UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q FOR QUARTERLY AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-10524 UNITED DOMINION REALTY TRUST, INC. (Exact name of registrant as specified in its charter) Virginia 54-0857512 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 10 South Sixth Street, Richmond, Virginia 23219-3802 (Address of principal executive offices - zip code) (804) 780-2691 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of May 8, 1998: Common Stock: 102,381,283
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) (Unaudited) <TABLE> <CAPTION> March 31, December 31, 1998 1997 <S> <C> - --------------------------------------------------------------------------------------------------------------------- Assets Real estate owned: Real estate held for investment $ 2,641,958 $ 2,281,438 Less: accumulated depreciation 214,945 200,506 ------------- -------------- 2,427,013 2,080,932 Real estate under development 38,774 24,598 Real estate held for disposition 153,675 166,501 Cash and cash equivalents 5,961 473 Other assets 109,881 41,221 ------------- -------------- Total assets $ 2,735,304 $ 2,313,725 ============= ============== Liabilities and Shareholders' Equity Notes payable-secured $ 610,034 $ 417,325 Notes payable-unsecured 790,083 738,901 Real estate taxes payable 18,334 21,744 Accrued interest payable 16,658 14,912 Security deposits and prepaid rent 15,487 12,105 Distributions payable to common and preferred shareholders 27,498 25,607 Accounts payable, accrued expenses and other liabilities 14,376 10,081 ------------- -------------- Total liabilities 1,492,470 1,240,675 Minority interest of unitholders in operating partnership 37,515 14,693 Shareholders' equity: Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000 6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 150,000 Common stock, $1 par value; 150,000,000 shares authorized 100,700,952 shares issued and outstanding (89,168,442 in 1997) 100,701 89,168 Additional paid-in capital 1,054,592 906,307 Notes receivable from officer-shareholders (8,776) (8,806) Distributions in excess of net income (196,198) (183,312) ------------- -------------- Total shareholders' equity 1,205,319 1,058,357 ============= ============== Total liabilities and shareholders' equity $ 2,735,304 $ 2,313,725 ============= ============== </TABLE> See accompanying notes. 2
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 1998 1997 <S> <C> - ------------------------------------------------------------------------------------------------------------- Revenues Rental income $104,249 $ 89,984 Interest and other non-property income 1,012 251 -------------- --------------- 105,261 90,235 Expenses Rental expenses: Utilities 5,805 6,466 Repairs and maintenance 12,354 11,819 Real estate taxes 9,052 7,112 Property management 3,330 2,777 Other operating expenses 10,480 9,442 Real estate depreciation 20,928 16,162 Interest 22,825 19,150 General and administrative 2,163 1,833 Other depreciation and amortization 746 450 -------------- --------------- 87,683 75,211 -------------- --------------- Income before gains (losses) on sales of investments and minority interest of unitholders in operating partnership 17,578 15,024 Gains (losses) on sales of investments (260) 2,120 -------------- --------------- Income before minority interest of unitholders in operating partnership 17,318 17,144 Minority interest of unitholders in operating partnership (135) (31) -------------- --------------- Net income 17,183 17,113 Dividends to preferred shareholders (5,650) (2,428) -------------- --------------- Net income available to common shareholders $ 11,533 $ 14,685 ============== =============== Earnings per common share: Basic earnings per share $ 0.13 $ 0.17 ============== =============== Diluted earnings per share $ 0.13 $ 0.17 ============== =============== Distributions declared per common share $ 0.2625 $ 0.2525 ============== =============== Weighted average number of common shares outstanding-basic 90,867 85,046 Weighted average number of common shares outstanding -diluted 92,115 85,273 </TABLE> See accompanying notes. 3
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Three months ended March 31, 1998 1997 <S> <C> - ----------------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 17,183 $ 17,113 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 21,674 16,612 Minority interest of unitholders in operating partnership 135 31 (Gains)/losses on sales of investments 260 (2,120) Amortization of deferred financing costs 472 399 Changes in operating assets and liabilities: Decrease in operating liabilities (8,150) (495) Increase in operating assets (1,580) (4,526) ---------- ----------- Net cash provided by operating activities 29,994 27,014 Investing Activities Acquisition of real estate, net of liabilities assumed (50,028) (90,312) Capital expenditures (12,504) (22,075) Development of real estate assets (12,607) (8,318) Net proceeds from sales of investments 9,730 9,944 Proceeds from interest rate hedge transaction -- 1,539 Issuance of and payments on notes receivable (12,951) Payments on notes receivable 2,142 Net cash acquired in acquisition of ASR Investments Corporation 330 -- ---------- ----------- Net cash used in investing activities (78,030) (107,080) Financing Activities Net proceeds from the issuance of common stock 38,446 59,675 Net proceeds from the issuance of common stock through the dividend reinvestment and stock purchase plan 12,936 6,851 Gross proceeds from the issuance of unsecured notes payable -- 125,000 Net borrowings of short-term bank debt 58,900 (18,250) Distributions paid to preferred shareholders (5,653) (2,428) Distributions paid to common shareholders (22,527) (19,663) Distributions paid to minority interest unitholders (657) (33) Scheduled principal payments on secured notes payable (1,707) (1,122) Payments on unsecured notes payable (7,504) (63,414) Non-scheduled payments on secured notes payable (18,165) -- Payment of financing costs (545) (1,385) ---------- ----------- Net cash provided by financing activities 53,524 85,231 Net increase (decrease) in cash and cash equivalents 5,488 5,165 Cash and cash equivalents, beginning of period 473 13,452 ---------- ----------- Cash and cash equivalents, end of period $ 5,961 $ 18,617 ========== =========== Supplemental Information: Interest paid during the period $ 22,389 $ 15,087 Non-cash transactions associated with the acquisition of properties: Secured debt assumed through the acquisition of properties 43,022 22,063 Issuance of operating partnership units 1,924 -- Non-cash transactions associated with the acquisition of ASR Investment Corporation: Real estate assets acquired 313,700 -- Other operating assets acquired 8,848 Issuance of common stock 108,465 -- Issuance of operating partnership units 21,420 -- Secured debt assumed 179,440 -- Operating liabilities assumed 13,553 -- </TABLE> 4 See accompanying notes.
