Filed Pursuant to Rule 424(b)(5)
Registration No. 333-92667
Prospectus Supplement to Prospectus dated December 23, 1999.
$200,000,000
[LOGO]
UNITED DOMINION
Realty Trust, Inc.
6.50% Notes due June 15, 2009
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We will pay interest on the notes on December 15 and June 15 of each year.
The first such payment will be made on December 15, 2002. The notes will be
issued only in denominations of $1,000 and integral multiples of $1,000. The
notes will not be entitled to the benefit of any sinking fund and will not be
subject to repurchase by us at the option of holders. We may redeem some or all
of the notes at any time before maturity at the redemption price described more
fully in this prospectus supplement beginning on page S-12.
The notes will be our senior unsecured obligations and will rank equally
with all of our other senior unsecured indebtedness.
We do not intend to list the notes on any securities exchange or to include
them in any automated quotation system.
See "Risks of Investment" beginning on page S-9 of this prospectus
supplement and on page 3 of the accompanying prospectus to read about certain
factors you should consider before investing in the notes.
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Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Note Total
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Initial public offering price... 99.863% $199,726,000
Underwriting discount........... 0.625% $ 1,250,000
Proceeds, before expenses, to us 99.238% $198,476,000
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from June 19, 2002 and must
be paid by the purchaser if the notes are delivered after June 19, 2002.
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Goldman, Sachs & Co. expects to deliver the notes in book-entry form only
through the facilities of The Depository Trust Company against payment in New
York, New York on or about June 19, 2002.
Goldman, Sachs & Co.
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Prospectus Supplement dated June 14, 2002.
You should rely only on the information contained in or incorporated by
reference into this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information. If anyone
provides you with different or additional information, you should not rely on
it. We are not making an offer of these securities in any jurisdiction where an
offer or sale of these securities is not permitted. You should not assume that
the information in this prospectus supplement, the accompanying prospectus and
the documents incorporated by reference herein and therein, is accurate as of
any date other than their respective dates. Our business, financial condition,
results of operations and prospects may have changed since those dates.
Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement to "United Dominion," "we," "us," and
"our," or similar terms, are to United Dominion Realty Trust, Inc. and its
subsidiaries.
S-2
HOW TO OBTAIN MORE INFORMATION
We file reports, proxy statements and other information with the SEC. You
may read any document we file at the SEC's public reference room at 450 Fifth
Street, NW, Room 1024, Washington, D.C. 20549. Please call the SEC toll free at
1-800-SEC-0330 for information about its public reference rooms. You also may
read our filings at the SEC's Web site at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 (File No.
333-92667) under the Securities Act of 1933, or the Securities Act. This
prospectus supplement and accompanying prospectus do not contain all of the
information in the registration statement. If any information varies between
the prospectus supplement and the accompanying prospectus, you should rely on
the information in the prospectus supplement. We have omitted certain parts of
the registration statement, as permitted by the rules and regulations of the
SEC. You may inspect and copy the registration statement, including exhibits,
at the SEC's public reference rooms or Web site. Our statements in this
prospectus supplement and accompanying prospectus about the contents of any
contract or other document are not necessarily complete. You should refer to
the copy of each contract or other document we have filed as an exhibit to the
registration statement for complete information.
INCORPORATION OF INFORMATION FILED WITH THE SEC
The SEC allows us to "incorporate by reference" into this prospectus
supplement and the accompanying prospectus the information we file with it.
This means that we have disclosed important information to you by referring you
to those documents. The information we incorporate by reference is considered a
part of this prospectus supplement and the accompanying prospectus, and
information that we file with the SEC, prior to the completion of this
offering, will automatically update and supersede this information. Our SEC
filing number is 1-10524. In addition to the documents incorporated by
reference in the accompanying prospectus, we incorporate by reference the
documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, or
the Exchange Act, prior to the completion of this offering.
. Annual Report on Form 10-K for the year ended December 31, 2001.
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
. Current Reports on Form 8-K filed on January 4, January 16, January 22,
March 15 and March 19, 2002.
You may request a copy of these filings at no cost by writing or calling us
at the following address:
United Dominion Realty Trust, Inc.
400 East Cary Street
Richmond, Virginia 23219
Attention: Investor Relations
Telephone: (804) 780-2691
S-3
FORWARD-LOOKING STATEMENTS
This document, including the documents incorporated by reference in this
document, contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act
of 1934, and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, by their nature, involve estimates, projections,
goals, forecasts, assumptions, risks and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in a
forward-looking statement. 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. Examples of forward-looking
statements that we make in this document include, but are not limited to,
statements under the heading "Prospectus Supplement Summary" regarding our
expectations, beliefs, plans, goals, objectives and future financial or other
performance. 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. Any
forward-looking statement speaks only as of the date on which it is made; and,
except to fulfill our obligations under the United States securities laws, we
undertake no obligation to update any such statement to reflect events or
circumstances after the date on which it is made.
Examples of factors that can affect our expectations, beliefs, plans, goals,
objectives and future financial or other performance include, but are not
limited to, the following:
. unanticipated adverse business developments affecting us or our
properties,
. adverse changes in the real estate markets,
. our declaration or payment of distributions,
. our potential developments or acquisitions or dispositions of properties,
assets or other public or private companies,
. our policies regarding investments, indebtedness, acquisitions,
dispositions, financings, conflicts of interest and other matters,
. our qualification as a REIT under the Internal Revenue Code,
. the real estate markets in which we operate and in general,
. the availability of debt and equity financing,
. interest rates,
. general and local economic business conditions, and
. trends affecting our financial condition or results of operations.
All of the above factors are difficult to predict, contain uncertainties
that may materially affect actual results, and may be beyond our control. New
factors emerge from time to time, and it is not possible for our management to
predict all of such factors or to assess the effect of each such factor on our
business.
Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore we cannot assure you that any of these statements
included in this document or in the documents incorporated by reference will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that the
results or conditions described in such statements or our objectives and plans
will be achieved.
S-4
PROSPECTUS SUPPLEMENT SUMMARY
The following is qualified in its entirety by, and should be read together
with, the more detailed information and financial statements included or
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
The Offering
The following is a brief summary of the terms of this offering. For a more
complete description of the terms of the notes, see "Description of the Notes"
beginning on page S-11 and "Description of Our Debt Securities" beginning on
page 13 of the accompanying prospectus.
Issuer..................... United Dominion Realty Trust, Inc.
Securities Offered......... We are offering $200,000,000 aggregate
principal amount of senior unsecured notes.
Interest Payment Dates..... Interest on the notes will be payable semi-
annually in arrears on June 15 and December
15, of each year, beginning December 15, 2002.
Restrictive Covenants...... The terms of the notes restrict our ability to:
. consolidate, sell, lease or convey all or
substantially all of our assets, or merge,
and
. incur additional indebtedness.
See "Description of the Notes--Certain
Covenants" in this prospectus supplement and
"Description of Our Debt Securities--Merger,
Consolidation or Sale" and "--Covenants
Applicable to Our Senior Debt Securities" in the
accompanying prospectus.
Redemption; No Sinking Fund We may redeem the notes at our option in whole
or in part at any time prior to maturity as more
fully described under "Description of the Notes."
The notes will not be entitled to the benefit of any
sinking fund and will not be subject to
repurchase by us at the option of holders.
Ranking.................... The notes will be senior unsecured obligations and
will rank equally with each other and with all of our
other existing and future senior unsecured
indebtedness and will be senior in right of payment
to all of our existing and future subordinated
indebtedness issued under our indenture dated
August 1, 1994. The notes will be effectively
subordinated to our secured and unsubordinated
indebtedness to the extent of the collateral pledged
as security for such indebtedness.
S-5
Our ability to meet our obligations under the
notes is dependent on the earnings and cash
flows of our operating subsidiaries and the ability
of those subsidiaries to pay dividends or to
advance or repay funds to us. The notes will
effectively be subordinated to the indebtedness
and preferred stock of our subsidiaries.
Defeasance and Covenant Defeasance The notes will be subject to defeasance and
covenant defeasance as described under
"Description of Our Debt Securities--Discharge,
Defeasance and Covenant Defeasance" in the
accompanying prospectus.
Governing Law..................... Commonwealth of Virginia.
Further Issues.................... Initially, the notes will be limited to $200,000,000
in aggregate principal amount. Subject to certain
restrictive covenants, we may, however, "reopen"
the series of notes from time to time without
notice to or consent of the holders of the notes
and issue an unlimited principal amount of
additional notes of the same series.
Ratings........................... The notes have been assigned ratings of Baa3
by Moody's Investors Service, Inc. and BBB--
by Standard & Poor's Rating Services. A rating
reflects only the view of a rating agency and is
not a recommendation to buy, sell or hold the
notes. We cannot assure you that any such
rating will be retained for any given period of
time. Any rating can be revised downward or
withdrawn entirely at any time by a rating agency
if it decides the circumstances warrant that
change.
Use of Proceeds................... We expect to use the net proceeds from the sale
of the notes to reduce outstanding balances
under our $375 million unsecured credit facility.
S-6
United Dominion
We are a self-administered equity real estate investment trust that owns,
acquires, renovates, develops and manages middle market apartment communities
nationwide. As of March 31, 2002, we owned 276 apartment communities located in
21 states, with a total of 78,341 completed apartment homes. In addition, we
had 448 apartment homes under development at two additional phases of existing
communities.
We operate as a real estate investment trust, or REIT, under the applicable
provisions of the Internal Revenue Code. To continue to qualify as a REIT, we
must continue to meet certain tests which, among other things, require that our
assets consist primarily of real estate, our income be derived primarily from
real estate and that we distribute at least 90% of our taxable income (other
than our net capital gain) to our preferred and common shareholders. As a
qualified REIT, we generally will not be subject to federal income taxes on our
net income to the extent we distribute such income to our shareholders.
Recent Developments
Recent Acquisitions
On April 30, 2002, we acquired The Reflections, a 416 apartment home
community located in Aurora, Colorado. The purchase price was $33.4 million.
This community was built in 1981 and, at the time of our acquisition, had an
occupancy of 97% with average rents of $884 per unit.
On May 21, 2002, we announced the acquisition of Presidential Greens
Apartments, a 397 apartment home community located in Alexandria, Virginia. The
purchase price was $29.8 million. This community was originally built in 1938
and has been extensively renovated. At the time of our acquisition, the
community had an occupancy of 98.5% with average rents of $930 per unit.
On June 6, 2002, we announced the acquisition of Stonehaven Apartments, a
518 apartment home community located in Federal Way, Washington, a suburb of
Seattle. The purchase price was $35.9 million. This community was built in 1991
and, at the time of our acquisition, had an occupancy of 93% with average rents
of $864 per unit.
Recent Dispositions
On April 18, 2002, we sold four residential apartment communities in the
Memphis, Tennessee area comprising 950 units for a total sales price of $38.7
million.
On May 1, 2002, we sold two residential apartment communities in the Tuscon,
Arizona area comprising 408 units for a total sales price of $12.4 million.
On May 20, 2002, we completed the sale of one commercial property in the
Bristol, Tennessee area for a total sales price of $2.2 million. The property
was sold in two parts with the first phase closing on April 1, 2002.
On June 3, 2002, we sold one residential apartment community in Naples,
Florida with 248 units for a sales price of $17.2 million.
On June 12, 2002, we sold one residential apartment community in Memphis,
Tennessee comprising 376 units for a sales price of $13.2 million.
S-7
Ratios of Earnings to Fixed Charges and Earnings to Fixed Charges
and Preferred Stock Dividends
Three Months Years Ended December 31,
Ended March 31, -----------------------------
2002 2001 2000 1999 1998 1997
--------------- ----- ----- ----- ----- -----
Ratio of earnings to fixed
charges..................... 1.41x 1.45x 1.48x 1.58x 1.64x 1.83x
Ratio of earnings to combined
fixed charges and preferred
stock dividend.............. 1.17x 1.20x 1.20x 1.28x 1.35x 1.51x
We define "earnings" as:
. net income before extraordinary items, plus
. the portion of rents that is representative of the interest factor,
. minority interests,
. losses on equity investments in joint ventures, and
. interest on indebtedness.
We define "fixed charges" as the sum of:
. interest on indebtedness,
. capitalized interest, and
. the portion of rents that is representative of the interest factor.
Where applicable, we add the amount of our preferred stock dividend.
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Our principal executive office is located at 1745 Shea Center Drive, Suite
200, Highlands Ranch, Colorado 80129. The telephone number of our principal
executive offices is (720) 283-6120. Our corporate headquarters is located at
400 East Cary Street, Richmond, Virginia 23219. The telephone number of our
corporate headquarters is (804) 780-2691.
S-8
RISKS OF INVESTMENT
In addition to the risks beginning on page 3 of the accompanying prospectus,
together with all information included or incorporated by reference in this
prospectus supplement and accompanying prospectus, you should be aware of and
consider the following risks before you invest in our notes.
Unfavorable Changes in Apartment Market and Economic Conditions Could Adversely
Affect Occupancy Levels and Rental Rates Which May Impair Our Ability to Pay
the Notes
Market and economic conditions in the various metropolitan areas of the
United States in which we operate may significantly affect our occupancy levels
and rental rates and therefore our profitability. Factors that may adversely
affect these conditions include the following:
. a reduction in jobs and other local economic downturns,
. low mortgage interest rates, making alternative housing more affordable,
. oversupply of, or reduced demand for, apartment homes,
. declines in household formation, and
. rent control or stabilization laws, or other laws regulating rental
housing, which could prevent us from raising rents to offset increases in
operating costs.
The weakness in the United States economy has been exacerbated by the events
of September 11, 2001, as well as by the United States' war on terrorism. The
weak economy has adversely affected employment and other significant elements
of the economy that drive productivity and the financial strength of
businesses. In seeking to maintain our occupancy levels, we have provided
certain concessions to our residents, and we have increased our bad debt
allowance. Any continuation or worsening of current economic conditions
generally, and in our principal market areas particularly, could have a
material adverse effect on our occupancy levels, our rental rates, or our
ability to strategically acquire and dispose of apartment communities. This may
impair our ability to satisfy our financial obligations, including our ability
to pay the notes.
Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing
Risk
We are subject to the risks normally associated with debt financing,
including the risk that our operating income and cash flow will be insufficient
to make required payments of principal and interest, or could restrict our
borrowing capacity under our line of credit due to debt covenant restraints. We
cannot assure you that sufficient cash flow will be available to make all
required principal payments and still satisfy our distribution requirements to
maintain our status as a REIT, nor can we assure you that the full limits of
our line of credit will be available to us if our operating performance falls
outside the constraints of our debt covenants. Additionally, we are likely to
need to refinance substantially all of our outstanding debt as it matures. We
may not be able to refinance existing debt, or the terms of any refinancing may
not be as favorable as the terms of the existing debt, which could create
pressures to sell assets or to issue additional equity when we would otherwise
choose not to do so.
You May Not Be Able to Sell Your Notes
The notes are a new issue of securities with no established trading market.
We do not intend to apply for listing of the notes on any national securities
exchange. Goldman, Sachs & Co. has advised us that they intend to make a market
in the notes, but they are not obligated to do so and may discontinue market
making at any time without notice. We can give no assurance as to the liquidity
of or any trading market for the notes.
S-9
Scheduled Debt Payments Could Adversely Affect Our Financial Condition
At March 31, 2002, we had consolidated indebtedness of approximately $2.1
billion. If principal payments due at maturity cannot be refinanced, extended
or paid with proceeds of other capital transactions, such as new equity
capital, our cash flow will not be sufficient in all years to repay all
maturing debt. If prevailing interest rates or other factors at the time of
refinancing, such as the possible reluctance of lenders to make commercial real
estate loans, result in higher interest rates, increased interest expense would
adversely affect cash flow and our ability to service our debt obligations,
including the notes.
We are Obligated to Comply with Financial Covenants in Our Debt that Could
Reduce Our Flexibility and Create a Risk of Default on the Notes
Certain of our properties are subject to mortgages that contain customary
negative covenants, including limitations on our ability, without the prior
consent of the lender, to further mortgage the property, to enter into new
leases outside of stipulated guidelines or to materially modify existing
leases. In addition, our secured and unsecured credit facilities contain
customary requirements, and restrictions and other limitations on our ability
to incur debt, including debt to assets ratios, secured debt to total assets
ratios, debt service coverage ratios and minimum ratios of unencumbered assets
to unsecured debt. These covenants will reduce our flexibility in conducting
our operations and create a risk of default on our debt, including the notes,
if we cannot continue to satisfy them.
USE OF PROCEEDS
We estimate that the net proceeds from the offering of the notes will be
approximately $198.3 million, after deducting underwriting discounts and
commissions and other estimated offering expenses. We intend to use the net
proceeds from the offering of the notes to reduce outstanding balances under
our $375 million unsecured credit facility.
Our $375 million three-year unsecured credit facility matures in August
2003. As of March 31, 2002, the weighted average interest rate on this facility
was 6.1%, after giving effect to interest rate swaps agreements.
S-10
DESCRIPTION OF THE NOTES
The following description of the particular terms and provisions of the
notes supplements and replaces, to the extent it is inconsistent with, the
description of our debt securities contained in the accompanying prospectus. We
have not described every aspect of the notes. You should refer to the Senior
Indenture described in the accompanying prospectus and the form of the notes
for a complete description of the provisions of the notes. The Senior Indenture
is an exhibit to the registration statement referred to under "About This
Prospectus" in the accompanying prospectus, and the form of the notes will be
filed as an exhibit to a report we file with the SEC. See "Where You Can Find
More Information" in the accompanying prospectus for information on how to
obtain a copy of the Senior Indenture and the form of the notes for your review.
General
The notes will constitute a separate series of debt securities under the
Senior Indenture, initially limited to $200,000,000 aggregate principal amount,
subject to our right to reopen each series and issue additional notes of that
series without the consent of holders. The notes will be issued only in fully
registered form without coupons, in denominations of $1,000 and in integral
multiples of $1,000. The notes will be represented by one or more permanent
global securities in book-entry form, except under the limited circumstance
described in the accompanying prospectus under "Description of Our Debt
Securities--Book-Entry System." The Global Securities will be registered in the
name of a nominee of The Depository Trust Company, as depository for the notes.
See "Description of Our Debt Securities--Book-Entry System" in the accompanying
prospectus.
The notes will not be entitled to the benefit of any sinking fund and will
not be subject to repurchase by us at the option of the holders.
The notes will be subject to defeasance and covenant defeasance as described
under "Description of Our Debt Securities--Discharge, Defeasance and Covenant
Defeasance" in the accompanying prospectus.
Notices and demands to or upon us in respect of the notes and the Senior
Indenture may be served and, in the event that the notes are issued in
definitive certificated form, the notes may be surrendered for payment,
registration of transfer or exchange, at our office or agency maintained for
that purpose in the Borough of Manhattan, The City of New York (which will
initially be the office of the Senior Indenture Trustee which is located at 40
Broad Street, Suite 55, New York, New York 10004) and in Charlotte, North
Carolina (which will initially be the Corporate Trust Operations Office of the
Senior Indenture Trustee which is located at 1525 West W.T. Harris Boulevard
3C3, Charlotte, North Carolina 28262-1153).
Interest Rate, Interest Payment Dates and Maturity
The notes will mature on June 15, 2009 and will bear interest at the rate of
6.5% per annum. Interest on the notes will accrue from and including June 19,
2002 or from the most recent date to which interest has been paid or duly
provided for. Interest on the notes will be payable semiannually in arrears on
June 15 and December 15 of each year, commencing December 15, 2002, to the
persons in whose names the notes are registered at the close of business on the
preceding June 1 and December 1, as the case may be. Interest on the notes will
be computed on the basis of a 360-day year of twelve 30-day months.
If any interest payment date or maturity date for the notes is not a
business day, then payment of principal and interest need not be made on that
date but may be made without additional interest on the next succeeding
business day.
S-11
Ranking
The notes will be our senior unsecured obligations and will rank on a parity
in priority of payment with all our other senior unsecured indebtedness. The
notes will be effectively subordinated to our secured and unsubordinated
indebtedness to the extent of the collateral pledged as security for such
indebtedness. As of March 31, 2002, on a consolidated basis we had outstanding
secured debt of approximately $1.1 billion and outstanding unsecured debt of
approximately $1.0 billion.
The notes will be our obligations exclusively. Although a significant
portion of our consolidated assets is held by us directly, substantially more
than a majority of our consolidated assets is held by our subsidiaries.
