930		$	143,070
Funds from operations — diluted		207,619			168,795			174,630			178,230			158,224
Funds from operations with gains on the disposition of real estate developed for sale — diluted (b)		208,431			168,795			174,630			178,230			158,224
*Apartment Homes Owned*
Total apartment homes owned at December 31		76,244			74,480			77,567			77,219			82,154
Weighted average number of apartment homes owned during the year		74,550			76,567			76,487			80,253			85,926

(a) Funds from operations (“FFO”) is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, 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 April 2002. We consider FFO in evaluating property acquisitions and our operating performance and believe that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of our activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 2001, FFO includes a non-recurring charge of $8.6 million related to workforce reductions, other severance costs, executive office relocation costs, and the write down of seven undeveloped land sites along with our investment in an online apartment leasing company. For 2000, FFO includes a non-recurring charge of $3.7 million related to the settlement of litigation and an organizational charge.

(b) Gains on the disposition of real estate investments developed for sale is defined as net sales proceeds less a tax provision (such development by REITs must be conducted in a taxable REIT subsidiary) and the gross investment basis of the asset before accumulated depreciation. We consider FFO with gains (or losses) on real estate development for sale to be a meaningful supplemental measure of performance because of the short-term use of funds to produce a profit which differs from the traditional long-term investment in real estate for REITs.

(c) Reclassified to conform to current year presentation as described in Note 3 to the consolidated financial statements.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 achievements of United Dominion Realty Trust, Inc. 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 us or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not 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 us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

Business Overview

We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages middle-market apartment communities nationwide. We were formed in 1972 as a Virginia corporation, and we changed our state of incorporation from Virginia to Maryland in June 2003. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a limited partnership which changed its state of organization from Virginia to Delaware in February 2004. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the company,” or “United Dominion” refer collectively to United Dominion Realty Trust, Inc. and its subsidiaries.

At December 31, 2003, our portfolio included 264 communities with 76,244 apartment homes nationwide. The following table summarizes our market information by major geographic markets (includes real estate held for disposition, real estate under development and land, but excludes commercial properties):


	As of December 31, 2003									Year Ended December 31, 2003
	Number of		Number of		Percentage of			Carrying		Average			Average
	Apartment		Apartment		Carrying			Value		Physical			Monthly
	Communities		Homes		Value			(in thousands)		Occupancy			Rental Rates
Southern California		11		2,878		7.0	%	$	302,216		95.1	%	$	1,041
Dallas, TX		15		5,311		6.4	%		277,928		95.1	%		660
Houston, TX		23		6,458		6.4	%		277,782		90.2	%		635
Metropolitan DC		9		2,921		5.6	%		244,551		95.9	%		986
Phoenix, AZ		11		3,635		5.0	%		218,477		91.2	%		713
Orlando, FL		14		4,140		4.9	%		212,179		93.4	%		708
Raleigh, NC		11		3,663		4.8	%		207,865		93.1	%		696
Tampa, FL		11		3,836		4.4	%		188,616		93.0	%		710
Arlington, TX		10		3,465		3.7	%		160,674		94.3	%		655
Columbus, OH		6		2,530		3.5	%		150,684		93.6	%		677
Monterey Peninsula, CA		9		1,704		3.4	%		149,565		92.7	%		926
San Francisco, CA		4		980		3.3	%		142,044		95.5	%		1,501
Charlotte, NC		10		2,711		3.2	%		140,574		94.5	%		602
Richmond, VA		9		2,636		3.0	%		132,022		94.4	%		712
Nashville, TN		8		2,220		2.8	%		122,210		92.9	%		657
Greensboro, NC		8		2,123		2.4	%		105,923		93.5	%		579
Wilmington, NC		6		1,868		2.1	%		92,231		91.9	%		627
Baltimore, MD		7		1,470		2.1	%		91,451		95.8	%		898
Atlanta, GA		6		1,426		1.7	%		73,437		91.0	%		655
Columbia, SC		6		1,584		1.5	%		63,747		92.9	%		600
Jacksonville, FL		3		1,157		1.4	%		59,993		95.9	%		679
Norfolk, VA		6		1,438		1.3	%		55,687		96.2	%		730
Lansing, MI		4		1,226		1.2	%		51,778		93.5	%		653
Seattle, WA		3		628		0.8	%		34,627		93.3	%		737
Other Western		5		2,398		3.6	%		153,744		90.4	%		804
Other Pacific		8		2,275		2.9	%		125,456		91.0	%		751
Other Southwestern		7		1,795		2.3	%		99,902		88.8	%		670
Other Florida		7		1,825		2.1	%		92,451		94.2	%		736
Other North Carolina		8		1,893		1.8	%		77,014		94.7	%		577
Other Southeastern		4		1,393		1.6	%		70,926		90.8	%		578
Other Midwestern		8		1,357		1.6	%		68,912		93.3	%		667
Other Mid-Atlantic		5		928		1.0	%		43,683		94.9	%		838
Other Northeastern		2		372		0.4	%		18,401		95.4	%		711
Real Estate Under Development		—		—		0.5	%		22,592		—			—
Land		—		—		0.3	%		11,606		—			—

Total		264		76,244		100.0	%	$	4,340,948		93.2	%	$	717

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of additional funds through capital management. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to our portfolio of apartment homes. We routinely use our 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 sale of real estate have been used for both investing and financing activities.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit arrangements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties and the issuance of additional debt or equity securities. We believe that our net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends by the company in accordance with REIT requirements in both the short- and long-term. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations.

We have a shelf registration statement filed with the Securities and Exchange Commission that provides for the issuance of up to an aggregate of $1 billion in common shares, preferred shares and debt securities to facilitate future financing activities in the public capital markets. Throughout 2003, we completed various financing activities under our $1 billion shelf registration statement. These activities are summarized in the section titled “Financing Activities” that follows. As of December 31, 2003, approximately $506.3 million of equity and debt securities remained available for use under the shelf registration statement. Access to capital markets is dependent on market conditions at the time of issuance. In January 2004, we sold $75 million of 5.13% senior unsecured notes due January 2014 under our $1 billion shelf registration statement. The net proceeds of $73.9 million from the issuance were used to repay secured and unsecured debt obligations maturing in the first quarter of 2004.

In July 2003, we entered into a sales agreement pursuant to which we may issue and sell through an agent up to a total of five million shares of common stock from time to time in “at the market offerings,” as defined in Rule 415 of the Securities Act of 1933. These sales will be made under our $1 billion shelf registration statement. The sales price of the common stock will be no lower than the minimum price designated by us prior to the sale. As of December 31, 2003, we had not sold any shares of common stock pursuant to the sales agreement.

In June 2003, Moody’s Investors Service upgraded our rating outlook to Positive from Stable with senior unsecured debt rated at Baa3 and preferred stock rated at Ba1. In September 2003, Standard & Poor’s Rating Services upgraded the rating on our senior unsecured debt to BBB, our preferred stock to BBB-, and our corporate credit rating to BBB/Stable outlook.

In November 2003, we increased our medium-term note program from $300 million to $500 million.

Future Capital Needs

Future development expenditures are expected to be funded primarily through joint ventures, with proceeds from the sale of property, with construction loans and, to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed through the issuance of equity and debt securities, the issuance of operating partnership units, the assumption or placement of secured and/or unsecured debt and by the reinvestment of proceeds from the sale of property in non-strategic markets.

During 2004, we have approximately $46.8 million of secured debt and $101.1 million of unsecured debt maturing, and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities or the issuance of new unsecured debt securities or equity.

Critical Accounting Policies and Estimates

Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, (3) derivatives and hedging activities and (4) real estate investment properties. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.

Capital Expenditures

In conformity with accounting principles generally accepted in the United States, we capitalize 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 2003, $53.1 million or $714 per home was spent on capital expenditures for all of our communities, excluding development and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as HVAC equipment, roofs, siding, parking lots and other non-revenue enhancing capital expenditures, which aggregated $34.5 million or

$464 per home. In addition, revenue enhancing capital expenditures, including water sub-metering, the initial installation of microwaves or washer-dryers and extensive interior upgrades totaled $15.4 million or $207 per home and major renovations totaled $3.2 million or $43 per home for the year ended December 31, 2003.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development and commercial properties for the periods presented:


	Year Ended December 31,							Year Ended December 31,
	(dollars in thousands)							(per home)
	2003		2002		% Change			2003		2002		% Change
Turnover capital expenditures	$	15,044	$	16,474		-8.7	%	$	202	$	216		-6.5	%
Other recurring capital expenditures		19,478		15,867		22.8	%		262		209		25.4	%

Total recurring capital expenditures		34,522		32,341		6.7	%		464		425		9.2	%
Revenue enhancing improvements		15,408		9,405		63.8	%		207		124		66.9	%
Major renovations		3,216		1,081		197.5	%		43		14		207.1	%

Total capital improvements	$	53,146	$	42,827		24.1	%	$	714	$	563		26.8	%

Repair and maintenance		40,615		40,078		1.3	%		546		527		3.6	%

Total expenditures	$	93,761	$	82,905		13.1	%	$	1,260	$	1,090		15.6	%

Total capital improvements increased $10.3 million or $151 per home in 2003 compared to 2002. We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment substantially in excess of our cost of capital. Recurring capital expenditures during 2004 are currently expected to be approximately $470 per home.

Impairment of Long-Lived Assets

We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair market value. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions.

We review the carrying value of our portfolio of assets on a regular basis. During 2002, we pursued our strategy of exiting markets where long-term growth prospects are limited. As a result, 25 apartment communities were placed under contract and two of these assets were ultimately sold at net selling prices below their net book values. Accordingly, we recorded an aggregate $2.3 million impairment loss for the write down of a portfolio of apartment communities in Memphis, Tennessee. In 2001, in connection with our analysis of the carrying value of all undeveloped land parcels, we recognized an aggregate $2.8 million impairment loss on seven undeveloped sites in selected markets. An impairment loss was indicated as a result of the net book value of the assets being greater than the estimated fair market value less the cost of disposal.

Derivatives and Hedging Activities

We use derivative financial instruments in the normal course of business to reduce our exposure to fluctuations in interest rates. As of December 31, 2003, we had five interest rate swap agreements with a notional value aggregating $68.5 million that are used to fix the interest rate on a portion of our variable rate debt. These derivatives qualify for hedge accounting as discussed in Note 1 to our consolidated financial statements. While we intend to continue to meet the conditions for hedge accounting, if a particular interest rate swap does not qualify as highly effective, any change in the fair value of the derivative used as a hedge would be reflected in current

earnings. Furthermore, should any change in management strategy, or any other circumstance, cause an existing highly effective hedge to become ineffective, the accumulated loss or gain in the value of the derivative instrument since its inception may be required to be immediately reclassified from the stockholders’ equity section of the balance sheet to the income statement.

Interest rate swaps, where we effectively make fixed rate payments and receive variable rate payments to eliminate our variable rate exposure, are entered into to manage the interest rate risk in our existing balance sheet mix. These instruments are valued using the market standard methodology of netting the discounted future variable cash receipts and the discounted expected fixed cash payments. The variable cash flow streams are based on an expectation of future interest rates derived from observed market interest rate curves. We have not changed our methods of calculating these fair values or developing the underlying assumptions. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change. Any event that impacts the level of actual and expected future interest rates will impact our swap valuations. The fair value of our existing swap portfolio is likely to fluctuate from year to year based on changing levels of interest rates and shortening swap terms to maturity. Information about the fair values, notional amounts and contractual terms of our interest rate swaps can be found in Note 8 to our consolidated financial statements and the section titled “Interest Rate Risk” that follows.

Potential losses are limited to counterparty risk in situations where we are owed money; that is, when we hold contracts with positive fair values. We do not expect any losses from counterparties failing to meet their obligations as the counterparties are highly rated credit quality U.S. financial institutions and we believe that the likelihood of realizing material losses from counterparty non-performance is remote. At December 31, 2003, we had unrealized losses totaling $1.6 million on derivative transactions, which if terminated, would require a cash outlay. We presently have no intention to terminate these contracts. There are no credit concerns related to our obligations and we expect to meet those obligations without default.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and allocate the purchase price to various components, such as land, buildings and intangibles related to in-place leases and customer relationships in accordance with FASB Statement No. 141, “Business Combinations.” The purchase price is allocated based on the relative fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period. We determine the fair value of in-place leases by considering the cost of acquiring similar leases, the foregoing rents associated with the lease-up period and the carrying costs associated with the lease-up period.

The following discussion explains the changes in net cash provided by operating and financing activities and net cash used in investing activities that are presented in our Consolidated Statements of Cash Flows.

Operating Activities

For the year ended December 31, 2003, our cash flow provided by operating activities was $234.9 million compared to $229.0 million for 2002. During 2003, the increase in cash flow from operating activities resulted primarily from a $15.8 million decrease in interest expense and an overall increase in operating liabilities primarily due to increased trade payables and an increase in unsecured interest payables as a result of different payment terms on new financings. These increases in cash flow were partially offset by a $15.5 million decrease in property operating income resulting from the overall decrease in our apartment community portfolio (see discussion under “Apartment Community Operations”) and a reduced level of collections on escrows due to lower refinancing activities.

Investing Activities

For the year ended December 31, 2003, net cash used in investing activities was $304.2 million compared to $67.4 million for 2002. Changes in the level of investing activities from period to period reflects our strategy as it relates to our acquisition, capital expenditure, development and disposition programs, as well as the impact of the capital market environment on these activities, all of which are discussed in further detail below.

Acquisitions

For the year ended December 31, 2003, we acquired 3,514 apartment homes in 11 communities for an aggregate consideration of $347.7 million and one parcel of land for $3.1 million. In addition, we purchased the remaining 47% joint venture partners’ ownership interest in nine communities with 1,706 apartment homes in Salinas and Pacific Grove, California, for $76.0 million in June 2003.

During the year ended December 31, 2002, we acquired nine communities with 3,041 apartment homes and one parcel of land for approximately $267 million. In addition, in June 2002, we purchased, for approximately $52 million, the remaining two apartment communities with 644 apartment homes that were part of an unconsolidated development joint venture in which we owned a 25% interest and served as the managing partner. In August 2002, we purchased the outside partnership interest in two properties in California containing 926 apartment homes for approximately $17 million.

Consistent with our long-term strategic plan to achieve greater operating efficiencies by investing in fewer, more concentrated markets, over the last two years, we have been expanding our interests in the fast growing Southern California market. During 2004, we plan to continue to channel new investments into those markets we believe will provide the best investment returns for us over the next ten years. Markets will be targeted based upon defined criteria including past performance, expected job growth, current and anticipated housing supply and demand and the ability to attract and support household formation.

Real Estate Under Development

Development activity is focused in core markets in which we have operations. For the year ended December 31, 2003, we invested approximately $13.6 million in development projects, down $9.2 million from our 2002 level of $22.8 million.

The following projects were under development as of December 31, 2003:


		Number of		Completed		Cost to		Budgeted		Estimated		Expected
		Apartment		Apartment		Date		Cost		Cost		Completion
	Location	Homes		Homes		(In thousands)		(In thousands)		Per Home		Date
2000 Post III	San Francisco, CA		24		—	$	2,500	$	7,000	$	291,700		3Q04
Rancho Cucamonga	Los Angeles, CA		414		—		16,200		63,500		153,400		4Q05
Mandalay on the Lake	Irving, TX		369		—		3,900		28,200		76,400		1Q06

			807		—	$	22,600	$	98,700	$	122,300

In addition, we own six parcels of land that we continue to hold for future development that had a carrying value as of December 31, 2003 of $7.8 million. Five of the six parcels represent additional phases to existing communities as we plan to add apartment homes adjacent to currently owned communities that are in improving markets.

In December 2003, The Mandolin II, a 178-apartment home community located in Dallas, Texas, was completed. Total development costs for the project as of December 31, 2003, were $12.2 million or $68,500 per home. The community was 65.2% leased at December 31, 2003.

Development Joint Venture

In September 2002, we entered into a development joint venture with AEGON USA Realty Advisors, Inc. in which we serve as the managing member. The joint venture is expected to develop approximately eight to ten garden-style apartment communities over the next three to five years, with a total development cost of up to $210 million. The joint venture will obtain bank construction financing for 65% to 80% of total costs and will provide equity contributions for the balance of the costs with AEGON providing 80% and us providing 20%. We are serving as the developer, general contractor and property manager for the joint venture, and have guaranteed those project development costs, excluding financing costs (including fees and interest), which exceed the defined project cost budgeted amounts for each respective project, as they come to fruition. We believe that the likelihood of funding guarantor obligations is remote and that the impact to us would be immaterial. In June 2003, we contributed land with a carrying value of $3.8 million to the joint venture.

As of December 31, 2003, Villa Toscana, a 504-apartment home community located in Houston, Texas, was under development and total costs incurred as of December 31, 2003, were $10.8 million. Budgeted costs for the project are estimated to be approximately $28.4 million or $56,300 per apartment home. The project is anticipated to be completed in the fourth quarter of 2005.

Disposition of Investments

For the year ended December 31, 2003, we sold seven communities with 1,927 apartment homes for an aggregate consideration of $88.9 million, one parcel of land for $1.3 million and two commercial properties for an aggregate consideration of $7.3 million. We recognized gains for financial reporting purposes of $15.9 million on these sales. Proceeds from the sales were used primarily to reduce debt.

For the year ended December 31, 2002, we sold 25 communities with a total of 6,990 apartment homes, one commercial property and one parcel of land for an aggregate sales price of approximately $319 million and recognized gains for financial reporting purposes of $31.5 million. Proceeds from the sales were applied primarily to acquire communities and reduce debt. In addition, during the first quarter of 2002, $3.1 million in proceeds were received on the condemnation of 96 units of a community in Fresno, California that resulted in a gain of $1.2 million.

During 2004, we plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital into markets that would enhance future growth rates and economies of scale. We intend to use proceeds from 2004 dispositions to acquire communities, fund development activity and reduce debt.

Financing Activities

Net cash provided by financing activities during 2003 was $70.9 million compared to net cash used in financing activities in 2002 of $163.1 million. As part of the plan to improve our balance sheet, we utilized proceeds from dispositions, equity and debt offerings and refinancings to extend maturities, pay down existing debt and purchase new properties.

The following is a summary of our financing activities for the year ended December 31, 2003:

• Repaid $40.0 million of secured debt and $214.6 million of unsecured debt.

• Sold 2.0 million shares of common stock at a public offering price of $15.71 per share under our $1 billion shelf registration statement in January 2003. The net proceeds of $31.2 million were used to repay debt and for general corporate purposes.

• Sold $150 million aggregate principal amount of 4.50% medium-term notes due March 2008 in February 2003 under our medium-term note program. The net proceeds of $149.3 million were used to repay debt.

• Negotiated a new $500 million unsecured revolving credit facility to replace our $375 million unsecured revolver and $100 million unsecured term loan in March 2003. The credit facility’s interest rate is 25 and 30 basis points lower than the previous unsecured revolver and term loan, respectively.

• Sold 3.0 million shares of common stock at a public offering price of $16.97 per share under our $1 billion shelf registration statement in April 2003. The net proceeds of $49.2 million were ultimately used to acquire additional apartment communities. We sold an additional 100,000 shares of common stock at a public offering price of $16.97 per share in connection with the exercise of the underwriter’s over-allotment option in May 2003. The net proceeds of $1.6 million were used for general corporate purposes.

• Exercised our right to redeem 2.0 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock in May 2003. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 3,076,923 shares of common stock at a price of $16.25 per share.

• Issued $56.9 million of our Series E Cumulative Convertible Preferred Stock and 1,617,815 Preferred OP Units totaling $26.9 million in June 2003 as partial consideration for the purchase of four apartment communities in Southern California. Each share of Series E and each OP Unit was priced at $16.61 per share, and dividends on the Series E and OP Units carry a fixed coupon of 8.0% until such time as the common share dividend is equal to or exceeds this amount for four consecutive quarters, at which time the Series E and OP Units will be entitled to receive dividends equivalent to the dividends paid to holders of our common stock.

• Sold $50 million aggregate principal amount of 4.50% medium-term notes due March 2008 in August 2003 under our medium-term note program. The net proceeds of approximately $49.9 million were used to repay amounts outstanding on our $500 million unsecured revolving credit facility.

