UDR, Inc. — Regulatory Filings 2005

Feb 11, 2005

424B3 1 d22325e424b3.htm PRICING SUPPLEMENT NO.5 e424b3 PAGEBREAK

Filed Pursuant to Rule 424(b)(3) Registration No. 333-115696

Pricing Supplement No. 5 Dated February 9, 2005 (To Prospectus dated June 9, 2004 and Prospectus Supplement dated June 17, 2004, as supplemented by a Supplement dated September 29, 2004)

UNITED DOMINION REALTY TRUST, INC. Medium-Term Notes Due Nine Months or More From Date of Issue

Fixed Rate Notes

The Notes are not Discount Notes.

| Principal
Amount: $50,000,000 | Specified Currency: U.S. dollars |
| --- | --- |
| Settlement
Date: February 14, 2005 | Stated Maturity Date:
January 15, 2015 |
| Original Issue Date: November 1, 2004 | Authorized Denomination: A/S |
| Interest Payment Dates: July 15 and January 15, | Initial Redemption Percentage: See Below |
| commencing July 15, 2005 | Optional Repayment Date(s): See Below |
| Initial Redemption Date: See Below | Interest Rate: 5.25% |
| Annual Redemption Percentage Reduction: See Below | Regular Record Date(s): A/S |
| Exchange Rate Agent: N/A | Additional/Other Terms: See Below |
| Default Rate: N/A | Net Proceeds to the Company:
100.972% |
| Day Count: 30/360 | |
| Agent:
Wachovia Capital Markets, LLC | |
| Agent’s
Commission: Wachovia Capital Markets, LLC proposes to offer the notes
from time to time for sale in negotiated transactions, or otherwise,
at varying prices to be determined at the time of each sale. | |

“N/A” as used herein means “Not Applicable.” “A/S” as used herein means “As stated in the Prospectus Supplement dated June 17, 2004, as supplemented by a Supplement dated September 29, 2004.”

These notes represent a reopening of the 5.25% medium-term notes due 2015 issued by United Dominion Realty Trust, Inc., and these notes constitute a single series of notes with those notes.

Pursuant to U.S. Treasury regulations section 1.1275-2(k)(3), the issuance of the notes will be treated as a “qualified reopening” of the fixed rate notes with an original issue date of November 1, 2004 (the “original notes”). Therefore, for purposes of the rules governing original issue discount, the notes will have the same issue date, issue price and adjusted issue price as the original notes. See “U.S. Federal Income Tax Consequences — U.S. Holders — Original Issue Discount” in the prospectus supplement dated June 17, 2004. Depending on your purchase price for your notes, your notes may have a market discount or amortizable bond premium. See “U.S. Federal Income Tax Consequences — U.S. Holders — Market Discount” and “— Acquisition Premium; Amortizable Bond Premium” in the prospectus supplement dated June 17, 2004. The purchase price for the notes will also reflect interest accrued from November 1, 2004 (“pre-issuance accrued interest”), which will be included in the accrued interest to be paid on the first interest payment date on July 15, 2005. In accordance with U.S. Treasury regulations section 1.1273-2(m), for purposes of the rules governing original issue discount, United Dominion Realty Trust, Inc. will exclude the pre-issuance accrued interest from the issue price of the notes. In accordance with this treatment, holders must treat a corresponding portion of the interest payable on the first interest payment date as a return of the excluded pre-issuance accrued interest, rather than as an amount payable on the notes.

United Dominion Realty Trust, Inc., sometimes referred to herein as the “Company,” may redeem all or part of the notes at any time at its option at a redemption price equal to the greater of (1) the principal amount of the notes being redeemed plus accrued and unpaid interest to the redemption date or (2) the Make-Whole Amount for the notes being redeemed.

“Make-Whole Amount” means, as determined by the Quotation Agent, the sum of the present values of the principal amount of the notes to be redeemed, together with the scheduled payments of interest (exclusive of interest to the redemption date) from the redemption date to the maturity date of the notes being redeemed, in each case discounted to the redemption date on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Adjusted Treasury Rate, plus accrued and unpaid interest on the principal amount of the notes being redeemed to the redemption date.