Accordingly, our cash flow and our ability to service our debt, including the
notes, is in large part dependent upon the results of operations of our
subsidiaries and upon the ability of our subsidiaries to provide cash (whether
in the form of dividends, loans or otherwise) to pay amounts due in respect of
our obligations, including the notes. Our subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due on the notes or to make any funds available to pay such
amounts. In addition, dividends, loans and other distributions from our
subsidiaries to us are subject to contractual and other restrictions, are
contingent upon results of operations of such subsidiaries and are subject to
various business considerations.
The notes will be effectively subordinated to all existing and future
liabilities (including indebtedness, guarantees, trade payables, lease
obligations and letter of credit obligations) of our subsidiaries. Therefore,
our rights and the rights of our creditors, including the holders of the notes,
to participate in the assets of any subsidiary upon its liquidation or
reorganization will be subject to the prior claims of its creditors, except to
the extent that we may ourselves be a creditor with recognized claims against
it, in which case our claims would still be effectively subordinated to any
lien or security interest affecting the assets of that subsidiary and would be
subordinated to any of its indebtedness senior to that held by us. In addition,
subsidiaries owning a significant portion of our consolidated assets have
guaranteed our borrowings under our bank credit facilities, and under certain
circumstances, one or more of our other subsidiaries may also be required to
guarantee our borrowings under these facilities. As of March 31, 2002,
borrowings of approximately $297.0 million under these facilities were
outstanding. Although the Senior Indenture and certain instruments and
agreements to which we and our subsidiaries are parties or by which we and they
are bound impose limitations on the incurrence of additional indebtedness, both
we and our subsidiaries retain the ability to incur substantial indebtedness
and other liabilities.
Optional Redemption
We may redeem the notes at any time in whole or from time to time in part at
a redemption price equal to the sum of 100% of the aggregate principal amount
of the notes being redeemed, accrued but unpaid interest on those notes to the
redemption date, and the Make-Whole Amount, if any, as defined in the Senior
Indenture and below. We will pay the interest installment due on any interest
payment date that occurs on or before a redemption date to the registered
holders of the notes as of the close of business on the record date immediately
preceding that interest payment date.
If we have given notice as provided in the Senior Indenture and made funds
available for the redemption of any notes called for redemption on the
redemption date referred to in that notice, those notes will cease to bear
interest on that redemption date and the only right of the holders of those
notes will be to receive payment of the redemption price.
We will give notice of any redemption of any notes to registered holders of
the notes to be redeemed at their addresses, as shown in the security register
for the notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
redemption price and the aggregate principal amount of the notes to be redeemed.
S-12
If we choose to redeem less than all of the notes, we will notify Wachovia
Bank, N.A. (formerly First Union National Bank), the trustee under the Senior
Indenture, at least 45 days before giving notice of redemption, or such shorter
period as is satisfactory to the trustee, the aggregate principal amount of
notes to be redeemed and the applicable redemption date. The trustee will
select, in the manner it deems fair and appropriate, notes to be redeemed in
part.
As used in this prospectus supplement:
"Make-Whole Amount" means, in connection with any optional redemption, the
excess, if any, of (a) the aggregate present value as of the date of such
redemption of each dollar of principal being redeemed and the amount of
interest, exclusive of interest accrued to the date of redemption, that would
have been payable in respect of each such dollar if such redemption had not
been made, determined by discounting, on a semi-annual basis, such principal
and interest at the Reinvestment Rate, determined on the third New York
business day preceding the date notice of such redemption is given, from the
respective dates on which such principal and interest would have been payable
if such redemption had not been made, to the date of redemption, over (b) the
aggregate principal amount of the notes being redeemed.
"Reinvestment Rate" means .30% plus the arithmetic mean of the yields under
the heading "Week Ending" published in the most recent Statistical Release
under the caption "Treasury Constant Maturities" for the maturity, rounded to
the nearest month, corresponding to the remaining life to maturity, as of the
payment date of the principal amount of the notes being redeemed. If no
maturity exactly corresponds to such maturity, yields for the two published
maturities most closely corresponding to such maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate shall
be interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purposes of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the Make-Whole Amount
shall be used. If the format or content of the Statistical Release changes in a
manner that precludes determination of the Treasury yield in the above manner,
then the Treasury yield shall be determined in the manner that most closely
approximates the above manner, as reasonably determined by us.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any required determination under the Senior
Indenture, then such other reasonably comparable index which shall be
designated by us.
Certain Covenants
In addition to the covenants discussed in the accompanying prospectus under
the section entitled "Description of Our Debt Securities," we are required to
maintain Total Unencumbered Assets of not less than 150% of the aggregate
outstanding principal amount of our Unsecured Debt. For purposes of this
covenant, the following capitalized terms are defined as follows:
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance and (ii) all other assets of United
Dominion and its Subsidiaries not subject to encumbrance determined in
accordance with generally accepted accounting principles (but excluding
accounts receivable and intangibles).
"Subsidiaries" means a corporation, a limited liability company or a
partnership a majority of the outstanding voting stock, limited liability
company or partnership interests, as the case may be, of
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which is owned, directly or indirectly, by United Dominion or by one or more
other Subsidiaries of United Dominion. For purposes of this definition, "voting
stock" means stock having voting power for the election of directors, managing
members or trustees, whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
"Undepreciated Real Estate Assets" as of any date means the original cost
plus capital improvements of real estate assets of United Dominion and its
Subsidiaries determined in accordance with generally accepted accounting
principles.
"Unsecured Debt" means debt of United Dominion or any Subsidiary which is
not secured by any mortgage, lien, charge, pledge or security interest of any
kind upon any of their properties.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
This section supersedes the discussion under the caption "Federal Income Tax
Consequences of United Dominion's Status as a REIT" in the accompanying
prospectus.
We urge you to consult your own tax advisor regarding the specific tax
consequences to you of the acquisition, ownership, and disposition of the notes
and of our election to be taxed as a REIT. Specifically, you should consult
your own tax advisor regarding the federal, state, local, foreign, and other
tax consequences of such acquisition, ownership, disposition, and election, and
regarding potential changes in applicable tax laws.
Regarding an Investment in the Notes
The following summary describes material United States federal income tax
consequences relating to the purchase, ownership, and disposition of the notes
as of the date hereof. Except where noted, this summary deals only with notes
held as capital assets and does not deal with special situations, such as those
of dealers in securities or currencies, tax-exempt organizations, individual
retirement accounts and other tax deferred accounts, financial institutions,
life insurance companies, persons holding notes as a part of a hedging or
conversion transaction or a straddle, persons subject to the alternative
minimum tax, or holders of notes whose "functional currency" is not the U.S.
dollar. This disclosure is addressed only to persons who acquire the notes at
original issue at the initial issue price and does not address the tax
consequences to subsequent purchasers of the notes. Furthermore, the discussion
below is based upon the current federal income tax laws and interpretations
thereof as of the date hereof. Such authorities may be repealed, revoked, or
modified so as to result in federal income tax consequences different from
those discussed below. In addition, except as otherwise indicated, the
following summary does not consider the effect of any applicable foreign,
state, local, or other tax laws or estate or gift tax considerations.
If a partnership holds notes, the tax treatment of a partner in the
partnership will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding
our notes, you should consult your tax advisor regarding the tax consequences
of the ownership and disposition of the notes.
U.S. Holders
As used herein, a "U.S. holder" of a note means a holder that for U.S.
federal income tax purposes is:
. a citizen or resident of the United States;
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. a corporation or other entity treated as a corporation for federal income
tax purposes that is created or organized in or under the laws of the
United States or any political subdivision thereof;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust if (a) a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (b) it has
a valid election in place to be treated as a U.S. person.
A "non-U.S. holder" of a note is a holder that for U.S. federal income tax
purposes is not a U.S. holder.
Stated Interest on Notes
Stated interest on a note generally will be taxable to a U.S. holder as
ordinary income from domestic sources at the time it is paid or accrued in
accordance with the U.S. holder's method of accounting for tax purposes. In
general, interest paid to U.S. holders who report their income on the cash
receipts and disbursements method of accounting will be taxable to them when
received. Interest earned by U.S. holders who report their income on the
accrual method of accounting generally will be taxable when accrued, regardless
of when it is actually received. It is not anticipated that the notes will give
rise to original issue discount, as defined in the Internal Revenue Code.
Sale, Exchange, and Retirement of Notes
Upon the sale, exchange, retirement, or other taxable disposition of a note,
a U.S. holder generally will recognize gain or loss equal to the difference
between the amount realized upon the disposition (less an amount attributable
to any accrued stated interest not previously included in income, which will be
taxable as interest income) and such holder's adjusted tax basis in the note.
Such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if, at the time of the disposition, the note has been held for
more than one year. Long term capital gains of non-corporate U.S. holders will
generally be subject to tax at a maximum rate of 20%, and may be taxed at a
maximum rate of 18% if the note has been held for more than five years at the
time of the disposition.
Backup Withholding and Information Reporting
Payments of interest and principal on the notes and the proceeds received
upon the sale or other disposition of such notes may be subject to Internal
Revenue Service information reporting and backup withholding tax. Payments to
certain holders (including, among others, corporations and certain tax-exempt
organizations) are generally not subject to information reporting or backup
withholding. Payments to a non-corporate U.S. holder will be subject to
information reporting and backup withholding tax if such holder:
. fails to furnish its taxpayer identification number, which for an
individual is ordinarily his or her social security number,
. furnishes an incorrect taxpayer identification number,
. is notified by the Internal Revenue Service that it has failed to
properly report payments of interest or dividends, or
. fails to certify, under penalties of perjury, that it has furnished a
correct taxpayer identification number and that the Internal Revenue
Service has not notified the U.S. holder that it is subject to backup
withholding.
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A U.S. holder that does not provide us with its correct taxpayer
identification number may also be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding will be creditable
against the holder's federal income tax liability, if any, and otherwise be
refundable, provided that the requisite procedures are followed.
You should consult your tax advisor regarding your qualification for an
exemption from backup withholding and information reporting and the procedures
for obtaining such an exemption, if applicable.
Non-U.S. Holders
The following is a summary of the U.S. federal tax consequences that will
apply to you if you are a non-U.S. holder of notes. The term "non-U.S. holder"
means a beneficial owner of a note that is not a U.S. holder. Special rules may
apply to certain non-U.S. holders such as "controlled foreign corporations,"
"passive foreign investment companies" and "foreign personal holding
companies." Such entities should consult their own tax advisors to determine
the U.S. federal, state, local and other tax consequences that may be relevant
to them.
Stated Interest on Notes
Subject to the discussion below concerning backup withholding, no U.S.
federal income tax will be imposed with respect to the payment of interest on a
note owned by a non-U.S. holder, provided that (1) such non-U.S. holder does
not actually or constructively own 10% or more of the total voting power of all
classes of our voting stock, (2) such non-U.S. holder is not a controlled
foreign corporation (as defined in the federal income tax laws) that is
related, directly or indirectly, to us, (3) such non-U.S. holder is not a bank
whose receipt of interest on a note is pursuant to a loan agreement entered
into in the ordinary course of its business, and (4) such non-U.S. holder
provides us or our withholding agent with appropriate documentation of the
non-U.S. holder's foreign status. The documentation requirement will be met if:
(1) you provide your name and address, and certify, under penalties of perjury,
that you are not a U.S. holder (which certification may be made on an Internal
Revenue Service Form W-8BEN (or a successor form)) or (2) a securities clearing
organization, bank, or other financial institution that holds customers'
securities in the ordinary course of its business holds the note on your behalf
and certifies, under penalties of perjury, that it has received Internal
Revenue Service Form W-8BEN from you or from another qualifying financial
institution intermediary, and, in certain circumstances, provides a copy of the
Internal Revenue Service Form W-8BEN. If the notes are held by or through
certain foreign intermediaries or certain foreign partnerships, such foreign
intermediaries or partnerships must also satisfy the certification requirements
of applicable Treasury Regulations.
If a non-U.S. holder cannot satisfy the requirements described above,
interest payments on a note made to such non-U.S. holder will be subject to a
30% tax unless the beneficial owner of the note provides us or our paying agent
with a properly executed (1) Internal Revenue Service Form W-8BEN (or successor
form) claiming an exemption from withholding or eligibility for a reduced rate
under the benefit of a tax treaty or (2) Internal Revenue Service Form W-8ECI
(or successor form) stating that interest paid on the note is not subject to
withholding tax because it is effectively connected with the beneficial owner's
conduct of a trade or business in the United States.
If a non-U.S. holder is engaged in a trade or business in the U.S. and
payments on a note are effectively connected with the conduct of such trade or
business (or, if an income tax treaty applies, attributable to a U.S. permanent
establishment of the non-U.S. holder), the non-U.S. holder, although exempt
from the 30% withholding tax discussed above, will be subject to U.S. federal
income tax on such payments at regular graduated rates in the same manner as if
it were a U.S. holder. In addition, if such holder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or lower
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rate specified by treaty) of its effectively connected earnings and profits for
the taxable year, subject to adjustments. For this purpose, payments on a note,
to the extent included in taxable income, will also be included in such foreign
corporation's earnings and profits.
Sale, Exchange, and Retirement of Notes
In general, no U.S. federal withholding tax will be imposed with respect to
any gain or income realized by a non-U.S. holder upon the sale, exchange,
redemption, retirement, or other disposition of a note. However, any such gain
or income will be subject to U.S. federal income tax if either (1) such gain or
income is effectively connected with a U.S. trade or business of the non-U.S.
holder (or, if an income tax treaty applies, attributable to a U.S. permanent
establishment of the non-U.S. holder), in which case the non-U.S. holder will
be subject to U.S. federal income tax on such gain or income at regular
graduated rates in the same manner as if it were a U.S. holder and may also, in
the case of a corporate holder, be subject to a branch profits tax equal to 30%
(or lower applicable treaty rate), or (2) the non-U.S. holder is an individual
who is present in the U.S. for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are present, in which case the non-U.S. holder will incur a 30% (or lower rate
specified by treaty) tax on such gain or income.
Estate Tax
A note beneficially owned by an individual who at the time of death is a
non-U.S. holder will not be subject to U.S. federal estate tax as a result of
such individual's death, provided that such individual does not actually or
constructively own 10% or more of the total voting power of all classes of our
voting stock and provided that the interest payments with respect to such note,
if received at the time of such individual's death, would not have been
effectively connected with the conduct of a U.S. trade or business by such
individual.
Information Reporting and Backup Withholding
Backup withholding will not apply to payments made to a non-U.S. holder of a
note if the holder has provided the required certification that it is not a
U.S. holder, as described above, unless the payor has actual knowledge that the
owner is not a non-U.S. holder. However, certain information reporting may
still apply with respect to interest payments even if certification is provided.
Payment of the proceeds of a disposition by a non-U.S. holder of a note made
to or through the U.S. office of a broker is generally subject to information
reporting and backup withholding unless the holder or beneficial owner has
provided the required certification that it is not a U.S. holder, as described
above, or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a foreign office of a
foreign broker-dealer. If the proceeds from a disposition of a note are paid to
or through a foreign office of a U.S. broker-dealer or a non-U.S. office of a
foreign broker-dealer that is (i) a "controlled foreign corporation" for
federal income tax purposes, (ii) a person 50% or more of whose gross income
from all sources for a three-year period was effectively connected with a U.S.
trade or business, (iii) a foreign partnership with one or more partners who
are U.S. persons and who in the aggregate hold more than 50% of the income or
capital interest in the partnership, or (iv) a foreign partnership engaged in
the conduct of a trade or business in the United States, then backup
withholding and information reporting generally will not apply if the non-U.S.
holder satisfies certification requirements regarding its status as a non-U.S.
holder and the broker-dealer has no actual knowledge that the owner is not a
non-U.S. holder.
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A non-U.S. holder should consult its tax advisor regarding application of
withholding and backup withholding in its particular circumstance and the
availability of and procedure for obtaining an exemption from withholding and
backup withholding under current Treasury Regulations.
Due to the complexity of the U.S. federal income tax rules applicable to
noteholders, potential investors should consult their tax advisors regarding
the tax treatment of the acquisition, ownership, and disposition of the notes.
Regarding Our Status as a REIT and REIT Qualification
General
We elected to be taxed as a REIT under the federal income tax laws
commencing with our taxable year ended December 31, 1972. We believe that we
have operated in a manner that permits us to satisfy the requirements for
taxation as a REIT under the applicable provisions of the Internal Revenue
Code. Qualification and taxation as a REIT depends upon our ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Internal
Revenue Code discussed below. Although we intend to continue to operate to
satisfy such requirements, no assurance can be given that the actual results of
our operations for any particular taxable year will satisfy such requirements.
See "-- Failure to Qualify."
The provisions of the Internal Revenue Code, Treasury Regulations
promulgated thereunder and other federal income tax laws relating to
qualification and operation as a REIT are highly technical and complex. The
following sets forth the material aspects of the laws that govern the federal
income tax treatment of a REIT. This summary is qualified in its entirety by
the applicable Internal Revenue Code provisions, rules and Treasury Regulations
thereunder, and administrative and judicial interpretations thereof.
The law firm of Morrison & Foerster LLP has acted as our tax counsel in
connection with the filing of this prospectus supplement. In the opinion of
Morrison & Foerster LLP, we have been organized and have operated in conformity
with the requirements for qualification and taxation as a REIT under the
Internal Revenue Code for each of our taxable years beginning with the taxable
year ended December 31, 1998 through our taxable year ended December 31, 2001,
and our current organization and proposed method of operation will enable us to
continue to meet the requirements for qualification and taxation as a REIT for
the taxable year 2002 and thereafter. The opinion of Morrison & Foerster LLP is
based on various assumptions and representations made by us as to factual
matters, including representations made by us in this prospectus supplement and
a factual certificate provided by one of our officers. Moreover, our
qualification and taxation as a REIT depends upon our ability to meet the
various qualification tests imposed under the Internal Revenue Code and
discussed below, relating to our actual annual operating results, asset
diversification, distribution levels, and diversity of stock ownership, the
results of which have not been and will not be reviewed by Morrison & Foerster
LLP. Accordingly, neither Morrison & Foerster LLP nor we can assure you that
the actual results of our operations for any particular taxable year will
satisfy these requirements. See "--Failure to Qualify." Further, the
anticipated income tax treatment described in this prospectus supplement may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Internal Revenue Code are satisfied, entities, such as us, that invest
primarily in real estate and that otherwise would be treated for federal income
tax purposes as corporations, are generally not taxed at the corporate level on
their "REIT taxable income" that is distributed currently to stockholders. This
treatment substantially eliminates the "double taxation" (i.e., taxation at
both the corporate and stockholder levels) that generally results from
investing in corporations.
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If we fail to qualify as a REIT in any year, however, we will be subject to
federal income tax as if we were a domestic corporation, and our stockholders
will be taxed in the same manner as stockholders of ordinary corporations. In
that event, we could be subject to potentially significant tax liabilities, the
amount of cash available for distribution to our stockholders could be reduced
and we would not be obligated to make any distributions.
Taxation of the Company
In any year in which we qualify as a REIT, in general, we will not be
subject to federal income tax on that portion of our net income that we
distribute to stockholders. However, we will be subject to federal income tax
as follows: First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
(However, we can elect to "pass through" any of our taxes paid on our
undistributed net capital gains income to our stockholders on a pro rata
basis.) Second, under certain circumstances, we may be subject to the
"alternative minimum tax" on our items of tax preference. Third, if we have (1)
net income from the sale or other disposition of "foreclosure property" which
is held primarily for sale to customers in the ordinary course of business or
(2) other nonqualifying income from foreclosure property, we will be subject to
tax at the highest corporate rate on such income. Fourth, if we have net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, generally other than property held for at least four years,
foreclosure property, and property involuntarily converted), such income will
be subject to a 100% penalty tax. Fifth, if we should fail to satisfy the 75%
or the 95% tests (as discussed below), and have nonetheless maintained our
qualification as a REIT because certain other requirements have been satisfied,
we will be subject to a 100% penalty tax on the net income attributable to the
greater of either (1) the amount by which 75% of our gross income exceeds the
amount of our income qualifying under the 75% test for the taxable year or (2)
the amount by which 90% of our gross income exceeds the amount of our income
qualifying for the 95% income test for the taxable year, multiplied by a
fraction intended to reflect our profitability. Sixth, if we should fail to
distribute during each calendar year at least the sum of (1) 85% of our
ordinary income for such year, (2) 95% of our net capital gain income for such
year, and (3) any undistributed taxable income from prior periods, we will be
subject to a 4% excise tax on the excess of such required distribution over the
amounts distributed. Seventh, if we acquire any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other property) in the hands of the
C corporation, and we recognize gain on the disposition of such asset during
the 10-year period beginning on the date on which we acquired such asset, then,
to the extent of any built-in, unrealized gain at the time of acquisition, such
gain generally will be subject to tax at the highest regular corporate rate.