• Sold 4.0 million shares of common stock at a public offering price of $18.40 per share under our $1 billion shelf registration statement in September 2003. The net proceeds of approximately $72.3 million were used for general corporate purposes, including funding acquisitions and development, with the balance used to reduce outstanding variable rate debt under our unsecured credit facilities. We sold an additional 600,000 shares of common stock a public offering price of $18.40 per share in connection with the exercise of the underwriter’s over-allotment option in October 2003. The net proceeds of $10.8 million were used for general corporate purposes, including funding acquisitions and development, with the remaining balance used to reduce outstanding variable rate debt under our unsecured credit facilities.

• Sold $75 million aggregate principal amount of 5.13% senior unsecured notes due January 2014 in October 2003 under our medium-term note program. The net proceeds of $74.5 million were used to repay amounts outstanding on our $500 million unsecured revolving credit facility.

• Sold $50 million aggregate principal amount of 4.25% senior unsecured notes due January 2009 in November 2003 under our medium-term note program. The net proceeds of $49.8 million were used to fund acquisitions of apartment communities.

• Exercised our right to redeem 4.0 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock in December 2003. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 6,154,000 shares of common stock at a price of $16.25 per share.

Credit Facilities

We have four secured revolving credit facilities with Fannie Mae with an aggregate commitment of $860 million and one with Freddie Mac for $72 million. As of December 31, 2003, $676.3 million was outstanding under the Fannie Mae credit facilities leaving $183.7 million of unused capacity. The Fannie Mae credit facilities are for an initial term of ten years, bear interest at floating and fixed rates and can be extended for an additional five years at our discretion. As of December 31, 2003, $70.7 million had been funded under the Freddie Mac credit facility leaving $1.3 million of unused capacity. The Freddie Mac credit facility is for an initial term of five years with an

option for us to extend for an additional four-year term at the then market rate. As of December 31, 2003, aggregate borrowings under both the Fannie Mae and Freddie Mac credit facilities were $747 million. We have $305.9 million of the funded balance fixed at a weighted average interest rate of 6.4%. The remaining balance on these facilities is currently at a weighted average variable rate of 1.7%.

We have a $500 million three-year unsecured revolving credit facility that matures in March 2006. The credit facility replaces our $375 million unsecured revolver and $100 million unsecured term loan. If we receive commitments from additional lenders or if the initial lenders increase their commitments, we will be able to increase the credit facility to $650 million. At our option, the credit facility can be extended one year to March 2007. Based on our current credit ratings, the credit facility bears interest at a rate equal to LIBOR plus 90 basis points. As of December 31, 2003, $137.9 million was outstanding under the credit facility, leaving $362.1 million of unused capacity.

The Fannie Mae and Freddie Mac credit facilities and the bank revolving credit facility are subject to customary financial covenants and limitations.

Derivative Instruments

As part of our overall interest rate risk management strategy, we use derivatives as a means to fix the interest rates of variable rate debt obligations or to hedge anticipated financing transactions. Our 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 the company. We believe that we have appropriately controlled our interest rate risk through the use of derivative instruments. During 2003, the fair value of our derivative instruments has improved from an unfavorable $9.6 million at December 31, 2002, to an unfavorable $1.6 million at December 31, 2003. This decrease is primarily due to the maturity and settlement of eight swaps in 2003 and the normal progression of the fair market value of derivative instruments towards zero as they approach expiration.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather, issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. A large portion of our market risk is exposure to short-term interest rates from variable rate borrowings outstanding under the unhedged portion of our Fannie Mae and Freddie Mac credit facilities and our bank revolving credit facility, which totaled $441.2 million and $86.4 million, respectively, at December 31, 2003. The impact on our financial statements of refinancing fixed rate debt that matured during 2003 was immaterial.

At December 31, 2003, the notional value of our derivative products for the purpose of managing interest rate risk was $68.5 million, representing interest rate swaps under which we pay a fixed rate of interest and receive a variable rate. These agreements effectively fix $68.5 million of our variable rate notes payable to a weighted average fixed rate of 8.1%. At December 31, 2003, the fair market value of the interest rate swaps was an unfavorable $1.6 million. If interest rates were 100 basis points more or less at December 31, 2003, the fair market value of the interest rate swaps would have increased or decreased approximately $0.3 million.

If market interest rates for variable rate debt average 100 basis points more in 2004 than they did during 2003, our interest expense, after considering the effects of our interest rate swap agreements, would increase, and income before taxes would decrease by $5.8 million. Comparatively, if market interest rates for variable rate debt had averaged 100 basis points more in 2003 than in 2002, our interest expense, after considering the effects of our interest rate swap agreements, would have increased, and income before taxes would have decreased by $5.3 million. If market rates for fixed rate debt were 100 basis points higher at December 31, 2003, the fair value of fixed rate debt would have decreased from $1.57 billion to $1.46 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 2003, the fair value of fixed rate debt would have increased from $1.57 billion to $1.58 billion.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost and interest rate swap agreements. These analyses do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would likely take actions to further mitigate our 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 our financial structure.

Funds from Operations

Funds from operations (“FFO”) is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust’s (“NAREIT”) April 1, 2002 White Paper. Adjusted funds from operations (“AFFO”) is defined as FFO less recurring capital expenditures for our stabilized portfolio of $464 per home in 2003 and $425 per home in 2002. We consider FFO and AFFO in evaluating property acquisitions and our operating performance, and believe that FFO and AFFO should be considered along with, but not as an alternative to, net income as a measure of our operating performance and liquidity. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.

Historical cost accounting for real estate assets in accordance with generally accepted accounting principles implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical costs depreciation, among other items, from net income based on generally accepted accounting principles. The use of FFO, combined with the required presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. We believe that FFO and AFFO are the best measures of economic profitability for real estate investment trusts.

The following table outlines our FFO calculation and reconciliation to generally accepted accounting principles for the three years ended December 31, 2003 (dollars in thousands):


	2003			2002			2001
Net income	$	70,404		$	53,229		$	61,828
Adjustments:
Distributions to preferred stockholders		(26,326	)		(27,424	)		(31,190	)
Real estate depreciation, net of outside partners’ interest		157,216			143,879			129,232
Minority interests of unitholders in operating partnership		136			(1,180	)		(831	)
Real estate depreciation related to unconsolidated entities		196			471			1,105
Discontinued Operations:
Real estate depreciation		5,742			13,850			20,974
Minority interests of unitholders in operating partnership		1,511			2,889			2,798
Net gains on sales of depreciable property		(15,941	)		(32,698	)		(24,714	)

Funds from operations (“FFO”) — basic	$	192,938		$	153,016		$	159,202

Distributions to preferred stockholders — Series D and E (Convertible)		14,681			15,779			15,428

Funds from operations — diluted	$	207,619		$	168,795		$	174,630

Gains on the disposition of real estate developed for sale		812			—			—

FFO with gains on the disposition of real estate developed for sale — diluted	$	208,431		$	168,795		$	174,630

Recurring capital expenditures		(34,522	)		(32,341	)		(31,535	)

Adjusted funds from operations (“AFFO”) — diluted	$	173,909		$	136,454		$	143,095

Weighted average number of common shares and OP Units outstanding — basic		122,589			113,077			107,741
Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted		136,975			127,838			120,728

In the computation of diluted FFO, OP Units, out-performance partnership shares and the shares of Series D Cumulative Convertible Redeemable Preferred Stock and Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count. In 2003, distributions to preferred stockholders exclude $19.3 million related to a premium on preferred shares repurchased.

Gains on the disposition of real estate investments developed for sale is defined as net sales proceeds less a tax provision (such development by REITs must be conducted in a taxable REIT subsidiary) and the gross investment basis of the asset before accumulated depreciation. We consider FFO with gains (or losses) on real estate developed for sale to be a meaningful supplemental measure of performance because of the short-term use of funds to produce a profit that differs from the traditional long-term investment in real estate for REITs.

The following is a reconciliation of GAAP gains on the disposition of real estate developed for sale to gross gains on the disposition of real estate developed for sale for the three years ended December 31, 2003 (dollars in thousands):

2003

2002

2001

GAAP gains on the disposition of real estate developed for sale

1,249

—

Less: accumulated depreciation

(437

)

—

Gains on the disposition of real estate developed for sale

812

—

FFO also does not represent cash generated from operating activities in accordance with generally accepted accounting principles, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of liquidity. Additionally, it is not necessarily indicative of cash availability to fund cash needs. A presentation of cash flow metrics based on generally accepted accounting principles is as follows (dollars in thousands):


	2003			2002			2001
Net cash provided by operating activities	$	234,945		$	229,001		$	224,411
Net cash used in investing activities		(304,217	)		(67,363	)		(64,055	)
Net cash provided by/(used in) financing activities		70,944			(163,127	)		(166,020	)

Results of Operations

The following discussion includes the results of both continuing and discontinued operations for the periods presented.

Net Income Available to Common Stockholders

2003-vs-2002

Net income available to common stockholders was $24.8 million ($0.21 per diluted share) for the year ended December 31, 2003, compared to $25.8 million ($0.24 per diluted share) for the year ended December 31, 2002, representing a decrease of $1.0 million ($0.03 per diluted share). The decrease in net income available to common stockholders for the year ended December 31, 2003, when compared to the same period in the prior year resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

• a charge of $19.3 million in 2003 for a premium on preferred share repurchases,

• $16.8 million less in gains recognized from the sale of depreciable property in 2003,

• a $15.5 million decrease in property operating income in 2003,

• a $4.2 million increase in depreciation and amortization expense in 2003, and

• a $1.4 million impairment charge taken in 2003 for the write-off of our investment in Realeum, Inc., an unconsolidated development joint venture.

These decreases in income were offset by a $15.8 million decrease in interest expense in 2003, $37.0 million less in prepayment penalties and premiums paid in 2003 for the refinancing of mortgage debt and the repurchase of unsecured debt, and a $2.3 million impairment charge taken in 2002 related to a portfolio of properties in Memphis, Tennessee.

2002-vs-2001

Net income available to common stockholders was $25.8 million ($0.24 per diluted share) for the year ended December 31, 2002, compared to $27.1 million ($0.27 per diluted share) for the prior year. The decrease in net income available to common stockholders resulted primarily from charges for prepayment penalties and premiums paid in 2002 in connection with the refinancing of mortgage debt and the repurchase of unsecured debt, aggregating $37.0 million before minority interests. These charges were partially offset by the following items, all of which are discussed in further detail elsewhere within this Report:

• an $11.4 million decrease in interest expense in 2002,

• $8.0 million more in gains recognized from the sale of depreciable property in 2002,

• a charge of $5.4 million in 2001 for restructuring,

• a $5.4 million charge in 2001 for impairment losses on real estate and investments, and

• a $4.7 million increase in property operating income in 2002.

Apartment Community Operations

Our net income is primarily generated from the operation of our apartment communities. The following table summarizes the operating performance of our total apartment portfolio for each of the periods presented (dollars in thousands):


	Year Ended December 31,									Year Ended December 31,
	2003			2002			% Change			2002			2001			% Change
Property rental income	$	613,550		$	627,625			-2.2	%	$	627,625		$	617,690			1.6	%
Property operating expense*		(234,478	)		(233,071	)		0.6	%		(233,071	)		(227,820	)		2.3	%

Property operating income	$	379,072		$	394,554			-3.9	%	$	394,554		$	389,870			1.2	%

Weighted average number of homes		74,550			76,567			-2.6	%		76,567			76,487			0.1	%
Physical occupancy**		93.2	%		93.0	%		0.2	%		93.0	%		93.9	%		-0.9	%

*		Excludes depreciation, amortization, and property management expenses.

**		Based upon weighted average stabilized units.

The decrease in total property operating income since December 31, 2002 is primarily due to an overall decrease in same community property operating income.

2003-vs-2002
Same Communities

Our same communities (those communities acquired, developed and stabilized prior to January 1, 2002 and held on December 31, 2003, which consisted of 67,814 apartment homes) provided 89% of our property operating income for the year ended December 31, 2003.

For 2003, same community property operating income decreased 4.2% or $14.9 million compared to 2002. The overall decrease in property operating income was primarily attributable to a 1.8% or $9.9 million decrease in revenues from rental and other income and a 2.5% or $5.0 million increase in operating expenses. The decrease in revenues from rental and other income was primarily driven by a 2.2% or $12.8 million decrease in rental rates. This decrease in income was partially offset by an 11.7% or $1.7 million increase in sub-meter, gas, trash and utility reimbursements, a 5.5% or $1.0 million decrease in concession expense and a 1.7% or $0.7 million decrease in vacancy loss. Physical occupancy remained constant at 93.2% for both 2003 and 2002.

The increase in property operating expenses was primarily driven by a 17.6% or $1.7 million increase in insurance costs, a 4.3% or $1.4 million increase in utilities expense, a 2.4% or $0.9 million increase in repair and maintenance costs, a 3.9% or $0.8 million increase in administrative and marketing costs, a 0.7% or $0.4 million increase in personnel costs, and a 0.8% or $0.4 million increase in taxes, all of which were partially offset by a 17.6% or $0.2 million decrease in incentive compensation.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property operating income divided by property rental income) decreased 1.6% to 61.7%.

Non-Mature Communities

The remaining 11% of our property operating income during 2003 was generated from communities that we classify as “non-mature communities” (primarily those communities acquired or developed during 2002 and 2003, sold properties, and those properties classified as real estate held for disposition). The 21 communities with 6,935 apartment homes that we acquired during 2002 and 2003 provided $30.6 million of property operating income. The seven communities with 1,927 apartment homes sold during 2003 provided $4.6 million of property operating income. In addition, our development communities, which included 972 apartment homes constructed since January 1, 2002, provided $4.8 million of property operating income during 2003, the one community with 100 apartment homes classified as real estate held for disposition provided $0.7 million of property operating income and other non-mature communities provided $1.7 million of property operating income for the year ended December 31, 2003.

2002-vs-2001
Same Communities

Our same communities (those communities acquired, developed, and stabilized prior to January 1, 2001 and held on December 31, 2002, which consisted of 66,416 apartment homes) provided 87% of our property operating income for the year ended December 31, 2002.

In 2002, same community property operating income decreased 0.8% or $2.8 million compared to the prior year. The overall decrease in property operating income was primarily driven by a 17.1% or $5.6 million increase in vacancy loss and a 37.1% or $4.5 million increase in concessions. These decreases in income were partially offset by a 32.8% or $3.4 million increase in sub-meter, trash and vacant utility reimbursements, a 0.3% or $1.7 million increase in rental rates and a 13.0% or $2.6 million increase in other income. Physical occupancy declined 0.8% to 93.3% in 2002 compared to 2001.

For 2002, property operating expenses at these same communities increased 0.9% or $1.7 million compared to 2001. This increase in property operating expenses was primarily driven by a 10.6% or $3.3 million increase in repair and maintenance costs and a 3.4% or $1.6 million increase in real estate taxes, both of which were partially offset by a 5.1% or $1.7 million decrease in utilities expense, a 40.2% or $0.9 million decrease in incentive compensation expense and a 9.5% or $1.0 million decrease in insurance costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin decreased 0.4% to 63.3%.

Non-Mature Communities

The remaining 13% of our property operating income during 2002 was generated from our non-mature communities (primarily those communities acquired or developed during 2001 and 2002, sold properties, and those properties classified as real estate held for disposition). The 16 communities with 4,989 apartment homes that we acquired during 2001 and 2002 provided $19.6 million of property operating income. In addition, our development communities, which included 1,238 apartment homes constructed since January 1, 2001, provided $6.7 million of property operating income during 2002. The 25 communities with 6,990 apartment homes sold during 2002 provided $18.1 million of property operating income, the two communities with 363 apartment homes classified as real estate held for disposition provided $1.9 million of property operating income, and other non-mature communities provided $4.6 million of property operating income for the year ended December 31, 2002.

Real Estate Depreciation and Amortization

For the year ended December 31, 2003, real estate depreciation and amortization on both continuing and discontinued operations increased $4.2 million or 2.7% compared to the same period in 2002, regardless of the decrease in the weighted average number of apartment homes experienced from December 31, 2002 to December 31, 2003. The increase was primarily due to the newly acquired properties having a significantly higher per home cost compared to those properties that have been disposed of, and other capital expenditures.

During the year ended December 31, 2002, real estate depreciation on both continuing and discontinued operations increased $7.3 million or 4.8% compared to 2001. The increase in depreciation expense was attributable to the overall increase in the weighted average number of apartment homes as well as the impact of completed development communities, acquisitions and capital expenditures.

Interest Expense

For the year ended December 31, 2003, interest expense on both continuing and discontinued operations decreased $15.8 million or 11.9% from 2002 primarily due to debt refinancings, decreasing interest rates and an overall decrease in the weighted average level of debt outstanding. For the year ended December 31, 2003, the weighted average amount of debt outstanding decreased 1.1% or $23.9 million compared to the prior year and the weighted average interest rate decreased from 6.1% to 5.4% during 2003. The weighted average amount of debt outstanding during 2003 is lower than 2002 primarily due to the high acquisition volume at the beginning of 2002 that was subsequently mitigated by high disposition activity in the second half of 2002. Furthermore, acquisition costs in 2003 that exceeded disposition proceeds were funded, in most part, by equity and OP Unit issuances. The decrease in the average interest rate during 2003 reflects our ability to take advantage of declining interest rates through refinancing and the utilization of variable rate debt.

For the year ended December 31, 2002, interest expense on both continuing and discontinued operations decreased $11.4 million or 7.9% from 2001 primarily due to debt refinancings and decreasing interest rates that were partially offset by the overall increase in the weighted average level of debt outstanding. For the year ended December 31, 2002, the weighted average amount of debt outstanding increased 2.0% or $40.4 million from 2001 levels and the weighted average interest rate decreased from 7.1% to 6.1% for 2002. The weighted average amount of debt outstanding during 2002 is higher than 2001 as we borrowed additional funds to acquire apartment communities. The decrease in the average interest rate during 2002 reflects our ability to take advantage of declining interest rates through refinancing and the utilization of variable rate debt.

General and Administrative

For the year ended December 31, 2003, general and administrative expenses increased $1.3 million or 6.6% over 2002 primarily due to an increase in incentive compensation expense. Over the past two years, we have shifted our long-term incentive reward system from stock options to restricted stock, the cost of which is expensed quarterly during the vesting period.

For the year ended December 31, 2002, general and administrative expenses decreased $2.4 million or 11.0% compared to 2001. The decrease was primarily due to reduced personnel costs and state and local taxes that were partially offset by increased third-party consulting expenses.

Impairment Loss on Real Estate and Investments

In 2003, we recognized a $1.4 million charge for the write-off of our investment in Realeum, Inc., an unconsolidated development joint venture created to develop web-based solutions for multifamily property and portfolio management.

In 2002, we pursued our strategy of exiting markets where long-term growth prospects are limited and the redeployment of capital would enhance future growth rates and economies of scale. During 2002, we sold 25 apartment communities with a total of 6,990 apartment homes, one commercial property and one parcel of land with an aggregate net book value of approximately $285 million. Although these sales resulted in an aggregate net gain of $32.7 million, certain of these assets were sold at net selling prices below their net book values. As a result, we recorded an aggregate $2.3 million impairment loss during 2002 for the write down of a portfolio of apartment communities in Memphis, Tennessee.

Gains on Sales of Land and Depreciable Property

For the years ended December 31, 2003 and 2002, we recognized gains for financial reporting purposes of $15.9 million and $32.7 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period as well as the extent of gains related to specific properties sold.

Premium on Preferred Share Repurchases

In the second quarter of 2003, we exercised our right to redeem 2.0 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 3,076,923 shares of common stock at a price of $16.25 per share. In December 2003, we redeemed an additional 4.0 million shares of our Series D. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 6,154,000 shares of common stock at a price of $16.25 per share. As a result, we recognized a $19.3 million premium on preferred share repurchases during 2003. The premium amount recognized to convert these shares represents the cumulative accretion to date between the conversion value of the preferred stock and the value at which it was recorded at the time of issuance.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. Substantially all of our leases are for a term of one year or less which generally minimizes our risk from the adverse effects of inflation.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2003 (dollars in thousands):


	Payments Due by Period
Contractual Obligations	Total		2004		2005-2006		2007-2008		Thereafter
Long Term Debt Obligations	$	2,132,037	$	147,857	$	241,896	$	594,897	$	1,147,389
Capital Lease Obligations		—		—		—		—		—
Operating Lease Obligations		29,638		1,555		2,533		2,183		23,367
Purchase Obligations		—		—		—		—		—
Other Long-Term Liabilities Reflected on the Balance Sheet Under GAAP		—		—		—		—		—

During 2003, we incurred interest costs of $119.0 million, of which $1.8 million was capitalized.

