Filed Pursuant to Rule 424(b)(5)
Registration No. 333-92667
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 23, 1999)
4,100,000 Shares
[UNITED DOMINION LOGO]
Common Stock
$14.40 per share
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We are selling 4,100,000 shares of our common stock, $1 par value per share.
We have granted the underwriter an option to purchase up to 615,000 additional
shares of common stock to cover over-allotments.
Our common stock is listed on the New York Stock Exchange under the symbol
"UDR." The last reported sale price of our common stock on the New York Stock
Exchange on December 18, 2001 was $14.45 per share.
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Investing in our common stock involves risks. See "Risks of Investment"
beginning on page 3 of the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
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Per Share Total
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Public Offering Price $14.40 $59,040,000
Underwriting Discount $ .64 $ 2,624,000
Proceeds to us, before expenses $13.76 $56,416,000
The underwriter expects to deliver the shares of common stock to purchasers
on or about December 21, 2001.
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Salomon Smith Barney
December 18, 2001
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, and you
should not rely on any such information. 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 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 such dates.
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TABLE OF CONTENTS
Prospectus Supplement
How to Obtain More Information............................................. S-2
Incorporation of Information Filed with the SEC............................ S-3
Forward-Looking Information................................................ S-4
Summary.................................................................... S-5
Use of Proceeds............................................................ S-9
Price Range of Common Stock and Dividends.................................. S-9
Federal Income Tax Consequences of Our Status as a REIT.................... S-10
Underwriting............................................................... S-16
Experts.................................................................... S-17
Legal Matters.............................................................. S-17
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
The underwriter in this offering may engage in transactions to stabilize,
maintain, or otherwise affect the price of our common stock. Such transactions
may include stabilization and the purchase of securities to cover short
positions. For a description of these activities, see "Underwriting."
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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.
S-2
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 facilities 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 later with the SEC will automatically update and
supersede this information. 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, 2000.
. Quarterly Report on Form 10-Q for the quarters ended March 31, June 30,
and September 30, 2001.
. Current Reports on Form 8-K filed on February 16, March 9, March 28, May
4, May 17, July 26, August 21, September 12, October 25, and December 17,
2001, and two Current Reports on Form 8-K/A filed on December 17, 2001,
except with regard to the disclosure in such Forms 8-K/A pursuant to Item
9. Regulation FD Disclosure, which disclosure shall not be considered
"filed" under the Exchange Act or incorporated by reference into this
prospectus supplement or any other filing under the Securities Act.
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 INFORMATION
We have included in this document, and in the documents incorporated by
reference in this document, statements containing "forward-looking
information," as defined by the Private Securities Litigation Reform Act of
1995. Forward-looking information, by its nature, involves estimates,
projections, goals, forecasts, assumptions, risks and uncertainties that could
cause actual results or outcomes to differ materially from those expressed in a
statement that contains forward-looking information. 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 statements containing forward-looking information that we make in
this document include, but are not limited to, statements under the heading
"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 statement containing forward-looking information 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 such 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 there can be no assurance that such statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that the results or conditions described in such statements
or our objectives and plans will be achieved.
S-4
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. Unless otherwise indicated, all of the following information
assumes that the underwriter has not exercised its option to purchase up to an
additional 615,000 shares of common stock.
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 September 30, 2001, we owned 271 apartment communities
comprising 76,431 apartment homes and had three communities under construction
containing a total of 794 apartment units, of which 244 units had been
completed and delivered for occupancy.
We operate as a real estate investment trust, or REIT, under the applicable
provisions of the Internal Revenue Code of 1986, as amended. To qualify, we
must 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 at least 90% of our taxable income be distributed to our preferred
and common shareholders. Because we qualify as a REIT, we are generally not
subject to federal income taxes.
Recent Developments
$400 Million Revolving Credit Facility
On December 12, 2001, we entered into a $400 million Fannie Mae revolving
credit facility through ARCS Commercial Mortgage Co., LP. The facility provides
for an initial term of 10 years, and we have an option to extend the term for
an additional five years at the then current market rate. We may draw upon the
facility from time to time in variable or fixed rate tranches, at our election.
As of December 13, 2001, the facility's fixed rate would have been
approximately 6.57% and the variable rate would have been approximately 2.40%.
We plan to draw on the facility over the next several months to refinance
existing secured debt on approximately 30 properties. The weighted average
maturity on the loans being refinanced is 3.4 years. As of December 13, 2001,
the weighted average interest rate on the secured loans being refinanced was
7.89%. Certain of the loans are subject to prepayment penalties that we expect
to range from approximately $20 million to $24 million in the aggregate,
depending on interest rates at the time of refinancing, and which will result
in one time charges to earnings that will be added back in calculating funds
from operations. We estimate, based on certain assumptions as to the timing of
refinancings and underlying interest rates, that the positive net present value
of the refinancings will range from approximately $20 million to $25 million.
Fourth Quarter Distribution Declared
On December 10, 2001, we announced that our board of directors declared a
regular quarterly distribution on our common stock for the fourth quarter of
2001 in the amount of $0.27 per share, payable on January 31, 2002, to all
common shareholders of record as of January 15, 2002.
The Current Economic Outlook
Many economists believe the United States economy is currently in recession.
In particular, the weakness in the overall United States economy was
exacerbated by the events of September 11, 2001, in New York and Washington,
D.C., as well as the United States' war on terrorism. The recession has
adversely affected employment and other significant elements of the economy
that drive productivity and the financial strength of
S-5
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, could have a material adverse
effect on our occupancy levels and rental rates and our ability to
strategically acquire and dispose of apartment communities, and accordingly, on
our results of operations, financial condition and ability to satisfy our
financial obligations and pay distributions to our shareholders. Any of these
occurrences may increase the volatility of the market price for our common
stock.
