UDR (UDR) 10-K 2019 FY Annual report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2019

OR

☐ 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 (UDR, Inc.)

Commission file number 333-156002-01 (United Dominion Realty, L.P.)

UDR, Inc.

United Dominion Realty, L.P.

(Exact name of registrant as specified in its charter)

Maryland (UDR, Inc.)	54-0857512
Delaware (United Dominion Realty, L.P.)	54-1776887
(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	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	UDR	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

UDR, Inc.	Yes ☑	No ◻
United Dominion Realty, L.P.	Yes ◻	No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

UDR, Inc.	Yes ◻	No þ
United Dominion Realty, L.P.	Yes ◻	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.

UDR, Inc.	Yes þ	No ◻
United Dominion Realty, L.P.	Yes þ	No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

UDR, Inc.	Yes þ	No ◻
United Dominion Realty, L.P.	Yes þ	No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

UDR, Inc.:
Large Accelerated Filer þ	Accelerated Filer ◻	Non-Accelerated Filer ◻	Smaller Reporting Company ☐
			Emerging Growth Company ☐

United Dominion Realty, L.P.:
Large Accelerated Filer ◻	Accelerated Filer ◻	Non-Accelerated Filer þ	Smaller Reporting Company ☐
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

UDR, Inc.	Yes ☐	No þ
United Dominion Realty, L.P.	Yes ☐	No þ

The aggregate market value of the shares of common stock of UDR, Inc. held by non-affiliates on June 28, 2019 was approximately $4.9 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 17, 2020, there were 294,631,463 shares of UDR, Inc.’s common stock outstanding.

There is no public trading market for the partnership units of United Dominion Realty, L.P. As a result, an aggregate market value of the partnership units of United Dominion Realty, L.P. cannot be determined.

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 UDR, Inc.’s definitive proxy statement for the 2020 Annual Meeting of Stockholders.

TABLE OF CONTENTS

	PAGE
PART I
Item 1. Business	3
Item 1A. Risk Factors	11
Item 1B. Unresolved Staff Comments	26
Item 2. Properties	27
Item 3. Legal Proceedings	28
Item 4. Mine Safety Disclosures	28
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6. Selected Financial Data	31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	63
Item 8. Financial Statements and Supplementary Data	63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A. Controls and Procedures	63
Item 9B. Other Information	64
PART III
Item 10. Directors, Executive Officers and Corporate Governance	65
Item 11. Executive Compensation	65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 13. Certain Relationships and Related Transactions, and Director Independence	65
Item 14. Principal Accountant Fees and Services	65
PART IV
Item 15. Exhibits, Financial Statement Schedules	66
Item 16. Form 10-K Summary	73

EXPLANATORY NOTE

This Report combines the annual reports on Form 10-K for the fiscal year ended December 31, 2019 of UDR, Inc., a Maryland corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR, Inc. is the parent company and sole general partner. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” the “Company,” “UDR” or “UDR, Inc.” refer collectively to UDR, Inc., together with its consolidated subsidiaries and joint ventures, including United Dominion Realty, L.P. and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”), also a Delaware limited partnership of which UDR is the sole general partner. Unless the context otherwise requires, the references in this Report to the “Operating Partnership” or the “OP” refer to United Dominion Realty, L.P., together with its consolidated subsidiaries. “Common stock” refers to the common stock of UDR and “stockholders” means the holders of shares of UDR’s common stock and preferred stock. The limited partnership interests of the Operating Partnership and the DownREIT Partnership are referred to as “OP Units” and “DownREIT Units,” respectively, and the holders of the OP Units and DownREIT Units are referred to as “unitholders.” This combined Form 10-K is being filed separately by UDR and the Operating Partnership.

There are a number of differences between the Company and the Operating Partnership, which are reflected in our disclosures in this Report. UDR is a real estate investment trust (“REIT”), whose most significant asset is its ownership interest in the Operating Partnership. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiary (“TRS”). UDR acts as the sole general partner of the Operating Partnership, holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of our subsidiaries. The Operating Partnership conducts the operations of a substantial portion of the business and is structured as a partnership with no publicly traded equity securities. The Operating Partnership has guaranteed certain outstanding debt of UDR.

As of December 31, 2019, UDR owned 0.1 million units (100%) of the general partnership interests of the Operating Partnership and 176.1 million OP Units, representing approximately 95.7% of the total outstanding OP Units in the Operating Partnership. UDR conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership, and, by virtue of its ownership of the OP Units and UDR’s role as the Operating Partnership’s sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Separate financial statements and accompanying notes, as well as separate discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities” and “Control and Procedures” are presented in this report for each of UDR and the Operating Partnership. In addition, certain disclosures in “Business” are separated by entity to the extent that the discussion relates to UDR’s business outside of the Operating Partnership.

PART I

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,” “likely,” “will,” “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 our actual results, performance or achievements 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, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning the availability of capital and the stability of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments and redevelopments, delays in completing lease-ups on schedule or at expected rent and occupancy levels, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels and rental rates, expectations concerning joint ventures and partnerships with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income.

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

● general economic conditions;

● 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;

● competitive factors that may limit our ability to lease apartment homes or increase or maintain rents;

● insufficient cash flow that could affect our debt financing and create refinancing risk;

● failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders;

● development and construction risks that may impact our profitability;

● potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us;

● risks from climate change that impacts our properties or operations;

● risks from extraordinary losses for which we may not have insurance or adequate reserves;

● risks from cybersecurity breaches of our information technology systems and the information technology systems of our third party vendors and other third parties;

● 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;

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● risks that third parties who have an interest in or are otherwise involved in projects in which we have an interest, including mezzanine borrowers, joint venture partners or other investors, do not perform as expected;

● 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 Code in any taxable year;

● 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, rent control or stabilization laws or other laws affecting our business.

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

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

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Item 1. BUSINESS

General

UDR is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily apartment communities generally located in high barrier-to-entry markets throughout the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement processes, low single-family home affordability and strong employment growth potential. At December 31, 2019, our consolidated real estate portfolio consisted of 148 communities located in 20 markets, consisting of 47,010 completed apartment homes, which are held directly or through our subsidiaries, including the Operating Partnership and the DownREIT Partnership, and consolidated joint ventures. In addition, we have an ownership interest in 5,268 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,138 apartment homes owned by entities in which we hold preferred equity investments. At December 31, 2019, the Company was developing three wholly-owned communities totaling 878 homes, none of which have been completed.

At December 31, 2019, the Operating Partnership’s consolidated real estate portfolio included 52 communities located in 15 markets, with a total of 16,434 completed apartment homes. The Operating Partnership owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily apartment communities generally located in high barrier-to-entry markets located throughout the United States. During the year ended December 31, 2019, rental revenues of the Operating Partnership represented approximately 39% of our total rental revenues.

UDR has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to in this Report as the “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 gains) to our stockholders annually. 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 we distribute such net income to our stockholders annually. In 2019, we declared total distributions of $1.37 per common share and paid dividends of $1.35 per common share.

	Dividends		Dividends
	Declared in		Paid in
	2019		2019
First Quarter	$	0.3425	$	0.3225
Second Quarter		0.3425		0.3425
Third Quarter		0.3425		0.3425
Fourth Quarter		0.3425		0.3425
Total	$	1.3700	$	1.3500

UDR was formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations in 1995. The Operating Partnership was redomiciled in 2004 as a Delaware limited partnership. Our corporate offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado and our telephone number is (720) 283-6120. Our website is www.udr.com. The information contained on our website, including any information referred to in this Report as being available on our website, is not a part of or incorporated into this Report.

As of February 17, 2020, we had 1,330 full-time associates and 21 part-time associates, all of whom were employed by UDR.

Reporting Segments

We report in two segments: Same-Store Communities and Non-Mature Communities/Other.

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2018, and held as of December 31, 2019. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. For additional information regarding our operating segments, see Note 16, Reportable Segments, in the Notes to the UDR Consolidated Financial Statements included in this Report and Note 12, Reportable Segments, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report.

Business Objectives

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 in high barrier-to-entry markets, which are characterized by limited land for new construction, difficult and lengthy entitlement processes, low single-family home affordability and strong employment growth potential, thus enhancing stability and predictability of returns to our stockholders;

● manage real estate cycles by taking an opportunistic approach to buying, selling, renovating, redeveloping, and developing 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 help enhance predictability of liquidity, earnings and dividends.

2019 Highlights

● In July 2019, the Company marked its 47th year as a REIT and, in October 2019, paid its 188th consecutive quarterly dividend. The Company’s annualized declared 2019 dividend of $1.37 represented a 6.2% increase over the previous year.

● Total revenues increased 10.1% over the prior year primarily due to communities acquired during 2019 and rent growth.

● We achieved Same-Store revenue growth of 3.6% and Same-Store net operating income (“NOI”) growth of 4.0%.

● We commenced the development of three communities located in Denver, Colorado, Dublin, California, and Addison, Texas, with a total of 878 apartment homes.

● We acquired eight communities with a total of 2,919 apartment homes located in Brooklyn, New York, St. Petersburg, Florida, Towson, Maryland, King of Prussia, Pennsylvania, Waltham, Massachusetts, Norwood, Massachusetts, and Englewood, New Jersey, for a total of approximately $911.9 million.

● We acquired two to-be-developed land parcels located in Washington, D.C., and Denver, Colorado, for a total of approximately $40.8 million.

● We increased our ownership interest in two communities from our West Coast Development joint venture with a total of 541 apartment homes, located in Anaheim, California and Seattle, Washington, for a total cash purchase price of approximately $53.5 million after the repayment of joint venture construction financing.

● We increased our ownership interest in one community from our UDR/KFH joint venture with a total of 292 apartment homes, located in Washington, D.C., for a total of $186.8 million and sold our 30% ownership interest in two communities from our UDR/KFH joint venture with a total of 368 apartment homes, located in Arlington, Virginia and Silver Spring, Maryland, for a collective sales price of $118.3 million, resulting in a gain on sale of approximately $10.6 million.

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● We acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife joint venture operating communities, one development community and four land parcels valued at $1.1 billion, or $564.2 million at our share, and sold our approximately 50% ownership interest in five UDR/MetLife joint venture operating communities valued at $645.8 million, or $322.9 million at our share, to MetLife, and recognized a net gain on sale of $114.9 million at our share.

● We recognized a gain of $5.3 million from the sale of a parcel of land in Los Angeles, California.

● We contributed $67.0 million to four investments under our Developer Capital Program, which earn preferred returns ranging between 9.0% to 12.5%.

● We issued $1.1 billion of senior unsecured medium-term notes (including a $300.0 million “green bond”) at a weighted average interest rate of 3.2%, and prepaid $700.0 million of senior unsecured medium-term notes at a weighted average interest rate of 4.2%.

● We sold 7.0 million shares of common stock for aggregate net proceeds of $312.3 million at a weighted average price per share of $45.29 under our ATM program, and sold 1.3 million shares of common stock through a forward sales agreement for aggregate net proceeds of $63.5 million at a weighted average price per share of $47.41, which was also under our ATM program.

● We sold an additional 7.5 million shares of common stock in an underwritten public offering for net proceeds of $349.8 million at a price per share of $46.65.

Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further information on the Company’s and the Operating Partnership’s activities in 2019.

Our Strategic Vision

Our strategic vision is to be the multifamily public REIT of choice. We intend to realize this vision by executing on our strategic objectives, which are:

1. Maintaining a Diversified Portfolio and Allocating Capital to Accretive Investment Opportunities

2. Maintaining a Strong Balance Sheet

3. Consistently Driving Operating Excellence

4. Advancing a Strong Corporate Culture and Ensuring High Resident Satisfaction

Maintaining a Diversified Portfolio and Allocating Capital to Accretive Investment Opportunities

We believe greater portfolio diversification, as defined by geographic concentration, location within a market (i.e., urban or suburban) and property quality (i.e., A or B), reduces the volatility of our same-store growth throughout the real estate cycle, appeals to a wider renter and investor audience and lessens the market risk associated with owning a homogenous portfolio. Diversified characteristics of our portfolio include:

● our consolidated apartment portfolio includes 148 communities located in 20 markets throughout the U.S., including both coastal and sunbelt locations; and

● our mix of urban/suburban communities is approximately 43%/57% and our mix of A/B quality properties is approximately 57%/43%.

We are focused on increasing our presence in markets with favorable job formation, high propensity to rent, low single-family home affordability, and a favorable demand/supply ratio for multifamily housing. Portfolio investment decisions consider internal analyses and third-party research.

Acquisitions and Dispositions

When evaluating potential acquisitions, we consider a wide variety of factors, including:

● whether it is located in a high barrier-to-entry market;

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● population growth, cost of alternative housing, overall potential for economic growth and the tax and regulatory environment of the market in which the property is located;

● geographic location, including proximity to jobs, entertainment, transportation, and our existing communities which can deliver significant economies of scale;

● construction quality, condition and design of the property;

● current and projected cash flow of the property and the ability to increase cash flow;

● ability of the property’s projected returns to exceed our cost of capital;

● potential for capital appreciation of the property;

● ability to increase the value and profitability of the property through operations and redevelopment;

● 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.

We regularly monitor our assets to increase the quality and performance of our portfolio. Factors we consider in deciding whether to dispose of a property include:

● whether it is in a market targeted for divestment or a reduction in investment;

● current market price for an asset compared to projected economics for that asset;

● potential increases in new construction in the market area;

● areas with low job growth prospects;

● near- and long-term capital expenditure needs for the asset; and

● operating efficiencies.

The following table summarizes our apartment community acquisitions and dispositions and our consolidated year-end ownership position for the past five years (dollars in thousands):

	2019		2018		2017		2016		2015
Homes acquired		7,079		—		462		508		3,246
Homes disposed		—		868		218		1,782		2,735
Homes owned at December 31,		47,010		39,931		39,998		39,454		40,728
Total real estate owned, at cost	$	12,602,101	$	10,196,159	$	10,177,206	$	9,615,753	$	9,190,276

The following table summarizes the Operating Partnership’s apartment community acquisitions and dispositions and year-end ownership position for the past five years (dollars in thousands):

	2019		2018		2017		2016		2015
Homes acquired		—		—		218		—		421
Homes disposed		—		264		218		276		4,256	(a)
Homes owned at December 31,		16,434		16,434		16,698		16,698		16,974
Total real estate owned, at cost	$	3,875,160	$	3,811,985	$	3,816,956	$	3,674,704	$	3,630,905

(a) Includes 3,107 homes deconsolidated in 2015 upon contribution of communities by the Operating Partnership to the DownREIT Partnership.

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Development Activities

Our objective in developing a community is to create value while improving the quality of our portfolio. How demographic trends, economic drivers, and multifamily fundamentals and valuations have trended over the long-term and our portfolio strategy generally govern our review process on where and when to allocate development capital. At December 31, 2019, the Company was developing three wholly-owned communities located in Denver, Colorado, Addison, Texas, and Dublin, California, totaling 878 homes, none of which have been completed, with a budget of $278.5 million, in which we have a carrying value of $69.8 million. The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2022.

Redevelopment Activities

Our objective in redeveloping a community is twofold: we aim to grow rental rates while also producing a higher yielding and more valuable asset through asset quality improvement. During the year ended December 31, 2019, we incurred $35.6 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings. As of December 31, 2019, the Company was redeveloping 653 apartment homes, 250 of which have been completed, at two wholly-owned communities, located in Boston, Massachusetts and New York, New York, both of which are expected to be completed in the first quarter of 2021. The redevelopments include the renovation of building exteriors, corridors, and common area amenities as well as individual apartment homes.

Joint Venture and Partnership Activities

We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships) through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint ventures. Our decision to either hold an apartment community in fee simple or have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by the seller of land or a community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projections, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.

Maintaining a Strong Balance Sheet

We maintain a capital structure that we believe allows us to proactively source potential investment opportunities in the marketplace. We have structured our debt maturity schedule to be able to opportunistically access both secured and unsecured debt markets when appropriate.

Financing Activities

As part of our plan to finance our activities, we utilize proceeds from debt and equity offerings and refinancings to extend maturities, pay down existing debt, fund development and redevelopment activities, and acquire apartment communities.

Consistently Driving Operational Excellence

Investment in new technologies continues to drive operating efficiencies in our business and help us to better meet the changing needs of our business and our residents. Our residents can conduct business with us 24 hours a day, 7 days a week and complete online leasing applications and renewals throughout our portfolio using our web-based resident internet portal or, increasingly, a smart-device application.

As a result of transforming our operations through technology, residents’ satisfaction has improved, and our operating teams have become more efficient. Web-based technologies have also resulted in declining marketing and advertising costs, improved cash management, and better pricing management of our available apartment homes.

Operating Partnership Strategies and Vision

The Operating Partnership’s long-term strategic vision is the same as that of the Company described above.

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Competitive Conditions

Competition for new residents is generally intense across our markets. Some competing communities offer amenities that our communities do not have. Competing communities can use rental 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, redevelop existing properties, and to develop new properties. These competitors include insurance companies, pension and investment funds, public and private real estate companies, investment companies and other public and private apartment REITs, some of which 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, redevelopment, acquisition, marketing, sales and financing expertise;

● scalable operating and support systems, which include automated systems to meet the changing electronic needs of our residents and to effectively focus on our internet marketing efforts;

● access to sources of capital;

● geographic diversification with a presence in 20 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 optimize lease management, improve expense control, increase resident retention efforts and align employee incentive plans with metrics that impact 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 upside.

Communities

At December 31, 2019, our consolidated real estate portfolio included 148 communities with a total of 47,010 completed apartment homes, which included the Operating Partnership’s consolidated real estate portfolio of 52 communities with a total of 16,434 completed apartment homes. The overall quality of our portfolio enables us to raise rents and to attract residents with higher levels of disposable income who are more likely to absorb such rents.

At December 31, 2019, the Company was developing three wholly-owned communities located in Denver, Colorado, Dublin, California, and Addison, Texas, totaling 878 homes, none of which have been completed, with a budget of $278.5 million, in which we have a carrying value of $69.8 million. The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2022.

At December 31, 2019, the Company was redeveloping 653 apartment homes, 250 of which have been completed, at two wholly-owned communities, located in Boston, Massachusetts and New York, New York, both of which are expected to be completed in the first quarter of 2021. The redevelopments include the renovation of building exteriors, corridors, and common area amenities as well as individual apartment homes.

Same-Store Community Comparison

We believe that one pertinent quantitative measurement of the performance of our portfolio is tracking the results of our Same-Store Communities’ NOI, which is total rental revenue, less rental and other operating expenses excluding property management. Our Same-Store Community population is comprised of operating communities which we own and have stabilized occupancy, revenues and expenses as of the beginning of the prior year.

Net income attributable to common stockholders was $180.9 million as compared to $199.2 million in the prior year period. The decrease was primarily driven by higher gains on the sale of real estate in the prior year and an increase in depreciation expense and interest expense in 2019, partially offset by higher total revenue and gains on the sale of unconsolidated real estate.

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For the year ended December 31, 2019, our Same-Store NOI increased by $26.7 million compared to the prior year. Our Same-Store Community properties provided 85.4% of our total NOI for the year ended December 31, 2019. The increase in NOI for the 37,959 Same-Store apartment homes, or 80.7% of our portfolio, was primarily driven by an increase in rental rates, an increase in reimbursement, ancillary and fee income and a decrease in personnel expense, partially offset by an increase in repair and maintenance expense and real estate taxes.

For the year ended December 31, 2019, the Operating Partnership’s Same-Store NOI increased by $10.3 million compared to the prior year. The Operating Partnership’s Same-Store Community properties provided 92.9% of its total NOI for the year ended December 31, 2019. The increase in NOI for the 15,723 Same-Store apartment homes, or 95.7% of the Operating Partnership’s portfolio, was primarily driven by an increase in rental rates, an increase in reimbursement, ancillary and fee income and a decrease in personnel expense, partially offset by an increase in repair and maintenance expense and real estate taxes.

Revenue growth in 2020 may be impacted by adverse developments affecting the general economy, reduced occupancy rates, increased rental concessions, new supply, increased bad debt and other factors which may adversely impact our ability to increase rents.

Tax Matters

UDR has elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, UDR 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 net capital gains) to our stockholders annually. 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 annually. 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 our taxable REIT subsidiary (“TRS”) 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. Our TRS generally is taxable as a regular corporation, and therefore, subject to federal, state and local income taxes.

The Operating Partnership intends to qualify as a partnership for federal income tax purposes. As a partnership, the Operating Partnership generally is not a taxable entity and does not incur federal income tax liability. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are incurred at the entity level.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2019.

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 to 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 acquire. 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

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of any property. Nevertheless, it is possible that the environmental 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 relatively conservative posture toward accepting known environmental 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 our results of operations and our financial condition.

Insurance

We carry comprehensive general liability coverage on our communities, with limits of liability customary within the multi-family apartment industry to insure against liability claims and related defense costs. We are also insured, with limits of liability customary within the multi-family apartment industry, 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.

Available Information

Both UDR and the Operating Partnership file electronically with the Securities and Exchange Commission their respective 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.udr.com, or by sending an e-mail message to ir@udr.com.

