UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

 

Commission file number 1-10524

United Dominion Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

Maryland

54-0857512

(State or other jurisdiction of
incorporation of organization)

(I.R.S. Employer
Identification No.)

 

1745 Shea Center Drive, Suite 200,

Highlands Ranch, Colorado 80129

(Address of principal executive offices) (zip code)

(720) 283-6120

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No 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 x

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 x

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of August 4, 2006 was 134,630,352.

 




UNITED DOMINION REALTY TRUST, INC.
FORM 10-Q
INDEX

 

Page

 

PART I—FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

2

 

 

Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005

 

2

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005

 

3

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005

 

4

 

 

Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2006

 

5

 

 

Notes to Consolidated Financial Statements

 

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

Item 4.

Controls and Procedures

 

28

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1A.

Risk Factors

 

30

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

37

 

Item 6.

Exhibits

 

38

 

 

Signatures

 

39

 

 

1




PART I—FINANCIAL INFORMATION

Item 1.                        FINANCIAL STATEMENTS

UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
(Unaudited)

 

 

June 30,

 

December 31,

 

 

 

2006

 

2005

 

ASSETS

 

 

 

 

 

 

 

Real estate owned:

 

 

 

 

 

 

 

Real estate held for investment

 

$

5,372,252

 

 

$

5,047,128

 

 

Less: accumulated depreciation

 

(1,137,740

)

 

(1,031,586

)

 

 

 

4,234,512

 

 

4,015,542

 

 

Real estate under development (net of accumulated depreciation of $1,329 and $140)

 

202,972

 

 

121,131

 

 

Real estate held for disposition (net of accumulated depreciation of $68,936 and $92,103)

 

170,452

 

 

251,922

 

 

Total real estate owned, net of accumulated depreciation

 

4,607,936

 

 

4,388,595

 

 

Cash and cash equivalents

 

6,290

 

 

15,543

 

 

Restricted cash

 

5,012

 

 

4,583

 

 

Deferred financing costs, net

 

30,721

 

 

31,036

 

 

Notes receivable

 

13,960

 

 

64,805

 

 

Other assets

 

48,420

 

 

33,764

 

 

Other assets—real estate held for disposition

 

6,493

 

 

3,267

 

 

Total assets

 

$

4,718,832

 

 

$

4,541,593

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Secured debt

 

$

1,167,748

 

 

$

1,116,259

 

 

Unsecured debt

 

2,234,118

 

 

2,043,518

 

 

Real estate taxes payable

 

25,023

 

 

22,670

 

 

Accrued interest payable

 

27,665

 

 

26,672

 

 

Security deposits and prepaid rent

 

25,502

 

 

24,668

 

 

Distributions payable

 

47,167

 

 

45,313

 

 

Accounts payable, accrued expenses, and other liabilities

 

44,268

 

 

53,470

 

 

Other liabilities—real estate held for disposition

 

2,205

 

 

17,480

 

 

Total liabilities

 

3,573,696

 

 

3,350,050

 

 

Minority interests

 

79,806

 

 

83,819

 

 

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 2005)

 

135,400

 

 

135,400

 

 

2,803,812 shares 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 in 2005)

 

46,571

 

 

46,571

 

 

Common stock, $0.01 par value; 250,000,000 shares authorized
134,569,843 shares issued and outstanding (134,012,053 in 2005)

 

1,346

 

 

1,340

 

 

Additional paid-in capital

 

1,685,367

 

 

1,680,115

 

 

Distributions in excess of net income

 

(803,354

)

 

(755,702

)

 

Total stockholders’ equity

 

1,065,330

 

 

1,107,724

 

 

Total liabilities and stockholders’ equity

 

$

4,718,832

 

 

$

4,541,593

 

 

 

See accompanying notes to consolidated financial statements.