“Adjusted Treasury Rate” means, with respect to any redemption date, the sum of (x) either (1) the yield for the maturity corresponding to the Comparable Treasury Issue, under the heading that represents the average for the immediately preceding week, appearing in the most recent published statistical release designated “H.15 (519)” or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities” (provided, if no maturity is within three months before or after the remaining term of the notes being redeemed, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounded to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date, in each case calculated on the third business day preceding the redemption date, and (y) .20%.

“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term from the redemption date to the maturity date of the notes being redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the notes being redeemed.

“Comparable Treasury Price” means, with respect to any redemption date, (x) the average of three Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations so obtained or (y) if fewer than five Reference Treasury Dealer Quotations are so obtained, the average of all such Reference Treasury Dealer Quotations so obtained.

“Quotation Agent” means the Reference Treasury Dealer selected by the indenture trustee after consultation with United Dominion Realty Trust, Inc.

“Reference Treasury Dealer” means any of J.P. Morgan Securities Inc., Goldman, Sachs & Co., their respective successors and assigns and three other nationally recognized investment banking firms selected by United Dominion Realty Trust, Inc. that are primary U.S. Government securities dealers.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the indenture trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the indenture trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such redemption date.

WACHOVIA SECURITIES

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RECENT DEVELOPMENTS

On January 31, 2005, the Company announced the following financial results for the quarter and year ended December 31, 2004:

Balance Sheet Information

UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)

In thousands, except share and per share amounts	December 31, — 2004	2003
ASSETS
Real estate owned:
Real estate held for investment	$ 5,029,516	$	3,900,573
Less: accumulated depreciation	(978,651	)	(809,524	)
	4,050,865		3,091,049
Real estate under development	65,758		29,715
Real estate held for disposition (net of accumulated depreciation of $29,236 and $87,106)	118,786		334,157
Total real estate owned, net of accumulated depreciation	4,235,409		3,454,921
Cash and cash equivalents	7,904		4,824
Restricted cash	6,086		7,540
Deferred financing costs, net	25,151		21,425
Investment in unconsolidated development joint venture	458		1,673
Funds held in escrow from 1031 exchanges pending the acquisition of real estate	17,039		14,447
Notes receivable	5,000		13,000
Other assets	34,347		25,247
Other assets — real estate held for disposition	607		566
Total assets	$ 4,332,001	$	3,543,643
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt	$ 1,197,924	$	1,018,028
Unsecured debt	1,682,058		1,114,009
Real estate taxes payable	31,356		29,776
Accrued interest payable	18,773		12,892
Security deposits and prepaid rent	25,168		21,412
Distributions payable	44,624		40,623
Accounts payable, accrued expenses, and other liabilities	50,217		44,749
Other liabilities — real estate held for disposition	2,837		4,512
Total liabilities	3,052,957		2,286,001
Minority interests	83,593		94,206
Stockholders’ equity:
Preferred stock, no par value; $25 liquidation preference,
25,000,000 shares authorized;
5,416,009 shares of 8.60% Series B Cumulative Redeemable issued and outstanding
(5,416,009 shares in 2003)	135,400		135,400
0 shares of 7.50% Series D Cumulative Convertible Redeemable issued
and outstanding (2,000,000 shares in 2003)	—		44,271
2,803,812 shares of 8.00% Series E Cumulative Convertible issued
and outstanding (3,425,217 shares in 2003)	46,571		56,893
Common stock, $1 par value; 250,000,000 shares authorized
136,429,592 shares issued and outstanding (127,295,126 shares in 2003)	136,430		127,295
Additional paid-in capital	1,614,916		1,458,983
Distributions in excess of net income	(731,808	)	(651,497	)
Deferred compensation — unearned restricted stock awards	(6,058	)	(5,588	)
Notes receivable from officer-stockholders	—		(459	)
Accumulated other comprehensive loss, net	—		(1,862	)(A)
Total stockholders’ equity	1,195,451		1,163,436
Total liabilities and stockholders’ equity	$ 4,332,001	$	3,543,643

(A) Represents net unrealized loss on derivative instrument transactions.