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Item 1A. RISK FACTORS

There are many factors that affect the business and the results of operations of the Company and the Operating Partnership, some of which are beyond the control of the Company and the Operating Partnership. The following is a description of important factors that may cause the actual results of operations of the Company and the Operating Partnership in future periods to differ materially from those currently expected or discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

Risks Related to Our Real Estate Investments and Our Operations

Unfavorable Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels, Rental Revenues and the Value of Our Real Estate Assets. Unfavorable market conditions in the areas in which we operate or unfavorable economic conditions generally may significantly affect our occupancy levels, our rental rates and collections, the value of our properties and our ability to acquire or dispose of apartment communities on economically favorable terms. Our ability to lease our properties at favorable rates is adversely affected by the increase in supply in the multifamily and other rental markets and is dependent upon the overall level in the economy, which is adversely affected by, among other things, job losses and unemployment levels, recession, debt levels, housing markets, stock market volatility and uncertainty about the future. Some of our major expenses generally do not decline when related rents decline. We would expect that declines in our occupancy levels and rental revenues would cause us to have less cash available to pay our indebtedness and to distribute to UDR’s stockholders, which could adversely affect our financial condition or the market value of our securities. Factors that may affect our occupancy levels, our rental revenues, and/or the value of our properties include the following, among others:

● downturns in the global, national, regional and local economic conditions, particularly increases in unemployment;

● declines in mortgage interest rates, making alternative housing more affordable;

● government or builder incentives with respect to home ownership, making alternative housing options more attractive;

● local real estate market conditions, including oversupply of, or reduced demand for, apartment homes;

● declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;

● changes in market rental rates;

● our ability to renew leases or re-lease space on favorable terms;

● the timing and costs associated with property improvements, repairs or renovations;

● changes in household formation; and

● rent control or stabilization laws, or other laws regulating or impacting rental housing, which could prevent us from raising rents to offset increases in operating costs or otherwise impact us.

The Geographic Concentration of Our Communities in Certain Markets Could Have an Adverse Effect on Our Operations if a Particular Market is Adversely Impacted by Economic or Other Conditions. For the year ended December 31, 2019, approximately 52.7% of our total NOI was generated from communities located in the Washington, D.C. metropolitan area (16.2%), Orange County, CA (14.2%), the San Francisco Bay Area, CA (12.2%) and New York, NY (10.1%). As a result, if any one or more of these markets is adversely impacted by regional or local economic conditions or real estate market conditions, such conditions may have a greater adverse impact on our results of operations than if our portfolio was more geographically diverse. In addition, if one or more of these markets is adversely affected by changes in regional or local regulations, including those related to rent control or stabilization, such regulations may have a greater adverse impact on our results of operation than if our portfolio was more geographically diverse.

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We May Be Unable to Renew Leases or Relet Apartment Units as Leases Expire, or the Terms of Renewals or New Leases May Be Less Favorable Than Current Leases. When our residents decide to leave our apartments, whether because they decide not to renew their leases or they leave prior to their lease expiration date, we may not be able to relet their apartment units. Even if the residents do renew or we can relet the apartment units, the terms of renewal or reletting may be less favorable than current lease terms. Furthermore, because the majority of our apartment leases have initial terms of 12 months or less, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. If we are unable to promptly renew the leases or relet the apartment units, or if the rental rates upon renewal or reletting are lower than expected rates, then our results of operations and financial condition may be adversely affected. If residents do not experience increases in their income, we may be unable to increase rent and/or delinquencies may increase.

We Face Certain Risks Related to Our Retail and Commercial Space. Certain of our properties include retail or commercial space that we lease to third parties. The long term nature of our retail and commercial leases (generally five to ten years with market-based or fixed-price renewal options) and the characteristics of many of our tenants (generally small and/or local businesses) may subject us to certain risks. The longer term leases could result in below market lease rates over time. Tenants may provide guarantees and other credit support which may prove to be inadequate or uncollectable, and the failure rate of small and/or local businesses may be higher than average. We may not be able to lease new space for rents that are consistent with our projections or for market rates. Also, when leases for our retail or commercial space terminate either at the end of the lease or because a tenant leaves early, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the prior lease terms. Our properties compete with other properties with retail or commercial space. The presence of competitive alternatives may adversely affect our ability to lease space and the level of rents we can obtain. If our retail or commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations, or cease their operations, which could adversely impact our results of operations and financial condition.

Risk of Inflation/Deflation. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses. The general risk of inflation is that interest on our debt, general and administrative expenses and other expenses increase at a rate faster than increases in our rental rates, which could adversely affect our financial condition or results of operations.

We Are Subject to Certain Risks Associated with Selling Apartment Communities, Which Could Limit Our Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it difficult to sell apartment communities we own. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold or the purchase price may be reduced to cover any cost of correcting defects or making improvements. These conditions may limit our ability to dispose of properties and to change our portfolio in order to meet our strategic objectives, which could in turn adversely affect our financial condition, results of operations or our ability to fund other activities in which we may want to engage such as the purchase of properties, development or redevelopment, or funding the Developer Capital Program. We are also subject to the following risks in connection with sales of our apartment communities, among others:

● a significant portion of the proceeds from 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 of 1986, as amended, or the “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 proceeds generated from our property sales; and

● federal tax laws limit our ability to profit on the sale of communities that we have owned for less than two years, and this limitation may prevent us from selling communities when market conditions are favorable.

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, condominiums 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, which could materially adversely affect our results of operations and financial condition.

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We May Not Realize the Anticipated Benefits of Past or Future Acquisitions, and the Failure to Integrate Acquired Communities and New Personnel Successfully Could Create Inefficiencies. We have selectively acquired in the past, and if presented with attractive opportunities we intend to selectively acquire in the future, apartment communities that meet our investment criteria. Our acquisition activities and their success are subject to the following risks, among others:

● we may be unable to obtain financing for acquisitions on favorable terms, including but not limited to interest rates, term and/or loan-to-value ratios, or at all, all of which could cause us to delay or even abandon potential acquisitions;

● even if we are able to finance the acquisition, cash flow from the acquisition may be insufficient to meet our required principal and interest payments on the debt used to finance the acquisition;

● even if we enter into an acquisition agreement for an apartment community, we may not complete the acquisition for a variety of reasons after incurring certain acquisition-related costs;

● we may incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential acquisitions that we subsequently do not complete;

● when we acquire an apartment community, we may invest additional amounts in it with the intention of increasing profitability, and these additional investments may not produce the anticipated improvements in profitability;

● the expected occupancy rates and rental rates may differ from actual results; and

● we may be unable to quickly and efficiently integrate acquired apartment communities and new personnel into our existing operations, and the failure to successfully integrate such apartment communities or personnel will result in inefficiencies that could materially and adversely affect our expected return on our investments and our overall profitability.

Competition Could Adversely Affect Our Ability to Acquire Properties. In the past, other real estate investors, including insurance companies, pension and investment funds, developer partnerships, investment companies and other public and private apartment REITs, have competed with us to acquire existing properties and to develop new properties, and such competition in the future may make it more difficult for us to acquire attractive investment opportunities on favorable terms, which could adversely affect our ability to grow or acquire properties profitably or with attractive returns.

Development and Construction Risks Could Impact Our Profitability. In the past we have selectively pursued the development and construction of apartment communities, and we intend to do so in the future as appropriate opportunities arise. Development activities have been, and in the future may be, conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities are subject to the following risks, among others:

● we may be unable to obtain construction financing for development activities on favorable terms, including but not limited to interest rates, term and/or loan-to-value ratios, or at all, which could cause us to delay or even abandon potential developments;

● we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental or quasi-governmental permits and authorizations, which could result in increased development costs, could delay initial occupancy dates for all or a portion of a development community, and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations;

● cost may be higher or yields may be less than anticipated as a result of delays in completing projects, costs that exceed budget and/or higher than expected concessions for lease up and lower rents than expected;

● 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 development 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;

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● occupancy rates, rents and concessions at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our expected return on our investment and our overall profitability goals; and

● when we sell communities or properties that we developed or renovated to third parties, we may be subject to warranty or construction defect claims that are uninsured or exceed the limits of our insurance.

Bankruptcy or Defaults of Our Counterparties Could Adversely Affect Our Performance. We have relationships with and, from time to time, we execute transactions with or receive services from many counterparties, such as general contractors engaged in connection with our development activities or joint venture partners, among others. As a result, bankruptcies or defaults by these counterparties or their subcontractors could result in services not being provided, projects not being completed on time, or on budget, or at all, or volatility in the financial markets and economic weakness could affect the counterparties’ ability to complete transactions with us as intended, both of which could result in disruptions to our operations that may adversely affect our financial condition and results of operations.

Property Ownership Through Partnerships and Joint Ventures May Limit Our Ability to Act Exclusively in Our Interest. We have in the past and may in the future develop and/or acquire properties in partnerships and joint ventures, including those in which we own a preferred interest, with other persons or entities when we believe circumstances warrant the use of such structures. As of December 31, 2019, we had active joint ventures and partnerships, including our preferred equity investments, with a total equity investment of $588.3 million. We could become engaged in a dispute with one or more of our partners which could adversely impact us. Moreover, our partners may have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the appropriate timing and terms of any sale or refinancing of a property. In some instances, our partners may have competing interests in our markets that could create conflicts of interest. Also, our partners might fail to make capital contributions when due, which may require us to contribute additional capital or may negatively impact the project. In addition, we may be responsible to our partners for indemnifiable losses. In general, we and our partners may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction and may result in the valuation of our interest in the partnership or joint venture (if we are the seller) or of the other partner’s interest in the partnership or joint venture (if we are the buyer) at levels which may not be representative of the valuation that would result from an arm’s length marketing process and could cause us to recognize unanticipated capital gains or losses or the loss of fee income.

We are also subject to other risks in connection with partnerships or joint ventures, including (i) a deadlock if we and our partner are unable to agree upon certain major and other decisions (which could result in litigation or disposing of an asset at a time at which we otherwise would not sell the asset), (ii) limitations on our ability to liquidate our position in the partnership or joint venture without the consent of the other partner, and (iii) requirements to provide guarantees in favor of lenders with respect to the indebtedness of the joint venture.

We May Not be Permitted to Dispose of Certain Properties or Pay Down the Indebtedness Associated with Those Properties When We Might Otherwise Desire to do so Without Incurring Additional Costs. In connection with certain property acquisitions, we have agreed with the sellers that we will not dispose of the acquired properties or reduce the mortgage indebtedness on such properties for significant periods of time unless we pay certain of the resulting tax costs of the sellers or dispose of the property in a transaction in which a gain is not recognized for federal income tax purposes by such sellers, and we may enter into similar agreements in connection with future property acquisitions. These agreements could result in us retaining properties that we would otherwise sell or not paying down or refinancing indebtedness that we would otherwise pay down or refinance. However, subject to certain conditions, we retain the right to substitute other property or debt to meet these obligations to the sellers.

We Could Incur Significant Insurance Costs and Some Potential Losses May Not Be Adequately Covered by Insurance. We have a comprehensive insurance program covering our properties and operating activities with limits of liability, deductibles and self-insured retentions customary within the multifamily industry. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of extraordinary losses which may not be adequately covered under our insurance program. In addition, we will sustain losses due to insurance deductibles, self-insured retention, uninsured claims or casualties, or losses in excess of applicable coverage.

If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Material losses

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in excess of insurance proceeds may occur in the future. If one or more of our significant properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could materially and adversely affect our financial condition and results of operations.

The cost of insuring our apartment communities is a component of expense. Insurance premiums and the terms and conditions of insurance policies are subject to significant fluctuations and changes, which are generally outside of our control. We insure our properties with insurance companies that we believe have a good rating at the time our policies are put into effect. The financial condition of one or more insurance companies that we hold policies with may be negatively impacted, which could result in their inability to pay on future insurance claims. Their inability to pay future claims may have a negative impact on our financial results. In addition, the failure, or exit or partial exit from an insurance market, of one or more insurance companies may affect our ability to obtain insurance coverage in the amounts that we seek, or at all, or increase the costs to renew or replace our insurance policies, or cause us to self-insure a portion of the risk, or increase the cost of insuring properties.

Failure to Succeed in New Markets May Limit Our Growth. We have acquired in the past, and we may acquire in the future if appropriate opportunities arise, apartment communities that are outside of our existing markets. Entering into new markets may expose us to a variety of risks, 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;

● inability to hire and retain key personnel;

● lack of familiarity with local governmental and permitting procedures; and

● inability to achieve budgeted financial results.

Failure to Succeed with New Initiatives May Limit Our Ability to Grow Same-Store NOI. We have in the past developed and may in the future develop initiatives that are intended to drive operating efficiencies and grow same-store NOI, including smart home technologies and self-service options that are accessible to residents through smart devices. We may incur significant costs and divert resources in connection with such initiatives, and these initiatives may not perform as projected, which could adversely affect our results of operations and the market price of UDR’s common stock.

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 or we could be required to incur additional costs to change how the property is constructed or operated due to presence of such substances. 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.

In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of wastes and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us to liability. Changes in laws could increase the potential costs of compliance with environmental laws, health and safety laws or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise adversely affect our financial condition and results of operations.

As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM. Environmental, health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements.

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These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment.

We cannot assure you that costs or liabilities incurred as a result of environmental or building condition issues will not adversely affect our financial condition and results of operations.

Our Properties May Contain or Develop Harmful Mold or Suffer from Other Indoor Air Quality Issues, Which Could Lead to Liability for Adverse Health Effects or Property Damage or Cost for Remediation. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation, which could adversely affect our results of operations and cash flow. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others for property damage or personal injury.

Compliance or Failure to Comply with the Americans with Disabilities Act of 1990 or Other Safety Regulations and Requirements Could Result in Substantial Costs. The Americans with Disabilities Act generally requires that public buildings, including our properties, be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. Claims have been asserted, and in the future claims may be asserted, against us with respect to some of our properties under the Americans with Disabilities Act. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations. In addition, if claims arise, we may expend resources and incur costs in investigating and resolving such claims even if our property was in compliance with the law.

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements and federal, state and local accessibility requirements in addition to those imposed by the Americans with Disabilities Act. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that could adversely affect our financial condition or results of operations.

The Adoption of, or Changes to, Rent Control, Rent Stabilization, Eviction, Tenants’ Rights and Similar Laws and Regulations in Our Markets Could Have an Adverse Effect on Our Results of Operations and Property Values. Various state and local governments have enacted and may continue to enact rent control, rent stabilization, or limitations, and similar laws and regulations that could limit our ability to raise rents or charge certain fees, including laws or court orders, either of which could have a retroactive effect. For example, in June 2019, the State of New York enacted new rent control regulations known as the Housing Stability and Tenant Protection Act of 2019 and, in October of 2019, the State of California enacted the Tenant Protection Act of 2019. We have seen a recent increase in governments enacting or considering, or being urged to consider, such laws and regulations. State and local governments or courts also may make changes to laws related to allowable fees, eviction and other tenants’ rights laws and regulations (including changes that apply retroactively) that could adversely impact our results of operations and the value of our properties. Laws and regulations regarding rent control, rent stabilization, eviction, tenants’ rights, and similar matters, as well as any lawsuits against us arising from such laws and regulations, may limit our ability to charge market rents, limit our ability to increase rents, evict delinquent tenants or change fees, or recover increases in our operating expenses, which could have an adverse effect on our results of operations and the value of our properties.

Compliance with or Changes in Real Estate Tax and Other Laws and Regulations Could Adversely Affect Our Funds from Operations and Our Ability to Make Distributions to Stockholders. We are subject to federal, state and local laws, regulations, rules and ordinances at locations where we operate regarding a wide variety of matters that could affect, directly or indirectly, our operations. Generally, we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes to tenants under leases. These costs may adversely affect net operating income and the

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ability to make distributions to stockholders. Similarly, compliance with or changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) laws and regulations regulating housing, such as the Americans with Disabilities Act and the Fair Housing Amendments Act of 1988, or (iii) employment related laws, may result in significant unanticipated expenditures, which could adversely affect our financial condition and results of operations. In addition, changes in federal and state legislation and regulation on climate change may result in increased capital expenditures to improve the energy efficiency of our existing communities and also may require us to spend more on our new development communities without a corresponding increase in revenue.

Risk of Damage from Catastrophic Weather and Natural Events. Our communities are located in areas that may experience catastrophic weather and other natural events from time to time, including mudslides, fires, hurricanes, tornadoes, floods, snow or ice storms, or other severe inclement weather. These adverse weather and natural events could cause damage or losses that may be greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could adversely affect our financial condition and results of operations.

Risk of Potential Climate Change. To the extent significant changes in the climate in areas where our communities are located occur, we may experience extreme weather conditions and changes in precipitation and temperature, all of which could result in physical damage to, and/or a decrease in demand for, our communities located in these areas or communities that are otherwise affected by these changes. Should the impact of such climate changes be material in nature, or occur for lengthy periods of time, our financial condition and results of operations could be adversely affected.

Risk of Earthquake Damage. Some of our communities are located in areas subject to earthquakes, including in the general vicinity of earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We may also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could adversely affect our financial condition and results of operations. Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management’s view, economically impractical.

Risk of Accidental Death or Injury Due to Fire, Natural Disasters or Other Hazards. The accidental death or injury of persons living in our communities due to fire, natural disasters or other hazards could have an adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where any such events have occurred, which could have an adverse effect on our financial condition and results of operations.

Actual or Threatened Terrorist Attacks May Have an Adverse Effect on Our Business and Operating Results and Could Decrease the Value of Our Assets. Actual or threatened terrorist attacks and other acts of violence or war could have an adverse effect on our business and operating results. Attacks that directly impact one or more of our apartment communities could significantly affect our ability to operate those communities and thereby impair our ability to achieve our expected results. Further, our insurance coverage may not cover all losses caused by a terrorist attack. In addition, the adverse effects that such violent acts and threats of future attacks could have on the U.S. economy could similarly have an adverse effect on our financial condition and results of operations.

Risk of Pandemics or Other Health Crisis. A pandemic, epidemic, or other health crisis where our communities are located or areas in which vendors on which we rely are located, could have an adverse effect on our business and results of operations.

Mezzanine Loan Assets Involve Greater Risks of Loss than Senior Loans Secured by Income-Producing Properties. We have in the past and may in the future originate mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or subordinated loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. Mezzanine loans may involve a higher degree of risk than a senior mortgage secured by real property, because the security for the loan may lose all or substantially all of its value as a result of foreclosure by the senior lender and because it is in second position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may

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not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some of or all our investment. In addition, mezzanine loans typically have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

Risk Related to Preferred Equity Investments. We have in the past and may in the future make preferred equity investments in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing or managing real property. Generally, we will not have the ability to control the daily operations of the entity, and we will not have the ability to select or remove a majority of the members of the board of directors, managers, general partner or partners or similar governing body of the entity or otherwise control its operations. Although we would seek to maintain sufficient influence over the entity to achieve our objectives, our partners may have interests that differ from ours and may be in a position to take actions without our consent or that are inconsistent with our interests. Further, if our partners were to fail to invest additional capital in the entity when required, we may have to invest additional capital to protect our investment. Our partners may fail to develop or operate the real property or refinance property indebtedness or sell the real property in the manner intended and as a result the entity may not be able to redeem our investment or pay the return expected to us in a timely manner if at all. In addition, we may not be able to dispose of our investment in the entity in a timely manner or at the price at which we would want to divest. In the event that such an entity fails to meet expectations or becomes insolvent, we may lose our entire investment in the entity.

Risks Related to Ground Leases. We have in the past and may in the future enter into, as either landlord or tenant, a long-term ground lease with respect to a property or a portion thereof. Such ground leases may contain a rent reset provision that requires both parties to agree to a new rent or is based upon factors, for example fair market rent, that are not objective and are not within our control. We may not be able to agree with the counterparty to a revised rental rate, or the revised rental rate may be set by external factors, which could result in a different rental rate than we forecasted. In the past we have had disagreements with respect to revised rental rates and certain of such disagreements have gone to arbitration (for resolution as provided in the applicable lease agreement) and have been resolved in a manner adverse to us. In addition, the other party may not perform as expected under the ground lease or there may be a dispute with the other party to the ground lease. Any of these circumstances could have an adverse effect on our business, financial condition or operating results.

We May Experience a Decline in the Fair Value of Our Assets and Be Forced to Recognize Impairment Charges, Which Could Adversely Impact Our Financial Condition, Liquidity and Results of Operations and the Market Price of UDR’s Common Stock. A decline in the fair value of our assets may require us to recognize an impairment against such assets under generally accepted accounting principles as in effect in the United States (“GAAP”), if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize asset impairment charges in the future, these charges could adversely affect our financial condition, liquidity, results of operations and the per share trading price of UDR’s common stock.

Any Material Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on UDR’s Stock Price. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. If we fail to maintain the adequacy of our internal controls over financial reporting, including any failure to implement required new or improved controls as a result of changes to our business or otherwise, or if we experience difficulties in their implementation, our business, results of operations and financial condition could be materially adversely harmed and we could fail to meet our reporting obligations. In addition, if we have one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on the per share trading price of UDR’s common stock.