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Our principal executive office is located at 1745 Shea Center Drive, 4th
Floor, Highlands Ranch, Colorado 80126. The telephone number of our principal
executive offices is (720) 344-5101. Our corporate headquarters is located at
400 East Cary Street, Richmond, Virginia 23219. The telephone number of our
corporate headquarters is (804) 780-2691.
The Offering
Common stock offered.................. 4,100,000 shares(/1/)
Price per share....................... $14.40
Shares of common stock to be
outstanding immediately after the
offering.............................. 103,146,933 shares(/1/)(/2/)
Use of proceeds....................... We estimate that the net proceeds of this
offering, after deducting underwriting discounts
and other estimated expenses, will be
approximately $56.3 million, assuming no exercise
of the underwriter's over-allotment option. We
intend to use the net proceeds for future
acquisitions of apartment home communities,
including approximately $26 million which we
expect to use to fund a portion of the purchase
price of three apartment home communities, which
are currently under contract. This transaction is
expected to close within the next 30 days, but is
subject to customary closing conditions. Pending
the closing of any such acquisitions, we will use
the net proceeds to pay down outstanding balances
under our credit facility.
Risk factors.......................... See "Risks of Investment" beginning on page 3 of
the accompanying prospectus for important
information that you should consider carefully
before making an investment decision.
New York Stock Exchange symbol........ "UDR"
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(1) Assumes that the underwriter's over-allotment option to purchase up to
615,000 shares of common stock is not exercised.
(2) Excludes approximately 7.8 million shares of common stock reserved for
issuance under our 1985 Stock Option Plan, of which options to purchase
approximately 4.2 million shares are outstanding.
S-6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Our summary historical consolidated financial information below is only a
summary, and you should read it together with the financial information
incorporated by reference in this prospectus supplement. See "Incorporation of
Information Filed with the SEC" on page S-3. We prepared the table below from
our audited consolidated financial statements as of and for the three years
ended December 31, 2000, and our unaudited interim consolidated financial
statements as of and for the nine months ended September 30, 2001 and 2000. In
our management's opinion, the interim consolidated financial statements reflect
all adjustments (constituting only normal and recurring adjustments) that are
necessary for the fair presentation of our financial position and results of
operations as of and for the nine months ended September 30, 2001 and 2000. The
results of operations for prior years and the nine months ended September 30,
2001 are not necessarily indicative of the results of operations to be expected
for any future period or for the full year.
Nine Months Ended
September 30, Year Ended December 31,
------------------ ----------------------------
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands, except share
and portfolio data) (unaudited)
Operating Data:
Revenues:
Rental income................ $462,753 $470,844 $616,825 $618,749 $478,718
Non-property income.......... 2,168 4,432 5,326 1,942 3,382
-------- -------- -------- -------- --------
Total revenues.............. 464,921 475,276 622,151 620,691 482,100
Expenses:
Rental expenses.............. 184,031 188,836 240,586 247,262 199,560
Real estate depreciation..... 114,440 115,305 152,994 121,727 99,588
Interest..................... 109,688 117,926 156,040 153,748 106,238
General and administrative... 14,693 11,114 15,724 13,850 10,139
Other depreciation and
amortization................ 2,579 3,438 4,367 4,425 3,645
Other expenses(/1/).......... 8,592 3,720 3,720 19,300 15,591
-------- -------- -------- -------- --------
Total expenses.............. 434,023 440,339 573,431 560,312 434,761
Income before gains on sales
of investments, minority
interests, and extraordinary
items........................ 30,898 34,937 48,720 60,379 47,339
Gain on sales of depreciable
property..................... 24,748 18,890 30,618 37,995 26,672
Minority interests of
unitholders in operating
partnership.................. (1,718) (1,760) (2,885) (4,434) (1,430)
Minority interests in outside
partnerships................. (1,659) (1,126) (1,501) (1,245) (111)
-------- -------- -------- -------- --------
Net income.................... $ 51,524 $ 52,040 $ 76,615 $ 93,622 $ 72,332
======== ======== ======== ======== ========
Net income available to common
shareholders................. $ 23,606 $ 26,566 $ 42,653 $ 55,908 $ 48,739
======== ======== ======== ======== ========
Share Data:
Weighted average common shares
outstanding (basic).......... 100,612 103,160 103,072 103,604 99,966
Weighted average common shares
outstanding (diluted)........ 101,292 103,346 103,208 103,639 100,062
Basic earnings per common
share........................ $ .23 $ .26 $ .41 $ .54 $ .49
Diluted earnings per common
share........................ .23 .26 .41 .54 .49
Common distributions declared
per share.................... .81 .8025 1.07 1.06 1.05
S-7
Nine Months Ended
September 30, Year Ended December 31,
---------------------- ----------------------------------
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(in thousands, except
share and portfolio data) (unaudited)
Balance Sheet Data (at
end of period):
Total assets............. $3,323,011 $3,507,424 $3,453,957 $3,688,317 $3,762,940
Total liabilities........ 2,236,017 2,173,056 2,146,739 2,283,938 2,273,377
Minority interests....... 77,406 89,693 88,326 94,167 115,442
Total shareholders'
equity.................. 1,009,588 1,244,675 1,218,892 1,310,212 1,374,121
Other Data:
Funds from operations
(basic)(/2/)............ $ 119,494 $ 121,515 $ 163,249 $ 161,444 $ 123,247
Funds from operations
(diluted)(/2/).......... 131,065 132,990 178,549 176,598 124,233
Cash flow provided by
(used in):
Operating activities.... 172,264 158,447 224,160 190,602 140,597
Investing activities.... 25,117 72,116 103,793 (34,020) (263,864)
Financing activities.... (200,465) (227,356) (325,326) (174,985) 148,875
Portfolio Data (at end of
period):
Apartment homes owned.... 76,431 78,226 77,219 82,154 86,893
Weighted average number
of apartment homes owned
during period........... 76,421 81,221 80,253 85,926 70,724
Homes under
construction............ 794 1,328 1,238 1,622 2,608
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(1) For 2001, other expenses includes non-recurring charges of $5.4 million for
severance and work force reductions and relocation costs and $3.1 million
for impairment losses on real estate and investments. For 2000, other
expenses includes non-recurring charges of $3.7 million related to the
settlement of litigation and severance costs. For 1999, other expenses
includes a non-recurring charge of $19.3 million for impairment losses on
real estate and investments. For 1998, other expenses includes a non-
recurring charge of $15.6 million related to the loss on the termination of
a risk management agreement.
