e10vq
 

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended September 30, 2005
 
or
 
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the transition period from           to
Commission file number 1-10524
United Dominion Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
     
Maryland   54-0857512
(State or other jurisdiction of
incorporation of organization)
  (I.R.S. Employer
Identification No.)
1745 Shea Center Drive, Suite 200,
Highlands Ranch, Colorado 80129
(Address of principal executive offices) (zip code)
(720) 283-6120
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o
      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o
      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ
      The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of November 3, 2005 was 137,184,739.
 
 


 

UNITED DOMINION REALTY TRUST, INC.
FORM 10-Q
INDEX
                 
        Page
         
 PART I — FINANCIAL INFORMATION
 
 Item 1.       2  
            2  
            3  
            4  
            5  
            6  
 Item 2.       14  
 Item 3.       28  
 Item 4.       28  
 PART II — OTHER INFORMATION
 
 Item 2.       30  
 Item 5.       30  
 Item 6.       30  
            31  

1


 

PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
(Unaudited)
                     
    September 30,   December 31,
    2005   2004
         
ASSETS
Real estate owned:
               
 
Real estate held for investment
  $ 5,215,424     $ 4,805,630  
   
Less: accumulated depreciation
    (1,069,858 )     (924,509 )
             
      4,145,566       3,881,121  
 
Real estate under development
    102,982       64,921  
 
Real estate held for disposition (net of accumulated depreciation of $6,836 and $83,378)
    51,669       289,367  
             
 
Total real estate owned, net of accumulated depreciation
    4,300,217       4,235,409  
Cash and cash equivalents
    5,480       7,904  
Restricted cash
    4,418       6,086  
Deferred financing costs, net
    26,540       25,151  
Investment in unconsolidated development joint venture
    (124 )     458  
Funds held in escrow from 1031 exchanges pending the acquisition of real estate
          17,039  
Note receivable
    95,945       5,000  
Other assets
    45,532       34,127  
Other assets — real estate held for disposition
    2,421       827  
             
 
Total assets
  $ 4,480,429     $ 4,332,001  
             
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt
  $ 1,110,855     $ 1,186,140  
Secured debt — real estate held for disposition
          11,784  
Unsecured debt
    1,945,672       1,682,058  
Real estate taxes payable
    36,679       28,410  
Accrued interest payable
    21,789       18,773  
Security deposits and prepaid rent
    25,077       24,181  
Distributions payable
    45,876       44,624  
Accounts payable, accrued expenses, and other liabilities
    49,845       49,781  
Other liabilities — real estate held for disposition
    16,340       7,206  
             
 
Total liabilities
    3,252,133       3,052,957  
Minority interests
    76,461       83,593  
Stockholders’ equity:
               
Preferred stock, no par value; 50,000,000 shares authorized
               
 
5,416,009 shares 8.60% Series B Cumulative Redeemable issued and outstanding (5,416,009 in 2004)
    135,400       135,400  
 
2,803,812 shares 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 in 2004)
    46,571       46,571  
Common stock, $0.01 par value ($1.00 par value in 2004); 250,000,000 shares authorized; 137,193,552 shares issued and outstanding (136,429,592 in 2004)
    1,372       136,430  
Additional paid-in capital
    1,757,936       1,614,916  
Distributions in excess of net income
    (784,307 )     (731,808 )
Deferred compensation — unearned restricted stock awards
    (5,137 )     (6,058 )
             
 
Total stockholders’ equity
    1,151,835       1,195,451  
             
Total liabilities and stockholders’ equity
  $ 4,480,429     $ 4,332,001  
             
See accompanying notes to consolidated financial statements.

2


 

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                                     
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
REVENUES
                               
 
Rental income
  $ 172,514     $ 142,590     $ 504,451     $ 417,448  
 
Non-property income:
                               
   
Sale of technology investment
                12,306        
   
Other income
    2,319       807       2,976       2,213  
                         
      2,319       807       15,282       2,213  
                         
   
Total revenues
    174,833       143,397       519,733       419,661  
                         
EXPENSES
                               
 
Rental expenses:
                               
   
Real estate taxes and insurance
    21,233       15,740       60,387       48,903  
   
Personnel
    18,379       15,545       52,206       43,682  
   
Utilities
    10,122       8,911       29,263       25,604  
   
Repair and maintenance
    11,068       9,611       31,723       26,833  
   
Administrative and marketing
    6,122       5,010       17,653       14,579  
   
Property management
    4,771       4,413       14,428       13,163  
   
Other operating expenses
    291       289       870       850  
 
Real estate depreciation and amortization
    52,791       40,567       153,810       116,556  
 
Interest
    41,331       29,780       119,347       87,555  
 
General and administrative
    4,913       3,853       16,822       13,235  
 
Hurricane related expenses
          5,503             5,503  
 
Loss on early debt retirement
                6,785        
 
Other depreciation and amortization
    706       812       2,042       2,511  
                         
   
Total expenses
    171,727       140,034       505,336       398,974  
                         
Income before minority interests and discontinued operations
    3,106       3,363       14,397       20,687  
Minority interests of outside partnerships
    22       (52 )     (89 )     (166 )
Minority interests of unitholders in operating partnerships
    55       223       (161 )     (33 )
                         
Income before discontinued operations, net of minority interests
    3,183       3,534       14,147       20,488  
Income from discontinued operations, net of minority interests
    11,952       24,282       68,371       51,150  
                         
Net income
    15,135       27,816       82,518       71,638  
Distributions to preferred stockholders — Series B
    (2,911 )     (2,911 )     (8,733 )     (8,733 )
Distributions to preferred stockholders — Series D (Convertible)
          (1,045 )           (3,125 )
Distributions to preferred stockholders — Series E (Convertible)
    (931 )     (1,138 )     (2,794 )     (3,413 )
Premium on preferred stock conversions
          (1,562 )           (4,687 )
                         
Net income available to common stockholders
  $ 11,293     $ 21,160     $ 70,991     $ 51,680  
                         
Earnings per weighted average common share — basic:
                               
 
(Loss)/income from continuing operations available to common stockholders, net of minority interests
  $ (0.01 )   $ (0.02 )   $ 0.02     $ 0.01  
 
Income from discontinued operations, net of minority interests
  $ 0.09     $ 0.19     $ 0.50     $ 0.40  
 
Net income available to common stockholders
  $ 0.08     $ 0.17     $ 0.52     $ 0.41  
 
Weighted average number of common shares outstanding
    136,392       127,182       136,231       127,099  
Earnings per weighted average common share — diluted:
                               
 
(Loss)/income from continuing operations available to common stockholders, net of minority interests
  $ (0.01 )   $ (0.02 )   $ 0.02     $  —  
 
Income from discontinued operations, net of minority interests
  $ 0.09     $ 0.19     $ 0.50     $ 0.40  
 
Net income available to common stockholders
  $ 0.08     $ 0.17     $ 0.52     $ 0.40  
 
Weighted average number of common shares outstanding
    136,392       127,182       137,194       128,063  
Common distributions declared per share
  $ 0.3000     $ 0.2925     $ 0.9000     $ 0.8775  
See accompanying notes to consolidated financial statements.

3


 

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
(Unaudited)
                       
    Nine Months Ended
    September 30,
     
    2005   2004
         
Operating Activities
               
 
Net income
  $ 82,518     $ 71,638  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
   
Depreciation and amortization
    158,504       133,278  
   
Net gains on sales of land and depreciable property
    (66,657 )     (35,239 )
   
Gain on the sale of technology investment
    (12,306 )      
   
Distribution of earnings from unconsolidated joint venture
    124        
   
Minority interests
    4,498       3,679  
   
Amortization of deferred financing costs and other
    6,544       4,985  
   
Changes in operating assets and liabilities:
               
     
Increase in operating assets
    (6,321 )     (12,178 )
     
Increase in operating liabilities
    3,556       7,774  
             
Net cash provided by operating activities
    170,460       173,937  
Investing Activities
               
 
Proceeds from sales of real estate investments, net
    203,534       87,278  
 
Repayment of notes receivables
    33,705       57,512  
 
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures
    (310,551 )     (412,000 )
 
Development of real estate assets
    (35,046 )     (13,433 )
 
Capital expenditures and other major improvements — real estate assets
    (96,858 )     (51,277 )
 
Capital expenditures — non-real estate assets
    (1,950 )     (1,194 )
 
Proceeds from the sale of technology investment
    12,306        
 
Decrease in funds held in escrow from 1031 exchanges pending the acquisition of real estate
    17,039       14,447  
             
Net cash used in investing activities
    (177,821 )     (318,667 )
Financing Activities
               
 
Scheduled principal payments on secured debt
    (7,565 )     (38,848 )
 
Non-scheduled principal payments on secured debt
    (125,221 )     (21,474 )
 