2




UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

REVENUES

 

 

 

 

 

 

 

 

 

Rental income

 

$

174,257

 

$

157,391

 

$

344,814

 

$

309,785

 

Non-property income:

 

 

 

 

 

 

 

 

 

Sale of technology investment

 

 

 

 

12,306

 

Other income

 

724

 

39

 

1,902

 

657

 

Total non-property income

 

724

 

39

 

1,902

 

12,963

 

Total revenues

 

174,981

 

157,430

 

346,716

 

322,748

 

EXPENSES

 

 

 

 

 

 

 

 

 

Rental expenses:

 

 

 

 

 

 

 

 

 

Real estate taxes and insurance

 

20,294

 

18,103

 

42,756

 

36,546

 

Personnel

 

17,477

 

15,867

 

33,994

 

31,073

 

Utilities

 

9,396

 

8,679

 

20,162

 

17,845

 

Repair and maintenance

 

9,707

 

9,719

 

19,542

 

19,152

 

Administrative and marketing

 

5,483

 

5,368

 

10,670

 

10,691

 

Property management

 

5,093

 

4,844

 

10,084

 

9,657

 

Other operating expenses

 

301

 

290

 

599

 

580

 

Real estate depreciation and amortization

 

58,017

 

48,430

 

113,719

 

95,511

 

Interest

 

46,093

 

38,834

 

90,195

 

77,406

 

General and administrative

 

6,837

 

4,909

 

13,601

 

11,908

 

Loss on early debt retirement

 

 

18

 

 

6,662

 

Other depreciation and amortization

 

732

 

659

 

1,426

 

1,303

 

Total expenses

 

179,430

 

155,720

 

356,748

 

318,334

 

(Loss)/income before minority interests and discontinued
operations

 

(4,449

)

1,710

 

(10,032

)

4,414

 

Minority interests of outside partnerships

 

(38

)

(54

)

(54

)

(112

)

Minority interests of unitholders in operating partnerships

 

508

 

118

 

1,085

 

187

 

(Loss)/income before discontinued operations, net of minority interests

 

(3,979

)

1,774

 

(9,001

)

4,489

 

Income from discontinued operations, net of minority interests

 

36,163

 

50,667

 

53,194

 

62,894

 

Net income

 

32,184

 

52,441

 

44,193

 

67,383

 

Distributions to preferred stockholders—Series B

 

(2,911

)

(2,911

)

(5,822

)

(5,822

)

Distributions to preferred stockholders—Series E (Convertible)

 

(931

)

(931

)

(1,863

)

(1,863

)

Net income available to common stockholders

 

$

28,342

 

$

48,599

 

$

36,508

 

$

59,698

 

Earnings per weighted average common share—basic and diluted:

 

 

 

 

 

 

 

 

 

Loss from continuing operations available to common stockholders, net of minority interests

 

$

(0.06

)

$

(0.01

)

$

(0.13

)

$

(0.02

)

Income from discontinued operations, net of minority interests

 

$

0.27

 

$

0.37

 

$

0.40

 

$

0.46

 

Net income available to common stockholders

 

$

0.21

 

$

0.36

 

$

0.27

 

$

0.44

 

Common distributions declared per share

 

$

0.3125

 

$

0.3000

 

$

0.6250

 

$

0.6000

 

Weighted average number of common shares outstanding—basic

 

133,676

 

136,150

 

133,634

 

136,108

 

Weighted average number of common shares outstanding—diluted

 

133,676

 

136,150

 

133,634

 

136,108

 

 

See accompanying notes to consolidated financial statements.

3




UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
(Unaudited)

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2006

 

2005

 

Operating Activities

 

 

 

 

 

Net income

 

$

44,193

 

$

67,383

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

119,165

 

104,774

 

Net gains on the sale of land and depreciable property

 

(48,828

)

(53,804

)

Gain on the sale of technology investment

 

 

(12,306

)

Minority interests

 

2,431

 

3,833

 

Amortization of deferred financing costs and other

 

2,877

 

4,689

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in operating assets

 

(6,225

)

(3,006

)

Decrease in operating liabilities

 

(16,531

)

(861

)

Net cash provided by operating activities

 

97,082

 

110,702

 

Investing Activities

 

 

 

 

 

Proceeds from sales of real estate investments, net

 

131,993

 

170,620

 

Repayment of note receivable

 

51,845

 

 

Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures

 

(230,210

)

(172,603

)

Development of real estate assets

 

(20,911

)

(22,687

)

Capital expenditures and other major improvements—real estate assets, net of escrow reimbursement

 

(100,483

)

(53,335

)

Capital expenditures—non-real estate assets

 

(1,613

)

(1,055

)

Investment in joint venture

 

(24,591

)

 

Proceeds from the sale of technology investment

 

 

12,306

 

Increase in funds due to overnight investment

 

 

(11,290

)

Decrease in funds held in escrow from 1031 exchanges pending the acquisition of real estate

 

 

17,039

 

Net cash used in investing activities

 

(193,970

)

(61,005

)

Financing Activities

 

 

 

 

 

