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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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   (I.R.S. Employer
incorporation or organization)   Identification No.)
1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (720) 283-6120
Securities registered pursuant to Section 12(b) of the Act:
     
Title of Each Class   Name of Each Exchange on Which Registered
Common Stock, $0.01 par value   New York Stock Exchange
Preferred Stock Purchase Rights   New York Stock Exchange
8.60% Series B Cumulative Redeemable Preferred Stock   New York Stock Exchange
8.50% Monthly Income Notes Due 2008   New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
     Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or other information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ                                         Accelerated filer o                                         Non-accelerated filer 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 aggregate market value of the shares of common stock held by non-affiliates on June 30, 2005 was approximately $3.3 billion. This calculation excludes shares of common stock held by the registrant’s officers and directors and each person known by the registrant to beneficially own more than 5% of the registrant’s outstanding shares, as such persons may be deemed to be affiliates. This determination of affiliate status should not be deemed conclusive for any other purpose. As of February 24, 2006 there were 134,286,524 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
     The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from the registrant’s definitive proxy statement for the Annual Meeting of Stockholders to be held on May 2, 2006.
 
 

 


 

TABLE OF CONTENTS
             
        PAGE  
           
 
           
  Business     2  
  Risk Factors     11  
  Unresolved Staff Comments     16  
  Properties     17  
  Legal Proceedings     18  
  Submission of Matters to a Vote of Security Holders     18  
 
           
           
 
           
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     18  
  Selected Financial Data     21  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     22  
  Quantitative and Qualitative Disclosures about Market Risk     37  
  Financial Statements and Supplementary Data     37  
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     37  
  Controls and Procedures     37  
  Other Information     38  
 
           
           
 
           
  Directors and Executive Officers of the Registrant     38  
  Executive Compensation     38  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     38  
  Certain Relationships and Related Transactions     39  
  Principal Accountant Fees and Services     39  
 
           
           
 
           
  Exhibits, Financial Statement Schedules     39  
 Amended and Restated Bylaws
 Computation of Ratio of Earnings to Fixed Charges
 Subsidiaries
 Consent of Independent Registered Public Accounting Firm
 Rule 13a-14(a) Certification of the CEO
 Rule 13a-14(a) Certification of the CFO
 Section 1350 Certification of the CEO
 Section 1350 Certification of the CFO

 


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PART I
Item 1. BUSINESS
General
     United Dominion Realty Trust, Inc. is a self administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. At December 31, 2005, our apartment portfolio included 259 communities located in 43 markets, with a total of 74,875 completed apartment homes. In addition, we had five apartment communities under development.
     We have elected to be taxed as a REIT under the Internal Revenue Code. To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. As a qualified REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our stockholders. In 2005, we declared total distributions of $1.20 per share to our stockholders, which represents our 29th year of consecutive dividend increases to our stockholders.
     We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our corporate headquarters is located at 400 East Cary Street, Richmond, Virginia. Our principal executive offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado. As of February 24, 2006, we had 1,900 full-time employees and 136 part-time employees.
     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.
2005 Accomplishments
    We increased our dividend for the 29th consecutive year.
 
    We completed over $1.5 billion of capital transactions in 2005.
 
    We amended our credit facility and extended its term for an additional two years, thereby reducing our costs.
 
    We acquired 2,561 apartment homes in eight communities for approximately $390.9 million and one parcel of land for $2.9 million.
 
    We completed the disposition of 22 apartment communities with 6,352 apartment homes for an aggregate sales price of approximately $387.2 million and one parcel of land for $0.9 million. In addition, we sold 240 condominiums within five communities for a total of $69.1 million and our investment in an unconsolidated joint venture for $39.2 million.
Business Objectives and Operating Strategies
     Our principal business objective is to maximize the economic returns of our apartment communities to provide our stockholders with the greatest possible total return and value. To achieve this objective, we intend to continue to pursue the following goals and strategies:
    own and operate apartments across a national platform, thus enhancing stability and predictability of returns to our stockholders,

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    manage real estate cycles by taking an opportunistic approach to buying, selling, and building apartment communities,
 
    empower site associates to manage our communities efficiently and effectively,
 
    measure and reward associates based on specific performance targets, and
 
    manage our capital structure to ensure predictability of earnings and dividends.
Acquisitions
     During 2005, using the proceeds from our disposition program, as well as equity and debt offerings, we acquired eight communities with 2,561 apartment homes at a total cost of approximately $390.9 million, including the assumption of secured debt. In addition, we purchased one parcel of land for $2.9 million.
     When evaluating potential acquisitions, we consider:
    population growth, cost of alternative housing, overall potential for economic growth and the tax and regulatory environment of the community in which the property is located,
 
    geographic location, including proximity to our existing communities which can deliver significant economies of scale,
 
    construction quality, condition and design of the community,
 
    current and projected cash flow of the property and the ability to increase cash flow,
 
    potential for capital appreciation of the property,
 
    ability to increase the value and profitability of the property through upgrades and repositioning,
 
    terms of resident leases, including the potential for rent increases,
 
    occupancy and demand by residents for properties of a similar type in the vicinity,
 
    prospects for liquidity through sale, financing, or refinancing of the property, and
 
    competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area.
     The following table summarizes our apartment acquisitions and our year-end ownership position for the past five years (dollars in thousands):
                                         
    2005   2004   2003   2002   2001
Homes acquired
    2,561       8,060       5,220       4,611       1,304  
Homes owned at December 31
    74,875       78,855       76,244       74,480       77,567  
Total real estate owned, at carrying value
  $ 5,512,424     $ 5,243,296     $ 4,351,551     $ 3,967,483     $ 3,907,667  
Dispositions
     We regularly monitor and adjust our assets to increase portfolio profitability. During 2005, we sold over 6,300 of our slower growing, non-core apartment homes while exiting some markets in an effort to increase the quality and

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performance of our portfolio. Proceeds from the disposition program were used primarily to reduce debt and fund acquisitions.
     Factors we consider in deciding whether to dispose of a property include:
    current market price for an asset compared to projected economics for that asset,
 
    potential increases in new construction in the market area,
 
    areas where the economy is not expected to grow substantially, and
 
    markets where we do not intend to establish long-term concentration.
     At December 31, 2005, there were four communities with a total of 384 condominiums and two parcels of land classified as real estate held for disposition. We are in the market for replacement properties that will correspond with our expected sales activity to prevent dilution to earnings.
Upgrading and Development Activities
     During 2005, we continued to reposition properties in targeted markets where there was an opportunity to add value and achieve greater than inflationary increases in rents over the long term. In 2005, we spent $49.3 million on five development projects that are expected to be completed in 2006 and 2007. Revenue enhancing capital expenditures, including kitchen and bath renovations, and other extensive interior upgrades totaled $98.6 million or $1,302 per home for the year ended December 31, 2005. In addition, we spent $18.7 million on major renovation projects that included major structural changes and/or architectural revisions to existing buildings and the wiring and/or re-plumbing of an entire building.
     The following wholly owned projects were under development as of December 31, 2005:
                                                 
    Number of     Completed     Cost to     Budgeted     Estimated     Expected  
    Apartment     Apartment     Date     Cost     Cost     Completion  
    Homes     Homes     (In thousands)     (In thousands)     Per Home     Date  
Verano at Town Square
    414       66     $ 55,653     $ 66,300     $ 160,100       1Q06  
Rancho Cucamonga, CA
                                               
Mandalay on the Lake
    369             26,339       30,900       83,700       2Q06  
Irving, TX
                                               
2000 Post — Phase III
    24             4,835       9,000       375,000       2Q06  
San Francisco, CA
                                               
Ridgeview
    225             6,883       18,000       80,000       1Q07  
Plano, TX
                                               
Lincoln Towne Square — Phase II
    303             3,007       21,000       69,300       3Q07  
Plano, TX
                                               
 
                                   
 
    1,335       66     $ 96,717     $ 145,200     $ 108,800          
 
                                     
     In addition, we owned four parcels of land held for future development aggregating $20.8 million at December 31, 2005.
Financing Activities
     As part of our plan to strengthen our capital structure, we utilized proceeds from dispositions, debt and equity offerings and refinancings to extend maturities, pay down existing debt, and acquire apartment communities. The following is a summary of our major financing activities in 2005:
  §   Repaid $133.8 million of secured debt and $70.9 million of unsecured debt, and incurred $8.5 million in prepayment penalties.

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  §   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 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, we 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.
 
  §   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 our option, can be extended for an additional year. We have 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 our current credit ratings, the credit facility carries an interest rate equal to LIBOR plus a spread of 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 we maintain an Investment Grade Rating, we have the right to bid out 100% of the commitment amount.
 
  §   Converted a $75 million variable rate debt facility to a fixed rate of 4.86% on December 1, 2005.
 
  §   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.
 
  §   Sold $250 million aggregate principal amount of our 4.00% convertible senior notes due 2035 in December 2005. We used the net proceeds of approximately $245 million to repay outstanding debt under our unsecured revolving bank credit facility and to repurchase shares of our common stock.
 
  §   Repurchased 1,069,500 shares of our common stock at an average price per share of $22.08 under our common stock repurchase program and repurchased 2,110,850 shares of our common stock at an average price per share of $23.51 in connection with the offering of our 4.00% convertible senior notes due 2035. As of December 31, 2005, approximately 1.2 million shares of common stock remained available for repurchase under the common stock repurchase program.
Markets and Competitive Conditions
     At December 31, 2005, we owned 259 apartment communities in 43 markets in 16 states. When comparing fourth quarter 2005 to the same period in the prior year, 84% of the portfolio generated positive revenue growth and 69% of the portfolio generated positive net operating income growth. We have a geographically diverse portfolio

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and we believe that this diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of our earnings.
     We believe changing demographics will have a significant impact on the apartment industry over the next two decades. In particular, we believe the annual number of young people entering the workforce and creating households will be significantly higher over the next 10 to 15 years as compared to the number who entered the workforce over the past 10 years. The number of single people and single parent households continues to grow significantly. The immigrant population is also expected to grow at an accelerated pace. Each of these population segments has a high propensity to rent.
     In many of our markets, competition for new residents is intense. Some competing communities offer features that our communities do not have. Competing communities frequently use concessions or lower rents to obtain temporary competitive advantages. Also, some competing communities are larger or newer than our communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. In addition, other real estate investors compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources, or lower capital costs, than we do.
     We believe that, in general, we are well-positioned to compete effectively for residents and investments. We believe our competitive advantages include:
  a fully integrated organization with property management, development, acquisition, marketing and financing expertise,
 
  scalable operating and support systems,
 
  purchasing power,
 
  geographic diversification with a presence in 43 markets across the country, and
 
  significant presence in many of our major markets that allows us to be a local operating expert.
     Moving forward, we will continue to emphasize aggressive lease management, improved expense control, increased resident retention efforts and the realignment of employee incentive plans tied to our bottom line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational improvement.
Communities
     At December 31, 2005, our apartment portfolio included 259 communities having a total of 74,875 completed apartment homes. In addition, we had five apartment communities under development. The overall quality of our portfolio has significantly improved since 2001 with the disposition of non-core apartment homes and our upgrade and rehabilitation program. The upgrading of the portfolio provides several key benefits related to portfolio profitability. It enables us to raise rents more significantly and to attract residents with higher levels of disposable income who are more likely to accept the transfer of expenses, such as water and sewer costs, from the landlord to the resident. In addition, it potentially reduces recurring capital expenditures per apartment home, and therefore increases cash flow.

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Same Communities
     For 2005, same community property operating income increased 3.4% or $10.3 million compared to 2004. The increase in property operating income was primarily attributable to a 3.8% or $18.6 million increase in revenues from rental and other income that was partially offset by a 4.4% or $8.3 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 2.0% or $10.3 million increase in rental rates, a 20.2% or $2.9 million decrease in concession expense, a 7.5% or $2.6 million increase in utility reimbursement income and fee income, a 7.8% or $2.5 million decrease in vacancy loss, and a 15.6% or $0.4 million decrease in bad debt expense. Physical occupancy increased 0.6% to 94.5%.
     The increase in property operating expenses was primarily driven by a 4.3% or $2.0 million increase in real estate taxes, a 3.8% or $1.9 million increase in personnel costs, a 3.8% or $1.1 million increase in utilities expense, a 2.9% or $0.9 million increase in repair and maintenance costs, a 4.7% or $0.8 million increase in administrative and marketing costs, a 46.7% or $0.7 million increase in incentive compensation, and a 5.4% or $0.5 million increase in insurance costs.
Customers
     Our upgrade and rehabilitation programs enable us to raise rents and attract residents with higher levels of disposable income who are more likely to accept the transfer of expenses, such as water and sewer costs, from the landlord to the resident. We believe this segment provides the highest profit potential in terms of rent growth, stability of occupancy and investment opportunities.
     We believe there will be a significant increase in the number of younger renters over the next 10 to 15 years, and that the immigrant population will remain a significant and growing part of the renter base. Accordingly, we plan to target some of our incremental investments to communities that will be attractive to younger households or to the immigrant populations. These communities will often be located close to where these residents work, shop and play.
Tax Matters
     We have elected to be taxed as a REIT under the Internal Revenue Code. To continue to qualify as a REIT, we must continue to meet certain tests that, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. Provided we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent such net income is distributed to our stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.
     We may utilize several taxable REIT subsidiaries to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Taxable REIT subsidiaries generally are taxable as regular corporations and therefore are subject to federal, state and local income taxes.
Inflation
     Substantially all of our leases are for a term of one year or less, which may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty. Short-term leases and relatively consistent demand allow rents, and therefore cash flow from the portfolio, to provide an attractive hedge against inflation.
Environmental Matters
     Various environmental laws govern certain aspects of the ongoing operation of our communities. Such environmental laws include those regulating the existence of asbestos-containing materials in buildings, management of surfaces with lead-based paint (and notices of residents about the lead-based paint), use of active underground petroleum storage tanks, and waste-management activities. The failure to comply with such requirements could subject us to a government enforcement action and/or claims for damages by a private party.
     To date, compliance with federal, state and local environmental protection regulations has not had a material effect on our capital expenditures, earnings or competitive position. We have a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigations and reports have been completed for each property we own. In addition, all proposed acquisitions are inspected prior to acquisition. The inspections are conducted by qualified environmental consultants, and we review the issued report prior to the purchase or development of any property. Nevertheless, it is possible that our environmental

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assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of which we are unaware. In some cases, we have abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or we have been unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large-scale abatement at any of our properties. We believe that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a conservative posture toward accepting known risk, we can minimize our exposure to potential liability associated with environmental hazards.
     Federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and imposes treble damages for failure to provide such notification. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and we may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities.
     We are unaware of any environmental hazards at any of our properties that individually or in the aggregate may have a material adverse impact on our operations or financial position. We have not been notified by any governmental authority, and we are not otherwise aware, of any material non-compliance, liability, or claim relating to environmental liabilities in connection with any of our properties. We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on us or our financial condition or results of operations. Future environmental laws, regulations, or ordinances, however, may require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed on us in the future, the costs of compliance could have a material adverse effect on us and our financial condition.
Insurance
     We carry comprehensive general liability coverage on our communities, with limits of liability customary within the industry to insure against liability claims and related defense costs. We are also insured, in all material respects, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period.
Executive Officers of the Company
     The following table sets forth information about our executive officers as of March 3, 2006. The executive officers listed below serve in their respective capacities at the discretion of our board of directors.
                     
Name   Age   Office   Since
Thomas W. Toomey
    45     Chief Executive Officer -     2001  
 
          President and Director        
 
                   
W. Mark Wallis
    55     Senior Executive Vice President     2001  
 
                   
Christopher D. Genry
    45     Executive Vice President — Corporate     2001  
 
          Strategy & Chief Financial Officer        
 
                   
Richard A. Giannotti
    50     Executive Vice President — Asset Quality     1985  
 
                   
Sara Jo Light
    60     Executive Vice President —     2005  
 
          Director of Talent Management        
 
Martha R. Carlin
    43     Executive Vice President —     2001  
 
          Director of Property Operations        

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Name   Age   Office   Since
Lester C. Boeckel
    57     Senior Vice President —     2001  
 
          Dispositions & Acquisitions        
 
                   
Patrick S. Gregory
    56     Senior Vice President —     1997  
 
          Chief Information Officer        
 
                   
Michael J. Kelly
    38     Senior Vice President —     2004  
 
          Acquisitions        
 
                   
Scott A. Shanaberger
    37     Senior Vice President —     1994  
 
          Chief Accounting Officer        
 
          & Assistant Secretary        
 
                   
Thomas A. Spangler
    45     Senior Vice President —     1998  
 
          Business Development        
 
          & Chief Risk Officer        
 
                   
Mark E. Wood
    53     Senior Vice President —     1994  
 
          Development        
 
                   
Mary Ellen Norwood
    51     Vice President —     2001  
 
          Legal Administration        
 
          & Secretary        
     Set forth below is certain biographical information about each of our executive officers.
     Mr. Toomey joined us as Chief Executive Officer, President and a director in February 2001. Prior to joining us, Mr. Toomey was with Apartment Investment and Management Company, or AIMCO, a publicly traded real estate investment trust, where he served as Chief Operating Officer for two years and Chief Financial Officer for four years. During his tenure at AIMCO, Mr. Toomey was instrumental in the growth of AIMCO from 34,000 apartment units to 360,000 units. He has also served as a Senior Vice President at Lincoln Property Company, a national real estate development, property management and real estate consulting company, from 1990 to 1995. He currently serves as a member of the board of the National Association of Real Estate Investment Trusts and the National MultiHousing Council and he serves as Co-Chairman of the Homeland Security Task Force of the Real Estate Roundtable.
     Mr. Wallis joined us in March 2001 as Senior Executive Vice President responsible for legal, acquisitions, dispositions, and development. Prior to joining us, Mr. Wallis was the President of Golden Living Communities, a company he established in 1995, involved in the development of assisted and independent living communities. Prior to founding Golden Living, Mr. Wallis was Executive Vice President of Finance and Administration of Lincoln Property Company.
     Mr. Genry joined us in March 2001 as Executive Vice President and Chief Financial Officer and was named Executive Vice President of Corporate Strategy and Chief Financial Officer in 2005. Mr. Genry had been Chief Financial Officer of Centex Construction Group, a $1 billion subsidiary of the New York Stock Exchange listed Centex Corporation. As Chief Financial Officer, he provided strategic leadership in the development and management of all financial and information systems, the redesign and oversight of internal audit functions, and the identification and evaluation of acquisition opportunities. Prior to joining Centex, he was with Arthur Andersen & Co. in Dallas.
     Mr. Giannotti joined us as Director of Development and Construction in September 1985. He was elected Assistant Vice President in 1988, Vice President in 1989, and Senior Vice President in 1996. In 1998, Mr. Giannotti was elected Director of Development-East, and was promoted to Executive Vice President — Asset Quality in 2003.