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Statement of Operations Information

UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended
	December 31,			December 31,
In thousands, except per share amounts	2004	2003		2004		2003
Rental income	$ 163,832	$	138,732	$	604,270	$	542,894
Rental expenses:
Real estate taxes and insurance	18,660		15,782		71,055		62,329
Personnel	17,387		14,310		63,878		55,252
Utilities	9,457		8,062		36,625		32,244
Repair and maintenance	10,012		9,785		38,409		34,909
Administrative and marketing	5,816		5,151		21,299		19,793
Property management	4,717		4,242		17,881		16,873
Other operating expenses	375		293		1,226		1,205
	66,424		57,625		250,373		222,605
Non-property income	395		365		2,608		1,068
Other expenses:
Real estate depreciation and amortization	49,228		39,106		171,781		145,706
Interest	35,847		28,444		124,087		117,457
General and administrative	6,081		4,493		19,316		20,626
Hurricane related expenses	—		—		5,503		—
Impairment loss on investments	—		—		—		1,392	(B)
Other depreciation and amortization	809		869		3,372		3,087
	91,965		72,912		324,059		288,268
Income before minority interests and discontinued operations	5,838		8,560		32,446		33,089
Minority interests of outside partnerships	(15	)	—		(182	)	(614	)
Minority interests of unitholders in operating partnerships	(3	)	588		(443	)	874
Income before discontinued operations, net of minority interests	5,820		9,148		31,821		33,349
Income from discontinued operations, net of minority interests (including gain on sales) (A)	19,693		11,887		65,331		37,055
Net income	25,513		21,035		97,152		70,404
Distributions to preferred stockholders — Series B	(2,911	)	(2,911	)	(11,644	)	(11,645	)
Distributions to preferred stockholders — Series D (Convertible)	(348	)	(1,696	)	(3,473	)	(12,178	)
Distributions to preferred stockholders — Series E (Convertible)	(1,000	)	(1,138	)	(4,414	)	(2,503	)
Premium on preferred stock conversions	(1,042	)	(921	)	(5,729	)	(19,271	)
Net income available to common stockholders	$ 20,212	$	14,369	$	71,892	$	24,807
Earnings per weighted average common share — basic:
Income/(loss) from continuing operations available to common stockholders, net of minority interests	$ 0.00	$	0.02	$	0.05		($0.10	)
Income from discontinued operations, net of minority interests	$ 0.15	$	0.10	$	0.51	$	0.32
Net income available to common stockholders	$ 0.15	$	0.12	$	0.56	$	0.22
Earnings per weighted average common share — diluted:
Income/(loss) from continuing operations available to common stockholders, net of minority interests	$ 0.00	$	0.02	$	0.05		($0.10	)
Income from discontinued operations, net of minority interests	$ 0.15	$	0.10	$	0.51	$	0.32
Net income available to common stockholders	$ 0.15	$	0.12	$	0.56	$	0.22
Common distributions declared per share	$ 0.2925	$	0.2850	$	1.1700	$	1.1400
Weighted average number of common shares outstanding — basic	131,136		121,854		128,097		114,672
Weighted average number of common shares outstanding — diluted	132,172		122,846		129,080		114,672

(A)	Discontinued operations represents all properties sold since January 1, 2002 and properties that are currently classified as held for disposition at December 31, 2004.
(B)	Represents the write-off of the Company’s investment in Realeum, Inc., an unconsolidated development joint venture created to develop web-based solutions for multifamily
property and portfolio management.

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Other Information

UNITED DOMINION REALTY TRUST, INC. FUNDS FROM OPERATIONS (Unaudited)