Scheduled principal payments on secured debt

 

(5,702

)

(6,702

)

Non-scheduled principal payments on secured debt

 

 

(125,221

)

Payments on unsecured debt

 

(24,820

)

(21,100

)

Proceeds from the issuance of unsecured debt

 

125,000

 

161,802

 

Proceeds from the issuance of secured debt

 

9,327

 

 

Net proceeds from revolving bank debt

 

90,600

 

37,900

 

Payment of financing costs

 

(2,666

)

(6,112

)

Collateral substitution deposit

 

(11,142

)

 

Proceeds from the issuance of common stock

 

3,223

 

3,010

 

Proceeds from the issuance of performance shares

 

317

 

 

Distributions paid to minority interests

 

(6,510

)

(6,224

)

Distributions paid to preferred stockholders

 

(7,685

)

(7,685

)

Distributions paid to common stockholders

 

(82,307

)

(81,102

)

Net cash provided by/(used in) financing activities

 

87,635

 

(51,434

)

Net decrease in cash and cash equivalents

 

(9,253

)

(1,737

)

Cash and cash equivalents, beginning of period

 

15,543

 

7,904

 

Cash and cash equivalents, end of period

 

$

6,290

 

$

6,167

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

90,332

 

$

73,614

 

Non-cash transactions:

 

 

 

 

 

Conversion of operating partnership minority interests to common stock
(26,525 shares in 2006 and 84,380 shares in 2005)

 

250

 

1,317

 

Issuance of restricted stock awards

 

2,772

 

8,381

 

Secured debt assumed with acquisition of a property

 

14,236

 

 

Non-cash transactions associated with joint venture:

 

 

 

 

 

Real estate asset acquired

 

62,059

 

 

Secured debt assumed

 

33,628

 

 

Operating liabilities assumed

 

3,840

 

 

 

See accompanying notes to consolidated financial statements.

4




UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)

 

 

 

 

 

 

 

 

Distributions in

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Excess of

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

    Net Income    

 

Total

 

Balance, December 31, 2005

 

8,219,821

 

$

181,971

 

134,012,053

 

 

$

1,340

 

 

$

1,680,115

 

 

$

(755,702

)

 

$

1,107,724

 

Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,193

 

 

44,193

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,193

 

 

44,193

 

Issuance of common and restricted shares and other

 

 

 

 

 

531,265

 

 

6

 

 

5,002

 

 

 

 

5,008

 

Adjustment for conversion
of minority interests of unitholders in operating partnerships

 

 

 

 

 

26,525

 

 

 

 

250

 

 

 

 

250

 

Common stock distributions declared
($0.6250 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(84,160

)

 

(84,160

)

Preferred stock distributions declared-Series B ($1.075 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,822

)

 

(5,822

)

Preferred stock distributions declared-Series E ($0.6644 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,863

)

 

(1,863

)

Balance, June 30, 2006

 

8,219,821

 

$

181,971

 

134,569,843

 

 

$

1,346

 

 

$

1,685,367

 

 

$

(803,354

)

 

$

1,065,330

 

 

See accompanying notes to consolidated financial statements.

5




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(UNAUDITED)

1.   CONSOLIDATION AND BASIS OF PRESENTATION

United Dominion Realty Trust, Inc. is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. The accompanying consolidated financial statements include the accounts of United Dominion and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”) (collectively, “United Dominion”). As of June 30, 2006, there were 166,281,241 units in the Operating Partnership outstanding, of which 156,139,206 units or 94% were owned by United Dominion and 10,142,035 units or 6% were owned by limited partners (of which 1,764,662 are owned by the holders of the Series A OPPS, see Note 6). As of June 30, 2006, there were 5,542,200 units in the Heritage OP outstanding, of which 5,212,993 units or 94% were owned by United Dominion and 329,207 units or 6% were owned by limited partners. The consolidated financial statements of United Dominion include the minority interests of the unitholders in the Operating Partnership and the Heritage OP. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in United Dominion’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission as updated by the Current Report on Form 8-K filed May 17, 2006.