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     Ms. Light joined us in 2005 as Executive Vice President and Director of Talent Management. Prior to joining us, Ms. Light was the Senior Vice President and Director of Human Resources at Taubman Centers, Inc., one of the pre-eminent retail developers/owners/managers in the United States. Prior to joining Taubman, Ms. Light had over 20 years of human resource experience with various firms both in the United States and abroad.
     Ms. Carlin joined us in March 2001 as a Senior Vice President responsible for operational efficiencies and revenue enhancement. She was promoted to Senior Vice President, Director of Property Operations in 2004 and to Executive Vice President, Director of Property Operations in 2005. Ms. Carlin was previously Senior Vice President of Operations for opsXchange, Inc., a real estate procurement technology developer. Previously, she served as Senior Vice President of Ancillary Services at AIMCO and as a member of Arthur Andersen’s Real Estate Services Group.
     Mr. Boeckel joined us in July 2001 as Vice President of Dispositions and Acquisitions and was promoted to Senior Vice President in February 2002. Prior to joining United Dominion, Mr. Boeckel was the Senior Vice President of Asset Management at AIMCO. Before becoming the Senior Vice President of Asset Management, Mr. Boeckel was a Regional Vice President with operating responsibility for a portfolio of 12,000 apartment homes. Prior to joining AIMCO, Mr. Boeckel had over ten years of real estate experience with various firms including a regional investment banking firm, a regional financial planning firm, and a national apartment syndication firm.
     Mr. Gregory joined us in 1997 as Vice President and Chief Information Officer and was promoted to Senior Vice President in 1999. From 1976 to 1997, Mr. Gregory was employed by Crestar Bank as a New Technology Analyst.
     Mr. Kelly joined us in 2003 as Senior Vice President, Acquisitions. Prior to joining United Dominion, Mr. Kelly was Senior Vice President in charge of national apartment acquisitions for Urdang & Associates, a Philadelphia based pension fund advisor. During his tenure, he purchased over 4,100 units. Prior to Urdang, Mr. Kelly was a Principal with Lend Lease focusing on national apartment acquisitions. From 1993 to 1998, Mr. Kelly was Vice President and part owner of Apartment Realty Advisors, an apartment brokerage company.
     Mr. Shanaberger joined us in 1994 as an Accounting Manager and was promoted to Assistant Vice President and Assistant Treasurer in 1997. In 2000, Mr. Shanaberger was promoted to Vice President Corporate Controller and Chief Accounting Officer and was promoted to Senior Vice President in 2002. Prior to joining United Dominion, Mr. Shanaberger was employed by Ernst & Young LLP.
     Mr. Spangler joined us as Assistant Vice President, Operational Planning and Asset Management in August 1998 and was promoted to Vice President, Director of Operational Planning and Asset Management that same year. Mr. Spangler was promoted to Senior Vice President, Business Development in February 2003, and Chief Risk Officer in September 2003. Prior to joining United Dominion, Mr. Spangler was an Asset Manager for Summit Enterprises, Inc. of Virginia, a private investment management firm for nine years.
     Mr. Wood joined us as Vice President of Construction in connection with the merger of SouthWest in 1996. He was promoted to Senior Vice President and Director of Development-West in 2000.
     Ms. Norwood joined us in 2001 as Vice President, Legal Administration and Secretary. Prior to joining us, Ms. Norwood was employed by Centex Corporation for 15 years, most recently as its Legal Administrator. Centex is a New York Stock Exchange listed company that operates in the home building, financial services, construction products, construction services, and investment real estate business segments.

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Available Information
     We file electronically with the Securities and Exchange Commission our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports on the day of filing with the SEC on our website at www.udrt.com, or by sending an e-mail message to ir@udrt.com.
NYSE Certification
     On June 1, 2005, our Chief Executive Officer submitted to the New York Stock Exchange the annual certification required by Section 303A.12(a) of the NYSE Listed Company Manual regarding our compliance with NYSE corporate governance listing standards. In addition, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2, respectively, to this Annual Report on Form 10-K for the year ended December 31, 2005.
Item 1A. RISK FACTORS
     There are many factors that affect our business and our results of operations, some of which are beyond our control. The following is a description of important factors that may cause our actual results of operations in future periods to differ materially from those currently expected or desired.
     Unfavorable Changes in Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels and Rental Rates. Market and economic conditions in the metropolitan areas in which we operate may significantly affect our occupancy levels and rental rates and, therefore, our profitability. Factors that may adversely affect these conditions include the following:
    a reduction in jobs and other local economic downturns,
 
    declines in mortgage interest rates, making alternative housing more affordable,
 
    government or builder incentives which enable first time homebuyers to put little or no money down, making alternative housing decisions easier to make,
 
    oversupply of, or reduced demand for, apartment homes,
 
    declines in household formation, and
 
    rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs.
     The strength of the United States economy has become increasingly susceptible to global events and threats of terrorism. At the same time, productivity enhancements and the increased exportation of labor have resulted in limited job growth despite an improving economy. Continued weakness in job creation, or any worsening of current economic conditions, generally and in our principal market areas, could have a material adverse effect on our occupancy levels, our rental rates and our ability to strategically acquire and dispose of apartment communities. This may impair our ability to satisfy our financial obligations and pay distributions to our stockholders.
     New Acquisitions, Developments and Condominium Projects May Not Achieve Anticipated Results. We intend to continue to selectively acquire apartment communities that meet our investment criteria and to develop apartment communities for rental operations, to convert properties into condominiums and to develop condominium projects. Our acquisition, development and condominium activities and their success are subject to the following risks:
    •   an acquired community may fail to perform as we expected in analyzing our investment, or a significant exposure related to the acquired property may go undetected during our due diligence procedures,

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    •   when we acquire an apartment community, we often invest additional amounts in it with the intention of increasing profitability. These additional investments may not produce the anticipated improvements in profitability,
 
    •   new developments may not achieve pro forma rents or occupancy levels, or problems with construction or local building codes may delay initial occupancy dates for all or a portion of a development community, and
 
    •   an over supply of condominiums in a given market may cause a decrease in the prices at which we expect to sell condominium properties.
     Possible Difficulty of Selling Apartment Communities Could Limit Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but market conditions could change and purchasers may not be willing to pay prices acceptable to us. A weak market may limit our ability to change our portfolio promptly in response to changing economic conditions. Furthermore, a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify as like-kind exchanges under Section 1031 of the Internal Revenue Code, so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash flow generated from our property sales. In addition, federal tax laws limit our ability to profit on the sale of communities that we have owned for fewer than four years, and this limitation may prevent us from selling communities when market conditions are favorable.
     Increased Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents. Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents.
     Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk. We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow will be insufficient to make required payments of principal and interest, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. Sufficient cash flow may not be available to make all required principal payments and still satisfy our distribution requirements to maintain our status as a REIT for federal income tax purposes, and the full limits of our line of credit may not be available to us if our operating performance falls outside the constraints of our debt covenants. Additionally, we are likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise not choose to do so.
     Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Stockholders. If our apartment communities do not generate sufficient net rental income to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to our stockholders will be adversely affected. The following factors, among others, may affect the net rental income generated by our apartment communities:
    •   the national and local economies,
 
    •   local real estate market conditions, such as an oversupply of apartment homes,
 
    •   tenants’ perceptions of the safety, convenience, and attractiveness of our communities and the neighborhoods where they are located,
 
    •   our ability to provide adequate management, maintenance and insurance, and
 
    •   rental expenses, including real estate taxes and utilities.
     Expenses associated with our investment in a community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from that

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community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgage holder.
     Debt Level May Be Increased. Our current debt policy does not contain any limitations on the level of debt that we may incur, although our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt.
     Financing May Not Be Available and Could be Dilutive. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Debt or equity financing may not be available in sufficient amounts, or on favorable terms or at all. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted.
     Development and Construction Risks Could Impact Our Profitability. We intend to continue to develop and construct apartment communities. Development activities may be conducted through wholly owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities may be exposed to the following risks:
    •   we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased development costs and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations,
 
    •   if we are unable to find joint venture partners to help fund the development of a community or otherwise obtain acceptable financing for the developments, our development capacity may be limited,
 
    •   we may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring such opportunities,
 
    •   we may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs,
 
    •   occupancy rates and rents at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our profitability goals for that community, and
 
    •   when we sell to third parties homes or properties that we developed or renovated, we may be subject to warranty or construction defect claims that are uninsured or exceed the limits of our insurance.
     Construction costs have been increasing in our existing markets, and the costs of upgrading acquired communities have, in some cases, exceeded our original estimates. We may experience similar cost increases in the future. Our inability to charge rents that will be sufficient to offset the effects of any increases in these costs may impair our profitability.
     Failure to Succeed in New Markets May Limit Our Growth. We may from time to time make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets, and we may not be able to operate successfully in new markets. These risks include, among others:
    •   inability to accurately evaluate local apartment market conditions and local economies,

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    •   inability to obtain land for development or to identify appropriate acquisition opportunities,
 
    •   inability to hire and retain key personnel, and
 
    •   lack of familiarity with local governmental and permitting procedures.
     Changing Interest Rates Could Increase Interest Costs and Adversely Affect Our Cash Flow and the Market Price of Our Securities. We currently have, and expect to incur in the future, interest-bearing debt at rates that vary with market interest rates. As of December 31, 2005, we had approximately $578 million of variable rate indebtedness outstanding, which constitutes approximately 18% of our total outstanding indebtedness as of such date. An increase in interest rates would increase our interest expenses to the extent our variable rate debt is not hedged effectively, and it would increase the costs of refinancing existing indebtedness and of issuing new debt. Accordingly, higher interest rates could adversely affect cash flow and our ability to service our debt and to make distributions to security holders. In addition, an increase in market interest rates may lead our security holders to demand a higher annual yield, which could adversely affect the market price of our common and preferred stock and debt securities.
     Limited Investment Opportunities Could Adversely Affect Our Growth. We expect that other real estate investors will compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources than we do. As a result, we may not be able to make attractive investments on favorable terms, which could adversely affect our growth.
     Failure to Integrate Acquired Communities and New Personnel Could Create Inefficiencies. To grow successfully, we must be able to apply our experience in managing our existing portfolio of apartment communities to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability.
     Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges. From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the terms of new debt securities are not within the parameters of, or market interest rates fall below that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges.
     Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property.
     We Would Incur Adverse Tax Consequences if We Fail to Qualify as a REIT. We have elected to be taxed as a REIT under the Internal Revenue Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method of operation enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect our stockholders.

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     If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to our stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year in which we first failed to qualify. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to our stockholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.
     We May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which are Subject to Certain Tax Risks. We have established several taxable REIT subsidiaries. Despite our qualification as a REIT, our taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected.
     Certain Property Transfers May Generate Prohibited Transaction Income, Resulting in a Penalty Tax on Gain Attributable to the Transaction. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Internal Revenue Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.
     Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in Our Stockholders’ Best Interests. Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66 2/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote.
     Limitations on Share Ownership and Limitations on the Ability of Our Stockholders to Effect a Change in Control of Our Company May Prevent Takeovers That are Beneficial to Our Stockholders. One of the requirements for maintenance of our qualification as a REIT for federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Internal Revenue Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to our stock primarily to assist us in complying with this requirement. These restrictions include a provision that generally limits a person from beneficially owning or constructively owning shares of our outstanding equity stock in excess of a 9.9% ownership interest, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our

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outstanding equity stock. These provisions may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for our stockholders or might otherwise be in our stockholders’ best interests.
     Under the terms of our shareholder rights plan, our board of directors can, in effect, prevent a person or group from acquiring more than 15% of the outstanding shares of our common stock. Unless our board of directors approves the person’s purchase, after that person acquires more than 15% of our outstanding common stock, all other stockholders will have the right to purchase securities from us at a price that is less than their then fair market value. Purchases by other stockholders would substantially reduce the value and influence of the shares of our common stock owned by the acquiring person. Our board of directors, however, can prevent the shareholder rights plan from operating in this manner. This gives our board of directors significant discretion to approve or disapprove a person’s efforts to acquire a large interest in us.
Item 1B. UNRESOLVED STAFF COMMENTS
     None.

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Item 2. PROPERTIES
     At December 31, 2005, our apartment portfolio included 259 communities located in 43 markets, with a total of 74,875 completed apartment homes. In addition, we had five apartment communities under development. We own approximately 53,000 square feet of office space in Richmond, Virginia, for our corporate offices and we lease approximately 11,000 square feet of office space in Highlands Ranch, Colorado, for our principal executive offices. The table below sets forth a summary of our real estate portfolio by geographic market at December 31, 2005.
SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2005
                                                                                 
                                                                    Total        
                                                            Collections     Income     Average  
    Number of     Number of     Percentage of     Carrying                             per     per     Home Size  
    Apartment     Apartment     Carrying     Value     Encumbrances     Cost Per     Physical     Occupied     Occupied     (Square  
    Communities     Homes     Value     (in thousands)     (in thousands)     Home     Occupancy     Home (a)     Home (b)     Feet)  
MID-ATLANTIC REGION
                                                                               
Metropolitan DC
    8       2,487       4.6 %   $ 253,914     $ 30,691     $ 102,097       93.0 %   $ 1,052     $ 1,168       925  
Raleigh, NC
    11       3,663       4.0 %     218,931       63,752       59,768       93.6 %     644       671       957  
Baltimore, MD
    10       2,118       3.1 %     169,951       13,286       80,241       96.3 %     959       994       925  
Richmond, VA
    9       2,636       2.8 %     156,903       61,532       59,523       93.5 %     835       821       1,109  
Greensboro, NC
    8       2,123       2.0 %     110,713             52,149       92.7 %     581       603       981  
Charlotte, NC
    7       1,686       2.0 %     110,229             65,379       94.5 %     655       685       1,024  
Wilmington, NC
    6       1,868       1.8 %     98,512             52,737       96.3 %     691       716       952  
Norfolk, VA
    6       1,438       1.3 %     68,968       9,117       47,961       95.3 %     823       866       1,016  
Other North Carolina
    8       1,893       1.5 %     81,159       13,320       42,873       93.9 %     620       648       895  
Other Mid-Atlantic
    6       1,156       1.1 %     61,200       16,770       52,941       94.9 %     839       876       922  
Other Virginia
    3       820       0.9 %     48,888       19,462       59,620       93.6 %     975       1,004       942  
 
                                                                               
WESTERN REGION
                                                                               
Southern California
    26       7,018       19.3 %     1,062,700       230,292       151,425       93.7 %     1,194       1,262       840  
Northern California
    10       2,689       6.5 %     356,640       67,354       132,629       94.5 %     957       1,220       798  
Seattle, WA
    8       1,984       3.0 %     167,657       68,452       84,505       93.4 %     719       823       905  
Monterey Peninsula, CA
    7       1,568       2.6 %     140,507             89,609       91.8 %     915       931       724  
Portland, OR
    6       1,422       1.6 %     89,099       17,790       62,658       93.7 %     693       691       882  
 
                                                                               
SOUTHEASTERN REGION
                                                                               
Tampa, FL
    12       4,306       4.7 %     259,936       61,749       60,366       93.7 %     796       844       978  
Orlando, FL
    14       4,140       4.2 %     230,968       69,311       55,789       95.8 %     767       792       937  
Nashville, TN
    9       2,580       2.8 %     156,721       28,976       60,745       95.0 %     695       722       950  
Jacksonville, FL
    4       1,557       1.9 %     103,277             66,331       95.2 %     658       786       913  
Atlanta, GA
    6       1,426       1.4 %     78,116       18,558       54,780       92.8 %     622       668       908  
Columbia, SC
    6       1,584       1.2 %     67,911             42,873       95.3 %     611       641       838  
Other Florida
    6       1,737       2.2 %     118,984       44,873       68,500       96.3 %     835       884       944  
Other Southeastern
    2       798       0.8 %     41,610             52,143       94.9 %     512       527       811  
 
                                                                               
SOUTHWESTERN REGION
                                                                               
Houston, TX
    16       5,447       4.6 %     253,408       39,604       46,522       93.7 %     624       650       811  
Phoenix, AZ
    6       1,567       2.0 %     108,881       37,081       69,484       89.3 %     775       789       972  
Arlington, TX
    7       2,156       1.9 %     104,796       18,375       48,607       94.5 %     614       646       794  
Denver, CO
    3       1,484       1.8 %     100,142             67,481       91.5 %     637       674       938  
Dallas, TX
    4       1,383       1.7 %     96,208       51,971       69,565       96.2 %     761       787       900  
Austin, TX
    5       1,425       1.5 %     83,484       6,073       58,585       95.7 %     653       678       805  
Other Southwestern
    10       3,676       3.6 %     200,980       53,558       54,674       94.9 %     647       679       842  
 
                                                                               
MIDWESTERN REGION
                                                                               
Columbus, OH
    6       2,530       2.9 %     160,093       39,278       63,278       92.6 %     675       709       904  
Other Midwestern
    3       444       0.4 %     23,980       5,985       54,009       92.9 %     694       736       955  
 
                                                                               
Real Estate Under Development
    1       66       1.8 %     96,717       25,325       n/a       n/a       n/a       n/a       n/a  
Land
    n/a       n/a       0.4 %     24,774       n/a       n/a       n/a       n/a       n/a       n/a  
 
                                                           
Total Apartments (c)
    259       74,875       99.9 %   $ 5,506,957     $ 1,112,535     $ 73,549       94.1 %   $ 777     $ 820       903  
 
                                                           
 
                                                                               
Commercial Property
    n/a       n/a       0.1 %     3,255             n/a       n/a       n/a       n/a       n/a  
Richmond — Corporate
    n/a       n/a       0.0 %     2,212       3,724       n/a       n/a       n/a       n/a       n/a  
 
                                                           
Total Real Estate Owned
    259       74,875       100.0 %   $ 5,512,424     $ 1,116,259     $ 73,549       94.1 %   $ 777     $ 820       903  
 
                                                           
 
(a)   Collections per Occupied Home represents net rental and fee income, excluding utility reimbursements, per weighted average number of homes occupied.
(b)   Total Income per Occupied Home represents total revenues per weighted average number of homes occupied.
(c)   Includes real estate held for disposition, real estate under development, and land, but excludes commercial property.

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Item 3. LEGAL PROCEEDINGS
     We are subject to various legal proceedings and claims arising in the ordinary course of business. We cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. We believe 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     No matters were submitted to a vote of our security holders during the fourth quarter of the year ended December 31, 2005.
PART II
Item 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
     Our common stock is traded on the New York Stock Exchange under the symbol “UDR.” The following tables set forth the quarterly high and low sale prices per common share reported on the NYSE for each quarter of the last two fiscal years. Distribution information for common stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month.
                         