Factors Affecting Our Business and Prospects

There are many factors that affect our business and the results of our operations, some of which are beyond our control. These factors include:

• unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates,

• the failure of acquisitions to achieve anticipated results,

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
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, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index. 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, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Notes 1, 3 and 8 to the consolidated financial statements, the Company changed its method of accounting for gains and losses on the extinguishment of debt in 2003, changed its method of accounting for the disposal of long-lived assets in 2002, and changed its method of accounting for derivative instruments in 2001.

Ernst & Young LLP

Richmond, Virginia
January 27, 2004
except for Notes 2 and 3, as to which the date is
May 10, 2004

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)


December 31,	2003			2002
ASSETS
Real estate owned:
Real estate held for investment	$	4,215,585		$	3,746,744
Less: accumulated depreciation		(865,701	)		(708,390	)

		3,349,884			3,038,354
Real estate under development		30,375			28,891
Real estate held for disposition (net of accumulated depreciation of $30,929 and $40,343)		74,662			151,505

Total real estate owned, net of accumulated depreciation		3,454,921			3,218,750
Cash and cash equivalents		4,824			3,152
Restricted cash		7,540			11,445
Deferred financing costs, net		21,425			17,542
Investment in unconsolidated development joint venture		1,673			—
Notes receivable		13,000			—
Other assets		25,573			22,920
Real estate held for disposition assets		14,687			2,327

Total assets	$	3,543,643		$	3,276,136

LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt	$	1,018,028		$	1,015,740
Unsecured debt		1,114,009			1,041,900
Real estate taxes payable		30,513			28,636
Accrued interest payable		12,892			11,908
Security deposits and prepaid rent		23,600			20,373
Distributions payable		40,623			35,141
Accounts payable, accrued expenses, and other liabilities		45,189			49,411
Real estate held for disposition liabilities		1,147			2,540

Total liabilities		2,286,001			2,205,649
Minority interests		94,206			69,216
Stockholders’ equity:
Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized;
5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,416,009 in 2002)		135,400			135,400
2,000,000 shares 7.50% Series D Cumulative Convertible Redeemable issued and outstanding (8,000,000 in 2002)		44,271			175,000
3,425,217 shares 8.00% Series E Cumulative Convertible issued and outstanding (0 in 2002)		56,893			—
Common stock, $1 par value; 250,000,000 shares authorized 127,295,126 shares issued and outstanding (106,605,259 in 2002)		127,295			106,605
Additional paid-in capital		1,458,983			1,140,786
Distributions in excess of net income		(651,497	)		(541,428	)
Deferred compensation — unearned restricted stock awards		(5,588	)		(2,504	)
Notes receivable from officer-stockholders		(459	)		(2,630	)
Accumulated other comprehensive loss		(1,862	)		(9,958	)

Total stockholders’ equity		1,163,436			1,001,271

Total liabilities and stockholders’ equity	$	3,543,643		$	3,276,136

See accompanying notes to consolidated financial statements.

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)


Years ended December 31,	2003			2002			2001
REVENUES
Rental income	$	589,422		$	568,927		$	541,834
Non-property income		1,068			1,806			4,593

Total revenues		590,490			570,733			546,427
EXPENSES
Rental expenses:
Real estate taxes and insurance		67,266			61,599			57,779
Personnel		60,368			57,627			54,649
Utilities		35,465			32,373			32,928
Repair and maintenance		38,265			35,273			31,387
Administrative and marketing		22,046			20,800			19,682
Property management		16,873			17,240			17,107
Other operating expenses		1,205			1,203			1,391
Real estate depreciation and amortization		157,651			145,305			130,871
Interest		117,185			130,815			139,496
General and administrative		20,626			19,343			21,730
Other depreciation and amortization		3,210			4,052			3,288
Impairment loss on investments		1,392			—			2,648
Loss on early debt retirement		—			35,500			3,441
Severance costs and other organizational charges		—			—			5,404

Total expenses		541,552			561,130			521,801

Income before minority interests and discontinued operations		48,938			9,603			24,626
Minority interests of outside partnerships		(614	)		(1,414	)		(2,225	)
Minority interests of unitholders in operating partnerships		(136	)		1,180			831

Income before discontinued operations, net of minority interests		48,188			9,369			23,232
Income from discontinued operations, net of minority interests		22,216			43,860			38,596

Net income		70,404			53,229			61,828
Distributions to preferred stockholders — Series A and B		(11,645	)		(11,645	)		(15,762	)
Distributions to preferred stockholders — Series D (Convertible)		(12,178	)		(15,779	)		(15,428	)
Distributions to preferred stockholders — Series E (Convertible)		(2,503	)		—			—
Premium on preferred share repurchases		(19,271	)		—			(3,496	)

Net income available to common stockholders	$	24,807		$	25,805		$	27,142

Earnings per common share — basic:
Income/(loss) from continuing operations available to common stockholders, net of minority interests	$	0.03		$	(0.17	)	$	(0.11	)
Income from discontinued operations, net of minority interests	$	0.19		$	0.41		$	0.38
Net income available to common stockholders	$	0.22		$	0.24		$	0.27
Earnings per common share — diluted:
Income/(loss) from continuing operations available to common stockholders, net of minority interests	$	0.02		$	(0.17	)	$	(0.11	)
Income from discontinued operations, net of minority interests	$	0.19		$	0.41		$	0.38
Net income available to common stockholders	$	0.21		$	0.24		$	0.27
Common distributions declared per share	$	1.14		$	1.11		$	1.08
Weighted average number of common shares outstanding — basic		114,672			106,078			100,339
Weighted average number of common shares outstanding — diluted		115,648			106,078			100,339

See accompanying notes to consolidated financial statements.

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)


	Years ended December 31,
	2003			2002			2001
Operating Activities
Net income	$	70,404		$	53,229		$	61,828
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		166,637			163,328			155,327
Impairment loss on real estate and investments		1,392			2,301			5,436
Gains on sales of land and depreciable property		(15,941	)		(32,698	)		(24,748	)
Minority interests		2,261			3,122			4,192
Loss on early debt retirement		—			36,965			3,471
Amortization of deferred financing costs and other		6,148			5,256			965
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(2,560	)		12,763			21,128
Increase/(decrease) in operating liabilities		6,604			(15,265	)		(3,188	)

Net cash provided by operating activities		234,945			229,001			224,411
Investing Activities
Proceeds from sales of real estate investments, net		93,613			282,533			109,713
Acquisition of real estate assets, net of liabilities assumed and equity		(314,739	)		(282,600	)		(74,372	)
Development of real estate assets		(13,640	)		(22,763	)		(53,607	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(53,146	)		(42,827	)		(53,096	)
Capital expenditures — non-real estate assets		(1,858	)		(1,706	)		(1,442	)
Increase in funds held in escrow from tax free exchanges pending the acquisition of real estate		(14,447	)		—			—
Other investing activities		—			—			8,749

Net cash used in investing activities		(304,217	)		(67,363	)		(64,055	)
Financing Activities
Proceeds from the issuance of secured debt		37,415			324,282			225,171
Scheduled principal payments on secured debt		(22,442	)		(11,176	)		(55,130	)
Non-scheduled principal payments and prepayment penalties on secured debt		(17,549	)		(294,662	)		(52,182	)
Proceeds from the issuance of unsecured debt		323,382			198,476			—
Payments and prepayment premiums on unsecured debt		(214,591	)		(210,413	)		(21,307	)
Net repayment of revolving bank debt		(37,900	)		(54,400	)		(14,200	)
Payment of financing costs		(6,463	)		(5,510	)		(4,807	)
Issuance of note receivable		(8,000	)		—			—
Proceeds from the issuance of common stock		179,811			60,252			66,319
Proceeds from the repayment of officer loans		2,171			—			—
Proceeds from the issuance of performance shares		657			—			1,236
Distributions paid to minority interests		(9,756	)		(8,926	)		(12,868	)
Cash paid to buy out minority interests		—			—			(4,267	)
Distributions paid to preferred stockholders		(27,532	)		(27,424	)		(34,308	)
Distributions paid to common stockholders		(128,188	)		(117,116	)		(108,511	)
Repurchases of common and preferred stock		(71	)		(16,510	)		(151,166	)

Net cash provided by/(used in) financing activities		70,944			(163,127	)		(166,020	)
Net increase/(decrease) in cash and cash equivalents		1,672			(1,489	)		(5,664	)
Cash and cash equivalents, beginning of year		3,152			4,641			10,305

Cash and cash equivalents, end of year	$	4,824		$	3,152		$	4,641

Supplemental Information:
Interest paid during the period	$	116,057		$	135,223		$	148,863
Issuance of restricted stock awards		5,297			2,904			1,363
Non-cash transactions:
Secured debt assumed with the acquisition of properties		4,865			41,636			18,230
Issuance of preferred stock in connection with acquisitions		58,811			—			—
Issuance of preferred operating partnership units in connection with acquisitions		26,872			—			—
Issuance of operating partnership units in connection with acquisitions		7,135			—			—
Reduction in secured debt from the disposition of properties		—			35,885			28,315
Conversion of operating partnership minority interests to common stock		2,206			1,252			643
(216,983 shares in 2003, 92,159 shares in 2002 and 74,271 shares in 2001)

See accompanying notes to consolidated financial statements.

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except for share data)


	Preferred Stock						Common Stock									Distributions in			Deferred Compensation —			Notes Receivable			Accumulated Other
													Paid-in			Excess of			Unearned Restricted			from Officer —			Comprehensive
	Shares			Amount			Shares			Amount			Capital			Net Income			Stock Awards			Stockholders			Loss			Total
Balance, December 31, 2000		17,408,229		$	410,206			102,219,250		$	102,219		$	1,081,387		$	(366,531	)	$	(828	)	$	(7,561	)	$	—		$	1,218,892

Comprehensive Income
Net income																	61,828												61,828
Other comprehensive income:
Cumulative effect of a change in accounting principle																										(3,848	)		(3,848	)
Unrealized loss on derivative financial instruments																										(11,023	)		(11,023	)

Comprehensive income																	61,828									(14,871	)		46,957

Issuance of common shares to employees, officers and director-stockholders								257,158			258			2,318															2,576
Issuance of common shares through dividend reinvestment and stock purchase plan								332,243			332			4,054															4,386
Issuance of common shares through public offering								4,100,000			4,100			52,316															56,416
Purchase of common and preferred stock		(91,900	)		(2,298	)		(3,962,076	)		(3,962	)		(47,362	)														(53,622	)
Redemption of Series A preferred stock		(3,900,320	)		(97,508	)								3,496			(3,496	)											(97,508	)
Issuance of restricted stock awards								112,433			112			1,251						(1,363	)								—
Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships								74,271			74			569															643
Principal repayments on notes receivable from officer-stockholders																							3,252						3,252
Common stock distributions declared ($1.08 per share)																	(108,956	)											(108,956	)
Preferred stock distributions declared — Series A ($1.05 per share)																	(4,111	)											(4,111	)
Preferred stock distributions declared — Series B ($2.15 per share)																	(11,651	)											(11,651	)
Preferred stock distributions declared — Series D ($1.93 per share)																	(15,428	)											(15,428	)
Amortization of deferred compensation																				879									879

Balance, December 31, 2001		13,416,009		$	310,400			103,133,279		$	103,133		$	1,098,029		$	(448,345	)	$	(1,312	)	$	(4,309	)	$	(14,871	)	$	1,042,725

Comprehensive Income
Net income																	53,229												53,229
Other comprehensive income:
Unrealized gain on derivative financial instruments																										4,913			4,913

Comprehensive income																	53,229									4,913			58,142

Issuance of common shares to employees, officers and director-stockholders								1,000,592			1,001			10,782															11,783
Issuance of common shares through dividend reinvestment and stock purchase plan								152,343			152			2,347															2,499
Issuance of common shares through public offering								3,166,800			3,167			41,139															44,306
Purchase of common stock								(1,145,412	)		(1,146	)		(15,369	)														(16,515	)
Issuance of restricted stock awards								205,498			205			2,699						(2,904	)								—
Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships								92,159			93			1,159															1,252
Principal repayments on notes receivable from officer-stockholders																							1,679						1,679
Common stock distributions declared ($1.11 per share)																	(118,888	)											(118,888	)
Preferred stock distributions declared — Series B ($2.15 per share)																	(11,645	)											(11,645	)
Preferred stock distributions declared — Series D ($1.98 per share)																	(15,779	)											(15,779	)
Amortization of deferred compensation																				1,712									1,712

Balance, December 31, 2002		13,416,009		$	310,400			106,605,259		$	106,605		$	1,140,786		$	(541,428	)	$	(2,504	)	$	(2,630	)	$	(9,958	)	$	1,001,271

Comprehensive Income
Net income																	70,404												70,404
Other comprehensive income:
Unrealized gain on derivative financial instruments																										8,096			8,096

Comprehensive income																	70,404									8,096			78,500

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY — (Continued)
(In thousands, except for share data)


	Preferred Stock						Common Stock									Distributions in			Deferred Compensation —			Notes Receivable			Accumulated Other
													Paid-in			Excess of			Unearned Restricted			from Officer —			Comprehensive
	Shares			Amount			Shares			Amount			Capital			Net Income			Stock Awards			Stockholders			Loss			Total
Issuance of common shares to employees, officers and director-stockholders								1,117,399			1,118			12,185															13,303
Issuance of common shares through dividend reinvestment and stock purchase plan								91,190			91			1,520															1,611
Issuance of common shares through public offering								9,700,000			9,700			154,936															164,636
Issuance of 8.00% Series E Cumulative Convertible shares		3,425,217			56,893									1,905															58,798
Purchase of common stock								(4,564	)		(5	)		(66	)														(71	)
Issuance of restricted stock awards								337,936			338			4,959						(5,297	)								—
Adjustment for conversion of minority interests of unitholders in operating partnerships								216,983			217			1,989															2,206
Principal repayments on notes receivable from officer-stockholders																							2,171						2,171
Accretion of premium on Series D redemptions					19,271												(19,271	)											—
Conversion of 7.50% Series D Cumulative Convertible Redeemable shares		(6,000,000	)		(150,000	)		9,230,923			9,231			140,769															—
Common stock distributions declared ($1.14 per share)																	(134,876	)											(134,876	)
Preferred stock distributions declared—Series B ($2.15 per share)																	(11,645	)											(11,645	)
Preferred stock distributions declared—Series D ($2.04 per share)																	(12,178	)											(12,178	)
Preferred stock distributions declared—Series E ($0.84 per share)																	(2,503	)											(2,503	)
Amortization of deferred compensation																				2,213									2,213

Balance, December 31, 2003		10,841,226		$	236,564			127,295,126		$	127,295		$	1,458,983		$	(651,497	)	$	(5,588	)	$	(459	)	$	(1,862	)	$	1,163,436

See accompanying notes to consolidated financial statements.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and formation

United Dominion Realty Trust, Inc., a Maryland corporation, was formed in 1972. United Dominion operates within one defined business segment with activities related to the ownership, management, development, acquisition, renovation and disposition of multifamily apartment communities nationwide. At December 31, 2003, United Dominion owned 264 communities with 76,244 completed apartment homes and had three communities with 807 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, 2003, there were 130,386,163 units in the Operating Partnership outstanding, of which 120,256,671 units or 92.2% were owned by United Dominion and 10,129,492 units or 7.8% were owned by limited partners (of which 1,853,204 are owned by the holders of the Series A OPPS, See Note 11). As of December 31, 2003, there were 3,518,857 units in the Heritage OP outstanding, of which 3,248,884 units or 92.3% were owned by United Dominion and 269,973 units or 7.7% were owned by limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the Operating Partnership and the Heritage OP. All significant intercompany 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 meets certain requirements concerning its income and assets, as well as if it distributes at least 90% of its REIT taxable income to its stockholders and will not be subject to U.S. federal income taxes if it distributes at least 100% of its income. Accordingly, no provision has been made for federal income taxes. However, United Dominion is subject to certain state and local excise or franchise taxes, for which provision has been made.

The differences between net income available to common stockholders 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 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. The aggregate cost of our real estate assets for federal income tax purposes was approximately $3.6 billion at December 31, 2003.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

The following table reconciles United Dominion’s net income to REIT taxable income for the three years ended December 31, 2003 (dollars in thousands):


	2003			2002			2001
Net income	$	70,404			53,229		$	61,828
Minority interest expense		(3,364	)		(1,137	)		(1,442	)
Depreciation and amortization expense		44,108			49,513			45,327
Gain/(loss) on the disposition of properties		2,363			(186	)		343
Revenue recognition timing differences		1,750			1,272			589
Impairment loss, not deductible for tax		—			—			2,788
Investment loss, not deductible for tax		—			—			2,648
Other expense timing differences		(1,090	)		(3,914	)		2,787

REIT taxable income before dividends	$	114,171		$	98,777		$	114,868

Dividend deduction	$	132,722		$	111,965		$	140,146

For income tax purposes, distributions paid to common stockholders consist of ordinary income, capital gains and return of capital, or a combination thereof. For the three years ended December 31, 2003, distributions declared per common share were taxable as follows:


	2003		2002		2001
Ordinary income	$	0.82	$	0.55	$	0.74
Long-term capital gain		0.10		0.14		0.11
Unrecaptured section 1250 gain		0.02		0.11		0.07
Return of capital		0.20		0.31		0.16

	$	1.14	$	1.11	$	1.08

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.

Real estate

Real estate assets held for investment are carried at historical cost less accumulated depreciation and any recorded impairment losses.

Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to the acquisition and improvement of real estate assets are capitalized at cost and depreciated over their estimated useful lives if the value of the existing asset will be materially enhanced or the life of the related asset will be substantially extended beyond the original life expectancy.

United Dominion recognizes impairment losses on long-lived assets used in operations when there is an event or change in circumstance that indicates an impairment in the value of an asset and the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. Our cash flow estimates are based upon historical

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. 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. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions.

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. Properties classified as real estate held for disposition generally represent properties that are under contract for sale. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to dispose, determined on an asset by asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which is 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment and other assets. The value of acquired in-place leases is amortized over the remaining term of each acquired in-place lease.

All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheet as “Real estate under development.” As each building in a project is completed and becomes available for lease-up, the total cost of the building 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, real estate taxes and incremental labor and support costs for personnel working directly on the development site are capitalized as part of the real estate under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 2003, 2002 and 2001, total interest capitalized was $1.8 million, $0.9 million and $2.9 million, respectively.

Cash and cash equivalents

Cash and cash equivalents include all cash and liquid investments with maturities of three months or less when purchased.

Restricted cash

Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves and security deposits.

Deferred financing costs

Deferred financing costs include fees and other external costs incurred to obtain debt financings and are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt. Unamortized financing costs are written-off when debt is retired before its maturity date. During 2003, 2002 and 2001, amortization expense was $4.7 million, $4.5 million and $3.6 million, respectively.

Investments in unconsolidated development joint ventures

Investments in unconsolidated joint ventures are accounted for using the equity method when major business decisions require approval by the other partners and United Dominion does not have control of the assets. Investments are recorded at cost and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. United Dominion eliminates intercompany profits on sales of services that are provided to joint ventures. Differences between the carrying value of investments and the underlying equity in net assets of the

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

investee are due to capitalized interest on the investment balance and capitalized development and leasing costs that are recovered by United Dominion through fees during construction.

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 collectability is reasonably assured.

Advertising costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item “Administrative and marketing.” During 2003, 2002 and 2001, total advertising expense was $10.6 million, $11.0 million and $9.6 million, respectively.