(2) Funds from operations, or FFO, is defined as net income (computed in
accordance with generally accepted accounting principles), excluding gains
(losses) from sales of depreciable property, plus real estate depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. This definition conforms with the National Association of
Real Estate Investment Trust's definition issued in October 1999 which was
effective beginning January 1, 2000. We consider FFO in evaluating property
acquisitions and our operating performance and believe that FFO should be
considered along with, but not as an alternative to, net income and cash
flows as a measure of our operating performance and liquidity. FFO does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs.
S-8
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately
$56.3 million (approximately $64.7 million if the underwriter's over-allotment
option is exercised in full) after deducting the underwriting discount and
estimated offering expenses. We expect to use the net proceeds for future
acquisitions of apartment home communities, including approximately $26 million
which we expect to use to fund a portion of the purchase price of three
apartment home communities, which are currently under contract. This
transaction is expected to close within the next 30 days, but is subject to
customary closing conditions. We continually evaluate potential strategic
acquisition opportunities that we believe would compliment our existing
business, and are in various stages of reviewing and conducting due diligence
on several such opportunities. Pending the closing of any such acquisitions, we
will use the net proceeds to pay down outstanding balances under our credit
facility. Borrowings outstanding under our credit facility, which matures in
August 2003, currently bear interest at a rate of LIBOR plus 1.10%.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock trades on the New York Stock Exchange under the symbol
"UDR." The following table sets forth the quarterly high and low sales prices
for our common stock reported on the New York Stock Exchange composite
transactions reporting system for the last three years. Distribution
information for common stock reflects distributions declared per share for each
quarter and paid at the end of the following month.
Distributions
High Low Declared
-------- -------- -------------
Fiscal year ended December 31, 1999
First Quarter.............................. $11.2500 $ 9.0625 $ 0.2650
Second Quarter............................. 11.9375 9.8125 0.2650
Third Quarter.............................. 12.0625 10.7500 0.2650
Fourth Quarter............................. 11.6250 9.1250 0.2650
Fiscal year ended December 31, 2000
First Quarter.............................. $10.5000 $ 9.4375 $ 0.2675
Second Quarter............................. 11.7500 9.7500 0.2675
Third Quarter.............................. 11.7500 10.6875 0.2675
Fourth Quarter............................. 11.1250 9.3750 0.2675
Fiscal year ended December 31, 2001
First Quarter.............................. $12.7000 $10.5625 $ 0.2700
Second Quarter............................. 14.3800 11.9000 0.2700
Third Quarter.............................. 14.6000 13.7000 0.2700
Fourth Quarter (through December 18,
2001)..................................... 14.8500 13.8600 0.2700(/1/)
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(1) The fourth quarter 2001 distribution was declared on December 10, 2001 and
is payable on January 31, 2002, to all common shareholders of record as of
January 15, 2002.
The last reported sale price of our common stock on December 18, 2001 on the
New York Stock Exchange is included on the cover page of this prospectus
supplement. As of December 18, 2001, there were approximately 8,007 holders of
record of our common stock. Because many of these shares are held by brokers
and other institutions on behalf of shareholders, we are unable to estimate the
total number of shareholders represented by those record holders.
We expect to continue to pay regular quarterly distributions to holders of
shares of common stock. We will declare and pay future distributions at the
discretion of our board of directors. The amount, if any, of distributions will
depend on our actual funds from operations, financial condition and capital
requirements, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code and other factors. Under certain circumstances, which
we do not expect to occur, we could be required to make distributions in excess
of our cash available for distribution in order to meet such REIT requirements.
S-9
We have a Dividend Reinvestment and Stock Purchase Plan under which holders
of common and preferred stock may elect to automatically reinvest their
distributions and make additional cash payments to acquire additional shares of
our common stock.
FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT
This section supplements 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 ownership of our common stock 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 ownership and election, and regarding potential changes in applicable tax
laws.
REIT Qualification
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 so as to qualify as a REIT since our election to be
taxed as a REIT and we intend to continue to so operate. In the opinion of
Hunton & Williams, commencing with our taxable year ended December 31, 1998, we
have been organized and have operated in conformity with the requirements for
qualification as a REIT under the Internal Revenue Code, and our organization
and current and proposed method of operation will enable us to continue to
qualify as a REIT under the Internal Revenue Code for our taxable year ending
December 31, 2001 and future taxable years.
Investors should be aware that Hunton & Williams' opinion is based upon
customary assumptions, is conditioned upon certain representations made by us
as to factual matters, including representations regarding the nature of our
properties and the future conduct of our business, and is not binding upon the
Internal Revenue Service or any court. In addition, Hunton & Williams' opinion
is based on existing federal income tax law governing qualification as a REIT,
which is subject to change either prospectively or retroactively. Moreover, our
continued qualification and taxation as a REIT depend upon our ability to meet
on a continuing basis, through actual annual operating results, certain
qualification tests set forth in the federal tax laws. Those qualification
tests involve the percentage of income that we earn from specified sources, the
percentage of our assets that falls within specified categories, the diversity
of our share ownership, and the percentage of our earnings that we distribute.