    High   Low   Distributions Declared
2005
                       
1st Quarter
  $ 24.75     $ 20.55     $ .3000  
2nd Quarter
    24.15       20.57       .3000  
3rd Quarter
    25.97       22.70       .3000  
4th Quarter
    23.97       20.88       .3000  
 
                       
2004
                       
1st Quarter
  $ 19.70     $ 17.85     $ .2925  
2nd Quarter
    19.99       17.10       .2925  
3rd Quarter
    21.38       18.83       .2925  
4th Quarter
    24.80       19.51       .2925  
     On February 24, 2006, the closing sale price of our common stock was $26.86 per share on the NYSE and there were 6,328 holders of record of the 134,286,524 outstanding shares of our common stock.
     We have determined that, for federal income tax purposes, approximately 53% of the distributions for each of the four quarters of 2005 represented ordinary income, 18% represented long-term capital gain, 11% represented unrecaptured section 1250 gain, and 18% represented return of capital to our stockholders.
     We pay regular quarterly distributions to holders of shares of our common stock. Future distributions will be at the discretion of our board of directors and will depend on our actual funds from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, and other factors. The annual distribution payment for calendar year 2005 necessary for us to maintain our status as a REIT was approximately $0.57 per share. We declared total distributions of $1.20 per share of common stock for 2005.
Series E Preferred Stock
     The Series E Cumulative Convertible Preferred Stock has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into one share of our common stock. The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any

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meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption.
     Distributions declared on the Series E in 2005 were $1.33 per share or $0.3322 per quarter. The Series E is not listed on any exchange. At December 31, 2005 a total of 2,803,812 shares of the Series E were outstanding.
Series F Preferred Stock
     We are authorized to issue up to 20,000,000 shares of our Series F Preferred Stock. Our Series F Preferred Stock may be purchased by holders of our operating partnership units, or OP Units, described below under “Operating Partnership Units,” at a purchase price of $0.0001 per share. OP Unitholders are entitled to subscribe for and purchase one share of our Series F Preferred Stock for each OP Unit held. As of February 24, 2006, we have not issued any shares of our Series F Preferred Stock. If we issue shares of our Series F Preferred Stock, the holders thereof will be entitled to one vote for each share of the Series F Preferred Stock they hold, voting together with the holders of our common stock, on each matter submitted to a vote of securityholders at a meeting of our stockholders. The Series F Preferred Stock does not entitle its holders to any other rights, privileges or preferences.
Dividend Reinvestment and Stock Purchase Plan
     We have a Dividend Reinvestment and Stock Purchase Plan under which holders of our common stock and our Series B Cumulative Redeemable Preferred Stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of our common stock. Stockholders who do not participate in the plan continue to receive dividends as declared. As of February 24, 2006, there were 3,547 participants in the plan.
Operating Partnership Units
     From time to time we issue shares of our common stock in exchange for OP Units tendered to our operating partnerships, United Dominion Realty, L.P. and Heritage Communities L.P., for redemption in accordance with the provisions of their respective partnership agreements. At December 31, 2005, there were 10,177,792 OP Units (of which 1,764,662 are owned by the holders of the Series A OPPS (see Note 1 in the Notes to Consolidated Financial Statements)) and 338,628 OP Units in United Dominion Realty, L.P. and Heritage Communities L.P., respectively, that were owned by limited partners. The holder of the OP Units has the right to require United Dominion Realty, L.P. to redeem all or a portion of the OP Units held by the holder in exchange for a cash payment based on the market value of our common stock at the time of redemption. However, United Dominion Realty, L.P.’s obligation to pay the cash amount is subject to the prior right of the company to acquire such OP Units in exchange for either the cash amount or shares of our common stock. Heritage Communities L.P. OP Units are convertible into common stock in lieu of cash, at our option, once the holder elects to convert, at an exchange ratio of 1.575 shares for each OP Unit. During 2005, we issued a total of 99,573 shares of common stock in exchange for OP Units.

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Purchases of Equity Securities
     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 common stock. On December 5, 2000, our board of directors authorized the purchase of up to an additional 5.5 million shares of common stock in open market transactions, in block purchases or otherwise. As of December 31, 2005, we have repurchased a total of 9,526,263 shares of common stock under this program. We repurchased a total of 1,069,500 shares of our common stock under this program during the quarter ended December 31, 2005. In addition, we repurchased 2,110,850 shares of our common stock in December 2005 at an average purchase price per share of $23.51 in connection with our offering of $250 million aggregate principal amount of our 4.00% convertible senior notes due 2035. We will not repurchase any additional shares of common stock in connection with the notes offering. Information regarding the offering of our 4.00% convertible senior notes due 2035 and the repurchase of our common stock in connection with the offering is set forth in our Current Report on Form 8-K dated December 13, 2005, and filed with the SEC on December 19, 2005, and our Current Report on Form 8-K dated and filed with the SEC on December 23, 2005.
     The following table sets forth certain information regarding our common stock repurchases during the quarter ended December 31, 2005:
                                 
                    Total Number of Shares   Maximum Number of
    Total Number   Average   Purchased as Part of   Shares that May Yet Be
    of Shares   Price Per   Publicly Announced   Purchased Under the
Period   Purchased   Share   Plans or Programs   Plans or Programs
October 1, 2005 through October 31, 2005
    398,500     $ 21.58       398,500       1,851,737  
November 1, 2005 through November 30, 2005
    378,000     $ 21.72       378,000       1,473,737  
December 1, 2005 through December 31, 2005
    2,403,850     $ 23.48       2,403,850       1,180,737
 
                               
Total
    3,180,350     $ 23.03       3,180,350          
 
                               
 
     * This number reflects the number of shares that were available for purchase under our repurchase program on December 31, 2005. On February 10, 2006, our board of directors authorized a repurchase program pursuant to which we may repurchase up to a total of 10,000,000 shares of our common stock in open market purchases, block purchases, privately negotiated transactions or otherwise. This repurchase program replaces our previous repurchase program discussed above.
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Item 6. SELECTED FINANCIAL DATA
     The following table sets forth selected consolidated financial and other information as of and for each of the years in the five-year period ended December 31, 2005. The table should be read in conjunction with our consolidated financial statements and the notes thereto, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report.
                                         
    Years ended December 31,
    2005   2004   2003   2002   2001
    (in thousands, except per share data and apartment homes owned)
Operating Data (a)
                                       
Rental income
  $ 680,553     $ 572,408     $ 509,555     $ 487,129     $ 453,215  
Income/(loss) before minority interests and discontinued operations
    18,590       24,548       23,305       (15,289 )     1,773  
Income from discontinued operations, net of minority interests
    136,864       72,731       46,216       67,214       59,904  
Net income
    155,166       97,152       70,404       53,229       61,828  
Distributions to preferred stockholders
    15,370       19,531       26,326       27,424       31,190  
Net income available to common stockholders
    139,796       71,892       24,807       25,805       27,142  
Common distributions declared
    163,690       152,203       134,876       118,888       108,956  
Weighted average number of common shares outstanding — basic
    136,143       128,097       114,672       106,078       100,339  
Weighted average number of common shares outstanding — diluted
    137,013       128,097       114,672       106,078       100,339  
Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted
    150,141       145,842       136,975       127,838       120,728  
Per share — basic:
                                       
Income/(loss) from continuing operations available to common stockholders, net of minority interests
  $ 0.02     $ (0.01 )   $ (0.18 )   $ (0.39 )   $ (0.33 )
Income from discontinued operations, net of minority interests
    1.01       0.57       0.40       0.63       0.60  
Net income available to common stockholders
    1.03       0.56       0.22       0.24       0.27  
Per share — diluted:
                                       
Income/(loss) from continuing operations available to common stockholders, net of minority interests
  $ 0.02     $ (0.01 )   $ (0.18 )   $ (0.39 )   $ (0.33 )
Income from discontinued operations, net of minority interests
    1.00       0.57       0.40       0.63       0.60  
Net income available to common stockholders
    1.02       0.56       0.22       0.24       0.27  
Common distributions declared
    1.20       1.17       1.14       1.11       1.08  
Balance Sheet Data
                                       
Real estate owned, at carrying value
  $ 5,512,424     $ 5,243,296     $ 4,351,551     $ 3,967,483     $ 3,907,667  
Accumulated depreciation
    1,123,829       1,007,887       896,630       748,733       646,366  
Total real estate owned, net of accumulated depreciation
    4,388,595       4,235,409       3,454,921       3,218,750       3,261,301  
Total assets
    4,541,593       4,332,001       3,543,643       3,276,136       3,348,091  
Secured debt
    1,116,259       1,197,924       1,018,028       1,015,740       974,177  
Unsecured debt
    2,043,518       1,682,058       1,114,009       1,041,900       1,090,020  
Total debt
    3,159,777       2,879,982       2,132,037       2,057,640       2,064,197  
Stockholders’ equity
    1,107,724       1,195,451       1,163,436       1,001,271       1,042,725  
Number of common shares outstanding
    134,012       136,430       127,295       106,605       103,133  
Other Data
                                       
Cash Flow Data
                                       
Cash provided by operating activities
  $ 248,186     $ 251,747     $ 234,945     $ 229,001     $ 224,411  
Cash used in investing activities
    (219,017 )     (595,966 )     (304,217 )     (67,363 )     (64,055 )
Cash (used in)/provided by financing activities
    (21,530 )     347,299       70,944       (163,127 )     (166,020 )
 
                                       
Funds from Operations (b)
                                       
Funds from operations — basic
  $ 238,254     $ 211,670     $ 193,750     $ 153,016     $ 159,202  
Funds from operations — diluted
    241,980       219,557       208,431       168,795       174,630  
 
                                       
Apartment Homes Owned
                                       
Total apartment homes owned at December 31
    74,875       78,855       76,244       74,480       77,567  
Weighted average number of apartment homes owned during the year
    76,069       76,873       74,550       76,567       76,487  
 
(a)   Reclassified to conform to current year presentation in accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as described in Note 3 to the consolidated financial statements.
 
(b)   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 depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in April 2002. We consider FFO in evaluating property acquisitions and our operating performance and believe that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of our activities in accordance with generally accepted accounting principles. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For 2005, FFO includes $2.5 million of hurricane related insurance recoveries. For 2004, FFO includes a charge of $5.5 million to cover hurricane related expenses. For 2001, FFO includes a charge of $8.6 million related to workforce reductions, other severance costs, executive office relocation costs, and the write down of seven undeveloped land sites along with our investment in an online apartment leasing company. For the years ended December 31, 2004 and 2003, distributions to preferred stockholders exclude $5.7 million and $19.3 million, respectively, related to premiums on preferred stock conversions.

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Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
     This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of United Dominion Realty Trust, Inc. to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.
Business Overview
     We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages 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.

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     At December 31, 2005, our portfolio included 259 communities with 74,875 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):
                                                 
                                    Year Ended  
    As of December 31, 2005     December 31, 2005  
    Number of     Number of     Percentage of     Carrying     Average     Total  
    Apartment     Apartment     Carrying     Value     Physical     Income per  
    Communities     Homes     Value     (in thousands)     Occupancy     Occupied Home (a)  
MID-ATLANTIC REGION
                                               
Metropolitan DC
    8       2,487       4.6 %   $ 253,914       93.0 %   $ 1,168  
Raleigh, NC
    11       3,663       4.0 %     218,931       93.6 %     671  
Baltimore, MD
    10       2,118       3.1 %     169,951       96.3 %     994  
Richmond, VA
    9       2,636       2.8 %     156,903       93.5 %     821  
Greensboro, NC
    8       2,123       2.0 %     110,713       92.7 %     603  
Charlotte, NC
    7       1,686       2.0 %     110,229       94.5 %     685  
Wilmington, NC
    6       1,868       1.8 %     98,512       96.3 %     716  
Norfolk, VA
    6       1,438       1.3 %     68,968       95.3 %     866  
Other North Carolina
    8       1,893       1.5 %     81,159       93.9 %     648  
Other Mid-Atlantic
    6       1,156       1.1 %     61,200       94.9 %     876  
Other Virginia
    3       820       0.9 %     48,888       93.6 %     1,004  
 
                                               
WESTERN REGION
                                               
Southern California
    26       7,018       19.3 %     1,062,700       93.7 %     1,262  
Northern California
    10       2,689       6.5 %     356,640       94.5 %     1,220  
Seattle, WA
    8       1,984       3.0 %     167,657       93.4 %     823  
Monterey Peninsula, CA
    7       1,568       2.7 %     140,507       91.8 %     931  
Portland, OR
    6       1,422       1.6 %     89,099       93.7 %     691  
 
                                               
SOUTHEASTERN REGION
                                               
Tampa, FL
    12       4,306       4.7 %     259,936       93.7 %     844  
Orlando, FL
    14       4,140       4.2 %     230,968       95.8 %     792  
Nashville, TN
    9       2,580       2.8 %     156,721       95.0 %     722  
Jacksonville, FL
    4       1,557       1.9 %     103,277       95.2 %     786  
Atlanta, GA
    6       1,426       1.4 %     78,116       92.8 %     668  
Columbia, SC
    6       1,584       1.2 %     67,911       95.3 %     641  
Other Florida
    6       1,737       2.2 %     118,984       96.3 %     884  
Other Southeastern
    2       798       0.8 %     41,610       94.9 %     527  
 
                                               
SOUTHWESTERN REGION
                                               
Houston, TX
    16       5,447       4.6 %     253,408       93.7 %     650  
Phoenix, AZ
    6       1,567       2.0 %     108,881       89.3 %     789  
Arlington, TX
    7       2,156       1.9 %     104,796       94.5 %     646  
Denver, CO
    3       1,484       1.8 %     100,142       91.5 %     674  
Dallas, TX
    4       1,383       1.7 %     96,208       96.2 %     787  
Austin, TX
    5       1,425       1.5 %     83,484       95.7 %     678  
Other Southwestern
    10       3,676       3.6 %     200,980       94.9 %     679  
 
                                               
MIDWESTERN REGION
                                               
Columbus, OH
    6       2,530       2.9 %     160,093       92.6 %     709  
Other Midwestern
    3       444       0.4 %     23,980       92.9 %     736  
 
                                               
Real Estate Under Development
    1       66       1.8 %     96,717              
Land
                0.4 %     24,774              
 
                                   
Total
    259       74,875       100.0 %   $ 5,506,957       94.1 %   $ 820  
 
                                   
 
(a)   Total Income per Occupied Home represents total revenues per weighted average number of apartment homes occupied.

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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, and the issuance of additional debt or equity securities. We believe that our net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends by the company in accordance with REIT requirements in both the short- and long-term. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations.
     We have a shelf registration statement filed with the Securities and Exchange Commission which provides for the issuance of an indeterminate amount of common stock, preferred stock, debt securities, warrants, purchase contracts and units to facilitate future financing activities in the public capital markets. This shelf registration statement replaces our previous $1.5 billion shelf registration statement. In 2005, we completed various financing activities under our previous $1.5 billion shelf registration statement. These activities are summarized in the section titled “Financing Activities” that follows. Access to capital markets is dependent on market conditions at the time of issuance.
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 2006, we have approximately $36.6 million of secured debt and $135.2 million of unsecured debt maturing and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities, the issuance of new unsecured debt securities or equity, or from disposition proceeds.
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. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.
Capital Expenditures
     In conformity with accounting principles generally accepted in the United States, we capitalize those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially

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extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.
     During 2005, $156.1 million or $2,062 per home was spent on capital expenditures for all of our communities, excluding development and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as HVAC equipment, roofs, siding, parking lots, and other non-revenue enhancing capital expenditures, which aggregated $38.8 million or $513 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, and other extensive interior upgrades totaled $98.6 million or $1,302 per home, and major renovations totaled $18.7 million or $247 per home for the year ended December 31, 2005.
     The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development and commercial properties for the periods presented:
                                                 
    Year Ended December 31,     Year Ended December 31,  
    (dollars in thousands)     (per home)  
    2005     2004     % Change     2005     2004     % Change  
Turnover capital expenditures
  $ 17,916     $ 16,863       6.2 %   $ 237     $ 220       7.7 %
Other recurring capital expenditures
    20,928       19,191       9.1 %     276       250       10.4 %
 
                                   
Total recurring capital expenditures
    38,844       36,054       7.7 %     513       470       9.2 %
 
                                               
Revenue enhancing improvements
    98,592       45,933       114.6 %     1,302       599       117.4 %
 
                                               
Major renovations
    18,686       261       7059.4 %     247       3       8133.3 %
 
                                               
 
                                   
Total capital improvements
  $ 156,122     $ 82,248       89.8 %   $ 2,062     $ 1,072       92.4 %
 
                                   
 
                                               
Repair and maintenance
    45,266       42,196       7.3 %     598       550       8.7 %
 
                                   
Total expenditures
  $ 201,388     $ 124,444       61.8 %   $ 2,660     $ 1,622       64.0 %
 
                                   
     Total capital improvements increased $73.9 million or $990 per home for the year ended December 31, 2005 compared to the same period in 2004. This increase was attributable to $18.7 million of major renovations at certain of our properties. These renovations included 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 $52.7 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 2006 are currently expected to be approximately $530 per home.
  Impairment of Long-Lived Assets
     We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair market value. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions.
  Real Estate Investment Properties
     We purchase real estate investment properties from time to time and allocate the purchase price to various components, such as land, buildings, and intangibles related to in-place leases in accordance with FASB Statement No. 141, “Business Combinations.” The purchase price is allocated based on the relative fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all

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cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period.
Statements of Cash Flow
     The following discussion explains the changes in net cash provided by operating activities and net cash used in investing and financing activities that are presented in our Consolidated Statements of Cash Flows.
  Operating Activities
     For the year ended December 31, 2005, our net cash flow provided by operating activities was $248.2 million compared to $251.7 million for 2004. During 2005, the slight decrease in cash flow from operating activities resulted primarily from a $47.2 million increase in interest expense that was primarily offset by a $9.1 million net increase in operating assets/liabilities for the period, and a $32.6 million increase in property operating results from our apartment community portfolio (see discussion under “Apartment Community Operations”).
  Investing Activities
     For the year ended December 31, 2005, net cash used in investing activities was $219.0 million compared to $596.0 million for 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
     For the year ended December 31, 2005, we acquired eight apartment communities with 2,561 apartment homes for an aggregate consideration of $390.9 million and one parcel of land for $2.9 million. For 2004, we acquired 28 apartment communities with 8,060 apartment homes for an aggregate consideration of $390.9 million and one parcel of land for $16.3 million. 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 Washington DC markets over the past two years. During 2006, 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.
     Real Estate Under Development
     Development activity is focused in core markets in which we have strong operations in place. For the year ended December 31, 2005, we invested approximately $49.3 million in development projects, an increase of $30.2 million from our 2004 level of $19.1 million.
     The following projects were under development as of December 31, 2005:
                                                 
    Number of     Completed     Cost to     Budgeted     Estimated     Expected  
    Apartment     Apartment     Date     Cost     Cost     Completion  
    Homes     Homes     (In thousands)     (In thousands)     Per Home     Date  
Verano at Town Square
Rancho Cucamonga, CA
    414       66     $ 55,653     $ 66,300     $ 160,100       1Q06  
Mandalay on the Lake
Irving, TX
    369             26,339       30,900       83,700       2Q06  
2000 Post — Phase III
San Francisco, CA
    24             4,835       9,000       375,000       2Q06  
Ridgeview
Plano, TX
    225             6,883       18,000       80,000       1Q07  
Lincoln Towne Square — Phase II
Plano, TX
    303             3,007       21,000       69,300       3Q07  
 
                                   
 
    1,335       66     $ 96,717     $ 145,200     $ 108,800          
 
                                     
     In addition, we own four parcels of land that we continue to hold for future development that had a carrying value as of December 31, 2005 of $20.8 million.