Proceeds from the issuance of unsecured debt
    268,875       250,775  
 
Payments on unsecured debt
    (21,100 )     (46,585 )
 
Net proceeds from revolving bank debt
    35,000       132,000  
 
Payment of financing costs
    (6,374 )     (3,745 )
 
Distribution of capital from unconsolidated joint venture
    458       1,066  
 
Proceeds from the issuance of common stock
    4,185       3,770  
 
Proceeds from the repayment of officer loans
          459  
 
Proceeds from the issuance of performance shares
    380       80  
 
Purchase of minority interest from outside partners
    (522 )      
 
Conversion of operating partnership units to cash
    (50 )      
 
Distributions paid to minority interests
    (9,365 )     (10,396 )
 
Distributions paid to preferred stockholders
    (11,527 )     (15,254 )
 
Distributions paid to common stockholders
    (122,237 )     (109,954 )
             
Net cash provided by financing activities
    4,937       141,894  
Net decrease in cash and cash equivalents
    (2,424 )     (2,836 )
Cash and cash equivalents, beginning of period
    7,904       4,824  
             
Cash and cash equivalents, end of period
  $ 5,480     $ 1,988  
             
Supplemental Information:
               
 
Interest paid during the period
  $ 119,709     $ 81,188  
 
Non-cash transactions:
               
   
Conversion of operating partnership minority interests to common stock (92,985 shares in 2005 and 91,369 shares in 2004)
    1,382       733  
   
Conversion of minority interests in Series B, LLC
    690        
   
Issuance of restricted stock awards
    8,450       3,306  
   
Cancellation of a note receivable with the acquisition of a property
          8,000  
   
Secured debt assumed with the acquisition of a property
    26,825       113,063  
   
Receipt of a note receivable in connection with sales of real estate investments
    124,650       75,586  
   
Deferred gain in connection with sales of real estate investments
    11,794       4,040  
See accompanying notes to consolidated financial statements.

4


 

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
                                                                   
                    Deferred    
    Preferred Stock   Common Stock       Distributions in   Compensation –    
            Paid-in   Excess of   Unearned Restricted    
    Shares   Amount   Shares   Amount   Capital   Net Income   Stock Awards   Total
                                 
Balance, December 31, 2004
    8,219,821     $ 181,971       136,429,592     $ 136,430     $ 1,614,916     $ (731,808 )   $ (6,058 )   $ 1,195,451  
                                                 
Comprehensive Income
                                                               
 
Net income
                                            82,518               82,518  
                                                 
 
Comprehensive income
                                            82,518               82,518  
                                                 
 
Issuance of common shares and restricted stock
                    670,975       680       5,210                       5,890  
 
Adjustment for change in par value from $1.00 to $0.01
                            (135,822 )     135,822                        
 
Adjustment for conversion of minority interests of unitholders in operating partnerships
                    92,985       84       1,298                       1,382  
 
Adjustment for conversion of minority interests in Series B LLC
                                    690                       690  
 
Common stock distributions declared ($0.9000 per share)
                                            (123,490 )             (123,490 )
 
Preferred stock distributions declared — Series B ($1.6125 per share)
                                            (8,733 )             (8,733 )
 
Preferred stock distributions declared — Series E ($0.9966 per share)
                                            (2,794 )             (2,794 )
 
Amortization of deferred compensation
                                                    921       921  
                                                 
Balance, September 30, 2005
    8,219,821     $ 181,971       137,193,552     $ 1,372     $ 1,757,936     $ (784,307 )   $ (5,137 )   $ 1,151,835  
                                                 
See accompanying notes to consolidated financial statements.

5


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(UNAUDITED)
1. CONSOLIDATION AND BASIS OF PRESENTATION
      United Dominion Realty Trust, Inc. is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages middle-market apartment communities nationwide. The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”) (collectively, “United Dominion”). As of September 30, 2005, there were 166,061,749 units in the Operating Partnership outstanding, of which 156,118,178 units or 94.0% were owned by United Dominion and 9,943,571 units or 6.0% were owned by limited partners (of which 1,791,329 are owned by the holders of the Series A OPPS, see Note 6). As of September 30, 2005, there were 5,542,200 units in the Heritage OP outstanding, of which 5,201,355 units or 93.9% were owned by United Dominion and 340,845 units or 6.1% were owned by limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the Operating Partnership and the Heritage OP. All significant intercompany accounts and transactions have been eliminated in consolidation.
      The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in United Dominion’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission as updated by the Current Report on Form 8-K filed August 11, 2005.
      In the opinion of management, the consolidated financial statements reflect all adjustments which are necessary for the fair presentation of financial position at September 30, 2005 and results of operations for the interim periods ended September 30, 2005 and 2004. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year.
      The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.
      United Dominion adopted the fair-value-based method of accounting for share-based payments effective January 1, 2004 using the prospective method described in FASB Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Currently, United Dominion uses the Black-Scholes-Merton formula to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of Statement 123(R) on January 1, 2006. Because Statement 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because United Dominion adopted Statement 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that were not recognized under Statement 123 will be recognized under Statement 123(R).

6


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      In June 2005, the FASB ratified its consensus in EITF Issue 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (Issue 04-05). The effective date for Issue 04-05 is June 29, 2005 for all new or modified partnerships and January 1, 2006 for our remaining partnerships for the applicable provisions. The adoption of the provisions of EITF 04-05 is not anticipated to have a material impact on our financial position or results of operations.
2. REAL ESTATE HELD FOR INVESTMENT
      At September 30, 2005, there are 253 communities with 74,215 apartment homes classified as real estate held for investment. The following table summarizes the components of real estate held for investment (dollars in thousands):
                 
    September 30,   December 31,
    2005   2004
         
Land and land improvements
  $ 1,259,850     $ 1,148,983  
Buildings and improvements
    3,707,629       3,436,083  
Furniture, fixtures, and equipment
    247,945       220,564  
             
Real estate held for investment
    5,215,424       4,805,630  
Accumulated depreciation
    (1,069,858 )     (924,509 )
             
Real estate held for investment, net
  $ 4,145,566     $ 3,881,121  
             
3. INCOME FROM DISCONTINUED OPERATIONS
      FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144) requires, among other things, that the primary assets and liabilities and the results of operations of United Dominion’s real properties which have been sold subsequent to January 1, 2002, or are held for disposition subsequent to January 1, 2002, be classified as discontinued operations and segregated in United Dominion’s Consolidated Statements of Operations and Balance Sheets. Properties classified as real estate held for disposition generally represent properties that are under contract for sale and are expected to close within the next twelve months.
      For purposes of these financial statements, FAS 144 results in the presentation of the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition through September 30, 2005, as discontinued operations for all periods presented. The adoption of FAS 144 does not have an impact on net income available to common stockholders. FAS 144 only results in the reclassification of the operating results of all properties sold or classified as held for disposition through September 30, 2005, within the Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets for 2005 and 2004.
      For the nine months ended September 30, 2005, United Dominion sold 21 communities with 6,002 apartment homes, 102 condominiums from three communities with a total of 313 condominiums, and one parcel of land. We recognized gains for financial reporting purposes of $66.7 million on these sales. At September 30, 2005, United Dominion had one community with a total of 350 apartment homes and a net book value of $23.1 million, two communities with a total of 187 condominiums and a net book value of $23.5 million, and two parcels of land with a net book value of $5.1 million included in real estate held for disposition. In conjunction with the sale of ten communities in July 2005, we received short-term notes for $124.7 million that bear interest at 6.75% and have maturities ranging from September 2005 to July 2006. As of

7


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
September 30, 2005, the balance on the notes receivable was $90.9 million. We recognized gains for financial reporting purposes of $6.9 million and will recognize $14.7 million in additional gains as the notes receivable mature. For the year ended December 31, 2004, United Dominion sold 19 communities with a total of 5,425 apartment homes, 24 condominiums from a community of 36 condominiums, and one parcel of land. The results of operations for these properties and the interest expense associated with the secured debt on these properties are classified on the Consolidated Statements of Operations in the line item titled “Income from discontinued operations, net of minority interests.”
      United Dominion has elected Taxable REIT Subsidiary (“TRS”) status for certain of its corporate subsidiaries, primarily those engaged in condominium conversion and sale activities. United Dominion recognized a provision for income taxes of $2.4 million and $3.8 million for the three and nine months ended September 30, 2005, respectively. These amounts were classified as reductions of the net gain on sale of depreciable property in the accompanying consolidated statement of operations.
      The following is a summary of income from discontinued operations for the periods presented, (dollars in thousands):
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
Rental income
  $ 1,030     $ 17,921     $ 20,361     $ 61,374  
Non-property income/ (loss)
          (2 )     8       (2 )
                         
      1,030       17,919       20,369       61,372  
Rental expenses
    951       8,056       9,843       27,146  
Real estate depreciation
    234       3,919       2,636       14,076  
Interest
          197       215       624  
Loss on early debt retirement
                1,697        
Other expenses
    1       33       16       135  
                         