United Dominion Realty Trust, Inc. Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 1998 (In thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> <S> <C> Preferred Stock Balance, December 31, 1997 $ 255,000 ------------ Balance, March 31, 1998 $ 255,000 ============ Common Stock, $1 Par Value Balance, December 31, 1997 $ 89,168 Issuance of common shares through Unit Investment Trust 2,804 Issuance of common shares in the acquisition of ASR Investment Corporation 7,743 Issuance of common shares through dividend reinvestment and stock purchase plan 946 Issuance of common shares through exercise of stock options 40 ------------ Balance, March 31, 1998 $ 100,701 ============ Additional Paid-in Capital Balance, December 31, 1997 $ 906,307 Issuance of common shares through Unit Investment Trust 35,166 Issuance of common shares in the acquisition of ASR Investment Corporation 100,722 Issuance of common shares through dividend reinvestment and stock purchase plan 11,990 Issuance of common shares through exercise of stock options 407 ------------ Balance, March 31, 1998 $ 1,054,592 ============ Notes Receivable from Officer-Shareholders Balance, December 31, 1997 $ (8,806) Principal repayments 30 ============ Balance, March 31, 1998 $ (8,776) ============ Distributions in Excess of Net Income Balance, December 31, 1997 $ (183,312) Net income 17,183 Common stock distributions declared ($0.2625 per share) (24,419) Preferred stock distributions declared-Series A ($0.58 per share) (2,428) Preferred stock distributions declared-Series B ($0.54 per share) (3,222) ============ Balance, March 31, 1998 $ (196,198) ============ ============ Total Shareholders' Equity $ 1,205,319 ============ </TABLE> See accompanying notes. 5
UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of presentation The accompanying consolidated financial statements include the accounts of United Dominion Realty Trust, Inc. and its subsidiaries, including United Dominion Realty, L.P., its Operating Partnership, (collectively, the "Company"). As of March 31, 1998, United Dominion Realty Trust, Inc. and its wholly-owned subsidiaries had a 89% interest in the Operating Partnership. The financial statements of the Company include the minority interest of unitholders in the operating partnership. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of financial position at March 31, 1998 and results of operations for the interim periods ended March 31, 1998 and 1997. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in the Company's December 31, 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. 2. Real estate held for investment The following table summarizes real estate held for investment: March 31, December 31, Dollars in thousands 1998 1997 - ----------------------------------------------------------------------- Land and land improvements $ 443,612 $ 393,505 Buildings and improvements 2,083,467 1,783,565 Furniture, fixtures and equipment 110,616 100,380 Construction in progress 4,263 3,988 ----------- ------------ Real estate held for investment $2,641,958 2,281,438 Accumulated depreciation (214,945) (200,506) ----------- ------------ Real estate held for investment, net $2,427,013 $ 2,080,932 =========== ============ 3. Notes payable - secured Notes payable-secured, which encumber $1.1 billion or 39% of the Company's real estate owned, at cost, ($1.8 billion or 61% of the Company's real estate owned, at cost, is unencumbered) consist of the following at March 31, 1998: <TABLE> <CAPTION> Principal Weighted Average Weighted Average No. Communities Dollars in thousands Balance Interest Rate Years to Maturity Encumbered <S> <C> - --------------------------------------------------------------------------------------------------------------------- Fixed Rate Debt Mortgage notes payable $ 316,384 8.30% 3.1 68 Tax-exempt secured notes payable 127,336 7.00% 18.5 18 REMIC financings 78,099 7.35% 2.5 23 Secured notes payable (a) 45,000 7.29% 1.2 6 ----------------------------------------------------------------------------- Total Fixed-Rate Notes 566,819 7.75% 6.4 115 Variable Rate Debt Secured notes payable 41,015 6.63% 1.6 7 Tax-exempt secured notes payable 2,200 3.07% 4.4 1 ------------------------------------------------------------------------------ Total Variable-Rate Notes 43,215 6.45% 1.7 8 ------------------------------------------------------------------------------ Total Notes Payable - Secured $ 610,034 7.66% 6.0 123 ================================================================================ </TABLE> (a) Variable-rate secured notes payable which have been effectively swapped to a fixed-rate at March 31, 1998 consist of a $39 million variable-rate secured senior credit facility which encumbers six apartment communities and a $6 million variable-rate construction note payable. The Company has five interest rate swap agreements with aggregate notional value of $45 million under which the Company pays a fixed-rate of interest and receives a variable-rate on the notional amounts. The interest rate swap agreements effectively change the Company's interest rate exposure on $45 million from a variable-rate to a weighted average fixed-rate of approximately 7.29%.