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     Disposition of Investments
     For the year ended December 31, 2005, United Dominion sold 22 communities with 6,352 apartment homes and 240 condominiums from five communities with a total of 648 condominiums for a gross consideration of $456.3 million. In addition, we sold our investment in an unconsolidated joint venture for $39.2 million and one parcel of land for $0.9 million. We recognized gains for financial reporting purposes of $143.5 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 had maturities ranging from September 2005 to July 2006. As of December 31, 2005, the outstanding balance on these notes was $59.8 million, bearing interest at 6.75%.
     For the year ended December 31, 2004, we sold 19 communities with 5,425 apartment homes for an aggregate consideration of $270.1 million. In addition, we sold 24 of 36 townhomes of a community for $7.3 million. We recognized gains for financial reporting purposes of $52.9 million on these sales. Proceeds from the sales were used primarily to reduce debt.
     During 2006, we plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital into markets that would enhance future growth rates and economies of scale. We intend to use the proceeds from 2006 dispositions to reduce debt, acquire communities, and fund development activity.
  Financing Activities
     Net cash used in financing activities during 2005 was $21.5 million compared to net cash provided by financing activities of $347.3 million 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 year ended December 31, 2005:
     §   Repaid $133.8 million of secured debt and $70.9 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

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    notes due January 2015 that were issued in November 2004, and these notes 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, we 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.
 
§   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 our option, can be extended for an additional year. We have 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 our current credit ratings, the credit facility carries an interest rate equal to LIBOR plus a spread of 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 we maintain an Investment Grade Rating, we have the right to bid out 100% of the commitment amount.
 
§   Converted a $75 million variable rate debt facility to a fixed rate of 4.86% on December 1, 2005.
 
§   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.
 
§   Sold $250 million aggregate principal amount of our 4.00% convertible senior notes due 2035 in December 2005. We used the net proceeds of approximately $245 million to repay outstanding debt under our unsecured revolving bank credit facility and to repurchase shares of our common stock.
 
§   Repurchased 1,069,500 shares of our common stock at an average price per share of $22.08 under our common stock repurchase program and repurchased 2,110,850 shares of our common stock at an average price per share of $23.51 in connection with the offering of our 4.00% convertible senior notes due 2035. As of December 31, 2005, approximately 1.2 million shares of common stock remained available for repurchase under the common stock repurchase program.
     Credit Facilities
     We have four secured revolving credit facilities with Fannie Mae with an aggregate commitment of $860 million. As of December 31, 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 $363.9 million of the funded balance fixed at a weighted average interest rate of 6.1%. The remaining balance on these facilities is currently at a weighted average variable rate of 4.7%.

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     We have a $500 million unsecured revolving credit facility that matures in May 2008 and, at our option, can be extended an additional year. We have 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 December 31, 2005, $210.8 million was outstanding under the credit facility leaving $289.2 million of unused capacity.
     The Fannie Mae credit facility and the bank revolving credit facility are subject to customary financial covenants and limitations.
     Interest Rate Risk
     We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. United Dominion does not hold financial instruments for trading or other speculative purposes, but rather issues these financial instruments to finance its portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. A large portion of our market risk is exposure to short-term interest rates from variable rate borrowings outstanding under our Fannie Mae credit facility and our bank revolving credit facility, which totaled $292.5 million and $210.8 million, respectively, at December 31, 2005. The impact on our financial statements of refinancing fixed rate debt that matured during 2005 was immaterial.
     If market interest rates for variable rate debt average 100 basis points more in 2006 than they did during 2005, our interest expense would increase, and income before taxes would decrease by $6.0 million. Comparatively, if market interest rates for variable rate debt had averaged 100 basis points more in 2005 than in 2004, our interest expense would have increased, and net income would have decreased by $7.4 million. If market rates for fixed rate debt were 100 basis points higher at December 31, 2005, the fair value of fixed rate debt would have decreased from $2.6 billion to $2.4 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 2005, the fair value of fixed rate debt would have increased from $2.6 billion to $2.7 billion.
     These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.
Funds from Operations
     Funds from operations, 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 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 and cash flow as a measure of our activities in accordance with generally accepted accounting principles. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.
     Historical cost accounting for real estate assets in accordance with generally accepted accounting principles implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance 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

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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.
     The following table outlines our FFO calculation and reconciliation to generally accepted accounting principles for the three years ended December 31, 2005 (dollars in thousands):
                         
    2005     2004     2003  
Net income
  $ 155,166     $ 97,152     $ 70,404  
 
                       
Adjustments:
                       
Distributions to preferred stockholders
    (15,370 )     (19,531 )     (26,326 )
Real estate depreciation, net of outside partners’ interest
    209,856       163,176       136,578  
Minority interests of unitholders in operating partnership
    180     (55 )     (1,497 )
Real estate depreciation related to unconsolidated entities
    311       279       196  
 
                       
Discontinued Operations:
                       
Real estate depreciation
    2,568       17,452       26,380  
Minority interests of unitholders in operating partnership
    8,550       4,898       3,144  
Net gains on the sale of depreciable property
    (139,724 )     (52,903 )     (15,941 )
Net incremental gains on the sale of condominium homes
    16,717       1,202        
Gains on the disposition of real estate developed for sale
                812  
 
                 
 
Funds from operations — basic
  $ 238,254     $ 211,670     $ 193,750  
 
                 
 
                       
Distributions to preferred stockholders — Series D and E (Convertible)
    3,726       7,887       14,681  
 
                       
 
                 
Funds from operations — diluted
  $ 241,980     $ 219,557     $ 208,431  
 
                 
 
                       
Weighted average number of common shares and OP Units outstanding — basic
    144,689       136,852       122,589  
Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted
    150,141       145,842       136,975  
     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 years ended December 31, 2004 and 2003, distributions to preferred stockholders exclude $5.7 million and $19.3 million, respectively, related to premiums on preferred stock conversions.
     Net incremental gains on the sale of condominium homes and the net incremental gain on the sale of a depreciable asset related to an unconsolidated entity are 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 condominium homes and gains/losses on the sale of depreciable assets related to an unconsolidated entity 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 years ended December 31, 2005 (shares in thousands):
                         
    2005     2004     2003  
Weighted average number of common shares and OP units outstanding — basic
    144,689       136,852       122,589  
Weighted average number of OP units outstanding
    (8,546 )     (8,755 )     (7,917 )
 
                 
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations
    136,143       128,097       114,672  
 
                 
 
                       
Weighted average number of common shares, OP units, and common stock equivalents outstanding — diluted
    150,141       145,842       136,975  
Weighted average number of OP units outstanding
    (8,546 )     (8,755 )     (7,917 )
Weighted average number of incremental shares from assumed conversion of stock options
          (897 )     (976 )
Weighted average number of Series A OPPSs outstanding
    (1,778 )     (1,791 )     (1,773 )
Weighted average number of Series D preferred stock outstanding
          (2,892 )     (10,033 )
Weighted average number of Series E preferred stock outstanding
    (2,804 )     (3,410 )     (1,604 )
 
                 
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations
    137,013       128,097       114,672  
 
                 
     FFO also does not represent cash generated from operating activities in accordance with generally accepted accounting principles, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of liquidity. Additionally, it is not necessarily indicative of cash availability to fund cash needs. A presentation of cash flow metrics based on generally accepted accounting principles is as follows (dollars in thousands):
                         
    2005   2004   2003
Net cash provided by operating activities
  $ 248,186     $ 251,747     $ 234,945  
Net cash used in investing activities
    (219,017 )     (595,966 )     (304,217 )
Net cash (used in)/provided by financing activities
    (21,530 )     347,299       70,944  
Results of Operations
     The following discussion includes the results of both continuing and discontinued operations for the periods presented.
  Net Income Available to Common Stockholders
     2005-vs.-2004
     Net income available to common stockholders was $139.8 million ($1.02 per diluted share) for the year ended December 31, 2005, compared to $71.9 million ($0.56 per diluted share) for the year ended December 31, 2004, representing an increase of $67.9 million ($0.46 per diluted share). The increase for the year ended December 31, 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:
            $90.6 million more in gains recognized from the sale of depreciable property and an unconsolidated joint venture in 2005,
            a $32.6 million increase in apartment community operating results in 2005,
            a $14.2 million increase in non-property income in 2005,

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    a $5.7 million decrease in premiums paid on preferred stock conversions in 2005,
 
    a $5.5 million charge recorded for hurricane related expenses in 2004,
 
    $4.2 million less in preferred stock distributions in 2005, and
 
    $2.5 million in hurricane related insurance recoveries in 2005.
     These increases in income were partially offset by a $38.7 million increase in interest expense, a $31.8 million increase in real estate depreciation and amortization expense, an $8.5 million increase in losses on early debt retirement, and a $5.5 million increase in general and administrative expense in 2005 when compared to 2004.
     2004-vs.-2003
     Net income available to common stockholders was $71.9 million ($0.56 per diluted share) for the year ended December 31, 2004, compared to $24.8 million ($0.22 per diluted share) for the year ended December 31, 2003, representing an increase of $47.1 million ($0.34 per diluted share). The increase for the year ended December 31, 2004, when compared to the same period in 2003, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
    $37.0 million more in gains recognized from the sale of depreciable property in 2004,
 
    a $19.2 million increase in apartment community operating results in 2004,
 
    a $13.5 million decrease in premiums paid on preferred stock conversions in 2004,
 
    $6.8 million less in preferred stock distributions in 2004,
 
    a $1.5 million increase in non-property income in 2004,
 
    $1.4 million less in impairment loss on investments in 2004, and
 
    a $1.3 million decrease in general and administrative expense in 2004.
     These increases in income were partially offset by a $17.2 million increase in depreciation and amortization expense, a $6.6 million increase in interest expense, and a charge of $5.5 million for hurricane related expenses in 2004 when compared to 2003.
Apartment Community Operations
     Our net income is primarily generated from the operation of our apartment communities. The following table summarizes the operating performance of our total apartment portfolio for each of the periods presented (dollars in thousands):
                                                 
    Year Ended December 31,     Year Ended December 31,  
    2005     2004     % Change     2004     2003     % Change  
Property rental income
  $ 700,344     $ 649,952       7.8 %   $ 649,952     $ 613,550       5.9 %
Property operating expense*
    (269,486 )     (251,697 )     7.1 %     (251,697 )     (234,478 )     7.3 %
 
                                   
Property operating income
  $ 430,858     $ 398,255       8.2 %   $ 398,255     $ 379,072       5.1 %
 
                                   
 
                                               
Weighted average number of homes
    76,069       76,873       -1.0 %     76,873       74,550       3.1 %
Physical occupancy**
    94.1 %     93.6 %     0.5 %     93.6 %     93.2 %     0.4 %
 
*   Excludes depreciation, amortization, and property management expenses. Also excludes $5.5 million of hurricane related expenses in 2004 and $2.5 million of hurricane related insurance recoveries in 2005.
 
**   Based upon weighted average stabilized units.

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     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):
                         
    2005     2004     2003  
Property operating income
  $ 430,858     $ 398,255     $ 379,072  
Commercial operating income
    1,997       512       733  
Non-property income
    16,849       2,608       1,068  
Depreciation and amortization
    (215,192 )     (184,000 )     (166,577 )
Interest
    (162,723 )     (124,087 )     (117,416 )
General and administrative and property management
    (44,128 )     (37,197 )     (37,499 )
Other operating expenses
    (1,178 )     (1,314 )     (1,265 )
Net gains on the sale of depreciable property and an unconsolidated joint venture
    143,547       52,903       15,941  
Loss on early debt retirement
    (8,483 )            
Impairment loss on real estate and investments
                (1,392 )
Hurricane related expenses
          (5,503 )      
Hurricane related insurance recoveries
    2,457              
Minority interests
    (8,838 )     (5,025 )     (2,261 )
 
                 
Net income per the Consolidated Statements of Operations
  $ 155,166     $ 97,152     $ 70,404  
 
                 
  2005-vs.-2004
  Same Communities
     Our same communities (those communities acquired, developed, and stabilized prior to September 30, 2004 and held on December 31, 2005, which consisted of 58,840 apartment homes) provided 73% of our property operating income for the year ended December 31, 2005.
     For the year ended December 31, 2005, same community property operating income increased 3.4% or $10.3 million compared to 2004. The increase in property operating income was primarily attributable to a 3.8% or $18.6 million increase in revenues from rental and other income that was partially offset by a 4.4% or $8.3 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 2.0% or $10.3 million increase in rental rates, a 20.2% or $2.9 million decrease in concession expense, a 7.5% or $2.6 million increase in utility reimbursement income and fee income, a 7.8% or $2.5 million decrease in vacancy loss, and a 15.6% or $0.4 million decrease in bad debt expense. Physical occupancy increased 0.6% to 94.5%.
     The increase in property operating expenses was primarily driven by a 4.3% or $2.0 million increase in real estate taxes, a 3.8% or $1.9 million increase in personnel costs, a 3.8% or $1.1 million increase in utilities expense, a 2.9% or $0.9 million increase in repair and maintenance costs, a 4.7% or $0.8 million increase in administrative and marketing costs, a 46.7% or $0.7 million increase in incentive compensation, and a 5.4% or $0.5 million increase in insurance costs.
     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 0.3% to 61.5%.
     Non-Mature Communities
     The remaining 27% of our property operating income during 2005 was generated from communities that we classify as “non-mature communities” (primarily those communities acquired or developed in 2003, 2004 and 2005, sold properties, and those properties classified as real estate held for disposition). The 41 communities with 12,458 apartment homes that we acquired in the fourth quarter of 2003, and in 2004 and 2005, provided $87.5 million of property operating income. The 22 communities with 6,352 apartment homes and 240 condominiums sold during 2005 provided $10.0 million of property operating income. In addition, our development communities, which included 244 apartment homes constructed since January 1, 2003, provided $0.7 million of property operating income during 2005, the four communities with a total of 384 condominiums classified as real estate held for disposition provided $0.3 million of property operating income, and other non-mature communities which includes homes that are undergoing major rehabilitation, provided $17.5

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million of property operating income for the year ended December 31, 2005.
  2004-vs.-2003
  Same Communities
     Our same communities (those communities acquired, developed, and stabilized prior to December 31, 2003 and held on December 31, 2004, which consisted of 62,497 apartment homes) provided 78% of our property operating income for the year ended December 31, 2004.
     For 2004, same community property operating income decreased 1.2% or $3.9 million compared to 2003. The overall decrease in property operating income was primarily attributable to a 0.5% or $2.3 million increase in revenues from rental and other income that was offset by a 3.2% or $6.2 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 7.7% or $2.8 million decrease in vacancy loss and a 14.3% or $2.1 million increase in utility reimbursement income. These increases in income were offset by a 0.7% or $3.6 million decrease in rental rates. Physical occupancy increased 0.8% to 93.8%.
     The increase in property operating expenses was primarily driven by a 5.4% or $2.8 million increase in personnel costs, a 4.7% or $1.5 million increase in repair and maintenance costs, a 3.5% or $1.1 million increase in utilities expense, and a 1.6% or $0.8 million increase in property taxes.
     As a result of the percentage changes in property rental income and property operating expenses, the operating margin decreased 1.0% to 61.0%.
  Non-Mature Communities
     The remaining 22% of our property operating income during 2004 was generated from communities that we classify as “non-mature communities” (primarily those communities acquired or developed during 2003 and 2004, sold properties, and those properties classified as real estate held for disposition). The 39 communities with 11,574 apartment homes that we acquired during 2003 and 2004 provided $45.8 million of property operating income. The 19 communities with 5,425 apartment homes sold during 2004 provided $14.4 million of property operating income. In addition, our development communities, which included 178 apartment homes constructed since January 1, 2003, provided $1.0 million of property operating income during 2004, the 12 communities with 2,635 apartment homes classified as real estate held for disposition provided $11.3 million of property operating income, and other non-mature communities provided $13.5 million of property operating income for the year ended December 31, 2004.
Real Estate Depreciation and Amortization
     For the year ended December 31, 2005, real estate depreciation and amortization on both continuing and discontinued operations increased $31.8 million or 17.6% compared to 2004, primarily due to the significant increase in the per home acquisition cost compared to the existing portfolio, and other capital expenditures.
     For the year ended December 31, 2004, real estate depreciation and amortization on both continuing and discontinued operations increased $17.2 million or 10.5% compared to 2003, primarily due to the overall increase in the weighted average number of apartment homes, the significant increase in the per home acquisition cost compared to the existing portfolio, and other capital expenditures.
Interest Expense
     For the year ended December 31, 2005, interest expense on both continuing and discontinued operations increased $47.2 million or 38.1% from 2004 primarily due to the issuance of debt and $8.5 million in prepayment penalties. For the year ended December 31, 2005, the weighted average amount of debt outstanding increased 30.7% or $697.4 million compared to 2004 and the weighted average interest rate increased from 5.0% to 5.3% during 2005. The weighted average amount of debt outstanding during 2005 is higher than 2004 as acquisition costs 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

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to the prior year.
     For the year ended December 31, 2004, interest expense on both continuing and discontinued operations increased $6.8 million or 5.8% from 2003 primarily due to the issuance of debt. For the year ended December 31, 2004, the weighted average amount of debt outstanding increased 21.2% or $435.9 million compared to the prior year. However, this was partially offset by the weighted average interest rate declining from 5.4% to 5.0% during 2004. The weighted average amount of debt outstanding during 2004 is higher than 2003 as acquisition costs in 2004 have been funded, in most part, by the issuance of debt. The decrease in the weighted average interest rate during 2004 reflects our ability to take advantage of lower interest rates through refinancing and the utilization of variable rate debt.
General and Administrative
     For the year ended December 31, 2005, general and administrative expenses increased $5.5 million or 28.5% over 2004 primarily as a result of an increase in personnel and incentive compensation costs, an operating lease on an airplane, compliance costs and an operations improvement initiative.
     For the year ended December 31, 2004, general and administrative expenses decreased $1.3 million or 6.4% over 2003. This decrease was primarily attributable to a decrease in investor relations, legal and consulting expenses.
Hurricane Related Expenses and Hurricane Related Insurance Recoveries
     In 2005, $2.5 million of hurricane related insurance recoveries were recorded. In 2004, we recognized a $5.5 million charge to cover expenses associated with the damage in Florida caused by hurricanes Charley, Frances, and Jeanne. United Dominion reported that 25 of its 34 Florida communities were affected by the hurricanes.
Impairment Loss on Real Estate and Investments
     In 2003, we recognized a $1.4 million charge for the write-off of our investment in Realeum, Inc., an unconsolidated development joint venture created to develop web-based solutions for multifamily property and portfolio management.
Gains on the Sale of Land, Depreciable Property and an Unconsolidated Joint Venture
     For the years ended December 31, 2005 and 2004, we recognized gains for financial reporting purposes of $143.5 million and $52.9 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period as well as the extent of gains related to specific properties sold.
Premium on Preferred Stock Conversions
     In the fourth quarter of 2004, we exercised our right to redeem 2 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 3,076,769 shares of common stock at a price of $16.25 per share. As a result, we recognized a $5.7 million premium on preferred stock conversions.
     In the second quarter of 2003, we exercised our right to redeem 2 million shares of our Series D Cumulative Convertible Redeemable Preferred Stock. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 3,076,923 shares of common stock at a price of $16.25 per share. In December 2003, we exercised our right to redeem an additional 4 million shares of our Series D preferred stock. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 6,154,000 shares of common stock at a price of $16.25 per share. As a result, we recognized a $19.3 million premium on preferred stock conversions during 2003.