Those qualification tests are described in detail under the caption "Federal
Income Tax Consequences of United Dominion's Status as a REIT" in the
accompanying prospectus. While Hunton & Williams has reviewed those matters in
connection with the foregoing opinion, Hunton & Williams will not review our
compliance with those tests on a continuing basis. Accordingly, no assurance
can be given that the actual results of our operation for any particular
taxable year will satisfy such requirements. For a discussion of the tax
consequences of failure to qualify as a REIT, see "Federal Income Tax
Consequences of United Dominion's Status as a REIT--Failure to Qualify" in the
accompanying prospectus.
Recent Developments
The Tax Bill discussed in the accompanying prospectus under the caption
"Federal Income Tax Consequences of United Dominion's Status as a REIT--
Requirements for Qualification--Asset Tests" was signed into law on December
17, 1999.
Taxable REIT Subsidiaries
Pursuant to the Tax Bill, beginning on January 1, 2001, we have been
permitted to own up to 100% of the stock of one or more "taxable REIT
subsidiaries" ("TRSs"). A TRS is a fully taxable corporation that may receive
income from activities which, if received by us, would be non-qualifying income
for purposes of the
S-10
gross income tests applicable to REITs. Specifically, a TRS may receive income
from third-party management, development, and other independent business
activities. In addition, a TRS may provide services to our tenants that, if
provided by us, might disqualify the rent that we receive from our tenants. We
may lease space in a property to a TRS as long as at least 90% of the leased
space in the property is rented to persons other than TRSs and related party
tenants and the rent paid by the TRS is substantially comparable to the rent
paid by the other tenants for comparable space.
We and a corporation in which we own stock must elect for the corporation to
be treated as a TRS. A corporation of which a TRS directly or indirectly owns
more than 35% of the voting power or value of the stock will automatically be
treated as a TRS. Overall, no more than 20% of the value of our assets may
consist of the securities of one or more TRSs.
The TRS rules limit the deductibility of interest paid or accrued by a TRS
to us to assure that the TRS is subject to an appropriate level of corporate
taxation. Further, the rules impose a 100% excise tax on transactions between a
TRS and us or our tenants that are not conducted on an arm's-length basis.
We formed and made elections for two TRSs in 2001 to hold our ownership
interest in a joint venture. We believe that the value of the stock of our TRSs
constitutes less than 20% of the value of our assets and that all transactions
between us and our TRSs are conducted on an arm's-length basis.
Asset Tests
Pursuant to the Tax Bill, as of January 1, 2001, we must satisfy the
following asset tests at the close of each quarter of each taxable year to
maintain our qualification as a REIT:
. First, at least 75% of the value of our total assets must consist of cash
or cash items, including certain receivables, government securities,
interests in real property, including leaseholds and options to acquire
real property and leaseholds, interests in mortgages on real property,
stock in other REITs, and investments in stock or debt instruments during
the one-year period following our receipt of new capital that we raise
through equity offerings or offerings of debt with at least a five-year
term.
. Second, of our investments not included in the 75% asset class, the value
of our interest in any one issuer's securities may not exceed 5% of the
value of our total assets.
. Third, of our investments not included in the 75% asset class, we may not
own more than 10% of the voting power or value of any one issuer's
outstanding securities.
. Fourth, no more than 20% of the value of our total assets may consist of
the securities of one or more TRSs.
. Fifth, no more than 25% of the value of our total assets may consist of
the securities of TRSs and other taxable corporations that are not TRSs
and other assets that are not qualifying assets for purposes of the 75%
asset test.
For purposes of the second and third asset tests, the term "securities" does
not include our stock in another REIT, our equity or debt securities of a
qualified REIT subsidiary or TRS, or our equity interest in any partnership.
The term "securities," however, generally includes our debt securities that are
issued by another REIT or a partnership, except that certain "straight debt"
securities are not treated as "securities" for purposes of the 10% value test
(for example, qualifying debt securities of a corporation of which we own no
equity interest or of a partnership if we own at least a 20% profits interest
in the partnership).
Distribution Requirements
Pursuant to the Tax Bill, the 95% distribution requirement described in the
accompanying prospectus under the caption "Federal Income Tax Consequences of
United Dominion's Status as a REIT--Requirements for Qualification--
Distribution Requirements" was reduced to 90% beginning with our 2001 taxable
year.
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Taxation of Taxable U.S. Shareholders
As long as we qualify as a REIT, a taxable "U.S. shareholder" must take into
account as ordinary income distributions that are made out of our current or
accumulated earnings and profits and that we do not designate as capital gain
dividends or retained long-term capital gain. A U.S. shareholder will not
qualify for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of our
common stock that for U.S. federal income tax purposes is:
. a citizen or resident of the United States;
. a corporation or partnership (including an entity treated as a
corporation or partnership for U.S. federal income tax purposes) created
or organized in or under the laws of the United States or of a political
subdivision thereof;
. an estate whose income is subject to U.S. federal income taxation
regardless of its source; or
. any trust if (1) a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have
the authority to control all substantial decisions of the trust or (2) it
has a valid election in place to be treated as a U.S. person.
A U.S. shareholder generally will recognize distributions that we designate
as capital gain dividends as long-term capital gain without regard to the
period for which the U.S. shareholder has held our common stock. We generally
will designate our capital gain dividends as either 20% or 25% rate
distributions. A corporate U.S. shareholder, however, may be required to treat
up to 20% of certain capital gain dividends as ordinary income.
We may elect to retain and pay income tax on the net long-term capital gain
that we receive in a taxable year. In that case, a U.S. shareholder would be
taxed on its proportionate share of our undistributed long-term capital gain.
The U.S. shareholder would receive a credit or refund for its proportionate
share of the tax we paid. The U.S. shareholder would increase the basis in its
stock by the amount of its proportionate share of our undistributed long-term
capital gain, minus its share of the tax we paid.