Interest rate swap agreements

Statements of Financial Accounting Standards No. 133 and No. 138, “Accounting for Certain Derivative Instruments and Hedging Activities” became effective on January 1, 2001. The accounting standards require companies to carry all derivative instruments, including certain embedded derivatives, in the Consolidated Balance Sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based on the exposure being hedged, as either a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. For the three years ended December 31, 2003, all of United Dominion’s derivative financial instruments are interest rate swap agreements that are designated as cash flow hedges of debt with variable interest rate features and are qualifying hedges for financial reporting purposes. For derivative instruments that qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings during the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The adoption of Statements No. 133 and No. 138 on January 1, 2001 resulted in a cumulative effect of an accounting change of a $3.8 million loss, all of which was recorded directly to other comprehensive income.

As part of United Dominion’s overall interest rate risk management strategy, we use derivative financial instruments as a means to artificially fix variable rate debt or to hedge anticipated financing transactions. United Dominion’s derivative transactions used for interest rate risk management include various interest rate swaps with indices that relate to the pricing of specific financial instruments of United Dominion. Because of the close correlation between the hedging instrument and the underlying cash flow exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the cash flow of the underlying exposures. As a result, United Dominion believes that it has appropriately controlled the risk so that derivatives used for interest rate risk management will not have a material unintended effect on consolidated earnings. United Dominion does not enter into derivative financial instruments for trading purposes.

The fair value of United Dominion’s derivative instruments is reported on the balance sheet at their current fair value. Estimated fair values for interest rate swaps rely on prevailing market interest rates. These fair value amounts should not be viewed in isolation, but rather in relation to the values of the underlying hedged transactions and investments and to the overall reduction in exposure to adverse fluctuations in interest rates. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. The interest rate swaps involve the periodic exchange of payments over the life of the related agreements. Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures, unless the instrument is redesignated as a hedge of another transaction. If a derivative instrument is terminated or the hedging transaction is no longer determined to be effective, amounts held in accumulated other comprehensive income are reclassified into earnings over the term of the future cash outflows on the related debt.

Comprehensive income

Comprehensive income, which is defined as all changes in equity during each period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Statements of Stockholders’ Equity. Other comprehensive income consists of unrealized gains or losses from derivative financial instruments.

Stock-based compensation

United Dominion has elected to follow the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) in accounting for its employee stock options because the alternative fair value accounting provided for under Statement 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.

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 stockholders 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, was 6.4% at December 31, 2003, 6.2% at December 31, 2002 and 6.8% at December 31, 2001.

During 2003, we issued 1,617,815 Preferred Operating Partnership Units (“Preferred OP Units”) totaling $26.9 million as partial consideration for the purchase of four communities. The Preferred OP Units carry a fixed coupon of 8.0% until such time as the common share dividend is equal to or exceeds this amount for four consecutive quarters, at which time the Preferred OP Units will be entitled to receive dividends equivalent to the dividends paid to holders of common stock.

Minority interests in other partnerships

United Dominion has limited partners in certain real estate partnerships acquired in certain merger transactions. Net income for these partnerships is allocated based upon the percentage interest owned by these limited partners in each respective real estate partnership.

Earnings per share

Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion’s average stock price.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts):


	2003		2002		2001
Numerator for basic and diluted earnings per share —
Net income available to common stockholders	$	24,807	$	25,805	$	27,142
Denominator:
Denominator for basic earnings per share —
Weighted average common shares outstanding		114,672		106,078		100,339
Effect of dilutive securities:
Employee stock options and non-vested restricted stock awards		976		—		—

Denominator for dilutive earnings per share		115,648		106,078		100,339

Basic earnings per share	$	0.22	$	0.24	$	0.27

Diluted earnings per share	$	0.21	$	0.24	$	0.27

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, 2003, 2002 and 2001 was 9,690,883 shares, 8,577,918 shares and 7,281,835 shares, respectively. The weighted average effect of the conversion of the convertible preferred stock for the year ended December 31, 2003 was 11,636,293 shares and for the years ended December 31, 2002 and 2001, the weighted average effect was 12,307,692 shares.

Impact of recently issued accounting standards

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (FAS 150). The statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. This statement is effective for all financial instruments created or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB decided to indefinitely defer the effective date of certain provisions of FAS 150 related to finite life entities and also indicated it may modify other guidance in FAS 150. United Dominion believes that its equity and its partner’s equity reported on the Consolidated Balance Sheets as “Minority interests,” are properly classified.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). This statement refines the identification process of variable interest entities and how an entity assesses its interests in a variable interest entity to decide whether to consolidate that entity. United Dominion, from time to time, enters into partnership and joint venture arrangements, which may be required to be consolidated under this statement. The provisions of Interpretation 46 were deferred and are now applicable to joint ventures created before February 1, 2003 for the first reporting period that ends after December 15, 2003. United Dominion adopted FIN 46 as of December 31, 2003, with no effect on its consolidated financial statements.

On January 1, 2003, United Dominion adopted Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction” (FAS 145). The provisions of FAS 145 related to the rescission of FAS No. 4 require United Dominion to reclassify prior period items that do not meet the extraordinary classification into continuing operations. During the three years ended December 31, 2003, United Dominion has incurred such expenses, and in compliance with FAS 145, has reported those expenses as a component of continuing operations for each period presented.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

2. REAL ESTATE OWNED

United Dominion operates in 55 markets dispersed throughout 19 states. At December 31, 2003, our largest apartment market was Southern California, where we owned 7.0% of our apartment homes, based upon carrying value. Excluding Southern California, United Dominion did not own more than 6.5% 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):


	2003			2002
Land and land improvements	$	832,908		$	686,494
Buildings and improvements		3,164,806			2,861,823
Furniture, fixtures, and equipment		217,871			198,175
Construction in progress		—			252

Real estate held for investment		4,215,585			3,746,744
Accumulated depreciation		(865,701	)		(708,390	)

Real estate held for investment, net	$	3,349,884		$	3,038,354

The following is a reconciliation of the carrying amount of real estate held for investment at December 31, (dollars in thousands):


	2003			2002			2001
Balance at beginning of year	$	3,746,744		$	3,378,306		$	3,758,974
Real estate acquired		399,424	(a)		323,990			91,093
Capital expenditures		57,260			48,011			60,886
Transfers from development		12,157			29,816			51,561
Transfers to held for disposition, net		—			(33,379	)		(581,420	)
Impairment loss on real estate		—			—			(2,788	)

Balance at end of year	$	4,215,585		$	3,746,744		$	3,378,306

(a)

In connection with one of our acquisitions in 2003, United Dominion received a note receivable for $5 million that is due October 2011. The note bears interest of 9.0% that is payable in annual installments.

The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands):


	2003			2002			2001
Balance at beginning of year	$	708,390		$	564,231		$	506,871
Depreciation expense for the year (b)		163,088			160,331			153,113
Transfers to held for disposition, net		(5,777	)		(16,172	)		(95,753	)

Balance at end of year	$	865,701		$	708,390		$	564,231

(b)

Includes $1.0 million, $1.2 million, and $1.3 million for 2003, 2002, and 2001, respectively, related to depreciation on non-real estate assets located at United Dominion’s apartment communities, classified as “Other depreciation and amortization” on the Consolidated Statements of Operations. Excludes $1.2 million, in 2003, of amortization expense on the fair market value of in-place leases at the time of acquisition.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

The following is a summary of real estate held for investment by major geographic markets (in order of carrying value, excluding real estate held for disposition and real estate under development) at December 31, 2003 (dollars in thousands):


	Number of		Initial
	Apartment		Acquisition		Carrying		Accumulated
	Communities		Cost		Value		Depreciation		Encumbrances
Southern California		11	$	278,306	$	302,216	$	19,960	$	48,757
Dallas, TX		15		234,153		277,928		55,803		50,190
Houston, TX		23		220,168		277,782		53,541		57,954
Metropolitan DC		9		222,478		244,551		22,849		75,050
Phoenix, AZ		11		181,479		218,477		45,583		61,371
Orlando, FL		14		167,524		212,179		60,413		79,290
Raleigh, NC		11		179,935		207,865		50,967		58,593
Tampa, FL		11		163,778		188,616		40,652		56,312
Arlington, TX		10		142,462		160,674		34,133		39,056
Columbus, OH		6		111,315		150,684		27,178		41,327
San Francisco, CA		4		136,504		142,044		18,547		20,780
Monterey Peninsula, CA		8		87,924		137,662		14,281		—
Richmond, VA		9		106,325		132,022		39,125		66,657
Nashville, TN		8		83,987		122,210		29,916		—
Charlotte, NC		7		93,435		113,088		30,753		11,917
Greensboro, NC		8		85,362		105,923		26,739		—
Wilmington, NC		6		64,213		92,231		27,366		—
Baltimore, MD		7		80,141		91,451		22,427		27,752
Atlanta, GA		6		57,669		73,437		22,464		30,446
Columbia, SC		6		52,795		63,747		22,155		5,000
Jacksonville, FL		3		44,788		59,993		19,116		23,202
Norfolk, VA		6		42,741		55,687		22,254		7,359
Lansing, MI		4		50,237		51,778		8,134		31,570
Seattle, WA		3		31,953		34,627		6,236		25,830
Other Western		5		144,232		153,744		21,399		46,720
Other Pacific		8		122,608		125,456		19,295		48,905
Other Southwestern		7		92,897		99,902		18,988		9,765
Other North Carolina		8		61,677		77,014		28,542		11,550
Other Midwestern		7		59,967		65,782		10,528		26,320
Other Southeastern		3		48,128		59,656		13,493		28,620
Other Florida		5		34,754		44,472		13,509		—
Other Mid-Atlantic		5		37,619		43,683		12,185		12,542
Other Northeastern		2		14,732		18,401		5,711		5,167
Richmond Corporate		—		6,597		7,348		975		3,884
Commercial		—		3,255		3,255		484		—

		256	$	3,546,138	$	4,215,585	$	865,701	$	1,011,886

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

The following is a summary of real estate held for disposition by major category at December 31, 2003 (dollars in thousands):


			Initial
	Number of		Acquisition		Carrying		Accumulated
	Properties		Cost		Value		Depreciation		Encumbrances
Apartments		8	$	60,719	$	101,768	$	30,929	$	6,142
Land		1		3,821		3,823		—		—

			$	64,540	$	105,591	$	30,929	$	6,142

The following is a summary of real estate under development by major category at December 31, 2003 (dollars in thousands):


			Initial
	Number of		Acquisition		Carrying		Accumulated
	Properties		Cost		Value		Depreciation		Encumbrances
Apartments		3	$	22,592	$	22,592	$	—	$	—
Land		6		7,783		7,783		—		—

			$	30,375	$	30,375	$	—	$	—

Total Real Estate Owned			$	3,641,053	$	4,351,551	$	896,630	$	1,018,028

United Dominion is pursuing its strategy of exiting markets where long-term growth prospects are limited and the redeployment of capital would enhance future growth rates and economies of scale. During the first quarter of 2002, United Dominion placed nine assets, with an aggregate net book value of $89.3 million, under contract for sale and reclassified them as real estate held for disposition. These sales closed in the second quarter of 2002 and resulted in our withdrawal from Naples, Florida; Tucson, Arizona; Las Vegas, Nevada; and substantially all of Memphis, Tennessee. Although these sales resulted in an aggregate net gain of $11.5 million, certain of these assets were sold at net selling prices below their net book values at March 31, 2002. As a result, United Dominion recorded an aggregate $2.3 million impairment loss in 2002 for the write down of a portfolio of five apartment communities in Memphis, Tennessee.

During the first quarter of 2001, we performed an analysis of the carrying value of all undeveloped land parcels in connection with United Dominion’s plans to accelerate the disposition of these sites. As a result, an aggregate $2.8 million impairment loss was recognized on seven undeveloped sites in selected markets. An impairment loss was indicated as a result of the net book value of the assets being greater than the estimated fair market value less the cost of disposal.

3. INCOME FROM DISCONTINUED OPERATIONS

United Dominion adopted FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No. 144) as of January 1, 2002. SFAS No. 144 requires, among other things, that the primary assets and liabilities and the results of operations of United Dominion’s real properties which have been sold subsequent to January 1, 2002, or are held for disposition subsequent to January 1, 2002, be classified as discontinued operations and segregated in United Dominion’s Consolidated Statements of Operations and Balance Sheets. Properties classified as real estate held for disposition generally represent properties that are under contract for sale and are expected to close within the next twelve months. For purposes of these financial statements, SFAS No. 144 results in the presentation of the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition through March 31, 2004, as discontinued operations for all periods presented. The adoption of SFAS No. 144 does not have an impact on net income available to common stockholders. SFAS No. 144 only results in the reclassification of the operating results of all properties sold or classified as held for disposition through March 31, 2004, within the Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets as of December 31, 2003 and 2002.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

For the quarter ended March 31, 2004, United Dominion sold one community with 100 apartment homes. At March 31, 2004, United Dominion had seven communities with a total of 1,810 apartment homes and a net book value of $59.2 million and one parcel of land with a net book value of $3.9 million included in real estate held for disposition. During 2003, United Dominion sold seven communities with a total of 1,927 apartment homes and two commercial properties. During 2002, United Dominion sold 25 communities with a total of 6,990 apartment homes, one parcel of land, and one commercial property. The results of operations for these properties and the interest expense associated with the secured debt (if any) on these properties are classified on the Consolidated Statements of Operations in the line item entitled “Income from discontinued operations, net of minority interests.”

The following is a summary of income from discontinued operations for the years ended December 31, (dollars in thousands):


	2003			2002			2001
Rental income	$	24,875		$	59,945		$	77,993
Rental expenses		11,313			26,028			32,393
Real estate depreciation		5,742			13,850			20,974
Interest		—			2,126			4,883
Loss/(gain) on early debt retirement		—			1,465			—
Impairment loss on real estate and investments		—			2,301			2,788
Other expenses		34			124			275

		17,089			45,894			61,313
Income before gain on sales of investments, and minority interests		7,786			14,051			16,680
Net gain on sales of land and depreciable property		15,941			32,698			24,714

Income before minority interests		23,727			46,749			41,394
Minority interests on income from discontinued operations		(1,511	)		(2,889	)		(2,798	)

Income from discontinued operations, net of minority interests	$	22,216		$	43,860		$	38,596

4. INVESTMENT IN UNCONSOLIDATED DEVELOPMENT JOINT VENTURE

On September 10, 2002, United Dominion entered into a development joint venture with AEGON USA Realty Advisors, Inc. in which United Dominion is serving as the managing member. The joint venture is expected to develop approximately eight to ten garden-style apartment communities over the next three years, with a total development cost of up to $210 million. The joint venture will obtain bank construction financing for 65% to 80% of total costs and will provide equity contributions for the balance of the costs with AEGON providing 80% and United Dominion providing 20%. United Dominion is serving as the developer, general contractor, and property manager for the joint venture and has guaranteed those project development costs, excluding financing costs (including fees and interest), which exceed the defined project cost budgeted amounts for each respective project, as they come to fruition. Management estimates that its likelihood of funding its guarantor obligations is remote and that the impact to United Dominion would be immaterial. In June 2003, United Dominion contributed land with a carrying value of $3.8 million to the joint venture.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

The following is a summary of the financial position of the joint venture as of December 31, 2003 (dollars in thousands):


Assets
Real estate under development	$	10,780
Cash and cash equivalents		1

Total assets	$	10,781

Liabilities and Partners’ Capital
Accounts payable and other accrued liabilities	$	2,034
Partners’ capital		8,747

Total liabilities and partners’ capital	$	10,781

During the third quarter of 2003, we recognized a $1.4 million charge for the write-off of United Dominion’s investment in Realeum, Inc., an unconsolidated joint venture created to develop web-based solutions for multi-family property and portfolio management.

5. SECURED DEBT

Secured debt on continuing and discontinued operations of United Dominion’s apartment portfolio, which encumbers $1.6 billion or 35.8% of real estate owned ($2.8 billion or 64.2% of United Dominion’s real estate owned is unencumbered) consists of the following as of December 31, 2003 (dollars in thousands):


					Weighted			Weighted		Number of
					Average			Average		Communities
	Principal Outstanding				Interest Rate			Years to Maturity		Encumbered
	2003		2002		2003			2003		2003
Fixed Rate Debt
Mortgage notes payable	$	174,520	$	187,927		7.53	%		6.2		13
Tax-exempt secured notes payable		42,540		61,278		6.43	%		13.2		6
Fannie Mae credit facilities		288,875		288,875		6.40	%		7.1		9
Fannie Mae credit facilities — swapped		17,000		17,000		6.74	%		0.4		—

Total fixed rate secured debt		522,935		555,080		6.79	%		7.0		28
Variable Rate Debt
Mortgage notes payable		46,185		11,752		2.38	%		7.9		3
Tax-exempt secured note payable		7,770		7,770		1.08	%		24.2		1
Fannie Mae credit facilities		370,469		370,469		1.73	%		8.4		51
Freddie Mac credit facility		70,669		70,669		1.55	%		3.1		8

Total variable rate secured debt		495,093		460,660		1.76	%		7.9		63

Total secured debt	$	1,018,028	$	1,015,740		4.34	%		7.4		91

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 2004 through June 2034 and carry interest rates ranging from 6.12% to 8.50%.

Tax-exempt secured notes payable Fixed rate mortgage notes payable that secure tax-exempt housing bond issues mature at various dates through November 2025 and carry interest rates ranging from 6.09% to 6.75%. Interest on these notes is generally payable in semi-annual installments.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

Secured credit facilities At December 31, 2003, United Dominion’s fixed rate secured credit facilities consisted of $305.9 million of the $676.3 million outstanding on an $860 million aggregate commitment under four revolving secured credit facilities with Fannie Mae. The Fannie Mae credit facilities are for an initial term of ten years, bear interest at floating and fixed rates and can be extended for an additional five years at United Dominion’s discretion. In order to limit a portion of its interest rate exposure, United Dominion has two interest rate swap agreements associated with the Fannie Mae credit facilities. These agreements have an aggregate notional value of $17.0 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreements effectively change United Dominion’s interest rate exposure on $17.0 million of secured debt from a variable rate to a weighted average fixed rate of 6.74%.

Variable Rate Debt

Mortgage notes payable Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from January 2005 through July 2013. As of December 31, 2003, these notes had interest rates ranging from 2.01% to 3.99%.

Tax-exempt secured note payable The variable rate mortgage note payable which secures tax-exempt housing bond issues matures in July 2028. As of December 31, 2003, this note had an interest rate of 1.08%. Interest on this note is payable in semi-annual installments.

Secured credit facilities As of December 31, 2003, United Dominion’s variable rate secured credit facilities consisted of $370.5 million outstanding on the Fannie Mae credit facilities and $70.7 million outstanding on the Freddie Mac credit facility. As of December 31, 2003, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 1.73% and the Freddie Mac credit facility had a weighted average floating rate of interest of 1.55%.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

The aggregate maturities of secured debt for the fifteen years subsequent to December 31, 2003 are as follows (dollars in thousands):


	Fixed						Variable
	Mortgage		Tax-Exempt		Credit		Mortgage		Tax-Exempt		Credit
Year	Notes		Notes		Facilities		Notes		Notes		Facilities		TOTAL
2004	$	40,841	$	5,595	$	—	$	339	$	—	$	—	$	46,775
2005		18,431		630		—		4,725		—		—		23,786
2006		31,739		670		—		3,706		—		—		36,115
2007		7,169		345		—		—		—		70,669		78,183
2008		5,634		5,145		—		—		—		—		10,779
2009		23,717		245		—		—		—		—		23,962
2010		26,477		265		138,875		—		—		—		165,617
2011		694		280		50,000		—		—		134,513		185,487
2012		751		300		100,000		—		—		52,956		154,007
2013		812		3,390		17,000		37,415		—		183,000		241,617
2014		879		340		—		—		—		—		1,219
2015		950		12,815		—		—		—		—		13,765
2016		1,028		—		—		—		—		—		1,028
2017		1,112		—		—		—		—		—		1,112
2018		1,203		—		—		—		—		—		1,203
Thereafter		13,083		12,520		—		—		7,770		—		33,373

	$	174,520	$	42,540	$	305,875	$	46,185	$	7,770	$	441,138	$	1,018,028

For the year ended December 31, 2002, United Dominion recognized $18.4 million ($0.17 per diluted share) of expenses as a result of prepayment penalties incurred from the refinancing of certain secured loans, using proceeds from the Fannie Mae and Freddie Mac credit facilities and the early payoff of loans on the sale of properties. These prepayment penalties were funded by proceeds of the new credit facilities, proceeds from the related asset sales and from the release of cash escrows retained by former lenders of $14.0 million for the year ended December 31, 2002.