      1,186       12,205       14,407       41,981  
(Loss)/ income before net gain on sale of depreciable property and minority interests
    (156 )     5,714       5,962       19,391  
Net gain on sale of depreciable property
    12,851       20,220       66,657       35,239  
                         
Income before minority interests
    12,695       25,934       72,619       54,630  
Minority interests on income from discontinued operations
    (743 )     (1,652 )     (4,248 )     (3,480 )
                         
Income from discontinued operations, net of minority interests
  $ 11,952     $ 24,282     $ 68,371     $ 51,150  
                         

8


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. SECURED DEBT
      Secured debt on continuing and discontinued operations, which encumbers $1.9 billion or 35% of United Dominion’s real estate owned based upon book value ($3.5 billion or 65% of United Dominion’s real estate owned is unencumbered) consists of the following as of September 30, 2005 (dollars in thousands):
                                         
        Weighted       Number of
    Principal Outstanding   Average   Weighted Average   Communities
        Interest Rate   Years to Maturity   Encumbered
    September 30,   December 31,            
    2005   2004   2005   2005   2005
                     
Fixed Rate Debt
                                       
Mortgage notes payable
  $ 360,132     $ 428,223       5.33%       5.7       14  
Tax-exempt secured notes payable
    26,595       39,160       5.85%       19.4       3  
Fannie Mae credit facilities
    288,875       288,875       6.40%       5.4       9  
                               
Total fixed rate secured debt
    675,602       756,258       5.81%       6.1       26  
Variable Rate Debt
                                       
Mortgage notes payable
    60,014       45,758       4.80%       5.6       4  
Tax-exempt secured note payable
    7,770       7,770       2.72%       22.8       1  
Fannie Mae credit facilities
    367,469       367,469       4.22%       7.0       47  
Freddie Mac credit facility
          20,669       n/a       n/a       n/a  
                               
Total variable rate secured debt
    435,253       441,666       4.27%       7.1       52  
                               
Total secured debt
  $ 1,110,855     $ 1,197,924       5.21%       6.5       78  
                               
      During the second quarter of 2005, we elected to convert a $75 million variable rate debt placement to a fixed rate of 4.86%. The rate, currently at 4.33%, will float until December 1, 2005 and then convert to a 7-year fixed rate of 4.86%.
      Approximate principal payments due during each of the next five calendar years and thereafter, as of September 30, 2005, are as follows (dollars in thousands):
                         
            Total
    Fixed Rate   Variable Rate   Secured
Year   Maturities   Maturities   Maturities
             
2005
  $ 1,202     $ 298     $ 1,500  
2006
    32,025       4,832       36,857  
2007
    81,595       1,187       82,782  
2008
    9,146       16,282       25,428  
2009
    4,578             4,578  
Thereafter
    547,056       412,654       959,710  
                   
    $ 675,602     $ 435,253     $ 1,110,855  
                   
      During the first quarter of 2005, we prepaid approximately $110 million of secured debt. In conjunction with these prepayments, we incurred prepayment penalties of $8.5 million in both continuing and discontinued operations as “Loss on early debt retirement.” These penalties were funded by the proceeds from the sale of our technology investment of $12.3 million.

9


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. UNSECURED DEBT
      A summary of unsecured debt as of September 30, 2005 and December 31, 2004 is as follows (dollars in thousands):
                   
    2005   2004
         
Commercial Banks
               
 
Borrowings outstanding under an unsecured credit facility due May 2008(a)
  $ 313,100     $ 278,100  
Senior Unsecured Notes — Other
               
 
7.73% Medium-Term Notes due April 2005
          21,100  
 
7.02% Medium-Term Notes due November 2005
    49,760       49,760  
 
Verano Construction Loan due February 2006
    24,820       24,820  
 
7.95% Medium-Term Notes due July 2006
    85,374       85,374  
 
7.07% Medium-Term Notes due November 2006
    25,000       25,000  
 
7.25% Notes due January 2007
    92,255       92,255  
 
4.30% Medium-Term Notes due July 2007
    75,000       75,000  
 
4.50% Medium-Term Notes due March 2008
    200,000       200,000  
 
ABAG Tax-Exempt Bonds due August 2008
    46,700       46,700  
 
8.50% Monthly Income Notes due November 2008
    29,081       29,081  
 
4.25% Medium-Term Notes due January 2009
    50,000       50,000  
 
6.50% Notes due June 2009
    200,000       200,000  
 
3.90% Medium-Term Notes due March 2010
    50,000       50,000  
 
5.00% Medium-Term Notes due January 2012
    100,000       100,000  
 
5.13% Medium-Term Notes due January 2014
    200,000       200,000  
 
5.25% Medium-Term Notes due January 2015
    250,000       100,000  
 
5.25% Medium-Term Notes due January 2016
    100,000        
 
8.50% Debentures due September 2024
    54,118       54,118  
 
Other(b)
    464       750  
             
      1,632,572       1,403,958  
             
 
Total Unsecured Debt
  $ 1,945,672     $ 1,682,058  
             
 
(a) During the second quarter of 2005, United Dominion amended and restated its $500 million unsecured revolving credit facility and extended the term an additional two years. The credit facility matures on May 31, 2008, and at United Dominion’s option, can be extended for an additional year. United Dominion has the right to increase the credit facility to $750 million if the initial lenders increase their commitments or we receive commitments from additional lenders. Based on United Dominion’s current credit ratings, the credit facility bears interest at a rate equal to LIBOR plus 57.5 basis points, which represents a 12.5 basis point reduction to the previous unsecured revolver, and the facility fee was reduced from 20 basis points to 15 basis points. Under a competitive bid feature and for so long as United Dominion maintains an Investment Grade Rating, United Dominion has the right to bid out 100% of the commitment amount.
 
(b) Represents deferred gains from the termination of interest rate risk management agreements.

10


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. EARNINGS PER SHARE
      Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion’s average stock price.
      The following table sets forth the computation of basic and diluted earnings per share for the periods presented, (dollars in thousands, except per share data):
                                   
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
Numerator for basic and diluted earnings per share — Net income available to common stockholders
  $ 11,293     $ 21,160     $ 70,991     $ 51,680  
                         
Denominator:
                               
Denominator for basic earnings per share —
                               
 
Weighted average common shares outstanding
    137,164       127,794       137,017       127,694  
 
Non-vested restricted stock awards
    (772 )     (612 )     (786 )     (595 )
                         
      136,392       127,182       136,231       127,099  
                         
Effect of dilutive securities:
                               
Employee stock options and non-vested restricted stock awards
                963       964  
                         
Denominator for diluted earnings per share
    136,392       127,182       137,194       128,063  
                         
Basic earnings per share
  $ 0.08     $ 0.17     $ 0.52     $ 0.41  
                         
Diluted earnings per share
  $ 0.08     $ 0.17     $ 0.52     $ 0.40  
                         
      The effect of the conversion of the operating partnership units, Series A Out-Performance Partnership Shares, and convertible preferred stock is not dilutive and is therefore not included in the above calculations. If the operating partnership units were converted to common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2005 would be 8,503,993 and 8,509,748 weighted average common shares, and 8,677,459 and 8,681,292 weighted average common shares for the three and nine months ended September 30, 2004. If the Series A Out-Performance Partnership Shares were converted to common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2005 and 2004 would be 1,791,329 weighted average common shares. If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2005 would be 2,803,812 weighted average common shares, and 6,502,140 weighted average common shares for the three and nine months ended September 30, 2004, respectively.
7. COMPREHENSIVE INCOME
      Total comprehensive income for the three and nine months ended September 30, 2005 and 2004, was $15.1 million and $82.5 million for 2005 and $27.8 million and $73.5 million for 2004, respectively. The