A U.S. shareholder will not incur tax on a distribution in excess of our
current and accumulated earnings and profits if such distribution does not
exceed the adjusted tax basis of the U.S. shareholder's United Dominion common
stock. Instead, such distribution will reduce the adjusted tax basis of such
common stock. A U.S. shareholder will recognize a distribution in excess of
both our current and accumulated earnings and profits and the U.S.
shareholder's adjusted tax basis in its common stock as long-term capital gain,
or short-term capital gain if the common stock has been held for one year or
less, assuming the common stock is a capital asset in the hands of the U.S.
shareholder. In addition, if we declare a distribution in October, November, or
December of any year that is payable to a U.S. shareholder of record on a
specified date in any such month, such distribution shall be treated as both
paid by us and received by the U.S. shareholder on December 31 of such year,
provided that we actually pay the distribution during January of the following
calendar year.
Shareholders may not include in their individual income tax returns any of
our net operating losses or capital losses. Instead, we would carry over such
losses for potential offset against our future income generally. Taxable
distributions from us and gain from the disposition of our common stock will
not be treated as passive activity income and, therefore, shareholders
generally will not be able to apply any "passive activity losses," such as
losses from certain types of limited partnerships in which the shareholder is a
limited partner, against such income. In addition, taxable distributions from
us and gain from the disposition of the common stock generally will be treated
as investment income for purposes of the investment interest limitations. We
will notify shareholders after the close of our taxable year as to the portions
of the distributions attributable to that year that constitute ordinary income,
return of capital, and capital gain.
Taxation of U.S. Shareholders on the Disposition of Common Stock
In general, a U.S. shareholder who is not a dealer in securities must treat
any gain or loss realized upon a taxable disposition of our common stock as
long-term capital gain or loss if the U.S. shareholder has held the
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common stock for more than one year and otherwise as short-term capital gain or
loss. However, a U.S. shareholder must treat any loss upon a sale or exchange
of common stock held by such shareholder for six months or less as a long-term
capital loss to the extent of any actual or deemed distributions from us that
such U.S. shareholder previously has characterized as long-term capital gain.
All or a portion of any loss that a U.S. shareholder realizes upon a taxable
disposition of the common stock may be disallowed if the U.S. shareholder
purchases other shares of common stock within 30 days before or after the
disposition.
Capital Gains and Losses
A taxpayer generally must hold a capital asset for more than one year for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.1%
for the period from July 1, 2001 to December 31, 2001, 38.6% for the period
from January 1, 2002 to December 31, 2003, 37.6% for the period from January 1,
2004 to December 31, 2005, and 35% for the period from January 1, 2006 to
December 31, 2010. The maximum tax rate on long-term capital gain applicable to
non-corporate taxpayers is 20% for sales and exchanges of assets held for more
than one year. The maximum tax rate on long-term capital gain from the sale or
exchange of "section 1250 property," or depreciable real property, is 25% to
the extent that such gain would have been treated as ordinary income if the
property were "section 1245 property." With respect to distributions that we
designate as capital gain dividends and any retained capital gain that we are
deemed to distribute, we generally may designate whether such a distribution is
taxable to our non-corporate shareholders at a 20% or 25% rate. Thus, the tax
rate differential between capital gain and ordinary income for non-corporate
taxpayers may be significant. In addition, the characterization of income as
capital gain or ordinary income may affect the deductibility of capital losses.
A non-corporate taxpayer may deduct capital losses not offset by capital gains
against its ordinary income only up to a maximum annual amount of $3,000. A
non-corporate taxpayer may carry forward unused capital losses indefinitely. A
corporate taxpayer must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer may deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.
Information Reporting Requirements and Backup Withholding
We will report to our shareholders and to the Internal Revenue Service the
amount of distributions we pay during each calendar year, and the amount of tax
we withhold, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of up to 30.5% (scheduled to be
reduced incrementally to 28% by 2006) with respect to distributions unless such
holder:
. is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact; or
. provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the
applicable requirements of the backup withholding rules.
A shareholder who does not provide us with its correct taxpayer identification
number also may be subject to penalties imposed by the Internal Revenue
Service. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to us. See "--Taxation of Non-U.S. Shareholders."
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts and annuities, generally are exempt
from federal income taxation. However, they are subject to taxation on their
unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a published ruling that dividend distributions
S-13
from a REIT to an exempt employee pension trust do not constitute unrelated
business taxable income, provided that the exempt employee pension trust does
not otherwise use the shares of the REIT in an unrelated trade or business of
the pension trust. Based on that ruling, amounts that we distribute to tax-
exempt shareholders generally should not constitute unrelated business taxable
income. However, if a tax-exempt shareholder were to finance its acquisition of
our common stock with debt, a portion of the income that it receives from us
would constitute unrelated business taxable income pursuant to the "debt-
financed property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under special provisions of
the federal income tax laws are subject to different unrelated business taxable
income rules, which generally will require them to characterize distributions
that they receive from us as unrelated business taxable income. Finally, in
certain circumstances, a qualified employee pension or profit sharing trust
that owns more than 10% of our stock is required to treat a percentage of the
dividends that it receives from us as unrelated business taxable income. Such
percentage is equal to the gross income that we derive from an unrelated trade
or business, determined as if we were a pension trust, divided by our total
gross income for the year in which we pay the dividends. That rule applies to a
pension trust holding more than 10% of our stock only if:
. the percentage of our dividends that the tax-exempt trust would be
required to treat as unrelated business taxable income is at least 5%;
. we qualify as a REIT by reason of the modification of the rule requiring
that no more than 50% of our stock be owned by five or fewer individuals
that allows the beneficiaries of the pension trust to be treated as
holding our stock in proportion to their actuarial interests in the
pension trust (see "Federal Income Tax Consequences of United Dominion's
Status as a REIT--Requirements for Qualification" in the accompanying
prospectus); and
. either (1) one pension trust owns more than 25% of the value of our stock
or (2) a group of pension trusts individually holding more than 10% of
the value of our stock collectively owns more than 50% of the value of
our stock.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "non-U.S. shareholders") are complex. This section
is only a summary of such rules. We urge non-U.S. shareholders to consult their
own tax advisors to determine the impact of federal, state, and local income
tax laws on ownership of our common stock, including any reporting
requirements.