Finally, we may be subject to an excise tax if our dealings with our taxable
REIT subsidiaries (defined below) are not at arm's length.
Requirements for Qualification
The Internal Revenue Code defines a REIT as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Internal
Revenue Code; (4) which is neither a financial institution nor an insurance
company subject to certain provisions of the Internal Revenue Code; (5) the
beneficial ownership of which is held by 100 or more persons; (6) not more than
50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code) at any time during the last half of each taxable year; and (7) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of
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12 months, or during a proportionate part of a taxable year of less than 12
months. If we were to fail to satisfy condition (6) during a taxable year, that
failure would not result in our disqualification as a REIT under the Internal
Revenue Code for such taxable year as long as (i) we satisfied the stockholder
demand statement requirements described in the succeeding paragraph and (ii) we
did not know, or exercising reasonable diligence would not have known, whether
we had failed condition (6).
We believe we have issued sufficient stock with sufficient diversity of
ownership to satisfy conditions (5) and (6) above. In addition, our charter
provides our Board of Directors with authority to prohibit the proposed
transfer of our capital stock or cause us to redeem outstanding capital stock
to ensure that we continue to satisfy these conditions. Moreover, to evidence
compliance with these requirements, we must maintain records which disclose the
actual ownership of our outstanding common stock and preferred stock. In
fulfilling our obligations to maintain records, we must and will demand written
statements each year from the record holders of designated percentages of our
common stock and preferred stock disclosing the actual owners of such common
stock and preferred stock. A list of those persons failing or refusing to
comply with such demand must be maintained as part of our records. A
stockholder failing or refusing to comply with our written demand must submit
with its federal income tax returns a similar statement disclosing the actual
ownership of common stock and preferred stock and certain other information.
Although we intend to satisfy the stockholder demand statement requirements
described in the preceding paragraph, under current law our failure to satisfy
those requirements will not result in our disqualification as a REIT under the
Internal Revenue Code but may result in the imposition of Internal Revenue
Service penalties against us.
We currently have several direct corporate subsidiaries and may have
additional corporate subsidiaries in the future. Certain of our corporate
subsidiaries will be treated as "qualified REIT subsidiaries" under the
Internal Revenue Code. A corporation will qualify as a qualified REIT
subsidiary if we own 100% of its outstanding stock and if we and the subsidiary
do not jointly elect to treat it as a "taxable REIT subsidiary" as described
below. A corporation that is a qualified REIT subsidiary is not treated as a
separate corporation, and all assets, liabilities and items of income,
deduction and credit of a qualified REIT subsidiary are treated as assets,
liabilities and items of income, deduction and credit (as the case may be) of
the parent REIT for all purposes under the Internal Revenue Code (including all
REIT qualification tests). Thus, in applying the requirements described in this
prospectus supplement the subsidiaries in which we own a 100% interest (other
than taxable REIT subsidiaries) will be ignored, and all assets, liabilities
and items of income, deduction and credit of such subsidiaries will be treated
as our assets, liabilities and items of income, deduction and credit. A
qualified REIT subsidiary is not subject to federal income tax and our
ownership of the stock of such a subsidiary will not violate the REIT asset
tests, described below under "--Requirements for REIT Qualification--Asset
Tests."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. In addition, the
character of the assets and gross income of a partnership shall retain the same
character in the hands of a partner qualifying as a REIT for purposes of the
REIT qualification tests under the Internal Revenue Code, including satisfying
the gross income tests and the asset tests, described below. Thus, our
proportionate share of the assets, liabilities and items of income of the
partnerships in which we own an interest, directly or indirectly, will be
treated as our assets, liabilities and items of income for purposes of applying
the requirements described below.
Asset Tests
At the close of each quarter of our taxable year, we generally must satisfy
three tests relating to the nature of our assets. First, at least 75% of the
value of our total assets must be represented by
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interests in real property, interests in mortgages on real property, shares in
other REITs, cash, cash items and government securities (as well as certain
temporary investments in stock or debt instruments purchased with the proceeds
of new capital raised by us). Second, although the remaining 25% of our assets
generally may be invested without restriction, securities in this class
generally may not exceed either (1) 5% of the value of our total assets as to
any one nongovernment issuer, (2) 10% of the outstanding voting securities of
any one issuer, or (3) 10% of the value of the outstanding securities of any
one issuer. Third, not more than 20% of the total value of our assets can be
represented by securities of one or more "taxable REIT subsidiaries" (described
below). Securities for purposes of the asset tests may include debt securities,
including debt issued by a partnership. However, debt of an issuer will not
count as a security for purposes of the 10% value test if the security is
"straight debt," as specially defined for this purpose, and certain other
requirements are satisfied.
Under recent changes in law, we and a corporation in which we own stock may
make a joint election for such subsidiary to be treated as a "taxable REIT
subsidiary." The securities of a taxable REIT subsidiary are not subject to the
5% asset test and the 10% vote and value tests described above. Instead, as
discussed above, a separate asset test applies to taxable REIT subsidiaries.
The new rules regarding taxable REIT subsidiaries contain provisions generally
intended to insure that transactions between a REIT and its taxable REIT
subsidiary occur "at arm's length" and on commercially reasonable terms. These
requirements include a provision that prevents a taxable REIT subsidiary from
deducting interest on direct or indirect indebtedness to its parent REIT if,
under a specified series of tests, the taxable REIT subsidiary is considered to
have an excessive interest expense level or debt-to-equity ratio. In some
cases, a 100% penalty tax is imposed on the REIT if its rental, service or
other agreements with its taxable REIT subsidiary are not on arm's length
terms. The legislation concerning taxable REIT subsidiaries is generally
effective only for taxable years beginning after December 31, 2000.
We have made elections to treat several of our corporate subsidiaries as
taxable REIT subsidiaries. We believe that the value of the securities we hold
of our taxable REIT subsidiaries does not and will not represent more than 20%
of our total assets, and that all transactions between us and our taxable REIT
subsidiaries are conducted on arm's length terms. In addition, we believe that
the amount of our assets that are not qualifying assets for purposes of the 75%
asset test will continue to represent less than 25% of our total assets and
will satisfy the 5% and both 10% asset tests.
Gross Income Tests
We must satisfy two separate percentage tests relating to the sources of our
gross income for each taxable year. For purposes of these tests, where we
invest in a partnership, we will be treated as receiving our share of the
income and loss of the partnership, and the gross income of the partnership
will retain the same character in our hands as it has in the hands of the
partnership. See "--Tax Aspects of our Investment in Partnerships--General."
The 75% Test. At least 75% of our gross income for the taxable year must be
"qualifying income." Qualifying income generally includes (1) rents from real
property (except as modified below); (2) interest on obligations collateralized
by mortgages on, or interests in, real property; (3) gains from the sale or
other disposition of interests in real property and real estate mortgages,
other than gain from property held primarily for sale to customers in the
ordinary course of our trade or business ("dealer property"); (4) dividends or
other distributions on shares in other REITs, as well as gain from the sale of
such shares; (5) abatements and refunds of real property taxes; (6) income from
the operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage collateralized by such property ("foreclosure
property"); and (7) commitment fees received for agreeing to make loans
collateralized by mortgages on real property or to purchase or lease real
property.
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Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% test described below) if we, or
an owner of 10% or more of our equity securities, directly or constructively
owns 10% or more of such tenant (a "related party tenant"), unless the related
party tenant is a taxable REIT subsidiary and certain other requirements are
satisfied. In addition, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as rents from real property. Moreover, an
amount received or accrued generally will not qualify as rents from real
property (or as interest income) for purposes of the 75% test and 95% test
(described below) if it is based in whole or in part on the income or profits
of any person. Rent or interest will not be disqualified, however, solely by
reason of being based on a fixed percentage or percentages of receipts or
sales. Finally, for rents received to qualify as rents from real property, we
generally must not operate or manage the property or furnish or render services
to tenants, other than through an "independent contractor" from whom we derive
no revenue or through a taxable REIT subsidiary. The "independent contractor"
or taxable REIT subsidiary requirement, however, does not apply to the extent
that the services provided by us are "usually or customarily rendered" in
connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant." For both the related party tenant rules
and determining whether an entity qualifies as an independent contractor of a
REIT, certain attribution rules of the Internal Revenue Code apply, pursuant to
which ownership interests in certain entities held by one entity are deemed
held by certain other related entities.
In general, if a REIT provides impermissible services to its tenants, all of
the rent from that property can be disqualified from satisfying the 75% test
and 95% test (described below). However, rents will not be disqualified if a
REIT provides de minimis impermissible services. For this purpose, services
provided to tenants of a property are considered de minimis where income
derived from the services rendered equals 1% or less of all income derived from
the property (as determined on a property-by-property basis). For purposes of
the 1% threshold, the amount treated as received for any service shall not be
less than 150% of the direct cost incurred by the REIT in furnishing or
rendering the service.
We do not receive any rent that is based on the income or profits of any
person. In addition, we do not own, directly or indirectly, 10% or more of any
tenant. Furthermore, we believe that any personal property rented in connection
with our apartment facilities is well within the 15% restriction. Finally, we
do not provide services, other than within the 1% de minimis exception
described above, to our tenants that are not customarily furnished or rendered
in connection with the rental of the apartment units, other than through an
independent contractor or through a taxable REIT subsidiary.
The 95% Test. In addition to deriving 75% of our gross income from the
sources listed above, at least 95% of our gross income for the taxable year
must be derived from the above-described qualifying income, or from dividends,
interest or gains from the sale or disposition of stock or other securities
that are not dealer property. Dividends from a corporation (including a taxable
REIT subsidiary) and interest on any obligation not collateralized by an
interest on real property are included for purposes of the 95% test, but not
(except with respect to dividends from a REIT) for purposes of the 75% test.
For purposes of determining whether we comply with the 75% and 95% tests, gross
income does not include income from "prohibited transactions" (discussed below).
From time to time, we may enter into hedging transactions with respect to
one or more of our assets or liabilities. Our hedging activities may include
entering into interest rate swaps, caps and floors, or options to purchase such
items, and futures and forward contracts. To the extent we enter into an
interest rate swap or cap contract, option, futures contract, forward rate
agreement or any similar financial instrument to hedge our indebtedness
incurred to acquire or carry "real estate assets," any periodic income or gain
from the disposition of such contract should be qualifying income for
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purposes of the 95% gross income test, but not the 75% gross income test. To
the extent that we hedge with other types of financial instruments, or in other
situations, it is not entirely clear how the income from those transactions
will be treated for purposes of the gross income tests. We intend to structure
any hedging transactions in a manner that does not jeopardize our status as a
REIT.
Our investment in apartment communities generally gives rise to rental
income that is qualifying income for purposes of the 75% and 95% gross income
tests. Gains on sales of apartment communities, other than from prohibited
transactions, as described below, or of our interest in a partnership generally
will be qualifying income for purposes of the 75% and 95% gross income tests.
We anticipate that income on our other investments will not result in our
failing the 75% or 95% gross income test for any year.
Even if we fail to satisfy one or both of the 75% or 95% tests for any
taxable year, we may still qualify as a REIT for such year if we are entitled
to relief under certain provisions of the Internal Revenue Code. These relief
provisions will generally be available if: (1) our failure to comply was due to
reasonable cause and not to willful neglect; (2) we report the nature and
amount of each item of our income included in the 75% and 95% tests on a
schedule attached to our tax return; and (3) any incorrect information on this
schedule is not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of these relief provisions. Even if these relief provisions apply, we
will still be subject to a special tax upon the greater of either (1) the
amount by which 75% of our gross income exceeds the amount of our income
qualifying under the 75% test for the taxable year or (2) the amount by which
90% of our gross income exceeds the amount of our income qualifying for the 95%
income test for the taxable year, multiplied by a fraction intended to reflect
our profitability.
Annual Distribution Requirements
To qualify as a REIT, we are required to distribute dividends (other than
capital gain dividends) to our stockholders each year in an amount equal to at
least (A) the sum of (i) 90% of our REIT taxable income (computed without
regard to the dividends paid deduction and our net capital gain) and (ii) 90%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before we timely file our tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that we do
not distribute all of our net capital gain or distribute at least 90%, but less
than 100%, of our REIT taxable income, as adjusted, we will be subject to tax
on the undistributed amount at regular capital gains or ordinary corporate tax
rates, as the case may be. (However, we can elect to "pass through" any of our
taxes paid on our undistributed net capital gain income to our stockholders on
a pro rata basis.) Furthermore, if we should fail to distribute during each
calendar year at least the sum of (1) 85% of our ordinary income for such year,
(2) 95% of our net capital gain income for such year, and (3) any undistributed
taxable income from prior periods, we would be subject to a 4% excise tax on
the excess of such required distribution over the sum of the amounts actually
distributed and the amount of any net capital gains we elected to retain and
pay tax on. For these and other purposes, dividends declared by us in October,
November or December of one taxable year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by us and
received by the stockholder during such taxable year, provided that the
dividend is actually paid by us by January 31 of the following taxable year.
We believe that we have made timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that in the future we may not
have sufficient cash or other liquid assets to meet the distribution
requirements, due to timing differences between the actual receipt of income
and actual payment of expenses on the one hand, and the inclusion of such
income and deduction of such
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expenses in computing our REIT taxable income on the other hand. Further, as
described below, it is possible that, from time to time, we may be allocated a
share of net capital gain attributable to the sale of depreciated property that
exceeds our allocable share of cash attributable to that sale. To avoid any
problem with the distribution requirements, we will closely monitor the
relationship between our REIT taxable income and cash flow and, if necessary,
will borrow funds or issue preferred or common stock to satisfy the
distribution requirement. We may be required to borrow funds at times when
market conditions are not favorable.
If we fail to meet the distribution requirements as a result of an
adjustment to our tax return by the Internal Revenue Service, we may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Prohibited Transaction Rules
A REIT will incur a 100% tax on the net income derived from a sale or other
disposition of property, other than foreclosure property, that the REIT holds
primarily for sale to customers in the ordinary course of a trade or business
(a "prohibited transaction"). Under a safe harbor provision in the Internal
Revenue Code, however, income from certain sales of real property held by the
REIT for at least four years at the time of the disposition will not be treated
as income from a prohibited transaction. We believe that none of our assets is
held for sale to customers and that a sale of any of our assets would not be in
the ordinary course of our business. Whether a REIT holds an asset "primarily
for sale to customers in the ordinary course of a trade or business" depends,
however, on the facts and circumstances in effect from time to time, including
those related to a particular asset. Although we will attempt to ensure that
none of our sales of property will constitute a prohibited transaction, we
cannot assure you that none of such sales will be so treated.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us, nor will they be required to be made. In such
event, to the extent of our current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations in the Internal Revenue Code, corporate distributees may
be eligible for the dividends received deduction. Unless entitled to relief
under specific statutory provisions, we will also be disqualified from taxation
as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether we would be
entitled to such statutory relief.
Tax Aspects of Our Investment in Partnerships
The following discussion summarizes certain federal income tax
considerations applicable solely to our investment in entities treated as
partnerships for federal income tax purposes. The discussion does not cover
state or local tax laws or any federal tax laws other than income tax laws.
General
We hold a direct ownership interest in certain partnerships. In general,
partnerships are "pass-through" entities which are not subject to federal
income tax. Rather, partners are allocated their proportionate shares of the
items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. We include our proportionate share
of the foregoing partnership items for purposes of the various REIT income
tests and in the computation of our REIT taxable income. See "--Taxation of the
Company" and "--Requirements for Qualification--Gross Income Tests." Any
resultant increase in our REIT taxable income
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increases our distribution requirements (see "--Requirements for
Qualification--Annual Distribution Requirements"), but is not subject to
federal income tax in our hands provided that such income is distributed to our
stockholders. Moreover, for purposes of the REIT asset tests (see
"--Requirements for Qualification--Asset Tests"), we include our proportionate
share of assets held by the partnerships.
Tax Allocations with Respect to the Properties
Pursuant to Section 704(c) of the Internal Revenue Code, income, gain, loss
and deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership
(such as some of our properties), must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "book-tax difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. Our two material partnership subsidiaries (referred to in this
discussion as the "operating partnerships") have property subject to a book-tax
difference. Consequently, the partnership agreement of the operating
partnerships requires such allocations to be made in a manner consistent with
Section 704(c) of the Internal Revenue Code.
In general, the partners who contributed appreciated assets to the operating
partnerships will be allocated lower amounts of depreciation deductions for tax
purposes and increased taxable income and gain on sale by the operating
partnership of the contributed assets (including some of our properties). This
will tend to eliminate the book-tax difference over the life of the operating
partnerships. However, the special allocation rules under Section 704(c) of the
Internal Revenue Code do not always entirely rectify the book-tax difference on
an annual basis or with respect to a specific taxable transaction, such as a
sale. Thus, the carryover basis of the contributed assets in the hands of the
operating partnerships may cause us to be allocated lower depreciation and
other deductions, and possibly greater amounts of taxable income in the event
of a sale of such contributed assets, in excess of the economic or book income
allocated to us as a result of such sale. This may cause us to recognize
taxable income in excess of cash proceeds, which might adversely affect our
ability to comply with the REIT distribution requirements. See "--Requirements
for Qualification--Annual Distribution Requirements." In addition, the
application of Section 704(c) of the Internal Revenue Code to the operating
partnerships is not entirely clear and may be affected by authority that may be
promulgated in the future.
Sale of the Properties
Generally, any gain realized by the operating partnerships on the sale of
property held by the operating partnerships will be capital gain, except for
any portion of such gain that is treated as certain depreciation or cost
recovery recapture. Our share of any gain realized by the operating
partnerships on the sale of any "dealer property" generally will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax. See
"Prohibited Transaction Rules." Under existing law, whether property is dealer
property is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The operating partnerships intend
to hold their properties for investment with a view to long-term appreciation,
to engage in the business of acquiring, developing, owning and operating their
properties, and to make such occasional sales of their properties as are
consistent with our investment objectives. Based upon such investment
objectives, we believe that in general our properties should not be considered
dealer property and that the amount of income from prohibited transactions, if
any, will not be material.
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Possible Legislative or Other Actions Affecting Tax Considerations
Prospective investors should recognize that the present federal income tax
treatment of an investment in us may be modified by legislative, judicial or
administrative action at any time, and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and the U.S. Treasury
Department, resulting in revisions of regulations and revised interpretations
of established concepts as well as statutory changes. Revisions in federal tax
laws and interpretations thereof could adversely affect the tax consequences of
an investment in us.
State and Local Taxes
We and our stockholders may be subject to state or local taxation in various
jurisdictions, including those in which we or they transact business or reside.
The state and local tax treatment of us and our stockholders may not conform to
the federal income tax consequences discussed above.
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UNDERWRITING
We and Goldman, Sachs & Co., the underwriter, have entered into an
underwriting agreement with respect to the notes. Subject to certain conditions
the underwriter has agreed to purchase all the notes.
The underwriter is committed to take and pay for all of the notes being
offered, if any are taken.
Notes sold by the underwriter to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriter to securities dealers may be sold
at a discount from the initial public offering price of up to 0.375% of the
principal amount of the notes. Any such securities dealers may resell any notes
purchased from the underwriter to certain other brokers or dealers at a
discount from the initial public offering price of up to 0.25% of the principal
amount of the notes. If all the notes are not sold at the initial offering
price, the underwriter may change the offering price and the other selling
terms.
The notes are a new issue of securities with no established trading market.
We have been advised by the underwriter that it intends to make a market in the
notes but is not obligated to do so and may discontinue market making at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the notes.
In connection with the offering, the underwriter may purchase and sell notes
in the open market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriter of a greater number of notes than it
is required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the notes while the offering is in progress.
These activities by the underwriter may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may
be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriter at
any time. These transactions may be effected in the over-the-counter market or
otherwise.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $150,000.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933.
The underwriter and its affiliates have engaged in, and may in the future
engage in, investment banking and other commercial dealings in the ordinary
course of business with us. They have received customary fees and commissions
for these transactions.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended December 31, 2001, as set forth in their report, which is
incorporated by reference in this prospectus supplement and elsewhere in the
registration statement. Our financial statements and schedule are incorporated
by reference in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for us by
Morrison & Foerster LLP. The description of the tax consequences in this
prospectus supplement under the heading "Material Federal Income Tax
Consequences" is based on the opinion of Morrison & Foerster LLP. Certain legal
matters will be passed upon for the underwriter by Hogan & Hartson. From time
to time, Hogan & Hartson provides legal services to us.