4. Notes payable - unsecured A summary of notes payable - unsecured is as follows: <TABLE> <CAPTION> March 31, December 31, Dollars in thousands 1998 1997 ----------------- ---------------- <S> <C> Commercial Banks Borrowings outstanding under revolving credit facilities $ 194,500 $135,600 Insurance Companies--Senior Unsecured Notes 7.98% due March, 1999-2003 (a) 37,143 44,571 8.72% due November 1998 2,000 2,000 --------- ---------- 39,143 46,571 Other (b) 6,440 6,730 Senior Unsecured Notes - Other 7.25% Notes due April 1999 75,000 75,000 8.50% Debentures due September 2024 (c) 150,000 150,000 7.95% Medium-Term Notes due July 2006 125,000 125,000 7.25% Notes due January 2007 125,000 125,000 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.02% Medium-Term Notes due November 2005 50,000 50,000 -------- -------- 550,000 550,000 -------- -------- Total Notes Payable - Unsecured $790,083 $738,901 ========= ======== </TABLE> (a) Payable in five equal annual principal installments of $7.4 million. (b) Includes $6.0 million and $6.2 million at March 31, 1998 and December 31, 1997, respectively, of deferred gains from the termination of interest rate hedge transactions. (c) Debentures include an investor put feature, which grants a one time option to redeem debentures in September 2004. 5. Earnings Per Share Basic earnings per common share is computed using net income available to common shareholders and the weighted average shares outstanding. Diluted earnings per common share is also computed using net income available to common shareholders, however, the weighted average shares outstanding are adjusted for potentially dilutive securities for the periods presented. The effect of the operating partnership units was antidilutive for the three months ended March 31, 1997, and is therefore not included in the following calculations. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> In thousands, except per share data March 31, 1998 March 31, 1997 <S> <C> - ------------------------------------------------------------------------------------------- Numerator: Numerator for basic earnings per share-net income available to common shareholders $ 11,533 $ 14,685 Effect of minority interest 135 -- -------- -------- Numerator for diluted earnings per share- net income available to common shareholders $ 11,688 $ 14,685 ======== ======== </TABLE>
<TABLE> <CAPTION> <S> <C> Denominator: Denominator for basic earnings per share- weighted average shares 90,867 85,046 Effect of dilutive securities: Operating partnership units 1,131 -- Employee stock options 117 227 ---------- -------- Dilutive potential common shares denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions 92,115 85,273 ========== ========= Basic earnings per share $ 0.13 $ 0.17 ========== ========= Diluted earnings per share $ 0.13 $ 0.17 ========== ========= </TABLE> 6. Pro Forma Financial Information On March 27, 1998, the Company completed the acquisition of ASR Investments Corporation (ASR) in a statutory merger. ASR was a publicly-traded multifamily REIT that owned and operated 39 communities with 7,550 apartment homes located in Arizona, Texas, New Mexico and the state of Washington. Each share of ASR's common stock was exchanged for 1.575 shares of the Company's common stock. The acquisition was structured as a tax-free transaction and was treated as a purchase for accounting purposes. In connection with the acquisition, the Company acquired primarily real estate assets totaling $313.7 million. Consideration given by the Company included 7,742,839 shares of the Company's common stock valued at $14 per share for an aggregate equity value of $108.4 million plus the issuance of 1,529,990 Units in the ASR Operating Partnership valued at $21.4 million. In addition, the Company assumed, at fair value, mortgage debt totaling $179.4 million and other liabilities of $13.6 million. Information concerning unaudited pro forma results of operations for the quarters ended March 31, 1998 and 1997 are set forth below. For the quarter ended March 31, 1998 such pro forma information assumes the acquisition of ASR as if the transaction occurred on January 1, 1998. For the quarter ended March 31, 1997, such pro forma information assumes the following transactions occurred on January 1, 1997: (i) the acquisition by the Company of 17 apartment communities with 5,659 apartment homes at a total cost of $219 million and (ii) the acquisition of ASR Investment Corporation of 22 apartment communities with 4,208 apartment homes at a total cost of $176 million. <TABLE> <CAPTION> Pro Forma Pro Forma Quarter Ended Quarter Ended In thousands, except per share amounts March 31, 1998 March 31, 1997 <S> <C> - --------------------------------------------------------------------------------------------------- Rental income $115,979 $109,355 Net income available to common shareholders before extraordinary item 12,241 16,148 Net income per common share before extraordinary item-basic $ 0.12 $ 0.17 Net income per common share before extraordinary item-diluted $ 0.12 $ 0.17 </TABLE> The unaudited information is not necessarily indicative of what the Company's consolidated results of operations would have been if the acquisitions had occurred at the beginning of each period presented. Additionally, the pro forma information does not purport to be indicative of the Company's results of operations for future periods. 7. Accounting Pronouncements As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income" (Statement 130). Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of Statement 130 had no impact on the Company's net income or stockholders' equity for each of the periods presented.
On March 19, 1998, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus decision on Issues No. 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions" which provides that internal costs of identifying and acquiring operating property should be expensed as incurred. The Company has historically capitalized on a successful efforts basis, the direct, internal costs of identifying and acquiring operating property and, accordingly, will realize an increase in expense upon adoption of this consensus, which is effective immediately. The Company does not expect the impact on earnings to be material in 1998.
PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company considers portions of the information contained in Item 2. to include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. The Company is engaged in the ownership, acquisition, development and operation of apartment communities throughout the country. The Company's investment strategy has focused on acquiring apartment communities in 24 targeted major markets and geographically expanding into other markets in the Mid West and Far West. Strategically, the Company intends to continue its expansion into other areas of the United States and enter into several new markets in 1998 as appropriate opportunities arise. The Company seeks to be a market leader by operating a sufficiently sized portfolio of apartments within each market in order to drive down operating costs through economies of scale and management efficiencies. The Company believes this market diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies. The following table summarizes the Company's apartment market information by geographic region and market:
<TABLE> <CAPTION> Three Months Ended As of March 31, 1998 March 31, 1998 - --------------------------------------------------------------------- ------------------------------------ Average Number of Number of % of Carrying Physical Monthly Average Apartment Apartment Apartment Value Occupancy Rental Unit Size Market Communities Homes Homes (in thousands) ** Rates* (Square Feet) <S> <C> - --------------------------------------------------------------------- --------------------------------- Raleigh, NC 11 3,484 6% $ 151,813 92.5% $652 925 Richmond, VA 12 3,518 5% 121,395 92.1% 583 889 Greensboro, NC 10 2,638 4% 115,166 79.5% 578 863 Eastern NC 10 2,530 4% 101,455 88.3% 584 924 Baltimore, MD 8 1,746 3% 78,322 91.3% 670 864 Washington, DC 6 1,483 2% 66,272 90.4% 693 830 Hampton Roads, VA 8 1,830 3% 62,325 90.7% 551 874 Fayetteville, NC 3 884 1% 40,419 89.7% 564 899 Eastern Shore, MD 4 784 1% 33,772 97.4% 645 935 Other Virginia 6 1,156 2% 46,642 80.8% 601 870 Delaware 2 368 1% 17,433 93.2% 613 892 Other North Carolina 1 168 -- 7,401 94.3% 582 836 Charlotte, NC 13 3,009 4% 132,435 88.7% 635 970 Columbia, SC 12 3,534 5% 115,711 94.1% 509 859 Memphis, TN 7 2,427 4% 106,161 91.3% 525 302 Nashville, TN 8 2,116 3% 94,606 92.2% 598 952 Atlanta, GA 6 1,462 2% 64,386 90.8% 616 901 Greenville, SC 8 1,718 3% 60,661 87.5% 523 882 Other Georgia 2 468 -- 21,844 91.4% 643 1,140 Other South Carolina 2 408 -- 13,005 91.6% 421 908 Alabama 1 242 -- 10,990 92.5% 519 1,097 Orlando 12 3,584 5% 155,548 94.1% 617 784 Tampa 11 3,105 4% 111,964 95.8% 588 966 Miami/Ft. Lauderdale 4 960 1% 62,091 93.2% 806 1,092 Jacksonville 3 1,157 2% 55,053 91.4% 604 872 Other Florida 7 1,646 2% 68,710 95.6% 577 842 Dallas, TX *** 29 8,954 13% 371,073 93.2% 595 590 Houston, TX *** 23 5,783 8% 185,751 90.8% 544 379 Phoenix, AZ *** 7 1,980 3% 118,745 94.3% 650 328 San Antonio, TX 5 1,983 3% 88,198 91.2% 619 847 Washington State *** 3 812 1% 43,473 -- -- -- Tucson, AZ *** 8 1,112 2% 28,909 -- -- -- New Mexico *** 4 758 1% 28,251 90.5% 549 729 Austin, TX 2 542 1% 22,440 89.6% 592 713 Arkansas 2 512 1% 20,966 92.5% 576 821 Nevada 1 384 -- 20,308 84.3% 650 837 Other Texas 2 496 -- 15,851 89.2% 524 738 Oklahoma 1 316 -- 9,567 88.9% 459 756 ---------------------------------------------- ------------------------------ Total 264 70,057 100% $2,869,112 91.3% $594 742 ============================================== =============================== </TABLE> * Average monthly rental rates represent potential rent collections (gross potential rents less market adjustments), which approximate net effective rents. These figures exclude 1998 acquisitions. ** Physical occupancy is defined as rental income (potential rental collections less vacancy loss, management units, units held out of service and move-in concessions) divided by potential collections (gross potential rent less management units, units held out of service and move-in concessions) for the period, expressed as a percentage. *** Physical Occupancy, Average Monthly Rental Rates and Average Unit Size are not available for the communities included in these markets which were acquired on March 27, 1998 in connection with the acquisition of ASR Investment Corporation.