A non-U.S. shareholder that receives a distribution that is not attributable
to gain from our sale or exchange of U.S. real property interests, as defined
below, and that we do not designate as a capital gain dividend or retained
capital gain will recognize ordinary income to the extent that we pay such
distribution out of our current or accumulated earnings and profits. A
withholding tax equal to 30% of the gross amount of the distribution ordinarily
will apply to such distribution unless an applicable tax treaty reduces or
eliminates the tax. However, if a distribution is treated as effectively
connected with the non-U.S. shareholder's conduct of a U.S. trade or business,
the non-U.S. shareholder generally will be subject to federal income tax on the
distribution at graduated rates, in the same manner as U.S. shareholders are
taxed with respect to such distributions. A non-U.S. shareholder that is a
corporation also may be subject to the 30% branch profits tax with respect to
the distribution. We plan to withhold U.S. income tax at the rate of 30% on the
gross amount of any such distribution paid to a non-U.S. shareholder unless
either:
. a lower treaty rate applies and the non-U.S. shareholder files an IRS
Form W-8BEN evidencing eligibility for that reduced rate with us; or
. the non-U.S. shareholder files an IRS Form W-8ECI with us claiming that
the distribution is effectively connected income.
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A non-U.S. shareholder will not incur tax on a distribution in excess of our
current and accumulated earnings and profits if such distribution does not
exceed the adjusted basis of its United Dominion common stock. Instead, such a
distribution will reduce the adjusted basis of such common stock. A non-U.S.
shareholder will be subject to tax on a distribution that exceeds both our
current and accumulated earnings and profits and the adjusted basis of its
common stock, if the non-U.S. shareholder otherwise would be subject to tax on
gain from the sale or disposition of its common stock, as described below.
Because we generally cannot determine at the time we make a distribution
whether or not the distribution will exceed our current and accumulated
earnings and profits, we normally will withhold tax on the entire amount of any
distribution at the same rate as we would withhold on a dividend. However, a
non-U.S. shareholder may obtain a refund of amounts that we withhold if we
later determine that a distribution in fact exceeded our current and
accumulated earnings and profits.
We must withhold 10% of any distribution that exceeds our current and
accumulated earnings and profits. Consequently, although we intend to withhold
at a rate of 30% on the entire amount of any distribution, to the extent that
we do not do so, we will withhold at a rate of 10% on any portion of a
distribution not subject to withholding at a rate of 30%.
For any year in which we qualify as a REIT, a non-U.S. shareholder will
incur tax on distributions that are attributable to gain from our sale or
exchange of "U.S. real property interests" under special provisions of the
federal income tax laws referred to as FIRPTA. The term "U.S. real property
interests" includes certain interests in real property and stock in
corporations at least 50% of whose assets consists of interests in real
property. Under those rules, a non-U.S. shareholder is taxed on distributions
attributable to gain from sales of U.S. real property interests as if such gain
were effectively connected with a U.S. business of the non-U.S. shareholder. A
non-U.S. shareholder thus would be taxed on such a distribution at the normal
capital gains rates applicable to U.S. shareholders, subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of a
nonresident alien individual. A non-U.S. corporate shareholder not entitled to
treaty relief or exemption also may be subject to the 30% branch profits tax on
such a distribution. We must withhold 35% of any distribution that we could
designate as a capital gain dividend. A non-U.S. shareholder may receive a
credit against its tax liability for the amount we withhold.
A non-U.S. shareholder generally will not incur tax under FIRPTA as long as
at all times non-U.S. persons hold, directly or indirectly, less than 50% in
value of our stock. We cannot assure you that that test will be met. However, a
non-U.S. shareholder that owned, actually or constructively, 5% or less of our
common stock at all times during a specified testing period will not incur tax
under FIRPTA if the common stock is "regularly traded" on an established
securities market. Because our common stock is regularly traded on an
established securities market, a non-U.S. shareholder will not incur tax under
FIRPTA unless it owns more than 5% of our common stock. If the gain on the sale
of the common stock were taxed under FIRPTA, a non-U.S. shareholder would be
taxed in the same manner as U.S. shareholders with respect to such gain,
subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of non-U.S. corporations.
Furthermore, a non-U.S. shareholder will incur tax on gain not subject to
FIRPTA if (1) the gain is effectively connected with the non-U.S. shareholder's
U.S. trade or business, in which case the non-U.S. shareholder will be subject
to the same treatment as U.S. shareholders with respect to such gain, or (2)
the non-U.S. shareholder is a nonresident alien individual who was present in
the U.S. for 183 days or more during the taxable year and has a "tax home" in
the United States, in which case the non-U.S. shareholder will incur a 30% tax
on his capital gains.
S-15
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, Salomon Smith Barney Inc. has
agreed to purchase, and we have agreed to sell to Salomon Smith Barney Inc.,
4,100,000 shares.
The underwriting agreement provides that the obligation of the underwriter
to purchase the shares included in this offering is subject to approval of
certain legal matters by counsel and to other conditions. The underwriter is
obligated to purchase all the shares, other than those covered by the over-
allotment option described below, if it purchases any of the shares.