In the opinion of management, the consolidated financial statements reflect all adjustments that are necessary for the fair presentation of financial position at June 30, 2006, and results of operations for the interim periods ended June 30, 2006 and 2005. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

6




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2.   REAL ESTATE HELD FOR INVESTMENT

At June 30, 2006, there are 240 communities with 70,264 apartment homes classified as real estate held for investment. The following table summarizes the components of real estate held for investment (dollars in thousands):

 

 

June 30,
2006

 

December 31,
2005

 

Land and land improvements

 

$

1,299,136

 

$

1,240,865

 

Buildings and improvements

 

3,795,370

 

3,557,480

 

Furniture, fixtures, and equipment

 

277,746

 

248,783

 

Real estate held for investment

 

5,372,252

 

5,047,128

 

Accumulated depreciation

 

(1,137,740

)

(1,031,586

)

Real estate held for investment, net

 

$

4,234,512

 

$

4,015,542

 

 

3.   INCOME FROM DISCONTINUED OPERATIONS

FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144) requires, among other things, that the primary assets and liabilities and the results of operations of United Dominion’s real properties which have been sold subsequent to January 1, 2002, or are held for disposition subsequent to January 1, 2002, be classified as discontinued operations and segregated in United Dominion’s Consolidated Statements of Operations and Balance Sheets. Properties classified as real estate held for disposition generally represent properties that are actively marketed or contracted for sale which 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 June 30, 2006, 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 June 30, 2006, within the Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets for 2006 and 2005.

For the six months ended June 30, 2006, United Dominion sold seven communities with a total of 1,903 apartment homes and 300 condominiums from four communities with a total of 612 condominiums. We recognized gains for financial reporting purposes of $48.8 million on these sales. At June 30, 2006, United Dominion had 14 communities with a total of 4,405 homes and a net book value of $162.9 million, three communities with a total of 84 condominiums and a net book value of $7.4 million, and one parcel of land with a net book value of $0.2 million included in real estate held for disposition. During 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. 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 June 30, 2006, the balance on the notes receivable was $8.0 million. We recognized gains for financial reporting purposes of $10.6 million during the six months ended June 30, 2006. The results of operations for these properties and the interest expense associated with the secured debt on these properties are classified on the Consolidated Statements of Operations in the line item titled “Income from discontinued operations, net of minority interests.”

7




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

United Dominion has elected Taxable REIT Subsidiary (“TRS”) status for certain of its corporate subsidiaries, primarily those engaged in condominium conversion and sale activities. United Dominion recognized a provision for income taxes of $2.5 million and $1.0 million for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, United Dominion recognized a provision for income taxes of $7.2 million and $1.4 million, respectively. These amounts were classified as reductions of the net gain on sale of depreciable property in the accompanying consolidated statement of operations.

The following is a summary of income from discontinued operations for the periods presented, (dollars in thousands):

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Rental income

 

$

10,945

 

$

18,803

 

$

21,901

 

$

41,484

 

Non-property income

 

5

 

 

5

 

8

 

 

 

10,950

 

18,803

 

21,906

 

41,492

 

 

 

 

 

 

 

 

 

 

 

Rental expenses

 

4,949

 

8,231

 

10,078

 

17,892

 

Real estate depreciation

 

972

 

3,273

 

3,995

 

7,911

 

Interest

 

(11

)

244

 

(20

)

821

 

Loss on early debt retirement

 

 

 

 

1,821

 

Other expenses

 

6

 

21

 

25

 

49

 

 

 

5,916

 

11,769

 

14,078

 

28,494

 

Income before net gain on the sale of depreciable property and minority interests

 

5,034

 

7,034

 

7,828

 

12,998

 

Net gain on the sale of depreciable property

 

33,482

 

46,781

 

48,828

 

53,804

 

Income before minority interests

 

38,516

 

53,815

 

56,656

 

66,802

 

Minority interests on income from discontinued operations

 

(2,353

)

(3,148

)

(3,462

)

(3,908

)

Income from discontinued operations, net of minority interests

 

$

36,163

 

$

50,667

 

$

53,194

 

$

62,894

 

 

8




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.   SECURED DEBT

Secured debt on continuing and discontinued operations, which encumbers $2.0 billion or 34% of United Dominion’s real estate owned based upon book value ($3.8 billion or 66% of United Dominion’s real estate owned is unencumbered) consists of the following as of June 30, 2006 (dollars in thousands):

 

 

 

 

 

 

Weighted

 

Weighted

 

Number of

 

 

 

Principal Outstanding

 

Average

 

Average Years

 

Communities

 

 

 

June 30,

 

December 31,

 

Interest Rate

 

to Maturity

 

Encumbered

 

 

 

2006

 

2005

 

2006

 

2006

 

2006

 

Fixed Rate Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage notes payable

 

$

371,654

 

 