11


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
difference between net income and total comprehensive income is primarily due to the fair value accounting for interest rate swaps in 2004.
8. COMMITMENTS AND CONTINGENCIES
Commitments
      United Dominion is committed to completing its real estate under development, which has an estimated cost to complete of $64.2 million at September 30, 2005.
Contingencies
Series B Out-Performance Program
      In May 2003, the stockholders of United Dominion approved the Series B Out-Performance Program (the “Series B Program”) pursuant to which certain executive officers of United Dominion (the “Series B Participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in a limited liability company (the “Series B LLC”), the only asset of which is a special class of partnership units of United Dominion Realty, L.P. (“Series B OPPSs”). The purchase price for the Series B OPPSs was determined by United Dominion’s board of directors to be $1 million, assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series B Program measured the cumulative total return on our common stock over the 24-month period from June 1, 2003 to May 31, 2005.
      The Series B Program was designed to provide participants with the possibility of substantial returns on their investment if the total cumulative return on United Dominion’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period (a) exceeded the cumulative total return of the Morgan Stanley REIT Index peer group index over the same period; and (b) was at least the equivalent of a 22% total return, or 11% annualized.
      At the conclusion of the measurement period on May 31, 2005, the total cumulative return on our common stock over the 24-month period did not satisfy these criteria, and therefore, the Series B LLC as holder of the Series B OPPSs did not receive (for the indirect benefit of the Series B Participants as holders of interests in the Series B LLC) distributions and allocations of income and loss from United Dominion Realty, L.P. (accounted for on a consistent basis with all other OP Units) equal to the distributions and allocations that would be received on the number of OP Units. As a result, the investment made by the holders of the Series B OPPSs was forfeited.
Series C Out-Performance Program
      In May 2005, the stockholders of United Dominion approved the Series C Out-Performance Program (the “Series C Program”) pursuant to which certain executive officers and other key employees of United Dominion (the “Series C Participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in UDR Out-Performance III, LLC, a Delaware limited liability company (the “Series C LLC”), the only asset of which is a special class of partnership units of United Dominion Realty, L.P. (“Series C OPPSs”). The purchase price for the Series C OPPSs was determined by the Compensation Committee of United Dominion’s board of directors to be $750,000, assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series C Program will measure the cumulative total return on our common stock over the 36-month period from June 1, 2005 to May 30, 2008.
      The Series C Program is designed to provide participants with the possibility of substantial returns on their investment if the total cumulative return on United Dominion’s common stock, as measured by the

12


 

UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).
      At the conclusion of the measurement period, if the total cumulative return on our common stock satisfies these criteria, the Series C LLC as holder of the Series C OPPSs will receive (for the indirect benefit of the Series C Participants as holders of interests in the Series C LLC) distributions and allocations of income and loss from United Dominion Realty, L.P. equal to the distributions and allocations that would be received on the number of OP Units obtained by:
        i. determining the amount by which the cumulative total return of United Dominion’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);
 
        ii. multiplying 2% of the Excess Return by United Dominion’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, OP Units, and common stock equivalents) multiplied by the daily closing price of United Dominion’s common stock, up to a maximum of 1% of market capitalization; and
 
        iii. dividing the number obtained in (ii) by the market value of one share of United Dominion’s common stock on the valuation date, determined by the volume-weighted average price per day of common stock for the 20 trading days immediately preceding the valuation date.
      If, on the valuation date, the cumulative total return of United Dominion’s common stock does not meet the Minimum Return, then the Series C Participants will forfeit their entire initial investment.
Litigation and Legal Matters
      United Dominion is subject to various legal proceedings and claims arising in the ordinary course of business. United Dominion cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. United Dominion believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow.
9. SUBSEQUENT EVENTS
      For the period from October 22, 2005 to November 3, 2005, we have repurchased 627,500 shares of our common stock under our stock repurchase program at an average share price of $21.62.

13


 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
      This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of United Dominion to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting us or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.
Business Overview
      We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages middle-market apartment communities nationwide. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a Delaware limited partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the company,” or “United Dominion” refer collectively to United Dominion Realty Trust, Inc. and its subsidiaries.
      At September 30, 2005, our portfolio included 256 communities with 74,752 apartment homes nationwide. The following table summarizes our market information by major geographic markets (includes real estate held for disposition, real estate under development, and land, but excludes commercial properties):
                                                                 
        Three Months Ended   Nine Months Ended
    As of September 30, 2005   September 30, 2005   September 30, 2005
             
    Number of   Number of   Percentage of   Carrying   Average   Average Collections   Average   Average Collections
    Apartment   Apartment   Carrying   Value   Physical   per Occupied   Physical   per Occupied
    Communities   Homes   Value   (in thousands)   Occupancy   Home(a)   Occupancy   Home(a)
                                 
Southern California
    26       7,017       19.7 %   $ 1,057,466       94.0 %   $ 1,234       93.6 %   $ 1,170  
Northern California
    8       2,274       5.3 %     285,962       94.7 %     1,150       94.3 %     1,057  
Metropolitan DC
    8       2,532       4.8 %     258,568       93.5 %     1,003       93.8 %     994  
Tampa, FL
    12       4,314       4.7 %     252,495       93.5 %     793       94.5 %     787  
Houston, TX
    16       5,447       4.7 %     250,293       93.8 %     621       93.3 %     620  
Orlando, FL
    14       4,140       4.1 %     221,435       96.4 %     776       95.8 %     756  
Raleigh, NC
    11       3,663       4.0 %     215,941       93.1 %     645       93.6 %     644  
Baltimore, MD
    10       2,118       3.1 %     167,509       96.4 %     970       96.1 %     954  
Columbus, OH
    6       2,530       2.9 %     158,580       91.7 %     676       92.2 %     673  
Nashville, TN
    9       2,580       2.9 %     155,180       94.9 %     697       95.0 %     693  
Richmond, VA
    9       2,636       2.8 %     151,581       94.8 %     778       93.1 %     813  
Monterey Peninsula, CA
    7       1,568       2.6 %     139,726       93.6 %     917       92.2 %     913  
Seattle, WA
    7       1,859       2.6 %     138,157       92.6 %     785       93.3 %     691  

14


 

                                                                   
        Three Months Ended   Nine Months Ended
    As of September 30, 2005   September 30, 2005   September 30, 2005
             
    Number of   Number of   Percentage of   Carrying   Average   Average Collections   Average   Average Collections
    Apartment   Apartment   Carrying   Value   Physical   per Occupied   Physical   per Occupied
    Communities   Homes   Value   (in thousands)   Occupancy   Home(a)   Occupancy   Home(a)
                                 
Phoenix, AZ
    7       1,935       2.7 %     137,693       88.9 %     785       91.2 %     781  
Greensboro, NC
    8       2,123       2.0 %     109,047       91.3 %     583       93.7 %     581  
Charlotte, NC
    7       1,686       2.0 %     107,999       94.1 %     660       94.2 %     656  
Arlington, TX
    7       2,156       1.9 %     103,181       95.5 %     617       94.8 %     612  
Jacksonville, FL
    4       1,557       1.9 %     101,423       95.3 %     774       95.7 %     618  
Denver, CO
    3       1,484       1.8 %     99,634       92.2 %     623       91.7 %     632  
Wilmington, NC
    6       1,868       1.8 %     96,288       96.9 %     704       96.5 %     687  
Dallas, TX
    4       1,383       1.8 %     95,603       96.5 %     760       95.7 %     759  
Portland, OR
    6       1,485       1.8 %     94,415       87.1 %     683       90.0 %     694  
Austin, TX
    5       1,425       1.6 %     82,652       96.1 %     658       95.6 %     647  
Atlanta, GA
    6       1,426       1.4 %     77,059       91.4 %     620       92.0 %     620  
Columbia, SC
    6       1,584       1.3 %     67,014       96.7 %     617       95.4 %     609  
Norfolk, VA
    6       1,438       1.2 %     66,078       95.7 %     830       95.4 %     816  
Other Southwestern
    10       3,676       3.7 %     199,058       95.2 %     647       94.9 %     645  
Other Florida
    6       1,737       2.2 %     119,439       96.0 %     841       96.1 %     825  
Other North Carolina
    8       1,893       1.5 %     79,885       93.2 %     619       93.6 %     622  
Other Mid-Atlantic
    6       1,156       1.1 %     59,241       94.9 %     856       95.1 %     840  
Other Virginia
    3       820       0.9 %     48,385       94.6 %     1,001       93.6 %     972  
Other Southeastern
    2       798       0.8 %     41,239       94.9 %     516       95.0 %     511  
Other Midwestern
    3       444       0.4 %     23,870       92.3 %     686       93.2 %     693  
Real Estate Under Development
                1.5 %     79,106                          
Land
                0.5 %     27,900                          
                                                 
 
Total
    256       74,752       100.0 %   $ 5,369,102       94.0 %   $ 790       94.1 %   $ 770  
                                                 
 
(a) Average Collections per Occupied Home represents net rental income plus fee income, excluding utility reimbursements, divided by occupancy and multiplied by the number of apartment homes.
Liquidity and Capital Resources
      Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale or maturity of existing assets, or by the acquisition of additional funds through capital management. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes. We routinely use our unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities.
      We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit arrangements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties, the disposition of condominiums, and the issuance of additional debt or equity securities. We believe that our net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends by the company in accordance with REIT requirements in both the short- and long-term. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations.