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Prospectus
[LOGO]
UNITED DOMINION(SM)
$700,000,000
Debt Securities
Preferred Stock
Common Stock
This prospectus generally describes the debt securities and equity
securities that we may offer. Each time we sell these securities using this
prospectus, we will provide a prospectus supplement that will contain specific
information about the terms of the offering and may add to or update the
information in this prospectus. You should read this prospectus and any
supplement carefully before you invest. We cannot sell any of these securities
unless this prospectus is accompanied by a prospectus supplement.
Our common shares and currently outstanding Series A and Series B preferred
shares are listed on The New York Stock Exchange (NYSE) under the symbols
"UDR," "UDRpfA" and "UDRpfB," respectively. Our Monthly Income Notes are listed
on the NYSE under the symbol "UDM."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Beginning on page 3, we have listed risks that you should consider before
investing in these securities.
This prospectus is dated December 23, 1999.
TABLE OF CONTENTS
PROSPECTUS
RISKS OF INVESTMENT................................................... 3
ABOUT THIS PROSPECTUS................................................. 8
WHERE YOU CAN FIND MORE INFORMATION................................... 8
INCORPORATION OF INFORMATION FILED WITH THE SEC....................... 9
FORWARD-LOOKING STATEMENTS............................................ 10
UNITED DOMINION REALTY TRUST, INC..................................... 11
USE OF PROCEEDS....................................................... 12
RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS............................... 12
DESCRIPTION OF OUR DEBT SECURITIES.................................... 13
DESCRIPTION OF OUR CAPITAL STOCK...................................... 28
FEDERAL INCOME TAX CONSEQUENCES OF UNITED DOMINION'S STATUS AS A REIT. 34
PLAN OF DISTRIBUTION.................................................. 41
LEGAL MATTERS......................................................... 42
EXPERTS............................................................... 42
2
RISKS OF INVESTMENT
Unless the context otherwise requires, all references to "we," "us" or "our
company" in this prospectus refer collectively to United Dominion Realty Trust,
Inc., a Virginia corporation, and its subsidiaries, including United Dominion
Realty, L.P., a Virginia limited partnership.
Before you invest in our securities, you should be aware that there are
risks involved in the investment, including those described below. You should
consider carefully these risks together with all of the information included or
incorporated by reference in this prospectus or any prospectus supplement
before you decide to purchase our securities. This section includes or refers
to certain forward-looking statements; you should refer to the explanation of
the qualifications and limitations on such forward-looking statements discussed
in the accompanying prospectus supplement.
I. Unfavorable Changes in Apartment Market and Economic Conditions Could
Adversely Affect Occupancy Levels and Rental Rates
Market and economic conditions in the various metropolitan areas of the
United States in which we operate may significantly affect our occupancy levels
and rental rates and therefore our profitability. This may impair our ability
to satisfy our financial obligations and pay distributions to our shareholders.
Factors that may adversely affect these conditions include the following:
. a reduction in jobs and other local economic downturns;
. oversupply of, or reduced demand for, apartment homes;
. declines in household formation; and
. rent control or stabilization laws, or other laws regulating rental
housing, which could prevent us from raising rents to offset increases in
operating costs.
Any of these factors could adversely affect our ability to achieve desired
operating results from our communities.
II. Acquisitions or New Development May Not Achieve Anticipated Results
We intend to continue to selectively acquire apartment communities that meet
our investment criteria. Our acquisition activities and their success may be
exposed to the following risks:
. An acquired community may fail to perform as we expected in analyzing our
investment.
. When we acquire an apartment community, we often invest additional amounts
in it with the intention of increasing profitability. These additional
investments may not produce the anticipated improvements in profitability.
. New developments may not achieve proforma rents or occupancy levels.
III. Possible Difficulty of Selling Apartment Communities Could Limit
Operational and Financial Flexibility
Although we have experienced success in disposing of apartment communities
that no longer meet our strategic objectives, market conditions could change
and purchasers would not be willing to pay prices acceptable to us. A weak
market may limit our ability to change our portfolio promptly in response to
changing economic conditions. Furthermore, a significant portion of the
proceeds from our overall property sales may be held in escrow accounts in
order for some sales to qualify as a like-kind exchange under Section 1031 of
the Internal Revenue Code so that any related capital gain can be deferred for
federal income tax purposes. As a result, we may not have immediate access to
all of the cash flow generated from our property sales. In addition, federal
tax laws limit our ability to profit on the sale of communities that we have
owned for fewer than four years, and this limitation may prevent us from
selling communities when market conditions are favorable.
3
IV. Increased Competition Could Limit Our Ability to Lease Apartment Homes or
Increase or Maintain Rents
Our apartment communities compete with numerous housing alternatives in
attracting residents, including other apartment communities and single-family
rental homes, as well as owner occupied single- and multi-family homes.
Competitive housing in a particular area could adversely affect our ability to
lease apartment homes and increase or maintain rents.
V. Insufficient Cash Flow Could Affect Our Debt Financing and Create
Refinancing Risk
We are subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to make required
payments of principal and interest. Although we may be able to use cash flow to
make future principal payments, we cannot assure investors that sufficient cash
flow will be available to make all required principal payments and still
satisfy our distribution requirements to maintain our status as a real estate
investment trust or "REIT." Therefore, we are likely to need to refinance at
least a portion of our outstanding debt as it matures. There is a risk that we
may not be able to refinance existing debt or that the terms of any refinancing
will not be as favorable as the terms of the existing debt.
VI. Failure to Generate Sufficient Revenue Could Impair Debt Service Payments
and Distributions to Shareholders
If our apartment communities do not generate sufficient net rental income to
meet rental expenses, our ability to make required payments of interest and
principal on our debt securities and to pay distributions to our shareholders
will be adversely affected. The following factors, among others, may affect the
net rental income generated by our apartment communities:
. the national and local economies;
. local real estate market conditions, such as an oversupply of apartment
homes;
. tenants' perceptions of the safety, convenience and attractiveness of our
communities and the neighborhoods where they are located;
. our ability to provide adequate management, maintenance and insurance; and
. rental expenses, including real estate taxes and utilities.
Expenses associated with our investment in a community, such as debt
service, real estate taxes, insurance and maintenance costs, are generally not
reduced when circumstances cause a reduction in rental income from that
community. If a community is mortgaged to secure payment of debt and we are
unable to make the mortgage payments, we could sustain a loss as a result of
foreclosure on the community or the exercise of other remedies by the mortgagee.
VII. Debt Level May Be Increased
Our current debt policy does not contain any limitations on the level of
debt that we may incur, although our ability to incur debt is limited by
covenants in our bank and other credit agreements. We manage our debt to be in
compliance with these debt covenants, but subject to compliance with these
covenants, we may increase the amount of our debt at any time without a
concurrent improvement in our ability to service the additional debt.
VIII. Financing May Not Be Available and Could be Dilutive
Our ability to execute our business strategy depends on our access to an
appropriate blend of debt financing, including unsecured lines of credit and
other forms of secured and unsecured debt, and equity financing, including
common and preferred equity. Debt or equity financing may not be available in
sufficient amounts, or on favorable terms or at all. If we issue additional
equity securities to finance developments and acquisitions instead of incurring
debt, the interests of our existing shareholders could be diluted.
4
IX. Development and Construction Risks Could Impact Our Profitability
We intend to continue to develop and construct apartment communities.
Development activities may be conducted through wholly-owned affiliated
companies or through joint ventures with unaffiliated parties. Our development
and construction activities may be exposed to the following risks:
. We may be unable to obtain, or face delays in obtaining, necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorizations, which could result in increased development costs and
could require us to abandon our activities entirely with respect to a
project for which we are unable to obtain permits or authorizations.
. If we are unable to find joint venture partners to help fund the
development of a community or otherwise obtain acceptable financing for
the developments, our development potential may be limited.
. We may abandon development opportunities that we have already begun to
explore, and we may fail to recover expenses already incurred in
connection with exploring them.
. We may be unable to complete construction and lease-up of a community on
schedule, or incur development or construction costs that exceed our
original estimates, and we may be unable to charge rents that would
compensate for any increase in such costs.
. Occupancy rates and rents at a newly developed community may fluctuate
depending on a number of factors, including market and economic
conditions, preventing us from meeting our profitability goals for that
community.
Construction costs have been increasing in our existing markets, and the
costs of upgrading acquired communities have, in some cases, exceeded our
original estimates. We may experience similar cost increases in the future. Our
inability to charge rents that will be sufficient to offset the effects of any
increases in these costs may impair our profitability.
X. Failure to Succeed in New Markets May Limit Our Growth
We may from time to time make acquisitions outside of our existing market
areas if appropriate opportunities arise. Our historical experience in our
existing markets does not ensure that we will be able to operate successfully
in new markets. We may be exposed to a variety of risks if we choose to enter
new markets. These risks include, among others:
. inability to evaluate accurately local apartment market conditions and
local economies;
. inability to obtain land for development or to identify appropriate
acquisition opportunities;
. inability to hire and retain key personnel; and
. lack of familiarity with local governmental and permitting procedures.
XI. Changing Interest Rates Could Increase Interest Costs and Could Affect the
Market Price of Our Securities
We currently have, and expect to incur in the future, debt bearing interest
at rates that vary with market interest rates. Therefore, if interest rates
increase, our interest costs will rise to the extent our variable rate debt is
not hedged effectively. In addition, an increase in market interest rates may
lead purchasers of our securities to demand a higher annual yield, which could
adversely affect the market price of our common and preferred stock and debt
securities.
XII. Limited Investment Opportunities Could Adversely Affect Our Growth
We expect that other real estate investors will compete with us to acquire
existing properties and to develop new properties. These competitors include
insurance companies, pension and investment funds, developer partnerships,
investment companies and other apartment REITs. This competition could increase
prices for properties of the type that we would likely pursue, and our
competitors may have greater resources than we do. As a result, we may not be
able to make attractive investments on favorable terms, which could adversely
affect our growth.
5
XIII. Failure to Integrate Acquired Communities and New Personnel Could Create
Inefficiencies
To grow successfully, we must be able to apply our experience in managing
our existing portfolio of apartment communities to a larger number of
properties. In addition, we must be able to integrate new management and
operations personnel as our organization grows in size and complexity. Failures
in either area will result in inefficiencies that could adversely affect our
expected return on our investments and our overall profitability.
XIV. Interest Rate Hedging Contracts May Be Ineffective and May Result in
Material Charges
From time to time when we anticipate issuing debt securities, we may seek to
limit our exposure to fluctuations in interest rates during the period prior to
the pricing of the securities by entering into interest rate hedging contracts.
We may do this to increase the predictability of our financing costs. Also,
from time to time we may rely on interest rate hedging contracts to limit our
exposure under variable rate debt to unfavorable changes in market interest
rates. If the pricing of new debt securities is not within the parameters of,
or market interest rates produce a lower interest cost than that which we incur
under a particular interest rate hedging contract, the contract is ineffective.
Furthermore, the settlement of interest rate hedging contracts has involved and
may in the future involve material charges.
XV. Year 2000 Issues May Disrupt Our Operations
"Year 2000 issues" means problems that may result from the improper
processing by computer systems of dates after 1999. These problems could result
in systems failures or miscalculations causing disruptions of operations. Our
efforts to address our Year 2000 issues are focused on three areas:
. reviewing and taking any necessary steps to attempt to correct our
computer information systems;
. evaluating and making any necessary modifications to other computer
systems that do not relate to information technology but include embedded
technology, such as telecommunication, security, elevator, fire and
safety, and heating, ventilation and air conditioning systems; and
. communicating with our important service providers to determine whether
there will be any interruption to their systems that could affect us.
We believe that our own systems will be Year 2000 compliant by December 31,
1999. Although we are still in the process of evaluating potential disruptions
or complications that might result from Year 2000 issues, we have not
identified any specific business functions that are likely to suffer material
disruptions. Due to the unique and pervasive nature of Year 2000 issues,
however, we are not able to anticipate all events that might affect us,
particularly those outside of our company. While our efforts to address Year
2000 issues will involve additional costs, we believe that these costs will not
have a material impact on our financial results. If we do not complete our
efforts on time or if the costs of updating or replacing our systems exceed our
estimates, or if essential services are disrupted because the provider has not
adequately dealt with its Year 2000 issues, our business, financial condition
and results of operations could be materially adversely affected.
XVI. Potential Liability for Environmental Contamination Could Result in
Substantial Costs
We are in the business of acquiring, developing, owning, operating and from
time to time selling real estate. Under various federal, state and local
environmental laws, as a current or former owner or operator, we could be
required to investigate and remediate the effects of contamination of currently
or formerly owned real estate by hazardous or toxic substances, often
regardless of our knowledge of or responsibility for the contamination and
solely by virtue of our current or former ownership or operation of the real
estate. In addition, we could be held liable to a governmental authority or to
third parties for property damage and for investigation and clean-up costs
incurred in connection with the
6
contamination. These costs could be substantial, and in many cases
environmental laws create liens in favor of governmental authorities to secure
their payment. The presence of such substances or a failure to properly
remediate any resulting contamination could materially and adversely affect our
ability to borrow against, sell or rent an affected property.
XVII. Compliance With REIT Share Ownership Limit May Prevent Takeovers
Beneficial to Shareholders
One of the requirements for maintenance of our qualification as a REIT for
federal income tax purposes is that no more than 50% in value of our
outstanding capital stock may be owned by five or fewer individuals, including
entities specified in the Internal Revenue Code, during the last half of any
taxable year. Our Restated Articles of Incorporation, also referred to as our
"Charter," include provisions allowing us to stop transfers of and redeem our
shares that are intended to assist us in complying with this requirement. These
provisions may have the effect of delaying, deferring or preventing someone
from taking control of us, even though a change of control might involve a
premium price for our shareholders or might otherwise be in our shareholders'
best interests. See the subsection entitled "Requirements for Qualification" in
the section entitled "Federal Income Tax Consequences of United Dominion's
Status as a REIT" in this prospectus.
XVIII. Failure to Qualify as a REIT Would Cause Us to Be Taxed as a
Corporation, Which Would Significantly Lower Funds Available For
Distribution to Our Shareholders
If we fail to qualify as a REIT for federal income tax purposes, we will be
taxed as a corporation. We believe that we are organized and currently qualify
as a REIT and intend to operate in such a manner that will allow us to continue
to qualify as a REIT. However, we cannot assure you that we are qualified as a
REIT or that we will remain qualified as a REIT in the future. Qualification as
a REIT involves the application of highly technical and complex provisions of
the federal income tax laws, as to which there are only limited judicial and
administrative interpretations, and requires favorable determination of various
factual matters and circumstances not entirely within our control. In addition,
future legislation, new regulations, administrative interpretations or court
decisions may significantly change the tax laws or the application of the tax
laws with respect to our qualification as a REIT for federal income tax
purposes or the federal income tax consequences of our qualification.
If, in any taxable year, we fail to qualify as a REIT, we will be subject to
federal income tax on our taxable income at regular corporate rates, plus any
applicable alternative minimum tax. In addition, unless we are entitled to
relief under applicable statutory provisions, we would be disqualified from
treatment as a REIT for the four taxable years following the year in which we
lose our qualification. The additional tax liability resulting from the failure
to qualify as a REIT would significantly reduce or eliminate funds otherwise
available for distribution to our shareholders. Furthermore, we would no longer
be required to make distributions to our shareholders. See the section entitled
"Federal Income Tax Consequences of United Dominion's Status as a REIT" in this
prospectus.
XIX. The Ability of Our Shareholders to Control Our Policies and Effect a
Change of Control of Our Company is Limited, Which May Not Be in Our
Shareholders' Best Interests
In 1998, we adopted a shareholder rights plan. Under the terms of the
shareholder rights plan, our Board of Directors can in effect prevent a person
or group from acquiring more than 15% of the outstanding shares of our common
stock. Unless our Board of Directors approves the person's purchase, after that
person acquires more than 15% of our outstanding common stock, all other
shareholders will have the right to purchase securities from us at a price that
is less than their then fair market value. Purchases by other shareholders
would substantially reduce the value and influence of the shares of our common
stock owned by the acquiring person. Our Board of Directors, however, can
prevent the shareholder rights plan from operating in this manner. This gives
our Board of Directors significant discretion to approve or disapprove a
person's efforts to acquire a large interest in us. For a more complete
description, you should refer to the subsection entitled "Description of Our
Capital Stock -- Rights to Purchase Series C Preferred Stock."
7
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC utilizing a "shelf" registration process. Under this
process, we may sell any combination of the securities described in this
prospectus in one or more offerings up to a total dollar amount of $700,000,000.
This prospectus provides you with a general description of the securities
that we may offer and the terms of the offering. Each time we offer securities,
we will provide a prospectus supplement that will contain specific descriptions
of those securities and the offering terms. The prospectus supplement may also
add to, update or otherwise change information contained in this prospectus.
The documents incorporated in this prospectus by reference and the registration
statement that we filed with the SEC, including exhibits to the registration
statement, provide more detail on the matters discussed in this prospectus. In
making your investment decision, you should carefully read this prospectus and
any prospectus supplement together with the additional information described
below under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file with the SEC annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and proxy or information statements, which
are incorporated by reference in this prospectus as described under the heading
"Incorporation of Information Filed With the SEC" below. The public may read
and copy the reports and other information that we file with the SEC at their
public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of these materials can be obtained from the Public Reference
Section of the SEC in Washington, D.C. 20549 at prescribed rates. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
You may also obtain information about us from the following regional offices
of the SEC: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60601-2511.
The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding United Dominion and
other issuers that file electronically with the SEC. The address of that site
is http://www.sec.gov.
This prospectus omits certain information included in the registration
statement and its exhibits. Statements made in this prospectus as to the
contents of any contract, agreement or other document that is an exhibit to the
registration statement are only summaries and are not complete. We refer you to
the relevant exhibits for a more complete description of the matter involved.
Each statement regarding an exhibit is qualified by the text of the relevant
document.
8
INCORPORATION OF INFORMATION FILED WITH THE SEC
We are "incorporating by reference" certain information that we have filed
with the SEC, which means:
. incorporated documents are considered part of this prospectus;
. we are disclosing important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this prospectus.
We incorporate by reference the documents listed below that we filed with
the SEC under the Securities Exchange Act of 1934:
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
. Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
. Current Report on Form 8-K dated October 23, 1998;
. Current Report on Form 8-K dated January 20, 1999;
. Current Report on Form 8-K dated March 29, 1999;
. Current Report on Form 8-K dated December 22, 1999; and
. The description of our common stock contained in our Registration
Statement on Form 8A dated April 19, 1990, including any amendment filed
for the purpose of updating that description.
We also incorporate by reference each of the following documents that we may
file with the SEC after the date of this prospectus:
. Reports filed under Sections 13(a) and (c) of the Exchange Act;
. Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders' meeting; and
. Any reports filed under Section 15(d) of the Exchange Act.
We will provide to each person, including any beneficial owner, to whom this
prospectus is delivered, a copy of any or all of the information incorporated
by reference upon written or oral request at no cost to the requester. Requests
must be made to:
United Dominion Realty Trust, Inc. 10 South Sixth Street Richmond, Virginia
23219-3802
Attention: Investor Relations (804) 780-2691.
You should rely only on the information contained or incorporated by
reference in this prospectus, any prospectus supplement and the registration
statement. We have not authorized anyone to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. You should assume that the information appearing in
this prospectus, as well as information that we filed with the SEC before the
date of this prospectus and incorporated by reference in this prospectus, is
accurate as of the date on the front cover of this prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.
9
FORWARD-LOOKING STATEMENTS
This prospectus and the registration statement, and the reports, proxy
statements and other information that we have filed with the SEC, which we
incorporate by reference in this prospectus, may 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. The words "anticipate,"
"believe," "estimate," "expect," "project" and similar expressions, as they
relate to us or our management, are intended to identify forward-looking
statements.
We have based these forward-looking statements largely on our expectations
as well as assumptions that we have made and information currently available to
our management. Although we believe that our expectations and assumptions are
reasonable, they are subject to a number or risks and uncertainties, some of
which are beyond our control, and we therefore can give no assurance that they
will in fact be realized. Forward-looking statements that are dependent upon
realization of our assumptions and expectations include, but are not limited
to, those discussing:
. our declaration or payment of distributions;
. our potential developments or acquisitions or dispositions of properties,
assets or other public or private companies;
. our policies regarding investments, indebtedness, acquisitions,
dispositions, financings, conflicts of interest and other matters;
. our qualification as a REIT under the Internal Revenue Code;
. the real estate markets in which we operate and in general;
. the availability of debt and equity financing;
. interest rates;
. general economic conditions; and
. trends affecting our financial condition or results of operations.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
10
UNITED DOMINION REALTY TRUST, INC.