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     The premium amount recognized to convert these shares represents the cumulative accretion to date between the conversion value of the preferred stock and the value at which it was recorded at the time of issuance.
eBay Purchase of Rent.com
     On December 16, 2004, eBay announced that it had agreed to acquire privately held Rent.com, a leading Internet listing web site in the apartment and rental housing industry, for approximately $415 million plus acquisition costs, net of Rent.com’s cash on hand. On February 23, 2005, eBay announced that it had completed the acquisition. We owned shares in Rent.com, and as a result of the transaction, we recorded a one-time pre-tax gain of $12.3 million on the sale.
Inflation
     We believe that the direct effects of inflation on our operations have been immaterial. Substantially all of our leases are for a term of one year or less which generally minimizes our risk from the adverse effects of inflation.
Off-Balance Sheet Arrangements
     We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.
Contractual Obligations
     The following table summarizes our contractual obligations as of December 31, 2005 (dollars in thousands):
                                         
    Payments Due by Period
Contractual Obligations   Total   2006   2007-2008   2009-2010   Thereafter
Long-Term Debt Obligations
  $ 3,159,777     $ 171,989     $ 769,179     $ 541,742     $ 1,676,867  
Capital Lease Obligations
                             
Operating Lease Obligations
    30,771       2,217       3,862       3,453       21,239  
Purchase Obligations
                             
Other Long-Term Liabilities Reflected on the Balance Sheet Under GAAP
                             
     During 2005, we incurred interest costs of $165.5 million, of which $2.8 million was capitalized.
Factors Affecting Our Business and Prospects
     There are many factors that affect our business and the results of our operations, some of which are beyond our control. These factors include:
    unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates,
 
    the failure of acquisitions to achieve anticipated results,
 
    possible difficulty in selling apartment communities,
 
    the timing and closing of planned dispositions under agreement,
 
    competitive factors that may limit our ability to lease apartment homes or increase or maintain rents,
 
    insufficient cash flow that could affect our debt financing and create refinancing risk,

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  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, and
 
  the imposition of federal taxes if we fail to qualify as a REIT in any taxable year.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     Information required by this item is included in and incorporated by reference from Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
     The consolidated financial statements and related financial information required to be filed are attached to this Report. Reference is made to page 41 of this Report for the Index to Consolidated Financial Statements and Schedule.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
     None.
Item 9A. CONTROLS AND PROCEDURES
Controls and Procedures
     As of December 31, 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 December 31, 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. 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

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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.
Management’s Report on Internal Control over Financial Reporting
     United Dominion’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, United Dominion’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations (COSO).
     Based on United Dominion’s evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2005. Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Item 9B. OTHER INFORMATION
     None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
     The information required by this item is incorporated by reference to the information set forth under the headings “Election of Directors,” “Audit Committee Report,” “Corporate Governance Matters-Audit Committee Financial Expert” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 2, 2006.
     Information required by this item regarding our executive officers is included in Part I of this Report in the section entitled “Business-Executive Officers of the Company.”
     We have a code of ethics for senior financial officers that applies to our principal executive officer, all members of our finance staff, including the principal financial officer, the principal accounting officer, the treasurer and the controller, our director of investor relations, our corporate secretary, and all other company officers. We also have a code of business conduct and ethics that applies to all of our employees. Information regarding our codes is available on our website, www.udrt.com, and is incorporated by reference to the information set forth under the heading “Corporate Governance Matters” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 2, 2006. We intend to satisfy the disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of our codes by posting such amendment or waiver on our website.
Item 11. EXECUTIVE COMPENSATION
     The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management,” “Compensation of Executive Officers,” “Agreements with Executive Officers” and “Compensation of Directors” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 2, 2006.
Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
     The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 2, 2006.

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
     The information required by this item is incorporated by reference to the information set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 2, 2006.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
     The information required by this item is incorporated by reference to the information set forth under the headings “Audit Fees” and “Pre-Approval Policies and Procedures” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 2, 2006.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
     (a) The following documents are filed as part of this Report:
     1. Financial Statements. See Index to Consolidated Financial Statements and Schedule on page 41 of this Report.
     2. Financial Statement Schedule. See Index to Consolidated Financial Statements and Schedule on page 41 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto.
     3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15 (d) 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.
 
 
  By:   /s/ Thomas W. Toomey    
         Thomas W. Toomey   
         Chief Executive Officer and President   
 
Date: March 7, 2006
     Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 7, 2006 by the following persons on behalf of the registrant and in the capacities indicated.
             
/s/ Thomas W. Toomey
      /s/ Jon A. Grove    
 
           
Thomas W. Toomey
      Jon A. Grove    
Chief Executive Officer, President, and Director
      Director    
 
           
/s/ Christopher D. Genry
      /s/ Thomas R. Oliver    
 
           
Christopher D. Genry
      Thomas R. Oliver    
Executive Vice President- Corporate Strategy and Chief Financial Officer
      Director    
 
           
/s/ Scott A. Shanaberger
      /s/ Lynne B. Sagalyn    
 
           
Scott A. Shanaberger
      Lynne B. Sagalyn    
Senior Vice President and Chief Accounting Officer
      Director    
 
           
/s/ Robert C. Larson
      /s/ Mark J. Sandler    
 
           
Robert C. Larson
      Mark J. Sandler    
Chairman of the Board
      Director    
 
           
/s/ James D. Klingbeil
      /s/ Robert W. Scharar    
 
           
James D. Klingbeil
      Robert W. Scharar    
Vice Chairman of the Board
      Director    
 
           
/s/ Eric J. Foss
      /s/ Thomas C. Wajnert    
 
           
Eric J. Foss
      Thomas C. Wajnert    
Director
     
Director
   
 
           
/s/ Robert P. Freeman
           
 
           
Robert P. Freeman
           
Director
           

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
UNITED DOMINION REALTY TRUST, INC.
         
    Page  
    42  
 
       
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
       
 
       
    43  
 
       
    44  
 
       
    45  
 
       
    46  
 
       
    47  
 
       
    48  
 
       
SCHEDULE FILED AS PART OF THIS REPORT
       
 
       
    68  
     All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Board of Directors and Stockholders
United Dominion Realty Trust, Inc.
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting included at Item 9A, that United Dominion Realty Trust, Inc. (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 of United Dominion Realty Trust, Inc. and our report dated February 17, 2006 expressed an unqualified opinion thereon.
 
/s/ Ernst & Young LLP
Richmond, Virginia
February 17, 2006

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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
United Dominion Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of United Dominion Realty Trust, Inc. (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Dominion Realty Trust, Inc. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2006 expressed an unqualified opinion thereon.
 
/s/ Ernst & Young LLP
Richmond, Virginia
February 17, 2006

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UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
                 
    December 31,  
    2005     2004  
ASSETS
               
 
               
Real estate owned:
               
Real estate held for investment
  $ 5,360,106     $ 4,795,278  
Less: accumulated depreciation
    (1,123,119 )     (921,805 )
 
           
 
    4,236,987       3,873,473  
Real estate under development (net of accumulated depreciation of $140 and $0)
    117,328       64,921  
Real estate held for disposition (net of accumulated depreciation of $570 and $86,082)
    34,280       297,015  
 
           
Total real estate owned, net of accumulated depreciation
    4,388,595       4,235,409  
Cash and cash equivalents
    15,543       7,904  
Restricted cash
    4,583       6,086  
Deferred financing costs, net
    31,036       25,151  
Notes receivable
    64,805       5,000  
Investment in unconsolidated development joint venture
          458  
Funds held in escrow from 1031 exchanges pending the acquisition of real estate
          17,039  
Other assets
    34,011       34,115  
Other assets — real estate held for disposition
    3,020       839  
 
           
Total assets
  $ 4,541,593     $ 4,332,001  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Secured debt
  $ 1,116,259     $ 1,145,578  
Secured debt — real estate held for disposition
          52,346  
Unsecured debt
    2,043,518       1,682,058  
Real estate taxes payable
    24,672       28,380  
Accrued interest payable
    26,672       18,773  
Security deposits and prepaid rent
    26,362       24,129  
Distributions payable
    45,313       44,624  
Accounts payable, accrued expenses, and other liabilities
    55,460       49,757  
Other liabilities — real estate held for disposition
    11,794       7,312  
 
           
Total liabilities
    3,350,050       3,052,957  
 
               
Minority interests
    83,819       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 134,012,053 shares issued and outstanding (136,429,592 in 2004)
    1,340       136,430  
Additional paid-in capital
    1,680,115       1,608,858  
Distributions in excess of net income
    (755,702 )     (731,808 )
 
           
Total stockholders’ equity
    1,107,724       1,195,451  
 
           
Total liabilities and stockholders’ equity
  $ 4,541,593     $ 4,332,001  
 
           
See accompanying notes to consolidated financial statements.

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UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
                         
    Years ended December 31,  
    2005     2004     2003  
REVENUES
                       
Rental income
  $ 680,553     $ 572,408     $ 509,555  
Non-property income:
                       
Sale of technology investment
    12,306              
Sale of unconsolidated joint venture
    3,823              
Other income
    4,535       2,608       1,068  
 
                 
Total non-property income
    20,664       2,608       1,068  
 
                 
Total revenues
    701,217       575,016       510,623  
 
                 
 
                       
EXPENSES
                       
Rental expenses:
                       
Real estate taxes and insurance
    81,151       66,424       57,756  
Personnel
    69,939       59,912       51,648  
Utilities
    40,037       34,360       30,069  
Repair and maintenance
    40,570       41,689       32,900  
Administrative and marketing
    23,846       20,013       18,541  
Property management
    19,309       17,881       16,873  
Other operating expenses
    1,178       1,226       1,205  
Real estate depreciation and amortization
    209,856       163,176       137,013  
Interest
    162,508       123,170       116,294  
General and administrative
    24,819       19,316       20,626  
Other depreciation and amortization
    2,752       3,301       3,001  
Loss on early debt retirement
    6,662              
Impairment loss on investments
                1,392  
 
                 
Total expenses
    682,627       550,468       487,318  
 
                 
 
                       
Income before minority interests and discontinued operations
    18,590       24,548       23,305  
Minority interests of outside partnerships
    (108 )     (182 )     (614 )
Minority interests of unitholders in operating partnerships
    (180 )     55       1,497  
 
                 
Income before discontinued operations, net of minority interests
    18,302       24,421       24,188  
Income from discontinued operations, net of minority interests
    136,864       72,731       46,216  
 
                 
Net income
    155,166       97,152       70,404  
Distributions to preferred stockholders — Series B
    (11,644 )     (11,644 )     (11,645 )
Distributions to preferred stockholders — Series D (Convertible)
          (3,473 )     (12,178 )
Distributions to preferred stockholders — Series E (Convertible)
    (3,726 )     (4,414 )     (2,503 )
Premium on preferred stock conversions
          (5,729 )     (19,271 )
 
                 
Net income available to common stockholders
  $ 139,796     $ 71,892     $ 24,807  
 
                 
 
                       
Earnings per common share — basic:
                       
Income/(loss) from continuing operations available to common stockholders,
net of minority interests
  $ 0.02     $ (0.01 )   $ (0.18 )
Income from discontinued operations, net of minority interests
  $ 1.01     $ 0.57     $ 0.40  
Net income available to common stockholders
  $ 1.03     $ 0.56     $ 0.22  
Earnings per common share — diluted:
                       
Income/(loss) from continuing operations available to common stockholders,
net of minority interests
  $ 0.02     $ (0.01 )   $ (0.18 )
Income from discontinued operations, net of minority interests
  $ 1.00     $ 0.57     $ 0.40  
Net income available to common stockholders
  $ 1.02     $ 0.56     $ 0.22  
 
                       
Common distributions declared per share
  $ 1.20     $ 1.17     $ 1.14  
 
                       
Weighted average number of common shares outstanding — basic
    136,143       128,097       114,672  
Weighted average number of common shares outstanding — diluted
    137,013       128,097       114,672  
See accompanying notes to consolidated financial statements.

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UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                         
    Years ended December 31,  
    2005     2004     2003  
Operating Activities
                       
Net income
  $ 155,166     $ 97,152     $ 70,404  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    215,192       184,088       166,637  
Impairment loss on real estate and investments
                1,392  
Net gains on the sale of land and depreciable property
    (139,724 )     (52,903 )     (15,941 )
Cancellation of operating partnership units in connection with the sale of equity investment
    (1,000 )            
Gain on the sale of technology investment
    (12,306 )            
Gain on the sale of unconsolidated joint venture
    (3,823 )            
Distribution of earnings from unconsolidated joint venture
    124              
Minority interests
    8,838       5,025       2,261  
Amortization of deferred financing costs and other
    5,287       7,206       6,148  
Amortization of deferred compensation
    2,939       2,780        
Changes in operating assets and liabilities:
                       
Decrease/(increase) in operating assets
    8,695       (1,769 )     (2,560 )
Increase in operating liabilities
    8,798       10,168       6,604  
 
                 
Net cash provided by operating activities
    248,186       251,747       234,945  
 
                       
Investing Activities
                       
Proceeds from the sale of real estate investments, net
    308,753       190,105       93,613  
Repayment of notes receivables
    64,845       75,586        
Acquisition of real estate assets (net of liabilities assumed and equity)
    (413,744 )     (755,966 )     (314,739 )
Development of real estate assets
    (49,343 )     (19,131 )     (13,640 )
Capital expenditures and other major improvements — real estate assets
    (156,122 )     (82,390 )     (53,146 )
Capital expenditures — non-real estate assets
    (3,209 )     (1,578 )     (1,858 )
Proceeds from the sale of technology investment
    12,306              
Distribution of capital from unconsolidated joint venture
    458              
Decrease/(increase) in funds held in escrow from tax free exchanges pending the acquisition of real estate
    17,039       (2,592 )     (14,447 )
 
                 
Net cash used in investing activities
    (219,017 )     (595,966 )     (304,217 )
 
                       
Financing Activities
                       
Proceeds from the issuance of secured debt
    25,342             37,415  
Scheduled principal payments on secured debt
    (8,611 )     (36,814 )     (22,442 )
Non-scheduled principal payments on secured debt
    (125,221 )     (95,011 )     (17,549 )
Proceeds from the issuance of unsecured debt
    499,983       475,775       323,382  
Payments on unsecured debt
    (70,860 )     (46,585 )     (214,591 )
Net (repayment)/proceeds of revolving bank debt
    (67,300 )     140,200       (37,900 )
Payment of financing costs
    (14,455 )     (8,849 )     (6,463 )
Issuance of note receivable
                (8,000 )
Proceeds from the issuance of common stock
    4,334       99,461       179,811  
Proceeds from the repayment of officer loans
          459       2,171  
Proceeds from the issuance of performance shares
    343       (50 )     657  
Purchase of minority interest from outside partners
    (522 )            
Conversion of operating partnership units to cash
    (50 )            
Distributions paid to minority interests
    (12,900 )     (13,553 )     (9,756 )
Distributions paid to preferred stockholders
    (15,370 )     (20,347 )     (27,532 )
Distributions paid to common stockholders
    (163,001 )     (147,387 )     (128,188 )
Repurchases of common and preferred stock
    (73,242 )           (71 )
 
                 
Net cash (used in)/provided by financing activities
    (21,530 )     347,299       70,944  
 
                       
Net increase in cash and cash equivalents
    7,639       3,080       1,672  
Cash and cash equivalents, beginning of year
    7,904       4,824       3,152  
 
                 
Cash and cash equivalents, end of year
  $ 15,543     $ 7,904     $ 4,824  
 
                 
 
                       
Supplemental Information:
                       
Interest paid during the period
  $ 160,367     $ 115,519     $ 116,057  
Non-cash transactions:
                       
Conversion of operating partnership minority interests to common stock (99,573 shares in 2005, 170,209 shares in 2004, and 216,983 shares in 2003)
    1,444       2,035       2,206  
Conversion of minority interests in Series B, LLC
    690              
Issuance of restricted stock awards
    7,709       3,250       5,297  
Issuance of preferred stock in connection with acquisitions
                58,811  
Issuance of preferred operating partnership units in connection with acquisitions
                26,872  
Issuance of operating partnership units in connection with acquisitions
    7,653             7,135  
Cancellation of a note receivable with the acquisition of a property
          8,000        
Secured debt assumed with the acquisition of properties
    26,825       311,714       4,865  
Receipt of a note receivable in connection with sales of real estate investments
    124,650       75,586        
Deferred gain in connection with the sale of real estate investments
    6,410              
See accompanying notes to consolidated financial statements.

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UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
                                                                                 
                                                    Deferred     Notes              
                                                    Compensation-     Receivable     Accumulated        
                    Distributions in     Unearned     from     Other        
    Preferred Stock     Common Stock   Paid-in     Excess of     Restricted     Officer-     Comprehensive        
    Shares     Amount     Shares     Amount     Capital     Net Income     Stock Awards     Stockholders     Loss     Total  
Balance, December 31, 2002
    13,416,009     $ 310,400       106,605,259     $ 106,605     $ 1,140,786     $ (541,428 )   $ (2,504 )   $ (2,630 )   $ (9,958 )   $ 1,001,271  
 
                                                           
Comprehensive Income
                                                                               
Net income
                                            70,404                               70,404  
Other comprehensive income:
                                                                               
Unrealized gain on derivative financial instruments
                                                                    8,096       8,096  
 
                                                           
Comprehensive income
                                            70,404                       8,096       78,500  
 
                                                           
Issuance of common and restricted shares
                    1,546,525       1,547       18,664               (5,297 )                     14,914  
Issuance of common shares through public offering
                    9,700,000       9,700       154,936                                       164,636  
Issuance of 8.00% Series E Cumulative Convertible shares
    3,425,217       56,893                       1,905                                       58,798  
Common shares repurchased
                    (4,564 )     (5 )     (66 )                                     (71 )
Adjustment for conversion of minority interests of unitholders in operating partnerships
                    216,983       217       1,989                                       2,206  
Principal repayments on notes receivable from officer-stockholders
                                                            2,171               2,171  
Accretion of premium on Series D conversions
            19,271                               (19,271 )                              
Conversion of 7.50% Series D Cumulative Convertible Redeemable shares
    (6,000,000 )     (150,000 )     9,230,923       9,231       140,769                                        
Common stock distributions declared ($1.14 per share)
                                            (134,876 )                             (134,876 )
Preferred stock distributions declared-Series B
($2.15 per share)
                                            (11,645 )                             (11,645 )
Preferred stock distributions declared-Series D
($2.04 per share)
                                            (12,178 )                             (12,178 )
Preferred stock distributions declared-Series E
($0.84 per share)
                                            (2,503 )                             (2,503 )
Amortization of deferred compensation
                                                    2,213                       2,213  
 
                                                           
Balance, December 31, 2003
    10,841,226       236,564       127,295,126       127,295       1,458,983       (651,497 )     (5,588 )     (459 )     (1,862 )     1,163,436  
 
                                                           
Comprehensive Income
                                                                               
Net income
                                            97,152                               97,152  
Other comprehensive income:
                                                                               
Unrealized gain on derivative financial instruments
                                                                    1,862       1,862  
 
                                                           
Comprehensive income
                                            97,152                       1,862       99,014  
 