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      We have a shelf registration statement filed with the Securities and Exchange Commission which provides for the issuance of up to an aggregate of $1.5 billion in common shares, preferred shares, and debt securities to facilitate future financing activities in the public capital markets. During the third quarter of 2005, we completed one financing activity under our $1.5 billion shelf registration statement. This activity is summarized in the section titled “Financing Activities” below. As of September 30, 2005, approximately $0.9 billion of equity and debt securities remained available for use under the shelf registration statement. Access to capital markets is dependent on market conditions at the time of issuance.
      In October 2004, we filed a prospectus supplement under the Securities Act of 1933 relating to the offering of up to 5 million shares of our common stock that we may issue and sell through an agent from time to time in “at the market offerings,” as defined in Rule 415 of the Securities Act of 1933. Any sales of these shares will be made under our $1.5 billion shelf registration statement pursuant to a sales agreement that we entered into with the agent in July 2003. The sales price of the common stock that may be sold under the sales agreement will be no lower than the minimum price designated by us prior to the sale. During the fourth quarter of 2004, we sold a total of 472,000 shares of common stock pursuant to the sales agreement at a weighted average sales price of $20.36, for net proceeds to us of approximately $9.4 million. We did not sell any shares of common stock under the sales agreement during the nine months ended September 30, 2005.
Future Capital Needs
      Future development expenditures are expected to be funded with proceeds from the sale of property, with construction loans, through joint ventures and, to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed through the issuance of equity and debt securities, the issuance of operating partnership units, the assumption or placement of secured and/or unsecured debt, and by the reinvestment of proceeds from the sale of properties.
      During the remainder of 2005, we have approximately $1.5 million of secured debt and $49.9 million of unsecured debt maturing and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities, or the issuance of new unsecured debt securities or equity.
Critical Accounting Policies and Estimates
      Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, and (3) real estate investment properties. Our critical accounting policies are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2004. There have been no significant changes in our critical accounting policies from those reported in our 2004 Annual Report on Form 10-K. With respect to these critical accounting policies, management believes that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.
Statements of Cash Flow
      The following discussion explains the changes in net cash provided by operating and financing activities and net cash used in investing activities that are presented in our Consolidated Statements of Cash Flows.
Operating Activities
      For the nine months ended September 30, 2005, our cash flow provided by operating activities was $170.5 million compared to $173.9 million for the same period in 2004. The slight decrease in cash flow

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from operating activities resulted primarily from a $31.4 million increase in interest expense and a $1.6 million net increase in operating assets/liabilities for the period that was offset by a $30.0 million increase in property operating income from our apartment community portfolio (see discussion under “Apartment Community Operations”).
Investing Activities
      For the nine months ended September 30, 2005, net cash used in investing activities was $177.8 million compared to $318.7 million for the same period in 2004. Changes in the level of investing activities from period to period reflects our strategy as it relates to our acquisition, capital expenditure, development, and disposition programs, as well as the impact of the capital market environment on these activities, all of which are discussed in further detail below.
Acquisitions
      During the nine months ended September 30, 2005, we acquired five apartment communities with 2,021 apartment homes and one parcel of land. Our long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been expanding our interests in the fast growing Southern California, Florida, and Metropolitan DC markets over the past two years. During 2005, we plan to continue to channel new investments into those markets we believe will provide the best investment returns. Markets will be targeted based upon defined criteria including past performance, expected job growth, current and anticipated housing supply and demand, and the ability to attract and support household formation.
Capital Expenditures
      In conformity with accounting principles generally accepted in the United States, we capitalize those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.
      During the first nine months of 2005, we spent $96.9 million or $1,270 per home on capital expenditures for all of our communities, excluding development and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as HVAC equipment, roofs, siding, parking lots, and other non-revenue enhancing capital expenditures, which aggregated $29.3 million or $383 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, and other extensive interior upgrades totaled $56.3 million or $739 per home and major renovations totaled $11.3 million or $148 per home for the nine months ended September 30, 2005.

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      The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development and commercial properties for the periods presented:
                                                   
    Nine Months Ended September 30,   Nine Months Ended September 30,
    (dollars in thousands)   (per home)
         
    2005   2004   % Change   2005   2004   % Change
                         
Turnover capital expenditures
  $ 14,263     $ 12,745       11.9%     $ 187     $ 168       11.3%  
Other recurring capital expenditures
    14,972       12,897       16.1%       196       170       15.3%  
                                     
 
Total recurring capital expenditures
    29,235       25,642       14.0%       383       338       13.3%  
Revenue enhancing improvements
    56,311       25,322       122.4%       739       334       121.3%  
Major renovations
    11,312       313       3514.1%       148       5       2860.0%  
                                     
 
Total capital improvements
  $ 96,858     $ 51,277       88.9%     $ 1,270     $ 677       87.9%  
                                     
Repair and maintenance
  $ 33,365     $ 31,400       6.3%     $ 438     $ 414       5.8%  
                                     
 
Total expenditures
  $ 130,223     $ 82,677       57.5%     $ 1,708     $ 1,091       56.7%  
                                     
      Total capital improvements increased $45.6 million or $593 per home for the nine months ended September 30, 2005 compared to the same period in 2004. This increase was attributable to $11.0 million of major renovations at certain of our properties. These renovations may include the re-wiring and/or re-plumbing of an entire building as well as major structural changes and/or architectural revisions to existing buildings. The increase was also attributable to an additional $31.0 million being invested in revenue enhancing improvements. We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment substantially in excess of our cost of capital. Recurring capital expenditures during 2005 are currently expected to be approximately $510 per home.
Real Estate Under Development
      Development activity is focused in core markets in which we have strong operations in place. For the nine months ended September 30, 2005, we invested approximately $35.0 million on development projects, an increase of $21.6 million from $13.4 million for the same period in 2004.
      The following projects were under development as of September 30, 2005:
                                                 
    Number of   Completed   Cost to   Budgeted   Estimated   Expected
    Apartment   Apartment   Date   Cost   Cost Per   Completion
    Homes   Homes   (In thousands)   (In thousands)   Home   Date
                         
Verano at Town Square
Rancho Cucamonga, CA
    414           $ 47,974     $ 66,300     $ 160,100       1Q06  
Mandalay on the Lake
Irving, TX
    369             22,390       30,900       83,700       2Q06  
2000 Post Phase III
San Francisco, CA
    24             3,408       9,000       375,000       2Q06  
Ridgeview
Plano, TX
    225             4,312       18,000       80,000       3Q06  
Lincoln Towne Square — Phase II
Plano, TX
    303             2,959       21,000       69,300       3Q07  
                                     
      1,335           $ 81,043     $ 145,200     $ 108,800          
                                     
      In addition, we own five parcels of land that we continue to hold for future development that had a carrying value at September 30, 2005 of $21.9 million.

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Disposition of Investments
      For the nine months ended September 30, 2005, United Dominion sold 21 communities with 6,002 apartment homes and 102 condominiums from three communities with a total of 313 condominiums for a gross consideration of $340.3 million. In addition, we sold one parcel of land for $0.9 million. We recognized gains for financial reporting purposes of $66.7 million on these sales. Proceeds from the sales were used primarily to reduce debt and acquire additional communities. In connection with our third quarter portfolio sale of ten communities in Texas and North Carolina, we received short-term notes of $124.7 million. These notes have maturities ranging from September 2005 to July 2006. As of September 30, 2005, the outstanding balance on these notes was $90.9 million, bearing interest at 6.75%.
      During 2005, we plan to continue to pursue our strategy of selling properties where long-term growth prospects are limited and redeploying capital into properties that would enhance future growth rates and economies of scale. We intend to use the proceeds from 2005 dispositions to reduce debt, acquire communities, and fund development activity.
Financing Activities
      Net cash provided by financing activities during the nine months ended September 30, 2005, was $4.9 million compared to $141.9 million for the same period in 2004. As part of the plan to improve our balance sheet, we utilized proceeds from dispositions, equity and debt offerings, and refinancings to extend maturities, pay down existing debt, and purchase new properties.
      The following is a summary of our financing activities for the nine months ended September 30, 2005:
  •  Repaid $132.8 million of secured debt and $21.1 million of unsecured debt, and incurred $8.5 million in prepayment penalties.
 
  •  Sold $50 million aggregate principal amount of 5.25% senior unsecured notes due January 2015 in February 2005 under our medium-term note program. These notes represent a re-opening of the 5.25% senior unsecured notes due January 2015 that were issued in November 2004, and these notes will constitute a single series of notes. The February 2005 issuance of these notes brought the aggregate principal amount of the 5.25% senior unsecured notes to $150 million. The net proceeds of approximately $50 million were used for debt repayment and to fund the acquisition of apartment communities.
 
  •  Sold our shares in Rent.com, a leading Internet listing web site in the apartment and rental housing industry, in February 2005. As a result, United Dominion received cash proceeds and recorded a one-time gain of $12.3 million on the sale. As part of the transaction, an additional $0.8 million was placed in escrow and will be recorded as revenue when received.
 
  •  Sold $50 million aggregate principal amount of 5.25% senior unsecured notes due January 2015 in March 2005 under our medium-term note program. These notes represent a re-opening of the 5.25% senior unsecured notes due January 2015 that were issued in November 2004, and these notes constitute a single series of notes. The March 2005 issuance of these notes brought the aggregate principal amount of the 5.25% senior unsecured notes to $200 million. The net proceeds of approximately $50 million were used for debt repayment and to fund the acquisition of apartment communities.
 