A Breach of Information Technology Systems On Which We Rely Could Materially and Adversely Impact Our Business, Financial Condition, Results of Operations and Reputation. We rely on information technology systems, including the internet and networks and systems maintained and controlled by third party vendors and other third parties,

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to process, transmit and store information and to manage or support our business processes. Third party vendors collect and hold personally identifiable information and other confidential information of our tenants, prospective tenants and employees. We also maintain confidential financial and business information regarding us and persons and entities with which we do business on our information technology systems. While we take steps, and generally require third party vendors to take steps, to protect the security of the information maintained in our and third party vendors’ information technology systems, including associate training and testing and the use of commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing of the information, it is possible that our or our third party vendors’ security measures will not be able to prevent human error or the systems’ improper functioning, or the loss, misappropriation, disclosure or corruption of personally identifiable information or other confidential or sensitive information, including information about our tenants and employees. Cybersecurity breaches, including physical or electronic break-ins, computer viruses, phishing scams, attacks by hackers, breaches due to employee error or misconduct, and similar breaches, can create system disruptions, shutdowns or unauthorized access to information maintained on our information technology systems or the information technology systems of our third party vendors or other third parties or otherwise cause disruption or negative impacts to occur to our business and adversely affect our financial condition and results of operations. While we maintain cyber risk insurance to provide some coverage for certain risks arising out of cybersecurity breaches, there is no assurance that such insurance would cover all or a significant portion of the costs or consequences associated with a cybersecurity breach. We have in the past experienced cybersecurity breaches on our information technology systems, and, while none to date have been material, we expect such breaches may occur in the future. As the techniques used to obtain unauthorized access to information technology systems become more varied and sophisticated and the occurrence of such breaches becomes more frequent, we and our third party vendors and other third parties may be unable to adequately anticipate these techniques or breaches and implement appropriate preventative measures. Any failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third party vendors’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand, damage our competitive position, make it difficult for us to attract and retain tenants, and subject us to liability claims or regulatory penalties that could adversely affect our business, financial condition and results of operations.

Our Business and Operations Would Suffer in the Event of Information Technology System Failures. Despite system redundancy and the existence of a disaster recovery plan for our information technology systems, our information technology systems and the information technology systems maintained by our third party vendors are vulnerable to damage arising from any number of sources beyond our or our third party vendors’ control, including energy blackouts, natural disasters, terrorism, war, and telecommunication failures. Any failure to maintain proper function and availability of our or third party vendors’ information technology systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could adversely affect our business, financial condition and results of operations.

Social Media Presents Risks. The use of social media could cause us to suffer brand damage or unintended information disclosure. Negative posts or communications about us on a social networking website could damage our reputation. Further, employees or others may disclose non-public information regarding us or our business or otherwise make negative comments regarding us on social networking or other websites, which could adversely affect our business and results of operations. As social media evolves we will be presented with new risks and challenges.

Our Success Depends on Our Senior Management. Our success depends upon the retention of our senior management, whose continued service is not guaranteed. We may not be able to find qualified replacements for the individuals who make up our senior management if their services should no longer be available to us. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations.

Changes in U.S. Accounting Standards May Materially and Adversely Affect Our Reported Results of Operations. Accounting for public companies in the United States is in accordance with GAAP, which is established by the Financial Accounting Standards Board (the “FASB”), an independent body whose standards are recognized by the SEC as authoritative for publicly held companies. Uncertainties posed by various initiatives of accounting standard-setting by the FASB and the SEC, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements.

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Third-Party Expectations Relating to Environmental, Social and Governance Factors May Impose Additional Costs and Expose Us to New Risks. There is an increasing focus from certain investors, tenants, employees, and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance factors. Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased in number, resulting in varied and in some cases inconsistent standards. In addition, the criteria by which companies’ corporate responsibility practices are assessed are evolving, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. Alternatively, if we elect not to or are unable to satisfy such new criteria or do not meet the criteria of a specific third-party provider, some investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies. Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, potential or current investors may elect to invest with our competitors instead. In addition, in the event that we communicate certain initiatives and goals regarding environmental, social and governance matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, tenants and other stakeholders or our initiatives are not executed as planned, our reputation and financial results could be adversely affected.

Risks Related to Our Indebtedness and Financings

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 debt payments and satisfy UDR’s distribution requirements to maintain its status as a REIT for federal income tax purposes. In addition, the amounts under our line of credit may not be available to us and we may not be able to access the commercial paper market if our operating performance falls outside the constraints of our debt covenants. We are also 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. In addition, our failure to comply with our debt covenants could result in a requirement to repay our indebtedness prior to its maturity, which could have a material adverse effect on our financial condition and cash flow, and increase our financing costs and impact our ability to make distributions to UDR’s stockholders.

Failure to Generate Sufficient Income Could Impair Debt Service Payments and Distributions to Stockholders. If our apartment communities do not generate sufficient revenue to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to UDR’s stockholders or the Operating Partnership’s or the DownREIT Partnership’s unitholders will be adversely affected. The following factors, among others, may affect the 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;

● rental expenses, including real estate taxes and utilities;

● competition from other apartment communities;

● changes in interest rates and the availability of financing;

● changes in governmental regulations and the related costs of compliance; and

● changes in tax and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing.

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Expenses associated with our investment in an apartment community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in revenue from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgage holder.

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, including unsecured commercial paper, at rates that vary with market interest rates. As of December 31, 2019, UDR had approximately $378.6 million of variable rate indebtedness outstanding, which constitutes approximately 8.0% of total outstanding indebtedness as of such date. As of December 31, 2019, the Operating Partnership had approximately $27.0 million of variable rate indebtedness outstanding, which constitutes approximately 27.1% of total outstanding indebtedness as of such date. An increase in interest rates would increase our interest expenses and increase the costs of refinancing existing indebtedness and of issuing new debt, including unsecured commercial paper. Accordingly, higher interest rates could adversely affect cash flow and our ability to service our debt and to make distributions to security holders. The effect of prolonged interest rate increases could negatively impact our ability to make acquisitions and develop properties.

The Phase-Out of LIBOR and Transition to SOFR as a Benchmark Interest Rate Could Have Adverse Effects. In 2018, the Alternative Reference Rate Committee identified the Secured Overnight Financing Rate (“SOFR”) as the alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, published by the Federal Reserve Bank of New York.  By the end of 2021, it is expected that new contracts will not reference LIBOR and will instead use SOFR. Due to the broad use of LIBOR as a reference rate, all financial market participants, including us, are impacted by the risks associated with this transition and therefore it could adversely affect our operations and cash flows.

Our Debt Level May Be Increased. 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, construction loans and other forms of secured debt, commercial paper and other forms of unsecured debt, and equity financing, including common and preferred equity. We and other companies in the real estate industry have experienced limited availability of financing from time to time, including due to regulatory changes directly or indirectly affecting financing markets, for example the changes in terms on construction loans brought about by the Basel III capital requirements and the associated “High Volatility Commercial Real Estate” designation, which has adversely impacted the availability of loans, including construction loans, and the proceeds of and the interest rate thereon. Restricted lending practices could impact our ability to obtain financing or refinancing for our properties. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of UDR’s existing stockholders could be diluted.

Failure To Maintain Our Current Credit Ratings Could Adversely Affect Our Cost of Funds, Related Margins, Liquidity, and Access to Capital Markets. Moody’s and Standard & Poor’s routinely evaluate our debt and have given us ratings on our senior unsecured debt, commercial paper program and preferred stock. These ratings are based on a number of factors, which included their assessment of our financial strength, liquidity, capital structure, asset quality, and sustainability of cash flow and earnings. Due to changes in these factors and market conditions, we may not be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity, and access to capital markets, including our ability to access the commercial paper market.

Disruptions in Financial Markets May Adversely Impact Availability and Cost of Credit and Have Other Adverse Effects on Us and the Market Price of UDR’s Stock. Our ability to make scheduled payments on, or to refinance, our debt obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business and other factors beyond our control. During the global financial crisis and the economic recession that followed it, the United States stock and credit markets experienced significant price volatility, dislocations and liquidity disruptions, which caused market prices of many stocks to fluctuate substantially and the spreads on debt financings to widen considerably. Those circumstances materially impacted liquidity in the financial markets at times, making terms for certain financings less attractive, and in some cases resulted in the unavailability of financing, such as the commercial paper market. Any future disruptions or uncertainty in the stock and credit markets may negatively impact our ability to refinance existing indebtedness and access additional financing for

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acquisitions, development of our properties and other purposes at reasonable terms or at all, which may negatively affect our business and the market price of UDR’s common stock. If we are not successful in refinancing our existing indebtedness when it becomes due, we may be forced to dispose of properties on disadvantageous terms, which might adversely affect our ability to service other debt and to meet our other obligations. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of UDR’s common or preferred stock.

A Change in U.S. Government Policy or Support Regarding Fannie Mae or Freddie Mac Could Have a Material Adverse Impact on Our Business. While in recent years we have decreased our borrowing from Fannie Mae and Freddie Mac, Fannie Mae and Freddie Mac are a major source of financing to participants in the multifamily housing market including potential purchasers of our properties. Potential options for the future of agency mortgage financing in the U.S. have been, and may in the future be, suggested that could involve a reduction in the amount of financing Fannie Mae and Freddie Mac are able to provide, limitations on the loans that the agencies may make, which may not include loans secured by properties like our properties, or the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government, or if there is reduced government support for multifamily housing generally, it may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily residential real estate and, as a result, may adversely affect our business and results of operations.

The Soundness of Financial Institutions Could Adversely Affect Us. We have relationships with many financial institutions, including lenders under our credit facilities, and, from time to time, we execute transactions with counterparties in the financial services industry. As a result, defaults by, or even rumors or questions about, financial institutions or the financial services industry generally, could result in losses or defaults by these institutions. In the event that the volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our results of operations.

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. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs.

Risks Related to Tax Laws

We Would Incur Adverse Tax Consequences if UDR Failed to Qualify as a REIT. UDR has elected to be taxed as a REIT under the 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 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 UDR’s stockholders.

If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including, for periods prior to 2018, any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to UDR’s stockholders in computing our taxable income. Also, unless the

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Internal Revenue Service granted us relief under certain statutory provisions, we could not re-elect REIT status until the fifth calendar year after the year in which we first failed to qualify as a REIT. 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 UDR’s 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 UDR’s 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.

Certain of our subsidiaries have also elected to be taxed as REITs under the Code, and are therefore subject to the same risks in the event that any such subsidiary fails to qualify as a REIT in any taxable year.

Dividends Paid by REITs Generally Do Not Qualify for Reduced Tax Rates. In general, the maximum U.S. federal income tax rate for dividends paid to individual U.S. stockholders is 20%. Unlike dividends received from a corporation that is not a REIT, our regular dividends (i.e., dividends other than capital gain dividends) paid to individual stockholders generally are not eligible for the reduced rates. However, individual U.S. stockholders generally may deduct 20% of such regular dividends under Section 199A of the Code, reducing the effective tax rate applicable to such dividends (although such provision will expire after 2025 absent future legislation).

UDR May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which Are Subject to Certain Tax Risks. We have established taxable REIT subsidiaries. Despite UDR’s qualification as a REIT, its 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 certain of 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.

REIT Distribution Requirements Limit Our Available Cash. As a REIT, UDR is subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make distributions to UDR’s stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.

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 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 and 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 UDR’s ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.

Changes to the U.S. Federal Income Tax Laws, including the Enactment of Certain Tax Reform Measures, Could Have an Adverse Impact on Our Business and Financial Results. In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments in real estate and REITs, including the passage of the Tax Cuts and Jobs Act of 2017, the full impact of which may not become evident for some period of time. There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are regularly under review by persons involved in the legislative process and by the Internal Revenue Service and the

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U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.

We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding the effect of potential future changes to the federal tax laws on an investment in our shares.

We May Be Adversely Affected by Changes in State and Local Tax Laws and May Become Subject to Tax Audits from Time to Time. Because UDR is organized and qualifies as a REIT, it is generally not subject to federal income taxes, but it is subject to certain state and local taxes. From time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and local jurisdictions in which we own apartment communities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional state and local taxes. These increased tax costs could adversely affect our financial condition and the amount of cash available for the payment of distributions to UDR’s stockholders. In the normal course of business, we or our affiliates (including entities through which we own real estate) may also become subject to federal, state or local tax audits. If we (or such entities) become subject to federal, state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition and results of operations.

The Operating Partnership and the DownREIT Partnership Intend to Qualify as Partnerships, but Cannot Guarantee That They Will Qualify. The Operating Partnership and the DownREIT Partnership intend to qualify as partnerships for federal income tax purposes, and intend to take that position for all income tax reporting purposes. If classified as partnerships, the Operating Partnership and the DownREIT Partnership generally will not be taxable entities and will not incur federal income tax liability. However, the Operating Partnership and the DownREIT Partnership would be treated as corporations for federal income tax purposes if they were “publicly traded partnerships,” unless at least 90% of their income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although neither the Operating Partnership’s nor the DownREIT Partnership’s partnership units are traded on an established securities market, because of the redemption rights of their limited partners, the Operating Partnership’s and DownREIT Partnership’s units held by limited partners could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and the Operating Partnership and the DownREIT Partnership may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. The Operating Partnership and the DownREIT Partnership may not meet this qualifying income test. If either the Operating Partnership or the DownREIT Partnership were to be taxed as a corporation, it would incur substantial tax liabilities, and UDR would then fail to qualify as a REIT for tax purposes, unless it qualified for relief under certain statutory savings provisions, and our ability to raise additional capital would be impaired. In addition, even if the 90% test were met if the Operating Partnership or the DownREIT Partnership were a publicly traded partnership, there could be adverse tax impacts for certain limited partners.

Qualifying as a REIT Involves Highly Technical and Complex Provisions of the Code. Our qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.

Risks Related to Our Organization and Ownership of UDR’s Stock

Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of UDR’s Common Stock. The stock markets, including the New York Stock Exchange (“NYSE”), on which we list UDR’s common stock, have experienced significant price and volume fluctuations. As a result, the market price of UDR’s

24

common stock could be similarly volatile, and investors in UDR’s common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the price per share of UDR’s common stock, including:

● general market and economic conditions;

● actual or anticipated variations in UDR’s quarterly operating results or dividends or UDR’s payment of dividends in shares of UDR’s stock;

● changes in our funds from operations or earnings estimates;

● difficulties or inability to access capital or extend or refinance existing debt;

● decreasing (or uncertainty in) real estate valuations;

● changes in market valuations of similar companies;

● publication of research reports about us or the real estate industry;

● the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate companies);

● general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of UDR’s stock to demand a higher annual yield from future dividends;

● a change in analyst ratings;

● additions or departures of key management personnel;

● adverse market reaction to any additional debt we incur in the future;

● speculation in the press or investment community;

● terrorist activity which may adversely affect the markets in which UDR’s securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending;

● failure to qualify as a REIT;

● strategic decisions by us or by our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

● failure to satisfy listing requirements of the NYSE;

● governmental regulatory action and changes in tax laws; and

● the issuance of additional shares of UDR’s common stock, or the perception that such sales might occur, including under UDR’s at-the-market equity distribution program.

Many of the factors listed above are beyond our control. These factors may cause the market price of shares of UDR’s common stock to decline, regardless of our financial condition, results of operations, business or our prospects.

We May Change the Dividend Policy for UDR’s Common Stock in the Future. The decision to declare and pay dividends on UDR’s common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our board of directors considers relevant. Any change in our dividend policy could have an adverse effect on the market price of UDR’s common stock.

Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in UDR’s 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

25

in UDR’s 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 UDR’s 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 UDR’s Stockholders to Effect a Change in Control of Our Company Restricts the Transferability of UDR’s Stock and May Prevent Takeovers That are Beneficial to UDR’s Stockholders. One of the requirements for maintenance of our qualification as a REIT for U.S. 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 Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to UDR’s stock primarily to assist us in complying with this and other REIT ownership requirements; however, the restrictions may have the effect of preventing a change of control, which does not threaten REIT status. These restrictions include a provision that generally limits ownership by any person of more than 9.9% of the value of our outstanding equity stock, 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 outstanding equity stock. Absent such an exemption from our board of directors, the transfer of UDR’s stock to any person in excess of the applicable ownership limit, or any transfer of shares of such stock in violation of the ownership requirements of the Code for REITs, will be considered null and void, and the intended transferee of such stock will acquire no rights in such shares. These provisions of our charter 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 UDR’s stockholders or might otherwise be in UDR’s stockholders’ best interests.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

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Item 2. PROPERTIES

At December 31, 2019, our consolidated apartment portfolio included 148 communities located in 20 markets, with a total of 47,010 completed apartment homes.

The tables below set forth a summary of real estate portfolio by geographic market of the Company and of the Operating Partnership at December 31, 2019.

SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2019

UDR, INC.

			Percentage		Total								Average
	Number of	Number of	of Total		Carrying						Average		Home Size
	Apartment	Apartment	Carrying		Value		Encumbrances		Cost per		Physical		(in square
	Communities	Homes	Value		(in thousands)		(in thousands)		Home		Occupancy		feet)
WEST REGION
Orange County, CA	12	5,336	12.8	%	$	1,607,866	$	—	$	301,324	95.9	%	868
San Francisco, CA	11	2,751	7.0	%		881,394		27,000		320,390	96.8	%	841
Seattle, WA	16	2,992	8.4	%		1,063,695		70,931		355,513	96.6	%	890
Los Angeles, CA	4	1,225	3.6	%		458,189		—		374,032	96.6	%	967
Monterey Peninsula, CA	7	1,565	1.5	%		182,630		—		116,696	96.6	%	729
Other Southern California	3	817	1.6	%		207,986		42,698		254,573	95.8	%	1,014
Portland, OR	2	476	0.4	%		50,395		—		105,872	96.6	%	903
MID-ATLANTIC REGION
Metropolitan D.C.	23	8,305	18.3	%		2,322,872		252,067		279,696	97.4	%	909
Richmond, VA	4	1,358	1.2	%		151,726		—		111,728	97.4	%	1,018
Baltimore, MD	5	1,597	2.6	%		331,777		58,600		207,750	95.3	%	938
SOUTHEAST REGION
Orlando, FL	9	2,500	1.9	%		233,098		—		93,239	96.4	%	946
Nashville, TN	8	2,260	1.8	%		220,566		—		97,596	97.5	%	933
Tampa, FL	9	2,908	3.3	%		411,847		—		141,626	96.6	%	979
Other Florida	1	636	0.7	%		87,518		—		137,607	96.1	%	1,130
NORTHEAST REGION
New York, NY	6	2,318	12.3	%		1,543,545		—		665,895	97.0	%	754
Boston, MA	11	4,299	13.0	%		1,640,478		389,639		381,595	95.1	%	987
Philadelphia, PA	1	313	0.9	%		107,350		—		342,971	82.7	%	1,054
SOUTHWEST REGION
Dallas, TX	11	3,864	4.5	%		565,356		275,524		146,314	96.3	%	868
Austin, TX	4	1,272	1.3	%		167,217		—		131,460	97.3	%	913
Denver, CO	1	218	1.1	%		144,252		—		661,706	94.6	%	955
Total Operating Communities	148	47,010	98.2	%		12,379,757		1,116,459	$	263,343	96.4	%	908
Real Estate Under Development (a)	—	—	0.6	%		69,777		—
Land	—	—	0.7	%		87,615		—
Other	—	—	0.5	%		64,952		32,982
Total Real Estate Owned	148	47,010	100.0	%	$	12,602,101	$	1,149,441

(a) As of December 31, 2019, the Company was developing three wholly owned communities with a total of 878 apartment homes, none of which have been completed.

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SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2019

UNITED DOMINION REALTY, L.P.

			Percentage		Total								Average
	Number of	Number of	of Total		Carrying						Average		Home Size
	Apartment	Apartment	Carrying		Value		Encumbrances		Cost per		Physical		(in square
	Communities	Homes	Value		(in thousands)		(in thousands)		Home		Occupancy		feet)
WEST REGION
Orange County, CA	5	3,119	19.3	%	$	746,564	$	—	$	239,360	96.6	%	805
San Francisco, CA	9	2,185	15.8	%		611,361		27,000		279,799	96.7	%	829
Seattle, WA	5	932	5.9	%		229,423		—		246,162	96.4	%	869
Los Angeles, CA	2	344	3.0	%		116,446		—		338,506	96.5	%	976
Monterey Peninsula, CA	7	1,565	4.7	%		182,630		—		116,696	96.6	%	729
Other Southern California	1	414	1.9	%		75,187		—		181,611	96.7	%	989
Portland, OR	2	476	1.3	%		50,395		—		105,872	96.6	%	903
MID-ATLANTIC REGION
Metropolitan D.C.	6	2,068	14.7	%		564,334		—		272,889	96.9	%	894
Baltimore, MD	2	540	2.8	%		106,373		—		196,987	96.7	%	967
SOUTHEAST REGION
Nashville, TN	6	1,612	3.9	%		155,207		—		96,282	97.5	%	925
Tampa, FL	2	942	2.8	%		110,065		—		116,842	97.4	%	1,043
Other Florida	1	636	2.3	%		87,518		—		137,607	96.1	%	1,130
NORTHEAST REGION
New York, NY	2	996	16.0	%		619,246		—		621,733	96.3	%	687
Boston, MA	1	387	1.9	%		74,757		72,500		193,171	95.3	%	1,069
SOUTHWEST REGION
Denver, CO	1	218	3.7	%		144,252		—		661,706	94.6	%	955
Total Operating Communities	52	16,434	100.0	%		3,873,758		99,500	$	235,716	96.7	%	871
Other	—	—	—	%		1,402		(429)
Total Real Estate Owned	52	16,434	100.0	%	$	3,875,160	$	99,071

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. MINE SAFETY DISCLOSURES

Not Applicable.