                                                           
Issuance of common and restricted shares
                    769,083       769       10,171                                       10,940  
Issuance of common shares through public offering
                    4,497,000       4,497       86,804                                       91,301  
Adjustment for conversion of minority interests of unitholders in operating partnerships
                    170,209       170       1,865                                       2,035  
Principal repayments on notes receivable from officer-stockholders
                                                            459               459  
Accretion of premium on Series D conversions
            5,729                               (5,729 )                              
Conversion of 7.50% Series D Cumulative Convertible Redeemable shares
    (2,000,000 )     (50,000 )     3,076,769       3,077       46,923                                        
Conversion of 8.00% Series E Cumulative Convertible shares
    (621,405 )     (10,322 )     621,405       622       9,700                                        
Common stock distributions declared ($1.17 per share)
                                            (152,203 )                             (152,203 )
Preferred stock distributions declared-Series B
($2.15 per share)
                                            (11,644 )                             (11,644 )
Preferred stock distributions declared-Series D
($2.09 per share)
                                            (3,473 )                             (3,473 )
Preferred stock distributions declared-Series E
($1.33 per share)
                                            (4,414 )                             (4,414 )
Adjustment for FASB 123 adoption
                                    (5,588 )             5,588                        
 
                                                           
Balance, December 31, 2004
    8,219,821       181,971       136,429,592       136,430       1,608,858       (731,808 )                       1,195,451  
 
                                                           
Comprehensive Income
                                                                               
Net income
                                            155,166                               155,166  
 
                                                           
Comprehensive income
                                            155,166                               155,166  
 
                                                           
Issuance of common and restricted shares
                    663,238       680       6,595                                       7,275  
Common shares repurchased
                    (3,180,350 )     (32 )     (73,210 )                                     (73,242 )
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
                    99,573       84       1,360                                       1,444  
Adjustment for conversion of minority interests in Series B LLC
                                    690                                       690  
Common stock distributions declared ($1.20 per share)
                                            (163,690 )                             (163,690 )
Preferred stock distributions declared-Series B
($2.15 per share)
                                            (11,644 )                             (11,644 )
Preferred stock distributions declared-Series E
($1.33 per share)
                                            (3,726 )                             (3,726 )
 
                                                           
Balance, December 31, 2005
    8,219,821     $ 181,971       134,012,053     $ 1,340     $ 1,680,115     $ (755,702 )   $     $     $     $ 1,107,724  
 
                                                           
See accompanying notes to consolidated financial statements.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and formation
     United Dominion Realty Trust, Inc., a Maryland corporation, was formed in 1972. United Dominion operates within one defined business segment with activities related to the ownership, management, development, acquisition, renovation, and disposition of multifamily apartment communities nationwide. At December 31, 2005, United Dominion owned 259 communities with 74,875 completed apartment homes and had five communities with 1,335 apartment homes under development.
Basis of presentation
     The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P., (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”), (collectively, “United Dominion”). As of December 31, 2005, there were 166,300,080 units in the Operating Partnership outstanding, of which 156,122,288 units or 93.9% were owned by United Dominion and 10,177,792 units or 6.1% were owned by limited partners (of which 1,764,662 are owned by the holders of the Series A OPPS, see below). As of December 31, 2005, there were 5,542,200 units in the Heritage OP outstanding, of which 5,203,572 units or 93.9% were owned by United Dominion and 338,628 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.
Use of estimates
     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.
Real estate
     Real estate assets held for investment are carried at historical cost less accumulated depreciation and any recorded impairment losses.
     Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized at cost and depreciated over their estimated useful lives if the value of the existing asset will be materially enhanced or the life of the related asset will be substantially extended beyond the original life expectancy.
     United Dominion recognizes impairment losses on long-lived assets used in operations when there is an event or change in circumstance that indicates an impairment in the value of an asset and the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions.
     United Dominion purchases real estate investment properties from time to time and allocates the purchase price to various components, such as land, buildings, and intangibles related to in-place leases in accordance with FASB Statement No. 141, “Business Combinations.” The purchase price is allocated based on the relative fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
cash flows expected to be generated from the property including an initial lease up period. United Dominion determines the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period. United Dominion determines the fair value of in-place leases by considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period.
     For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Properties classified as real estate held for disposition generally represent properties that are under contract for sale. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to dispose, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition.
     Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which is 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. The value of acquired in-place leases is amortized over the remaining term of each acquired in-place lease.
     All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheet as “Real estate under development.” As each building in a project is completed and becomes available for lease-up, the total cost of the building is transferred to real estate held for investment and the assets are depreciated over their estimated useful lives. The cost of development projects includes interest, real estate taxes, insurance, and allocated development overhead during the construction period.
     Interest, real estate taxes, and incremental labor and support costs for personnel working directly on the development site are capitalized as part of the real estate under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 2005, 2004, and 2003, total interest capitalized was $2.8 million, $1.0 million, and $1.8 million, respectively.
Cash equivalents
     Cash equivalents include all cash and liquid investments with maturities of three months or less when purchased.
Restricted cash
     Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.
Deferred financing costs
     Deferred financing costs include fees and other external costs incurred to obtain debt financings and are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt. Unamortized financing costs are written-off when debt is retired before its maturity date. During 2005, 2004, and 2003, amortization expense was $6.5 million, $5.1 million, and $4.7 million, respectively.
Investments in unconsolidated development joint ventures
     Investments in unconsolidated joint ventures are accounted for using the equity method when major business decisions require approval by the other partners and United Dominion does not have control of the assets. Investments are recorded at cost and subsequently adjusted for equity in net income (loss) and cash contributions

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
and distributions. United Dominion eliminates intercompany profits on sales of services that are provided to joint ventures. Differences between the carrying value of investments and the underlying equity in net assets of the investee are due to capitalized interest on the investment balance and capitalized development and leasing costs that are recovered by United Dominion through fees during construction.
Revenue recognition
     United Dominion’s apartment homes are leased under operating leases with terms generally of one year or less. Rental income is recognized after it is earned and collectability is reasonably assured.
Advertising costs
     All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item “Administrative and marketing.” During 2005, 2004, and 2003, total advertising expense was $11.2 million, $10.5 million, and $10.6 million, respectively.
Interest rate swap agreements
     United Dominion accounts for its derivative instruments in accordance with Statements of Financial Accounting Standards No. 133 and No. 138, “Accounting for Certain Derivative Instruments and Hedging Activities.” At December 31, 2005, United Dominion has no derivative financial instruments reported on its Consolidated Balance Sheet. Prior to their maturity in July 2004, United Dominion’s derivative financial instruments consisted of interest rate swap agreements that were designated as cash flow hedges of debt with variable interest rate features, and as qualifying hedges for financial reporting purposes. For a derivative instrument that qualifies as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings during the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.
     As part of United Dominion’s overall interest rate risk management strategy, we used derivative financial instruments as a means to artificially fix variable rate debt or to hedge anticipated financing transactions. United Dominion’s derivative transactions used for interest rate risk management included various interest rate swaps with indices that related to the pricing of specific financial instruments of United Dominion. Because of the close correlation between the hedging instrument and the underlying cash flow exposure being hedged, fluctuations in the value of the derivative instruments were generally offset by changes in the cash flow of the underlying exposures. As a result, United Dominion appropriately controlled the risk so that derivatives used for interest rate risk management would not have a material unintended effect on consolidated earnings. United Dominion does not enter into derivative financial instruments for trading purposes.
     The fair value of United Dominion’s derivative instruments were reported on the balance sheet at their current fair value. The estimated fair value for our interest rate swaps relied on prevailing market interest rates. The interest rate swap agreements were designated with all or a portion of the principal balance and term of a specific debt obligation. Each interest rate swap involved the periodic exchange of payments over the life of the related agreement. An amount received or paid on the interest rate swap was recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amount payable to and receivable from counterparties was included in other liabilities and other assets, respectively.
     When the terms of the underlying transaction were modified, or when the underlying hedged item ceased to exist, all changes in the fair value of the instrument were marked-to-market with changes in value included in net income each period until the instrument matured, unless the instrument was redesignated as a hedge of another transaction. If a derivative instrument was terminated or the hedging transaction was no longer determined to be effective, amounts held in accumulated other comprehensive income were reclassified into earnings over the term of the future cash outflows on the related debt.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Comprehensive income
     Comprehensive income, which is defined as all changes in equity during each period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Statements of Stockholders’ Equity. Other comprehensive income for 2004 and 2003 consisted of unrealized gains or losses from derivative financial instruments.
Stock-based employee compensation plans
     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). We do not anticipate that the adoption of Statement 123(R) will have a material impact on our financial statements.
Minority interests in operating partnerships
     Interests in operating partnerships held by limited partners are represented by operating partnership units (“OP Units”). The operating partnerships’ income is allocated to holders of OP Units based upon net income available to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to minority interests in accordance with the terms of the individual partnership agreements. OP Units can be exchanged for cash or shares of United Dominion’s common stock on a one-for-one basis, at the option of United Dominion. OP Units, as a percentage of total OP Units and shares outstanding, were 5.9% at December 31, 2005, 6.3% at December 31, 2004, and 6.4% at December 31, 2003.
     During 2003, we issued 1,617,815 Preferred Operating Partnership Units (“Preferred OP Units”) totaling $26.9 million as partial consideration for the purchase of four communities. The Preferred OP Units carry a fixed coupon of 8.0% ($1.33 per share) until such time as the common share dividend is equal to or exceeds this amount for four consecutive quarters, at which time the Preferred OP Units will be entitled to receive dividends equivalent to the dividend paid to holders of common stock.
Minority interests in other partnerships
     United Dominion has limited partners in certain real estate partnerships acquired in certain merger transactions. Net income for these partnerships is allocated based upon the percentage interest owned by these limited partners in each respective real estate partnership.
Earnings per share
     Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion’s average stock price.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts):
                         
    2005     2004     2003  
Numerator for basic and diluted earnings per share -
Net income available to common stockholders
  $ 139,796     $ 71,892     $ 24,807  
 
                       
Denominator:
                       
Denominator for basic earnings per share -
Weighted average common shares outstanding
    136,920       128,711       115,109  
Non-vested restricted stock awards
    (777 )     (614 )     (437 )
 
                 
 
    136,143       128,097       114,672  
 
                 
 
                       
Effect of dilutive securities:
                       
Employee stock options and non-vested
restricted stock awards
    870              
 
                 
Denominator for dilutive earnings per share
    137,013       128,097       114,672  
 
                 
Basic earnings per share
  $ 1.03     $ 0.56     $ 0.22  
 
                 
Diluted earnings per share
  $ 1.02     $ 0.56     $ 0.22  
 
                 
     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 years ended December 31, 2005, would be 10,324,037, 10,460,639, and 9,690,883 weighted average common shares, respectively. If the Series A Out-Performance Partnership Shares were converted to common stock, the additional shares of common stock outstanding for the three years ended December 31, 2005, would be 1,778,251, 1,791,329, and 1,853,204 weighted average common shares, respectively. If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the three years ended December 31, 2005, would be 2,803,812, 6,301,821, and 11,636,293 weighted average common shares, respectively.
Income taxes
     United Dominion is operated as, and elects to be taxed as, a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Generally, a REIT complies with the provisions of the Code if it meets certain requirements concerning its income and assets, as well as if it distributes at least 90% of its REIT taxable income to its stockholders and will not be subject to U.S. federal income taxes if it distributes at least 100% of its income. Accordingly, no provision has been made for federal income taxes of the REIT. United Dominion is subject to certain state and local excise or franchise taxes, for which provision has been made. If we fail to qualify as a REIT in any taxable year, our taxable income will be subject to United States Federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to United States Federal income tax. We also will be required to pay a 100% tax on non-arms length transactions between us and a taxable REIT subsidiary and on any net income from sales of property that the IRS successfully asserts was property held for sale to customers in the ordinary course.
     The differences between net income available to common stockholders for financial reporting purposes and taxable income before dividend deductions relate primarily to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets.
Impact of recently issued accounting pronouncements
     In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143, Asset Retirement Obligations” (FIN 47). A conditional asset retirement obligation refers to a legal obligation to retire assets where the timing and/or method of settlement are conditioned on future events. FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. We adopted the provisions of FIN 47 for the year ended December 31, 2005. The adoption of this Interpretation did not have a material impact on our consolidated financial position, results of operations or cash flows.
     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 OWNED
     United Dominion operates in 43 markets dispersed throughout 16 states. At December 31, 2005, our largest apartment market was Southern California, where we owned 19.8% of our apartment homes, based upon carrying value. Excluding Southern California, United Dominion did not own more than 6.7% of its apartment homes in any one market, based upon carrying value.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     The following table summarizes real estate held for investment at December 31, (dollars in thousands):
                         
            2005     2004  
Land and land improvements
          $ 1,289,107     $ 1,145,259  
Buildings and improvements
            3,804,555       3,430,339  
Furniture, fixtures, and equipment
            266,444       219,680  
 
                   
Real estate held for investment
            5,360,106       4,795,278  
Accumulated depreciation
            (1,123,119 )     (921,805 )
 
                   
Real estate held for investment, net
          $ 4,236,987     $ 3,873,473  
 
                   
     The following is a reconciliation of the carrying amount of real estate held for investment at December 31, (dollars in thousands):
                         
    2005     2004     2003  
Balance at beginning of year
  $ 4,795,278     $ 3,669,907     $ 3,220,769  
Real estate acquired
    400,588       1,025,066       399,425 (a)
Capital expenditures
    164,240       100,305       47,725  
Transfers from development
                12,157  
Transfers to held for disposition, net
                (10,169 )
 
                 
Balance at end of year
  $ 5,360,106     $ 4,795,278     $ 3,669,907  
 
                 
 
(a)   In connection with one of our acquisitions in 2003, United Dominion acquired a note receivable for $5 million that is due October 2011. The note bears interest of 9.0% that is payable in annual installments.
     The following is a reconciliation of accumulated depreciation for real estate held for investment at December 31, (dollars in thousands):
                         
    2005     2004     2003  
Balance at beginning of year
  $ 921,805     $ 761,339     $ 626,327  
Depreciation expense for the year (b)
    206,005       160,466       136,482  
Transfers to wholly owned taxable REIT subsidiary
    (4,691 )            
Transfers to held for disposition, net
                (1,470 )
 
                 
Balance at end of year
  $ 1,123,119     $ 921,805     $ 761,339  
 
                 
 
(b)   Includes $0.8 million, $0.8 million, and $1.0 million for 2005, 2004, and 2003, respectively, related to depreciation on non-real estate assets located at United Dominion’s apartment communities, classified as “Other depreciation and amortization” on the Consolidated Statements of Operations. Excludes $4.8 million, $3.4 million, and $1.3 million in 2005, 2004, and 2003, respectively, of amortization expense on the fair market value of in-place leases at the time of acquisition.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     The following is a summary of real estate held for investment by major geographic markets (in order of carrying value, excluding real estate held for disposition and real estate under development) at December 31, 2005 (dollars in thousands):
                                         
    Number of     Initial                    
    Apartment     Acquisition     Carrying     Accumulated        
    Communities     Cost     Value     Depreciation     Encumbrances  
                     
MID-ATLANTIC REGION
                                       
Metropolitan DC
    8     $ 226,964     $ 251,024     $ 28,044     $ 30,691  
Raleigh, NC
    11       179,935       218,931       69,640       63,752  
Baltimore, MD
    10       146,257       169,951       37,096       13,286  
Richmond, VA
    9       106,326       156,903       52,635       61,532  
Greensboro, NC
    8       85,362       110,713       34,119        
Charlotte, NC
    7       88,294       110,229       30,795        
Wilmington, NC
    6       64,213       98,512       34,592        
Norfolk, VA
    6       42,741       68,968       27,877       9,117  
Other North Carolina
    8       61,677       81,159       34,497       13,320  
Other Mid-Atlantic
    6       46,135       61,200       20,184       16,770  
Other Virginia
    3       30,946       48,888       15,138       19,462  
 
                                       
WESTERN REGION
                                       
Southern California
    26       1,014,412       1,062,700       61,347       230,292  
Northern California
    10       334,096       356,640       42,186       67,354  
Seattle, WA
    8       158,622       167,657       24,608       68,452  
Monterey Peninsula, CA
    7       85,323       140,507       22,135        
Portland, OR
    5       76,990       81,625       11,223       17,790  
 
                                       
SOUTHEASTERN REGION
                                       
Tampa, FL
    12       203,254       251,435       57,456       61,749  
Orlando, FL
    14       167,524       230,968       79,061       69,311  
Nashville, TN
    9       111,843       156,721       41,703       28,976  
Jacksonville, FL
    4       82,396       103,277       25,411        
Atlanta, GA
    6       57,669       78,116       28,611       18,558  
Columbia, SC
    6       52,795       67,911       27,082        
Other Florida
    6       106,255       118,984       17,880       44,873  
Other Southeastern
    2       29,839       41,610       13,143        
 
                                       
SOUTHWESTERN REGION
                                       
Houston, TX
    16       185,965       253,408       67,194       39,604  
Arlington, TX
    7       85,845       104,796       28,669       18,375  
Denver, CO
    3       92,333       100,142       21,927        
Phoenix, AZ
    5       74,368       98,543       27,843       37,081  
Dallas, TX
    4       89,552       96,208       17,716       51,971  
Austin, TX
    5       75,779       83,484       19,574       6,073  
Other Southwestern
    10       166,468       200,980       56,402       53,558  
 
                                       
MIDWESTERN REGION
                                       
Columbus, OH
    6       111,315       160,093       40,016       39,278  
Other Midwestern
    3       20,241       23,980       5,720       5,985  
 
                                       
Richmond Corporate
          6,597       2,212       1,435       3,724  
Commercial
          1,631       1,631       160        
                     
 
    256     $ 4,469,962     $ 5,360,106     $ 1,123,119     $ 1,090,934  
                     

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     The following is a summary of real estate held for disposition by major category at December 31, 2005 (dollars in thousands):
                                         
            Initial            
    Number of   Acquisition   Carrying   Accumulated    
    Properties   Cost   Value   Depreciation   Encumbrances
                     
Apartments
    4            $ 47,285     $ 29,203     $ 78     $  
Land
    2              5,556       5,647       492        
                     
 
          $ 52,841     $ 34,850     $ 570     $  
                     
     The following is a summary of real estate under development by major category at December 31, 2005 (dollars in thousands):
                                         
            Initial            
    Number of   Acquisition   Carrying   Accumulated    
    Properties   Cost   Value   Depreciation   Encumbrances
                     
Apartments
    3            $ 52,515     $ 96,717     $ 140     $ 25,325  
Land
    4              20,751       20,751              
                     
 
          $ 73,266     $ 117,468     $ 140     $ 25,325  
                     
 
Total Real Estate Owned
          $ 4,596,069     $ 5,512,424     $ 1,123,829     $ 1,116,259  
                     
     In 2005, $2.5 million of hurricane related insurance recoveries were recorded. In 2004, United Dominion recognized a $5.5 million charge to cover expenses associated with the damage in Florida caused by hurricanes Charley, Frances, and Jeanne. United Dominion reported that 25 of its 34 Florida communities were affected by the hurricanes.
     In 2003, United Dominion recognized a $1.4 million charge for the write-off of its investment in Realeum, Inc., an unconsolidated development joint venture created to develop web-based solutions for multifamily property and portfolio management.
3. INCOME FROM DISCONTINUED OPERATIONS
     United Dominion adopted FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (FAS 144) as of January 1, 2002. 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 December 31, 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 December 31, 2005 within the Consolidated Statements of Operations for the years ended December 31, 2005, 2004, and 2003, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets as of December 31, 2005 and 2004.
     For the year ended December 31, 2005, United Dominion sold 22 communities with a total of 6,352 apartment homes, 240 condominiums from five communities with a total of 648 condominiums, and one parcel of land. We recognized gains for financial reporting purposes of $139.7 million on these sales. At December 31, 2005, United Dominion had four communities with a total of 384 condominiums and a net book value of $29.1 million, and two