  •  Sold $50 million aggregate principal amount of 5.25% senior unsecured notes due January 2015 in May 2005 under our medium-term note program. These notes represent a re-opening of the 5.25% senior unsecured notes due January 2015 that were issued in November 2004, and these notes constitute a single series of notes. The May 2005 issuance of these notes brought the aggregate principal amount of the 5.25% senior unsecured notes to $250 million. The net proceeds of approximately $50 million were used for debt repayment and to fund the acquisition of apartment communities.

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  •  Amended and restated our $500 million unsecured revolving credit facility and extended the term an additional two years. The credit facility matures on May 31, 2008, and, at United Dominion’s option, can be extended for an additional year. United Dominion has the right to increase the credit facility to $750 million if the initial lenders increase their commitments or we receive commitments from additional lenders. Based on United Dominion’s current credit ratings, the credit facility bears interest at a rate equal to LIBOR plus 57.5 basis points, which represents a 12.5 basis point reduction to the previous unsecured revolver, and the facility fee was reduced from 20 basis points to 15 basis points. Under a competitive bid feature and for so long as United Dominion maintains an Investment Grade Rating, United Dominion has the right to bid out 100% of the commitment amount.
 
  •  Elected to convert a $75 million variable rate debt facility to a fixed rate of 4.86% in May 2005. The rate, currently at 4.33%, will float until December 1, 2005, and then convert to a 7-year fixed rate of 4.86%.
 
  •  Sold $100 million aggregate principal amount of 5.25% medium-term notes due January 2016 in September 2005 under our medium-term note program. The net proceeds of approximately $100 million were used for debt repayment.
Credit Facilities
      We have four secured revolving credit facilities with Fannie Mae with an aggregate commitment of $860 million. As of September 30, 2005, $656.3 million was outstanding under the Fannie Mae credit facilities leaving $203.7 million of unused capacity. The Fannie Mae credit facilities are for an initial term of ten years, bear interest at floating and fixed rates, and can be extended for an additional five years at our discretion. We have $288.9 million of the funded balance fixed at a weighted average interest rate of 6.4%. The remaining balance on these facilities is currently at a weighted average variable rate of 4.2%.
      We have a $500 million unsecured revolving credit facility that matures in May 2008, and, at United Dominion’s option, can be extended an additional year. United Dominion has the right to increase the credit facility to $750 million under certain circumstances. Based on our current credit ratings, the credit facility bears interest at a rate equal to LIBOR plus 57.5 basis points. As of September 30, 2005, $313.1 million was outstanding under the credit facility leaving $186.9 million of unused capacity.
      The Fannie Mae credit facility and the bank revolving credit facility are subject to customary financial covenants and limitations.
      Information concerning short-term bank borrowings under our credit facility is summarized in the table that follows (dollars in thousands):
                 
    Three Months Ended   Twelve Months Ended
    September 30, 2005   December 31, 2004
         
Total line of credit
  $ 500,000     $ 500,000  
Borrowings outstanding at end of period
    313,100       278,100  
Weighted average daily borrowings during the period
    360,313       127,665  
Maximum daily borrowings outstanding during the period
    428,900       356,500  
Weighted average interest rate during the period
    3.8 %     2.0 %
Weighted average interest rate at end of period
    4.1 %     2.7 %
Funds from Operations
      Funds from operations, or FFO, is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO for all periods presented in accordance with the recommendations set forth by

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the National Association of Real Estate Investment Trust’s (“NAREIT”) April 1, 2002 White Paper. 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 as a measure of our operating performance. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles, or GAAP, and is not necessarily indicative of cash available to fund cash needs.
      Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance and defines FFO as net income (computed in accordance with accounting principles generally accepted in the United States), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The use of FFO, combined with the required presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. We believe that FFO is the best measure of economic profitability for real estate investment trusts.

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      The following table outlines our FFO calculation and reconciliation to generally accepted accounting principles for the three and nine months ended September 30, (dollars and shares in thousands):
                                   
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
Net income
  $ 15,135     $ 27,816     $ 82,518     $ 71,638  
Adjustments:
                               
 
Distributions to preferred stockholders
    (3,842 )     (5,094 )     (11,527 )     (15,271 )
 
Real estate depreciation and amortization
    52,791       40,567       153,810       116,556  
 
Minority interests of unitholders in operating partnership
    (55 )     (223 )     161       33  
 
Real estate depreciation related to unconsolidated entities
    84       70       220       207  
Discontinued Operations:
                               
 
Real estate depreciation
    234       3,919       2,636       14,076  
 
Minority interests of unitholders in operating partnership
    743       1,652       4,248       3,480  
 
Net gains on sales of depreciable property
    (12,851 )     (20,220 )     (66,657 )     (35,239 )
 
Net incremental gains on the sale of condominium homes
    5,320             7,650        
                         
Funds from operations — basic
  $ 57,559     $ 48,487     $ 173,059     $ 155,480  
                         
 
Distributions to preferred stockholders — Series D and E (Convertible)
    931       2,183       2,794       6,538  
                         
Funds from operations — diluted
  $ 58,490     $ 50,670     $ 175,853     $ 162,018  
                         
Weighted average number of common shares and OP Units outstanding — basic
    144,896       135,859       144,741       135,781  
Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted
    150,473       145,168       150,299       145,038  
      In the computation of diluted FFO, OP units, out-performance partnership shares, and the shares of Series D Cumulative Convertible Redeemable Preferred Stock and Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count. For the three and nine months ended September 30, 2004, distributions to preferred stockholders exclude $1.6 million and $4.7 million related to premiums on preferred stock conversions.
      Net incremental gains on the sale of condominiums is defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. We consider FFO with gains/losses on the sale of condominiums to be a meaningful supplemental measure of performance because the short-term use of funds produce a profit that differs from the traditional long-term investment in real estate for REITs.

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      The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the Consolidated Statements of Operations for the three and nine months ended September 30, (shares in thousands):
                                   
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
Weighted average number of common shares and OP units outstanding — basic
    144,896       135,859       144,741       135,781  
Weighted average number of OP units outstanding
    (8,504 )     (8,677 )     (8,510 )     (8,682 )
                         
 
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations
    136,392       127,182       136,231       127,099  
                         
Weighted average number of common shares, OP units, and common stock equivalents outstanding — diluted
    150,473       145,168       150,299       145,038  
Weighted average number of OP units outstanding
    (8,504 )     (8,677 )     (8,510 )     (8,682 )
Weighted average incremental shares from assumed conversion of stock options
    (857 )     (925 )            
Weighted average incremental shares from unvested restricted stock
    (125 )     (91 )            
Weighted average number of Series A OPPSs outstanding
    (1,791 )     (1,791 )     (1,791 )     (1,791 )
Weighted average number of Series D preferred shares outstanding
          (3,077 )           (3,077 )
Weighted average number of Series E preferred shares outstanding
    (2,804 )     (3,425 )     (2,804 )     (3,425 )
                         
 
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations
    136,392       127,182       137,194       128,063  
                         
      FFO also does not represent cash generated from operating activities in accordance with generally accepted accounting principles, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of liquidity. Additionally, it is not necessarily indicative of cash availability to fund cash needs.
      The following is a presentation of cash flow metrics based on generally accepted accounting principles for the three and nine months ended September 30, (dollars in thousands):
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
Net cash provided by operating activities
  $ 59,758     $ 67,176     $ 170,460     $ 173,937  
Net cash used in investing activities
    (116,816 )     (201,932 )     (177,821 )     (318,667 )
Net cash provided by financing activities
    56,371       135,988       4,937       141,894  
Results of Operations
      The following discussion includes the results of both continuing and discontinued operations for the periods presented.