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PART II

Item 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

UDR, Inc.:

Common Stock

UDR, Inc.’s common stock has been listed on the New York Stock Exchange (“NYSE”) under the symbol “UDR” since May 7, 1990.

On February 17, 2020, there were 3,255 holders of record of the 294,631,463 outstanding shares of our common stock.

We have determined that, for federal income tax purposes, approximately 73% of the distributions for 2019 represented ordinary income, less than 1% represented qualified ordinary income, 1% represented long-term capital gain, 5% represented unrecaptured section 1250 gain, and 21% represented nondividend distributions.

UDR pays regular quarterly distributions to holders of its 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 Code, and other factors.

Series E Preferred Stock

The Series E Cumulative Convertible Preferred Stock (“Series E”) 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 at the holder’s option into 1.083 shares 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 connection with a special dividend (declared on November 5, 2008), the Company reserved for issuance upon conversion of the Series E additional shares of common stock to which a holder of the Series E would have received if the holder had converted the Series E immediately prior to the record date for this special dividend.

Distributions declared on the Series E for the years ended December 31, 2019 and 2018 were $1.4832 per share, or $0.3708 per quarter, and $1.3968 per share, or $0.3492 per quarter, respectively. The Series E is not listed on any exchange. At December 31, 2019, a total of 2.8 million shares of the Series E were outstanding.

Series F Preferred Stock

We are authorized to issue up to 20.0 million shares of our Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of our Operating Partnership Units, or OP Units, described below under “Operating Partnership Units,” and holders of limited partnership interests in the DownREIT Partnership at a purchase price of $0.0001 per share. OP/DownREIT unitholders are entitled to subscribe for and purchase one share of the Series F for each OP/DownREIT Unit held.

As of December 31, 2019, a total of 14.7 million shares of the Series F were outstanding. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to any other rights, privileges or preferences.

Distribution Reinvestment and Stock Purchase Plan

We have a Distribution Reinvestment and Stock Purchase Plan under which holders of our common 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 distributions as and when declared. As of February 17, 2020, there were approximately 1,935 participants in the plan.

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United Dominion Realty, L.P.:

Operating Partnership Units

There is no established public trading market for United Dominion Realty, L.P.’s Operating Partnership Units. From time to time we issue shares of our common stock in exchange for OP Units tendered to the Operating Partnership for redemption in accordance with the provisions of the Operating Partnership’s limited partnership agreement. At December 31, 2019, there were 184.1 million OP Units outstanding in the Operating Partnership, of which 176.2 million OP Units or 95.7% were owned by UDR and affiliated entities and 7.9 million OP Units or 4.3% were owned by non-affiliated limited partners. Under the terms of the Operating Partnership’s limited partnership agreement, the holders of OP Units have the right to require the Operating Partnership 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, the Operating Partnership’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 the number of shares of our common stock equal to the number of OP Units being redeemed.

During the three months ended December 31, 2019, we issued less than 0.1 million shares of our common stock upon redemption of OP Units in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.

Purchases of Equity Securities

In February 2006, UDR’s Board of Directors authorized a 10 million share repurchase program. In January 2008, UDR’s Board of Directors authorized a new 15 million share repurchase program. Under the two share repurchase programs, UDR may repurchase shares of our common stock in open market purchases, block purchases, privately negotiated transactions or otherwise. The following table summarizes all of UDR’s repurchases of shares of common stock under these programs during the quarter ended December 31, 2019 (shares in thousands):

				Total Number	Maximum
				of Shares	Number of
				Purchased as	Shares that
	Total			Part of	May Yet Be
	Number of	Average		Publicly	Purchased
	Shares	Price Paid		Announced Plans	Under the Plans
Period	Purchased	per Share		or Programs	or Programs (a)
Beginning Balance	10,561	$	22.66	10,561	14,439
October 1, 2019 through October 31, 2019	—		—	—	14,439
November 1, 2019 through November 30, 2019	—		—	—	14,439
December 1, 2019 through December 31, 2019	—		—	—	14,439
Balance as of December 31, 2019	10,561	$	22.66	10,561	14,439

(a) This number reflects the amount of shares that were available for purchase under our 10 million share repurchase program authorized in February 2006 and our 15 million share repurchase program authorized in January 2008.

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Comparison of Five-year Cumulative Total Returns

The following graph compares the five-year cumulative total returns for UDR common stock with the comparable cumulative return of the Nareit Equity REIT Index, Standard & Poor’s 500 Stock Index, the Nareit Equity Apartment Index and the MSCI U.S. REIT Index. The graph assumes that $100 was invested on December 31, 2014, in each of our common stock and the indices presented. Historical stock price performance is not necessarily indicative of future stock price performance. The comparison assumes that all dividends are reinvested.

	Period Ending
Index	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018	12/31/2019
UDR, Inc.	100.00	125.96	126.30	137.81	146.64	178.14
Nareit Equity Apartment Index	100.00	116.45	119.78	124.24	128.83	162.74
MSCI U.S. REIT Index	100.00	102.52	111.34	116.98	111.64	140.48
S&P 500 Index	100.00	101.38	113.51	138.29	132.23	173.86
Nareit Equity REIT Index	100.00	103.20	111.99	117.84	112.39	141.61

The performance graph and the related chart and text, are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Item 6. SELECTED FINANCIAL DATA

The following tables set forth selected consolidated financial and other information of UDR, Inc. and of the Operating Partnership as of and for each of the years in the five-year period ended December 31, 2019. The tables should be read in conjunction with each of UDR, Inc.’s and the Operating Partnership’s respective consolidated financial

31

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.

	UDR, Inc.
	Year Ended December 31,
	(In thousands, except per share data
	and apartment homes owned)
	2019		2018		2017		2016		2015
OPERATING DATA:
Rental income	$	1,138,138	$	1,035,105	$	984,309	$	948,461	$	871,928
Net income/(loss)		199,579		221,542		132,655		320,380		357,159
Distributions to preferred stockholders		4,104		3,868		3,708		3,717		3,722
Net income/(loss) attributable to common stockholders		180,861		199,238		117,850		289,001		336,661
Common stock distributions declared		395,113		348,079		331,974		315,102		289,500
Income/(loss) per weighted average common share — basic	$	0.63	$	0.74	$	0.44	$	1.09	$	1.30
Income/(loss) per weighted average common share — diluted	$	0.63	$	0.74	$	0.44	$	1.08	$	1.29
Weighted average number of Common Shares outstanding — basic		285,247		268,179		267,024		265,386		258,669
Weighted average number of Common Shares outstanding — diluted		286,015		269,483		268,830		267,311		263,752
Weighted average number of Common Shares outstanding, OP Units/DownREIT Units and Common Stock equivalents outstanding — diluted		311,799		297,042		296,672		295,469		276,699
Common stock distributions declared - per share	$	1.37	$	1.29	$	1.24	$	1.18	$	1.11
Balance Sheet Data:
Real estate owned, at cost (a)	$	12,602,101	$	10,196,159	$	10,177,206	$	9,615,753	$	9,190,276
Accumulated depreciation (a)		4,131,353		3,654,160		3,330,166		2,923,625		2,646,874
Total real estate owned, net of accumulated depreciation (a)		8,470,748		6,541,999		6,847,040		6,692,128		6,543,402
Total assets		9,636,472		7,711,728		7,733,273		7,679,584		7,663,844
Secured debt, net (a)		1,149,441		601,227		803,269		1,130,858		1,376,945
Unsecured debt, net		3,558,083		2,946,560		2,868,394		2,270,620		2,193,850
Total liabilities		5,228,493		3,816,211		3,949,771		3,673,132		3,816,797
Total stockholders’ equity		3,358,542		2,905,625		2,825,800		3,093,110		2,899,755
Number of Common Shares outstanding		294,588		275,546		267,822		267,259		261,845
Other Data (a)
Total consolidated apartment homes owned (at end of year)		47,010		39,931		39,998		39,454		40,728
Weighted average number of consolidated apartment homes owned during the year		42,579		39,406		39,692		40,543		39,501
Cash Flow Data:
Cash provided by/(used in) operating activities	$	630,704	$	560,676	$	518,915	$	536,568	$	457,162
Cash provided by/(used in) investing activities		(1,686,687)		(113,548)		(407,406)		(112,720)		(265,538)
Cash provided by/(used in) financing activities		880,383		(260,067)		(111,785)		(429,282)		(201,648)
Funds from Operations (b):
Funds from operations attributable to common stockholders and unitholders — basic	$	629,279	$	570,254	$	538,916	$	527,096	$	455,565
Funds from operations attributable to common stockholders and unitholders — diluted		633,383		574,122		542,624		530,813		459,287

(a) Includes amounts classified as Held for Disposition, where applicable.

(b) Funds from operations (“FFO”) attributable to common stockholders and unitholders is defined as Net income/(loss) attributable to common stockholders (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate related to the main business of the Company or of investments in non-consolidated investees that are directly attributable to decreases in the fair value of depreciable real estate held by the investee, gains and losses from sales of depreciable real estate related to the main business of the Company and income taxes directly associated with those gains and losses, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, and the Company’s share of unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“Nareit”) definition issued in April 2002 and restated in November 2018. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, Nareit created FFO as a supplemental measure of a REIT’s operating performance. In the computation of diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count.

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Management considers FFO a useful metric for investors as the Company uses 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 flow as a measure of the Company’s activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.

See “Funds from Operations” in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of Net income/(loss) attributable to common stockholders to FFO.

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United Dominion Realty, L.P.

Year Ended December 31,

(In thousands, except per OP unit data

and apartment homes owned)

	2019		2018		2017		2016		2015
OPERATING DATA:
Rental income	$	441,773	$	431,920	$	419,377	$	404,415	$	440,408
Net income/(loss)		103,995		231,485		107,855		79,262		215,063
Net income/(loss) attributable to OP unitholders		102,163		229,763		106,307		77,818		213,301
Income/(loss) per weighted average OP Unit — basic and diluted	$	0.56	$	1.25	$	0.58	$	0.42	$	1.16
Weighted average number of OP Units outstanding — basic and diluted		184,034		183,609		183,344		183,279		183,279
Balance Sheet Data:
Real estate owned, at cost (a)	$	3,875,160	$	3,811,985	$	3,816,956	$	3,674,704	$	3,630,950
Accumulated depreciation (a)		1,796,568		1,658,161		1,543,652		1,408,815		1,281,258
Total real estate owned, net of accumulated depreciation (a)		2,078,592		2,153,824		2,273,304		2,265,889		2,349,647
Total assets		2,398,745		2,304,590		2,395,573		2,415,535		2,554,808
Secured debt, net (a)		99,071		26,929		159,845		433,974		475,964
Total liabilities		1,032,859		818,701		520,443		797,036		833,478
Total partners’ capital		1,348,481		1,472,070		1,464,295		1,578,202		1,713,412
Advances (to)/from the General Partner		—		—		397,899		19,659		(11,270)
Number of OP units outstanding		184,064		183,637		183,351		183,279		183,279
Other Data:
Total consolidated apartment homes owned (at end of year) (a)		16,434		16,434		16,698		16,698		16,974
Cash Flow Data:
Cash provided by/(used in) operating activities	$	255,093	$	255,668	$	235,257	$	228,941	$	224,396
Cash provided by/(used in) investing activities		(43,906)		71,683		(105,989)		(9,455)		23,485
Cash provided by/(used in) financing activities		(210,853)		(326,535)		(128,846)		(221,483)		(247,747)

(a) Includes amounts classified as Held for Disposition, where applicable.

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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,” “likely,” “will,” “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 our actual results, performance or achievements 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, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning the availability of capital and the stability of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments and redevelopments, delays in completing lease-ups on schedule or at expected rent and occupancy levels, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels and rental rates, expectations concerning joint ventures and partnerships with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income.

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

● general economic conditions;

● 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;

● competitive factors that may limit our ability to lease apartment homes or increase or maintain rents;

● insufficient cash flow that could affect our debt financing and create refinancing risk;

● failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders;

● development and construction risks that may impact our profitability;

● potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us;

● risks from climate change that impacts our properties or operations;

● risks from extraordinary losses for which we may not have insurance or adequate reserves;

● risks from cybersecurity breaches of our information technology systems and the information technology systems of our third party vendors and other third parties;

● 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;

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● our failure to succeed in new markets;

● risks that third parties who have an interest in or are otherwise involved in projects in which we have an interest, including mezzanine borrowers, joint venture partners or other investors, do not perform as expected;

● 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 Code in any taxable year;

● 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, rent control or stabilization laws or other laws affecting our business.

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

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements for the years ended December 31, 2019, and 2018 of each UDR, Inc. and United Domination Realty, L.P.

This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018 of UDR, Inc. and United Domination Realty, L.P. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

UDR, Inc.:

Business Overview

We are a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily apartment communities. 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 the Operating Partnership and the DownREIT Partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc., its subsidiaries and its consolidated joint ventures.

At December 31, 2019, our consolidated real estate portfolio consisted of 148 communities located in 13 states plus the District of Columbia consisting of 47,010 apartment homes. In addition, we have an ownership interest in 5,268 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,138 apartment homes owned by entities in which we hold preferred equity investments.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to the UDR, Inc. Consolidated Financial Statements included in this Report.

Cost Capitalization

In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total Real Estate Owned, Net of Accumulated Depreciation. Amounts capitalized during the years ended December 31, 2019, 2018, and 2017 were $13.5 million, $18.1 million, and $27.4 million, respectively.

Investment in Unconsolidated Entities

We may enter into various joint venture agreements and/or partnerships with unrelated third parties to hold or develop real estate assets. We must determine for each of these ventures whether to consolidate the entity or account for our investment under the equity method of accounting. We determine whether to consolidate a joint venture or partnership based on our rights and obligations under the venture agreement, applying the applicable accounting guidance. The application of the rules in evaluating the accounting treatment for each joint venture or partnership is complex and requires substantial management judgment. We evaluate our accounting for investments on a regular basis including when a significant change in the design of an entity occurs. Throughout our financial statements, and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest.

We continually evaluate our investments in unconsolidated joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken as a whole by management in determining the valuation of our investment property. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements.

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

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value represent our best estimate based primarily upon unobservable inputs (defined as Level 3 inputs in the fair value hierarchy) related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. 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 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 average contractual lease period.

REIT Status

We are a Maryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year ended December 31, 2019 in our Consolidated Statements of Operations, we would have incurred federal and state GAAP income taxes if we had failed to qualify as a REIT.

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Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2019:

		December 31, 2019					Year Ended December 31, 2019
			Percentage		Total				Monthly		Net
	Number of	Number of	of Total		Carrying		Average		Income per		Operating
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Income
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		(in thousands)
West Region
Orange County, CA	10	4,434	9.1	%	$	1,136,843	96.3	%	$	2,354	$	93,659
San Francisco, CA	11	2,751	7.0	%		877,780	96.8	%		3,749		91,310
Seattle, WA	15	2,837	7.9	%		995,474	96.7	%		2,536		61,596
Los Angeles, CA	4	1,225	3.6	%		458,190	96.6	%		2,903		30,433
Monterey Peninsula, CA	7	1,565	1.4	%		182,630	96.6	%		1,893		26,938
Other Southern California	2	654	0.9	%		109,360	96.7	%		1,998		11,408
Portland, OR	2	476	0.4	%		50,395	96.6	%		1,605		6,546
Mid-Atlantic Region
Metropolitan D.C.	21	7,799	16.2	%		2,044,663	97.4	%		2,094		133,309
Richmond, VA	4	1,358	1.2	%		151,727	97.4	%		1,392		16,571
Baltimore, MD	3	720	1.2	%		153,951	97.0	%		1,727		9,785
Southeast Region
Orlando, FL	9	2,500	1.8	%		233,098	96.4	%		1,409		28,766
Nashville, TN	8	2,260	1.8	%		220,568	97.5	%		1,333		25,707
Tampa, FL	7	2,287	2.1	%		265,646	96.9	%		1,453		26,017
Other Florida	1	636	0.7	%		87,518	96.1	%		1,652		7,977
Northeast Region
New York, NY	3	1,452	8.2	%		1,034,350	97.9	%		4,550		48,435
Boston, MA	4	1,388	3.7	%		466,247	96.1	%		2,945		35,397
Southwest Region
Dallas, TX	7	2,345	2.3	%		288,923	96.8	%		1,365		23,261
Austin, TX	4	1,272	1.3	%		167,217	97.3	%		1,524		13,328
Total/Average Same-Store Communities	122	37,959	70.8	%		8,924,580	96.9	%	$	2,180		690,443
Non-Mature, Commercial Properties & Other	26	9,051	28.6	%		3,607,744						117,866
Total Real Estate Held for Investment	148	47,010	99.4	%		12,532,324						808,309
Real Estate Under Development (b)	—	—	0.6	%		69,777						(6)
Total Real Estate Owned	148	47,010	100.0	%		12,602,101					$	808,303
Total Accumulated Depreciation						(4,131,353)
Total Real Estate Owned, Net of Accumulated Depreciation					$	8,470,748

(a) Monthly Income per Occupied Home represents total monthly revenues divided by the average physical number of occupied apartment homes in our Same-Store portfolio.

(b) As of December 31, 2019, the Company was developing three wholly owned communities with a total of 878 apartment homes, none of which have been completed.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other.

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

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Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. 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, and borrowings under our credit agreements. We routinely use our working capital credit facility and commercial paper program, and may use our unsecured revolving credit facility, to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program. 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 net cash provided by property operations, secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties.

We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC,” which provides for the issuance of common stock, preferred stock, depositary shares, debt securities, guarantees of debt securities, warrants, subscription rights, 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.

In July 2017, the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20.0 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into in April 2017, which replaced the prior at-the-market equity offering program entered into in April 2012. During the year ended December 31, 2019, the Company sold 7.0 million shares of common stock through its ATM program for aggregate gross proceeds of approximately $316.5 million at a weighted average price per share of $45.29. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $4.0 million, were approximately $312.3 million, which were primarily used to fund the Company’s recent acquisitions. As of December 31, 2019, we had 11.7 million shares of common stock available for future issuance under the ATM program.

In July 2019, the Company issued $300.0 million of 3.20% senior unsecured medium-term notes due January 15, 2030. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The notes were priced at 99.66% of the principal amount at issuance. The Company previously entered into forward starting interest rate swaps to hedge against the interest rate risk of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 3.42%. The Company used the net proceeds for the repayment of debt, including amounts outstanding under the Company’s commercial paper program and Working Capital Credit Facility, and for other general corporate purposes. The Operating Partnership is the guarantor of this debt.

In August 2019, the Company issued $400.0 million of 3.00% senior unsecured medium-term notes due August 15, 2031. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020. The notes were priced at 99.71% of the principal amount at issuance. In combination with the issuance, the Company entered into a treasury lock agreement to hedge against interest rate risk of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury lock, was 3.01%. The Company used the net proceeds for the repayment of debt, including the repayment of all $300.0 million aggregate principal amount (plus the make whole amount of approximately $5.4 million) of its 3.70% senior unsecured medium-term notes due October 1, 2020, and to fund potential acquisitions or for other general corporate purposes. The Operating Partnership is the guarantor of this debt.

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In August 2019, the Company sold 7.5 million shares of its common stock for aggregate gross proceeds of approximately $349.9 million at a price per share of $46.65. Aggregate net proceeds from the sale, after offering-related expenses, were approximately $349.8 million, which were used for planned acquisitions of assets, working capital and general corporate purposes.

In September 2019, the Company entered into a forward sales agreement under its ATM program for 1.3 million shares of common stock at an initial forward price per share of $47.68. The initial forward price per share received by the Company upon settlement was determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward sales agreement.

In December 2019, the Company settled all 1.3 million shares sold under the forward sales agreement at a forward price per share of $47.41, which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of UDR common stock and commissions paid to sales agents of approximately $0.6 million, for net proceeds of $63.5 million. Aggregate net proceeds from such sales, after deducting related expenses, were $63.2 million. As of December 31, 2019, we had 11.7 million shares of common stock available for future issuance under the ATM program.