	Three Months Ended
	December 31,			December 31,
In thousands, except per share amounts	2004	2003		2004		2003
Net income	$ 25,513	$	21,035	$	97,152	$	70,404
Adjustments:
Distributions to preferred stockholders	(4,259	)	(5,745	)	(19,531	)	(26,326	)
Real estate depreciation and amortization, net of outside partners’ interest in 2003	49,228		39,106		171,781		145,271
Minority interests of unitholders in operating partnership	3		(588	)	443		(874	)
Real estate depreciation related to unconsolidated entities	72		60		279		196
Discontinued Operations:
Real estate depreciation	769		4,100		8,847		17,687
Minority interests of unitholders in operating partnership	1,326		809		4,400		2,521
Net gain on sale of depreciable property	(17,664	)	(7,793	)	(52,903	)	(15,941	)
Funds from operations (“FFO”) — basic	$ 54,988	$	50,984	$	210,468	$	192,938
Distribution to preferred stockholders — Series D and E (Convertible)	1,348		2,834		7,887		14,681
Funds from operations — diluted	$ 56,336	$	53,818	$	218,355	$	207,619
Gains on the disposition of real estate developed for sale (A)	1,202		—		1,202		812
FFO with gains on the disposition of real estate developed for sale — diluted	$ 57,538	$	53,818	$	219,557	$	208,431
Weighted average number of common shares and OP Units outstanding — basic	139,882		130,565		136,852		122,589
Weighted average number of common shares, OP Units, and common stock
equivalents outstanding — diluted	148,302		144,440		145,842		136,975

FFO is defined as net income (computed in accordance with generally accepted accounting principles, or GAAP), excluding gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in April 2002. The Company considers FFO in evaluating property acquisitions and its operating performance and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company’s activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.

For the three months ended December 31, 2004 and 2003, distributions to preferred stockholders exclude $1.0 million and $0.9 million, respectively, related to premiums on preferred stock conversions. For the twelve months 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.

(A) See the following GAAP reconciliation for further discussion.

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UNITED DOMINION REALTY TRUST, INC. FUNDS FROM OPERATIONS (continued) (Unaudited)

The following is a reconciliation of GAAP gains from the disposition of real estate developed for sale to gross gains from the disposition of real estate developed for sale.

	Three Months Ended			Twelve Months Ended
	December 31,			December 31,
In thousands	2004	2003		2004	2003
GAAP gains from the disposition of real estate developed for sale	$ 1,278	$	—	$ 1,278	$	1,249
Less: accumulated depreciation	(76	)	—	(76	)	(437	)
Gains from the disposition of real estate developed for sale	$ 1,202	$	—	$ 1,202	$	812

Gains from the disposition of real estate investments developed for sale is defined as net sales proceeds less a tax provision (such development by REITs must be conducted in a taxable REIT subsidiary) and the gross investment basis of the asset before accumulated depreciation. We consider FFO with gains/losses on real estate developed for sale to be a meaningful supplemental measure of performance because the short-term use of funds produce a profit which differs from the traditional long-term investment in real estate for REITs.

The following is a reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected in the statements of operations information announced on January 31, 2005.

In thousands	Three months ended December 31, — 2004	2003		2004		2003
Weighted average number of common shares and OP units outstanding — basic	139,882		130,565		136,852		122,589
Weighted average number of OP units outstanding	(8,746	)	(8,711	)	(8,755	)	(7,917	)
Weighted average number of common shares outstanding — basic
per the Consolidated Statements of Operations	131,136		121,854		128,097		114,672
Weighted average number of common shares, OP units, and common stock
equivalents outstanding — diluted	148,302		144,440		145,842		136,975
Weighted average number of incremental shares from assumed stock option conversions	—		—		—		(976	)
Weighted average number of incremental shares from assumed restricted stock
conversions	113		87		86		—
Weighted average number of OP units outstanding	(8,746	)	(8,711	)	(8,755	)	(7,917	)
Weighted average number of Series A OPPSs outstanding	(1,791	)	(1,853	)	(1,791	)	(1,773	)
Weighted average number of Series D preferred stock outstanding	(2,341	)	(7,692	)	(2,892	)	(10,033	)
Weighted average number of Series E preferred stock outstanding	(3,365	)	(3,425	)	(3,410	)	(1,604	)
Weighted average number of common shares outstanding — diluted
per the Statements of Operations	132,172		122,846		129,080		114,672

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Portfolio Repositioning

As previously announced, the Company acquired 11 communities with 3,761 apartment homes for a total purchase price of $529 million (averaging $140,500 per home) during the fourth quarter, which included seven communities in the Essex transaction. During the fourth quarter, the Company announced sales totaling $112 million (averaging $48,000 per home). The sales include eight communities in Michigan with 1,970 apartment homes for a total of $91.5 million (averaging $46,400 per home), and one community in Louisville, Kentucky for $20.1 million (averaging $56,600 per home). In addition, the Company sold nine acres of land in Texas for $0.8 million. The Company recognized $17.7 million in gains on the sales in the fourth quarter. The Company is under contract to sell 11 communities consisting of 2,623 units for $169 million, located in Houston, Anaheim and Phoenix.