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Net Income Available to Common Stockholders
      Net income available to common stockholders was $11.3 million ($0.08 per diluted share) for the three months ended September 30, 2005, compared to $21.2 million ($0.17 per diluted share) for the same period in the prior year. The decrease for the three months ended September 30, 2005 when compared to the same period in 2004, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
  •  an $11.4 million increase in interest expense,
 
  •  an $8.5 million increase in real estate depreciation and amortization expense,
 
  •  $7.4 million less in gains recognized from the sale of depreciable property, and
 
  •  a $1.1 million increase in general and administrative expenses.
      These decreases in income were partially offset by a $7.8 million increase in apartment community operating results, a $1.6 million decrease in premiums paid on preferred stock conversions, a $1.5 million increase in non-property income, a $1.3 million decrease in preferred stock distributions, and an $0.8 million decrease in minority interest expense during the third quarter of 2005 when compared to the same period in 2004. In addition, a charge of $5.5 million for hurricane related expenses was recorded in the third quarter of 2004.
      Net income available to common stockholders was $71.0 million ($0.52 per diluted share) for the nine months ended September 30, 2005, compared to $51.7 million ($0.40 per diluted share) for the same period in the prior year. The increase for the nine months ended September 30, 2005 when compared to the same period in 2004 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
  •  $31.4 million more in gains recognized from the sale of depreciable property,
 
  •  a $30.0 million increase in apartment community operating results,
 
  •  a $13.1 million increase in non-property income,
 
  •  a $5.5 million charge recorded for hurricane related expense in 2004,
 
  •  a $4.7 million decrease in premiums paid on preferred stock conversions, and
 
  •  $3.7 million less in preferred stock distributions.
      These increases in income were partially offset by a $31.4 million increase in interest expense, a $25.8 million increase in real estate depreciation and amortization expense, an $8.5 million increase in losses on early debt retirement, and a $3.6 million increase in general and administrative expenses during the first nine months of 2005 when compared to the same period in 2004.

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Apartment Community Operations
      Our net income is primarily generated from the operation of our apartment communities. The following table summarizes the operating performance of our total apartment portfolio for each of the periods presented, (dollars in thousands):
                                                 
    Three Months Ended September 30,   Nine Months Ended September 30,
         
    2005   2004   % Change   2005   2004   % Change
                         
Property rental income
  $ 173,175     $ 160,399       8.0%     $ 522,840     $ 478,482       9.3%  
Property operating expense*
    (67,870 )     (62,864 )     8.0%       (201,048 )     (186,725 )     7.7%  
                                     
Property operating income
  $ 105,305     $ 97,535       8.0%     $ 321,792     $ 291,757       10.3%  
                                     
Weighted average number of homes
    74,335       76,149       -2.4%       76,501       76,222       0.4%  
Physical occupancy**
    94.0 %     93.9 %     0.1%       94.1 %     93.5 %     0.6%  
 
  Excludes depreciation, amortization, and property management expenses.
**  Based upon weighted average stabilized homes.
      The following table is our reconciliation of property operating income to net income as reflected on the Consolidated Statements of Operations for the periods presented, (dollars in thousands):
                                   
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
         
    2005   2004   2005   2004
                 
Property operating income
  $ 105,305     $ 97,535     $ 321,792     $ 291,757  
Commercial operating income
    364       103       1,945       318  
Non-property income
    2,319       805       15,290       2,211  
Real estate depreciation and amortization
    (53,732 )     (45,331 )     (158,504 )     (133,278 )
Interest
    (41,331 )     (29,977 )     (119,562 )     (88,179 )
Loss on early debt retirement
                (8,482 )      
Hurricane related expenses
          (5,503 )           (5,503 )
General and administrative and property management
    (9,684 )     (8,266 )     (31,250 )     (26,398 )
Other operating expenses
    (291 )     (289 )     (870 )     (850 )
Net gain on sale of depreciable property
    12,851       20,220       66,657       35,239  
Minority interests
    (666 )     (1,481 )     (4,498 )     (3,679 )
                         
 
Net income per the Consolidated Statement of Operations
  $ 15,135     $ 27,816     $ 82,518     $ 71,638  
                         
Same Communities
      Our same communities (those communities acquired, developed, and stabilized prior to June 30, 2004 and held on September 30, 2005, which consisted of 59,248 apartment homes) provided 73% of our property operating income for the nine months ended September 30, 2005.
      For the third quarter of 2005, same community property operating income increased 2.3% or $1.9 million compared to the same period in 2004. The increase in property operating income was primarily attributable to a 4.1% or $5.5 million increase in revenues from rental and other income that was offset by a 6.9% or $3.6 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 2.4% or $3.4 million increase in rental rates, an 18% or $0.7 million decrease in concession expense, a 5.8% or $0.5 million decrease in vacancy loss, and an 8.5%

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or $0.8 million increase in utility reimbursement income and fee income. Physical occupancy increased 0.4% to 94.6%.
      The increase in property operating expenses was primarily driven by a 58.7% or $1.1 million increase in insurance costs, a 6.3% or $0.8 million increase in real estate taxes, a 3.4% or $0.5 million increase in personnel costs, an 8.1% or $0.4 million increase in administrative and marketing costs, a 3.6% or $0.3 million increase in repair and maintenance costs, a 62.3% or $0.3 million increase in incentive compensation expense, and a 2.0% or $0.2 million increase in utility expense.
      As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property operating income divided by property rental income) decreased 1.0% to 60.6%.
      For the nine months ended September 30, 2005, same community property operating income increased 3.0% or $7.0 million compared to the same period in 2004. The increase in property operating income was primarily attributable to a 3.3% or $12.2 million increase in revenues from rental and other income that was offset by a 3.7% or $5.2 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 1.7% or $6.6 million increase in rental rates, an 8.1% or $2.0 million decrease in vacancy loss, a 17.2% or $1.8 million decrease in concession expense, a 14.0% or $0.2 million decrease in bad debt, and a 6.4% or $1.7 million increase in utility reimbursement income and fee income. Physical occupancy increased 0.6% to 94.4%.
      The increase in property operating expenses was primarily driven by a 4.1% or $1.6 million increase in personnel costs, a 3.1% or $1.1 million increase in real estate taxes, a 6.0% or $0.8 million increase in administrative and marketing costs, a 72.6% or $0.7 million increase in incentive compensation, a 1.6% or $0.4 million increase in utilities expenses, a 1.0% or $0.3 million increase in repair and maintenance costs, and a 2.8% or $0.2 million increase in insurance costs.
      As a result of the percentage changes in property rental income and property operating expenses, the operating margin decreased 0.2% to 61.4%.
Non-Mature Communities
      The remaining 27% of our property operating income during the first nine months of 2005 was generated from communities that we classify as “non-mature communities” (primarily those communities acquired or developed in 2004 and 2005, sold properties, and those properties classified as real estate held for disposition). The 38 communities with 11,914 apartment homes that we acquired in the fourth quarter of 2003, and in 2004 and 2005 provided $62.4 million of property operating income. The 21 communities with 6,002 apartment homes and 64 condominiums sold during the first nine months of 2005 provided $8.1 million of property operating income. In addition, our development communities, which included 178 apartment homes constructed since January 1, 2003, provided $0.7 million of property operating income during 2005, the one community with 350 apartment homes and two communities with a total of 187 condominiums classified as real estate held for disposition provided $2.4 million of property operating income, and other non-mature communities provided $12.3 million of property operating income for the nine months ended September 30, 2005.
Real Estate Depreciation and Amortization
      For the three and nine months ended September 30, 2005, real estate depreciation and amortization on both continuing and discontinued operations increased 19.2% or $8.5 million and 19.8% or $25.8 million, respectively, compared to the same period in 2004, primarily due to the overall increase in the weighted average number of apartment homes, the significant increase in per home acquisition cost compared to the existing portfolio, and other capital expenditures.
Interest Expense
      For the three months ended September 30, 2005, interest expense on both continuing and discontinued operations increased 37.9% or $11.4 million from the same period in 2004 primarily due to

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the issuance of debt. For the three months ended September 30, 2005, the weighted average amount of debt outstanding increased 30.6% or $0.7 billion compared to the same period in 2004 and the weighted average interest rate increased from 4.8% to 5.3% during 2005. The weighted average amount of debt outstanding during 2005 is higher than 2004 as acquisition costs in 2004 and in 2005 have been funded, in most part, by the issuance of debt. The increase in the weighted average interest rate during 2005 reflects short-term bank borrowings and variable rate debt that had higher interest rates when compared to the prior year.
      For the nine months ended September 30, 2005, interest expense on both continuing and discontinued operations increased 35.6% or $31.4 million from the same period in 2004 primarily due to the issuance of debt. For the nine months ended September 30, 2005, the weighted average amount of debt outstanding increased 30.9% or $0.7 billion compared to the same period in 2004 and the weighted average interest rate increased from 4.9% to 5.2% during 2005. The weighted average amount of debt outstanding during 2005 is higher than 2004 as acquisition costs in 2004 and in 2005 have been funded, in most part, by the issuance of debt. The increase in the weighted average interest rate during 2005 reflects short-term bank borrowings and variable rate debt that had higher interest rates when compared to the prior year.
General and Administrative
      For the three months ended September 30, 2005, general and administrative expenses increased $1.1 million or 27.5% compared to the same period in 2004. This increase was primarily due to an increase in personnel and incentive compensation expense of $0.4 million or 8.4% and $0.3 million related to an operating lease on an airplane. For the nine months ended September 30, 2005, general and administrative expenses increased $3.6 million or 27.1% over the comparable period in 2004 primarily as a result of an increase in personnel and incentive compensation costs.
Gains on Sales of Land and Depreciable Property
      For the three and nine months ended September 30, 2005, we recognized gains for financial reporting purposes of $12.9 million and $66.7 million compared to $20.2 million and $35.2 million for the comparable period in 2004. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period, as well as the extent of gains related to specific properties sold.
Inflation
      We believe that the direct effects of inflation on our operations have been immaterial. Substantially all of our leases are for a term of one year or less which generally minimizes our risk from the adverse effects of inflation.
Off-Balance Sheet Arrangements
      We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.
Factors Affecting Our Business and Prospects
      There are many factors that affect our business and the results of our operations, some of which are beyond our control. These factors include:
  •  unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates,
 