In October 2019, the Company issued $100.0 million of 3.20% senior unsecured medium-term notes due 2030 and $300.0 million of 3.10% senior unsecured medium-term notes due 2034. Interest is payable semi-annually in arrears on January 15 and July 15 for the 2030 notes, and May 1 and November 1 for the 2034 notes. The 2030 notes were priced at 103.32% of the principal amount at issuance, and the 2034 notes were priced at 99.56% of the principal amount at issuance. In combination with the issuance, the Company entered into treasury lock agreements to hedge against interest rate risk on all of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury locks, was 3.24% for the 2030 notes and 3.13% for the 2034 notes. The Company used the net proceeds for the repayment of all $400.0 million aggregate principal amount (plus the make-whole amount of approximately $22.0 million and accrued and unpaid interest) of its 4.63% senior unsecured medium-term notes due January 2022. The 2034 notes were issued as “green” bonds and, as a result, the Company allocated the net proceeds from the sale of the 2034 notes to fund eligible green projects, including previously incurred development costs related to properties that have received at least a LEED Silver certification. The Operating Partnership is the guarantor of each of the 2030 notes and the 2034 notes.

The 2030 notes were a further issuance of, and form a single series with, the $300.0 million aggregate principal amount of the Company’s 3.20% notes due 2030 that were issued on July 2, 2019. As of the completion of the offering, the aggregate principal amount of outstanding 2030 notes was $400.0 million.

Future Capital Needs

Future development and redevelopment expenditures may be funded through unsecured or secured credit facilities, unsecured commercial paper, proceeds from the issuance of equity or debt securities, sales of properties, joint ventures, and, to a lesser extent, from cash flows provided by property operations. Acquisition activity in strategic markets may be funded through joint ventures, by the reinvestment of proceeds from the sale of properties, through the issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt.

During 2020, we have approximately $110.6 million of secured debt maturing, inclusive of principal amortization, and $300.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. During 2019, we prepaid $300.0 million of unsecured debt previously due in October 2020 with proceeds from the senior unsecured medium-term notes issued in August 2019, prepaid $400.0 million of unsecured debt previously due in January 2022 with proceeds from the senior unsecured medium-term notes issued in October 2019, and anticipate repaying the remaining debt due in 2020 with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018.

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Operating Activities

For the year ended December 31, 2019, our Net cash provided by/(used in) operating activities was $630.7 million compared to $560.7 million for 2018. The increase in cash flow from operating activities was primarily due to improved net operating income, primarily driven by revenue growth at communities, net operating income from communities acquired in 2019, and changes in operating assets and liabilities.

Investing Activities

For the year ended December 31, 2019, Net cash provided by/(used in) investing activities was $(1.7) billion compared to $(113.5) million for 2018. The increase in cash used in investing activities was primarily due to the acquisitions made during the year, a decrease in proceeds from the sales of real estate investments and an increase in the issuance of notes receivable and capital expenditures and other major improvements, partially offset by a decrease in spend for development of real estate assets and investment in unconsolidated joint ventures and an increase in distributions received from unconsolidated joint ventures.

Acquisitions

In January 2019, the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located in Anaheim, California, for a cash purchase price of approximately $33.5 million. In connection with the acquisition, the Company repaid approximately $59.8 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture. The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $115.7 million and recorded approximately $2.4 million of in-place lease intangibles.

In January 2019, the Company increased its ownership interest from 49% to 100% in a 155 apartment home operating community located in Seattle, Washington, for a cash purchase price of approximately $20.0 million. In connection with the acquisition, the Company repaid approximately $26.0 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture. The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $58.1 million and recorded approximately $2.4 million of real estate intangibles and approximately $0.6 million of in-place lease intangibles.

In January 2019, the Company acquired a to-be-developed parcel of land located in Washington, D.C. for approximately $27.1 million.

In February 2019, the Company acquired a to-be-developed parcel of land located in Denver, Colorado for approximately $13.7 million.

In February 2019, the Company acquired a 188 apartment home operating community located in Brooklyn, New York for approximately $132.1 million. The Company increased its real estate assets owned by approximately $97.5 million and recorded approximately $33.6 million of real estate intangibles and approximately $1.0 million of in-place lease intangibles.

In February 2019, the Company acquired a 381 apartment home operating community located in St. Petersburg, Florida for approximately $98.3 million. The Company increased its real estate assets owned by approximately $96.0 million and recorded approximately $2.3 million of in-place lease intangibles.

In April 2019, the Company acquired a 498 apartment home operating community located in Towson, Maryland for approximately $86.4 million. The Company increased its real estate assets owned by approximately $82.5 million and recorded approximately $3.9 million of in-place lease intangibles.

In May 2019, the Company acquired a 313 apartment home operating community located in King of Prussia, Pennsylvania for approximately $107.3 million. The Company increased its real estate assets owned by approximately $106.4 million and recorded approximately $0.9 million of in-place lease intangibles.

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In May 2019, the Company acquired a 240 apartment home operating community located in St. Petersburg, Florida for approximately $49.4 million. The Company increased its real estate assets owned by approximately $48.2 million and recorded approximately $1.2 million of in-place lease intangibles.

In June 2019, the Company acquired a 200 apartment home operating community located in Waltham, Massachusetts for approximately $84.6 million. The Company increased its real estate assets owned by approximately $82.6 million and recorded approximately $2.0 million of in-place lease intangibles.

In August 2019, the Company acquired a 914 apartment home operating community located in Norwood, Massachusetts for approximately $270.2 million. The Company increased its real estate assets owned by approximately $260.1 million and recorded approximately $10.1 million of in-place lease intangibles.

In August 2019, the Company acquired a 185 apartment home operating community located in Englewood, New Jersey for approximately $83.6 million. The Company increased its real estate assets owned by approximately $77.5 million and recorded approximately $4.6 million of real estate intangibles and approximately $1.5 million of in-place lease intangibles.

In August 2019, the Company purchased a 292 apartment home operating community in Washington, D.C., directly from the UDR/KFH joint venture, thereby increasing its ownership interest from 30% to 100%, for a purchase price at 100% of approximately $184.0 million, before $2.8 million of closing costs incurred by UDR at acquisition. The Company accounted for the consolidation as an asset acquisition, resulting in no gain upon consolidation, and increased its real estate assets owned by approximately $156.0 million and recorded approximately $5.9 million of in-place lease intangibles.

In November 2019, the Company acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife operating communities, one development community and four land parcels valued at $1.1 billion, or $564.2 million at UDR’s share, and sold its approximately 50% ownership interest in five UDR/MetLife operating communities valued at $645.8 million, or $322.9 million at UDR’s share, to MetLife. The Company paid $109.2 million directly to MetLife to complete the transaction. As a result, the Company consolidated the 10 operating communities, one development community and four land parcels, and they are no longer accounted for as equity method investments in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $977.8 million and recorded approximately $30.0 million of in-place lease intangibles. In connection with the acquisition, the Company assumed six secured fixed rate mortgage notes payable and one credit facility secured by four communities with a combined outstanding balance of $518.4 million and estimated fair value of $551.8 million. The Company recorded the debt at its fair value in Secured debt, net on the Consolidated Balance Sheets.

The following table is a summary of the 10 communities, one development community and four land parcels acquired from the UDR/MetLife joint venture:

Property	Type	Number of Homes	Location
Strata	Operating Community	163	San Diego, CA
Crescent Falls Church	Operating Community	214	Washington, D.C.
Charles River Landing	Operating Community	350	Boston, MA
Lodge at Ames Pond	Operating Community	364	Boston, MA
Lenox Farms	Operating Community	338	Boston, MA
Towson Promenade	Operating Community	379	Baltimore, MD
Savoye	Operating Community	394	Addison, TX
Savoye2	Operating Community	351	Addison, TX
Fiori on Vitruvian Park ®	Operating Community	391	Addison, TX
Vitruvian West	Operating Community	383	Addison, TX
Vitruvian West Phase 2 (a)	Development Community	366	Addison, TX
Vitruvian Park ®	4 Land Parcels	N/A	Addison, TX

(a) The number of apartment homes for the community under development presented in the table above is based on the projected number of total homes upon completion of development. As of December 31, 2019, no apartment homes had been completed.

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During the year ended December 31, 2018, the Company did not have any acquisitions of real estate.

Dispositions

In June 2019, the Company sold a parcel of land located in Los Angeles, California for $38.0 million, resulting in a gain of approximately $5.3 million. Prior to the sale, the parcel of land was subject to a ground lease, under which UDR was the lessor, scheduled to expire in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the ground lease term. During the second quarter, the lessee exercised the purchase option resulting in the sale by the Company and the ground lease being terminated.

In February 2018, the Company sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

In December 2018, the Company sold an operating community in Fairfax, Virginia with a total of 604 apartment homes for gross proceeds of $160.0 million, resulting in a gain of $65.9 million.

We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital to primary locations in markets we believe will provide the best investment returns.

Capital Expenditures

We capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

For the year ended December 31, 2019, total capital expenditures of $158.0 million or $3,710 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to $112.6 million or $2,857 per stabilized home for the prior year.

The increase in total capital expenditures was primarily due to:

● an increase of $27.4 million in spend for our operations platform, which includes smart home installations in certain of our properties;

● an increase of 56.2%, or $12.8 million, in major renovations, which include major structural changes and/or architectural revisions to existing buildings; and

● an increase of 11.6%, or $4.1 million, in asset preservation expenditures, such as building interiors, building exteriors, and landscaping and grounds.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years ended December 31, 2019 and 2018 (dollars in thousands):

							Per Home
	Year Ended December 31,						Year Ended December 31,
	2019		2018		% Change		2019		2018		% Change
Turnover capital expenditures	$	11,192	$	11,009	1.7	%	$	263	$	279	(5.7)	%
Asset preservation expenditures		40,054		35,906	11.6	%		941		911	3.3	%
Total recurring capital expenditures		51,246		46,915	9.2	%		1,204		1,190	1.2	%
NOI enhancing improvements (a)		43,689		42,905	1.8	%		1,026		1,089	(5.8)	%
Major renovations (b)		35,569		22,774	56.2	%		835		578	44.5	%
Operations platform		27,445		—	—			645		—	—
Total capital expenditures	$	157,949	$	112,594	40.3	%	$	3,710	$	2,857	29.8	%
Repair and maintenance expense	$	43,525	$	35,273	23.4	%	$	1,022	$	895	14.2	%
Average home count (c)		42,579		39,406	8.1	%

(a) NOI enhancing improvements are expenditures that result in increased income generation or decreased expense growth.

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(b) Major renovations include major structural changes and/or architectural revisions to existing buildings.

(c) Average number of homes is calculated based on the number of homes outstanding at the end of each month.

The above table includes amounts capitalized during the year. Actual capital spending is impacted by the net change in capital expenditure accruals.

We intend to continue to selectively add NOI enhancing improvements, which we believe will provide a return on investment in excess of our cost of capital. Our objective in redeveloping a community is twofold: we aim to meaningfully grow rental rates while also achieving cap rate compression through asset quality improvement.

Consolidated Real Estate Under Development and Redevelopment

At December 31, 2019, our development pipeline consisted of three wholly-owned communities located in Denver, Colorado, Dublin, California, and Addison, Texas, totaling 878 homes, none of which have been completed, with a budget of $278.5 million, in which we have a carrying value of $69.8 million. The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2022. During 2019, we incurred $26.4 million for development costs, a decrease of $123.8 million as compared to costs incurred in 2018 of $150.2 million.

At December 31, 2019, the Company was redeveloping 653 apartment homes, 250 of which have been completed, at two wholly-owned communities, located in Boston, Massachusetts and New York, New York, both of which are expected to be completed in the first quarter of 2021. The redevelopments include the renovation of building exteriors, corridors, and common area amenities as well as individual apartment homes.

During the year ended December 31, 2019, we incurred $35.6 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings, an increase of $12.8 million as compared to $22.8 million incurred in 2018.

Unconsolidated Joint Ventures and Partnerships

The Company recognizes income or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net income or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the communities held by the unconsolidated joint ventures and partnerships.

The Company’s Investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year ended December 31, 2019:

● we made investments totaling $93.1 million in our unconsolidated joint ventures, including contributions of $67.0 million to four unconsolidated investments under our Developer Capital Program, which earn preferred returns ranging from 9.0% to 12.5%;

● our proportionate share of the net income/(loss) of the joint ventures and partnerships was $137.9 million, including a $114.9 million gain from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain from the sale of two operating communities from our UDR/KFH joint venture, and a $4.6 million unrealized gain recorded on an unconsolidated technology investment; and

● we received distributions of $77.6 million, of which $5.2 million were operating cash flows and $72.4 million were investing cash flows.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2019 and 2018.

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Notes Receivable, net

Notes receivable relate to financing arrangements that are typically secured by real estate or real estate related

projects.

The following significant activities occurred during the year ended December 31, 2019:

● in January 2019, a $5.6 million secured note was repaid in full along with the contractually accrued interest of $0.2 million and an additional $8.5 million of promoted interest in conjunction with the unaffiliated third party being acquired; and

● in November 2019, the Company entered into a secured note with an unaffiliated third party with an aggregate commitment of $115.0 million, all of which was funded during the year ended December 31, 2019. Interest payments are due when the loan matures. The note is secured by a first priority deed of trust on a 259 home operating community in Bellevue, Washington, which is expected to be completed in 2020. When the note was funded, the Company also entered into a purchase option agreement and paid a deposit of $10.0 million, which will provide the Company the option to acquire the community at a fixed price of $170.0 million.

Financing Activities

For the years ended December 31, 2019 and 2018, Net cash provided by/(used in) financing activities was $880.4 million and $(260.1) million, respectively.

The following significant financing activities occurred during the year ended December 31, 2019:

● issuance of $300 million of 3.20% senior unsecured medium-term notes due 2030 (3.42% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $296.6 million;

● issuance of $400 million of 3.00% senior unsecured medium-term notes due 2031 (3.01% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $395.7 million, $300.0 million of which was used to repay 3.70% medium-term notes due in October 2020;

● issuance of $100 million of 3.20% senior unsecured medium-term notes due 2030 (3.24% effective rate after the effect of a cash flow hedge), and issuance of $300 million of 3.10% senior unsecured medium-term notes due 2034 (3.13% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $398.6 million, which was used to repay $400.0 million of 4.63% medium-term notes due in January 2022;

● net proceeds of $198.9 million from the Company’s unsecured commercial paper program;

● net proceeds of $16.6 million from the Company’s unsecured revolving credit facilities;

● repayments of $162.3 million of secured debt, which was offset by net proceeds of $162.5 million from the issuance of secured debt;

● sale of 7.5 million shares of common stock in an underwritten public offering for net proceeds of approximately $349.8 million at a price per share of $46.65;

● sale of 7.0 million shares of common stock under our ATM program for proceeds of $312.3 million at an weighted average price per share of $45.29;

● sale of 1.3 million shares of common stock under our forward sales agreement for net proceeds of $63.5 million at a price per share of $47.41; and

● distributions of $383.1 million to our common stockholders.

The following significant financing activities occurred during the year ended December 31, 2018:

● issuance of $300.0 million of 4.40% senior unsecured medium-term notes due 2029 (4.27% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $300.0 million;

● net repayment of $198.9 million on our unsecured commercial paper program;

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● net repayment of $21.8 million on the Company’s unsecured revolving credit facilities;

● repayment of $279.2 million of secured debt;

● issuance of $80.0 million of secured debt;

● sale of 7.2 million shares of common stock for aggregate net proceeds of $299.8 million at a price per share of $41.98;

● repurchase of common shares for approximately $20.0 million; and

● distributions of $342.2 million to our common stockholders.

Credit Facilities and Commercial Paper Program

During the year ended December 31, 2019, the Company prepaid the $90.0 million outstanding balance under its secured credit facility with Fannie Mae from proceeds received from the refinancing of the debt. This transaction was accounted for as a debt modification.

In November 2019, the Company assumed a secured credit facility with New York Life with an outstanding balance of $205.0 million and a fair value of $219.3 million in connection with the acquisition of the approximately 50% ownership not previously owned in four operating communities from the UDR/MetLife joint venture. The credit facility is a pooled facility and secured by those four properties. The credit facility is due in January 2023 and has an interest rate of 4.90% (see Note 3, Real Estate Owned).

The Company has a $1.1 billion unsecured revolving credit facility and a $350.0 million unsecured term loan. The Credit Agreement for these facilities allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023. 

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 75 to 145 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 80 to 165 basis points.

As of December 31, 2019, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $2.9 million of letters of credit at December 31, 2019), and $350.0 million of outstanding borrowings under the Term Loan.

We have a working capital credit facility, which provides for a $75 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 15, 2021. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points. Depending on the Company’s credit rating, the margin ranges from 75 to 145 basis points.

As of December 31, 2019, we had $16.6 million of outstanding borrowings under the Working Capital Credit Facility, leaving $58.4 million of unused capacity.

The bank revolving credit facilities and the term loan are subject to customary financial covenants and limitations, all of which we were in compliance with at December 31, 2019.

We have an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of our other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. As of December 31, 2019, we had issued $300.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 1.99%, leaving $200.0 million of unused capacity.

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Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our 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. We had $378.6 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2019. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $3.5 million based on the average balance outstanding during the year.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. This analysis does 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.

The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivate instruments.

A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Net cash provided by/(used in) operating activities	$	630,704	$	560,676	$	518,915
Net cash provided by/(used in) investing activities		(1,686,687)		(113,548)		(407,406)
Net cash provided by/(used in) financing activities		880,383		(260,067)		(111,785)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2019 and 2018.

Net Income/(Loss) Attributable to Common Stockholders

Net income/(loss) attributable to common stockholders was $180.9 million ($0.63 per diluted share) for the year ended December 31, 2019, as compared to $199.2 million ($0.74 per diluted share) for the comparable period in the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

● a gain of $5.3 million on the sale of a parcel of land in Los Angeles, California during the year ended December 31, 2019, as compared to gains of $136.2 million on the sale of two operating communities with a total of 868 apartment homes in Huntington Beach, California and Fairfax, Virginia, during the year ended December 31, 2018;

● an increase in depreciation expense of $72.3 million primarily due to communities acquired in 2019 and homes delivered from our development communities in 2018, partially offset by a decrease from sold communities and fully depreciated assets; and

● an increase in interest expense of $36.7 million primarily due to the early pay off of debt during 2019, resulting in prepayment costs, higher average debt balances, and lower capitalized interest.

This was partially offset by:

● an increase in total property NOI of $76.2 million primarily due to higher revenue per occupied home and NOI from operating communities, including those acquired in 2019 and recently developed communities, partially offset by a decrease from sold communities in 2018;

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● an increase in interest income and other income/(expense), net of $8.7 million, primarily attributable to an $8.5 million promoted interest on the prepayment of a note to a multifamily technology company; and

● an increase in income/(loss) from unconsolidated entities of $143.0 million, primarily attributable to a $114.9 million gain from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain recognized on the sale of two operating properties from our UDR/KFH joint venture, a $4.6 million unrealized gain recorded on an unconsolidated technology investment, and an increase in Developer Capital Program investment.

Apartment Community Operations

Our net income results are primarily from NOI generated from the operation of our apartment communities. The Company defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.875% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations and land rent.

Management considers NOI a useful metric for investors as it is a more meaningful representation of a community’s continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization.

Although the Company considers NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to UDR, Inc. below.

The following table summarizes the operating performance of our total property NOI for each of the periods presented (dollars in thousands):

	Year Ended						Year Ended
	December 31,  (a)						December 31,  (b)
	2019		2018		% Change		2018		2017		% Change
Same-Store Communities:
Same-Store rental income	$	962,269	$	928,849	3.6	%	$	939,726	$	908,361	3.5	%
Same-Store operating expense (c)		(271,826)		(265,087)	2.5	%		(267,332)		(257,919)	3.6	%
Same-Store NOI		690,443		663,762	4.0	%		672,394		650,442	3.4	%
Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		79,007		11,968	560.2	%		18,427		13,767	33.8	%
Acquired communities NOI		5,830		—	—	%		—		—	—	%
Redevelopment communities NOI		18,571		21,875	(15.1)	%		—		—	—	%
Development communities NOI		(8)		4,374	(100.2)	%		11,221		(295)	NM	*
Non-residential/other NOI		13,174		18,609	(29.2)	%		20,530		16,640	23.4	%
Sold and held for disposition communities NOI		1,286		11,527	(88.8)	%		9,543		17,949	(46.8)	%
Total Non-Mature Communities/Other NOI		117,860		68,353	72.4	%		59,721		48,061	24.3	%
Total property NOI	$	808,303	$	732,115	10.4	%	$	732,115	$	698,503	4.8	%

* Not meaningful

(a) Same-Store consists of 37,959 apartment homes.

(b) Same-Store consists of 37,673 apartment homes.

(c) Excludes depreciation, amortization, and property management expenses.

(d) Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities.