6. UNSECURED DEBT

A summary of unsecured debt as of December 31, 2003 and 2002 is as follows (dollars in thousands):


		2003			2002
Commercial Banks
Borrowings outstanding under an unsecured credit facility due March 2006 (a)	$		137,900	$		—
Borrowings outstanding under an unsecured credit facility due August 2003 (a)			—			175,800
Borrowings outstanding under an unsecured term loan due May 2004-2005 (a)			—			100,000
Senior Unsecured Notes — Other
7.65% Medium-Term Notes due January 2003			—			10,000
7.22% Medium-Term Notes due February 2003			—			11,815
8.63% Notes due March 2003			—			78,005
7.98% Notes due March 2002-2003			—			7,428
5.05% City of Portland, OR Bonds due October 2003			—			7,345
7.67% Medium-Term Notes due January 2004			46,585			46,585
7.73% Medium-Term Notes due April 2005			21,100			21,100

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003


	2003		2002
7.02% Medium-Term Notes due November 2005		49,760		49,760
7.95% Medium-Term Notes due July 2006		85,374		85,374
7.07% Medium-Term Notes due November 2006		25,000		25,000
7.25% Notes due January 2007		92,255		92,265
4.50% Medium-Term Notes due March 2008 (b)		200,000		—
ABAG Tax-Exempt Bonds due August 2008		46,700		46,700
8.50% Monthly Income Notes due November 2008		29,081		29,081
4.25% Medium-Term Notes due January 2009 (c)		50,000		—
6.50% Notes due June 2009		200,000		200,000
5.13% Medium-Term Notes due January 2014 (d)		75,000		—
8.50% Debentures due September 2024 (e)		54,118		54,118
Other (f)		1,136		1,524

		976,109		766,100

Total Unsecured Debt	$	1,114,009	$	1,041,900

(a) During the first quarter of 2003, United Dominion closed on a new three-year $500 million unsecured revolving credit facility. The credit facility replaced United Dominion’s $375 million unsecured revolving credit facility and $100 million unsecured term loan. If United Dominion receives commitments from additional lenders or if the initial lenders increase their commitments, United Dominion will be able to increase the credit facility to $650 million. At United Dominion’s option, the credit facility can be extended for one year to March 2007.

The following is a summary of short-term bank borrowings under United Dominion’s bank credit facility at December 31, (dollars in thousands):


	2003			2002			2001
Total revolving credit facilities at December 31	$	500,000		$	475,000		$	475,000
Borrowings outstanding at December 31		137,900			275,800			330,200
Weighted average daily borrowings during the year		171,179			256,493			348,367
Maximum daily borrowings during the year		272,800			411,600			447,200
Weighted average interest rate during the year		2.1	%		3.0	%		5.2	%
Weighted average interest rate at December 31		1.6	%		2.5	%		3.1	%
Weighted average interest rate at December 31 — after giving effect to swap agreements		4.2	%		6.8	%		6.5	%

As of December 31, 2003, United Dominion had three interest rate swap agreements associated with commercial bank borrowings under the revolver with an aggregate notional value of $51.5 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, which mature from May 2004 through July 2004, effectively change United Dominion’s interest rate exposure on the $51.5 million of borrowings from a variable rate to a weighted average fixed rate of approximately 8.5%. As of December 31, 2003, 2002 and 2001, the weighted average interest rate of commercial borrowings, after giving effect to swap agreements, was 4.2%, 6.8% and 6.5%, respectively.

(b) In February 2003, United Dominion issued $150 million of 4.50% senior unsecured medium-term notes due in March 2008. The net proceeds of $149.3 million from the sale were used to repay amounts outstanding on United Dominion’s $375 million unsecured revolving credit facility. In August 2003, United Dominion issued an additional $50 million of 4.5% senior unsecured medium-term notes due in March 2008. The net proceeds were used to repay amounts outstanding on United Dominion’s $500 million unsecured credit facility.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

(c) In November 2003, United Dominion issued $50 million of 4.25% senior unsecured medium-term notes due in January 2009. The net proceeds of $49.8 million from the sale were used to fund acquisitions of apartment communities.

(d) In October 2003, United Dominion issued $75 million of 5.13% senior unsecured medium-term notes due in January 2014. The net proceeds of $74.5 million from the sale were used to repay amounts outstanding on United Dominion’s $500 million unsecured revolving credit facility.

(e) Includes an investor put feature that grants a one-time option to redeem the debentures in September 2004.

(f) Includes $1.1 million and $1.5 million at December 31, 2003 and 2002, respectively, of deferred gains from the termination of interest rate risk management agreements.

For the year ended December 31, 2002, United Dominion recognized $18.6 million ($0.17 per diluted share) of expense as a result of premiums paid for the redemption of certain higher coupon notes and debentures and the write-off of deferred financing costs.

7. STOCKHOLDERS’ EQUITY

Preferred Stock

The Series B Cumulative Redeemable Preferred Stock has no stated par value and a liquidation preference of $25 per share. The Series B has no voting rights except as required by law. The Series B has no stated maturity and is not subject to any sinking fund or mandatory redemption and is not convertible into any of our other securities. The Series B is not redeemable prior to May 29, 2007. On or after this date, the Series B may be redeemed for cash at our option, 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 sale proceeds of our other capital stock. All dividends due and payable on the Series B have been accrued or paid as of the end of each fiscal year.

Distributions declared on the Series B in 2003 were $2.15 per share or $.5375 per quarter. The Series B is listed on the NYSE under the symbol “UDRpfb.”

The Series D Cumulative Convertible Redeemable Preferred Stock has no stated par value and a liquidation preference of $25 per share. The Series D has no voting rights except as required by law. In addition, if Series D dividends are in arrears for any dividend period, the holders of the Series D have rights to notices and voting entitlements of holders of common stock until all accumulated dividends for all past dividend periods and the then current dividend period have been paid or set aside for payment. The Series D has no stated maturity, is not subject to any sinking fund or mandatory redemption, and is convertible into 1.5385 shares of common stock, subject to certain adjustments, at the option of the holder of the Series D at any time. We may, at our option, redeem at any time all or part of the Series D at a price per share of $25, payable in cash, plus all accrued and unpaid dividends, provided that the current market price of our 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; provided, however, that we may not redeem, in any consecutive twelve-month period, a number of shares of Series D having an aggregate liquidation preference of more than $100 million, subject to certain exceptions.

In 2003, we exercised our right to redeem 6.0 million shares of our Series D. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 9,230,923 shares of common stock at a price of $16.25 per share. As a result, we recognized $19.3 million in premium on preferred shares repurchased throughout 2003. The premium amount recognized to convert these shares represents the cumulative accretion to date between the conversion value of the preferred stock and the value at which it was recorded at the time of issuance.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

Distributions declared on the Series D in 2003 were $2.04 per share or $.5089 per quarter. The Series D is not listed on any exchange.

The Series E Cumulative Convertible Preferred Stock has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into one share of our common stock. The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption.

Distributions declared on the Series E in 2003 were $0.84 per share, $0.18 per share in the second quarter and $0.33 per share in each of the third and fourth quarters. The Series E is not listed on any exchange.

On June 15, 2001, United Dominion completed the redemption of all of its outstanding 9.25% Series A Cumulative Redeemable Preferred Stock at $25 per share plus accrued dividends.

Officers’ Stock Purchase and Loan Plan

As of December 31, 2003, United Dominion has $0.5 million of notes receivable from certain officers and directors of United Dominion at an interest rate of 7.0%. The notes mature in June 2004. The purpose of the loans was for the borrowers to purchase shares of United Dominion’s common stock pursuant to United Dominion’s 1991 Stock Purchase and Loan Plan. The loans are evidenced by promissory notes between the borrowers and United Dominion and are secured by a pledge of the shares of common stock (33,000 shares with a market value of $0.6 million at December 31, 2003). The notes require that dividends received on the shares be applied towards payment of the notes.

In addition, United Dominion entered into a Servicing and Purchase Agreement (the “Servicing Agreement”) with SunTrust Bank (the “Bank”) whereby United Dominion has agreed to act as servicing agent for and to purchase certain loans made by the Bank to officers and directors of United Dominion (the “Borrowers”) to finance the purchase of shares of United Dominion’s common stock. The loans are evidenced by promissory notes (“Notes”) between each Borrower and the Bank. The Servicing Agreement provides that the Bank can require United Dominion to purchase the Notes upon an event of default by the Borrower or United Dominion under the Servicing Agreement and at certain other times during the term of the Servicing Agreement. The aggregate outstanding principal balance of the Notes as of December 31, 2003 was $6.3 million (original principal balance was $8.0 million), and all of the Notes mature during 2004. Because certain of the Borrowers elected floating rate loans and others elected fixed rate loans, the interest rates on these loans as of December 31, 2003 range from 2.08% to 7.68%. Each Borrower entered into a Participation Agreement with United Dominion that requires that all cash dividends received on the shares (664,898 shares at December 31, 2003 with a closing market value of $12.8 million) be applied towards payment of the Notes. Based upon the fact that 100% of all cash dividend payments are paid to amortize the Notes and that the Notes are recourse to the Borrowers, United Dominion believes that its exposure to liability under the Servicing Agreement is remote.

Dividend Reinvestment and Stock Purchase Plan

United Dominion’s Dividend Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends, additional shares of United Dominion’s common stock. As of December 31, 2003, 9,681,250 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 4,318,750 were reserved for further issuance under the Stock Purchase Plan as of December 31, 2003. During 2003, 91,190 shares were issued under the Stock Purchase Plan for a total consideration of approximately $1.6 million.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

Restricted Stock Awards

United Dominion’s 1999 Long-Term Incentive Plan (“LTIP”) authorizes the grant of restricted stock awards to employees, officers, consultants and directors of United Dominion. Deferred compensation expense is recorded over the vesting period and is based upon the value of the common stock on the date of issuance. As of December 31, 2003, 540,659 shares of restricted stock have been issued under the LTIP.

Shareholder Rights Plan

United Dominion’s 1998 Shareholder Rights Plan is intended to protect long-term interests of stockholders in the event of an unsolicited, coercive or unfair attempt to take over United Dominion. The plan authorized a dividend of one Preferred Share Purchase Right (the “Rights”) on each share of common stock outstanding. Each Right, which is not currently exercisable, will entitle the holder to purchase 1/1000 of a share of a new series of United Dominion’s preferred stock, to be designated as Series C Junior Participating Cumulative Preferred Stock, at a price to be determined upon the occurrence of the event, and for which the holder must be paid $45 should the takeover occur. Under the Plan, the rights will be exercisable if a person or group acquires more than 15% of United Dominion’s common stock or announces a tender offer that would result in the ownership of 15% of United Dominion’s common stock.

8. FINANCIAL INSTRUMENTS

The following estimated fair values of financial instruments were determined by United Dominion using available market information and appropriate valuation methodologies. Considerable judgment 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 as of December 31, 2003 and 2002, are summarized as follows (dollars in thousands):


	2003						2002
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Secured debt	$	1,018,028		$	1,063,415		$	1,015,740		$	1,051,182
Unsecured debt		1,114,009			1,162,910			1,041,900			1,106,362
Interest rate swap agreements		(1,633	)		(1,633	)		(9,636	)		(9,636	)

The following methods and assumptions were used by United Dominion in estimating the fair values set forth above.

Cash and cash equivalents

The carrying amount of cash and cash equivalents approximates fair value.

Notes receivable

In August 2003, United Dominion received a promissory note in the principal amount of $8 million which is due September 2006. The note is secured by a second lien on a property that United Dominion manages and has an option to purchase. The note bears interest of 10.0% that is payable in monthly installments. In June 2003, United Dominion received a promissory note in the principal amount of $5 million which is due October 2011. The note was received in connection with one of our acquisitions and bears interest of 9.0% that is payable in annual installments.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

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 as of December 31, 2003 and 2002. 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 as of December 31, 2003 and 2002.

Derivative financial instruments

The following table presents the fair values of United Dominion’s derivative financial instruments outstanding, based on external market quotations, as of December 31, 2003 (dollars in thousands):


Notional	Fixed			Type of	Effective		Contract		Fair
Amount	Rate			Contract	Date		Maturity		Value
*Secured Debt — FNMA:*
$10,000		6.92	%	Swap		12/01/99		04/01/04	$	(179	)
7,000		6.48	%	Swap		06/30/99		06/30/04		(228	)

17,000		6.74	%							(407	)
*Unsecured Debt — Bank Credit Facility:*
23,500		8.52	%	Swap		11/15/00		05/15/04		(543	)
23,000		8.52	%	Swap		11/15/00		05/15/04		(531	)
5,000		8.65	%	Swap		06/26/95		07/01/04		(152	)

51,500		8.53	%							(1,226	)

$68,500		8.09	%						$	(1,633	)

For the year ended December 31, 2003, United Dominion recognized $8.1 million of unrealized gains in comprehensive income and a $0.3 million realized gain in net income related to the ineffective portion of United Dominion’s hedging instruments. For the year ended December 31, 2002, United Dominion recognized $4.9 million of unrealized gains in comprehensive income and a $0.05 million realized gain in net income related to the ineffective portion of United Dominion’s hedging instruments. For the year ended December 31, 2001, United Dominion recognized $11.0 million of unrealized losses in comprehensive income, a $0.06 million realized loss in net income related to the ineffective portion of United Dominion’s hedging instruments, and a $3.8 million loss as a cumulative effect of a change in accounting principle.

In addition, United Dominion has recognized $1.6 million and $9.6 million, respectively, of derivative financial instrument liabilities on the Consolidated Balance Sheets within the line item “Accounts payable, accrued expenses and other liabilities” for the years ended December 31, 2003 and 2002.

As of December 31, 2003, United Dominion expects to reclassify $1.9 million of net losses on derivative instruments from accumulated other comprehensive loss to earnings (interest expense which, combined with the interest paid on the underlying debt, results in interest expense at the fixed rates shown above) during the next twelve months on the related hedged transactions.

Risk of counterparty non-performance

United Dominion has not obtained collateral or other security to support financial instruments. In the event of non-performance by the counterparty, United Dominion’s credit loss on its derivative instruments is limited to the value of the derivative instruments that are favorable to United Dominion at December 31, 2003, of which we have none. However, such non-performance is not anticipated as the counterparties are highly rated credit quality U.S. financial institutions and we believe that the likelihood of realizing material losses from counterparty non-performance is remote.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

9. EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

The United Dominion Realty Trust, Inc. Profit Sharing Plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, United Dominion makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in United Dominion’s Consolidated Statements of Operations for the three years ended December 31, 2003, 2002 and 2001 were $0.3 million, $0.4 million and $0.7 million, respectively.

Stock Option Plan

In May 2001, the stockholders of United Dominion approved the 1999 Long-Term Incentive Plan (the “LTIP”), which supersedes the 1985 Stock Option Plan. With the approval of the LTIP, no additional grants will be made under the 1985 Stock Option Plan. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, and any other right or interest relating to common stock or cash. The Board of Directors reserved 4 million shares for issuance upon the grant or exercise of awards under the LTIP. The LTIP generally provides, among other things, that options are granted at exercise prices not lower than the market value of the shares on the date of grant and that options granted must be exercised within ten years. The maximum number of shares of stock that may be issued subject to incentive stock options is 4 million shares. Shares under options that expire or are cancelable are available for subsequent grant.

Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123 “Accounting for Stock-Based Compensation” (FAS 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 FAS 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 2003, 2002 and 2001:


	2003		2002			2001
Risk free interest rate		—		4.1	%		3.2	%
Dividend yield		—		7.7	%		9.1	%
Volatility factor		—		0.177			0.171
Weighted average expected life (years)		—		4			3

There were no options granted during 2003. The weighted average fair value of options granted during 2002 and 2001 was $0.84 and $0.46 per option, respectively.

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):


	2003			2002			2001
Reported net income available to common stockholders	$	24,807		$	25,805		$	27,142
Stock-based employee compensation cost included in net income		2,213			1,712			879
Stock-based employee compensation cost that would have been included in net income under the fair value method		(2,505	)		(2,092	)		(1,328	)

Adjusted net income available to common stockholders	$	24,515		$	25,425		$	26,693

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003


Earnings per common share — basic
As reported	$	0.22	$	0.24	$	0.27
Pro forma		0.21		0.24		0.27
Earnings per common share — diluted
As reported	$	0.21	$	0.24	$	0.27
Pro forma		0.21		0.24		0.27

A summary of United Dominion’s stock option activity during the three years ended December 31, 2003 is provided in the following table:


	Number			Weighted Average		Range of
	Outstanding			Exercise Price		Exercise Prices
Balance, December 31, 2000		4,492,945		$	11.71	$	9.19-$15.38
Granted		1,289,484			11.96		10.81 - 14.20
Exercised		(356,408	)		11.02		9.19 - 14.25
Forfeited		(813,649	)		11.52		9.63 - 15.38

Balance, December 31, 2001		4,612,372		$	11.90	$	9.63-$15.38
Granted		143,548			14.26		14.15 - 14.88
Exercised		(1,000,592	)		11.68		9.63 - 15.38
Forfeited		(87,999	)		11.04		9.63 - 15.25

Balance, December 31, 2002		3,667,329		$	12.01	$	9.63-$15.38
Granted		—			—		—
Exercised		(1,106,142	)		12.41		9.63 - 15.38
Forfeited		(25,000	)		9.65		9.63 - 9.88

Balance, December 31, 2003		2,536,187		$	11.88	$	9.63-$15.38

Exercisable at December 31,
2001		1,968,265		$	12.38	$	9.63-$15.38
2002		2,793,811			11.97		9.63 - 15.38
2003		2,207,685			11.77		9.63 - 15.38

The weighted average remaining contractual life on all options outstanding is 5.5 years. A total of 628,150 of share options had exercise prices between $13.13 and $15.38, 909,296 of share options had exercise prices between $11.15 and $12.23 and 998,741 of share options had exercise prices between $9.63 and $10.88.

As of December 31, 2003 and 2002, stock-based awards for 3,028,920 and 3,149,350 shares of common stock, respectively, were available for future grants under the 1999 LTIP’s existing authorization.

10. RESTRUCTURING CHARGES

In 2001, we undertook a comprehensive review of the organizational structure of United Dominion and its operations subsequent to the appointment of a new senior management team and CEO. As a result, we recorded $4.5 million of expense related to the termination of approximately 10% of United Dominion’s workforce in operations and at the corporate headquarters. In addition, United Dominion recognized expense in the aggregate of $0.9 million related to relocation costs associated with the new executive offices in Colorado and other miscellaneous costs. These charges are included in the Consolidated Statements of Operations within the line item “Severance costs and other organizational charges.”

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

In addition, in 2001, we performed an analysis of the carrying value of all undeveloped land parcels in connection with United Dominion’s plans to accelerate the disposition of these sites. As a result, an aggregate $2.8 million impairment loss was recognized on seven undeveloped sites in selected markets. An impairment loss was indicated as a result of the net book value of the assets being greater than the estimated fair market value less the cost of disposal. United Dominion also recognized a $0.4 million charge for the write down of its investment in an online apartment leasing company.

11. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Under Development

United Dominion is committed to completing its real estate currently under development, which has an estimated cost to complete of $76.1 million as of December 31, 2003.

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 as of December 31, 2003 are as follows (dollars in thousands):


	Ground		Operating
	Leases		Leases
2004	$	1,060	$	495
2005		1,060		311
2006		1,060		102
2007		1,060		59
2008		1,060		4
Thereafter		23,367		—

Total	$	28,667	$	971

United Dominion incurred $1.9 million, $2.0 million and $2.3 million of rent expense for the years ended December 31, 2003, 2002 and 2001, respectively.

Contingencies

Series A Out-Performance Program

In May 2001, the stockholders of United Dominion approved the Series A Out-Performance Program (the “Series A Program”) pursuant to which executives and other key officers of United Dominion (the “Participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in a limited liability company (the “Series A LLC”), the only asset of which is a special class of partnership units of United Dominion Realty, L.P. (“Series A Out-Performance Partnership Shares” or “Series A OPPSs”), for an initial investment of $1.27 million (the full market value of the Series A OPPSs, at inception, as determined by an independent investment banking firm). The Series A Program measured United Dominion’s performance over a 28-month period beginning February 2001 and ending on May 31, 2003.