United Dominion operates in one defined business segment as an owner,
operator, renovator and developer with activities related to the ownership,
acquisition, development, management and strategic disposition of multifamily
apartment communities nationwide. Our strategy is to be a national, highly
efficient provider of quality apartment homes. During the past several years,
we have implemented this strategy through:
. the acquisition of portfolios and mergers with companies primarily in
different markets and different regions;
. the acquisition of higher quality communities;
. the disposition of communities that do not meet our long-term strategic
objectives due to location, size, age, quality and/or operating
performance;
. the development of higher quality apartment communities in target markets
that can provide higher returns on investment;
. the upgrade of our communities through various capital investments and
through the addition of revenue enhancing and/or expense reducing features;
. the hiring of experienced corporate and operations staff; and
. the investment in efficient, scalable systems.
We seek to be a market leader by operating a sufficiently sized portfolio of
apartments within each of our targeted markets in order to reduce operating
costs through economies of scale and management efficiencies. We believe that
geographic market diversification increases investment opportunity and
decreases the risk associated with cyclical local real estate markets and
economies.
At September 30, 1999, we owned 318 communities with 85,216 apartment homes
nationwide. In addition, we had apartment communities with approximately 2,000
apartment homes under development. Our apartment communities consist primarily
of upper and middle income garden and townhouse communities. Most of the
communities are considered to be "A" and "B" quality, that compete at or near
the top of their respective markets. "A" grade communities are generally
properties less than five years old with superior amenity packages. "B" grade
communities are generally either of 1980s construction, located in good
neighborhoods, or renovated 1970s construction in good neighborhoods. We
believe that these well located apartments offer us a good combination of
current income and longer-term income growth.
We intend to continue to qualify as a REIT under the applicable provisions
of the federal income tax laws. To qualify, we must satisfy various tests that,
among other things, require that our assets consist primarily of real estate,
our income be derived primarily from real estate and at least 95% of our
taxable income be distributed to our shareholders. Because we qualify as a
REIT, we are generally not subject to federal income taxes. For a more complete
discussion of the tax related consequences of our being a REIT, see the section
entitled "Federal Income Tax Consequences of United Dominion's Status as a
REIT" in this prospectus.
United Dominion is a Virginia corporation and a self-managed real estate
investment trust. Our common stock is traded on The New York Stock Exchange
under the symbol "UDR." Our principal office is at 10 South Sixth Street,
Richmond, Virginia 23219-3802. Our telephone number is (804) 780-2691, our
E-mail address is ir@udrt.com, and our Internet address is http://www.udrt.com.
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USE OF PROCEEDS
Unless we state otherwise in the applicable prospectus supplement, we intend
to use the net proceeds from the sale of our securities for one or more of the
following:
. to repay indebtedness;
. to fund improvements to properties;
. to acquire and develop additional properties; and
. for other general corporate purposes.
The prospectus supplement may also include the allocation of the net
proceeds from the sale of our securities among the various uses listed above.
We may temporarily invest any proceeds that are not immediately applied to
the above purposes in U.S. government or agency obligations, commercial paper,
bank certificates of deposit or repurchase agreements collateralized by U.S.
government or agency obligations. We may also deposit the proceeds with banks.
RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth United Dominion's consolidated ratios of
earnings to fixed charges and earnings to combined fixed charges and preferred
stock dividends for the periods shown.
Year Ended December 31,
---------------------------- Nine Months Ended
1994 1995 1996 1997 1998 September 30, 1999
---- ---- ---- ---- ---- ------------------
Ratio of earnings to fixed charges............. 1.69x 1.81x 1.73x 1.82x 1.63x 1.63x
Ratio of earnings to combined fixed charges and
preferred stock dividends.................... 1.69 1.56 1.45 1.51 1.34 1.32
The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends was computed by dividing earnings by the total of fixed charges
and preferred stock dividends. For purposes of computing these ratios, earnings
consist of income before extraordinary items plus fixed charges other than
capitalized interest, and fixed charges consist of interest on borrowed funds
(including capitalized interest) and amortization of debt discount and expense.
12
DESCRIPTION OF OUR DEBT SECURITIES
The following is a description of the material terms of our debt securities.
We will provide additional terms of our debt securities in a prospectus
supplement.
As required by federal law for all publicly offered notes and debentures,
the debt securities that we may offer with this prospectus are governed by
documents called "indentures." We will issue senior debt securities under an
Indenture, dated as of November 1, 1995, between United Dominion and First
Union National Bank, as trustee. We refer to this indenture as the "Senior
Indenture." We will issue our subordinated debt securities under the Indenture,
dated as of August 1, 1994, between United Dominion and Crestar Bank, as
trustee. We refer to this indenture as the "Subordinated Indenture." As
trustees, First Union and Crestar serve two roles. First, the trustees can
enforce your rights against us should we default on the debt securities.
Second, the trustees assist in administering our obligations under the debt
securities, such as payments of interest.
Below, we describe the indentures and summarize some of their provisions.
However, we have not described every aspect of the debt securities. You should
refer to the actual indentures for a complete description of their provisions
and the definitions of terms used in them. In this prospectus, we provide only
the definitions for some of the more important terms in the indentures.
Wherever we refer to defined terms of the indentures in this prospectus or in
the prospectus supplement, we are incorporating by reference those defined
terms.
The indentures are exhibits to the registration statement. See "Where You
Can Find More Information" for information on how to obtain a copy of the
indentures for your review.
General Terms of Our Debt Securities
We may offer with this prospectus up to $700,000,000 in aggregate principal
amount of unsecured debt obligations. However, the indentures do not limit the
aggregate principal amount of debt securities that we may issue and provide
that we may issue debt securities from time to time in one or more series,
except that the Senior Indenture contains limitations on the amount of
indebtedness that we may incur. See " --Covenants Applicable to Our Senior Debt
Securities."
The senior debt securities will be unsecured obligations and will rank on a
parity with all of our other unsecured and unsubordinated indebtedness.
The subordinated debt securities will be our unsecured obligations and will
be subordinated in right of payment to all senior debt.
Each indenture allows for any one or more series of debt securities to have
one or more trustees. Any trustee under either indenture may resign or be
removed with respect to one or more series of debt securities, and a successor
trustee may be appointed to act with respect to the series. In the event that
two or more persons are acting as trustee with respect to different series of
debt securities, each trustee will be a trustee of a trust under the applicable
indenture separate and apart from the trust administered by any other trustee.
Unless this prospectus states differently, each trustee of a series of debt
securities may take any action that United Dominion may take under the
applicable indenture.
The prospectus supplement will describe the particular terms of each series
of debt securities, as well as any modifications or additions to the general
terms of the indenture applicable to the series of debt securities. This
description will contain all or some of the following as applicable:
. the title of the debt securities and whether the debt securities are
senior debt securities or subordinated debt securities;
. the aggregate principal amount of the debt securities being offered, the
aggregate principal amount of debt securities outstanding, and any limit
on the principal amount, including the aggregate principal amount of debt
securities authorized;
13
. the percentage of the principal amount at which we will issue the debt
securities and, if other than the principal amount of the debt securities,
the portion of the principal amount payable upon declaration of
acceleration of their maturity, or, if applicable, the portion of the
principal amount of the debt securities that is convertible into United
Dominion capital stock, or the method for determining the portion;
. if convertible, in connection with the preservation of our status as a
REIT, any applicable limitations on the ownership or transferability of
our capital stock into which the debt securities are convertible;
. the date or dates, or the method for determining the date or dates, on
which the principal of the debt securities will be payable and the amount
of principal payable on the debt securities;
. the rate or rates, which may be fixed or variable, at which the debt
securities will bear interest, if any, or the method for determining the
rate or rates, the date or dates from which the interest will accrue or
the method for determining the date or dates, the interest payment dates
on which any interest will be payable and the regular record dates for the
interest payment dates or the method for determining the dates, the person
to whom interest should be payable, and the basis for calculating interest
if other than that of a 360-day year consisting of twelve 30-day months;
. the place or places where the principal of, and any premium or make-whole
amount as defined in each indenture, any interest on, and any additional
amounts payable in respect of, the debt securities will be payable, where
holders of debt securities may surrender for registration of transfer or
exchange, and where holders may serve notices or demands to or upon United
Dominion in respect of the debt securities and the applicable indenture;
. the period or periods within which, the price or prices, including any
premium or make-whole amount, at which, the currency or currencies,
currency unit or units or composite currency or currencies in which and
other terms and conditions upon which the debt securities may be redeemed
in whole or in part at our option, if we have the option;
. our obligation, if any, to redeem, repay or purchase the debt securities
pursuant to any sinking fund or analogous provision or at the option of a
holder of the debt securities, and the period or periods within which or
the date or dates on which, the price or prices at which, the currency or
currencies, currency unit or units or composite currency or currencies in
which, and other terms and conditions upon which the debt securities will
be redeemed, repaid or purchased, in whole or in part, pursuant to the
obligation;
. if other than United States dollars, the currency or currencies in which
the debt securities will be denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a composite
currency or currencies;
. whether the amount of payments of principal of, and any premium or
make-whole amount, or any interest on the debt securities may be
determined with reference to an index, formula or other method, which
index, formula or method may be based on one or more currencies, currency
units, composite currencies, commodities, equity indices or other indices,
and the manner for determining the amounts;
. whether the principal of, and any premium or make-whole amount, or any
interest or additional amounts on the debt securities are to be payable,
at the election of United Dominion or a holder, in a currency or
currencies, currency unit or units or composite currency or currencies
other than that in which the debt securities are denominated or stated to
be payable, the period or periods within which, and the terms and
conditions upon which, the election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies, currency
unit or units or composite currency or currencies in which the debt
securities are denominated or stated to be payable and the currency or
currencies, currency unit or units or composite currency or currencies in
which the debt securities are to be so payable;
. provisions, if any, granting special rights to the holders of the debt
securities upon the occurrence of specified events;
14
. any deletions from, modifications of or additions to the events of default
or covenants of United Dominion with respect to the debt securities,
whether or not the events of default or covenants are consistent with the
events of default or covenants set forth in the applicable indenture;
. whether the debt securities will be issued in certificated or book-entry
form;
. the applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable indenture;
. whether and under what circumstances we will pay additional amounts as
contemplated in the applicable indenture on the debt securities in respect
of any tax, assessment or governmental charge and, if so, whether we will
have the option to redeem the debt securities rather than pay the
additional amounts, and the terms of the option; and
. any other terms of the debt securities not inconsistent with the
provisions of the applicable indenture.
The debt securities may be original issue discount securities, which are
debt securities that may provide for less than their entire principal amount to
be payable upon declaration of acceleration of their maturity. Special United
States federal income tax, accounting and other considerations applicable to
original issue discount securities will be described in the prospectus
supplement.
We will provide you with more information in the applicable prospectus
supplement regarding any deletions, modifications or additions to the events of
default or covenants that are described below, including any addition of a
covenant or other provision.
Denominations, Interest, Registration and Transfer
Unless the prospectus supplement states differently, the debt securities of
any series issued in registered form will be issuable in denominations of
$1,000 and integral multiples of $1,000. Unless the prospectus supplement
states differently, the debt securities of any series issued in bearer form
will be issuable in denominations of $5,000.
Unless the prospectus supplement provides differently, the trustees will pay
the principal of and any premium and interest on the debt securities and will
register the transfer of any debt securities at their offices. However, at our
option, we may distribute interest payments by mailing a check to the address
of each holder of debt securities that appears on the register for the debt
securities.
Any interest on a debt security not punctually paid or duly provided for on
any interest payment date will cease to be payable to the holder on the
applicable regular record date. This defaulted interest may be paid to the
person in whose name the debt security is registered at the close of business
on a special record date for the payment of the defaulted interest. United
Dominion will set the special record date and give the holder of the debt
security at least 10 days' prior notice. In the alternative, this defaulted
interest may be paid at any time in any other lawful manner, all as more
completely described in the applicable indenture.
Subject to any limitations imposed upon debt securities issued in book-entry
form, the debt securities of any series will be exchangeable for other debt
securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender to the applicable
trustee of the debt securities. In addition, subject to any limitations imposed
upon debt securities issued in book-entry form, a holder may surrender the debt
securities to the trustee for conversion or registration of transfer. Every
debt security surrendered for conversion, registration of transfer or exchange
will be duly endorsed or accompanied by a written instrument of transfer from
the holder. A holder will not have to pay a service charge for any registration
of transfer or exchange of any debt securities, but United Dominion may require
payment of a sum sufficient to cover any applicable tax or other governmental
charge.
If the prospectus supplement refers to any transfer agent, in addition to
the applicable trustee that United Dominion initially designated with respect
to any series of debt securities, United Dominion may
15
at any time rescind the designation of the transfer agent or approve a change
in the location through which the transfer agent acts, except that United
Dominion will be required to maintain a transfer agent in each place of payment
for the series. United Dominion may at any time designate additional transfer
agents with respect to any series of debt securities.
Neither United Dominion nor the trustees will be required to:
. issue, register the transfer of or exchange debt securities of any series
during a period beginning at the opening of business 15 days before any
selection of debt securities of that series to be redeemed and ending at
the close of business on the day of mailing of the relevant notice of
redemption;
. register the transfer of or exchange any debt security, or portion
thereof, called for redemption, except the unredeemed portion of any debt
security being redeemed in part; or
. issue, register the transfer of or exchange any debt security that has
been surrendered for repayment at the holder's option, except the portion,
if any, of the debt security not to be repaid.
Merger, Consolidation or Sale
We may consolidate with, or sell, lease or convey all or substantially all
of our assets to, or merge with or into, any other entity, provided that:
. either we will be the continuing entity, or the successor entity formed by
or resulting from the consolidation or merger or that will have received
the transfer of the assets is a person organized and existing under the
laws of the United States or any state and will expressly assume payment
of the principal of, and any premium or make-whole amount, and interest on
all of the debt securities and the due and punctual performance and
observance of all of the covenants and conditions contained in each
indenture;
. immediately after giving effect to the transaction and treating any
resulting indebtedness that becomes our or any subsidiary's obligation as
having been incurred by us or the subsidiary at the time of the
transaction, no event of default under the indenture, and no event which,
after notice or the lapse of time, or both, would become an event of
default, will have occurred and be continuing; and
. we receive an Officers' Certificate and legal opinion as to compliance
with these conditions.
Covenants Applicable to Our Senior Debt Securities
Senior Indenture Limitations on Incurrence of Debt
The Senior Indenture provides that we will not, and will not permit any
subsidiary to, incur any Debt (as defined below) if, immediately after giving
effect to the incurrence of the Debt and the application of the proceeds from
the Debt, the aggregate principal amount of all of our outstanding Debt on a
consolidated basis determined in accordance with generally accepted accounting
principles is greater than 60% of the sum of, without duplication:
. our Total Assets (as defined below) as of the end of the calendar quarter
covered in our Annual Report on Form 10-K or Quarterly Report on Form
10-Q, as the case may be, most recently filed with the SEC, or, if the
filing is not permitted under the Exchange Act, with the trustee, prior to
the incurrence of the additional Debt; and
. the purchase price of any real estate assets or mortgages receivable
acquired, and the amount of any securities offering proceeds received, to
the extent the proceeds were not used to acquire real estate assets or
mortgages receivable or used to reduce Debt, by us or any subsidiary since
the end of the calendar quarter, including those proceeds obtained in
connection with the incurrence of the additional Debt.
The Subordinated Indenture does not limit the incurrence of Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Senior Indenture provides that we will not, and will not permit any subsidiary
to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance
or security interest of any kind upon any of our or any subsidiary's property
if, immediately after giving effect to the incurrence of the Debt and the
application of the proceeds from
16
the Debt, the aggregate principal amount of all of our outstanding Debt on a
consolidated basis that is secured by any mortgage, lien, charge, pledge,
encumbrance or security interest on our or any subsidiary's property is greater
than 40% of our Total Assets.
In addition to the foregoing limitations on the incurrence of Debt, the
Senior Indenture provides that we will not, and will not permit any subsidiary
to, incur any Debt if the ratio of Consolidated Income Available for Debt
Service (as defined below) to the Annual Service Charge (as defined below) for
the four consecutive fiscal quarters most recently ended prior to the date on
which the additional Debt is to be incurred will have been less than 1.5, on a
pro forma basis after giving effect to the Debt and to the application of the
proceeds from the Debt, and calculated on the assumption that:
. the Debt and any other Debt that we have incurred since the first day of
the four-quarter period and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of the
period;
. our repayment or retirement of any other Debt since the first day of the
four-quarter period had been incurred, repaid or retired at the beginning
of the period, except that, in making the computation, the amount of Debt
under any revolving credit facility will be computed based upon the
average daily balance of the Debt during the period;
. in the case of Acquired Debt (as defined below) or Debt incurred in
connection with any acquisition since the first day of the four-quarter
period, the related acquisition had occurred as of the first day of the
period with the appropriate adjustments with respect to the acquisition
being included in the pro forma calculation; and
. in the case of our acquisition or disposition of any asset or group of
assets since the first day of the four-quarter period, whether by merger,
stock purchase or sale, or asset purchase or the acquisition or
disposition or any related repayment of Debt had occurred as of the first
day of the period with the appropriate adjustments with respect to the
acquisition or disposition being included in the pro forma calculation.
The following terms used in the covenants summarized above have the
indicated meanings:
"Acquired Debt" means Debt of a person (i) existing at the time the person
becomes a subsidiary or (ii) assumed in connection with the acquisition of
assets from the person, in each case, other than Debt incurred in connection
with, or in contemplation of, the person becoming a subsidiary or the
acquisition. Acquired Debt will be deemed to be incurred on the date of the
related acquisition of assets from any person or the date the acquired person
becomes a subsidiary.
"Annual Service Charge" as of any date means the maximum amount that is
payable in any period for interest on, and original issue discount of, our Debt
and the amount of dividends that are payable in respect of any Disqualified
Stock (as defined below).
"Capital Stock" means, with respect to any person, any capital stock,
including preferred stock, shares, interests, participations or other ownership
interests, however designated, of the person and any rights, other than debt
securities convertible into or exchangeable for corporate stock, warrants or
options to purchase any capital stock.
"Consolidated Income Available for Debt Service" for any period means Funds
from Operations (as defined below) plus amounts that have been deducted for
interest on Debt.
"Debt" of United Dominion or any subsidiary means any indebtedness of United
Dominion, or any subsidiary, whether or not contingent, in respect of, without
duplication:
. borrowed money or evidenced by bonds, notes, debentures or similar
instruments;
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. indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by United Dominion or any
subsidiary;
. the reimbursement obligations, contingent or otherwise, in connection with
any letters of credit actually issued or amounts representing the balance
deferred and unpaid of the purchase price of any property or services,
except any balance that constitutes an accrued expense or trade payable,
or all conditional sale obligations or obligations under any title
retention agreement;
. the principal amount of all obligations of United Dominion or any
subsidiary with respect to redemption, repayment or other repurchase of
any Disqualified Stock; or
. any lease of property by United Dominion or any subsidiary as lessee that
is reflected on United Dominion's consolidated balance sheet as a
capitalized lease in accordance with generally accepted accounting
principles to the extent, in the case of items of indebtedness under the
first three bullet points above, that any of the items, other than letters
of credit, would appear as a liability on United Dominion's consolidated
balance sheet in accordance with generally accepted accounting principles,
and also includes, to the extent not otherwise included, any obligation of
United Dominion or any subsidiary to be liable for, or to pay, as obligor,
guarantor or otherwise, other than for purposes of collection in the
ordinary course of business, Debt of another person, other than United
Dominion or any subsidiary.
Debt will be deemed to be incurred by us or any subsidiary whenever we or a
subsidiary creates, assumes, guarantees or otherwise becomes liable for that
Debt.
"Disqualified Stock" means, with respect to any person, any capital stock of
the person that by the terms of the capital stock, or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable, upon the happening of any event or otherwise:
. matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise;
. is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock; or
. is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the Stated Maturity of the series of debt
securities.
"Funds From Operations" for any period means income before gains or losses
on investments and extraordinary items plus amounts that have been deducted,
and minus amounts that have been added, for the following items, without
duplication:
. provision for preferred stock dividends;
. provision for property depreciation and amortization; and
. the effect of any adjustments for significant non-recurring items,
including any noncash charge resulting from a change in accounting
principles in determining income before gains or losses on investments and
extraordinary items for the period, as reflected in our financial
statements for the period determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Total Assets" as of any date means the sum of:
. our Undepreciated Real Estate Assets; and
. all of our other assets determined in accordance with generally accepted
accounting principles, but excluding intangibles.