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The following table is our reconciliation of Net income/(loss) attributable to UDR, Inc. to total property NOI for the periods presented (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Net income/(loss) attributable to UDR, Inc.	$	184,965	$	203,106	$	121,558
Joint venture management and other fees		(14,055)		(11,754)		(11,482)
Property management		32,721		28,465		27,068
Other operating expenses		13,932		12,100		9,060
Real estate depreciation and amortization		501,257		429,006		430,054
General and administrative		51,533		46,983		48,566
Casualty-related charges/(recoveries), net		474		2,121		4,335
Other depreciation and amortization		6,666		6,673		6,408
(Gain)/loss on sale of real estate owned		(5,282)		(136,197)		(43,404)
(Income)/loss from unconsolidated entities		(137,873)		5,055		(31,257)
Interest expense		170,917		134,168		128,711
Interest income and other (income)/expense, net		(15,404)		(6,735)		(1,971)
Tax provision/(benefit), net		3,838		688		(240)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		14,426		18,215		10,933
Net income/(loss) attributable to noncontrolling interests		188		221		164
Total property NOI	$	808,303	$	732,115	$	698,503

Same-Store Communities

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2018 and held on December 31, 2019) consisted of 37,959 apartment homes and provided 85.4% of our total NOI for the year ended December 31, 2019.

NOI for our Same-Store Community properties increased 4.0%, or $26.7 million, for the year ended December 31, 2019 compared to the same period in 2018. The increase in property NOI was attributable to a 3.6%, or $33.4 million, increase in property rental income, which was partially offset by a 2.5%, or $6.7 million, increase in operating expenses. The increase in property income was primarily driven by a 2.8%, or $24.3 million, increase in rental rates and a 10.8%, or $10.1 million, increase in reimbursement, ancillary and fee income. Physical occupancy stayed the same at 96.9% and total monthly income per occupied home increased 3.5% to $2,180.

The increase in operating expenses was primarily driven by a 15.4%, or $5.1 million, increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by a 8.3%, or $4.9 million, decrease in personnel expense as a result of fewer employees, and a 4.5%, or $4.8 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 71.8% and 71.5% for the years ended December 31, 2019 and 2018, respectively.

Non-Mature Communities/Other

UDR’s Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, which include communities recently developed or acquired, redevelopment properties, sold or held for disposition properties, and non-apartment components of mixed use properties.

The remaining 14.6%, or $117.9 million, of our total NOI during the year ended December 31, 2019 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 72.4%, or $49.5 million, for the year ended December 31, 2019 as compared to the same period in 2018. The increase was primarily attributable to a $67.0 million increase in NOI from stabilized, non-mature communities, primarily due to communities acquired in 2019 and recently developed communities, partially offset by a $10.2 million decrease in NOI from sold and held for disposition communities in 2018 and a $5.4 million decrease in non-residential/other NOI.

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Real estate depreciation and amortization

For the years ended December 31, 2019 and 2018, the Company recognized real estate depreciation and amortization of $501.3 million and $429.0 million, respectively. The increase in 2019 as compared to 2018 was primarily attributable to communities acquired in 2019 and homes delivered from our development communities in 2018, partially offset by a decrease from sold communities and fully depreciated assets.

Gain/(Loss) on Sale of Real Estate Owned

During the year ended December 31, 2019, the Company recognized a gain of $5.3 million on the sale of a parcel of land in Los Angeles, California.

During the year ended December 31, 2018, the Company recognized gains of $136.2 million on the sale of two operating communities in Huntington Beach, California, and Fairfax, Virginia.

Income/(Loss) from Unconsolidated Entities

For the years ended December 31, 2019 and 2018, we recognized income/(loss) from unconsolidated entities of $137.9 million and $(5.1) million, respectively. The increase of $143.0 million was primarily due to:

● gains of $114.9 million from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain from the sale of two operating communities in our UDR/KFH joint venture, and a $4.6 million unrealized gain recorded on an unconsolidated technology investment during the year ended December 31, 2019.

As compared to:

● no acquisitions or dispositions from the Company’s unconsolidated entities during the year ended December 31, 2018.

Interest expense

For the years ended December 31, 2019 and 2018, the Company recognized interest expense of $170.9 million and $134.2 million, respectively. The increase in 2019 as compared to 2018 was primarily attributable to higher average debt balances, lower capitalized interest, and the early pay off of debt during 2019, resulting in prepayment costs of $27.4 million.

Interest income and other income/(expense), net

For the years ended December 31, 2019 and 2018, the Company recognized interest income and other income/(expense), net of $15.4 million and $6.7 million, respectively. The increase in 2019 as compared to 2018 was primarily attributable to an $8.5 million promoted interest on the prepayment of a note to a multifamily technology company.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2019.

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.

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Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019 (dollars in thousands):

	Payments Due by Period
Contractual Obligations	2020		2021-2022		2023-2024		Thereafter		Total
Long-term debt obligations	$	410,645	$	24,325	$	1,071,797	$	3,191,919	$	4,698,686
Interest on debt obligations (a)		152,654		296,955		254,358		436,894		1,140,861
Letters of credit		2,894		—		—		—		2,894
Operating lease obligations:
Ground leases (b)		12,584		25,168		25,168		466,436		529,356
	$	578,777	$	346,448	$	1,351,323	$	4,095,249	$	6,371,797

(a) Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2019.

(b) For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on fair market value or changes in the consumer price index but does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

During 2019, we incurred gross interest costs of $176.0 million, of which $5.1 million was capitalized.

Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations

Funds from Operations

Funds from operations (“FFO”) attributable to common stockholders and unitholders is defined as Net income/(loss) attributable to common stockholders (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate related to the main business of the Company or of investments in non-consolidated investees that are directly attributable to decreases in the fair value of depreciable real estate held by the investee, gains and losses from sales of depreciable real estate related to the main business of the Company and income taxes directly associated with those gains and losses, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, and the Company’s share of unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“Nareit”) definition issued in April 2002 and restated in November 2018. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, Nareit created FFO as a supplemental measure of a REIT’s operating performance. In the computation of diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count.

Management considers FFO a useful metric for investors as the Company uses 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 flow as a measure of the Company’s activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.

Funds from Operations as Adjusted

FFO as Adjusted (“FFOA”) attributable to common stockholders and unitholders is defined as FFO excluding the impact of non-comparable items including, but not limited to, acquisition related costs, prepayment costs/benefits associated with early debt retirement, impairment write downs or gains and losses on sales of real estate or other assets incidental to the main business of the Company and income taxes directly associated with those gains and losses, casualty-related expenses and recoveries, severance costs and legal and other costs.

Management believes that FFOA is useful supplemental information regarding our operating performance as it provides a consistent comparison of our operating performance across time periods and allows investors to more easily

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compare our operating results with other REITs. FFOA is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to FFOA. However, other REITs may use different methodologies for calculating FFOA or similar FFO measures and, accordingly, our FFOA may not always be comparable to FFOA or similar FFO measures calculated by other REITs. FFOA should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity.

Adjusted Funds from Operations

Adjusted FFO (“AFFO”) attributable to common stockholders and unitholders is defined as FFOA less recurring capital expenditures on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities. Therefore, management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFOA.

AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

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The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFOA, and AFFO for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Net income/(loss) attributable to common stockholders	$	180,861	$	199,238	$	117,850
Real estate depreciation and amortization		501,257		429,006		430,054
Noncontrolling interests		14,614		18,436		11,097
Real estate depreciation and amortization on unconsolidated joint ventures		57,954		61,871		57,102
Cumulative effect of change in accounting principle		—		(2,100)		—
Net gain on the sale of unconsolidated depreciable property		(125,407)		—		(35,363)
Net gain on the sale of depreciable real estate owned		—		(136,197)		(41,824)
FFO attributable to common stockholders and unitholders, basic	$	629,279	$	570,254	$	538,916
Distribution to preferred stockholders — Series E (Convertible)		4,104		3,868		3,708
FFO attributable to common stockholders and unitholders, diluted	$	633,383	$	574,122	$	542,624
Income/(loss) per weighted average common share, diluted	$	0.63	$	0.74	$	0.44
FFO per weighted average common share and unit, basic	$	2.04	$	1.95	$	1.85
FFO per weighted average common share and unit, diluted	$	2.03	$	1.93	$	1.83
Weighted average number of common shares and OP/DownREIT Units outstanding — basic		308,020		292,727		291,845
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted		311,799		297,042		296,672
Impact of adjustments to FFO:
Costs/(benefit) associated with debt extinguishment and other	$	29,594	$	3,476	$	9,212
Promoted interest on settlement of note receivable, net of tax		(6,482)		—		—
Acquisition-related costs/(fees)		—		—		371
Legal and other costs		3,660		1,622		—
Net gain on the sale of non-depreciable real estate owned		(5,282)		—		(1,580)
Unrealized gain on unconsolidated investments, net of tax		(3,300)		—		—
Joint venture development success fee		(3,750)		—		—
Severance costs and other restructuring expense		390		114		624
Casualty-related charges/(recoveries), net		636		2,364		4,504
Casualty-related charges/(recoveries) on unconsolidated joint ventures, net		(374)		—		(881)
	$	15,092	$	7,576	$	12,250
FFOA attributable to common stockholders and unitholders, diluted	$	648,475	$	581,698	$	554,874
FFOA per weighted average common share and unit, diluted	$	2.08	$	1.96	$	1.87
Recurring capital expenditures		(51,246)		(46,915)		(46,034)
AFFO attributable to common stockholders and unitholders, diluted	$	597,229	$	534,783	$	508,840
AFFO per weighted average common share and unit, diluted	$	1.92	$	1.80	$	1.72

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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 UDR Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017 (shares in thousands):

	Year Ended December 31,
	2019	2018	2017
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	308,020	292,727	291,845
Weighted average number of OP/DownREIT Units outstanding	(22,773)	(24,548)	(24,821)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations	285,247	268,179	267,024
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	311,799	297,042	296,672
Weighted average number of OP/DownREIT Units outstanding	(22,773)	(24,548)	(24,821)
Weighted average number of Series E Cumulative Convertible Preferred shares outstanding	(3,011)	(3,011)	(3,021)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations	286,015	269,483	268,830

United Dominion Realty, L.P.:

Business Overview

United Dominion Realty, L.P. (the “Operating Partnership” or “UDR, L.P.”) is a Delaware limited partnership formed in February 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. Our sole general partner is UDR, Inc., a Maryland corporation (“UDR” or the “General Partner”), which conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership. At December 31, 2019, the Operating Partnership’s real estate portfolio included 52 communities located in nine states and the District of Columbia with a total of 16,434 apartment homes.

As of December 31, 2019, UDR owned 0.1 million units of our general partnership interests and 176.1 million units of our limited partnership interests (the “OP Units”), or approximately 95.7% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to the Operating Partnership or “we,” “us” or “our” refer to UDR, L.P. together with its consolidated subsidiaries, and all references in this section to “UDR” or the “General Partner” refer solely to UDR, Inc.

UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in June 2003. At December 31, 2019, the General Partner’s consolidated real estate portfolio included 148 communities located in 13 states and the District of Columbia with a total of 47,010 apartment homes. In addition, the General Partner had an ownership interest in 5,268 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,138 apartment homes owned by entities in which we hold preferred equity investments.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found

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in Note 2, Significant Accounting Policies, to the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report.

Cost Capitalization

In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2019, 2018, and 2017 were $1.0 million, less than $0.1 million, and $0.5 million, respectively.

Investment in Unconsolidated Entities

We may enter into various joint venture agreements and/or partnerships with unrelated third parties to hold or develop real estate assets. We must determine for each of these ventures whether to consolidate the entity or account for our investment under the equity method of accounting. We determine whether to consolidate a joint venture or partnership based on our rights and obligations under the venture agreement, applying the applicable accounting guidance. The application of the rules in evaluating the accounting treatment for each joint venture or partnership is complex and requires substantial management judgment. We evaluate our accounting for investments on a regular basis including when a significant change in the design of an entity occurs. Throughout our financial statements, and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest.

We continually evaluate our investments in unconsolidated joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken as a whole by management in determining the valuation of our investment property. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements.

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 primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon

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acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all 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 average contractual lease period.

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2019:

		December 31, 2019					Year Ended December 31, 2019
			Percentage		Total				Monthly		Net
	Number of	Number of	of Total		Carrying		Average		Income per		Operating
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Income
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		(in thousands)
West Region
Orange County, CA	5	3,119	19.3	%	$	746,563	96.6	%	$	2,294	$	64,202
San Francisco, CA	9	2,185	15.8	%		611,297	96.7	%		3,380		66,392
Seattle, WA	5	932	5.9	%		228,999	96.4	%		2,145		16,450
Los Angeles, CA	2	344	3.0	%		116,446	96.5	%		2,830		8,165
Monterey Peninsula, CA	7	1,565	4.7	%		182,630	96.6	%		1,894		26,938
Other Southern California	1	414	2.0	%		75,165	96.7	%		2,112		7,609
Portland, OR	2	476	1.3	%		50,395	96.6	%		1,605		6,546
Mid-Atlantic Region
Metropolitan D.C.	6	2,068	14.5	%		563,044	96.9	%		2,153		35,765
Baltimore, MD	2	540	2.7	%		106,373	96.7	%		1,551		6,648
Southeast Region
Nashville, TN	6	1,612	4.0	%		155,209	97.5	%		1,312		18,009
Tampa, FL	2	942	2.8	%		110,064	97.4	%		1,531		11,354
Other Florida	1	636	2.3	%		87,518	96.1	%		1,652		7,977
Northeast Region
New York, NY	1	503	8.6	%		333,946	97.8	%		3,976		17,419
Boston, MA	1	387	1.9	%		74,757	95.3	%		2,123		6,684
Total/Average Same-Store Communities	50	15,723	88.8	%		3,442,406	96.8	%	$	2,215	$	300,158
Non-Mature, Commercial Properties & Other	2	711	11.2	%		432,754						22,848
Total Real Estate Owned	52	16,434	100.0	%		3,875,160					$	323,006
Total Accumulated Depreciation						(1,796,568)
Total Real Estate Owned, Net of Accumulated Depreciation					$	2,078,592

(a) Monthly Income per Occupied Home represents total monthly revenues divided by the average physical number of occupied apartment homes in our Same-Store portfolio.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other.

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

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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 of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. The Operating Partnership’s primary source of liquidity is cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings owed by us under the General Partner’s credit agreements. The General Partner will routinely use its working capital credit facility and commercial paper program, and may use its unsecured revolving credit facility, to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings owed by us under the General Partner’s credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities and potential property acquisitions through net cash provided by property operations, borrowings and the disposition of properties. We believe that our net cash provided by property operations and borrowings will continue to be adequate to meet both operating requirements and the payment of distributions. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings owed by us under the General Partner’s credit agreements, and the disposition of properties.

Future Capital Needs

Future capital expenditures are expected to be funded with proceeds from the issuance of secured debt or unsecured debt, sales of properties, borrowings owed by us under our General Partner’s credit agreements, and to a lesser extent, from cash flows provided by operating activities.

As of December 31, 2019, the Operating Partnership did not have any debt maturing in 2020.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018.

Operating Activities

For the year ended December 31, 2019, Net cash provided by/(used in) operating activities was $255.1 million compared to $255.7 million for 2018. The decrease in cash flow from operating activities was primarily due to an increase in interest expense and changes in operating assets and liabilities, partially offset by an increase in net operating income, primarily driven by revenue growth at communities.

Investing Activities

For the year ended December 31, 2019, Net cash provided by/(used in) investing activities was $(43.9) million compared to $71.7 million for 2018. The decrease in cash provided by investing activities was primarily due to proceeds received from the sale of an operating community and a commercial office building in 2018 and an increase in capital expenditures and other major improvements during the year ended December 31, 2019, compared to the same period in 2018.

Acquisitions

During the years ended December 31, 2019 and 2018, the Operating Partnership did not have any acquisitions of real estate.

Dispositions

During the year ended December 31, 2019, the Operating Partnership did not have any dispositions of real estate.

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In December 2018, the Operating Partnership sold a commercial office building in Fairfax, Virginia for gross proceeds of $9.3 million, resulting in a gain of $5.2 million.

In February 2018, the Operating Partnership sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

Financing Activities

For the year ended December 31, 2019, Net cash provided by/(used in) financing activities was $(210.9) million compared to $(326.5) million for 2018. The decrease in cash used in financing activities was primarily due to an increase in proceeds from the issuance of secured debt, a decrease in payments on secured debt and a decrease in advances to the General Partner, partially offset by the repayment of notes payable to the General Partner.

Guarantor on Unsecured Debt

The Operating Partnership is the guarantor on the General Partner’s unsecured revolving credit facility with an aggregate borrowing capacity of $1.1 billion, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, a $350 million term loan due September 2023, $300 million of medium-term notes due July 2024, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, $300 million of medium-term notes due January 2028, $300 million of medium-term notes due January 2029, $400 million of medium-term notes due January 2030, $400 million of medium-term notes due August 2031, and $300 million of medium-term notes due November 2034. As of December 31, 2019 and 2018, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $300.0 million and $101.1 million, respectively, outstanding under its unsecured commercial paper program.

The credit facilities 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. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our 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. We had $27.0 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2019. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $0.3 million based on the average balance at December 31, 2019.

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.

The General Partner also utilizes derivative financial instruments owed by the Operating Partnership to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 9, Derivatives and Hedging Activities, in the Notes to the Operating Partnership’s Consolidated Financial Statements for additional discussion of derivative instruments.

A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Net cash provided by/(used in) operating activities	$	255,093	$	255,668	$	235,257
Net cash provided by/(used in) investing activities		(43,906)		71,683		(105,989)
Net cash provided by/(used in) financing activities		(210,853)		(326,535)		(128,846)

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Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2019 and 2018.

Net Income/(Loss) Attributable to OP Unitholders

Net income/(loss) attributable to OP unitholders was $102.2 million ($0.56 per diluted OP Unit) for the year ended December 31, 2019 as compared to net income of $229.8 million ($1.25 per diluted OP Unit) for the comparable period in the prior year. The decrease in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:

● no gains on the sale of real estate during the year ended December 31, 2019, as compared to gains of $75.5 million on the sale of an operating community in Orange County, California with a total of 264 apartment homes and a commercial office building in Fairfax, Virginia in 2018;

● losses from unconsolidated entities of $8.3 million for the year ended December 31, 2019 as compared to income of $43.5 million for the year ended December 31, 2018, primarily due to the sale of an operating community held in the DownREIT Partnership in 2018; and

● an increase in interest expense on notes payable to the General Partner of $13.9 million primarily due to the conversion in 2018 of the Advances (to)/from the General Partner capital balance into an unsecured revolving note payable with the General Partner.

This was partially offset by:

● an increase in total property NOI of $5.6 million primarily due to higher revenue per occupied home and NOI from operating communities, partially offset by a decrease from communities sold in 2018.

Apartment Community Operations

Our net income results primarily from NOI generated from the operation of our apartment communities. The Operating Partnership defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs.

Management considers NOI a useful metric for investors as it is a more meaningful representation of a community’s continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization.

Although we consider NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to OP unitholders below.

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The following table summarizes the operating performance of our total property NOI for each of the periods presented (dollars in thousands):

	Year Ended						Year Ended
	December 31,  (a)				%		December 31,  (b)				%
	2019		2018		Change		2018		2017		Change
Same-Store Communities:
Same-Store rental income	$	404,442	$	390,647	3.5	%	$	413,081	$	398,144	3.8	%
Same-Store operating expense (c)		(104,284)		(100,815)	3.4	%		(108,371)		(105,917)	2.3	%
Same-Store NOI		300,158		289,832	3.6	%		304,710		292,227	4.3	%
Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		5,621		5,125	9.7	%		5,125		1,180	334.3	%
Redevelopment communities NOI		12,773		14,878	(14.1)	%		—		—	—	%
Non-residential/other NOI		4,454		6,634	(32.9)	%		6,634		4,665	42.2	%
Sold and held for disposition communities NOI		—		911	(100.0)	%		911		8,769	(89.6)	%
Total Non-Mature Communities/Other NOI		22,848		27,548	(17.1)	%		12,670		14,614	(13.3)	%
Total property NOI	$	323,006	$	317,380	1.8	%	$	317,380	$	306,841	3.4	%

(a) Same-Store consists of 15,723 apartment homes.

(b) Same-Store consists of 15,941 apartment homes.

(c) Excludes depreciation, amortization, and property management expenses.

(d) Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities.

The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Net income/(loss) attributable to OP unitholders	$	102,163	$	229,763	$	106,307
Property management		12,701		11,878		11,533
Other operating expenses		9,488		8,864		6,833
Real estate depreciation and amortization		139,975		143,481		152,473
General and administrative		18,014		16,889		17,875
Casualty-related charges/(recoveries), net		853		951		1,922
(Gain)/loss on sale of real estate owned		—		(75,507)		(41,272)
(Income)/loss from unconsolidated entities		8,313		(43,496)		19,256
Interest expense		29,667		22,835		30,366
Net income/(loss) attributable to noncontrolling interests		1,832		1,722		1,548
Total property NOI	$	323,006	$	317,380	$	306,841

Same-Store Communities

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019) consisted of 15,723 apartment homes and provided 92.9% of our total NOI for the year ended December 31, 2019.

NOI for our Same-Store Community properties increased 3.6%, or $10.3 million, for the year ended December 31, 2019 compared to 2018. The increase in property NOI was primarily attributable to a 3.5%, or $13.8 million, increase in property rental income, which was partially offset by a 3.4%, or $3.5 million, increase in operating expenses. The increase in property income was primarily driven by a 2.8%, or $10.2 million, increase in rental rates and a 10.9%, or $4.5 million, increase in reimbursement, ancillary and fee income. Physical occupancy increased 0.1% to 96.8% and total monthly income per occupied home increased 3.5% to $2,215.