$

359,281

 

 

 

5.31

%

 

 

4.8

 

 

 

15

 

 

Tax-exempt secured notes payable

 

26,285

 

 

26,400

 

 

 

5.85

%

 

 

18.7

 

 

 

3

 

 

Fannie Mae credit facilities

 

363,875

 

 

363,875

 

 

 

6.09

%

 

 

4.8

 

 

 

9

 

 

Total fixed rate secured debt

 

761,814

 

 

749,556

 

 

 

5.70

%

 

 

5.3

 

 

 

27

 

 

Variable Rate Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage notes payable

 

105,695

 

 

66,464

 

 

 

6.94

%

 

 

3.1

 

 

 

4

 

 

Tax-exempt secured note payable

 

7,770

 

 

7,770

 

 

 

3.92

%

 

 

22.0

 

 

 

1

 

 

Fannie Mae credit facilities

 

292,469

 

 

292,469

 

 

 

5.60

%

 

 

6.4

 

 

 

47

 

 

Total variable rate secured debt

 

405,934

 

 

366,703

 

 

 

5.92

%

 

 

5.9

 

 

 

52

 

 

Total secured debt

 

$

1,167,748

 

 

$

1,116,259

 

 

 

5.77

%

 

 

5.5

 

 

 

79

 

 

 

Approximate principal payments due during each of the next five calendar years and thereafter, as of June 30, 2006, are as follows (dollars in thousands):

Year

 

 

 

Fixed
Rate
Maturities

 

Variable
Rate
Maturities

 

Total
Secured
Maturities

 

2006

 

$

30,284

 

$

33,743

 

$

64,027

 

2007

 

81,591

 

247

 

81,838

 

2008

 

9,252

 

34,290

 

43,542

 

2009

 

4,574

 

 

4,574

 

2010

 

251,328

 

 

251,328

 

Thereafter

 

384,785

 

337,654

 

722,439

 

 

 

$

761,814

 

$

405,934

 

$

1,167,748

 

 

During the first quarter of 2005, United Dominion prepaid approximately $110 million of secured debt. In conjunction with these prepayments, we incurred prepayment penalties of $8.5 million in both continuing and discontinued operations as “Loss on early debt retirement.” These penalties were funded by the proceeds from the sale of our technology investment of $12.3 million.

9




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.   UNSECURED DEBT

A summary of unsecured debt as of June 30, 2006 and December 31, 2005 is as follows (dollars in thousands):

 

 

2006

 

2005

 

Commercial Banks

 

 

 

 

 

Borrowings outstanding under an unsecured credit facility due May 2008(a)

 

$

301,400

 

$

210,800

 

Senior Unsecured Notes—Other

 

 

 

 

 

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

 

6.05% Medium-Term Notes due June 2013(b)

 

125,000

 

 

5.13% Medium-Term Notes due January 2014

 

200,000

 

200,000

 

5.25% Medium-Term Notes due January 2015

 

250,000

 

250,000

 

5.25% Medium-Term Notes due January 2016

 

100,000

 

100,000

 

8.50% Debentures due September 2024

 

54,118

 

54,118

 

4.00% Convertible Senior Notes due December 2035

 

250,000

 

250,000

 

Other(c)

 

190

 

370

 

 

 

1,886,018

 

1,761,198

 

Unsecured Notes—Other

 

 

 

 

 

Verano Construction Loan due February 2006

 

 

24,820

 

ABAG Tax-Exempt Bonds due August 2008

 

46,700

 

46,700

 

 

 

46,700

 

71,520

 

Total Unsecured Debt

 

$

2,234,118

 

$

2,043,518

 


        (a) United Dominion has a three-year $500 million unsecured revolving credit facility. 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) In June 2006, United Dominion issued $125 million of 6.05% medium-term notes. Interest is payable semiannually on June 1 and December 1, with the first interest payment due December 1, 2006. The notes mature on June 1, 2013.

        (c) Represents deferred gains from the termination of interest rate risk management agreements.

10




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6.   EARNINGS PER SHARE

Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on United Dominion’s average stock price.