"Undepreciated Real Estate Assets" as of any date means the original cost
plus capital improvements of our real estate assets on the date, before
depreciation and amortization determined on a consolidated basis in accordance
with generally accepted accounting principles.
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Except as described above, the indentures do not contain any provisions that
would limit our ability to incur indebtedness or that would afford holders of
the debt securities protection in the event of a highly leveraged or similar
transaction involving us or in the event of a change of control. However, our
Charter includes provisions for mandatory redemption and stopping transfer of
our common stock designed to preserve our status as a REIT. The Internal
Revenue Code of 1986 provides that concentration of more than 50% in value of
direct or indirect ownership of common stock in five or fewer individual
shareholders during the last six months of any year will result in our
disqualification as a REIT. Enforcement of the provisions of our Charter would
prevent this concentration and, therefore, prevent or hinder a change of
control. You should refer to the prospectus supplement for information with
respect to any deletions from, modifications of or additions to the events of
default or covenants of United Dominion that are described in this section,
including any addition of a covenant or other provision providing event risk or
similar protection.
Covenants Applicable to All Debt Securities
Existence. Except as described above under "--Merger, Consolidation or
Sale," we will do or cause to be done all things necessary to preserve and keep
in full force and effect our existence, rights, both under our Charter and
statutory, and franchises. However, we will not be required to preserve any
right or franchise if we determine that its preservation is no longer desirable
in the conduct of our business as a whole and that the loss thereof is not
disadvantageous in any material respect to the holders of the debt securities
of any series.
Maintenance of Properties. We will cause all of our properties used or
useful in the conduct of our business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in our
judgment may be necessary so that our business may be properly and
advantageously conducted at all times. However, we will not be prevented from
selling or otherwise disposing of for value our properties in the ordinary
course of business.
Insurance. We will, and will cause each of our subsidiaries to, keep all of
our insurable properties insured against loss or damage in an amount at least
equal to their then full insurable value with financially sound and reputable
insurance companies.
Payment of Taxes and Other Claims. We will pay or discharge or cause to be
paid or discharged, before the same will become delinquent:
. all taxes, assessments and governmental charges levied or imposed upon us
or any subsidiary or upon our or any subsidiary's income, profits or
property; and
. all lawful claims for labor, materials and supplies that, if unpaid, might
by law become a lien upon our or any subsidiary's property.
However, we will not be required to pay or discharge or cause to be paid or
discharged any tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Provision of Financial Information. Whether or not we are subject to
Sections 13 or 15(d) of the Exchange Act, we will, to the extent permitted
under the Exchange Act, file with the SEC in a timely fashion the annual
reports, quarterly reports and other documents that we would have been required
to file with the SEC pursuant to Sections 13 and 15(d). We will also in any
event:
. within 15 days of each required filing date
--transmit by mail to all holders of debt securities, as their names and
addresses appear in the security register, without cost to the holders,
copies of the annual reports and quarterly reports that we would have
been required to file with the SEC pursuant to Sections 13 or 15(d) of
the Exchange Act if we were subject to those Sections; and
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--file with the trustee copies of the annual reports, quarterly reports
and other documents that we would have been required to file with the
SEC pursuant to Sections 13 or 15(d) of the Exchange Act if we were
subject to those Sections; and
. if our filing the documents with the SEC is not permitted under the
Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of the documents to any
prospective holder.
Events of Default, Notice and Waiver
Each indenture provides that the following events are "events of default"
with respect to any issued series of debt securities:
. default for 30 days in the payment of any installment of interest or
additional amounts payable on any debt security of the series;
. default in the payment of the principal of, or any premium or make-whole
amount on any debt security of the series at its maturity;
. default in making any sinking fund payment as required for any debt
security of the series;
. default in the performance of any other covenant of United Dominion
contained in the indenture, other than a covenant added to the indenture
solely for the benefit of a series of debt securities issued under the
indenture other than the series, continued for 60 days after written
notice as provided in the indenture;
. default under any bond, debenture, note, mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by United Dominion, or by
any subsidiary, the repayment of which we have guaranteed or for which we
are directly responsible or liable as obligor or guarantor, having an
aggregate principal amount outstanding of at least $10,000,000, whether
the indebtedness now exists or will later be created, which default will
have resulted in the indebtedness being declared due and payable prior to
the date on which it would otherwise have become due and payable, without
the acceleration having been rescinded or annulled within 10 days after
written notice as provided in the indenture;
. the entry by a court of competent jurisdiction of one or more judgments,
orders or decrees against United Dominion or any subsidiary in an
aggregate amount, excluding amounts covered by insurance, in excess of
$10,000,000 and those judgments, orders or decrees remain undischarged,
unstayed and unsatisfied in an aggregate amount, excluding amounts covered
by insurance, in excess of $10,000,000 for a period of 30 consecutive days;
. certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of United Dominion or any
significant subsidiary or for all or substantially all of either of their
property; and
. any other event of default provided with respect to the series of debt
securities.
The term "significant subsidiary" means each significant subsidiary, as
defined in Regulation S-X promulgated under the Securities Act, of United
Dominion.
If an event of default under either indenture with respect to debt
securities of any series at the time outstanding occurs and is continuing, then
in every case the trustee or the holders of not less than 25% in principal
amount of the outstanding debt securities of that series may declare the
principal amount, or, if the debt securities of that series are original issue
discount securities or indexed securities, the portion of the principal amount
as may be specified in their terms, of, and any make-whole amount on, all of
the debt securities of that series to be due and payable immediately by written
notice to United Dominion, and to the trustee if given by the holders. However,
at any time after the declaration of acceleration with respect to debt
securities of the series, or of all debt securities then outstanding under the
applicable indenture, as the case may be, has been made, but before a judgment
or decree
20
for payment of the money due has been obtained by the trustee, the holders of
not less than a majority in principal amount of the outstanding debt securities
of the series, or of all debt securities then outstanding under the applicable
indenture, as the case may be, may rescind and annul the declaration and its
consequences if:
. United Dominion will have deposited with the trustee all required payments
of the principal of and any premium or make-whole amount and interest, and
any additional amounts, on the debt securities of the series, or of all
debt securities then outstanding under the applicable indenture, as the
case may be, plus certain fees, expenses, disbursements and advances of
the trustee; and
. all events of default, other than the nonpayment of accelerated principal,
or specified portion thereof and any premium or make-whole amount, or
interest, with respect to the debt securities of the series, or of all
debt securities then outstanding under the applicable indenture, as the
case may be, have been cured or waived as provided in the indenture.
Each indenture also provides that the holders of not less than a majority in
principal amount of the outstanding debt securities of any series, or of all
debt securities then outstanding under the applicable indenture, as the case
may be, may waive any past default with respect to the series and its
consequences, except a default:
. in the payment of the principal of, or any premium or make-whole amount,
or interest or additional amounts payable on any debt security of the
series; or
. in respect of a covenant or provision contained in the applicable
indenture that cannot be modified or amended without the consent of the
holder of each affected outstanding debt security.
Each trustee is required to give notice to the holders of debt securities
within 90 days of a default under the applicable indenture. However, the
trustee may withhold notice to the holders of any series of debt securities of
any default with respect to that series, except a default in the payment of the
principal of, or any premium or make-whole amount, or interest or additional
amounts payable, on any debt security of the series or in the payment of any
sinking fund installment in respect of any debt security of the series, if the
trustee considers the withholding to be in the interest of the holders.
Each indenture provides that no holders of debt securities of any series may
institute any proceedings, judicial or otherwise, with respect to the indenture
or for any remedy thereunder, except in the case of failure of the trustee for
60 days to act after it has received a written request to institute proceedings
in respect of an event of default from the holders of not less than 25% in
principal amount of the outstanding debt securities of the series, as well as
an offer of reasonable indemnity This provision will not prevent, however, any
holder of debt securities from instituting suit for the enforcement of payment
of the principal of, and any premium or make-whole amount, interest on and
additional amounts payable with respect to, the debt securities at their
respective due dates.
Modification of the Indentures
United Dominion and the applicable trustee may modify and amend either
indenture with the consent of the holders of not less than a majority in
principal amount of all outstanding debt securities issued under the indenture
affected by the modification or amendment. However, we must have the consent of
the holders of all affected outstanding debt securities to:
. change the stated maturity of the principal of, or any premium or
make-whole amount, or any installment of principal of or interest or
additional amounts payable on, any debt security;
. reduce the principal amount of, or the rate or amount of interest on, or
any premium or make-whole amount payable on redemption of, or any
additional amounts payable with respect to, any debt security, or reduce
the amount of principal of an original issue discount security or
make-whole amount, if any, that would be due and payable upon declaration
of acceleration of its maturity or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any debt security;
21
. change the place of payment, or the coin or currency, for payment of
principal of, and any premium or make-whole amount, or interest on, or any
additional amounts payable with respect to, a debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any debt security;
. reduce the percentage of outstanding debt securities of any series
necessary to modify or amend the applicable indenture, to waive compliance
with any provisions of that indenture or any defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
indenture; or
. modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect the action or to provide that
certain other provisions may not be modified or waived without the consent
of the holder of the debt security.
The holders of not less than a majority in principal amount of outstanding
debt securities issued under either indenture have the right to waive our
compliance with some covenants in the indenture.
Subordination
Upon any distribution to our creditors in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on the
subordinated debt securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
senior debt. Our obligation to make payment of the principal and interest on
the subordinated debt securities will not otherwise be affected.
No payment of principal or interest may be made on the subordinated debt
securities at any time if a default on senior debt exists that permits the
holders of the senior debt to accelerate its maturity and the default is the
subject of judicial proceedings or we receive notice of the default. After all
senior debt is paid in full and until the subordinated debt securities are paid
in full, holders will be subrogated to the rights of holders of senior debt to
the extent that distributions otherwise payable to holders have been applied to
the payment of senior debt. By reason of this subordination, in the event of a
distribution of assets upon insolvency, certain of our general creditors may
recover more, ratably, than holders of the subordinated debt securities.
Senior debt is defined in the Subordinated Indenture as the principal of and
interest on, or substantially similar payments to be made by United Dominion in
respect of, the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred, created or assumed:
. indebtedness of United Dominion for money borrowed or represented by
purchase-money obligations;
. indebtedness of United Dominion evidenced by notes, debentures, or bonds,
or other securities issued under the provisions of an indenture, fiscal
agency agreement or other instrument;
. obligations of United Dominion as lessee under leases of property either
made as part of any sale and leaseback transaction to which United
Dominion is a party or otherwise;
. indebtedness of partnerships and joint ventures that is included in the
consolidated financial statements of United Dominion;
. indebtedness, obligations and liabilities of others in respect of which
United Dominion is liable contingently or otherwise to pay or advance
money or property or as guarantor, endorser or otherwise or which United
Dominion has agreed to purchase or otherwise acquire; and
. any binding commitment of United Dominion to fund any real estate
investment or to fund any investment in any entity making a real estate
investment, in each case other than the following:
--any indebtedness, obligation or liability referred to in the above
bullet points as to which, in the instrument creating or evidencing the
same pursuant to which the same is outstanding, it is provided
22
that the indebtedness, obligation or liability is not superior in right
of payment to the subordinated debt securities or ranks pari passu with
the subordinated debt securities;
-- any indebtedness, obligation or liability that is subordinated to
indebtedness of United Dominion to substantially the same extent as or
to a greater extent than the subordinated debt securities are
subordinated; and
-- the subordinated debt securities.
At September 30, 1999, our senior debt aggregated approximately $2.2 billion.
Discharge, Defeasance and Covenant Defeasance
Under each indenture, United Dominion may discharge certain obligations to
holders of any series of debt securities issued under an indenture that have
not already been delivered to the applicable trustee for cancellation and that
either have become due and payable or will become due and payable within one
year, or scheduled for redemption within one year, by irrevocably depositing
with the applicable trustee, in trust, funds in the currency or currencies,
currency unit or units or composite currency or currencies in which the debt
securities are payable in an amount sufficient to pay the entire indebtedness
on the debt securities in respect of principal, and any premium or make-whole
amount, and interest and any additional amounts payable to the date of the
deposit, if the debt securities have become due and payable, or to the stated
maturity or redemption date, as the case may be.
Each indenture provides that, if the provisions of its Article Fourteen are
made applicable to the debt securities of or within any series pursuant the
indenture, United Dominion may elect:
. "defeasance," which is to defease and be discharged from any and all
obligations with respect to the debt securities, except for the obligation
to pay additional amounts, if any, upon the occurrence of certain events
of tax, assessment or governmental charge with respect to payments on the
debt securities and the obligations to register the transfer or exchange
of the debt securities, to replace temporary or mutilated, destroyed, lost
or stolen debt securities, to maintain an office or agency in respect of
the debt securities and to hold moneys for payment in trust; or
. "covenant defeasance," which is to be released from our obligations with
respect to the debt securities under provisions of each indenture
described under "Covenants Applicable to Our Senior Debt Securities" and
"Covenants Applicable to All Debt Securities," or, if provided pursuant to
Section 301 of each indenture, our obligations with respect to any other
covenant, and any omission to comply with the obligations will not
constitute a default or an event or default with respect to the debt
securities.
In either case upon our irrevocable deposit with the applicable trustee, in
trust, of an amount, in the currency or currencies, currency unit or currency
units or composite currency or currencies in which the debt securities are
payable at stated maturity, or Government Obligations (as defined below), or
both, applicable to the debt securities that through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of, and any premium or make-whole
amount, and interest on the debt securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, United Dominion
has delivered to the applicable trustee an opinion of counsel, as specified in
each indenture, to the effect that the holders of the debt securities will not
recognize income, gain or loss for United States federal income tax purposes as
a result of the defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if the defeasance or covenant defeasance
had not occurred. In the case of defeasance, the opinion of counsel must refer
to and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax laws occurring after the date of
the indenture.
23
"Government Obligations" means securities that are:
. direct obligations of the United States of America or the government that
issued the foreign currency in which the debt securities of a particular
series are payable, for the payment of which its full faith and credit is
pledged; or
. obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or the
government that issued the foreign currency in which the debt securities
of the series are payable, the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America or any other government, which, in either case, are not callable
or redeemable at the option of the issuer, and will also include a
depository receipt issued by a bank or trust company as custodian with
respect to any Government Obligation or a specific payment of interest on
or principal of any Government Obligation held by the custodian for the
account of the holder of a depository receipt, provided that, except as
required by law, the custodian is not authorized to make any deduction
from the amount payable to the holder of the depository receipt from any
amount received by the custodian in respect of the Government Obligation
or the specific payment of interest on or principal of the Government
Obligation evidenced by the depository receipt.
Unless otherwise provided in the prospectus supplement, if after United
Dominion has deposited funds and/or Government Obligations to effect defeasance
or covenant defeasance with respect to debt securities of any series,
. the holder of a debt security of the series is entitled to, and does,
elect pursuant to Section 301 of the indenture or the terms of the debt
security to receive payment in a currency, currency unit or composite
currency other than that in which the deposit has been made in respect of
the debt security; or
. a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which the deposit has been made,
the indebtedness represented by the debt security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of
the principal of, and any premium or make-whole amount, and interest on
the debt security as they become due out of the proceeds yielded by
converting the amount deposited in respect of the debt security into the
currency, currency unit or composite currency in which the debt security
becomes payable as a result of the election or cessation of usage based on
the applicable market exchange rate.
"Conversion Event" means the cessation of use of:
. a currency, currency unit or composite currency, other than the ECU or
other currency unit, both by the government of the country that issued the
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community;
. the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities;
or
. any currency unit or composite currency other than the ECU for the
purposes for which it was established.
Unless otherwise provided in the prospectus supplement, all payments of
principal of, and any premium or make-whole amount, and interest on any debt
security that is payable in a foreign currency that ceases to be used by its
government of issuance will be made in United States dollars.
If United Dominion effects covenant defeasance with respect to any debt
securities and those debt securities are declared due and payable because of
the occurrence of any event of default, the amount in the currency, currency
unit or composite currency in which the debt securities are payable, and
Government Obligations on deposit with the trustee, will be sufficient to pay
amounts due on the debt securities at the time of their stated maturity but may
not be sufficient to pay amounts due on the debt securities at the time of the
acceleration resulting from the event of default. This situation will not apply
in the case of an event of default described in the fourth bullet point under
"--Events of Default, Notice
24
and Waiver" of either indenture, which sections would no longer be applicable
to the debt securities or described in the last bullet point under "--Events of
Default, Notice and Waiver" with respect to a covenant as to which there has
been covenant defeasance. However, we would remain liable to make payment of
the amounts due at the time of acceleration.
The prospectus supplement may further describe the provisions, if any,
permitting defeasance or covenant defeasance, including any modifications to
the provisions described above, with respect to the debt securities of or
within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are
convertible into United Dominion capital stock will be set forth in the
applicable prospectus supplement. The terms will include:
. whether the debt securities are convertible into capital stock;
. the conversion price, or its manner of calculation;
. the conversion period;
. provisions as to whether conversion will be at the option of the holders
or United Dominion;
. the events requiring an adjustment of the conversion price; and
. provisions affecting conversion in the event of the redemption of the debt
securities.
Book-Entry System
We may issue the debt securities of a series as one or more fully registered
global securities. We will deposit the global securities with, or on behalf of,
a depository bank identified in the prospectus supplement relating to the
series. We will register the global securities in the name of the depository
bank or its nominee. In that case, one or more global securities will be issued
in a denomination or aggregate denominations equal to the aggregate principal
amount of outstanding debt securities of the series represented by the global
security or securities. Until any global security is exchanged in whole or in
part for debt securities in definitive certificated form, the depository bank
or its nominee may not transfer the global certificate except to each other,
another nominee or to their successors and except as described in the
applicable prospectus supplement.
The prospectus supplement will describe the specific terms of the depository
arrangement with respect to a series of debt securities that a global security
will represent. We anticipate that the following provisions will apply to all
depository arrangements.
Upon the issuance of any global security, and the deposit of the global
security with or on behalf of the depository bank for the global security, the
depository bank will credit, on its book-entry registration and transfer
system, the respective principal amounts of the debt securities represented by
the global security to the accounts of institutions, also referred to as
"participants," that have accounts with the depository bank or its nominee. The
accounts to be credited will be designated by the underwriters or agents
engaging in the distribution or placement of the debt securities or by us, if
we offer and sell the debt securities directly. Ownership of beneficial
interests in the global security will be limited to participants or persons
that may hold interests through participants.
Ownership of beneficial interests by participants in the global security
will be shown by book-keeping entries on, and the transfer of that ownership
interest will be effected only through book-keeping entries to, records
maintained by the depository bank or its nominee for the global security.
Ownership of beneficial interests in the global security by persons that hold
through participants will be shown by book-keeping entries on, and the transfer
of that ownership interest among or through the participants will be effected
only through book-keeping entries to, records maintained by the participants.
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The laws of some jurisdictions require that some of the purchasers of
securities take physical delivery of the securities in definitive certificated
form rather than book-entry form. Such laws may impair the ability to own,
transfer or pledge beneficial interests in any global security.
So long as the depository bank for a global security or its nominee is the
registered owner of the global security, the depository bank or the nominee, as
the case may be, will be considered the sole owner or holder of the debt
securities represented by the global security for all purposes under the
indenture. Except as described below or otherwise specified in the applicable
prospectus supplement, owners of beneficial interests in a global security:
. will not be entitled to have debt securities of the series represented by
the global security registered in their names;
. will not receive or be entitled to receive physical delivery of debt
securities of the series in definitive certificated form; and
. will not be considered the holders thereof for any purposes under the
indenture.
Accordingly, each person owning a beneficial interest in the global security
must rely on the procedures of the depository bank and, if the person is not a
participant, on the procedures of the participant through which the person
directly or indirectly owns its interest, to exercise any rights of a holder
under the indenture. The indenture provides that the depository bank may grant
proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action that
a holder is entitled to give or take under the indenture.
We understand that under existing industry practices, if we request any
action of holders or any owner of a beneficial interest in the global security
desires to give any notice or take any action that a holder is entitled to give
or take under the indenture, the depository bank for the global security would
authorize the participants holding the relevant beneficial interest to give
notice or take action, and the participants would authorize beneficial owners
owning through the participants to give notice or take action or would
otherwise act upon the instructions of beneficial owners owning through them.
Principal and any premium and interest payments on debt securities
represented by a global security registered in the name of a depository bank or
its nominee will be made to the depository bank or its nominee, as the case may
be, as the registered owner of the global security. None of us, the trustee or
any paying agent for the debt securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in any global security or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests.