Liquidity and Capital Resources As a qualified real estate investment trust ("REIT"), the Company distributes a substantial portion of its cash flow to its shareholders in the form of quarterly distributions. The Company believes that cash provided by operations will be adequate to meet normal operating requirements and payment of distributions by the Company in accordance with REIT requirements in both the short and long term. For the three months ended March 31, 1998, the Company's cash flow from operating activities exceeded cash distributions paid to preferred and common shareholders and operating partnership unitholders by $1.2 million. The Company utilizes a variety of primarily external financing sources to fund portfolio growth, major capital improvement programs and balloon debt payments. The Company's bank lines of credit generally have been used to temporarily finance these expenditures, and subsequently this short-term bank debt has been replaced with longer term debt or equity. At March 31, 1998, the Company had cash and cash equivalents of $6.0 million and amounts available under its credit facilities aggregating $70.5 million. The following discussion explains the changes in net cash provided by operating activities, net cash used for investing activities and net cash provided by financing activities which are presented in the Company's Consolidated Statements of Cash Flows. Operating Activities For the quarter ended March 31, 1998, the Company's cash flow from operating activities increased $3.0 million over the same period last year. This increase is primarily due to the increased operating income from the Company's acquired apartment communities, as well as increases in property operating income within the Company's mature apartment portfolio achieved through higher rental rates and decreased property operating expenses as discussed below and under "Results of Operations". Investing Activities During the three months ended March 31,1998, net cash used for investing activities was $78.0 million compared to $107.1 million for the same period last year. Changes in the level of investing activities from period to period primarily reflect the changing levels of the Company's acquisition, capital expenditure and development programs. Acquisitions The Company seeks to acquire apartment communities that can provide returns on investment in excess of the Company's cost of capital. These acquisitions typically are projected to provide first year weighted average returns on average investment of approximately 9-9 1/2% with the prospect for future cash flow growth and appreciation. The Company expects to purchase between 8,000 and 10,000 apartment homes in individual and portfolio transactions at an aggregate cost ranging from $350 million and $450 million during 1998 (excluding ASR). During the first three months of 1998, the Company acquired six apartment communities with 2,076 apartment homes at a total cost (including closing costs) of $95.9 million or $46,200 per home. The communities acquired by market were as follows: <TABLE> <CAPTION> Purchase Purchase No. Apt. Year Price Cost Location Date Name Homes Built (thousands) per Home <S> <C> - ---------------------------------------------------------------------------------------------------------------------------------- Memphis, Tennessee 01/09/98 The Trails at Kirby Parkway (a) (b) 376 1987 $16,757 $44,566 01/09/98 Cinnamon Trails 208 1989 9,531 45,823 01/09/98 The Trails at Mount Moriah (a) (b) 630 1990/91 28,026 44,486 02/06/98 Dogwood Creek (b) (c) 278 1997 18,446 66,353 Phoenix, Arizona 01/09/98 The Village at North Park 320 1983 15,056 47,050 Dallas, Texas 01/30/98 Summit Ridge (b) 264 1983 8,034 30,430 ------------------------------------------------------------------------------------------------------ Total/Weighted Average 2,076 1989 $95,850 $46,171 </TABLE> (a) These two properties are operating as one apartment community named The Trails. (b) The Company assumed four mortgage notes aggregating $43.0 million with a weighted average interest rate of 7.6% in connection with the acquisition of these apartment communities. (c) The Company issued 130,416 Operating Partnership Units valued at $1.9 million in connection with this community. On April 17, 1998, the Company acquired a portfolio of eight apartment communities with 1,970 apartment homes in a portfolio transaction valued at approximately $71 million. Seven of the communities are located in San Antonio, Texas and one is located just east of Dallas. In connection with the transaction, the Company issued 481,251 shares of common stock and 1,023,725 operating partnership units valued at $14.75 each for an aggregate equity value of $22 million and assumed eight mortgage loans totaling $44 million with a weighted average interest rate of 8.4%. The acquisition of this portfolio allowed the Company to nearly double its presence in San Antonio and achieve its objective of gaining size in existing markets.