The underwriter proposes to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the shares to certain dealers at the public offering
price, less a concession not to exceed $.384 per share. The underwriter may
allow, and dealers may reallow, a concession not to exceed $.10 per share on
sales to certain other dealers. If all of the shares are not sold at the
initial offering price, the underwriter may change the public offering price
and the other selling terms.
We have granted to the underwriter an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to 615,000 additional
shares of common stock at the public offering price less the underwriting
discount. The underwriter may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering.
We, and certain of our senior officers and directors, have agreed that, for
a period of 60 days from the date of this prospectus supplement, we and they
will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities
convertible into or exchangeable for our common stock. Salomon Smith Barney
Inc. in its sole discretion may release any of the securities subject to these
lock-up agreements at any time without notice.
Our common stock is listed on the New York Stock Exchange under the symbol
"UDR."
The following table shows the underwriting discounts and commissions that we
are to pay to the underwriter in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriter's
option to purchase additional shares of common stock.
No Full
Exercise Exercise
---------- ----------
Per share............................................ $ .64 $ .64
Total................................................ $2,624,000 $3,017,600
In connection with this offering, Salomon Smith Barney Inc. may purchase and
sell shares of common stock in the open market. These transactions may include
short sales, covering transactions and stabilizing transactions. Short sales
involve sales of common stock in excess of the number of shares to be purchased
by the underwriter in this offering, which creates a short position. "Covered"
short sales are sales of shares made in an amount up to the number of shares
represented by the underwriter's over-allotment option. In determining the
source of shares to close out the covered short position, the underwriter will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which it may purchase shares through
the over-allotment option. Transactions to close out the covered short position
involve either purchases in the open market after the distribution has been
completed or the exercise of the over-allotment option. The underwriter may
also make "naked" short sales of shares in excess of the over-allotment option.
The underwriter must close out any naked short position by purchasing shares of
common stock in the open market. A naked short position is more likely to be
created if the underwriter is concerned that there may be downward pressure on
the price of the shares in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of bids for, or purchases of, shares in the open market while the offering is
in progress.
S-16
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that otherwise would exist in
the open market in the absence of these transactions. The underwriter may
conduct these transactions on the New York Stock Exchange or in the over-the-
counter market, or otherwise. If the underwriter commences any of these
transactions, it may discontinue them at any time.
We estimate that the total expenses of this offering will be $150,000.
The underwriter has performed investment banking and advisory services for
us from time to time for which it has received customary fees and reimbursement
for expenses. The underwriter may, from time to time, engage in transactions
with and perform services for us in the ordinary course of its business.
A prospectus supplement and accompanying prospectus in electronic format may
be made available on the websites maintained by the underwriter. The
underwriter may agree to allocate a number of shares for sale to its online
brokerage account holders. The underwriter may make Internet distributions on
the same basis as other allocations. In addition, shares may be sold by the
underwriter to securities dealers who resell shares to online brokerage account
holders.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriter may be required to make because of any
of those liabilities.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K
for the year ended December 31, 2000, 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 legality of the common stock offered hereby will be passed upon for us
by Hunton & Williams. The description of the tax consequences under the heading
"Federal Income Tax Consequences of Our Status as a REIT" is based on the
opinion of Hunton & Williams. Certain legal matters will be passed upon for the
underwriter by Hogan & Hartson L.L.P. From time to time, Hogan & Hartson L.L.P.
provides legal services to us.
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Prospectus
[UNITED DOMINION LOGO]
$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 hous-
ing, which could prevent us from raising rents to offset increases in op-
erating 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 addi-
tional investments may not produce the anticipated improvements in prof-
itability.
. 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 zon-
ing, land-use, building, occupancy, and other required governmental per-
mits and authorizations, which could result in increased development
costs and could require us to abandon our activities entirely with re-
spect to a project for which we are unable to obtain permits or authori-
zations.
. If we are unable to find joint venture partners to help fund the develop-
ment of a community or otherwise obtain acceptable financing for the de-
velopments, 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 connec-
tion 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 com-
pensate 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 condi-
tions, preventing us from meeting our profitability goals for that commu-
nity.
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 ac-
quisition 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
5
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.
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 com-
puter information systems;
. evaluating and making any necessary modifications to other computer sys-
tems that do not relate to information technology but include embedded
technology, such as telecommunication, security, elevator, fire and safe-
ty, 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
6
investigation and clean-up costs incurred in connection with the 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 su-
persede 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 State-
ment 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, disposi-
tions, 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 perfor-
mance;
. 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 fea-
tures;
. 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.
11
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 se-
nior 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 securi-
ties, the portion of the principal amount payable upon declaration of ac-
celeration of their maturity, or, if applicable, the portion of the prin-
cipal amount of the debt securities that is convertible into United Do-
minion 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 se-
curities 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 in-
denture;
. the period or periods within which, the price or prices, including any
premium or make-whole amount, at which, the currency or currencies, cur-
rency 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 for-
eign 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, compos-
ite 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 curren-
cies, 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 de-
fault or covenants of United Dominion with respect to the debt securi-
ties, whether or not the events of default or covenants are consistent
with the events of default or covenants set forth in the applicable in-
denture;
. whether the debt securities will be issued in certificated or book-entry
form;
. the applicability, if any, of the defeasance and covenant defeasance pro-
visions 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 re-
spect 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 provi-
sions 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 at any time
15
rescind the designation of the transfer agent or approve a change in the loca-
tion 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 se-
ries. 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 re-
demption;
. register the transfer of or exchange any debt security, or portion there-
of, called for redemption, except the unredeemed portion of any debt se-
curity 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 por-
tion, 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 re-
ceived the transfer of the assets is a person organized and existing un-
der 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 perfor-
mance and observance of all of the covenants and conditions contained in
each indenture;
. immediately after giving effect to the transaction and treating any re-
sulting indebtedness that becomes our or any subsidiary's obligation as
having been incurred by us or the subsidiary at the time of the transac-
tion, 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 fil-
ing 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 ac-
quired, 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,
16
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 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 in-
terest 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 aver-
age daily balance of the Debt during the period;
. in the case of Acquired Debt (as defined below) or Debt incurred in con-
nection with any acquisition since the first day of the four-quarter pe-
riod, the related acquisition had occurred as of the first day of the pe-
riod with the appropriate adjustments with respect to the acquisition be-
ing 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 disposi-
tion or any related repayment of Debt had occurred as of the first day of
the period with the appropriate adjustments with respect to the acquisi-
tion 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 in-
struments;
17
. 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 ti-
tle retention agreement;
. the principal amount of all obligations of United Dominion or any subsid-
iary 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 capi-
talized 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 obli-
gor, 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 obliga-
tion or otherwise;
. is convertible into or exchangeable or exercisable for Debt or Disquali-
fied 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 se-
curities.