The increase in operating expenses was primarily driven by an 18.2%, or $2.5 million, increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by an 8.1%, or $1.9 million,

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decrease in personnel expense as a result of fewer employees, and a 6.5%, or $2.4 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 74.2% for both of the years ended December 31, 2019 and 2018.

Non-Mature Communities/Other

The Operating Partnership’s Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, which include communities recently developed or acquired, redevelopment properties, sold or held for disposition properties and the non-apartment components of mixed use properties.

The remaining 7.1%, or $22.8 million, of our total NOI during the year ended December 31, 2019 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 17.1%, or $4.7 million, for the year ended December 31, 2019 as compared to the same period in 2018. The decrease was primarily driven by a decrease in NOI of $2.2 million from non-residential/other communities, a decrease of $2.1 million from redevelopment communities, and a decrease of $0.9 million from sold and held for disposition communities, which was partially offset by an increase in NOI of $0.5 million from stabilized, non-mature communities.

Real Estate Depreciation and Amortization

For the year ended December 31, 2019, real estate depreciation and amortization decreased by 2.5%, or $3.5 million, as compared to the same period in 2018. The decrease was primarily due to the sale of an operating community and a commercial office building in 2018 and fully depreciated assets.

Real Estate Taxes and Insurance

For the year ended December 31, 2019, real estate taxes and insurance increased by 8.3%, or $3.9 million, as compare to 2018, which was primarily due to higher assessed valuations in 2019.

Income/(Loss) in Unconsolidated Entities

For the years ended December 31, 2019 and 2018, we recognized income/(loss) from unconsolidated entities of $(8.3) million and $43.5 million, respectively. The decrease from unconsolidated entities as compared to the prior year was primarily attributable to the sale of an operating community in 2018 held in the DownREIT Partnership.

Gain/(Loss) on Sale of Real Estate Owned

During the year ended December 31, 2019, the Operating Partnership did not recognize any gains on the sale of real estate. During the year ended December 31, 2018, the Operating Partnership recognized total gains of $75.5 million on the sale of an operating community in Orange County, California with a total of 264 apartment homes and a commercial office building in Fairfax, Virginia.

Interest Expense

For the year ended December 31, 2019, interest expense increased by 29.9%, or $6.8 million, as compared to 2018, which was primarily due to the conversion in 2018 of the Advances (to)/from the General Partner capital balance into an unsecured revolving note payable with the General Partner.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2019.

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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, 2019 (dollars in thousands):

	Payments Due by Period
Contractual Obligations	2020		2021-2022		2023-2024		Thereafter		Total
Long-term debt obligations	$	—	$	—	$	—	$	99,500	$	99,500
Interest on debt obligations (a)		2,732		5,464		5,464		14,922		28,582
Operating lease obligations — ground leases (b)		12,584		25,168		25,168		466,436		529,356
Operating lease obligations — equipment leases		152		315		329		869		1,665
	$	15,316	$	30,632	$	30,632	$	580,858	$	657,438

(a) Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2019.

(b) For purposes of our ground lease contracts, the Operating Partnership uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on fair market value or changes in the consumer price index but does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term.

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 F-1 of this Report for the Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty, L.P.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The disclosure controls and procedures of the Company and the Operating Partnership 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 disclosed within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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. As a result, our disclosure controls and procedures are designed to provide reasonable assurance that such disclosure controls and procedures will meet their objectives.

As of December 31, 2019, we carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, which is the sole general partner of the Operating

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Partnership, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company and the Operating Partnership. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company and the Operating Partnership are effective at the reasonable assurance level described above.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 for the Company and the Operating Partnership. Under the supervision and with the participation of the management, the Chief Executive Officer and Chief Financial Officer of the Company, which is the sole general partner of the Operating Partnership, conducted an assessment of the effectiveness of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (2013 Framework) (COSO). Based on such evaluation, management concluded that the Company’s and the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2019.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Report, has audited UDR, Inc.’s internal control over financial reporting as of December 31, 2019. The report of Ernst & Young LLP, which expresses an unqualified opinion on UDR, Inc.’s internal control over financial reporting as of December 31, 2019, is included under the heading “Report of Independent Registered Public Accounting Firm” of UDR, Inc. contained in this Report. Further, an attestation report of the registered public accounting firm of United Dominion Realty, L.P. will not be required as long as United Dominion Realty, L.P. is a non-accelerated filer.

Changes in Internal Control Over Financial Reporting

There have not been any changes in either the Company’s or the Operating Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fourth fiscal quarter to which this Report relates that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of either the Company or the Operating Partnership.

Item 9B. OTHER INFORMATION

None.

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the information set forth under the headings “Proposal No. 1 Election of Directors,” “Corporate Governance Matters,” “Audit Committee Report,” “Corporate Governance Matters-Board Leadership Structure and Committees-Audit Committee Financial Expert,” “Corporate Governance Matters-Identification and Selection of Nominees for Directors,” “Corporate Governance Matters-Board of Directors and Committee Meetings” and “Executive Officers” in UDR, Inc.’s definitive proxy statement (our “definitive proxy statement”) for its 2020 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership.

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.udr.com, and is incorporated by reference to the information set forth under the heading “Corporate Governance Matters” in our definitive proxy statement for UDR’s 2020 Annual Meeting of Stockholders. We intend to satisfy the disclosure requirements under Item 5.05 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,” “Corporate Governance Matters-Board Leadership Structure and Committees-Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” “Compensation of Directors” and “Executive Compensation-Compensation Committee Report” in the definitive proxy statement for UDR’s 2020 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership.

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,” “Executive Compensation” and “Executive Compensation-Equity Compensation Plan Information” in the definitive proxy statement for UDR’s 2020 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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,” “Corporate Governance Matters-Corporate Governance Overview,” “Corporate Governance Matters-Director Independence,” “Corporate Governance Matters-Board Leadership Structure and Committees-Independence of the Audit, Compensation, Governance and Nominating Committees,” and “Executive Compensation” in the definitive proxy statement for UDR’s 2020 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. Information regarding related party transactions between UDR and the Operating Partnership is presented in Note 7, Related Party Transactions, of the Consolidated Financial Statements of United Dominion Realty, L.P. referenced in Part IV, Item 15(a) of this Report.

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 Matters-Audit Fees” and “Audit Matters-Pre-Approval Policies and Procedures” in the definitive proxy statement for UDR’s 2020 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership.

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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 Schedules of UDR, Inc. and United Dominion Realty, L.P. on page F-1 of this Report.

2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty, L.P. on page S-1 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 appearing immediately below.

EXHIBIT INDEX

The exhibits listed below are filed as part of this Report. References under the caption “Location” to exhibits or other filings indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. Management contracts and compensatory plans or arrangements filed as exhibits to this Report are identified by an asterisk. The Commission file number for UDR, Inc.’s Exchange Act filings referenced below is 1-10524. The Commission file number for United Dominion Realty, L.P.’s Exchange Act filings is 333-156002-01.

Exhibit	Description	Location
2.01	Partnership Interest Purchase and Exchange Agreement dated as of September 10, 1998, by and between UDR, Inc., United Dominion Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P.	Exhibit 2(d) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 333-64281) filed with the Commission on September 25, 1998.
2.02	Agreement of Purchase and Sale dated as of August 13, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein.	Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated September 28, 2004 and filed with the Commission on September 29, 2004.
2.03	First Amendment to Agreement of Purchase and Sale dated as of September 29, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein.	Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K dated September 29, 2004 and filed with the Commission on October 5, 2004.

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Exhibit	Description	Location
2.04	Second Amendment to Agreement of Purchase and Sale dated as of October 26, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein.	Exhibit 2.3 to UDR, Inc.’s Current Report on Form 8-K/A dated September 29, 2004 and filed with the Commission on November 1, 2004.
2.05	Agreement of Purchase and Sale dated as of January 23, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC.	Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated January 23, 2008 and filed with the Commission on January 29, 2008.
2.06	First Amendment to Agreement of Purchase and Sale dated as of February 14, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC.	Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K/A dated March 3, 2008 and filed with the Commission on May 2, 2008.
2.07	Contribution Agreement by and among Home Properties, L.P., UDR, Inc., United Dominion Realty, L.P. and LSREF 4 Lighthouse Acquisitions, LLC, dated June 22, 2015 (UDR, Inc. and United Dominion Realty, L.P. have omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and shall furnish supplementally to the Commission copies of any of the omitted schedules and exhibits upon request by the Commission.)	Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on June 22, 2015.
2.08	Amendment Agreement, dated as of August 27, 2015, by and among UDR, Inc., United Dominion Realty, L.P., Home Properties, Inc., Home Properties, L.P., LSREF4 Lighthouse Acquisitions, LLC LSREF4 Lighthouse Corporate Acquisitions, LLC and LSREF4 Lighthouse Operating Acquisitions, LLC.	Exhibit 2.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
3.01	Articles of Restatement of UDR, Inc.	Exhibit 3.09 to UDR, Inc.’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005.

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Exhibit	Description	Location
3.02	Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on March 14, 2007.	Exhibit 3.2 to UDR, Inc.’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007.
3.03	Articles of Amendment to the Articles of Restatement of UDR, Inc. dated August 30, 2011 and filed with the State Department of Assessments and Taxation of the State of Maryland on August 31, 2011.	Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated August 29, 2011 and filed with the Commission on September 1, 2011.
3.04	Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 24, 2018.	Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated May 24, 2018 and filed with the SEC on May 29, 2018.
3.05	Articles Supplementary relating to UDR, Inc.’s 6.75% Series G Cumulative Redeemable Preferred Stock dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 30, 2007.	Exhibit 3.4 to UDR, Inc.’s Form 8-A Registration Statement dated and filed with the Commission on May 30, 2007.
3.06	Amended and Restated Bylaws of UDR, Inc. (as amended through May 24, 2018).	Exhibit 3.6 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
3.07	Certificate of Limited Partnership of United Dominion Realty, L.P. dated as of February 19, 2004.	Exhibit 3.4 to United Dominion Realty, L.P.’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3 dated and filed with the Commission on October 15, 2010.
3.08	Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2004.	Exhibit 10.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.
3.09	First Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of June 24, 2005.	Exhibit 10.06 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
3.10	Second Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2006.	Exhibit 10.6 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.
3.11	Third Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 2, 2007.	Exhibit 99.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
3.12	Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 27, 2007.	Exhibit 10.25 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.
3.13	Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of March 7, 2008.	Exhibit 10.53 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008.

68

Exhibit	Description	Location
3.14	Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 9, 2008.	Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 9, 2008 and filed with the Commission on December 10, 2008.
3.15	Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of March 13, 2009.	Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated March 18, 2009 and filed with the Commission on March 19, 2009.
3.16	Eighth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of November 17, 2010.	Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on November 18, 2010.
3.17	Ninth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 4, 2015.	Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 4, 2015 and filed with the Commission on December 10, 2015.
3.18	Tenth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of October 29, 2018.	Exhibit 3.18 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
4.01	Form of UDR, Inc. Common Stock Certificate.	Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007.
4.02	Senior Indenture dated as of November 1, 1995, by and between UDR, Inc. and First Union National Bank of Virginia, N.A., as trustee.	Exhibit 4(ii)(h)(1) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
4.03	Supplemental Indenture dated as of June 11, 2003, by and between UDR, Inc. and Wachovia Bank, National Association, as trustee.	Exhibit 4.03 to UDR, Inc.’s Current Report on Form 8-K dated June 17, 2004 and filed with the Commission on June 18, 2004.
4.04	Subordinated Indenture dated as of August 1, 1994 by and between UDR, Inc. and Crestar Bank, as trustee.	Exhibit 4(i)(m) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995.
4.05	Form of UDR, Inc. Senior Debt Security.	Exhibit 4(i)(n) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995.
4.06	Form of UDR, Inc. Subordinated Debt Security.	Exhibit 4(i)(p) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-55159) filed with the Commission on August 19, 1994.
4.07	Form of UDR, Inc. Fixed Rate Medium-Term Note, Series A.	Exhibit 4.01 to UDR, Inc.’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007.
4.08	Form of UDR, Inc. Floating Rate Medium-Term Note, Series A.	Exhibit 4.02 to UDR, Inc.’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007.

69

Exhibit	Description	Location
4.09	Indenture dated as of April 1, 1994, by and between UDR, Inc. and Nationsbank of Virginia, N.A., as trustee.	Exhibit 4(ii)(f)(1) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
4.10	Supplemental Indenture dated as of August 20, 2009, by and between UDR, Inc. and U.S. Bank National Association, as trustee, to UDR, Inc.’s Indenture dated as of April 1, 1994.	Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated August 20, 2009 and filed with the Commission on August 21, 2009.
4.11	Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of November 1, 1995.	Exhibit 99.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010.
4.12	Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of October 12, 2006.	Exhibit 99.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010.
4.13	First Supplemental Indenture among UDR, Inc., United Dominion Realty, L.P. and U.S. Bank National Association, as Trustee, dated as of May 3, 2011, relating to UDR, Inc.’s Medium-Term Notes, Series A, due Nine Months or More from Date of Issue.	Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K filed with the Commission on May 4, 2011.
4.14	UDR,��Inc. 3.75% Medium-Term Note, Series A due October 2024, issued June 26, 2014.	Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.
4.15	UDR, Inc. 4.00% Medium-Term Note, Series A due October 2025, issued September 22, 2015.	Exhibit 4.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.
4.16	UDR, Inc. 2.950% Medium-Term Note, Series A due September 2026, issued August 23, 2016.	Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
4.17	UDR, Inc. 3.500% Medium-Term Note, Series A due July 2027, issued June 16, 2017.	Exhibit 10.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
4.18	UDR, Inc. 3.500% Medium-Term Note, Series A due January 2028, issued December 13, 2017.	Exhibit 4.21 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017.
4.19	UDR, Inc. 4.400% Medium-Term Note, Series A due January 2029, issued October 26, 2018.	Exhibit 4.21 to UDR, Inc’s Annual Report on Form 10-K for the year ended December 31, 2018.
4.20	UDR, Inc. 3.200% Medium-Term Note, Series A due January 2030, issued July 2, 2019.	Exhibit 4.1 to UDR, Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
4.21	UDR, Inc. 3.000% Medium-Term Note, Series A due August 2031, issued August 15, 2019.	Exhibit 4.2 to UDR, Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
4.22	UDR, Inc. 3.100% Medium-Term Note, Series A due November 2034, issued October 11, 2019.	Filed herewith.

70

Exhibit	Description	Location
4.23	UDR, Inc. 3.200% Medium-Term Note, Series A due January 2030, issued October 11, 2019.	Filed herewith.
4.24	Description of UDR, Inc’s Securities.	Filed herewith.
10.01*	UDR, Inc. 1999 Long-Term Incentive Plan (as amended and restated February 2, 2017).	Exhibit 10.1 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016.
10.02*	Form of UDR, Inc. Restricted Stock Award Agreement under the 1999 Long-Term Incentive Plan.	Filed herewith.
10.03*	Form of UDR, Inc. Restricted Stock Award Agreement for awards outside of the 1999 Long-Term Incentive Plan.	Exhibit 99.3 to UDR, Inc.’s Current Report on Form 8-K dated March 19, 2007 and filed with the Commission on March 19, 2007.
10.04*	Description of UDR, Inc. Shareholder Value Plan.	Exhibit 10(x) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999.
10.05*	Description of UDR, Inc. Executive Deferral Plan.	Exhibit 10(xi) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999.
10.06*	Indemnification Agreement by and between UDR, Inc. and each of its directors and officers listed on Schedule A thereto.	Exhibit 10.7 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016.
10.07	Subordination Agreement dated as of April 16, 1998, by and between UDR, Inc. and United Dominion Realty, L.P.	Exhibit 10(vi)(a) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
10.08	Third Amended and Restated Distribution Agreement among UDR, Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as Agents, dated September 1, 2011, with respect to the issue and sale by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue.	Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 1, 2011.
10.09	First Amended and Restated Credit Agreement, dated as of September 27, 2018, by and among UDR, Inc., as borrower, and the lenders and agents party thereto.	Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated September 27, 2018 and filed with the Commission on October 1, 2018.
10.10	Guaranty of United Dominion Realty, L.P., dated as of September 27, 2018, with respect to the Credit Agreement, dated as of September 27, 2018.	Exhibit 10.2 to UDR, Inc.’s Current Report on Form 8-K dated September 27, 2018 and filed with the Commission on October 1, 2018.
10.11	Amended and Restated Aircraft Time Sharing Agreement dated as of February 18, 2019, by and between UDR, Inc. and Thomas W. Toomey.	Exhibit 10.15 to UDR, Inc’s Annual Report on Form 10-K for the year ended December 31, 2018.

71

Exhibit	Description	Location
10.12	Amended and Restated Aircraft Time Sharing Agreement dated as of February 18, 2019, by and between UDR, Inc. and Warren L. Troupe.	Exhibit 10.16 to UDR, Inc’s Annual Report on Form 10-K for the year ended December 31, 2018.
10.13	Amendment No. 1, dated July 29, 2014, to the Third Amended and Restated Distribution Agreement among UDR, Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as Agents, dated September 1, 2011, with respect to the issue and sale by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue.	Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated July 29, 2014 and filed with the Commission on July 31, 2014.
10.14	Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P., dated as of October 5, 2015, as amended.	Exhibit 10.21 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.
10.15*	Class 1 LTIP Unit Award Agreement.	Exhibit 10.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.
10.16*	Notice of Class 2 LTIP Unit Award.	Filed herewith.
10.17*	Notice of Restricted Stock Unit Award.	Filed herewith.
10.18	Amendment No. 2, dated April 27, 2017, to the Third Amended and Restated Distribution Agreement, dated September 1, 2011 and as amended July 29, 2014, among the Company and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, and Wells Fargo Securities, LLC, as Agents, with respect to the issue and sale by UDR, Inc. of its Medium Term Notes, Series A Due Nine Months or More From Date of Issue.	Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated April 27, 2017 and filed with the commission on April 27, 2017.
10.19	Letter Agreement, between UDR, Inc. and Warren L. Troupe (including the related release agreement and consulting agreement as exhibits thereto), dated December 31, 2019.	Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 31, 2019 and filed with the commission on January 3, 2020.
21	Subsidiaries of UDR, Inc. and United Dominion Realty, L.P.	Filed herewith.
23.1	Consent of Independent Registered Public Accounting Firm for UDR, Inc.	Filed herewith.
23.2	Consent of Independent Registered Public Accounting Firm for United Dominion Realty, L.P.	Filed herewith.
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer of UDR, Inc.	Filed herewith.

72

Exhibit	Description	Location
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer of UDR, Inc.	Filed herewith.
31.3	Rule 13a-14(a) Certification of the Chief Executive Officer of United Dominion Realty, L.P.	Filed herewith.
31.4	Rule 13a-14(a) Certification of the Chief Financial Officer of United Dominion Realty, L.P.	Filed herewith.
32.1	Section 1350 Certification of the Chief Executive Officer of UDR, Inc.	Filed herewith.
32.2	Section 1350 Certification of the Chief Financial Officer of UDR, Inc.	Filed herewith.
32.3	Section 1350 Certification of the Chief Executive Officer of United Dominion Realty, L.P.	Filed herewith.
32.4	Section 1350 Certification of the Chief Financial Officer of United Dominion Realty, L.P.	Filed herewith.
101	Inline XBRL (Extensible Business Reporting Language). The following materials from this Annual Report on Form 10-K for the period ended December 31, 2019, formatted in Inline XBRL: (i) consolidated balance sheets of UDR, Inc., (ii) consolidated statements of operations of UDR, Inc., (iii) consolidated statements of comprehensive income/(loss) of UDR, Inc., (iv) consolidated statements of changes in equity of UDR, Inc., (v) consolidated statements of cash flows of UDR, Inc., (vi) notes to consolidated financial statements of UDR, Inc., (vii) consolidated balance sheets of United Dominion Realty, L.P., (viii) consolidated statements of operations of United Dominion Realty, L.P., (ix) consolidated statements of comprehensive income/(loss) of United Dominion Realty, L.P.; (x) consolidated statements of changes in capital of United Dominion Realty, L.P., (xi) consolidated statements of cash flows of United Dominion Realty, L.P. and (xii) notes to consolidated financial statements of United Dominion Realty, L.P. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith.
104	Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.	Filed herewith.

* Management Contract or Compensatory Plan or Arrangement

Item 16. FORM 10-K SUMMARY

None.

73

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.

	UDR, Inc.
Date:   February 18, 2020	By:	/s/ Thomas W. Toomey
		Thomas W. Toomey
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 18, 2020 by the following persons on behalf of the registrant and in the capacities indicated.