Mergers On March 27, 1998, the Company completed the acquisition of ASR Investments Corporation in a statutory merger. ASR was a publicly-traded multifamily REIT with apartment communities located in Arizona, Texas, New Mexico and the state of Washington. Each share of ASR's common stock was exchanged for 1.575 shares of the Company's common stock. The acquisition was structured as a tax-free transaction and was treated as a purchase for accounting purposes. In connection with the acquisition, the Company acquired primarily real estate assets totaling $313.7 million. Consideration given by the Company included 7,742,839 shares of the Company's common stock valued at $14 per share for an aggregate equity value of $108.4 million plus the issuance of 1,529,990 Units in the ASR Operating Partnership valued at $21.4 million. In addition, the Company assumed, at fair value, mortgage debt totaling $179.4 million and other liabilities of $13.6 million. Combining ASR's 7,550 apartment homes and the Company's 62,507 apartment homes created a portfolio of 70,057 homes located throughout 24 major markets. The Merger both strengthened the Company's position in several long-term growth markets in the Southwest and established an initial presence in the Northwest where the Company plans to make additional acquisitions in the future. The 7,550 apartment homes had a weighted average year built of 1984 and are geographically distributed as follows: Number of Number of City/State Apartment Communities Apartment Homes - ------------------------ --------------------- --------------- Houston, Texas 14 2,261 Dallas, Texas 8 1,889 Tucson, Arizona 8 1,112 Phoenix, Arizona 3 928 Albuquerque, New Mexico 3 548 Washington 3 812 --- ------ Total 39 7,550 === ===== Real estate under development Consistent with the Company's acquisition strategy, development activity is focused primarily in its major markets. During the first three months of 1998, the Company invested approximately $12.6 million in development projects on nine apartment communities, including four new apartment communities, two additional phases to existing apartment communities and three parcels of undeveloped land. At March 31, 1998, the Company had 1,338 apartment homes under development as outlined below (dollars in thousands, except cost per home): <TABLE> <CAPTION> Development Estimated Estimated Expected No. Apt. Completed Costs Development Cost Completion Property Location Homes Apt. Homes to Date Cost Per Home Date <S> <C> - --------------------------------------------------------------------------------------------------------------------- New Apartment Communities Dominion Franklin Nashville, TN 360 -- $ 10,542 $23,334 $ 64,800 1Q99 Ashlar I Fort Myers, FL 260 -- 2,915 18,566 71,400 1Q99 Sierra Foothills Phoenix, AZ 322 -- 1,610 21,062 65,400 1Q99 Ranchstone Houston, TX 216 -- 926 11,118 51,500 1Q99 ---------------------------------------------------------- 1,158 -- 15,993 74,080 64,000 Additional Phases Mill Creek II Wilmington, NC 180 -- 5,329 12,081 67,100 3Q98 ----------------------------------------------------------- Land Held for Development Indian Creek Dallas, TX -- -- 2,980 -- -- -- Ashlar II Fort Myers, FL -- -- 1,127 -- -- -- Wimbledon II Dallas, TX -- -- 645 -- -- -- Other -- -- 925 -- -- -- ---------------------------------------------------------- -- -- -- -- -- ---------------------------------------------------------- 1,338 -- $26,999 $ 86,161 $64,400 =========================================================== </TABLE> The Company completed the following development project during the first quarter of 1998 (dollars in thousands, except cost per home): <TABLE> <CAPTION> Development Estimated No. Apt. Costs Development Cost Date of % Leased Property Location Homes to Date Cost Per Home Completion at 3/31/98 <S> <C> - -------------------------------------------------------------------------------------------------------------------------- Additional Phases Oak Forest II* Dallas, TX 260 $11,775 $13,375 $51,400 1Q98 79% ============================================ * Oak Forest has been substantially completed, although some costs associated with development were still outstanding as of March 31, 1998. </TABLE> During 1998, the Company expects to start another 1,700 apartment homes in five different markets, investing approximately $100 million on the development of new apartment communities and additional phases to existing communities which are anticipated to provide stabilized returns on investment exceeding 10%. Capital Expenditures During the first quarter of 1998, the Company invested $12.5 million on capital improvements to its apartment portfolio. During this period, capitalized expenditures averaged $752 per home (on an annualized basis) for all apartment homes acquired prior to 1996. Capital expenditures for the full year 1998 are expected to be at or below 1997 levels. Disposition of investments In an effort to upgrade its apartment portfolio, the Company continually undertakes portfolio review analyses with the objective of identifying properties that no longer meet the Company's investment objectives due to size, location, age, quality and/or performance. Since the Company began its disposition program in the second half of 1997, approximately $200 million of real estate owned has been sold. These sales will allow the Company to reduce the age of its existing portfolio, which should result in lower operating expense and capital expenditure growth associated with the older properties. The Company intends to sell approximately $75 million of communities each quarter until the end of the year, at which time it is believed the majority of the disposition program will be complete. The sales are initially dilutive to earnings as the initial returns on investment on higher quality apartments are approximately 100 to 125 basis points lower than the return on investment on the communities being sold. The net proceeds from these sales will be primarily used to acquire apartment communities that will provide higher long term returns on investment than the communities being sold. On January 20, 1998, the Company sold a portfolio of five apartment communities containing 2,406 apartment homes, which had a weighted average age of 21 years for an aggregate sales price of $65.6 million. The transaction was structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, so the related capital gain will be deferred for federal income tax purposes. These five communities, all located in Texas, were acquired on December 31, 1996 in connection with the South West Property Trust Inc. Merger ("South West Merger"), and accordingly, no significant gain or loss was recorded for financial reporting purposes.