We expect that the depository bank for any series of debt securities
represented by a global security, upon receipt of any payment of principal,
premium or interest, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global security as shown on the records of the
depository bank. We also expect that payments by participants to owners of
beneficial interests in the global security or securities held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in "street name," and will be the responsibility of the participants.
If the depository bank for any series of debt securities represented by a
global security is at any time unwilling or unable to continue as depository
bank and we do not appoint a successor depository bank within 90 days, we will
issue the debt securities in definitive certificated form in exchange for the
global security. In addition, we may at any time and in our sole discretion
determine not to have the debt securities of a series represented by one or
more global securities and, in the event, will issue debt securities of the
series in definitive certificated form in exchange for the global security
representing the series of debt securities.
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Debt securities of the series issued in definitive certificated form will,
except as described in the applicable prospectus supplement, be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form.
Trustees
First Union National Bank is the trustee under the Senior Indenture. Crestar
Bank is the trustee under the Subordinated Indenture. Both First Union National
Bank and Crestar Bank have lending relationships with us.
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DESCRIPTION OF OUR CAPITAL STOCK
General
The following is a summary of some of the important terms of our capital
stock. You should review the applicable Virginia law and our Charter and our
Restated Bylaws for a more complete description of our capital stock.
United Dominion is authorized to issue 150,000,000 shares of common stock,
$1 par value, and 25,000,000 shares of preferred stock, no par value. The
preferred stock is issuable in series designated by our Board of Directors,
which has designated four series: 9.25% Series A Cumulative Redeemable
Preferred Stock, 8.60% Series B Cumulative Redeemable Preferred Stock, Series C
Junior Participating Cumulative Redeemable Preferred Stock and Series D
Cumulative Convertible Redeemable Preferred Stock. At November 9, 1999, there
were outstanding 102,996,532 shares of common stock, 4,200,000 shares of Series
A Preferred Stock, 6,000,000 shares of Series B Preferred Stock and 8,000,000
shares of Series D Preferred Stock. No shares of Series C Preferred Stock have
been issued, and we will not issue any shares of Series C Preferred Stock
except upon the exercise of rights as described below under "--Rights to
Purchase Series C Preferred Stock." We will not issue additional shares of any
outstanding series of preferred stock.
Common Stock
Holders of our common stock are entitled to receive dividends when and as
declared by the Board of Directors after payment of, or provision for, full
cumulative dividends on and any required redemptions of shares of our preferred
stock then outstanding. Holders of our common stock have one vote per share and
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting can elect all of the directors if they choose to do so, and, in
the event, the holders of the remaining shares will not be able to elect any
directors. In the event of our voluntary or involuntary liquidation or
dissolution, holders of our common stock are entitled to share ratably in our
distributable assets remaining after satisfaction of the prior preferential
rights of our preferred stock and the satisfaction of all of our debts and
liabilities. Holders of our common stock do not have preemptive rights.
The dividend and liquidation rights of holders of our common stock are
specifically limited by the terms of the outstanding preferred stock, which
provide that no dividends will be declared or paid or on the common stock
unless the accrued dividends on each series of outstanding preferred stock have
been fully paid or declared and set apart for payment, and that in the event of
any liquidation, dissolution or winding up of United Dominion, the holders of
each series of preferred stock will be entitled to receive out of our assets
available for distribution to shareholders the liquidation preference of that
series before any amount is distributed to common shareholders.
The transfer agent for our common stock is ChaseMellon Shareholder Services,
L.L.C., Ridgefield Park, New Jersey. Our common stock is traded on the NYSE
under the symbol "UDR."
Preferred Stock
The following description sets forth general terms and provisions of our
preferred stock. Specific terms of any series of preferred stock offered by a
prospectus supplement will be described in that prospectus supplement. You
should review our Charter for a more complete description of the preferences,
limitations and relative rights of a particular series of preferred stock.
General
Under our Charter, the Board of Directors is authorized, without further
shareholder action, to provide for the issuance of up to 25,000,000 shares of
preferred stock, in one or more series, with the voting powers and with the
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions, as the Board
of Directors will approve.
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Our preferred stock will have the dividend, liquidation, redemption,
conversion and voting rights set forth below unless otherwise provided in the
prospectus supplement relating to a particular series of preferred stock. In an
offering of a series of our preferred stock, the prospectus supplement will
provide specific terms of the series, including:
. the title and liquidation preference per share of the preferred stock and
the number of shares offered;
. the price at which the series will be issued;
. the dividend rate or method of its calculation, the dates on which
dividends will be payable and the dates from which dividends will commence
to accumulate;
. any redemption or sinking fund provisions of the series;
. any conversion provisions of the series; and
. any additional dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions of the
series.
Our preferred stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the prospectus supplement relating to a
particular series of preferred stock, each series will rank on a parity as to
dividends and distributions in the event of a liquidation with each other
series of preferred stock and, in all cases, will be senior to the common stock.
Dividend Rights
Holders of preferred stock of each series will be entitled to receive, when
declared by the Board of Directors, cash dividends at the rates and on the
dates as set forth in the prospectus supplement relating to the series of
preferred stock. The rate may be fixed or variable or both and may be
cumulative, noncumulative or partially cumulative.
If the prospectus supplement provides, as long as any shares of preferred
stock are outstanding, no dividends will be declared or paid or any
distributions be made on the common stock, other than a dividend payable in
common stock, unless the accrued dividends on each series of preferred stock
have been fully paid or declared and set apart for payment and United Dominion
will have set apart all amounts, if any, required to be set apart for all
sinking funds, if any, for each series of preferred stock.
If the prospectus supplement so provides, when dividends are not paid in
full upon any series of preferred stock and any other series of preferred stock
ranking on a parity as to dividends with the series of preferred stock, all
dividends declared upon the series of preferred stock and any other series of
preferred stock ranking on a parity as to dividends will be declared pro rata
so that the amount of dividends declared per share on the series of preferred
stock and the other series will in all cases bear to each other the same ratio
that accrued dividends per share on the series of preferred stock and the other
series bear to each other.
Each series of preferred stock will be entitled to dividends as described in
the prospectus supplement relating to the series, which may be based upon one
or more methods of determination. Different series of preferred stock may be
entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable prospectus
supplement, no series of preferred stock will be entitled to participate in our
earnings or assets.
Rights Upon Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of United Dominion, the holders of each series of preferred stock
will be entitled to receive out of our assets available for distribution to
shareholders the amount stated or determined on the basis set forth in the
prospectus supplement relating to the series. This distribution may include
accrued dividends, if the liquidation, dissolution or winding up is
involuntary. If the liquidation, dissolution or winding up is voluntary the
distribution may equal the current redemption price per share provided for the
series set forth in the prospectus supplement, otherwise than for the sinking
fund, if any, provided for the series. Any preferential basis for the
distribution will be set forth in the prospectus supplement.
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If, upon any voluntary or involuntary liquidation, dissolution or winding up
of United Dominion, the amounts payable with respect to preferred stock of any
series and any other shares of stock of United Dominion ranking as to any such
distribution on a parity with the series of preferred stock are not paid in
full, the holders of preferred stock of the series and of the other shares will
share ratably in any distribution of our assets in proportion to the full
respective preferential amounts to which they are entitled or on such other
basis as is set forth in the applicable prospectus supplement. The rights, if
any, of the holders of any series of preferred stock to participate in our
remaining assets after the holders of other series of preferred stock have been
paid their respective specified liquidation preferences upon any liquidation,
dissolution or winding up of United Dominion will be described in the
prospectus supplement relating to the series.
Redemption
A series of preferred stock may be redeemable, in whole or in part, at our
option, and may be subject to mandatory redemption pursuant to a sinking fund,
in each case upon terms, at the times, the redemption prices and for the types
of consideration set forth in the prospectus supplement relating to the series.
The prospectus supplement relating to a series of preferred stock that is
subject to mandatory redemption will specify the number of shares of the series
that we will redeem in each year commencing after a specified date at a
specified redemption price per share, together with an amount equal to any
accrued and unpaid dividends to the date of redemption.
If, after giving notice of redemption to the holders of a series of
preferred stock, United Dominion deposits with a designated bank funds
sufficient to redeem the preferred stock, then from and after the deposit, all
shares called for redemption will no longer be outstanding for any purpose,
other than the right to receive the redemption price and the right to convert
the shares into other classes of capital stock of United Dominion. The
prospectus supplement will set forth the redemption price relating to a
particular series of preferred stock.
Except as indicated in the applicable prospectus supplement, the preferred
stock is not subject to any mandatory redemption at the option of the holder.
Sinking Fund
The prospectus supplement for any series of preferred stock will state the
terms, if any, of a sinking fund for the purchase or redemption of that series.
Conversion Rights
The prospectus supplement for any series of preferred stock will state the
terms, if any, on which shares of that series are convertible into shares of
common stock or another series of preferred stock. The preferred stock will
have no preemptive rights.
Voting Rights
Except as indicated in the prospectus supplement relating to a particular
series of preferred stock, or except as expressly required by Virginia law, a
holder of preferred stock will not be entitled to vote. Except as indicated in
the prospectus supplement relating to a particular series of preferred stock,
in the event United Dominion issues full shares of any series of preferred
stock, each share will be entitled to one vote on matters on which holders of
the series of preferred stock are entitled to vote.
Under Virginia law, the affirmative vote of the holders of a majority of the
outstanding shares of all series of preferred stock, voting as a separate
voting group, will be required for:
. the authorization of any class of stock ranking prior to or on parity with
preferred stock or the increase in the number of authorized shares of any
such stock;
. any increase in the number of authorized shares of preferred stock; and
. certain amendments to our Charter that may be adverse to the rights of
outstanding preferred stock.
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Transfer Agent and Registrar
The prospectus supplement will state our selection for the transfer agent,
registrar and dividend disbursement agent for a series of preferred stock. The
registrar for shares of preferred stock will send notices to shareholders of
any meetings at which holders of preferred stock have the right to vote on any
matter.
Rights to Purchase Series C Preferred Stock
Pursuant to our shareholder rights plan, each share of common stock has
attached to it one right to purchase from United Dominion one one-thousandth of
a share of Series C Preferred Stock. Each one one-thousandth of a share of
Series C Preferred Stock is structured to be the equivalent of one share of
common stock. The exercise price of the rights is $45.00, subject to
adjustment. For a discussion of the impact of our shareholder rights plan, you
should refer to the subsection entitled "Risks of Investment--The Ability of
Our Shareholders to Control Our Policies and Effect a Change of Control of Our
Company is Limited, Which May Not Be in Our Shareholders' Best Interests."
The rights will separate from the common stock and a distribution of
certificates evidencing the rights will occur upon the earlier of:
. 10 business days following a public announcement that a person or group of
related persons has acquired, or obtained the right to acquire, beneficial
ownership of more than 15% of the outstanding shares of common stock; or
. 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning more than
15% of the outstanding shares of common stock.
The rights will expire at the close of business on February 4, 2008, unless
we redeem or exchange them earlier.
Series C Preferred Stock
The Series C Preferred Stock is junior to all other outstanding series of
preferred stock in respect of rights to receive dividends and to participate in
distributions or payments in the event of our liquidation, dissolution or
winding up. The Series C Preferred Stock is senior to the common stock and, as
to dividends and upon liquidation, any of our other capital stock that ranks
junior to the Series C Preferred Stock.
Holders of shares of the Series C Preferred Stock are be entitled to receive
cumulative preferential cash dividends payable quarterly in an amount per share
equal to:
. the greater of
--$.01 or
--1,000 times the aggregate per share amount of all cash dividends; and
. 1,000 times the aggregate per share amount, payable in kind, of all
non-cash dividends or other distributions, other than dividends payable in
shares of common stock, declared on the common stock since the immediately
preceding quarterly dividend payment date, or, with respect to the first
quarterly dividend payment date, since the first issuance of any share or
fraction of a share of Series C Preferred Stock.
In the event of any liquidation, dissolution or winding up of United
Dominion, the holders of shares of Series C Preferred Stock are entitled to be
paid out of our assets legally available for distribution to our shareholders a
liquidation preference of $1,000 per share, plus accrued and unpaid dividends
thereon to the date of payment, of which is referred to as the "Series C
Preferred Liquidation Preference." After the payment to the holders of the
shares of the Series C Preferred Stock of the full
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Series C Preferred Liquidation Preference, the holders of the Series C
Preferred Stock as such shall have no right or claim to any of the remaining
assets of the corporation until the holders of common stock shall have received
an amount per share, referred to as the "common adjustment," equal to the
quotient obtained by dividing the Series C Preferred Liquidation Preference by
1,000. In the event that there are not sufficient assets available after
payment in full of the Series C Preferred Liquidation Preference to permit
payment in full of the common adjustment, then the remaining assets shall be
distributed ratably to the holders of the common stock.
The outstanding shares of Series C Preferred Stock may be redeemed at the
option of the Board of Directors as a whole, but not in part, at any time, or
from time to time, at a redemption price per share equal to 1,000 times the
Average Market Value of the common stock, plus all accrued and unpaid dividends
to and including the date fixed for redemption. The "Average Market Value" is
the average of the closing sale prices of a share of the common stock during
the 30-day period immediately preceding the date before the redemption date
quoted on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
the common stock is not quoted on the Composite Tape, on The New York Stock
Exchange, or, if the common stock is not listed on such exchange, on the
principal United States registered securities exchange on which the common
stock is listed, or, if the common stock is not listed on any such exchange,
the average of the closing bid quotations with respect to a share of common
stock during such 30-day period on The Nasdaq Stock Market, or if no such
quotations are available, the fair market value of a share of common stock as
determined by the Board of Directors in good faith.
Each share of Series C Preferred Stock entitles its holder to 1,000 votes on
all matters submitted to a vote of our shareholders. The holders of shares of
Series C Preferred Stock and the holders of shares of common stock vote
together as one voting group on all those matters.
Whenever dividends on any shares of Series C Preferred Stock are in arrears
for six or more consecutive quarterly periods, our entire Board of Directors
will be increased by two directors and the holders of Series C Preferred Stock,
voting separately as a class with all other series of preferred stock having
like voting rights, may vote for the election of two additional directors of
United Dominion until all dividend arrearages have been fully paid.
The dividend rate on the Series C Preferred Stock , the Series C Preferred
Liquidation Preference, the Common Adjustment, the Series C Preferred
Redemption Price and the number of votes per share of Series C Preferred Stock
are all subject to adjustment upon the declaration of any dividend payable in
common stock, subdivision of the outstanding common stock or combination of the
outstanding shares of common stock into a smaller number of shares.
Dividend Restrictions
A covenant in our loan agreement with a group of insurance company lenders
effectively prohibits us from declaring or paying dividends if, after giving
effect to the declaration or payment,
. a default or "Event of Default" under the agreement will occur and be
continuing,
. we would be prohibited from incurring debt under other covenants in the
agreement, and
. the dividends and other "Restricted Payments," as defined in the loan
agreement, declared during the same fiscal year as the dividends would
exceed the sum of "Cash Flow," as defined in the loan agreement, from the
beginning of that fiscal year to and including the last day of the
completed fiscal quarter immediately preceding the dividend payment date,
and the net cash proceeds received by us from the issuance or sale of
capital stock after February 24, 1993, plus $20,000,000, minus the total
of the amounts, if any, by which "Restricted Payments" declared during
each fiscal year after December 31, 1992, exceed "Cash Flow" for the
applicable fiscal year.
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In addition, a covenant in our credit agreement with a group of bank lenders
prohibits the payment of dividends and distributions on our common stock in
excess of 95% of our "Funds From Operations," as defined in the credit
agreement, during any period, excluding dividends paid as a result of
extraordinary gains which are excluded from the "Funds From Operations"
calculation.
Despite these covenants, we may pay dividends required to maintain our
qualification as a REIT under the Internal Revenue Code.
Affiliated Transactions
The Virginia Stock Corporation Act contains provisions governing "affiliated
transactions" designed to deter uninvited takeovers of Virginia corporations.
These provisions, with several exceptions discussed below, require approval of
material acquisition transactions between a Virginia corporation and any
interested shareholders by the holders of at least two-thirds of the remaining
voting shares. An interested shareholder is any holder of more than 10% of any
class of its outstanding voting shares.
For three years following the time that the interested shareholder becomes
an owner of 10% of the outstanding voting shares, Virginia corporations cannot
engage in an affiliated transaction with the interested shareholder without
approval of two-thirds of the voting shares other than those shares
beneficially owned by the interested shareholder, and majority approval of the
disinterested directors. At the expiration of the three year period, the
statute requires approval of affiliated transactions by two-thirds of the
voting shares other than those beneficially owned by the interested shareholder
absent an exception. The principal exceptions to the special voting requirement
apply to transactions proposed after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's disinterested directors or that the transaction satisfy the
fair-price requirements of the law.
The Virginia Stock Corporation Act also provides that shares acquired in a
transaction that would cause the acquiring person's voting strength to cross
any of three thresholds, namely, 20%, 33% or 50%, have no voting rights unless
granted by a majority vote of shares not owned by the acquiring person or any
officer or employee-director of United Dominion. An acquiring person may
require that we hold a special meeting of shareholders to consider the matter
within 50 days of its request.
Redemption and Restrictions on Transfer
In order to preserve our status as a REIT, we can redeem or stop the
transfer of our shares. Our Charter provides that United Dominion is organized
to qualify as a REIT. Because the concentration of more than 50% in value of
the direct or indirect ownership of our shares in five or fewer individual
shareholders during the last six months of any year would result in our
disqualification as a REIT, our Charter provides that United Dominion will have
the power:
. to redeem that number of concentrated shares sufficient in the opinion of
our Board of Directors to maintain or bring the direct or indirect
ownership of shares into conformity with the requirements of the federal
income tax laws; and
. to stop the transfer of shares to any person whose acquisition thereof
would, in the opinion of our Board of Directors, result in our
disqualification as a REIT.
The per share redemption price of any shares that we redeem pursuant to this
provision will be the last reported sale price for the shares as of the
business day preceding the day on which the notice of redemption is given. The
Board of Directors can require shareholders to disclose in writing to us the
information with respect to ownership of our shares as the Board deems
necessary to comply with the REIT provisions of the federal income tax laws.
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FEDERAL INCOME TAX CONSEQUENCES
OF UNITED DOMINION'S STATUS AS A REIT
The following sections summarize the federal income tax issues that you, as
a prospective holder of securities of United Dominion, may consider relevant.
Because this section is a summary, it does not address all of the tax issues
that may be important to you. In addition, this section does not address the
tax issues that may be important to certain types of security holders that are
subject to special treatment under the federal income tax laws, such as
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, and non-U.S. individuals and foreign corporations.
The statements in this section are based on the current federal income tax
laws governing our qualification as a REIT. United Dominion cannot assure you
that new laws, interpretations thereof, or court decisions, any of which may
take effect retroactively, will not cause any statement in this section to be
inaccurate.
United Dominion urges you to consult your own tax advisor regarding the
specific tax consequences to you of investing in our securities and of our
election to be taxed as a REIT. Specifically, you should consult your own tax
advisor regarding the federal, state, local, foreign and other tax consequences
of such investment and election, and regarding potential changes in applicable
tax laws.
Taxation of United Dominion
United Dominion elected to be taxed as a REIT under the Internal Revenue
Code commencing with its taxable year ended December 31, 1972. We believe that
we have operated in a manner intended to qualify as a REIT since our election
to be a REIT, and we intend to continue to so operate. This section discusses
generally the laws governing the federal income tax treatment of a REIT and its
shareholders. These laws are highly technical and complex.
United Dominion's qualification as a REIT depends on our ability to meet on
a continuing basis qualification tests set forth in the federal tax laws. Those
qualification tests involve the percentage of income that United Dominion earns
from specified sources, the percentage of our assets that fall within specified
categories, the diversity of our share ownership, and the percentage of our
earnings that we distribute. The REIT qualification tests are described in more
detail below. For a discussion of the tax treatment of United Dominion and our
shareholders if United Dominion fails to qualify as a REIT, see "--Failure to
Qualify."
If United Dominion qualifies as a REIT, we generally will not be subject to
federal income tax on the taxable income that we distribute to our
shareholders. The benefit of this tax treatment is that it avoids the "double
taxation" at both the corporate and shareholder levels that generally results
from owning stock in a corporation. However, United Dominion will be subject to
federal tax in the following circumstances:
. United Dominion will pay federal income tax on taxable income, including
net capital gain, that we do not distribute to our shareholders during, or
within a specified time period after, the calendar year in which the
income is earned.