The following table sets forth the computation of basic and diluted earnings per share for the periods presented, (dollars in thousands, except per share data):

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Numerator for basic and diluted earnings per share—

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

28,342

 

$

48,599

 

$

36,508

 

$

59,698

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share—

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

134,443

 

136,971

 

134,330

 

136,942

 

Non-vested restricted stock awards

 

(767

)

(821

)

(696

)

(834

)

Denominator for basic and diluted earnings per share

 

133,676

 

136,150

 

133,634

 

136,108

 

Basic and diluted earnings per share

 

$

0.21

 

$

0.36

 

$

0.27

 

$

0.44

 

 

The effect of the conversion of the operating partnership units, Series A Out-Performance Partnership Shares, and convertible preferred stock is not dilutive and is therefore not included in the above calculations. If the operating partnership units were converted to common stock, the additional shares of common stock outstanding for the three and six months ended June 30, 2006 would be 8,742,297 and 8,747,834 weighted average common shares, and 8,507,349 and 8,512,674 weighted average common shares for the three and six months ended June 30, 2005. If the Series A Out-Performance Partnership Shares were converted to common stock, the additional shares of common stock outstanding for the three and six months ended June 30, 2006 and 2005 would be 1,764,662 and 1,791,329 weighted average common shares. If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the three and six months ended June 30, 2006 and 2005 would be 2,803,812 weighted average common shares.

7.   COMPREHENSIVE INCOME

Total comprehensive income for the three and six months ended June 30, 2006 and 2005, was $32.2 million and $44.2 million for 2006 and $52.4 million and $67.4 million for 2005, respectively. There is no difference between net income and total comprehensive income for the periods presented.

11




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8.   COMMITMENTS AND CONTINGENCIES

Commitments

United Dominion is committed to completing its real estate under development, which has an estimated cost to complete of $37.9 million at June 30, 2006.

United Dominion has entered into two contracts to purchase apartment communities upon their development completion. Provided that the developer meets certain conditions, United Dominion will purchase these communities for $73.7 million.

Contingencies

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 the Operating Partnership (“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. United Dominion’s performance for the Series C Program will be measured 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 cumulative total 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 cumulative total 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); 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.

For the Series C OPPSs, the number determined pursuant to (ii) above is capped at 1% of market capitalization.

12




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

Based on the results through June 30, 2006, the Series C LLC would not be entitled to receive distributions or allocations of income had the program terminated on that date. However, since the ultimate determination of Series C OPPSs to be issued will not occur until May 2008, and the number of Series C OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events.

Series D Out-Performance Program

In February 2006, the board of directors of United Dominion approved the Series D Out-Performance Program (the “Series D Program”), pursuant to which certain executive officers and other key employees of United Dominion (the “Series D Participants”) were given the opportunity to invest indirectly in United Dominion by purchasing interests in UDR Out-Performance IV, LLC, a Delaware limited liability company (the “Series D LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series D Out-Performance Partnership Shares” or “Series D OPPSs”). The Series D Program is part of the New Out-Performance Program approved by United Dominion’s stockholders in May 2005. The Series D LLC has agreed to sell 830,000 membership units to members of United Dominion’s senior management at a price of $1.00 per unit. The aggregate purchase price of $830,000 for the Series D OPPSs, assuming 100% participation, is based upon the advice of an independent valuation expert. United Dominion’s performance for the Series D Program will be measured over the 36-month period from January 1, 2006 to December 31, 2008.

The Series D Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total 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 cumulative total return satisfies these criteria, the Series D LLC as holder of the Series D OPPSs will receive (for the indirect benefit of the Series D Participants as holders of interests in the Series D 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); 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, computed as the volume-weighted average price per day of the common stock for the 20 trading days immediately preceding the valuation date.

For the Series D OPPSs, the number determined pursuant to clause (ii) above is capped at 1% of market capitalization.

13




UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

If, on the valuation date, the cumulative total return of United Dominion’s common stock does not meet the Minimum Return, then the Series D Participants will forfeit their entire initial investment.

Based on the results through June 30, 2006, the Series D LLC would not be entitled to receive distributions or allocations of income had the program terminated on that date. However, since the ultimate determination of Series D OPPSs to be issued will not occur until December 2008, and the number of Series D OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events.

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.

14




Item 2.                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of United Dominion Realty Trust, Inc. to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

·       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,

·       failure to generate sufficient revenue, which could impair our debt service payments and reduce 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 to us,

·       risks from extraordinary losses for which we may not have insurance or adequate reserves,

·       uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage,

·       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 to us,

·       the imposition of federal taxes if we fail to qualify as a REIT under the Internal Revenue Code in any taxable year,

15




·       our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price, and

·       changes in real estate laws, tax laws and other laws affecting our business.