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. The Company owns shares in Rent.com. The acquisition, which is subject to various regulatory approvals and approval of Rent.com’s stockholders, is expected to close in the first quarter of 2005.

If the closing occurs, the Company expects to record a one-time pre-tax gain of between $12 and $14 million. There is no assurance that the Rent.com transaction will close, or if it does, whether the Company will realize the anticipated gain. The Company is considering, among other things, utilizing a portion of the gain to offset prepayment penalties we may elect to incur by prepaying certain secured debt.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

This section supplements the discussion under the caption “U.S. Federal Income Tax Considerations” in the prospectus and prospectus supplement to which this pricing supplement relates.

The American Jobs Creation Act of 2004, which was enacted on October 22, 2004, amended certain of the tax rules applicable to our qualification and taxation as a REIT. Among other changes, the new legislation:

| • | effective retroactively for taxable years after December 31, 2000, expanded the straight
debt safe harbor under which certain types of securities are disregarded as securities when
calculating the 10% value asset test discussed in the prospectus, so that the safe harbor
would apply to, among other things, any loan to an individual or estate, certain rental
agreements, any obligation to pay rents from real property, and any security issued by a
REIT; |
| --- | --- |
| • | created a new rule pursuant to which, solely for purposes of the 10% value asset test, a
REIT’s interest in the assets of any partnership will be based upon the REIT’s
proportionate interest in any securities issued by the partnership (including, for this
purpose, the REIT’s interest as a partner in the partnership and any debt securities issued
by the partnership, but excluding any securities qualifying for the “straight debt” or
other exceptions described in the preceding bullet), valuing any debt instrument at its
adjusted issue price; |
| • | effective retroactively for taxable years after December 31, 2000, provided specific
safe-harbor rules, applicable solely for purposes of the special rules regarding rents
received from a taxable REIT subsidiary, regarding the dates for testing whether 90% of a property owned by a REIT is rented to unrelated persons and whether the rents
paid by related persons are substantially comparable to unrelated party rents; |
| • | eliminated the exclusion from potential “redetermined rent” treatment of amounts
received by a REIT for services customarily furnished or rendered by a taxable REIT
subsidiary in connection with the rental of real property; |
| • | excluded, for purposes of the 95% income test, income or gain from identified hedging
transactions entered into to reduce risk on indebtedness incurred to acquire or carry real
estate assets; |
| • | amended the computation of the tax imposed on a REIT that fails to satisfy the 95%
income test, by applying a taxable fraction based on 95% (rather than the current 90%) of
the REIT’s gross income; |
| • | in lieu of REIT disqualification in the case of a de minimis violation of the 5% or 10%
asset tests, created a rule permitting the REIT to dispose of the excess assets or
otherwise come into compliance within six months of the end of the quarter in which the
failure is identified without penalty; |
| • | provided a similar exception in the case of non-de minimis asset test failures, if the
IRS is notified, the REIT disposes of the excess assets or otherwise comes into compliance within
six months of the end of the quarter in which the failure is identified, the failure was due to reasonable cause and a penalty tax is paid; |

• created a rule imposing monetary penalties, in lieu of REIT disqualification, for the failure to meet REIT qualification requirements other than the asset and income tests, provided that the failure was due to reasonable cause and the REIT pays a per-failure penalty.

The foregoing is a non-exhaustive list of changes made by the 2004 legislation. Except as indicated above, the changes apply to taxable years beginning after October 22, 2004. Please refer to the prospectus and prospectus supplement for a discussion of other aspects of our qualification and taxation as a REIT and the tax consequences to you of an investment in the notes.

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