The Series A Program was designed to provide Participants with the possibility of substantial returns on their investment if United Dominion’s total return on its common stock, measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period, exceeded the greater of (a) the cumulative total return of the Morgan Stanley REIT Index over the same period; and (b) is at least the equivalent of a 30% total return, or 12% annualized.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

At the conclusion of the measurement period on May 31, 2003, United Dominion’s total return satisfied these criteria. As a result, the Series A LLC as holder of the Series A OPPSs will receive distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on 1,853,204 interests in the Operating Partnership (“OP Units”), which distributions and allocations will be distributed to the participants on a pro rata basis based on ownership of the Series A LLC.

Series B Out-Performance Program

In May 2003, the stockholders of United Dominion approved the Series B Out-Performance Program (the “Series B Program”) pursuant to which certain executive officers of United Dominion (the “participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in a limited liability company (the “Series B LLC”), the only asset of which is a special class of partnership units of United Dominion Realty, L.P. (“Series B Out-Performance Partnership Shares” or “Series B OPPSs”) . The purchase price for the Series B OPPSs was determined by United Dominion’s board of directors to be $1 million, assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series B Program will measure the cumulative total return on our common stock over the 24-month period from June 1, 2003 to May 31, 2005.

The Series B Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on United Dominion’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period (a) exceeds the cumulative total return of the Morgan Stanley REIT Index peer group index over the same period; and (b) is at least the equivalent of a 22% total return or 11% annualized.

At the conclusion of the measurement period, if United Dominion’s cumulative total return satisfies these criteria, the Series B LLC as holder of the Series B OPPSs will receive (for the indirect benefit of the participants as holders of interests in the Series B LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by:

i. determining the amount by which the cumulative total return of United Dominion’s common stock over the measurement period exceeds the greater of the cumulative total return of the Morgan Stanley REIT Index, which is the peer group index, or the minimum return (such excess being the “excess return”);

ii. multiplying 5% of the excess return by United Dominion’s market capitalization (defined as the average number of shares outstanding over the 24-month period, including common stock, OP Units, outstanding options and convertible securities) multiplied by the daily closing price of United Dominion’s common stock, up to a maximum of 2% of market capitalization; and

iii. dividing the number obtained in (ii) by the market value of one share of United Dominion’s common stock on the valuation date, determined by the weighted average price per day of common stock for the 20 trading days immediately preceding the valuation date.

If, on the valuation date, the cumulative total return of United Dominion’s common stock does not meet the minimum return, then the participants will forfeit their entire initial investment.

12. INDUSTRY SEGMENTS

United Dominion owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment units to a diverse base of tenants. United Dominion separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities has similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single apartment communities segment. All segment disclosure is included in or can be derived from United Dominion’s consolidated financial statements.

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

There are no tenants that contributed 10% or more of United Dominion’s total revenues during 2003, 2002, or 2001.

13. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Summarized consolidated quarterly financial data for the year ended December 31, 2003, with restated amounts that reflects discontinued operations as of March 31, 2004, is as follows (dollars in thousands, except per share amounts):


	Three Months Ended
	Previously				Previously						Previously				Previously
	Reported		Restated		Reported			Restated			Reported		Restated		Reported		Restated
	March 31		March 31		June 30 (a)			June 30 (a)			September 30(b)		September 30(b)		December 31(c)		December 31(c)
Rental income (d)	$	148,307	$	144,800	$	149,384		$	145,950		$	151,860	$	148,381	$	153,816	$	150,291
Income before minority interests and discontinued operations		11,723		10,818		14,826			13,979			12,751		11,830		13,285		12,311
Gain/(loss) on sale of land and depreciable property		1,045		1,045		(112	)		(112	)		7,215		7,215		7,793		7,793
Income from discontinued operations, net of minority interests		2,391		3,239		965			1,757			7,982		8,843		7,463		8,377
Net income available to common stockholders		6,494		6,494		2,702			2,702			1,242		1,242		14,369		14,369
Earnings per common share:
Basic	$	0.06	$	0.06	$	0.02		$	0.02		$	0.01	$	0.01	$	0.13	$	0.13
Diluted		0.06		0.06		0.02			0.02			0.01		0.01		0.12		0.12

(a) The second quarter of 2003 includes $6.3 million of expense due to a premium paid for the conversion of shares of Series D preferred stock into common stock.

(b) The third quarter of 2003 includes $12.1 million of expense due to a premium paid for the conversion of shares of Series D preferred stock into common stock.

(c) The fourth quarter of 2003 includes $0.9 million of expense due to a premium paid for the conversion of shares of Series D preferred stock into common stock.

(d) Represents rental income from continuing operations.

Summarized consolidated quarterly financial data for the year ended December 31, 2002, with restated amounts that reflects discontinued operations as of March 31, 2004, is as follows (dollars in thousands, except per share amounts):


	Three Months Ended
	Previously						Previously				Previously						Previously
	Reported			Restated			Reported		Restated		Reported			Restated			Reported		Restated
	March 31(a)			March 31(a)			June 30		June 30		September 30(b)			September 30(b)			December 31(c)		December 31(c)
Rental income (d)	$	142,635		$	139,073		$	144,589	$	141,133	$	146,570		$	143,159		$	149,029	$	145,562
Income/(loss) before minority interests and discontinued operations		(4,983	)		(5,985	)		13,418		12,481		(1,391	)		(2,114	)		5,951		5,221
Gain on sale of land and depreciable property		919			919			11,826		11,826		19,128			19,128			825		825
Income from discontinued operations, net of minority interests		2,998			3,938			14,629		15,505		21,658			22,335			1,393		2,082
Net income/(loss) available to common stockholders		(8,538	)		(8,538	)		20,513		20,513		13,602			13,602			227		227
Earnings/(loss) per common share:
Basic	$	(0.08	)	$	(0.08	)	$	0.19	$	0.19	$	0.13		$	0.13		$	0.00	$	0.00
Diluted		(0.08	)		(0.08	)		0.19		0.19		0.13			0.13			0.00		0.00

(a) The first quarter of 2002 includes $15.8 million of expense associated with the refinancing of certain mortgages using proceeds from the new Fannie Mae and Freddie Mac credit facilities.

(b) The third quarter of 2002 includes $12.6 million of expense due to premiums paid for the redemption of certain higher coupon bonds.

(c) The fourth quarter of 2002 includes $5.2 million of expense due to premiums paid for the redemption of certain higher coupon bonds.

(d) Represents rental income from continuing operations.

14. SUBSEQUENT EVENTS

On January 15, 2004, United Dominion completed the sale of $75 million of 5.13% senior unsecured notes due January 2014 under its $1 billion shelf registration statement. These notes represent a re-opening of the 5.13% senior notes due January 2014 issued by United Dominion in October 2003, and these notes will constitute a single series of notes, bringing the aggregate principal amount outstanding of the 5.13% senior notes to $150 million. The net proceeds of approximately $73.9 million from this issuance were used to repay secured and unsecured debt obligations maturing in the first quarter of 2004.

UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)


			Initial Costs				Total		Cost of Improvements Capitalized			Gross Amount at Which Carried at Close of Period
			Land and		Buildings		Initial		Subsequent			Land and		Buildings		Total
			Land		and		Acquisition		to Acquisition			Land		and		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		(Net of Disposals)			Improvements		Improvements		Value (A)		Depreciation (B)		Construction	Acquired
Pine Avenue	$	11,342	$	2,158	$	8,888	$	11,046	$	2,713		$	2,832	$	10,927	$	13,759	$	1,805	1987	12/07/98
The Grand Resort		—		8,884		35,706		44,590		17,686			11,784		50,492		62,276		8,054	1971	12/07/98
Grand Terrace		—		2,144		6,595		8,739		1,292			2,228		7,803		10,031		1,584	1986	06/30/99
Windemere at Sycamore Highland		—		5,810		23,450		29,260		209			5,812		23,657		29,469		1,591	2001	11/21/02
Harbor Greens		—		20,477		28,538		49,015		48			20,476		28,587		49,063		910	1965	06/12/03
Pine Brook Village		18,270		2,582		25,504		28,086		193			2,582		25,697		28,279		803	1979	06/12/03
Windjammer		19,145		7,345		22,623		29,968		22			7,345		22,645		29,990		712	1971	06/12/03
Huntington Vista		—		8,056		22,486		30,542		85			8,055		22,572		30,627		713	1970	06/12/03
Pacific Palms		—		12,285		6,237		18,522		102			12,291		6,333		18,624		170	1962	07/31/03
Missions at Back Bay		—		229		14,129		14,358		7			10,617		3,748		14,365		11	1969	12/16/03
Rancho Vallecitos		—		3,303		10,877		14,180		1,553			3,406		12,327		15,733		3,607	1988	10/13/99
SOUTHERN CALIFORNIA		48,757		73,273		205,033		278,306		23,910			87,428		214,788		302,216		19,960
Preston Oaks		—		1,784		6,416		8,200		917			1,962		7,155		9,117		2,055	1980	12/31/96
Rock Creek		—		4,077		15,823		19,900		5,208			4,670		20,438		25,108		6,371	1979	12/31/96
Windridge		—		3,414		14,027		17,441		3,786			4,095		17,132		21,227		5,241	1980	12/31/96
Catalina		—		1,543		5,632		7,175		1,154			1,693		6,636		8,329		1,875	1982	12/31/96
Wimbledon Court		—		1,809		10,930		12,739		2,597			2,861		12,475		15,336		3,383	1983	12/31/96
Lakeridge		—		1,631		5,669		7,300		1,389			1,856		6,833		8,689		2,127	1984	12/31/96
Summergate		—		1,171		3,929		5,100		921			1,421		4,600		6,021		1,469	1984	12/31/96
Oak Forest		23,540		5,631		23,294		28,925		11,076			6,418		33,583		40,001		10,123	1996/98	12/31/96
Oaks Of Lewisville		12,265		3,727		13,563		17,290		4,168			4,566		16,892		21,458		5,567	1983	03/27/97
Kelly Crossing		—		2,497		9,156		11,653		2,035			2,998		10,690		13,688		3,037	1984	06/18/97
Highlands Of Preston		—		2,151		8,168		10,319		1,925			2,494		9,750		12,244		2,630	1985	03/27/98
The Summit		8,575		1,932		9,041		10,973		1,931			2,346		10,558		12,904		2,646	1983	03/27/98
Springfield		5,810		3,075		6,823		9,898		1,406			3,284		8,020		11,304		2,152	1985	03/27/98
Meridian		—		6,013		29,094		35,107		1,053			6,397		29,763		36,160		4,073	2000/2002	1/27/98 & 12/28/01
Mandolin I		—		4,223		27,910		32,133		4,209			6,327		30,015		36,342		3,054	2001	12/28/01
DALLAS, TX		50,190		44,678		189,475		234,153		43,775			53,388		224,540		277,928		55,803
Woodtrail		—		1,543		5,457		7,000		2,720			1,756		7,964		9,720		3,009	1978	12/31/96
Park Trails		—		1,145		4,105		5,250		1,291			1,281		5,260		6,541		1,620	1983	12/31/96
Green Oaks		—		5,314		19,626		24,940		3,625			5,983		22,582		28,565		6,285	1985	06/25/97
Sky Hawk		—		2,298		7,158		9,456		2,145			2,733		8,868		11,601		3,003	1984	05/08/97
South Grand at Pecan Grove		19,509		4,058		14,756		18,814		5,452			4,914		19,352		24,266		5,614	1985	09/26/97
Breakers		—		1,527		5,298		6,825		2,527			1,923		7,429		9,352		2,406	1985	09/26/97
Braesridge		10,255		3,048		10,962		14,010		2,661			3,522		13,149		16,671		3,715	1982	09/26/97
Skylar Pointe		—		3,604		11,592		15,196		4,548			3,750		15,994		19,744		4,986	1979	11/20/97
Stone Canyon		—		900		—		900		9,468			1,327		9,041		10,368		1,934	1998	12/17/97
Briar Park		—		329		2,794		3,123		294			366		3,051		3,417		658	1987	03/27/98
Chelsea Park		5,390		1,991		5,788		7,779		2,282			2,446		7,615		10,061		2,172	1983	03/27/98
Clear Lake Falls		—		1,090		4,534		5,624		127			1,173		4,578		5,751		1,049	1980	03/27/98
Country Club Place		4,900		499		6,520		7,019		1,390			677		7,732		8,409		1,918	1985	03/27/98
Arbor Ridge		5,531		1,689		6,684		8,373		820			2,098		7,095		9,193		2,010	1983	03/27/98
London Park		6,125		2,018		6,668		8,686		2,231			2,510		8,407		10,917		2,461	1983	03/27/98
Marymont		—		1,151		4,155		5,306		943			1,181		5,068		6,249		1,150	1983	03/27/98
Nantucket Square		—		1,068		4,833		5,901		(329	)		1,082		4,490		5,572		936	1983	03/27/98
Riverway		—		523		2,828		3,351		348			568		3,131		3,699		810	1985	03/27/98
Riviera Pines		6,244		1,414		6,454		7,868		1,270			1,486		7,652		9,138		1,538	1979	03/27/98
The Gallery		—		769		3,359		4,128		285			794		3,619		4,413		712	1968	03/27/98
Towne Lake		—		1,334		5,309		6,643		1,672			1,628		6,687		8,315		1,921	1984	03/27/98
The Legend at Park 10		—		1,995		—		1,995		11,807			3,928		9,874		13,802		3,375	1998	05/19/98
The Bradford		—		1,151		40,830		41,981		37			6,616		35,402		42,018		259	1990/91	11/20/03
HOUSTON, TX		57,954		40,458		179,710		220,168		57,614			53,742		224,040		277,782		53,541
Dominion Middle Ridge		14,198		3,312		13,283		16,595		1,635			3,433		14,797		18,230		4,158	1990	06/25/96
Dominion Lake Ridge		9,142		2,366		8,386		10,752		1,277			2,548		9,481		12,029		2,988	1987	02/23/96
Presidential Greens		19,832		11,238		18,790		30,028		630			11,341		19,317		30,658		1,952	1938	05/15/02
Taylor Place		—		6,418		13,411		19,829		1,754			6,531		15,052		21,583		1,604	1962	04/17/02
Ridgewood Apartments		12,363		5,612		20,086		25,698		1,225			5,678		21,245		26,923		1,690	1988	08/26/02
Ridgewood Townhomes		—		4,507		16,263		20,770		227			4,510		16,487		20,997		1,321	1983	08/26/02
The Calvert		4,844		263		11,188		11,451		35			2,318		9,168		11,486		56	1962	11/26/03
Commons at Town Square		—		136		10,012		10,148		522			9,154		1,516		10,670		10	1971	12/03/03
Waterside Towers		—		874		46,852		47,726		199			34,621		13,304		47,925		72	1971	12/03/03
Waterside Townhomes		—		129		4,621		4,750		249			3,638		1,361		4,999		7	1971	12/03/03
Greens At Falls Run		—		2,731		5,300		8,031		1,176			2,897		6,310		9,207		2,086	1989	05/04/95
Manor At England Run		14,671		3,195		13,505		16,700		13,144			4,901		24,943		29,844		6,905	1990	05/04/95
METROPOLITAN DC		75,050		40,781		181,697		222,478		22,073			91,570		152,981		244,551		22,849
Vista Point		—		1,588		5,613		7,201		1,575			1,769		7,007		8,776		2,176	1986	12/31/96
Sierra Palms		—		4,639		17,361		22,000		776			4,760		18,016		22,776		4,496	1996	12/31/96
Northpark Village		—		1,519		13,537		15,056		2,021			1,879		15,198		17,077		3,936	1983	03/27/98
Stonegate		5,180		735		7,940		8,675		1,162			905		8,932		9,837		2,194	1978	03/27/98
Finisterra		—		1,274		26,392		27,666		717			1,351		27,032		28,383		5,561	1997	03/27/98
La Privada		15,400		7,303		18,508		25,811		2,299			7,849		20,261		28,110		4,786	1987	03/27/98
Terracina		22,413		3,757		34,781		38,538		7,156			4,589		41,105		45,694		10,341	1984	05/28/98
Woodland Park		—		3,017		6,706		9,723		1,178			3,264		7,637		10,901		2,310	1979	06/09/98
Sierra Foothills		12,691		2,728		—		2,728		18,850			4,843		16,735		21,578		5,894	1998	02/18/98
Villagio at McCormick Ranch		5,687		3,333		5,975		9,308		944			3,724		6,528		10,252		2,120	1980	01/18/01
Sierra Canyon		—		1,810		12,963		14,773		320			1,825		13,268		15,093		1,769	2001	12/28/01

UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)