On April 24, 1998, the Company sold a portfolio of eleven Southeast apartment communities located in the Southeast containing 2,303 homes, which had a weighted average age of 24 years for an aggregate sales price of $69.4 million. For income tax purposes, eight of the eleven communities sold were structured to qualify as a tax deferred exchange so that the related capital gain will be deferred. The Company will realize an approximate $20 million gain on the sale for financial reporting purposes in the second quarter of 1998. Financing Activities Net cash provided by financing activities during the three months ended March 31, 1998 was $53.5 million compared to $85.2 million for the same period last year. Cash provided by financing activities During the first quarter of 1998, the Company entered into two separate transactions to sell its common stock to Unit Investment Trust's ("UIT"). In February 1998, the Company issued 1.7 million shares of its common stock at a gross sales price of $14.31 per share to a UIT. In March 1998, the Company issued 1.1 million shares of its common stock at a gross sales price of $14.19 to a second UIT. The net proceeds from the two UIT's aggregating $38.0 million were primarily used to curtail bank debt. The Company issued 945,921 shares of its common stock and received $12.9 million under its Dividend Reinvestment and Stock Purchase Plan (the "Plan") during the first quarter of 1998 which included $9.8 million in optional cash investments and $3.1 million of reinvested dividends. Depending upon the volume and timing of acquisition activity, the Company anticipates raising additional debt and equity capital during the next twelve months to finance capital requirements while striving to minimize the overall cost of capital. However, acquisition activity is expected to be funded primarily with the proceeds from the sales of apartment communities. Funds from Operations Funds from operations ("FFO") is defined as income before gains (losses) on sales of investments, minority interest of unitholders in operating partnership and extraordinary items (computed in accordance with generally accepted accounting principles) plus real estate depreciation, less preferred dividends and after adjustment for significant non-recurring items, if any. The Company computes FFO in accordance with the recommendations set forth by the National Association of Real Estate Investment Trusts ("NAREIT"). The Company considers FFO in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company's operating performance and liquidity. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.
For the three months ended March 31, 1998, FFO increased 14.3% to $32.9 million, compared with $28.8 million for the same period last year. The increase in FFO was principally due to the increased net rental income from the Company's non-mature apartment homes acquired and developed subsequent to January 1, 1997. <TABLE> <CAPTION> Three Months Ended March 31, (in thousands) ---------------------------- 1998 1997 % Change ---------------------------- <S> <C> Calculation of funds from operations: Income before gains on sales of investments and minority interest of unitholders in operating partnership $ 17,578 $15,024 17.0% Adjustments: Real estate depreciation 20,928 16,162 29.5% Dividends to preferred shareholders (5,650) (2,428) 132.7% ----------------------------- Funds from operations $ 32,856 $28,758 14.3% ============================= </TABLE> Results of Operations The Company's net income is primarily generated from the operations of its apartment communities. For purposes of evaluating the Company's comparative operating performance, the Company categorizes its apartment communities into two categories, mature and non-mature. For the 1998 versus 1997 comparison, these communities are as follows: (i) mature--those communities acquired, developed and stabilized prior to January 1, 1997 and held throughout both the first quarter of 1998 and 1997 and (ii) non-mature--those communities acquired, developed or sold subsequent January 1, 1997. The Company's apartment operations are divided into four geographic regions, each of which constitutes a core operating unit. Based on the total number apartment homes, the Northern Region constitutes 29.4% of the Company's apartment portfolio and includes Delaware, Maryland, Virginia and northern North Carolina. The Southern Region constitutes 22.0% of the Company's portfolio and includes Charlotte, North Carolina, South Carolina, Georgia, Tennessee and Alabama. The Florida Region includes the entire state of Florida or 14.9% of the Company's apartment portfolio, while the Western Region constitutes 33.7% of the Company's apartment portfolio and includes Texas, Arkansas, Oklahoma, Nevada, New Mexico, Arizona and Washington. For the three months ended March 31, 1998, the Company reported increases over the same period last year in rental income, income before gains on sales of investments and minority interest of unitholders in operating partnership and net income. The non-mature apartment homes provided a substantial portion of the aggregate reported increases. However, compared to the same period last year, net income available to common shareholders decreased $3.2 million at quarter end March 31, 1998, with corresponding decreases of $.04 for basic and diluted earnings per share, respectively. Net income available to common shareholders for the first quarter of 1997 included a $2.1 million gain ($.02 per share) on the sale of investments, while no such gains were recorded in the current quarter. Additionally, net income available to common shareholders for the first quarter of 1998 was reduced by $3.2 million ($.03 per share) of dividends to holders of the Company's Series B preferred stock, issued in May 1997. All Apartment Communities The operating performance of the Company's 264 apartment communities with 70,057 apartment homes for the three months ended March 31, 1998 and 217 apartment communities with 58,473 apartment homes for the three months ended March 31, 1997, respectively, is summarized in the chart below (dollars in thousands): <TABLE> <CAPTION> 1998 1997 % Change <S> <C> ----------------------------------- Property rental income $ 103,865 $ 89,217 16.4% Property operating expenses (excluding depreciation and amortization) (40,872) (37,380) 9.3% ---------------------------------- Property operating income $ 62,993 $ 51,837 21.5% ================================== Weighted average number of apartment homes 63,005 56,288 11.9% Physical occupancy 91.3% 91.4% (0.1%) </TABLE>
Due to the acquisition and development of 19,270 apartment homes since January 1, 1997, the weighted average number of apartment homes increased 11.9% to 63,005 for the three months ended March 31, 1998, which resulted in significant increases in property rental income and property operating expenses. Mature Apartment Communities The operating performance for the Company's 192 mature apartment communities with 50,787 apartment homes for the three months ended March 31, 1998 is summarized in total and by geographic region below (dollars in thousands): Total Mature Operating Performance <TABLE> <CAPTION 1998 1997 % Change ------------------------------------------ <S> <C> Property rental income $ 84,568 $ 81,425 3.9% Property operating expenses (excluding depreciation and amortization) (32,931) (33,853) (2.7%) ------------------------------------------ Property operating income $ 51,637 $ 47,572 8.5% ========================================== Physical occupancy 92.4% 91.9% 0.5% Average monthly rents $ 590 $ 569 3.5% </TABLE> Mature Operating Performance (By Geographic Region) <TABLE> <CAPTION> North South Florida 1998 1997 1998 1997 1998 1997 <S> <C> ------------------- ----------------------- ------------------- Property