A discussion of these and other factors affecting our business and prospects is set forth below in Part II, Item 1A. Risk Factors. We encourage investors to review these risks factors.

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. Any forward-looking statement speaks only as of the date on which it is made. Except to fulfill our obligations under the federal securities laws, we undertake no obligation to update any such statement to reflect events or circumstances after the date on which it is made.

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.

16




At June 30, 2006, our portfolio included 257 communities with 74,753 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):

 

 

As of June 30, 2006

 

Three Months Ended
June 30, 2006

 

Six Months Ended
June 30, 2006

 

 

 

Number of
Apartment
Communities

 

Number of
Apartment
Homes

 

Percentage of
Carrying
Value

 

Carrying
Value
(In thousands)

 

Average
Physical
Occupancy

 

Total Income
per Occupied
Home(a)

 

Average
Physical
Occupancy

 

Total Income
per Occupied
Home(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MID-ATLANTIC REGION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metropolitan DC

 

 

8

 

 

 

2,469

 

 

 

4.5

%

 

 

$

255,204

 

 

 

95.7

%

 

 

$

1,208

 

 

 

96.2

%

 

 

$

1,193

 

 

Raleigh, NC

 

 

11

 

 

 

3,663

 

 

 

3.8

%

 

 

224,766

 

 

 

93.0

%

 

 

687

 

 

 

93.1

%

 

 

688

 

 

Baltimore, MD

 

 

10

 

 

 

2,118

 

 

 

3.0

%

 

 

172,894

 

 

 

96.6

%

 

 

1,055

 

 

 

96.2

%

 

 

1,042

 

 

Richmond, VA

 

 

9

 

 

 

2,636

 

 

 

2.9

%

 

 

166,586

 

 

 

96.6

%

 

 

865

 

 

 

96.6

%

 

 

881

 

 

Charlotte, NC

 

 

7

 

 

 

1,686

 

 

 

2.0

%

 

 

114,546

 

 

 

93.0

%

 

 

712

 

 

 

93.4

%

 

 

710

 

 

Wilmington, NC

 

 

6

 

 

 

1,868

 

 

 

1.7

%

 

 

100,855

 

 

 

94.8

%

 

 

750

 

 

 

94.6

%

 

 

747

 

 

Norfolk, VA

 

 

6

 

 

 

1,438

 

 

 

1.2

%

 

 

71,926

 

 

 

95.9

%

 

 

911

 

 

 

95.7

%

 

 

906

 

 

Other North Carolina

 

 

16

 

 

 

4,016

 

 

 

3.3

%

 

 

194,555

 

 

 

95.6

%

 

 

629

 

 

 

95.4

%

 

 

626

 

 

Other Mid-Atlantic

 

 

6

 

 

 

1,156

 

 

 

1.1

%

 

 

62,500

 

 

 

94.2

%

 

 

891

 

 

 

94.3

%

 

 

893

 

 

Other Virginia

 

 

3

 

 

 

820

 

 

 

0.9

%

 

 

49,668

 

 

 

97.5

%

 

 

1,020

 

 

 

95.8

%

 

 

1,004

 

 

WESTERN REGION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern California

 

 

27

 

 

 

7,268

 

 

 

19.2

%

 

 

1,122,963

 

 

 

94.2

%

 

 

1,322

 

 

 

94.3

%

 

 

1,301

 

 

Northern California

 

 

12

 

 

 

3,339

 

 

 

8.7

%

 

 

505,991

 

 

 

95.8

%

 

 

1,296

 

 

 

95.5

%

 

 

1,294

 

 

Seattle, WA

 

 

8

 

 

 

1,984

 

 

 

2.9

%

 

 

168,265

 

 

 

96.6

%

 

 

890

 

 

 

95.9

%

 

 

880

 

 

Monterey Peninsula, CA

 

 

7

 

 

 

1,568

 

 

 

2.4

%

 

 

142,346

 

 

 

89.2

%

 

 

951

 

 

 

88.8

%

 

 

942

 

 

Portland, OR

 

 

6

 

 

 

1,367

 

 

 

1.4

%

 

 

83,793

 

 

 

94.3

%

 

 

725

 

 

 

94.4

%

 

 

725

 

 

SOUTHEASTERN REGION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tampa, FL

 

 

12

 

 

 

4,180

 

 

 

4.5

%

 

 

265,023

 

 

 

91.5

%

 

 

950

 

 

 

92.2

%

 

 

937

 

 

Orlando, FL

 