			Initial Costs				Total		Cost of Improvements Capitalized		Gross Amount at Which Carried at Close of Period
			Land and		Buildings		Initial		Subsequent		Land and		Buildings		Total
			Land		and		Acquisition		to Acquisition		Land		and		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		(Net of Disposals)		Improvements		Improvements		Value (A)		Depreciation (B)		Construction	Acquired
PHOENIX, AZ		61,371		31,703		149,776		181,479		36,998		36,758		181,719		218,477		45,583
Fisherman’s Village		—		2,387		7,459		9,846		3,797		3,153		10,490		13,643		4,481	1984	12/29/95
Seabrook		—		1,846		4,155		6,001		3,247		2,332		6,916		9,248		3,243	1984	02/20/96
Dover Village		—		2,895		6,456		9,351		4,191		3,451		10,091		13,542		5,213	1981	03/31/93
Lakeside North		—		1,533		11,076		12,609		5,284		2,280		15,613		17,893		6,443	1984	04/14/94
Regatta Shore		—		757		6,607		7,364		7,184		1,549		12,999		14,548		4,481	1988	06/30/94
Alafaya Woods		8,725		1,653		9,042		10,695		2,423		2,132		10,986		13,118		4,506	1988/90	10/21/94
Vinyards		8,300		1,840		11,572		13,412		3,645		2,424		14,633		17,057		5,882	1984/86	10/31/94
Andover Place		13,135		3,692		7,757		11,449		3,530		4,511		10,468		14,979		4,418	1988	09/29/95 & 09/30/96
Los Altos		12,199		2,804		12,349		15,153		3,024		3,350		14,827		18,177		4,726	1990	10/31/96
Lotus Landing		—		2,185		8,639		10,824		2,174		2,417		10,581		12,998		2,893	1985	07/01/97
Seville On The Green		—		1,282		6,498		7,780		2,257		1,483		8,554		10,037		2,342	1986	10/21/97
Arbors @ Lee Vista		13,383		3,976		16,920		20,896		2,163		4,394		18,665		23,059		4,486	1991	12/31/97
Heron Lake		8,603		1,446		9,288		10,734		1,419		1,620		10,533		12,153		2,617	1989	03/27/98
Ashton @ Waterford		14,945		3,872		17,538		21,410		317		3,911		17,816		21,727		4,682	2000	05/28/98
ORLANDO, FL		79,290		32,168		135,356		167,524		44,655		39,007		173,172		212,179		60,413
Dominion on Spring Forest		—		1,257		8,586		9,843		4,602		1,733		12,712		14,445		6,714	1978/81	05/21/91
Dominion Park Green		—		500		4,322		4,822		1,919		720		6,021		6,741		2,990	1987	09/27/91
Dominion on Lake Lynn		16,250		3,622		12,405		16,027		4,287		4,194		16,120		20,314		5,753	1986	12/01/92
Dominion Courtney Place		—		1,115		5,119		6,234		3,631		1,471		8,394		9,865		3,801	1979/81	07/08/93
Dominion Walnut Ridge		9,515		1,791		11,969		13,760		2,610		2,198		14,172		16,370		5,344	1982/84	03/04/94
Dominion Walnut Creek		17,050		3,170		21,717		24,887		4,394		3,746		25,535		29,281		9,139	1985/86	05/17/94
Dominion Ramsgate		—		908		6,819		7,727		1,355		1,049		8,033		9,082		2,311	1988	08/15/96
Copper Mill		—		1,548		16,067		17,615		1,153		1,841		16,927		18,768		4,236	1997	12/31/96
Trinity Park		15,778		4,580		17,576		22,156		1,493		4,635		19,014		23,649		4,698	1987	02/28/97
Meadows at Kildaire		—		2,846		20,768		23,614		1,983		6,916		18,681		25,597		3,616	2000	05/25/00
Oaks at Weston		—		9,944		23,306		33,250		503		10,147		23,606		33,753		2,365	2001	06/28/02
RALEIGH, NC		58,593		31,281		148,654		179,935		27,930		38,650		169,215		207,865		50,967
Bay Cove		—		2,929		6,578		9,507		4,495		3,528		10,474		14,002		5,304	1972	12/16/92
Summit West		—		2,176		4,710		6,886		2,980		2,528		7,338		9,866		3,929	1972	12/16/92
Pinebrook		—		1,780		2,458		4,238		3,374		2,026		5,586		7,612		3,470	1977	09/28/93
Lakewood Place		10,300		1,395		10,647		12,042		1,743		1,650		12,135		13,785		4,495	1986	03/10/94
Hunters Ridge		10,232		2,462		10,942		13,404		2,128		3,006		12,526		15,532		4,411	1992	06/30/95
Bay Meadow		—		2,892		9,254		12,146		2,956		3,438		11,664		15,102		3,821	1985	12/09/96
Cambridge		—		1,791		7,166		8,957		1,759		2,116		8,600		10,716		2,606	1985	06/06/97
Laurel Oaks		—		1,362		6,542		7,904		1,509		1,551		7,862		9,413		2,319	1986	07/01/97
Parker’s Landing		28,360		10,178		37,869		48,047		2,571		9,358		41,260		50,618		7,825	1991	12/07/98
Sugar Mill Creek		7,420		2,242		7,553		9,795		925		2,389		8,331		10,720		1,716	1988	12/07/98
Inlet Bay		—		7,702		23,150		30,852		398		7,724		23,526		31,250		756	1988/89	06/30/03
TAMPA, FL		56,312		36,909		126,869		163,778		24,838		39,314		149,302		188,616		40,652
Autumnwood		—		2,412		8,688		11,100		1,614		2,745		9,969		12,714		2,925	1984	12/31/96
Cobblestone		—		2,925		10,527		13,452		3,380		3,199		13,633		16,832		4,043	1984	12/31/96
Pavillion		—		4,428		19,033		23,461		2,187		4,787		20,861		25,648		5,596	1979	12/31/96
Oak Park		16,236		3,966		22,228		26,194		963		5,576		21,581		27,157		6,776	1982/98	12/31/96
Parc Plaza		—		1,684		5,279		6,963		1,814		2,182		6,595		8,777		2,203	1986	10/30/97
Summit Ridge		7,700		1,726		6,308		8,034		1,715		2,226		7,523		9,749		2,262	1983	03/27/98
Greenwood Creek		—		1,958		8,551		10,509		1,851		2,310		10,050		12,360		2,654	1984	03/27/98
Derby Park		11,130		3,121		11,765		14,886		2,028		3,795		13,119		16,914		3,606	1984	03/27/98
Aspen Court		3,990		777		4,945		5,722		1,103		1,100		5,725		6,825		1,571	1986	03/27/98
The Cliffs		—		3,484		18,657		22,141		1,557		3,776		19,922		23,698		2,497	1992	01/29/02
ARLINGTON, TX		39,056		26,481		115,981		142,462		18,212		31,696		128,978		160,674		34,133
Sycamore Ridge		13,160		4,068		15,433		19,501		1,316		4,259		16,558		20,817		3,483	1997	07/02/98
Heritage Green		—		2,990		11,392		14,382		9,588		3,134		20,836		23,970		4,479	1998	07/02/98
Alexander Court		—		1,573		—		1,573		21,536		6,218		16,891		23,109		4,887	1999	07/02/98
Governour’s Square		28,167		7,513		28,695		36,208		3,492		7,903		31,797		39,700		6,537	1967	12/07/98
Hickory Creek		—		3,421		13,539		16,960		1,381		3,544		14,797		18,341		2,999	1988	12/07/98
Britton Woods		—		3,477		19,214		22,691		2,056		4,083		20,664		24,747		4,793	1991	04/20/01
COLUMBUS, OH		41,327		23,042		88,273		111,315		39,369		29,141		121,543		150,684		27,178
2000 Post Street		—		9,861		44,578		54,439		943		9,958		45,424		55,382		6,351	1987	12/07/98
Birch Creek		7,607		4,365		16,696		21,061		1,441		4,621		17,881		22,502		3,208	1968	12/07/98
Highlands Of Marin		—		5,996		24,868		30,864		976		6,082		25,758		31,840		4,225	1991	12/07/98
Marina Playa		13,173		6,224		23,916		30,140		2,180		6,489		25,831		32,320		4,763	1971	12/07/98
SAN FRANCISCO, CA		20,780		26,446		110,058		136,504		5,540		27,150		114,894		142,044		18,547
Boronda Manor		—		1,946		8,982		10,928		5,934		3,044		13,818		16,862		1,756	1979	12/07/98
Garden Court		—		888		4,188		5,076		2,868		1,392		6,552		7,944		865	1973	12/07/98
Harding Park Townhomes		—		549		2,051		2,600		1,621		866		3,355		4,221		407	1984	12/07/98
Cambridge Court		—		3,039		12,883		15,922		9,346		4,783		20,485		25,268		2,745	1974	12/07/98
Laurel Tree		—		1,304		5,115		6,419		3,788		2,006		8,201		10,207		1,098	1977	12/07/98
The Pointe at Harden Ranch		—		6,389		23,854		30,243		16,423		9,455		37,211		46,666		4,680	1986	12/07/98
The Pointe at Northridge		—		2,044		8,029		10,073		5,987		3,160		12,900		16,060		1,641	1979	12/07/98
The Pointe at Westlake		—		1,329		5,334		6,663		3,771		2,032		8,402		10,434		1,089	1975	12/07/98
MONTEREY PENINSULA, CA		—		17,488		70,436		87,924		49,738		26,738		110,924		137,662		14,281
Dominion Olde West		—		1,965		12,204		14,169		2,916		2,395		14,690		17,085		7,692	1978/82/84/85/87	12/31/84 & 8/27/91

UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)


			Initial Costs				Total		Cost of Improvements Capitalized		Gross Amount at Which Carried at Close of Period
			Land and		Buildings		Initial		Subsequent		Land and		Buildings		Total
			Land		and		Acquisition		to Acquisition		Land		and		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		(Net of Disposals)		Improvements		Improvements		Value (A)		Depreciation (B)		Construction	Acquired
Dominion Creekwood		—		—		—		—		1,428		51		1,377		1,428		401	1984	08/27/91
Dominion Laurel Springs		—		464		3,120		3,584		1,661		645		4,600		5,245		2,262	1972	09/06/91
Dominion English Hills		20,044		1,979		11,524		13,503		6,177		2,865		16,815		19,680		8,570	1969/76	12/06/91
Dominion Gayton Crossing		10,400		826		5,148		5,974		6,561		1,286		11,249		12,535		6,604	1973	09/28/95
Dominion West End		16,493		2,059		15,049		17,108		3,285		2,741		17,652		20,393		5,910	1989	12/28/95
Courthouse Green		8,085		732		4,702		5,434		2,573		1,103		6,904		8,007		4,223	1974/78	12/31/84
Waterside at Ironbridge		11,635		1,844		13,239		15,083		1,048		2,036		14,095		16,131		3,294	1987	09/30/97
Carriage Homes at Wyndham		—		474		30,996		31,470		48		3,640		27,878		31,518		169	1998	11/25/03
RICHMOND, VA		66,657		10,343		95,982		106,325		25,697		16,762		115,260		132,022		39,125
Legacy Hill		—		1,148		5,868		7,016		3,236		1,457		8,795		10,252		3,596	1977	11/06/95
Hickory Run		—		1,469		11,584		13,053		2,503		1,757		13,799		15,556		4,325	1989	12/29/95
Carrington Hills		—		2,117		—		2,117		24,756		3,750		23,123		26,873		5,967	1999	12/06/95
Brookridge		—		707		5,461		6,168		1,679		943		6,904		7,847		2,363	1986	03/28/96
Club at Hickory Hollow		—		2,140		15,231		17,371		2,466		2,744		17,093		19,837		4,927	1987	02/21/97
Breckenridge		—		766		7,714		8,480		1,001		969		8,512		9,481		2,323	1986	03/27/97
Williamsburg		—		1,376		10,931		12,307		1,802		1,645		12,464		14,109		3,139	1986	05/20/98
Colonnade		—		1,460		16,015		17,475		780		1,639		16,616		18,255		3,276	1998	01/07/99
NASHVILLE, TN		—		11,183		72,804		83,987		38,223		14,904		107,306		122,210		29,916
Dominion Peppertree		—		1,546		7,699		9,245		1,953		1,815		9,383		11,198		4,004	1987	12/14/93
Dominion Harris Pond		—		887		6,728		7,615		1,533		1,250		7,898		9,148		2,945	1987	07/01/94
Dominion Mallard Creek		—		699		6,488		7,187		928		709		7,406		8,115		2,464	1989	08/16/94
Dominion At Sharon		—		667		4,856		5,523		1,163		917		5,769		6,686		1,878	1984	08/15/96
Providence Court		—		—		22,048		22,048		10,007		7,544		24,511		32,055		6,910	1997	09/30/97
Stoney Pointe		11,917		1,500		15,856		17,356		1,702		1,776		17,282		19,058		4,580	1991	02/28/97
Dominion Crown Point		—		2,122		22,339		24,461		2,367		3,933		22,895		26,828		7,972	1987/2000	07/01/94
CHARLOTTE, NC		11,917		7,421		86,014		93,435		19,653		17,944		95,144		113,088		30,753
Beechwood		—		1,409		6,087		7,496		1,541		1,679		7,358		9,037		2,925	1985	12/22/93
Steeplechase		—		3,208		11,514		14,722		12,844		3,985		23,581		27,566		6,225	1990/97	03/07/96
Northwinds		—		1,558		11,736		13,294		1,374		1,776		12,892		14,668		3,777	1989/97	08/15/96
Deerwood Crossings		—		1,540		7,989		9,529		1,538		1,716		9,351		11,067		3,057	1973	08/15/96
Dutch Village		—		1,197		4,826		6,023		980		1,312		5,691		7,003		1,971	1970	08/15/96
Lake Brandt		—		1,547		13,490		15,037		986		1,833		14,190		16,023		4,180	1995	08/15/96
Park Forest		—		680		5,770		6,450		755		877		6,328		7,205		1,797	1987	09/26/96
Deep River Pointe		—		1,671		11,140		12,811		543		1,821		11,533		13,354		2,807	1997	10/01/97
GREENSBORO, NC		—		12,810		72,552		85,362		20,561		14,999		90,924		105,923		26,739
Cape Harbor		—		1,892		18,113		20,005		1,718		2,289		19,434		21,723		5,478	1996	08/15/96
Mill Creek		—		1,404		4,489		5,894		13,997		1,951		17,940		19,891		5,639	1986/98	09/30/91
The Creek		—		418		2,506		2,924		1,998		508		4,414		4,922		2,449	1973	06/30/92
Forest Hills		—		1,028		5,421		6,449		2,768		1,209		8,008		9,217		3,707	1964/69	06/30/92
Clear Run		—		875		8,741		9,616		6,110		1,293		14,433		15,726		4,940	1987/89	07/22/94
Crosswinds		—		1,096		18,230		19,326		1,426		1,240		19,512		20,752		5,153	1990	02/28/97
WILMINGTON , NC		—		6,713		57,500		64,213		28,018		8,490		83,741		92,231		27,366
Gatewater Landing		—		2,078		6,085		8,163		1,973		2,225		7,911		10,136		3,397	1970	12/16/92
Dominion Kings Place		4,215		1,565		7,007		8,572		1,156		1,653		8,075		9,728		3,184	1983	12/29/92
Dominion at Eden Brook		7,205		2,361		9,384		11,745		1,716		2,476		10,985		13,461		4,350	1984	12/29/92
Dominion Great Oaks		11,446		2,920		9,100		12,020		4,148		4,287		11,881		16,168		5,191	1974	07/01/94
Dominion Constant Friendship		—		903		4,669		5,572		996		1,067		5,501		6,568		1,900	#N/A	#N/A
Lakeside Mill		4,886		2,666		10,109		12,775		785		2,702		10,858		13,560		3,247	1989	12/10/99
Tamar Meadow		—		4,145		17,149		21,294		536		4,172		17,658		21,830		1,158	1990	11/22/02
BALTIMORE, MD		27,752		16,638		63,503		80,141		11,310		18,582		72,869		91,451		22,427
Stanford Village		—		885		2,808		3,693		1,546		1,197		4,042		5,239		2,463	1985	09/26/89
Griffin Crossing		—		1,510		7,544		9,054		1,936		1,878		9,112		10,990		3,646	1987/89	06/08/94
Gwinnett Square		8,851		1,924		7,376		9,300		2,238		2,211		9,327		11,538		3,278	1985	03/29/95
Dunwoody Pointe		9,870		2,763		6,903		9,666		5,019		3,353		11,332		14,685		4,996	1980	10/24/95
Riverwood		11,725		2,986		11,088		14,074		4,391		3,507		14,958		18,465		5,746	1980	06/26/96
Waterford Place		—		1,579		10,303		11,882		638		1,672		10,848		12,520		2,335	1985	04/15/98
ATLANTA, GA		30,446		11,647		46,022		57,669		15,768		13,818		59,619		73,437		22,464
Gable Hill		—		825		5,307		6,132		1,731		1,197		6,666		7,863		3,426	1985	12/04/89
St. Andrews Commons		—		1,429		9,371		10,800		2,065		1,908		10,957		12,865		4,744	1986	05/20/93
Forestbrook		5,000		396		2,902		3,298		1,982		568		4,712		5,280		2,723	1974	07/01/93
Waterford		—		958		6,948		7,906		1,849		1,315		8,440		9,755		3,278	1985	07/01/94
Hampton Greene		—		1,363		10,118		11,481		1,773		1,920		11,334		13,254		4,167	1990	08/19/94
Rivergate		—		1,122		12,056		13,178		1,552		1,472		13,258		14,730		3,817	1989	08/15/96
COLUMBIA, SC		5,000		6,093		46,702		52,795		10,952		8,380		55,367		63,747		22,155
Greentree		12,455		1,634		11,227		12,861		4,590		2,377		15,074		17,451		6,071	1986	07/22/94
Westland		10,747		1,835		14,865		16,700		4,341		2,700		18,341		21,041		6,620	1990	05/09/96
Antlers		—		4,034		11,193		15,227		6,274		4,919		16,582		21,501		6,425	1985	05/28/96
JACKSONVILLE, FL		23,202		7,503		37,285		44,788		15,205		9,996		49,997		59,993		19,116
Forest Lake at Oyster Point		—		780		8,862		9,642		2,260		1,198		10,704		11,902		3,957	1986	08/15/95
Woodscape		—		799		7,209		8,008		2,750		1,810		8,948		10,758		5,357	1974/76	12/29/87
Eastwind		—		155		5,317		5,472		1,566		408		6,630		7,038		3,404	1970	04/04/88
Dominion Waterside at Lynnhaven		—		1,824		4,107		5,931		1,508		2,039		5,400		7,439		2,021	#N/A	#N/A

UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)


			Initial Costs				Total		Cost of Improvements Capitalized			Gross Amount at Which Carried at Close of Period
			Land and		Buildings		Initial		Subsequent			Land and		Buildings		Total
			Land		and		Acquisition		to Acquisition			Land		and		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		(Net of Disposals)			Improvements		Improvements		Value (A)		Depreciation (B)		Construction	Acquired
Heather Lake		—		617		3,400		4,017		3,848			1,027		6,838		7,865		5,256	1972/74	03/01/80
Dominion Yorkshire Downs		7,359		1,089		8,582		9,671		1,014			1,303		9,382		10,685		2,259	1987	12/23/97
NORFOLK, VA		7,359		5,264		37,477		42,741		12,946			7,785		47,902		55,687		22,254
2900 Place		—		1,819		5,593		7,412		568			1,844		6,136		7,980		1,175	1966	12/07/98
Brandywine Creek		14,140		4,666		17,514		22,180		(1,084	)		4,799		16,297		21,096		3,337	1974	12/07/98
Lakewood		4,130		1,113		3,878		4,991		815			1,236		4,570		5,806		976	1974	12/07/98
Nemoke Trail		13,300		3,431		12,223		15,654		1,242			3,520		13,376		16,896		2,646	1978	12/07/98
LANSING, MI		31,570		11,029		39,208		50,237		1,541			11,399		40,379		51,778		8,134
Arbor Terrace		9,800		1,453		11,995		13,448		722			1,507		12,663		14,170		2,967	1996	03/27/98
Crowne Pointe		8,330		2,486		6,437		8,923		1,334			2,532		7,725		10,257		1,706	1987	12/07/98
Hilltop		7,700		2,174		7,408		9,582		618			2,330		7,870		10,200		1,563	1985	12/07/98
SEATTLE, WA		25,830		6,113		25,840		31,953		2,674			6,369		28,258		34,627		6,236
Greensview		—		6,450		24,405		30,855		2,414			6,048		27,221		33,269		4,998	1987/2002	12/07/98
Mountain View		—		6,402		21,569		27,971		2,526			6,380		24,117		30,497		4,889	1973	12/07/98
The Reflections		—		6,305		27,202		33,507		1,196			6,424		28,279		34,703		2,949	1981/1996	04/30/02
Foothills Tennis Village		15,820		3,618		14,542		18,160		1,129			3,734		15,555		19,289		2,848	1988	12/07/98
Woodlake Village		30,900		6,772		26,967		33,739		2,247			7,020		28,966		35,986		5,715	1979	12/07/98
OTHER WESTERN		46,720		29,547		114,685		144,232		9,512			29,606		124,138		153,744		21,399
Lancaster Commons		7,910		2,485		7,451		9,936		516			2,509		7,943		10,452		1,740	1992	12/07/98
Tualatin Heights		10,090		3,273		9,134		12,407		851			3,377		9,881		13,258		2,162	1989	12/07/98
University Park		—		3,007		8,191		11,198		547			3,021		8,724		11,745		1,672	1987	03/27/98
Evergreen Park Apartments		5,074		3,878		9,973		13,851		1,105			3,923		11,033		14,956		2,452	1988	03/27/98
Aspen Creek		6,654		1,178		9,116		10,294		382			1,272		9,404		10,676		1,755	1996	12/07/98
Beaumont		10,640		2,339		12,559		14,898		607			2,393		13,112		15,505		3,601	1996	06/14/00
Stonehaven		8,537		6,471		29,536		36,007		803			6,481		30,329		36,810		3,015	1989/1990	05/28/02
Campus Commons		—		1,144		12,873		14,017		(1,963	)		1,264		10,790		12,054		2,898	1972	03/27/98
OTHER PACIFIC		48,905		23,775		98,833		122,608		2,848			24,240		101,216		125,456		19,295
Inn @ Los Patios		—		3,005		11,545		14,550		(1,491	)		3,005		10,054		13,059		1,806	1990	08/15/98
Pecan Grove		—		1,407		5,293		6,700		674			1,481		5,893		7,374		1,507	1984	12/31/96
Anderson Mill		9,765		3,134		11,170		14,304		3,861			3,515		14,650		18,165		5,193	1984	03/27/97
Red Stone Ranch		—		1,897		17,526		19,423		305			5,390		14,338		19,728		3,257	2000	06/14/00
Barton Creek Landing		—		3,151		14,269		17,420		851			3,155		15,116		18,271		1,660	1986	03/28/02
Turtle Creek		—		1,913		7,087		9,000		1,138			2,216		7,922		10,138		2,374	1985	12/31/96
Shadow Lake		—		2,524		8,976		11,500		1,667			2,851		10,316		13,167		3,191	1984	12/31/96
OTHER SOUTHWESTERN		9,765		17,031		75,866		92,897		7,005			21,613		78,289		99,902		18,988
Colony Village		—		347		3,037		3,384		2,230			580		5,034		5,614		3,477	1972/74	12/31/84
Brynn Marr		—		433		3,821		4,254		2,823			731		6,346		7,077		4,295	1973/77	12/31/84
Liberty Crossing		—		840		3,873		4,713		3,285			1,492		6,506		7,998		4,346	1972/74	11/30/90
Bramblewood		—		402		3,151		3,553		1,843			588		4,808		5,396		3,194	1980/82	12/31/84
Cumberland Trace		—		632		7,896		8,528		1,242			725		9,045		9,770		2,627	1973	08/15/96
Village At Cliffdale		11,550		941		15,498		16,439		1,586			1,197		16,828		18,025		4,625	1992	08/15/96
Morganton Place		—		819		13,217		14,036		765			894		13,907		14,801		3,586	1994	08/15/96
Woodberry		—		389		6,381		6,770		1,563			1,009		7,324		8,333		2,392	1987	08/15/96
OTHER NORTH CAROLINA		11,550		4,803		56,874		61,677		15,337			7,216		69,798		77,014		28,542
Washington Park		—		2,011		7,565		9,576		1,187			2,150		8,613		10,763		1,866	1998	12/07/98
Fountainhead		—		391		1,420		1,811		268			406		1,673		2,079		405	1966	12/07/98
Jamestown of Toledo		5,110		1,800		7,054		8,854		1,425			1,949		8,330		10,279		1,714	1965	12/07/98
American Heritage		3,640		1,021		3,958		4,979		449			1,047		4,381		5,428		878	1968	12/07/98
Ashton Pines		—		1,822		8,014		9,836		678			1,849		8,665		10,514		1,615	1987	12/07/98
Kings Gate		4,620		1,181		4,829		6,010		555			1,253		5,312		6,565		1,021	1973	12/07/98
Lancaster Lake		12,950		4,238		14,663		18,901		1,253			4,364		15,790		20,154		3,029	1988	12/07/98
OTHER MIDWESTERN		26,320		12,464		47,503		59,967		5,815			13,018		52,764		65,782		10,528
Jamestown of St. Matthews		11,970		3,866		14,422		18,288		1,478			3,975		15,791		19,766		3,167	1968	12/07/98
Patriot Place		—		213		1,601		1,814		5,888			1,516		6,186		7,702		4,289	1974	10/23/85
The Trails at Mount Moriah		16,650		5,931		22,095		28,026		4,162			6,519		25,669		32,188		6,037	1990	01/09/98
OTHER SOUTHEASTERN		28,620		10,010		38,118		48,128		11,528			12,010		47,646		59,656		13,493
Mallards of Wedgewood		—		959		6,865		7,824		2,140			1,263		8,701		9,964		3,183	1985	07/27/95
The Groves		—		790		4,767		5,557		1,975			1,461		6,071		7,532		2,512	1989	12/13/95
Lakeside		—		2,404		6,420		8,824		1,470			2,588		7,706		10,294		2,285	1985	07/01/97
Mallards of Brandywine		—		766		5,408		6,174		1,533			989		6,718		7,707		2,038	1985	07/01/97
LakePointe		—		1,435		4,940		6,375		2,600			1,792		7,183		8,975		3,491	1984	09/24/93
OTHER FLORIDA		—		6,354		28,400		34,754		9,718			8,093		36,379		44,472		13,509
Greens at Hollymead		—		965		5,250		6,215		909			1,095		6,029		7,124		1,970	1990	05/04/95
Brittingham Square		—		650		4,962		5,612		907			815		5,704		6,519		1,895	1991	05/04/95
Greens at Schumaker Pond		—		710		6,118		6,828		1,064			879		7,013		7,892		2,361	1988	05/04/95
Greens at Cross Court		—		1,182		4,544		5,726		1,230			1,385		5,571		6,956		1,944	1987	05/04/95
Greens at Hilton Run		12,542		2,755		10,483		13,238		1,954			3,120		12,072		15,192		4,015	1988	05/04/95
OTHER MID-ATLANTIC		12,542		6,262		31,357		37,619		6,064			7,294		36,389		43,683		12,185
Dover Country		—		2,008		6,365		8,373		2,836			2,366		8,843		11,209		3,768	1970	07/01/94
Greens at Cedar Chase		5,167		1,528		4,831		6,359		833			1,732		5,460		7,192		1,943	1988	05/04/95

UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)


			Initial Costs				Total		Cost of Improvements Capitalized		Gross Amount at Which Carried at Close of Period
			Land and		Buildings		Initial		Subsequent		Land and		Buildings		Total
			Land		and		Acquisition		to Acquisition		Land		and		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		(Net of Disposals)		Improvements		Improvements		Value (A)		Depreciation (B)		Construction	Acquired
OTHER NORTHEASTERN		5,167		3,536		11,196		14,732		3,669		4,098		14,303		18,401		5,711

TOTAL APARTMENTS	$	1,008,002	$	651,247	$	2,885,039	$	3,536,286	$	668,696	$	831,198	$	3,373,784	$	4,204,982	$	864,242

REAL ESTATE HELD FOR DISPOSITION
Apartments
Pine Grove	$	—	$	1,383	$	5,784	$	7,167	$	4,736	$	2,174	$	9,729	$	11,903		1,063	1963	12/07/98
The Highlands		—		321		2,830		3,151		2,973		715		5,409		6,124		3,978	1970	01/17/84
Emerald Bay		—		626		4,723		5,349		5,262		1,284		9,327		10,611		4,930	1972	02/06/90
Chateau Village		—		1,047		6,979		8,026		2,725		1,474		9,277		10,751		3,460	1974	08/15/96
Brantley Pines		—		1,893		8,248		10,141		5,202		858		14,485		15,343		6,891	1986	08/11/94
Ashlar		—		3,952		11,718		15,670		16,966		7,965		24,671		32,636		5,908	1999/2000	12/24/97
River Place		6,142		1,097		7,492		8,589		2,681		1,806		9,464		11,270		4,020	1988	04/08/94
Sunset Village		—		797		1,829		2,626		504		890		2,240		3,130		679	1940	12/07/98

Total Apartments		6,142		11,116		49,603		60,719		41,049		17,166		84,602		101,768		30,929
Land		—		—		—
Fossil Creek		—		3,821		—		3,821		2		3,683		140		3,823		—

	$	6,142	$	14,937	$	49,603	$	64,540	$	41,051	$	20,849	$	84,742	$	105,591	$	30,929

REAL ESTATE UNDER DEVELOPMENT
Apartments
Rancho Cucamongo	$	—	$	13,557	$	2,661	$	16,218	$	—	$	13,557	$	2,661	$	16,218	$	—
2000 Post III		—		1,756		742		2,498		—		1,756		742		2,498		—
Mandalay on the Lake		—		3,876		—		3,876		—		3,009		867		3,876		—

Total Apartments		—		19,189		3,403		22,592		—		18,322		4,270		22,592		—
Land Copper Mill II		—		835		—		835		—		719		116		835		—
Parkers Landing Phase II		—		1,141		—		1,141		—		1,116		25		1,141		—
Wimbledon Court II		—		660		—		660		—		377		283		660		—
Coit Road		—		2,879		—		2,879		—		2,433		446		2,879		—
Coit Road II		—		2,048		—		2,048		—		1,843		205		2,048		—
Mountain View Phase II		—		220		—		220		—		220		—		220		—

Total Land		—		7,783		—		7,783		—		6,708		1,075		7,783		—

	$	—	$	26,972	$	3,403	$	30,375	$	—	$	25,030	$	5,345	$	30,375	$	—

COMMERCIAL HELD FOR INVESTMENT
Hanover Village	$	—	$	1,624	$	—	$	1,624	$	—	$	1,104	$	520	$	1,624		476	—	06/30/86
The Calvert		—		34		1,597		1,631		—		326		1,305		1,631		8	1962	11/26/03

Total Commercial		—		1,658		1,597		3,255		—		1,430		1,825		3,255		484
Richmond — Corporate		3,884		245		6,352		6,597		751		278		7,070		7,348		975	1999	11/30/99

	$	3,884	$	1,903	$	7,949	$	9,852	$	751	$	1,708	$	8,895	$	10,603	$	1,459

TOTAL REAL ESTATE OWNED	$	1,018,028	$	695,059	$	2,945,994	$	3,641,053	$	710,498	$	878,785	$	3,472,766	$	4,351,551	$	896,630

(A) The aggregate cost for federal income tax purposes was approximately $3.6 billion at December 31, 2003.

(B) The depreciable life for buildings is 35 years.

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(Dollars in thousands)


Years ended December 31,	2003		2002		2001		2000		1999
Income before discontinued operations, net of minority interests	$	48,188	$	9,369	$	23,232	$	25,247	$	53,528
Add:
Portion of rents representative of the interest factor		651		691		794		866		928
Minority interests		750		234		1,394		656		2,498
Loss on equity investment in joint venture		—		—		254		111		—
Interest on indebtedness from continuing operations		117,185		130,815		139,496		151,899		149,286

Earnings	$	166,774	$	141,109	$	165,170	$	178,779	$	206,240

Fixed charges and preferred stock dividend:
Interest on indebtedness from continuing operations	$	117,185	$	130,815	$	139,496	$	151,899	$	149,286
Capitalized interest		1,808		931		2,925		3,650		5,153
Portion of rents representative of the interest factor		651		691		794		866		928

Fixed charges		119,644		132,437		143,215		156,415		155,367

Add:
Preferred stock dividend		26,326		27,424		31,190		36,891		37,714
Accretion of preferred stock		19,271		—		—		—		—

Preferred stock dividend		45,597		27,424		31,190		36,891		37,714
Combined fixed charges and preferred stock dividend	$	165,241	$	159,861	$	174,405	$	193,306	$	193,081

Ratio of earnings to fixed charges		1.39x		1.07x		1.15x		1.14x		1.33x
Ratio of earnings to combined fixed charges and preferred stock dividend		1.01x		—		—		—		1.07x

For the year ended December 31, 2002, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $18.8 million.

For the year ended December 31, 2001, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $9.2 million.

For the year ended December 31, 2000, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $14.5 million.


Maryland	1-10524	54-0857512

(State or Other Jurisdiction of Incorporation)	(Commission File No.)	(IRS Employer Identification No.)


	ITEM 5. Other Events
	ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
Signatures
Exhibit Index
Consent of Independent Auditors
Updated Financial Information


Exhibit No.		Description
23.1		Consent of Independent Auditors

99.1		Updated financial information for the years ended December 31, 2003, 2002, and 2001


	UNITED DOMINION REALTY TRUST, INC.
Date: May 14, 2004	/s/ Christopher D. Genry
	Christopher D. Genry
	Executive Vice President and Chief Financial Officer



Date: May 14, 2004	/s/ Scott A. Shanaberger
	Scott A. Shanaberger
	Senior Vice President and Chief Accounting Officer

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


Index To Exhibit 99.1	Page Number
Selected Financial Data		7
Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Financial Statements and Supplementary Data		26
Financial Statement Schedule — Schedule III — Summary of Real Estate Owned		56
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends		61


Exhibit No		Description
23.1		Consent of Independent Auditors
99.1		Updated financial information for the years ended December 31, 2003, 2002, and 2001


Registration Statement Number		Description
33-40433		Form S-3, pertaining to the registration of 900,000 shares of Common Stock.

33-58201		Form S-8, pertaining to the Employee’s Stock Purchase Plan.

333-11207		Form S-3, pertaining to the registration of 1,679,840 shares of Common Stock.

333-15133		Form S-3, pertaining to the Dividend Reinvestment and Stock Purchase Plan.

333-32829		Form S-8, pertaining to the Stock Purchase and Loan Plan.

333-44463		Form S-3, pertaining to the Dividend Reinvestment and Stock Purchase Plan.

333-48557		Form S-3, pertaining to the registration of 104,920 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

333-53401		Form S-3, pertaining to the registration of 1,528,089 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

333-58600		Form S-8, pertaining to the Employee’s Stock Purchase Plan.

333-64281		Form S-3, pertaining to the registration of 849,498 shares of Common Stock, including rights to Purchase Series C Junior Participating Redeemable Preferred Stock.

333-72885		Form S-3, pertaining to the registration of 130,416 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

333-75897		Form S-8, pertaining to the 1999 Long Term Incentive Plan.

333-77107		Form S-3, pertaining to the registration of 1,023,732 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

333-77161		Form S-3, pertaining to the registration of 481,251 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.


Registration Statement Number		Description
333-80279		Form S-8, pertaining to the Company’s 1999 Open Market Purchase Program.

333-82929		Form S-3, pertaining to the registration of 95,119 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

333-86808		Form S-3, pertaining to the registration of 12,307,692 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

333-101611		Form S-3, Shelf Registration Statement, pertaining to the registration of $1 billion of Common Stock, Preferred Stock and Debt Securities.

333-106959		Form S-3, pertaining to the registration of 3,425,217 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock.

(a)		Funds from operations (“FFO”) is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, 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 April 2002. We consider FFO in evaluating property acquisitions and our operating performance and believe that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of our activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 2001, FFO includes a non-recurring charge of $8.6 million related to workforce reductions, other severance costs, executive office relocation costs, and the write down of seven undeveloped land sites along with our investment in an online apartment leasing company. For 2000, FFO includes a non-recurring charge of $3.7 million related to the settlement of litigation and an organizational charge.

(b)		Gains on the disposition of real estate investments developed for sale is defined as net sales proceeds less a tax provision (such development by REITs must be conducted in a taxable REIT subsidiary) and the gross investment basis of the asset before accumulated depreciation. We consider FFO with gains (or losses) on real estate development for sale to be a meaningful supplemental measure of performance because of the short-term use of funds to produce a profit which differs from the traditional long-term investment in real estate for REITs.

(c)		Reclassified to conform to current year presentation as described in Note 3 to the consolidated financial statements.

	•		Repaid $40.0 million of secured debt and $214.6 million of unsecured debt.

	•		Sold 2.0 million shares of common stock at a public offering price of $15.71 per share under our $1 billion shelf registration statement in January 2003. The net proceeds of $31.2 million were used to repay debt and for general corporate purposes.

	•		Sold $150 million aggregate principal amount of 4.50% medium-term notes due March 2008 in February 2003 under our medium-term note program. The net proceeds of $149.3 million were used to repay debt.

	•		Negotiated a new $500 million unsecured revolving credit facility to replace our $375 million unsecured revolver and $100 million unsecured term loan in March 2003. The credit facility’s interest rate is 25 and 30 basis points lower than the previous unsecured revolver and term loan, respectively.

	•		Sold 3.0 million shares of common stock at a public offering price of $16.97 per share under our $1 billion shelf registration statement in April 2003. The net proceeds of $49.2 million were ultimately used to acquire additional apartment communities. We sold an additional 100,000 shares of common stock at a public offering price of $16.97 per share in connection with the exercise of the underwriter’s over-allotment option in May 2003. The net proceeds of $1.6 million were used for general corporate purposes.

	•		Exercised our right to redeem 2.0 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock in May 2003. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 3,076,923 shares of common stock at a price of $16.25 per share.

	•		Issued $56.9 million of our Series E Cumulative Convertible Preferred Stock and 1,617,815 Preferred OP Units totaling $26.9 million in June 2003 as partial consideration for the purchase of four apartment communities in Southern California. Each share of Series E and each OP Unit was priced at $16.61 per share, and dividends on the Series E and OP Units carry a fixed coupon of 8.0% until such time as the common share dividend is equal to or exceeds this amount for four consecutive quarters, at which time the Series E and OP Units will be entitled to receive dividends equivalent to the dividends paid to holders of our common stock.

	•		Sold $50 million aggregate principal amount of 4.50% medium-term notes due March 2008 in August 2003 under our medium-term note program. The net proceeds of approximately $49.9 million were used to repay amounts outstanding on our $500 million unsecured revolving credit facility.

	•		Sold 4.0 million shares of common stock at a public offering price of $18.40 per share under our $1 billion shelf registration statement in September 2003. The net proceeds of approximately $72.3 million were used for general corporate purposes, including funding acquisitions and development, with the balance used to reduce outstanding variable rate debt under our unsecured credit facilities. We sold an additional 600,000 shares of common stock a public offering price of $18.40 per share in connection with the exercise of the underwriter’s over-allotment option in October 2003. The net proceeds of $10.8 million were used for general corporate purposes, including funding acquisitions and development, with the remaining balance used to reduce outstanding variable rate debt under our unsecured credit facilities.

	•		Sold $75 million aggregate principal amount of 5.13% senior unsecured notes due January 2014 in October 2003 under our medium-term note program. The net proceeds of $74.5 million were used to repay amounts outstanding on our $500 million unsecured revolving credit facility.

	•		Sold $50 million aggregate principal amount of 4.25% senior unsecured notes due January 2009 in November 2003 under our medium-term note program. The net proceeds of $49.8 million were used to fund acquisitions of apartment communities.

	•		Exercised our right to redeem 4.0 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock in December 2003. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 6,154,000 shares of common stock at a price of $16.25 per share.

	•		a charge of $19.3 million in 2003 for a premium on preferred share repurchases,

	•		$16.8 million less in gains recognized from the sale of depreciable property in 2003,

	•		a $15.5 million decrease in property operating income in 2003,

	•		a $4.2 million increase in depreciation and amortization expense in 2003, and

	•		a $1.4 million impairment charge taken in 2003 for the write-off of our investment in Realeum, Inc., an unconsolidated development joint venture.

	•		an $11.4 million decrease in interest expense in 2002,

	•		$8.0 million more in gains recognized from the sale of depreciable property in 2002,

	•		a charge of $5.4 million in 2001 for restructuring,

	•		a $5.4 million charge in 2001 for impairment losses on real estate and investments, and

	•		a $4.7 million increase in property operating income in 2002.

	•		unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates,

	•		the failure of acquisitions to achieve anticipated results,

	•		possible difficulty in selling apartment communities,

	•		the timing and closing of planned dispositions under agreement,

	•		competitive factors that may limit our ability to lease apartment homes or increase or maintain rents,

	•		insufficient cash flow that could affect our debt financing and create refinancing risk,

	•		failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders,

	•		development and construction risks that may impact our profitability,

	•		delays in completing developments and lease-ups on schedule,

	•		our failure to succeed in new markets,

	•		changing interest rates, which could increase interest costs and affect the market price of our securities,

	•		potential liability for environmental contamination, which could result in substantial costs, and

	•		the imposition of federal taxes if we fail to qualify as a REIT in any taxable year.


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FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Ernst & Young LLP, Independent Auditors		27
Consolidated Balance Sheets at December 31, 2003 and 2002		28
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2003		29
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2003		30
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2003		31
Notes to Consolidated Financial Statements		33
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III — Summary of Real Estate Owned		56

	i.		determining the amount by which the cumulative total return of United Dominion’s common stock over the measurement period exceeds the greater of the cumulative total return of the Morgan Stanley REIT Index, which is the peer group index, or the minimum return (such excess being the “excess return”);

	ii.		multiplying 5% of the excess return by United Dominion’s market capitalization (defined as the average number of shares outstanding over the 24-month period, including common stock, OP Units, outstanding options and convertible securities) multiplied by the daily closing price of United Dominion’s common stock, up to a maximum of 2% of market capitalization; and

	iii.		dividing the number obtained in (ii) by the market value of one share of United Dominion’s common stock on the valuation date, determined by the weighted average price per day of common stock for the 20 trading days immediately preceding the valuation date.

(a)		The second quarter of 2003 includes $6.3 million of expense due to a premium paid for the conversion of shares of Series D preferred stock into common stock.

(b)		The third quarter of 2003 includes $12.1 million of expense due to a premium paid for the conversion of shares of Series D preferred stock into common stock.

(c)		The fourth quarter of 2003 includes $0.9 million of expense due to a premium paid for the conversion of shares of Series D preferred stock into common stock.

(d)		Represents rental income from continuing operations.

(a)		The first quarter of 2002 includes $15.8 million of expense associated with the refinancing of certain mortgages using proceeds from the new Fannie Mae and Freddie Mac credit facilities.

(b)		The third quarter of 2002 includes $12.6 million of expense due to premiums paid for the redemption of certain higher coupon bonds.

(c)		The fourth quarter of 2002 includes $5.2 million of expense due to premiums paid for the redemption of certain higher coupon bonds.

(d)		Represents rental income from continuing operations.