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
parcels of land with a net book value of $5.2 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 had maturities ranging from September 2005 to July 2006. As of December 31, 2005, the balance on the notes receivable was $59.8 million. We recognized gains for financial reporting purposes of $15.2 million and will recognize $6.4 million in additional gains in 2006 as the notes receivable mature and are paid. During 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. During 2003, United Dominion sold seven communities with a total of 1,927 apartment homes and two commercial properties. 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 entitled “Income from discontinued operations, net of minority interests.”
     The following is a summary of income from discontinued operations for the years ended December 31, (dollars in thousands):
                         
    2005     2004     2003  
Rental income
  $ 21,817     $ 77,999     $ 104,735  
Non-property income/(loss)
    8       (2 )      
 
                 
 
    21,825       77,997       104,735  
 
                       
Rental expenses
    11,515       34,829       43,810  
Real estate depreciation
    2,568       17,452       26,380  
Interest
    215       831       883  
Loss on early debt retirement
    1,821              
Other expenses
    16       159       243  
 
                 
 
    16,135       53,271       71,316  
Income before net gain on the sale of depreciable property and minority interests
    5,690       24,726       33,419  
Net gain on the sale of depreciable property
    139,724       52,903       15,941  
 
                 
Income before minority interests
    145,414       77,629       49,360  
Minority interests on income from discontinued operations
    (8,550 )     (4,898 )     (3,144 )
 
                 
Income from discontinued operations, net of minority interests
  $ 136,864     $ 72,731     $ 46,216  
 
                 

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
4. SECURED DEBT
     Secured debt on continuing and discontinued operations of United Dominion’s real estate portfolio, which encumbers $1.9 billion or 35% of real estate owned based upon book value ($3.6 billion or 65% of United Dominion’s real estate owned is unencumbered) consists of the following as of December 31, 2005 (dollars in thousands):
                                         
                    Weighted   Weighted   Number of
    Principal Outstanding   Average   Average   Communities
    December 31,   December 31,   Interest Rate   Years to Maturity   Encumbered
    2005   2004   2005   2005   2005
Fixed Rate Debt
                                       
Mortgage notes payable
  $ 359,281     $ 428,223       5.33 %     5.4       14  
Tax-exempt secured notes payable
    26,400       39,160       5.85 %     19.1       3  
Fannie Mae credit facilities
    363,875       288,875       6.09 %     5.3       9  
 
                             
Total fixed rate secured debt
    749,556       756,258       5.71 %     5.8       26  
 
                                       
Variable Rate Debt
                                       
Mortgage notes payable
    66,464       45,758       5.40 %     5.1       4  
Tax-exempt secured note payable
    7,770       7,770       3.45 %     22.5       1  
Fannie Mae credit facilities
    292,469       367,469       4.71 %     6.9       47  
Freddie Mac credit facility
          20,669       n/a       n/a       n/a  
 
                             
Total variable rate secured debt
    366,703       441,666       4.81 %     6.9       52  
 
                             
Total secured debt
  $ 1,116,259     $ 1,197,924       5.42 %     6.2       78  
 
                             
Fixed Rate Debt
     Mortgage notes payable Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from September 2006 through July 2027 and carry interest rates ranging from 4.10% to 7.87%.
     Tax-exempt secured notes payable Fixed rate mortgage notes payable that secure tax-exempt housing bond issues mature at various dates from May 2008 through March 2031 and carry interest rates ranging from 5.30% to 6.47%. Interest on these notes is generally payable in semi-annual installments.
     Secured credit facilities At December 31, 2005, United Dominion’s fixed rate secured credit facilities consisted of $363.9 million of the $656.3 million outstanding on an $860 million aggregate commitment under four revolving secured credit facilities with Fannie Mae. The Fannie Mae credit facilities are for an initial term of ten years, bear interest at floating and fixed rates, and can be extended for an additional five years at our discretion. As of December 31, 2005, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 6.09%.
Variable Rate Debt
     Mortgage notes payable Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from May 2006 through July 2013. As of December 31, 2005, these notes had interest rates ranging from 4.82% to 6.23%.
     Tax-exempt secured note payable The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in July 2028. As of December 31, 2005, this note had an interest rate of 3.45%. Interest on this note is payable in monthly installments.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     Secured credit facilities At December 31, 2005, United Dominion’s variable rate secured credit facilities consisted of $292.5 million outstanding on the Fannie Mae credit facilities. As of December 31, 2005, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 4.71%.
     The aggregate maturities of secured debt for the fifteen years subsequent to December 31, 2005 are as follows (dollars in thousands):
                                                         
    Fixed   Variable
    Mortgage   Tax-Exempt   Credit   Mortgage   Tax-Exempt   Credit    
Year   Notes Notes Facilities   Notes Notes Facilities TOTAL
2006
  $ 31,703     $ 320     $     $ 4,750     $     $     $ 36,593  
2007
    81,247       345             901                   82,493  
2008
    4,109       5,145             23,578                   32,832  
2009
    4,330       245                               4,575  
2010
    98,007       265       138,875                         237,147  
2011
    11,797       280       125,000                   39,513       176,590  
2012
    50,312       300       100,000                   52,956       203,568  
2013
    61,885       315             37,415             200,000       299,615  
2014
    704       340                               1,044  
2015
    756       360                               1,116  
2016
    812                                     812  
2017
    873                                     873  
2018
    939                                     939  
2019
    1,010                                     1,010  
2020
    1,087                                     1,087  
Thereafter
    9,710       18,485                   7,770             35,965  
                             
 
  $ 359,281     $ 26,400     $ 363,875     $ 66,464     $ 7,770     $ 292,469     $ 1,116,259  
                             
     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.
5. UNSECURED DEBT
     A summary of unsecured debt as of December 31, 2005 and 2004 is as follows (dollars in thousands):
                 
    2005   2004
Commercial Banks
               
Borrowings outstanding under an unsecured credit facility due May 2008 (a)
  $ 210,800     $ 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  
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  
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  

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
                 
    2005   2004  
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  
4.00% Convertible Senior Notes due December 2035 (b)
    250,000        
Other (c)
    370       750  
 
         
 
    1,761,198       1,332,438  
 
         
 
               
Unsecured Notes — Other
               
Verano Construction Loan due February 2006
    24,820       24,820  
ABAG Tax-Exempt Bonds due August 2008
    46,700       46,700  
 
         
 
    71,520       71,520  
 
           
 
               
Total Unsecured Debt
  $ 2,043,518     $ 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 carries an interest rate equal to LIBOR plus a spread of 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)   Prior to December 15, 2030, upon the occurrence of specified events, the notes will be convertible at the option of the holder into cash and, in certain circumstances, shares of United Dominion’s common stock at an initial conversion rate of 35.2988 shares per $1,000 principal amount of notes (which equates to an initial conversion price of approximately $28.33 per share). On or after December 15, 2030, the notes will be convertible at any time prior to the second business day prior to maturity at the option of the holder into cash and, in certain circumstances, shares of United Dominion’s common stock at the above initial conversion rate. The initial conversion rate is subject to adjustment in certain circumstances.
 
(c)   Represents deferred gains from the termination of interest rate risk management agreements.
     The following is a summary of short-term bank borrowings under United Dominion’s bank credit facility at December 31, (dollars in thousands):
                         
    2005   2004   2003
             
Total revolving credit facilities at December 31
  $ 500,000     $ 500,000     $ 500,000  
Borrowings outstanding at December 31
    210,800       278,100       137,900  
Weighted average daily borrowings during the year
    315,487       127,665       171,179  
Maximum daily borrowings during the year
    440,200       356,500       272,800  
Weighted average interest rate during the year
    3.6 %     2.0 %     2.1 %
Weighted average interest rate at December 31
    4.7 %     2.7 %     1.6 %
Weighted average interest rate at December 31 - after giving effect to swap agreements
    n/a       n/a       4.2 %
     At December 31, 2004, all of United Dominion’s interest rate swap agreements associated with commercial bank borrowings had matured.
6. STOCKHOLDERS’ EQUITY
Preferred Stock
     The Series B Cumulative Redeemable Preferred Stock has no stated par value and a liquidation preference of $25 per share. The Series B has no voting rights except as required by law. The Series B has no stated maturity and is not subject to any sinking fund or mandatory redemption and is not convertible into any of our other securities. The Series B is not redeemable prior to May 29, 2007. On or after this date, the Series B may be redeemed for cash at our option, in whole or in part, at a redemption price of $25 per share plus accrued and unpaid dividends. The redemption price is payable solely out of the sale proceeds of our other capital stock. All dividends due and payable on the Series B have been accrued or paid as of the end of each fiscal year.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     Distributions declared on the Series B in 2005 were $2.15 per share or $0.5375 per quarter. The Series B is listed on the NYSE under the symbol “UDRpb.” At December 31, 2005, a total of 5,416,009 shares of the Series B were outstanding.
     All of the remaining outstanding shares of our Series D Cumulative Convertible Redeemable Preferred Stock were converted by the holder into shares of our common stock. The Series D had no stated maturity, no stated par value, no voting rights except as required by law, and a liquidation preference of $25 per share. The Series D was convertible at any time into 1.5385 shares of common stock, subject to certain adjustments, at the option of the holder of the Series D. We had the option to redeem at any time all or part of the Series D at a price per share of $25, payable in cash, plus all accrued and unpaid dividends, provided that the current market price of our common stock was at least equal to the conversion price, initially set at $16.25 per share.
     In 2004, we exercised our right to redeem the remaining 2 million shares of our Series D that were outstanding. Upon receipt of our redemption notice, the shares to be redeemed were converted by the holder into 3,076,769 shares of common stock at a price of $16.25 per share. In 2003, we exercised our right to redeem 6 million shares of our Series D. Upon receipt of our redemption notice, the 6 million shares to be redeemed were converted by the holder into 9,230,923 shares of common stock at a price of $16.25 per share.
     The Series E Cumulative Convertible Preferred Stock has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into one share of our common stock. The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption.
     In 2004, Series E holders converted a total of 621,405 shares of Series E into 621,405 shares of our common stock.
     Distributions declared on the Series E in 2005 were $1.33 per share or $0.3322 per quarter. The Series E is not listed on any exchange. At December 31, 2005 a total of 2,803,812 shares of the Series E were outstanding.
Dividend Reinvestment and Stock Purchase Plan
     United Dominion’s Dividend Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends, additional shares of United Dominion’s common stock. As of December 31, 2005, 9,849,009 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 15,150,991 were reserved for further issuance under the Stock Purchase Plan as of December 31, 2005. During 2005, 55,818 shares were issued under the Stock Purchase Plan for a total consideration of approximately $1.3 million.
Restricted Stock Awards
     United Dominion’s 1999 Long-Term Incentive Plan (“LTIP”) authorizes the grant of restricted stock awards to employees, officers, consultants, and directors of United Dominion. Deferred compensation expense is recorded over the vesting period and is based upon the value of the common stock on the date of issuance. For the years ended December 31, 2005, 2004 and 2003, we recognized $3.2 million, $2.7 million, and $2.2 million, respectively, of compensation expense related to the amortization of restricted stock. As of December 31, 2005, 903,481 shares of restricted stock have been issued under the LTIP.
Shareholder Rights Plan
     United Dominion’s First Amended and Restated Rights Agreement is intended to protect long-term interests of stockholders in the event of an unsolicited, coercive or unfair attempt to take over United Dominion. The plan authorized a dividend of one Preferred Share Purchase Right (the “Rights”) on each share of common stock outstanding. Each Right, which is not currently exercisable, will entitle the holder to purchase 1/1000 of a share of a

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
new series of United Dominion’s preferred stock, to be designated as Series C Junior Participating Cumulative Preferred Stock, at a price to be determined upon the occurrence of the event, and for which the holder must be paid $45 should the takeover occur. Under the Plan, the rights will be exercisable if a person or group acquires more than 15% of United Dominion’s common stock or announces a tender offer that would result in the ownership of 15% of United Dominion’s common stock.
7. FINANCIAL INSTRUMENTS
     The following estimated fair values of financial instruments were determined by United Dominion using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts United Dominion would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair value of United Dominion’s financial instruments as of December 31, 2005 and 2004, are summarized as follows (dollars in thousands):
                                 
    2005   2004
    Carrying   Fair   Carrying   Fair
    Amount   Value   Amount   Value
Secured debt
  $ 1,116,259     $ 1,123,108     $ 1,197,924     $ 1,228,953  
Unsecured debt
    2,043,518       2,032,211       1,682,058       1,654,760  
     The following methods and assumptions were used by United Dominion in estimating fair values.
Cash equivalents
     The carrying amount of cash equivalents approximates fair value.
Notes receivable
     In July 2005, United Dominion received short-term notes in the principal amount of $124.7 million that bear interest at 6.75% and had maturities ranging from September 2005 to July 2006. The notes were received in conjunction with the sale of ten communities. As of December 31, 2005, the outstanding balance on these notes was $59.8 million. In June 2003, United Dominion received a promissory note in the principal amount of $5 million that is due October 2011. The note was received in connection with one of our acquisitions and bears interest of 9.0% that is payable in annual installments. The carrying amount of these notes receivable approximate their fair value.
Secured and unsecured debt
     Estimated fair value is based on mortgage rates, tax-exempt bond rates, and corporate unsecured debt rates believed to be available to United Dominion for the issuance of debt with similar terms and remaining lives. The carrying amount of United Dominion’s variable rate secured debt approximates fair value as of December 31, 2005 and 2004. The carrying amounts of United Dominion’s borrowings under variable rate unsecured debt arrangements, short-term revolving credit agreements, and lines of credit approximate their fair values as of December 31, 2005 and 2004.
Derivative financial instruments
     At December 31, 2005, United Dominion has no derivative financial instruments reported on its Consolidated Balance Sheet.
     For the years ended December 31, 2004 and 2003, United Dominion recognized $1.9 million and $8.1 million, respectively, of unrealized gains in comprehensive income. For the year ended December 31, 2004, United

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Dominion recognized a loss of $0.2 million in net income related to the ineffective portion of United Dominion’s hedging instruments. For the year ended December 31, 2003, United Dominion recognized $0.3 million in realized gains in net income related to the ineffective portion of United Dominion’s hedging instruments.
8. INCOME TAXES
     The aggregate cost of our real estate assets for federal income tax purposes was approximately $4.9 billion at December 31, 2005.
     The following table reconciles United Dominion’s net income to REIT taxable income for the three years ended December 31, 2005 (dollars in thousands):
                         
    2005   2004   2003
Net income
  $ 155,166     $ 97,152     $ 70,404  
Elimination of TRS income
    (17,802 )     (1,120 )     (246 )
Minority interest
    (1,828 )     (1,950 )     (3,364 )
Depreciation and amortization expense
    56,274       46,916       44,108  
Disposition of properties
    (74,323 )     (10,029 )     2,363  
Revenue recognition timing differences
    (87 )     (195 )     1,750  
Investment loss, not deductible for tax
          (593 )      
Other expense timing differences
    (1,160     (1,072 )     (844 )
             
REIT taxable income before dividends
  $ 116,240     $ 129,109     $ 114,171  
             
Dividend paid deduction
  $ 149,475     $ 153,409     $ 132,722  
             
     For income tax purposes, distributions paid to common stockholders may consist of ordinary income, capital gains, and non-taxable return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. For the three years ended December 31, 2005, distributions declared per common share were taxable as follows:

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
                         
    2005     2004     2003  
Ordinary income
  $ 0.64     $ 0.77     $ 0.82  
Long-term capital gain
    0.22       0.20       0.10  
Unrecaptured section 1250 gain
    0.13       0.08       0.02  
Return of capital
    0.21       0.12       0.20  
 
                 
 
  $ 1.20     $ 1.17     $ 1.14  
 
                 
      We have a taxable REIT subsidiary that is subject to state and federal income taxes. Income tax expense consists of the following for the years ended December 31, 2005 and 2004, and is included in gains on the sales (dollars in thousands):
                 
    2005     2004  
Income tax expense
               
Current
  $ 11,090     $ 867  
Deferred
    313        
 
           
Total income tax expense
  $ 11,403     $ 867  
 
           
     Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income for the years ended December 31, 2005 and 2004 as follows (dollars in thousands):
                 
    2005     2004  
Income tax expense
               
Computed tax expense
  $ 10,193     $ 675  
Increase in income tax expense resulting from state taxes and other
    1,210       192  
 
           
Total income tax expense
  $ 11,403     $ 867  
 
           
     Deferred income taxes reflect the estimated net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts for income tax purposes. Our taxable REIT subsidiary’s deferred tax assets and liabilities are as follows at December 31, 2005 and 2004 (dollars in thousands):
                 
    2005     2004  
Deferred tax assets:
               
Depreciation
  $ 32     $  
Reserves
    19        
 
           
Total deferred tax assets
    51        
Deferred tax liabilities:
               
Gain on sales
    (49 )      
Interest
    (315 )      
 
           
Total deferred tax liabilities
    (364 )      
 
           
Net deferred tax liability
  $ (313 )   $  
 
           
9. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
     The United Dominion Realty Trust, Inc. Profit Sharing Plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, United Dominion makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
provisions for contributions, both matching and discretionary, which are included in United Dominion’s Consolidated Statements of Operations for the three years ended December 31, 2005, 2004, and 2003 were $0.6 million, $0.6 million, and $0.3 million, respectively.
Stock Option Plan
     In May 2001, the stockholders of United Dominion approved the 1999 Long-Term Incentive Plan (the “LTIP”), which supersedes the 1985 Stock Option Plan. With the approval of the LTIP, no additional grants will be made under the 1985 Stock Option Plan. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, and any other right or interest relating to common stock or cash. The Board of Directors reserved 4 million shares for issuance upon the grant or exercise of awards under the LTIP. The LTIP generally provides, among other things, that options are granted at exercise prices not lower than the market value of the shares on the date of grant and that options granted must be exercised within ten years. The maximum number of shares of stock that may be issued subject to incentive stock options is 4 million shares. Shares under options that expire or are cancelable are available for subsequent grant.
     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). There were no options granted during 2005, 2004 or 2003.
     A summary of United Dominion’s stock option activity during the three years ended December 31, 2005 is provided in the following table:
                                         
    Number   Weighted Average   Range of
    Outstanding   Exercise Price   Exercise Prices
             
Balance, December 31, 2002
    3,667,329     $ 12.01     $ 9.63           $ 15.38  
Granted
                                 
Exercised
    (1,106,142 )     12.41       9.63             15.38  
Forfeited
    (25,000 )     9.65       9.63             9.88  
             
Balance, December 31, 2003
    2,536,187     $ 11.88     $ 9.63           $ 15.38  
Granted
                                 
Exercised
    (562,064 )     11.90       9.63             15.25  
Forfeited
    (13,500 )     12.02       10.88             13.96  
             
Balance, December 31, 2004
    1,960,623     $ 11.88     $ 9.63           $ 15.38  
Granted
                                 
Exercised
    (298,566 )     12.02       9.88             14.63  
Forfeited
    (19,834 )     13.80       9.88             15.25  
             
Balance, December 31, 2005
    1,642,223     $ 11.84     $ 9.63           $ 15.38  
             
 
                                       
Exercisable at December 31,
                                       
2003
    2,207,685     $ 11.77     $ 9.63         $ 15.38  
2004
    1,938,343       11.84       9.63             15.38  
2005
    1,635,666       11.82       9.63             15.38  

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
     The weighted average remaining contractual life on all options outstanding is 4.1 years. 643,110 of share options had exercise prices between $9.63 and $10.88, 596,796 of share options had exercise prices between $11.15 and $12.23, and 402,317 of share options had exercise prices between $13.76 and $15.38.
     As of December 31, 2005 and 2004, stock-based awards for 2,583,586 and 2,890,251 shares of common stock, respectively, were available for future grants under the 1999 LTIP’s existing authorization.
10. COMMITMENTS AND CONTINGENCIES
Commitments
     Real Estate Under Development
     United Dominion is committed to completing its real estate currently under development, which has an estimated cost to complete of $48.5 million as of December 31, 2005.
     Land and Other Leases
     United Dominion is party to several ground leases relating to operating communities. In addition, United Dominion is party to various other operating leases related to the operation of its regional offices and an airplane. Future minimum lease payments for non-cancelable land and other leases as of December 31, 2005 are as follows (dollars in thousands):
                 
    Ground     Operating  
    Leases     Leases  
2006
  $ 1,060     $ 1,157  
2007
    1,060       902  
2008
    1,060       840  
2009
    1,064       837  
2010
    1,064       488  
Thereafter
    21,239        
 
           
 
  $ 26,547     $ 4,224  
 
           
     United Dominion incurred $2.4 million of rent expense for the year ended December 31, 2005. United Dominion incurred $1.9 million of rent expense for each of the years ended December 31, 2004 and 2003.
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 Out-Performance Partnership Shares” or “Series B OPPSs”) . The purchase price for the Series B OPPSs was determined by United Dominion’s board of directors to be $1 million, assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series B Program 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

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
equivalent of a 22% total return, or 11% annualized.
     At the conclusion of the measurement period on May 31, 2005, United Dominion’s total cumulative return 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 the Operating Partnership (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 Out-Performance Partnership Shares” or “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 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 United Dominion’s total cumulative return 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 the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by:
  i.   determining the amount by which the cumulative total return of United Dominion’s common stock over the measurement period exceeds the 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.