rental income $ 31,219 $ 30,500 $ 19,619 $ 18,738 $ 15,759 $ 14,985 Property operating expenses (excluding depreciation and amortization) (11,005) (11,592) (8,236) (8,368) (6,463) (6,865) ------------------- ----------------------- ------------------- Property operating income $ 20,214 $ 18,908 $ 11,383 $ 10,370 $ 9,296 $ 8,120 =================== ======================== ================== Physical occupancy 90.8% 91.9% 92.6% 89.6% 94.8% 93.7% Average monthly rents $ 604 $ 582 $ 552 $ 538 $ 615 $ 590 </TABLE> <TABLE> <CAPTION> West Total 1998 1997 1998 1997 <S> <C> ---------------------- --------------------- Property rental income $ 17,971 $ 17,202 $ 84,568 $ 81,425 Property operating expenses (excluding depreciation and amortization) (7,227) (7,028) (32,931) (33,853) ---------------------- --------------------- Property operating income $ 10,744 $ 10,174 $ 51,637 $ 47,572 ====================== ==================== Physical occupancy 93.1% 92.8% 92.4% 91.9% Average monthly rents $ 588 $ 568 $ 590 $ 569 </TABLE> For the three months ended March 31,1998, the Company's mature communities provided approximately 81.4 % of the Company's property rental income and 82.0% of its property operating income. During 1998, the Company's mature apartment communities continued to generate strong rent growth. Compared to the same period last year, total rental income from these apartment homes grew 3.9%, or approximately $3.1 million, reflecting an increase in average monthly rents of 3.5% to $590 per month. In part, the increase in rental income was a result of the Company's initiative and upgrade programs that have allowed the Company to increase average monthly rents above the rate of inflation. In addition, physical occupancy rose 0.5% to 92.4%, reflecting the recovery of certain major southeastern markets that had experienced declines in early 1997. The Company expects to maintain rent growth in the 3 1/2% to 4% range and economic occupancy in the 92% range during the remainder of 1998. The majority of the Company's apartment markets are in balance, providing stable occupancy and rent growth, however, occupancy in several markets is expected to experience some softness later during 1998. For the three months ended March 31, 1998, property operating expenses at these communities decreased 2.7%, or $0.9 million, resulting in a decrease in the operating expense ratio of 2.6% to 38.9%. This decline is primarily the result of two factors: (i) lower utility expenses directly attributable to the Company's water sub-metering initiative and (ii) overall decreases in repairs and maintenance and other operating expenses. The decreases in repairs and maintenance and other operating expenses occurred as the Company has begun to benefit from its upgrade program. In addition, the Company has taken advantage of economies of scale due to its increased size and centralized purchasing. The Company's objective is to maintain rental expense growth below the 2% range during the remainder of 1998.
Non-Mature Communities The operating performance for the three months ended March 31, 1998 for the Company's 72 non-mature apartment communities with 19,270 apartment homes is summarized in the chart below (dollars in thousands): <TABLE> <CAPTION> Sales Development 1997 Acquisitions 1998 Acquisitions Properties Properties Total Non-Mature 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997 <S> <C> ----------------- --------------------- ------------------ -------------------- --------------------- Property rental income $13,939 $1,102 $ 2,938 $ -- $ 700 $ 6,361 $ 1,720 $ 329 $ 19,297 $ 7,792 Property operating expenses (excluding depreciation and amortization) (5,855) (316) (926) -- (436) (3,108) (724) (103) (7,941) (3,527) ----------------- -------------------- ------------------ -------------------- -------------------- Property operating income $ 8,084 $ 786 $ 2,012 $ -- $ 264 $ 3,253 $ 996 $ 226 $ 11,356 $ 4,265 ================= ==================== ================== ==================== ==================== </TABLE> For the three months ended March 31, 1998, the Company's non-mature apartment communities provided approximately 18.6% of the Company's property rental and other income and 18.0% of its property operating income. For the quarter ended March 31, 1998, these communities had physical occupancy of 86.8% (including Development Properties undergoing lease-up) and an operating margin of 58.8%. 1997 Acquisitions The 27 apartment communities containing 8,524 apartment homes (net of one resold) included in this category had average monthly rental rates of $594, physical occupancy of 90.2% and an operating margin of 58.0% for the first quarter of 1998. The first year return on investment for these communities for the three months ended March 31, 1998, on an average investment of approximately $345 million, was 9.3% which approximates the Company's initial estimates. 1998 Acquisitions Included in this category are the following: (i) the six communities with 2,076 apartment homes acquired by the Company during the first quarter of 1998 which are projected to have a first year return on investment in the 9 1/2% range and (ii) the 39 communities with 7,550 apartment homes included in the ASR portfolio acquired on March 27, 1998 which are projected to have a first year return on investment in the 9% range. These communities did not have a material impact on the first quarter 1998 results of operations, primarily since the ASR communities were owned for only 4 days during the first quarter of 1998. Sales Included in this category are the 17 communities with 4,976 apartment homes sold as part of the Company's disposition program (see Disposition of investments under Liquidity and Capital Resources) since January 1, 1997 (five communities with 2,406 apartment homes were sold during the first quarter of 1998). These communities did not have a material impact on the first quarter 1998 results of operations. Development This represents the 1,120 homes developed at various times since January 1, 1997. These communities did not have a material impact on the first quarter 1998 results of operations. Real Estate Depreciation Real estate depreciation increased $4.8 million or 29% for the three months ended March 31, 1998 over the same period last year. This increase is directly attributable to the addition of depreciable real estate assets as a result of the Company's acquisition, development and capital expenditure programs. Interest Expense Interest expense increased $3.7 million for the three months ended March 31, 1998 over the same period last year. The weighted average amount of debt employed during the first three months of 1998 was higher than it was for the same period during 1997 ($1.2 billion in 1998 versus $1.0 billion in 1997). The weighted average interest rate on this debt was slightly higher than it was during the same period last year, rising from 7.3% in 1997 to 7.4% in 1998. For the three months ended March 31, 1998 and 1997, total interest capitalized was $536,000 and $479,000, respectively.
General and Administrative During the three months ended March 31, 1998, general and administrative expenses increased by $330,000 or 18.0% over the same period last year due to the increased size of the Company. In 1998, the Company incurred increases in most of its general and administrative expense categories, as it invested heavily in its personnel and technological infrastructure as part of a strategic plan to position the Company for future growth. Despite the significant improvement of its infrastructure, the Company has been able to keep general and administrative expenses flat year over year as a percentage of rental income. Inflation The Company believes that the direct effects of inflation on the Company's operations have been inconsequential.