  •  the failure of acquisitions to achieve anticipated results,
 
  •  possible difficulty in selling apartment communities,

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  •  the timing and closing of planned dispositions under agreement,
 
  •  competitive factors that may limit our ability to lease apartment homes or increase or maintain rents,
 
  •  insufficient cash flow that could affect our debt financing and create refinancing risk,
 
  •  failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders,
 
  •  development and construction risks that may impact our profitability,
 
  •  potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs,
 
  •  delays in completing developments and lease-ups on schedule,
 
  •  our failure to succeed in new markets,
 
  •  changing interest rates, which could increase interest costs and affect the market price of our securities,
 
  •  potential liability for environmental contamination, which could result in substantial costs,
 
  •  the imposition of federal taxes if we fail to qualify as a REIT in any taxable year, and
 
  •  our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price.
      For a discussion of these and other factors affecting our business and prospects, see “Item 1. — Business — Factors Affecting Our Business and Prospects” in our Annual Report on Form 10-K for the year ended December 31, 2004.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      United Dominion is exposed to interest rate changes associated with our unsecured credit facility and other variable rate debt as well as refinancing risk on our fixed rate debt. United Dominion’s involvement with derivative financial instruments is limited and we do not expect to use them for trading or other speculative purposes. In prior periods, United Dominion had used derivative instruments solely to manage its exposure to interest rates.
      See our Annual Report on Form 10-K for the year ended December 31, 2004 “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a more complete discussion of our interest rate sensitive assets and liabilities. As of September 30, 2005, our market risk has not changed materially from the amounts reported on our Annual Report on Form 10-K for the year ended December 31, 2004.
Item 4. CONTROLS AND PROCEDURES
      As of September 30, 2005, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. In addition, our Chief Executive Officer and our Chief Financial Officer concluded that during the quarter ended September 30, 2005, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Our internal control over financial reporting is designed with the objective of providing reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
      It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective under circumstances where our disclosure controls and procedures should reasonably be expected to operate effectively.

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PART II — OTHER INFORMATION
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
      On June 3, 1999, our Board of Directors authorized the repurchase in open market transactions, in block transactions, or otherwise, of up to 5.5 million shares of our common stock. On December 5, 2000, our Board of Directors authorized the purchase of up to an additional 5.5 million shares of our common stock in open market transactions, in block purchases or otherwise. As of September 30, 2005, we had repurchased a total of 8,749,763 shares of our common stock under this program. As disclosed in the table below, we did not purchase any shares of our common stock during the quarter ended September 30, 2005.
      Between October 22, 2005 and November 3, 2005 we repurchased an additional 627,500 shares of our common stock under our repurchase program at an average purchase price per share of $21.62.
                                   
            Total Number   Maximum
            of Shares   Number of
            Purchased as   Shares that
            Part of Publicly   May Yet Be
    Total Number   Average   Announced   Purchased
    of Shares   Price Per   Plans or   Under the Plans
Period   Purchased   Share   Programs   or Programs
                 
July 1, 2005 through July 31, 2005
    0       N/A       0       2,250,237  
August 1, 2005 through August 31, 2005
    0       N/A       0       2,250,237  
September 1, 2005 through September 30, 2005
    0       N/A       0       2,250,237  
                         
 
Total
    0       N/A       0       2,250,237  
                         
Item 5. OTHER INFORMATION
      On November 7, 2005, we entered into an agreement with Thomas W. Toomey, our Chief Executive Officer and President, which sets forth the terms and conditions of Mr. Toomey’s lease of our corporate aircraft. A copy of our agreement with Mr. Toomey setting forth the amount Mr. Toomey will pay us if he leases our corporate aircraft, and other terms and conditions, is attached to this Report as Exhibit 10.1 and is incorporated by reference in this Item 5.
Item 6. EXHIBITS
      The exhibits filed or furnished with this Report are set forth in the Exhibit Index.

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SIGNATURES
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
     
    United Dominion Realty Trust, Inc.
 
(registrant)
 
 
Date: November 9, 2005  
/s/ Christopher D. Genry
 
Christopher D. Genry
Executive Vice President — Corporate
Strategy and Chief Financial Officer
 
 
Date: November 9, 2005   /s/ Scott A. Shanaberger
 
Scott A. Shanaberger
Senior Vice President and Chief Accounting Officer

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EXHIBIT INDEX
         
Exhibit No.   Description
     
  2 .1   Articles of Merger between the Company and United Dominion Realty Trust, Inc., a Virginia corporation, filed with the State Department of Assessments and Taxation of the State of Maryland (incorporated by reference to Exhibit 2.01 to the Company’s Current Report on Form 8-K dated and filed with the Commission on June 11, 2003, Commission File No. 1-10524).
  2 .2   Certificate of Correction to Articles of Merger between the Company and United Dominion Realty Trust, Inc., a Virginia corporation, filed with the State Department of Assessments and Taxation of the State of Maryland on March 21, 2005, (incorporated by reference to Exhibit 2.02 to the Company’s Current Report on Form 8-K dated March 17, 2005 and filed with the Commission on March 22, 2005, Commission File No. 1-10524).
  2 .3   Certificate of Correction to Articles of Merger between the Company and United Dominion Realty Trust, Inc., a Virginia corporation, filed with the State Department of Assessments and Taxation of the State of Maryland on July 27, 2005 (incorporated by reference to Exhibit 2.03 to the Company’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005, Commission File No. 1-10524).
  3 .1   Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit A to Exhibit 2.01 to the Company’s Current Report on Form 8-K dated and filed with the Commission on June 11, 2003, Commission File No. 1-10524).
  3 .2   Articles of Amendment to the Amended and Restated Articles of Incorporation filed with the State Department of Assessments and Taxation of the State of Maryland on March 21, 2005 (incorporated by reference to Exhibit 3.03 to the Company’s Current Report on Form 8-K dated March 17, 2005 and filed with the Commission on March 22, 2005, Commission File No. 1-10524).
  3 .3   Articles Supplementary filed with the State Department of Assessments and Taxation of the State of Maryland on March 21, 2005 (incorporated by reference to Exhibit 3.02 to the Company’s Current Report on Form 8-K dated March 17, 2005 and filed with the Commission on March 22, 2005, Commission File No. 1-10524).
  3 .4   Certificate of Correction to Articles of Merger between the Company and United Dominion Realty Trust, Inc., a Virginia corporation, filed with the State Department of Assessments and Taxation of the State of Maryland on March 21, 2005 (see Exhibit 2.2).
  3 .5   Articles Supplementary filed with the State Department of Assessments and Taxation of the State of Maryland on May 4, 2005 (incorporated by reference to Exhibit 3.05 to the Company’s Current Report on Form 8-K dated May 3, 2005 and filed with the Commission on May 9, 2005, Commission File No. 1-10524).
  3 .6   Certificate of Correction to Articles of Merger between the Company and United Dominion Realty Trust, Inc., a Virginia corporation, filed with the State Department of Assessments and Taxation of the State of Maryland on July 27, 2005 (see Exhibit 2.3).
  3 .7   Articles of Amendment filed with the State Department of Assessments and Taxation of the State of Maryland on July 27, 2005 (incorporated by reference to Exhibit 3.07 to the Company’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005, Commission File No. 1-10524).
  3 .8   Articles Supplementary filed with the State Department of Assessments and Taxation of the State of Maryland on July 28, 2005 (incorporated by reference to Exhibit 3.08 to the Company’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005, Commission File No. 1-10524).
  3 .9   Articles of Restatement filed with the State Department of Assessments and Taxation of the State of Maryland on July 29, 2005 (incorporated by reference to Exhibit 3.09 to the Company’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005, Commission File No. 1-10524).
  4 .1   5.25% Medium-Term Note due January 15, 2016, issued September 7, 2005.
  10 .1   Agreement between the Company and Thomas W. Toomey dated November 7, 2005, regarding corporate aircraft.
  12     Computation of Ratio of Earnings to Fixed Charges.


 

         
Exhibit No.   Description
     
  31 .1   Rule 13a-14(a) Certification of the Chief Executive Officer.
  31 .2   Rule 13a-14(a) Certification of the Chief Financial Officer.
  32 .1   Section 1350 Certification of the Chief Executive Officer.
  32 .2   Section 1350 Certification of the Chief Financial Officer.