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UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
11. INDUSTRY SEGMENTS
     United Dominion owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment units to a diverse base of tenants. United Dominion separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities has similar economic characteristics, facilities, services, and tenants, the apartment communities have been aggregated into a single apartment communities segment. All segment disclosure is included in or can be derived from United Dominion’s consolidated financial statements.
     There are no tenants that contributed 10% or more of United Dominion’s total revenues during 2005, 2004, or 2003.
12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA
     Summarized consolidated quarterly financial data for the year ended December 31, 2005, with restated amounts that reflect discontinued operations as of December 31, 2005, is as follows (dollars in thousands, except per share amounts):
                                                         
    Three Months Ended
    Previously           Previously           Previously        
    Reported   Restated   Reported   Restated   Reported   Restated    
    March 31   March 31   June 30   June 30   September 30   September 30   December 31
Rental income (a)
  $ 171,331     $ 163,331     $ 169,427     $ 168,078     $ 172,514     $ 172,273     $ 176,871  
Income before minority interests and discontinued operations
    6,662       6,208       5,561       5,005       3,106       3,055       4,322  
Gain on sale of land and depreciable property
    7,023       7,023       46,781       46,781       12,851       12,851       73,068  
Income from discontinued operations, net of minority interests
    8,499       8,924       47,041       47,549       11,952       11,999       68,392  
Net income available to common stockholders
    11,099       11,099       48,599       48,599       11,293       11,292       68,806  
 
Earnings per common share:
                                                       
Basic
  $ 0.08     $ 0.08     $ 0.36     $ 0.36     $ 0.08     $ 0.08     $ 0.51  
Diluted
    0.08       0.08       0.36       0.36       0.08       0.08       0.50  
 
(a)   Represents rental income from continuing operations.
     Summarized consolidated quarterly financial data for the year ended December 31, 2004, with restated amounts that reflect discontinued operations as of December 31, 2005, is as follows (dollars in thousands, except per share amounts):
                                                                 
    Three Months Ended
    Previously           Previously           Previously           Previously    
    Reported   Restated   Reported   Restated   Reported   Restated   Reported   Restated
    March 31(a)   March 31(a)   June 30 (a)   June 30 (a)   September 30(a)   September 30(a)   December 31(a)   December 31(a)
Rental income (b)
  $ 135,501     $ 135,137     $ 139,357     $ 139,013     $ 142,590     $ 142,280     $ 156,288     $ 155,978  
Income before minority interests and discontinued operations
    7,746       7,667       9,576       9,514       3,364       3,351       4,050       4,016  
Gain on sale of land and depreciable property
    1,205       1,205       13,814       13,814       20,220       20,220       17,664       17,664  
Income from discontinued operations, net of minority interests
    7,716       7,790       19,173       19,231       24,297       24,310       21,368       21,400  
Net income available to common stockholders
    8,665       8,665       21,855       21,855       21,160       21,160       20,212       20,212  
 
Earnings per common share:
                                                               
Basic
  $ 0.07     $ 0.07     $ 0.17     $ 0.17     $ 0.17     $ 0.17     $ 0.15     $ 0.15  
Diluted
    0.07       0.07       0.17       0.17       0.17       0.17       0.15       0.15  
 
(a)   The first, second and third quarters of 2004 each include $1.6 million of expense for premiums paid for the conversion of shares of Series D preferred stock into common stock. The fourth quarter of 2004 includes $1.0 million of expense for premiums paid for the conversion of shares of Series D preferred stock into common stock.
 
(b)   Represents rental income from continuing operations.

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UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2005
                                                                                 
                                    Cost of   Gross Amount at                
            Initial Costs           Improvements   Which Carried at Close of Period                
                            Total   Capitalized                        
            Land and   Buildings   Initial   Subsequent   Land and   Buildings   Total            
            Land   and   Acquisition   to Acquisition   Land   and   Carrying   Accumulated   Date of   Date
Property   Encumbrances   Improvements   Improvements   Costs   (Net of Disposals)   Improvements   Improvements   Value (A)   Depreciation (B)   Construction   Acquired
MID-ATLTANTIC REGION
                                                                               
 
                                                                               
Dominion Middle Ridge
  $ 17,769,407     $ 3,311,468     $ 13,283,047     $ 16,594,515     $ 3,549,584     $ 3,536,061     $ 16,608,039     $ 20,144,099     $ 5,673,690     1990   06/25/96
Dominion Lake Ridge
    12,921,808       2,366,061       8,386,439       10,752,500       2,825,393       2,573,392       11,004,501       13,577,893       3,959,984     1987   02/23/96
Presidential Greens
          11,237,698       18,789,985       30,027,683       2,628,284       11,387,017       21,268,950       32,655,967       4,663,728     1938   05/15/02
Taylor Place
          6,417,889       13,411,278       19,829,167       4,385,013       6,591,430       17,622,750       24,214,180       4,034,036     1962   04/17/02
Ridgewood
          5,612,147       20,085,474       25,697,621       3,573,634       5,684,212       23,587,043       29,271,255       4,777,857     1988   08/26/02
The Calvert
          262,807       11,188,623       11,451,430       2,917,630       2,330,329       12,038,731       14,369,061       1,628,459     1962   11/26/03
Commons at Town Square
          135,780       10,012,173       10,147,953       600,795       9,154,107       1,594,641       10,748,747       258,829     1971   12/03/03
Waterside Towers
          873,713       46,852,061       47,725,775       2,893,127       34,675,076       15,943,825       50,618,902       2,196,087     1971   12/03/03
Waterside Townhomes
          129,000       4,621,000       4,750,000       323,665       3,638,423       1,435,242       5,073,665       195,924     1971   12/03/03
Wellington Place at Olde Town
          13,753,346       36,233,961       49,987,307       362,520       13,753,346       36,596,481       50,349,827       655,589     1987   09/13/05
METROPOLITAN DC
    30,691,215       44,099,910       182,864,041       226,963,950       24,059,645       93,323,393       157,700,203       251,023,595       28,044,183          
 
                                                                               
Dominion On Spring Forest
          1,257,500       8,586,255       9,843,755       5,664,058       1,819,508       13,688,305       15,507,813       8,063,732     1978/81   05/21/91
Dominion Park Green
          500,000       4,321,872       4,821,872       2,895,880       742,725       6,975,027       7,717,752       3,665,544     1987   09/27/91
Dominion On Lake Lynn
    12,134,000       3,622,103       12,405,020       16,027,123       5,925,326       4,313,650       17,638,799       21,952,449       7,529,371     1986   12/01/92
Dominion Courtney Place
          1,114,600       5,119,259       6,233,859       4,575,575       1,510,378       9,299,056       10,809,434       4,900,517     1979/81   07/08/93
Dominion Walnut Ridge
    9,589,520       1,791,215       11,968,852       13,760,067       4,218,718       2,316,086       15,662,699       17,978,785       6,657,701     1982/84   03/04/94
Dominion Walnut Creek
    15,153,866       3,170,290       21,717,407       24,887,697       6,569,026       3,814,435       27,642,288       31,456,723       11,616,249     1985/86   05/17/94
Dominion
          907,605       6,819,154       7,726,759       1,989,904       1,062,270       8,654,393       9,716,663       3,125,715     1988   08/15/96
Copper Mill
          1,548,280       16,066,720       17,615,000       1,710,445       1,925,344       17,400,101       19,325,445       5,483,226     1997   12/31/96
Trinity Park
    10,968,900       4,579,648       17,575,712       22,155,360       2,591,061       4,695,582       20,050,839       24,746,421       6,214,686     1987   02/28/97
Meadows at Kildaire
    15,906,030       2,846,027       20,768,425       23,614,452       2,108,239       6,925,532       18,797,159       25,722,691       6,798,874     2000   05/25/00
Oaks at Weston
          9,943,644       23,305,862       33,249,506       747,025       10,203,256       23,793,275       33,996,531       5,584,096     2001   06/28/02
RALEIGH, NC
    63,752,316       31,280,912       148,654,538       179,935,450       38,995,258       39,328,765       179,601,942       218,930,708       69,639,710          
 
                                                                               
Gatewater Landing
          2,078,422       6,084,526       8,162,948       3,803,951       2,352,778       9,614,121       11,966,899       4,359,887     1970   12/16/92
Dominion Kings Place
          1,564,942       7,006,574       8,571,516       2,227,550       1,671,923       9,127,143       10,799,066       3,893,849     1983   12/29/92
Dominion At Eden Brook
          2,361,167       9,384,171       11,745,338       3,518,669       2,726,003       12,538,004       15,264,007       5,397,884     1984   12/29/92
Dominion Great Oaks
    13,285,808       2,919,481       9,099,691       12,019,172       5,571,060       4,328,152       13,262,080       17,590,232       6,469,950     1974   07/01/94
Dominion Constant Friendship
          903,122       4,668,956       5,572,078       1,566,714       1,086,412       6,052,380       7,138,792       2,425,700     1990   05/04/95
Lakeside Mill
          2,665,869       10,109,175       12,775,044       1,510,604       2,710,326       11,575,322       14,285,648       4,703,932     1989   12/10/99
Tamar Meadow
          4,144,926       17,149,514       21,294,440       2,272,188       4,202,461       19,364,168       23,566,628       3,593,416     1990   11/22/02
Calvert’s Walk
          4,408,192       24,692,115       29,100,307       1,568,902       4,452,121       26,217,088       30,669,209       2,759,740     1988   03/30/04
Arborview
          4,653,393       23,951,828       28,605,221       1,523,017       4,694,342       25,433,896       30,128,238       2,736,663     1992   03/30/04
Liriope
          1,620,382       6,790,681       8,411,063       131,693       1,622,363       6,920,392       8,542,755       755,333     1997   03/30/04
BALTIMORE, MD
    13,285,808       27,319,896       118,937,230       146,257,126       23,694,348       29,846,880       140,104,594       169,951,474       37,096,354          
 
                                                                               
Dominion Olde West
          1,965,097       12,203,965       14,169,062       5,512,982       2,444,251       17,237,793       19,682,044       9,307,383     1978/82/84/85/87    12/31/84 & 8/27/91
Dominion Creekwood
                            3,331,437       76,962       3,254,475       3,331,437       955,451     1984   08/27/91
Dominion Laurel Springs
          464,480       3,119,716       3,584,196       3,056,812       778,979       5,862,029       6,641,008       2,894,355     1972   09/06/91
Dominion English Hills
    15,409,295       1,979,174       11,524,313       13,503,487       7,771,090       2,873,091       18,401,486       21,274,577       10,231,879     1969/76   12/06/91
Dominion Gayton Crossing
    10,063,000       825,760       5,147,968       5,973,728       7,111,805       1,435,820       11,649,713       13,085,533       7,614,479     1973   09/28/95
Dominion West End
    16,896,683       2,059,252       15,049,088       17,108,340       5,801,844       2,870,787       20,039,397       22,910,184       7,711,367     1989   12/28/95
Courthouse Green
    7,865,616       732,050       4,702,353       5,434,403       3,741,406       1,196,356       7,979,453       9,175,809       5,052,964     1974/78   12/31/84
Waterside At Ironbridge
    11,297,000       1,843,819       13,238,590       15,082,409       2,377,879       2,068,745       15,391,543       17,460,288       4,494,457     1987   09/30/97
Carriage Homes at Wyndham
          473,695       30,996,525       31,470,220       975,207       3,654,306       28,791,121       32,445,427       3,679,651     1998   11/25/03
Legacy at Mayland
                            10,896,257       622,305       10,273,952       10,896,257       692,693          
RICHMOND, VA
    61,531,594       10,343,327       95,982,518       106,325,845       50,576,720       18,021,603       138,880,962       156,902,565       52,634,677          
 
                                                                               
Beechwood
          1,409,377       6,086,677       7,496,054       2,052,996       1,691,278       7,857,772       9,549,050       3,560,316     1985   12/22/93
Steeplechase
          3,208,108       11,513,978       14,722,086       13,454,071       4,093,435       24,082,722       28,176,157       8,094,402     1990/97   03/07/96
Northwinds
          1,557,654       11,735,787       13,293,441       2,067,610       1,875,137       13,485,914       15,361,051       4,837,876     1989/97   08/15/96
Deerwood Crossings
          1,539,901       7,989,043       9,528,944       2,124,045       1,715,826       9,937,164       11,652,989       3,877,552     1973   08/15/96
Dutch Village
          1,197,593       4,826,266       6,023,859       1,555,262       1,312,239       6,266,882       7,579,121       2,531,503     1970   08/15/96
Lake Brandt
          1,546,950       13,489,466       15,036,416       1,418,731       1,857,767       14,597,379       16,455,147       5,222,300     1995   08/15/96
Park Forest
          679,671       5,770,413       6,450,084       1,833,426       970,920       7,312,589       8,283,510       2,372,182     1987   09/26/96
Deep River Pointe
          1,670,648       11,140,329       12,810,977       844,860       1,836,524       11,819,312       13,655,837       3,623,282     1997   10/01/97
GREENSBORO, NC
          12,809,902       72,551,959       85,361,861       25,351,001       15,353,127       95,359,735       110,712,862       34,119,414          
 
                                                                               
Dominion Harris Pond
          886,788       6,728,097       7,614,885       2,411,470       1,292,902       8,733,453       10,026,355       3,696,584     1987   07/01/94
Dominion Mallard Creek
          698,860       6,488,061       7,186,921       1,950,035       728,374       8,408,582       9,136,956       3,050,931     1989   08/16/94
Dominion At Sharon
          667,368       4,856,103       5,523,471       1,797,222       970,559       6,350,133       7,320,693       2,467,435     1984   08/15/96

68


Table of Contents

UNITED DOMINION REALTY TRUST
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2005
                                                                                 
                                    Cost of   Gross Amount at                
            Initial Costs           Improvements   Which Carried at Close of Period                
                            Total   Capitalized                        
            Land and   Buildings   Initial   Subsequent   Land and   Buildings   Total            
            Land   and   Acquisition   to Acquisition   Land   and   Carrying   Accumulated   Date of   Date
Property   Encumbrances   Improvements   Improvements   Costs   (Net of Disposals)   Improvements   Improvements   Value (A)   Depreciation (B)   Construction   Acquired
Providence Court
                22,047,803       22,047,803       10,919,273       7,634,765       25,332,311       32,967,076       9,050,790     1997   09/30/97
Dominion Crown Point
          2,122,179       22,338,577       24,460,756       3,813,162       3,971,293       24,302,625       28,273,918       10,932,380     1987/2000   07/01/94
Dominion Crossing
          1,666,312       4,774,020       6,440,332       479,761       1,666,398       5,253,695       6,920,093       454,238     1985   08/31/04
Dominion Norcroft
          1,968,664       13,051,238       15,019,902       563,625       1,979,077       13,604,449       15,583,526       1,142,781     1991/97   08/31/04
CHARLOTTE, NC
          8,010,171       80,283,899       88,294,070       21,934,547       18,243,370       91,985,247       110,228,617       30,795,140          
 
                                                                               
Cape Harbor
          1,891,671       18,113,109       20,004,780       2,715,319       2,310,437       20,409,662       22,720,099       7,012,838     1996   08/15/96
Mill Creek
          1,404,498       4,489,398       5,893,896       15,103,701       1,979,446       19,018,150       20,997,597       7,115,288     1986/98   09/30/91
The Creek
          417,500       2,506,206       2,923,706       2,949,452       546,034       5,327,124       5,873,158       2,977,376     1973   06/30/92
Forest Hills
          1,028,000       5,420,478       6,448,478       3,988,083       1,219,115       9,217,446       10,436,561       4,644,726     1964/69   06/30/92
Clear Run
          874,830       8,740,602       9,615,432       7,010,480       1,341,941       15,283,971       16,625,912       6,223,558     1987/89   07/22/94
Crosswinds
          1,096,196       18,230,236       19,326,432       2,531,781       1,242,450       20,615,763       21,858,213       6,617,858     1990   02/28/97
WILMINGTON, NC
          6,712,695       57,500,029       64,212,724       34,298,815       8,639,424       89,872,116       98,511,539       34,591,644          
 
                                                                               
Forest Lake At Oyster Point
          780,117       8,861,878       9,641,995       4,068,878       1,223,412       12,487,461       13,710,873       5,044,122     1986   08/15/95
Woodscape
          798,700       7,209,525       8,008,225       6,014,965       1,895,654       12,127,536       14,023,190       6,538,636     1974/76   12/29/87
Eastwind
          155,000       5,316,738       5,471,738       3,636,350       493,355       8,614,734       9,108,088       4,247,478     1970   04/04/88
Dominion Waterside at Lynnhaven
          1,823,983       4,106,710       5,930,693       3,369,516       2,064,906       7,235,303       9,300,209       2,857,998     1966   08/15/96
Heather Lake
          616,800       3,400,672       4,017,472       6,658,926       1,088,260       9,588,138       10,676,398       6,084,003     1972/74   03/01/80
Dominion Yorkshire Downs
    9,117,528       1,088,887       8,581,771       9,670,658