"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, in-
cluding any noncash charge resulting from a change in accounting princi-
ples in determining income before gains or losses on investments and ex-
traordinary items for the period, as reflected in our financial state-
ments 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.
18
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
19
--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 Ex-
change 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 ad-
ditional 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 secu-
rity of the series;
. default in the performance of any other covenant of United Dominion con-
tained 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 no-
tice as provided in the indenture;
. default under any bond, debenture, note, mortgage, indenture or instru-
ment 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 ag-
gregate 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 writ-
ten 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 aggre-
gate 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 cov-
ered by insurance, in excess of $10,000,000 for a period of 30 consecu-
tive days;
. certain events of bankruptcy, insolvency or reorganization, or court ap-
pointment 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
20
be, has been made, but before a judgment or decree 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 pay-
ments of the principal of and any premium or make-whole amount and inter-
est, 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 ad-
vances of the trustee; and
. all events of default, other than the nonpayment of accelerated princi-
pal, 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 se-
ries; or
. in respect of a covenant or provision contained in the applicable inden-
ture 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 addi-
tional 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 addi-
tional 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 accel-
eration 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 neces-
sary 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 con-
sent 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 pur-
chase-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 Domin-
ion 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 invest-
ment or to fund any investment in any entity making a real estate invest-
ment, in each case other than the following:
--any indebtedness, obligation or liability referred to in the above bul-
let 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 in-
debtedness of United Dominion to substantially the same extent as or to
a greater extent than the subordinated debt securities are subordinat-
ed; 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 ob-
ligations 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 re-
spect 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 de-
scribed 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 se-
curities.
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 govern-
ment 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 Gov-
ernment 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 evi-
denced 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 con-
verting 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 communi-
ty;
. the ECU both within the European Monetary System and for the settlement
of transactions by public institutions of or within the European Communi-
ties; or
. any currency unit or composite currency other than the ECU for the pur-
poses 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 and Waiver" of either indenture, which
24
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 se-
curity with or on behalf of the depository bank for the global security, the
depository bank will credit, on its book-entry registration and transfer sys-
tem, the respective principal amounts of the debt securities represented by
the global security to the accounts of institutions, also referred to as "par-
ticipants," that have accounts with the depository bank or its nominee. The
accounts to be credited will be designated by the underwriters or agents en-
gaging 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.
25
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 se-
curities of the series in definitive certificated form; and
. will not be considered the holders thereof for any purposes under the in-
denture.
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.
26
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.
27
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.
28
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 divi-
dends 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 se-
ries.
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.
29
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.
30
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 $45.00, subject to
adjustment. For a discussion of the impact of our shareholder rights plan, you
should refer to the subsection entitled "Risks of Investment--The Ability of
Our Shareholders to Control Our Policies and Effect a Change of Control of Our
Company is Limited, Which May Not Be in Our Shareholders' Best Interests."
The rights will separate from the common stock and a distribution of
certificates evidencing the rights will occur upon the earlier of:
. 10 business days following a public announcement that a person or group
of related persons has acquired, or obtained the right to acquire, bene-
ficial ownership of more than 15% of the outstanding shares of common
stock; or
. 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning more
than 15% of the outstanding shares of common stock.
The rights will expire at the close of business on February 4, 2008, unless
we redeem or exchange them earlier.
Series C Preferred Stock
The Series C Preferred Stock is junior to all other outstanding series of
preferred stock in respect of rights to receive dividends and to participate
in distributions or payments in the event of our liquidation, dissolution or
winding up. The Series C Preferred Stock is senior to the common stock and, as
to dividends and upon liquidation, any of our other capital stock that ranks
junior to the Series C Preferred Stock.
Holders of shares of the Series C Preferred Stock are be entitled to
receive cumulative preferential cash dividends payable quarterly in an amount
per share equal to:
. the greater of
--$.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 immedi-
ately 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 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.
31
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 com-
pleted 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 ap-
plicable fiscal year.
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.
32
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 owner-
ship of shares into conformity with the requirements of the federal in-
come 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 disquali-
fication 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.
33
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 ("pro-
hibited 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 Qualifi-
cation--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 ex-
cess of such required distribution over the amount we actually distribut-
ed.
. 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 sub-
ject 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 ac-
quire 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 recog-
nized 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 acquisi-
tion 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
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under requirement 6, an "individual" generally 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 prop-
erty 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" serv-
ices to the tenants of a property, other than through an independent con-
tractor, 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 carry "real estate assets,"
any periodic
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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 rea-
sonable 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 secu-
rities 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.
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
38
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 dis-
tributed any such retained amount for purposes of the 4% excise tax described
above. United Dominion has made, and intends to continue to make, timely dis-
tributions 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 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.
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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.
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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 deliv-
ery 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 de-
layed 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.
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4,100,000 Shares
[UNITED DOMINION LOGO]
Common Stock
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PROSPECTUS SUPPLEMENT
December 18, 2001
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Salomon Smith Barney
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