PART II Item 1. LEGAL PROCEEDINGS Neither the Company nor any of its apartment communities is presently subject to any material litigation nor, to the Company's knowledge, is any litigation threatened against the Company or any of the communities, other than routine actions arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the business or financial condition or results of operations of the Company. Item 2. CHANGES IN SECURITIES None Item 3. DEFAULT UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 12, 1998, the Company held its Annual Meeting of Shareholders. A total of 76,312,225 shares of common stock, representing 83% of the shares outstanding and entitled to vote as of the March 12, 1998 record date were presented in person or by proxy and constituted a quorum. At the meeting twelve (12) directors were re-elected. Each director will serve an approximate one (1) year term until the Company's next Annual Meeting. The following persons were elected Directors with each receiving at least 75,219,483 shares, representing 81.9% of the total number of shares entitled to vote at the meeting and 98.6% of the shares voted: Jeff C. Bane, R. Toms Dalton, James Dolphin, Jon A. Grove, Barry M. Kornblau, John P. McCann, H. Franklin Minor, Lynne B. Sagalyn, Mark J. Sandler, Robert W. Scharar, John S. Schneider and C. Harmon Williams, Jr. The 1985 Stock Option Plan (the "Plan") was amended as follows: (i) limit the number of shares of Common Stock issuable on the exercise of options outstanding at any time to 8% of the number of Common Stock issued and outstanding at that time, subject to a maximum aggregate limit of shares that may be issued upon the exercise of options granted under the Plan to 10,000,000, and (ii) allow optionees to pay the exercise price of the options in installments. The 1985 Stock Option Plan amendments received shares, representing 44.9% of the total number of shares entitled to vote at the meeting and 82.9% of the shares voted. The proposal to amend the Articles of Incorporation (the "Articles") to create a new class of equity security (Classified Common Stock) was defeated. With respect to the proposed amendments to the Articles to conform the voting rights of the Preferred Shareholders to the NYSE Listing manual - the meeting was adjourned to a date to be determined no later than July 31, 1998, as a quorum of preferred shareholders was not present. Item 5. OTHER INFORMATION None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits listed on the accompanying index to exhibits are filed as part of this quarterly report. (b) A Form 8-K dated March 27, 1998 was filed with the Commission on April 13, 1998. The filing reported the merger of ASR Investment Corporation into a wholly-owned subsidiary of the Company on March 27, 1998 A Form 8-K dated February 17, 1998 was filed with the Commission on February 17, 1998. The filing contained the Pro Forma Financial Statements of the Company for the nine months ended September 30, 1997 and the twelve months ended December 31, 1996. A Form 8-K dated February 13, 1998 was filed with the Commission on February 13, 1998. The filing reported the Results of Operations of the Company for the twelve months and quarter ended December 31, 1997. A Form 8-K dated January 27, 1998 was filed with the Commission on February 4, 1998. The filing contained the Rights Agreement between the Company and ChaseMellon Shareholder Services, LLC.
EXHIBIT INDEX Item 6 (a) The exhibits listed below are filed as part of this quarterly report. References under the caption "Location" to exhibits, forms, or other filings indicate that the form or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. <TABLE> <CAPTION> Exhibit Description Location - ------- -------------------------------- -------------------------------------- <S> <C> 1(a) Underwriting Agreement dated Filed herewith. February 18, 1998, between the Company and A.G. Edwards & Sons, Inc. 1(b) Underwriting Agreement dated Filed herewith. March 24, 1998 between the Company and Wheat, First Securities, Inc. 2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration as of December 19, 1997, between Statement (Registration No. 333-45305) filed with the Company, ASR Investment the Commission on January 30, 1998. Corporation and ASR Acquisition Sub, Inc. 2(b) Definitive Agreement and Plan of Exhibit 2(b) to the Company's Form S-4 Registration Merger dated as of October 1, 1996, Statement (Registration No. 333-13745) filed with the between the Company, United Sub, Commission on October 9, 1996. Inc. and South West Property Trust Inc. 3(a) Restated Articles of Incorporation Exhibit 4(b) to the Company's Form S-3 Registration Statement (Registration No. 333-44463) filed with the Commission on January 16, 1998. 3(a)(i) Amendment of Articles of Exhibit 3 to the Company's Form 8-A Incorporation Registration Statement dated February 4, 1998. 3(b) Restated By-Laws Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. 4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report Certificate on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995. Redeemable Preferred Stock 4(i)(c) Form of Certificate for Shares of 8.60% Series B Cumulative Exhibit 1(e) to the Company's Form 8-A Redeemable Preferred Stock Registration Statement dated June 11, 1997. </TABLE>
<TABLE> <CAPTION <S> <C> 4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A January 27, 1998, between the Company Registration Statement dated February 4, 1998. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A Registration Statement dated February 4, 1998. 4(ii)(a) Loan Agreement dated as of Exhibit 6(c)(i) to the Company's Form 8-A November 7, 1991, between the Registration Statement dated April 19, 1990. Company and Aid Association for Lutherans 4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A as of February 15, 1993, between Registration Statement dated April 19, 1990. the Company and CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, Connecticut General Life Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 10(i) Employment Agreement between Exhibit 10(v)(i) to the Company's Annual Report on the Company and John P. McCann Form 10-K for the year ended December 31, 1982. dated October 29, 1982 10(ii) Employment Agreement between Exhibit 10(v)(ii) to the Company's Annual Report on the Company and James Dolphin Form 10-K for the year ended December 31, 1982. dated October 29, 1982. 10(iii) Employment Agreement between Exhibit 10(iv) to the Company's Annual the Company and John S. Schneider Report on Form 10-K for the year ended dated December 14, 1996. December 31, 1996. 10(iv) 1985 Stock Option Plan, Exhibit 10(vii) to the Company's Quarterly as amended. Report on Form 10-Q for the quarter ended March 31, 1997. 10(v) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report Plan. on Form 10-Q for the quarter ended March 31, 1997. 10(vi) Second Amended and Restated Exhibit 10(ix) to the Company's Quarterly Report on Agreement of Limited Partnership of Form 10-Q for the quarter ended September 30,1997. United Dominion Realty, L.P. Dated as of August 30, 1997. </TABLE>
<TABLE> <CAPTION> <S> <C> 10(vi)(a) Subordination Agreement dated Filed herewith. April 16, 1998, between the Company and United Dominion Realty, L.P. 12 Computation of Ratio of Earnings Filed herewith. to Fixed Charges. </TABLE>
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. United Dominion Realty Trust, Inc. - ---------------------------------- (registrant) Date: May 15, 1998 /s/ James Dolphin - ------------------------------------ ----------------- James Dolphin Executive Vice President and Chief Financial Officer