. United Dominion may be subject to the "alternative minimum tax" on any
items of tax preference that we do not distribute or allocate to our
shareholders.
. United Dominion will pay income tax at the highest corporate rate on (A)
net income from the sale or other disposition of property acquired through
foreclosure ("foreclosure property") that it holds primarily for sale to
customers in the ordinary course of business and (B) other non-qualifying
income from foreclosure property.
. United Dominion will pay a 100% tax on net income from sales or other
dispositions of property, other than foreclosure property, that it holds
primarily for sale to customers in the ordinary course of business
("prohibited transactions").
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. If United Dominion fails to satisfy the 75% gross income test or the 95%
gross income test (as described below under "--Requirements for
Qualification--Income Tests"), and nonetheless continues to qualify as a
REIT because we meet other requirements, we will pay a 100% tax on (A) the
gross income attributable to the greater of the amounts by which we fail
the 75% and 95% gross income tests, multiplied by (B) a fraction intended
to reflect our profitability.
. If United Dominion fails to distribute during a calendar year at least the
sum of (A) 85% of our REIT ordinary income for such year, (B) 95% of our
REIT capital gain net income for such year, and (C) any undistributed
taxable income from prior periods, we will pay a 4% excise tax on the
excess of such required distribution over the amount we actually
distributed.
. United Dominion may elect to retain and pay income tax on our net
long-term capital gain.
. If United Dominion acquires any asset from a corporation generally subject
to full corporate-level tax in a merger or other transaction in which we
acquire a basis in the asset that is determined by reference to the
corporation's basis in that or another asset, we will pay tax at the
highest regular corporate rate applicable if we recognize gain on the sale
or disposition of such asset during the 10-year period after we acquire
such asset. The amount of gain on which we will pay tax is the lesser of
(A) the amount of gain that we recognize at the time of the sale or
disposition and (B) the amount of gain that we would have recognized if we
had sold the asset at the time we acquired the asset. The rule described
in this paragraph will apply assuming that United Dominion makes an
election under a temporary Treasury Regulation upon our acquisition of an
asset from a C corporation.
Requirements for Qualification
A REIT is a corporation, trust, or association that meets the following
requirements:
1. it is managed by one or more trustees or directors;
2. its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
3. it would be taxable as a domestic corporation, but for provisions of
federal income tax law defining a REIT;
4. it is neither a financial institution nor an insurance company subject
to specified provisions of the federal income tax law;
5. at least 100 persons are beneficial owners of its shares or ownership
certificates;
6. not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer individuals,
as defined in the federal income tax laws to include certain entities,
during the last half of any taxable year;
7. it elects to be taxed as a REIT, or has made such election for a
previous taxable year, and satisfies all relevant filing and other
administrative requirements established by the Internal Revenue Service that
must be met to maintain REIT status;
8. it uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the federal income tax laws; and
9. it meets other qualification tests, described below, regarding the
nature of its income and assets.
United Dominion must meet requirements 1 through 4, inclusive, during our
entire taxable year and must meet requirement 5 during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. If we comply with all the requirements for ascertaining
the ownership of our outstanding shares in a taxable year and have no reason to
know that we violated requirement 6, we will be deemed to have satisfied
requirement 6 for such taxable year. For purposes of determining share
ownership under requirement 6, an "individual" generally
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includes a supplemental unemployment compensation benefits plan, a private
foundation, or a portion of a trust permanently set aside or used exclusively
for charitable purposes. An "individual," however, generally does not include a
trust that is a qualified employee pension or profit sharing trust under the
federal income tax laws, and beneficiaries of such a trust will be treated as
holding shares of United Dominion's capital stock in proportion to their
actuarial interests in the trust for purposes of requirement 6.
United Dominion believes that we have issued sufficient common stock with
sufficient diversity of ownership to satisfy requirements 5 and 6 set forth
above. In addition, our Charter restricts the ownership and transfer of the
common stock so that United Dominion should continue to satisfy requirements 5
and 6. The provisions of our Charter restricting the ownership and transfer of
the common stock are described in "Description of Our Capital Stock--Redemption
and Restrictions on Transfer."
United Dominion currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. A corporation that is a
"qualified REIT subsidiary" is not treated for federal income tax purposes as a
corporation separate from its parent REIT. All assets, liabilities, and items
of income, deduction and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements described herein, any
"qualified REIT subsidiary" of United Dominion will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of the subsidiary will
be treated as assets, liabilities and items of income, deduction and credit of
United Dominion. United Dominion's corporate subsidiaries are qualified REIT
subsidiaries. Accordingly, they are not subject to federal corporate income
taxation, though they may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
treated as owning its proportionate share of the assets of the partnership and
as earning its allocable share of the gross income of the partnership for
purposes of the applicable REIT qualification tests. Thus, United Dominion's
proportionate share of the assets, liabilities and items of income of the
partnerships in which we own an interest, directly or indirectly, are treated
as assets and gross income of United Dominion for purposes of applying the
various REIT qualification requirements.
Income Tests
United Dominion must satisfy two gross income tests annually to maintain our
qualification as a REIT. First, at least 75% of our gross income, excluding
gross income from prohibited transactions, for each taxable year must consist
of defined types of income that we derive, directly or indirectly, from
investments relating to real property or mortgages on real property or
temporary investment income (the "75% gross income test"). Qualifying income
for purposes of the 75% gross income test generally includes:
. rents from real property;
. interest on debt secured by mortgages on real property or on interests in
real property; and
. dividends or other distributions on and gain from the sale of shares in
other REITs.
Second, at least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year generally must consist of income
that is qualifying income for purposes of the 75% gross income test, dividends,
other types of interest, gain from the sale or disposition of stock or
securities, or any combination of the foregoing (the "95% gross income test").
Gross income from United Dominion's sale of property that we hold primarily for
sale to customers in the ordinary course of business is excluded from both
income tests. The following paragraphs discuss the specific application of
these tests to United Dominion.
Rents and Interest
Rent that United Dominion receives from real property that we own and lease
to tenants will qualify as "rents from real property" only if the following
conditions are met.
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. First, the rent must not be based, in whole or in part, on the income or
profits of any person. However, "rents from real property" generally does
not exclude an amount solely because it is based on a fixed percentage or
percentages of receipts or sales.
. Second, neither United Dominion nor a direct or indirect owner of 10% or
more of our stock may own, actually or constructively, 10% or more of a
tenant from whom we receive rent.
. Third, in order for 100% of the rent received under a lease of real
property to qualify as "rents from real property," the rent attributable
to the personal property leased in connection with such lease must not be
more than 15% of the total rent received under the lease.
. Finally, United Dominion generally must not operate or manage our real
property or furnish or render services to our tenants, other than through
an "independent contractor" who is adequately compensated and from whom
United Dominion does not derive revenue. However, United Dominion need not
provide services through an "independent contractor," but instead may
provide services directly, if the services are "usually or customarily
rendered" in connection with the rental of space for occupancy only and
are not otherwise considered "rendered to the occupant." In addition,
United Dominion may render a de minimis amount of "non-customary" services
to the tenants of a property, other than through an independent
contractor, as long as its income from the services does not exceed 1% of
our income from the related property.
United Dominion does not receive any rent that is based on the income or
profits of any person. In addition, we do not own, directly or indirectly, 10%
or more of any tenant. Furthermore, United Dominion believes that any personal
property rented in connection with our apartment facilities is well within the
15% restriction. Finally, United Dominion does not provide services, other than
within the 1% de minimis exception described above, to our tenants that are not
customarily furnished or rendered in connection with the rental of the
apartment units, other than through an independent contractor.
United Dominion's investment in apartment communities in major part gives
rise to rental income that is qualifying income for purposes of the 75% and 95%
gross income tests. Gains on sales of apartment communities, other than from
prohibited transactions, as described below, or of United Dominion's interest
in a partnership generally will be qualifying income for purposes of the 75%
and 95% gross income tests. We anticipate that income on our other investments
will not result in our failing the 75% or 95% gross income test for any year.
Prohibited Transaction Rules
A REIT will incur a 100% tax on the net income derived from a sale or other
disposition of property, other than foreclosure property, that the REIT holds
primarily for sale to customers in the ordinary course of a trade or business.
United Dominion believes that none of our assets is held for sale to customers
and that a sale of any such asset would not be in the ordinary course of our
business. Whether a REIT holds an asset "primarily for sale to customers in the
ordinary course of a trade or business" depends, however, on the facts and
circumstances in effect from time to time, including those related to a
particular asset. Nevertheless, United Dominion will attempt to comply with the
terms of safe-harbor provisions in the federal income tax laws prescribing when
an asset sale will not be characterized as a prohibited transaction. We cannot
assure you, however, that United Dominion can comply with such safe-harbor
provisions or that we will avoid owning property that may be characterized as
property that we hold "primarily for sale to customers in the ordinary course
of a trade or business."
Hedging Transactions
From time to time, United Dominion may enter into hedging transactions with
respect to one or more of our assets or liabilities. Our hedging activities may
include entering into interest rate swaps, caps and floors, or options to
purchase such items, and futures and forward contracts. To the extent that
United Dominion enters into an interest rate swap or cap contract, option,
futures contract, forward rate agreement or any similar financial instrument to
hedge our indebtedness incurred to acquire or
37
carry "real estate assets," any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. To the extent that United Dominion
hedges with other types of financial instruments, or in other situations, it is
not entirely clear how the income from those transactions will be treated for
purposes of the gross income tests. United Dominion intends to structure any
hedging transactions in a manner that does not jeopardize our status as a REIT.
Failure to Qualify. If United Dominion fails to satisfy one or both of the
75% or 95% gross income tests for any taxable year, we may nevertheless qualify
as a REIT for that year if we are eligible for relief under certain provisions
of the federal income tax laws. Those relief provisions generally will be
available if:
. United Dominion's failure to meet the gross income tests was due to
reasonable cause and not due to willful neglect;
. United Dominion attaches a schedule of the sources of our income to our
federal income tax return; and
. any incorrect information on the schedule is not due to fraud with intent
to evade tax.
It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of those relief provisions. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally receive or accrue exceeds the gross income test limits on such
income, the Internal Revenue Service could conclude that our failure to satisfy
the tests was not due to reasonable cause. As discussed above in "--Taxation of
United Dominion," even if the relief provisions apply, United Dominion would
incur a 100% tax on the gross income attributable to the greater of the amounts
by which we fail the 75% and 95% gross income tests, multiplied by a fraction
intended to reflect our profitability.
Asset Tests
To maintain our qualification as a REIT, United Dominion also must satisfy
three tests relating to the nature and diversification of our assets at the
close of each quarter of each taxable year:
. First, at least 75% of the value of our total assets must consist of cash
or cash items, including receivables, government securities, "real estate
assets," or qualifying temporary investments (the "75% asset test");
. Second, no more than 25% of our total assets may be represented by
securities other than those that are qualifying assets for purposes of the
75% asset test; and
. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities that United Dominion owns may not exceed 5% of
the value of our total assets, and we may not own more than 10% of any one
issuer's outstanding voting securities.
For purposes of those tests, "securities" does not include our interest in
partnerships or any qualified REIT subsidiary. For purposes of the asset tests,
we are deemed to own our proportionate share of the assets of any partnership
in which we own an interest, rather than our interest in that partnership.
United Dominion has operated and intends to continue to operate so that we have
not acquired or disposed, and in the future will not acquire or dispose, of
assets in a way that would cause us to violate either asset test. If United
Dominion should fail to satisfy the asset tests at the end of a calendar
quarter, we would not lose our REIT status if (A) we satisfied the asset tests
at the close of the preceding calendar quarter and (B) the discrepancy between
the value of our assets and the asset test requirements arose from changes in
the market values of our assets and was not wholly or partly caused by the
acquisition of one or more non-qualifying assets. If United Dominion did not
satisfy the condition described in clause (B) of the preceding sentence, we
still could avoid disqualification as a REIT by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which the discrepancy
arose.
38
Recently enacted legislation, the Ticket to Work and Work Incentives
Improvements Act of 1999 (the "Tax Bill"), allows United Dominion to own up to
100% of the stock of taxable REIT subsidiaries ("TRSs"), which can perform
activities unrelated to our tenants, such as third-party management,
development and other independent business activities, as well as provide
services to our tenants, without disqualifying the rent we receive from our
tenants. The Tax Bill also prevents us from owning more than 10% of the voting
power or value of the stock of a taxable subsidiary that is not treated as a
TRS. Prior to the Tax Bill, we were prohibited only from owning more than 10%
of the voting stock of a taxable subsidiary. Overall, no more than 20% of our
assets can consist of securities of TRSs under the Tax Bill. The TRS provisions
in the Tax Bill will apply for taxable years beginning after December 31, 2000.
Distribution Requirements
Each taxable year, United Dominion must distribute, other than capital gain
dividends and deemed distributions of retained capital gain, to our
shareholders in an aggregate amount at least equal to:
. the sum of (A) 95% of its "REIT taxable income," computed without regard
to the dividends paid deduction and our net capital gain or loss, and (B)
95% of our after-tax net income, if any, from foreclosure property, minus
. the sum of certain items of noncash income.
United Dominion must pay such distributions in the taxable year to which
they relate, or in the following taxable year if we declare the distribution
before we timely file our federal income tax return for such year and pay the
distribution on or before the first regular dividend payment date after such
declaration.
Under the Tax Bill, the 95% distribution requirement discussed above was
reduced to 90% for taxable years beginning after December 31, 2000.
United Dominion will pay federal income tax on taxable income, including net
capital gain, that we do not distribute to our shareholders. Furthermore, if we
fail to distribute during a calendar year, or, in the case of distributions
with declaration and record dates falling in the last three months of the
calendar year, by the end of January following such calendar year, at least the
sum of:
. 85% of our REIT ordinary income for such year,
. 95% of our REIT capital gain income for such year, and
. any undistributed taxable income from prior periods,
we will incur a 4% nondeductible excise tax on the excess of such required
distribution over the amounts we actually distributed. United Dominion may
elect to retain and pay income tax on the net long-term capital gain that we
receive in a taxable year. If we so elect, we will be treated as having
distributed any such retained amount for purposes of the 4% excise tax
described above. United Dominion has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible that, from time to time, United Dominion may experience
timing differences between (A) the actual receipt of income and actual payment
of deductible expenses and (B) the inclusion of that income and deduction of
such expenses in arriving at our REIT taxable income. For example, United
Dominion may not deduct recognized capital losses from our "REIT taxable
income." Further, it is possible that, from time to time, United Dominion may
be allocated a share of net capital gain attributable to the sale of
depreciated property that exceeds our allocable share of cash attributable to
that sale. As a result of the foregoing, United Dominion may have less cash
than is necessary to
39
distribute all of our taxable income and thereby avoid corporate income tax and
the excise tax imposed on undistributed income. In such a situation, we may
need to borrow funds or issue preferred or common stock.
Under specified circumstances, United Dominion may be able to correct a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to our shareholders in a later year. United Dominion may include
such deficiency dividends in our deduction for dividends paid for the earlier
year. Although United Dominion may be able to avoid income tax on amounts
distributed as deficiency dividends, we will be required to pay interest to the
Internal Revenue Service based upon the amount of any deduction we take for
deficiency dividends.
Recordkeeping Requirements
United Dominion must maintain records of specified information in order to
qualify as a REIT. In addition, to avoid a monetary penalty, United Dominion
must request on an annual basis certain information from our shareholders
designed to disclose the actual ownership of our outstanding stock. United
Dominion has complied, and intends to continue to comply, with such
requirements.
Failure to Qualify
If United Dominion failed to qualify as a REIT in any taxable year, and no
relief provision applied, we would be subject to federal income tax, including
any applicable alternative minimum tax, on our taxable income at regular
corporate rates. In calculating our taxable income in a year in which we failed
to qualify as a REIT, United Dominion would not be able to deduct amounts paid
out to our shareholders. In fact, United Dominion would not be required to
distribute any amounts to our shareholders in such year. In such event, to the
extent of our current and accumulated earnings and profits, all distributions
to our shareholders would be taxable as ordinary income. Subject to certain
limitations of the Internal Revenue Code, corporate shareholders might be
eligible for the dividends received deduction. Unless United Dominion qualified
for relief under specific statutory provisions, we also would be disqualified
from taxation as a REIT for the four taxable years following the year during
which we ceased to qualify as a REIT. United Dominion cannot predict whether in
all circumstances we would qualify for such statutory relief.
Other Tax Consequences
State and Local Taxes
United Dominion and/or you may be subject to state and local tax in various
states and localities, including those states and localities in which United
Dominion or you transact business, own property or reside. The state and local
tax treatment in such jurisdictions may differ from the federal income tax
treatment described above. Consequently, you should consult your own tax
advisor regarding the effect of state and local tax laws upon an investment in
our securities.
40
PLAN OF DISTRIBUTION
United Dominion may sell these securities to or through underwriters or to
investors directly or through designated agents. Any underwriter or agent
involved in the offer and sale of these securities will be named in the
applicable prospectus supplement.
Underwriters may offer and sell these securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to the prevailing market prices or at
negotiated prices. We also may, from time to time, authorize underwriters
acting as agents to offer and sell these securities upon the terms and
conditions set forth in any prospectus supplement. In connection with the sale
of these securities, underwriters may be deemed to have received compensation
from United Dominion in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of these securities for whom they
may act as agent. Underwriters may sell these securities to or through dealers.
The dealers may receive compensation in the form of discounts, concessions or
commissions, which may be changed from time to time, from the underwriters
and/or from the purchasers for whom they may act as agent.
Any underwriting compensation that we pay to underwriters or agents in
connection with the offering of these securities and any discounts, concessions
or commissions allowed by underwriters to participating dealers will be set
forth in the applicable prospectus supplement. Underwriters, dealers and agents
participating in the distribution of these securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of these securities may be deemed to be underwriting
discounts and commissions under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with United Dominion, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If indicated in the applicable prospectus supplement, United Dominion will
authorize dealers acting as our agents to solicit offers by certain
institutions to purchase these securities from United Dominion at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in the prospectus supplement. Each delayed delivery contract will be for
an amount not less than, and the principal amount of the securities sold
pursuant to delayed delivery contracts will not be less nor more than, the
respective amounts stated in the prospectus supplement.
Institutions with which delayed delivery contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to our approval. Delayed
delivery contracts will not be subject to any conditions except:
. an institution's purchase of the securities covered by its delayed
delivery contract will not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which the institution is
subject; and
. United Dominion will have sold to the underwriters the total principal
amount of the securities less the principal amount thereof covered by
delayed delivery contracts.
A commission indicated in the prospectus supplement will be paid to agents
and underwriters soliciting purchases of these securities pursuant to delayed
delivery contracts that we accepted. Agents and underwriters will have no
responsibility in respect of the delivery or performance of delayed delivery
contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for United Dominion in the ordinary
course of business.
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LEGAL MATTERS
The validity of these securities will be passed upon for United Dominion by
Hunton & Williams, Richmond, Virginia. Brown & Wood LLP, New York, New York,
will act as counsel to any underwriters, dealers or agents.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. We have incorporated by reference our financial statements and
schedule in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The consolidated financial statements of American Apartment Communities II,
Inc. and American Apartment Communities II, L.P., for the year ended December
31, 1997, included in our current report on Form 8-K filed with the SEC on
October 23, 1998, incorporated herein by reference, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
Arthur Andersen LLP as experts in giving these reports.
42
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
Page
----
How to Obtain More Information......... S-3
Incorporation of Information Filed with
the SEC.............................. S-3
Forward-Looking Statements............. S-4
Prospectus Supplement Summary.......... S-5
Risks of Investment.................... S-9
Use of Proceeds........................ S-10
Description of the Notes............... S-11
Material Federal Income Tax
Consequences......................... S-14
Underwriting........................... S-27
Experts................................ S-28
Legal Matters.......................... S-28
Prospectus
Risks of Investment.................... 3
About this Prospectus.................. 8
Where You Can Find More Information.... 8
Incorporation of Information Filed with
the SEC.............................. 9
Forward-Looking Statements............. 10
United Dominion Realty Trust, Inc...... 11
Use of Proceeds........................ 12
Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed
Charges and Preferred Dividends...... 12
Description of Our Debt Securities..... 13
Description of Our Capital Stock....... 28
Federal Income Tax Consequences of
United Dominion's Status as a REIT... 34
Plan of Distribution................... 41
Legal Matters.......................... 42
Experts................................ 42
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$200,000,000
[LOGO]
UNITED DOMINION
Realty Trust, Inc.
6.50% Notes due 2009
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PROSPECTUS SUPPLEMENT
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Goldman, Sachs & Co.
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