 

12

 

 

 

3,476

 

 

 

3.4

%

 

 

207,072

 

 

 

94.2

%

 

 

883

 

 

 

94.7

%

 

 

872

 

 

Nashville, TN

 

 

10

 

 

 

2,966

 

 

 

3.1

%

 

 

180,763

 

 

 

95.4

%

 

 

708

 

 

 

95.2

%

 

 

676

 

 

Jacksonville, FL

 

 

4

 

 

 

1,557

 

 

 

1.8

%

 

 

107,279

 

 

 

94.8

%

 

 

841

 

 

 

94.3

%

 

 

833

 

 

Atlanta, GA

 

 

6

 

 

 

1,426

 

 

 

1.4

%

 

 

80,975

 

 

 

95.6

%

 

 

689

 

 

 

95.7

%

 

 

687

 

 

Columbia, SC

 

 

6

 

 

 

1,584

 

 

 

1.2

%

 

 

69,375

 

 

 

94.8

%

 

 

664

 

 

 

94.5

%

 

 

660

 

 

Other Florida

 

 

8

 

 

 

2,401

 

 

 

2.8

%

 

 

165,689

 

 

 

93.4

%

 

 

916

 

 

 

94.5

%

 

 

907

 

 

Other Southeastern

 

 

2

 

 

 

798

 

 

 

0.8

%

 

 

41,825

 

 

 

95.2

%

 

 

547

 

 

 

94.9

%

 

 

544

 

 

SOUTHWESTERN REGION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Houston, TX

 

 

16

 

 

 

5,447

 

 

 

4.4

%

 

 

259,260

 

 

 

94.5

%

 

 

673

 

 

 

94.8

%

 

 

670

 

 

Phoenix, AZ

 

 

5

 

 

 

1,274

 

 

 

1.9

%

 

 

109,188

 

 

 

86.5

%

 

 

973

 

 

 

86.7

%

 

 

960

 

 

Denver, CO

 

 

3

 

 

 

1,484

 

 

 

1.7

%

 

 

101,565

 

 

 

88.7

%

 

 

704

 

 

 

88.0

%

 

 

698

 

 

Dallas, TX

 

 

3

 

 

 

1,367

 

 

 

1.7

%

 

 

100,319

 

 

 

96.0

%

 

 

820

 

 

 

96.1

%

 

 

810

 

 

Arlington, TX

 

 

6

 

 

 

1,828

 

 

 

1.6

%

 

 

93,488

 

 

 

94.4

%

 

 

671

 

 

 

95.2

%

 

 

668

 

 

Austin, TX

 

 

5

 

 

 

1,425

 

 

 

1.5

%

 

 

85,291

 

 

 

96.5

%

 

 

720

 

 

 

96.2

%

 

 

715

 

 

Other Southwestern

 

 

6

 

 

 

2,469

 

 

 

2.5

%

 

 

147,316

 

 

 

95.0

%

 

 

732

 

 

 

95.3

%

 

 

726

 

 

MIDWESTERN REGION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbus, OH

 

 

6

 

 

 

2,530

 

 

 

2.8

%

 

 

161,899

 

 

 

93.7

%

 

 

735

 

 

 

94.0

%

 

 

731

 

 

Other Midwestern

 

 

3

 

 

 

444

 

 

 

0.4

%

 

 

24,250

 

 

 

90.9

%

 

 

762

 

 

 

91.5

%

 

 

760

 

 

Real Estate Under Development

 

 

2

 

 

 

701

 

 

 

2.0

%

 

 

114,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

 

 

1.5

%

 

 

89,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

257

 

 

 

74,753

 

 

 

100.0

%

 

 

$

5,841,958

 

 

 

94.2

%

 

 

$

874

 

 

 

94.2

%

 

 

$

867

 

 


              (a)  Total Income per Occupied Home represents total revenues per weighted average number of apartment homes occupied.

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.

17




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. 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, the use of our unsecured credit facility, and, to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed through the issuance of equity and debt securities, the issuance of operating partnership units, the assumption or placement of secured and/or unsecured debt, and by the reinvestment of proceeds from the sale of properties.

During the remainder of 2006, we have approximately $64.0 million of secured debt and $110.4 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. Our critical accounting policies are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2005. There have been no significant changes in our critical accounting policies from those reported in our 2005 Annual Report on Form 10-K. 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.

Statements of Cash Flow

The following discussion explains the changes in net cash provided by operating