/s/ Thomas W. Toomey	/s/ Katherine A. Cattanach
Thomas W. Toomey	Katherine A. Cattanach
Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	Director
/s/ Joseph D. Fisher	/s/ Mary Ann King
Joseph D. Fisher	Mary Ann King
Senior Vice President and Chief Financial Officer	Director
(Principal Financial Officer)
/s/ Tracy L. Hofmeister	/s/ Jon A. Grove
Tracy L. Hofmeister	Jon A. Grove
Vice President – Chief Accounting Officer	Director
(Principal Accounting Officer)
/s/ James D. Klingbeil	/s/ Clint D. McDonnough
James D. Klingbeil	Clint D. McDonnough
Lead Independent Director	Director
	/s/ Robert A. McNamara
	Robert A. McNamara
	Director
	/s/ Mark R. Patterson
	Mark R. Patterson
	Director

74

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, L.P.
	By:	UDR, Inc., its sole general partner
Date:   February 18, 2020	By:	/s/ Thomas W. Toomey
		Thomas W. Toomey
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 18, 2020 by the following persons on behalf of the registrant and in the capacities indicated.

/s/ Thomas W. Toomey	/s/ Katherine A. Cattanach
Thomas W. Toomey	Katherine A. Cattanach
Chairman of the Board and Chief Executive Officer of the General Partner	Director of the General Partner
(Principal Executive Officer)
/s/ Joseph D. Fisher	/s/ Mary Ann King
Joseph D. Fisher	Mary Ann King
Senior Vice President and Chief Financial Officer	Director of the General Partner
of the General Partner (Principal Financial Officer)
/s/ Tracy L. Hofmeister	/s/ Jon A. Grove
Tracy L. Hofmeister	Jon A. Grove
Vice President – Chief Accounting Officer of the General Partner	Director of the General Partner
(Principal Accounting Officer)
/s/ James D. Klingbeil	/s/ Clint D. McDonnough
James D. Klingbeil	Clint D. McDonnough
Lead Independent Director of the General Partner	Director of the General Partner
	/s/ Robert A. McNamara
	Robert A. McNamara
	Director of the General Partner
	/s/ Mark R. Patterson
	Mark R. Patterson
	Director of the General Partner

75

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

	PAGE
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
UDR, INC.:
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2019 and 2018	F-5
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017	F-6
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2019, 2018, and 2017	F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018, and 2017	F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017	F-9
Notes to Consolidated Financial Statements	F-11
UNITED DOMINION REALTY, L.P.:
Report of Independent Registered Public Accounting Firm	F-61
Consolidated Balance Sheets at December 31, 2019 and 2018	F-62
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017	F-63
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2019, 2018, and 2017	F-64
Consolidated Statements of Changes in Capital for the years ended December 31, 2019, 2018, and 2017	F-65
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017	F-66
Notes to Consolidated Financial Statements	F-67
SCHEDULES FILED AS PART OF THIS REPORT
UDR, INC.:
Schedule III- Summary of Real Estate Owned	S-1
UNITED DOMINION REALTY, L.P.:
Schedule III- Summary of Real Estate Owned	S-6

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 consolidated financial statements and notes thereto.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of UDR, Inc.

Opinion on the Financial Statements  

We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the accompanying Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for acquisitions of real estate investment properties

Description of the Matter

During 2019, the Company acquired multiple real estate investment properties, including certain real estate investment properties for which the Company held a previous unconsolidated equity interest. These transactions were accounted for as asset acquisitions. The aggregate increase in real estate due to these acquisitions was approximately $2.2 billion. As more fully described in Note 3 to the consolidated financial statements, the total consideration was allocated to land, land improvements, buildings and improvements, and real estate intangible assets based on their relative fair value.

F - 2

Auditing the Company’s acquisition of real estate investment properties is complex and requires a higher degree of auditor judgment due to the significant assumptions that are utilized in the determination of the relative fair values of the assets acquired. The significant assumptions used in management’s analysis to estimate the fair value of these components includes capitalization rates, market comparable prices for similar land parcels, market rental rates, leasing commission rates as well as the time it would take to lease any acquired buildings if it were vacant at acquisition.

How We Addressed the Matter in Our Audit

We tested the Company’s internal controls over the acquisition of real estate investment properties and the resulting purchase price allocations. This included testing controls over management’s identification of the assets acquired and liabilities assumed and evaluating the methods and significant assumptions used by the Company to develop such estimates. Our testing of the fair values of the assets acquired included, among others, evaluating the selection of the Company's valuation model and testing the significant assumptions discussed above as well as the completeness and accuracy of the underlying data. For example, we compared management’s assumptions to observable market transactions and replacement costs associated with the fair value of the land and buildings and improvements. For in-place leases, we compared management’s assumptions to published market data for comparable leases, related leasing commissions and the amount of time it would take to lease up the space to stabilization assuming the space was vacant at acquisition. We involved our real estate valuation specialists to assist in evaluating the significant assumptions listed above.  In addition, we performed sensitivity tests on the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.

/s/ Ernst & Young LLP

We have served as the Company's auditor since at least 1984, but we are unable to determine the specific year.

Denver, Colorado

February 18, 2020

F - 3

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of UDR, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited UDR, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, UDR, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 18, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

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 included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ Ernst & Young LLP

Denver, Colorado

February 18, 2020

F - 4

UDR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 31,		December 31,
	2019		2018
ASSETS
Real estate owned:
Real estate held for investment	$	12,532,324	$	10,196,159
Less: accumulated depreciation		(4,131,330)		(3,654,160)
Real estate held for investment, net		8,400,994		6,541,999
Real estate under development (net of accumulated depreciation of $23 and $0, respectively)		69,754		—
Total real estate owned, net of accumulated depreciation		8,470,748		6,541,999
Cash and cash equivalents		8,106		185,216
Restricted cash		25,185		23,675
Notes receivable, net		153,650		42,259
Investment in and advances to unconsolidated joint ventures, net		588,262		780,869
Operating lease right-of-use assets		204,225		—
Other assets		186,296		137,710
Total assets	$	9,636,472	$	7,711,728
LIABILITIES AND EQUITY
Liabilities:
Secured debt, net	$	1,149,441	$	601,227
Unsecured debt, net		3,558,083		2,946,560
Operating lease liabilities		198,558		—
Real estate taxes payable		29,445		20,608
Accrued interest payable		45,199		38,747
Security deposits and prepaid rent		48,353		35,060
Distributions payable		109,382		97,666
Accounts payable, accrued expenses, and other liabilities		90,032		76,343
Total liabilities		5,228,493		3,816,211
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		1,018,665		972,740
Equity:
Preferred stock, 0 par value; 50,000,000 shares authorized:
8.00% Series E Cumulative Convertible; 2,780,994 shares issued and outstanding at December 31, 2019 and December 31, 2018		46,200		46,200
Series F; 14,691,274 and 15,802,393 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively		1		1
Common stock, $0.01 par value; 350,000,000 shares authorized:
294,588,305 and 275,545,900 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively		2,946		2,755
Additional paid-in capital		5,781,975		4,920,732
Distributions in excess of net income		(2,462,132)		(2,063,996)
Accumulated other comprehensive income/(loss), net		(10,448)		(67)
Total stockholders’ equity		3,358,542		2,905,625
Noncontrolling interests		30,772		17,152
Total equity		3,389,314		2,922,777
Total liabilities and equity	$	9,636,472	$	7,711,728

See accompanying notes to consolidated financial statements.

F - 5

UDR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Year Ended December 31,
	2019		2018		2017
REVENUES:
Rental income	$	1,138,138	$	1,035,105	$	984,309
Joint venture management and other fees		14,055		11,754		11,482
Total revenues		1,152,193		1,046,859		995,791
OPERATING EXPENSES:
Property operating and maintenance		178,947		169,078		164,660
Real estate taxes and insurance		150,888		133,912		121,146
Property management		32,721		28,465		27,068
Other operating expenses		13,932		12,100		9,060
Real estate depreciation and amortization		501,257		429,006		430,054
General and administrative		51,533		46,983		48,566
Casualty-related charges/(recoveries), net		474		2,121		4,335
Other depreciation and amortization		6,666		6,673		6,408
Total operating expenses		936,418		828,338		811,297
Gain/(loss) on sale of real estate owned		5,282		136,197		43,404
Operating income		221,057		354,718		227,898
Income/(loss) from unconsolidated entities		137,873		(5,055)		31,257
Interest expense		(170,917)		(134,168)		(128,711)
Interest income and other income/(expense), net		15,404		6,735		1,971
Income/(loss) before income taxes		203,417		222,230		132,415
Tax (provision)/benefit, net		(3,838)		(688)		240
Net income/(loss)		199,579		221,542		132,655
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(14,426)		(18,215)		(10,933)
Net (income)/loss attributable to noncontrolling interests		(188)		(221)		(164)
Net income/(loss) attributable to UDR, Inc.		184,965		203,106		121,558
Distributions to preferred stockholders — Series E (Convertible)		(4,104)		(3,868)		(3,708)
Net income/(loss) attributable to common stockholders	$	180,861	$	199,238	$	117,850
Income/(loss) per weighted average common share:
Basic	$	0.63	$	0.74	$	0.44
Diluted	$	0.63	$	0.74	$	0.44
Weighted average number of common shares outstanding:
Basic		285,247		268,179		267,024
Diluted		286,015		269,483		268,830

See accompanying notes to consolidated financial statements.

F - 6

UDR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

	Year Ended December 31,
	2019		2018		2017
Net income/(loss)	$	199,579	$	221,542	$	132,655
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)		(8,437)		4,806		1,802
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		(2,770)		(1,948)		1,407
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		(11,207)		2,858		3,209
Comprehensive income/(loss)		188,372		224,400		135,864
Comprehensive (income)/loss attributable to noncontrolling interests		(13,788)		(18,680)		(11,378)
Comprehensive income/(loss) attributable to UDR, Inc.	$	174,584	$	205,720	$	124,486

See accompanying notes to consolidated financial statements.

F - 7

UDR, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands, except per share data)

							Distributions		Accumulated Other Comprehensive
	Preferred		Common		Paid-in		in Excess of		Income/(Loss),		Noncontrolling
	Stock		Stock		Capital		Net Income		net		Interests		Total
Balance at December 31, 2016	$	46,458	$	2,673	$	4,635,413	$	(1,585,825)	$	(5,609)	$	3,860	$	3,096,970
Net income/(loss) attributable to UDR, Inc.		—		—		—		121,558		—		—		121,558
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		147		147
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		125		125
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		5,432		5,432
Other comprehensive income/(loss)		—		—		—		—		2,928		—		2,928
Issuance/(forfeiture) of common and restricted shares, net		—		1		437		—		—		—		438
Cumulative effect upon adoption of ASU 2016-09		—		—		558		(558)		—		—		—
Conversion of Series E Cumulative Convertible Shares		(257)				257		—		—		—		—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		4		14,540		—		—		—		14,544
Common stock distributions declared ($1.24 per share)		—		—		—		(331,974)		—		—		(331,974)
Preferred stock distributions declared-Series E ($1.3288 per share)		—		—		—		(3,708)		—		—		(3,708)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(71,096)		—		—		(71,096)
Balance at December 31, 2017		46,201		2,678		4,651,205		(1,871,603)		(2,681)		9,564		2,835,364
Net income/(loss) attributable to UDR, Inc.		—		—		—		203,106		—		—		203,106
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		175		175
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		108		108
Repurchase of common shares		—		(6)		(19,982)		—		—		—		(19,988)
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		7,305		7,305
Other comprehensive income/(loss)		—		—		—		—		2,614		—		2,614
Exercise of stock options, net		—		8		(23,061)		—		—		—		(23,053)
Issuance/(forfeiture) of common and restricted shares, net		—		(1)		(507)		—		—		—		(508)
Issuance of common shares through public offering, net		—		72		299,753		—		—		—		299,825
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		4		13,324		—		—		—		13,328
Common stock distributions declared ($1.29 per share)		—		—		—		(348,079)		—		—		(348,079)
Preferred stock distributions declared-Series E ($1.3968 per share)		—		—		—		(3,868)		—		—		(3,868)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(43,552)		—		—		(43,552)
Balance at December 31, 2018	$	46,201	$	2,755	$	4,920,732	$	(2,063,996)	$	(67)	$	17,152	$	2,922,777
Net income/(loss) attributable to UDR, Inc.		—		—		—		184,965		—		—		184,965
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		125		125
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		125		125
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		13,370		13,370
Other comprehensive income/(loss)		—		—		—		—		(10,381)		—		(10,381)
Issuance/(forfeiture) of common and restricted shares, net		—		—		2,088		—		—		—		2,088
Issuance of common shares through public offering, net		—		158		725,157		—		—		—		725,315
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		33		133,998		—		—		—		134,031
Common stock distributions declared ($1.37 per share)		—		—		—		(395,113)		—		—		(395,113)
Preferred stock distributions declared-Series E ($1.4832 per share)		—		—		—		(4,104)		—		—		(4,104)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(183,884)		—		—		(183,884)
Balance at December 31, 2019	$	46,201	$	2,946	$	5,781,975	$	(2,462,132)	$	(10,448)	$	30,772	$	3,389,314

See accompanying notes to consolidated financial statements.

F - 8

UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except for share data)

	Year Ended December 31,
	2019		2018		2017
Operating Activities
Net income/(loss)	$	199,579	$	221,542	$	132,655
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		507,923		435,679		436,462
(Gain)/loss on sale of real estate owned		(5,282)		(136,197)		(43,404)
(Income)/loss from unconsolidated entities		(137,873)		5,055		(31,257)
Return on investment in unconsolidated joint ventures		5,179		4,248		4,416
Amortization of share-based compensation		24,330		14,244		12,862
Other		39,958		4,998		20,467
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(10,956)		(13,880)		(9,008)
Increase/(decrease) in operating liabilities		7,846		24,987		(4,278)
Net cash provided by/(used in) operating activities		630,704		560,676		518,915
Investing Activities
Acquisition of real estate assets		(1,370,770)		—		(96,791)
Proceeds from sales of real estate investments, net		38,000		247,031		71,235
Development of real estate assets		(25,401)		(150,238)		(248,546)
Capital expenditures and other major improvements — real estate assets		(167,188)		(112,359)		(124,728)
Capital expenditures — non-real estate assets		(17,159)		(4,850)		(1,384)
Investment in unconsolidated joint ventures		(93,059)		(112,025)		(123,842)
Distributions received from unconsolidated joint ventures		72,441		42,683		116,329
Purchase deposits on pending acquisitions		(12,160)		(1,000)		—
Repayment/(issuance) of notes receivable, net		(111,391)		(22,790)		321
Net cash provided by/(used in) investing activities		(1,686,687)		(113,548)		(407,406)
Financing Activities
Payments on secured debt		(162,253)		(279,243)		(326,346)
Proceeds from the issuance of secured debt		162,500		80,000		—
Payments on unsecured debt		(700,000)		—		(300,000)
Net proceeds from the issuance of unsecured debt		1,099,816		299,994		598,095
Net proceeds/(repayment) of commercial paper		198,885		(198,885)		300,000
Net proceeds/(repayment) of revolving bank debt		16,567		(21,751)		417
Proceeds from the issuance of common shares through public offering, net		725,315		299,825		—
Repurchase of common shares		—		(19,988)		—
Distributions paid to redeemable noncontrolling interests		(31,580)		(32,457)		(31,089)
Distributions paid to preferred stockholders		(4,063)		(3,836)		(3,708)
Distributions paid to common stockholders		(383,079)		(342,241)		(327,793)
Other		(41,725)		(41,485)		(21,361)
Net cash provided by/(used in) financing activities		880,383		(260,067)		(111,785)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		(175,600)		187,061		(276)
Cash, cash equivalents, and restricted cash, beginning of year		208,891		21,830		22,106
Cash, cash equivalents, and restricted cash, end of year	$	33,291	$	208,891	$	21,830
Supplemental Information:
Interest paid during the period, net of amounts capitalized	$	169,558	$	132,466	$	126,348
Cash paid/(refunds received) for income taxes		1,519		625		1,660
Non-cash transactions:
Transfer of investment in and advances to unconsolidated joint ventures to real estate owned	$	288,108	$	—	$	140,549
Transfer of investment in and advances to unconsolidated joint ventures to joint venture member		60,625		—		—
Secured debt assumed in the consolidation of unconsolidated joint ventures		551,800		—		—
Recognition of operating lease right-of-use assets		94,349		—		—
Recognition of operating lease liabilities		88,336		—		—
Right-of-use assets obtained in exchange for operating lease liabilities remeasurement		111,055		—		—
Vesting of LTIP Units		14,742		4,397		2,317
Development costs and capital expenditures incurred but not yet paid		16,635		10,304		43,930
Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (3,165,780 shares in 2019; 348,057 shares in 2018; and 389,033 shares in 2017)		134,031		13,328		14,544
Dividends declared but not yet paid		109,382		97,666		91,455

F - 9

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

	Year Ended December 31,
	2019		2018		2017
The following reconciles cash, cash equivalents, and restricted cash to amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year:
Cash and cash equivalents	$	185,216	$	2,038	$	2,112
Restricted cash		23,675		19,792		19,994
Total cash, cash equivalents, and restricted cash as shown above	$	208,891	$	21,830	$	22,106
Cash, cash equivalents, and restricted cash, end of year:
Cash and cash equivalents	$	8,106	$	185,216	$	2,038
Restricted cash		25,185		23,675		19,792
Total cash, cash equivalents, and restricted cash as shown above	$	33,291	$	208,891	$	21,830

See accompanying notes to consolidated financial statements.

F - 10

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

1. CONSOLIDATION AND BASIS OF PRESENTATION

Organization and Formation

UDR, Inc. (“UDR,” the “Company,” “we,” or “our”) is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities generally in high barrier-to-entry markets located in the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. At December 31, 2019, our consolidated apartment portfolio consisted of 148 consolidated communities located in 20 markets consisting of 47,010 apartment homes. In addition, the Company has an ownership interest in 5,268 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,138 apartment homes owned by entities in which we hold preferred equity investments.

Basis of Presentation

The accompanying consolidated financial statements of UDR include its wholly-owned and/or controlled subsidiaries (see the “Consolidated Joint Ventures” section of Note 5, Joint Ventures and Partnerships, for further discussion). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of December 31, 2019 and 2018, there were 184.1 million and 183.6 million units, respectively, in the Operating Partnership (“OP Units”) outstanding, of which 176.2 million, or 95.7% and 174.2 million, or 94.9%, respectively, were owned by UDR and 7.9 million, or 4.3% and 9.4 million, or 5.1%, respectively, were owned by outside limited partners. As of December 31, 2019 and 2018, there were 32.4 million units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 18.4 million, or 56.8% and 17.2 million, or 53.2%, respectively, were owned by UDR (including 13.5 million DownREIT Units, or 41.7% and 13.5 million, or 41.6%, that were held by the Operating Partnership as of December 31, 2019 and 2018, respectively) and 14.0 million, or 43.2% and 15.2 million, or 46.8%, respectively, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.

The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those in Note 2, Significant Accounting Policies, Note 3, Real Estate Owned and Note 5, Joint Ventures and Partnerships.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amends the transition requirements and scope of ASU 2016-13 and clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The updated standard became effective for the Company on January 1, 2020 and is to be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings on that date. While we are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements and related disclosures, we expect that the adoption will result in recording an allowance for credit losses for our notes receivable. However, we do not expect the updated standard to have a material impact on the consolidated financial statements.

F - 11

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

In February 2016, the FASB issued ASU 2016-02, Leases. The standard amended the existing lease accounting guidance and required lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases continued to recognize lease expense in a manner similar to previous accounting. For lessors, accounting for leases under the new guidance was substantially the same as in prior periods, but eliminated current real estate-specific provisions and changed the treatment of initial direct costs. The standard was effective for the Company on January 1, 2019.

The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year.

Upon adoption of the standard on January 1, 2019, the Company recognized right-of-use assets of $94.3 million and lease liabilities of $88.3 million. The right-of-use assets included $6.0 million of prepaid rent and intangible assets that was included within Other assets on our Consolidated Balance Sheets as of December 31, 2018.

The lease liabilities represent the present value of the remaining minimum lease payments as of January 1, 2019 and primarily relate to ground leases for communities where we are the lessee. The right-of-use assets represent our right to use an underlying asset for the lease term, which are calculated utilizing the lease liabilities plus any prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. Our right-of-use assets and related lease liabilities recognized as of January 1, 2019 may change as a result of updates to the projected future minimum lease payments. Certain of our ground lease agreements where we are the lessee have future minimum lease payments that reset in the future based upon a percentage of the fair market value of the land at the time of the reset. The Company will continue to recognize lease expense for these leases in a manner similar to previous accounting based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors will include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, subsequent to the adoption of the standard, we are expensing non-incremental leasing costs as incurred.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provided entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases. The ASU provided a practical expedient which allowed lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provided a transition option that permitted entities to not recast the comparative periods presented when transitioning to the standard, which the Company also elected.

Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, land improvements, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment.

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 and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

UDR purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset

F - 12

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Company estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are capitalized as incurred if the acquisition does not meet the definition of a business.

Quarterly or when changes in circumstances warrant, UDR will assess our real estate properties for indicators of impairment. In determining whether the Company has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future 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 and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

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 actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, 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 are 30 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2019, 2018, and 2017 were $8.4 million, $7.5 million and $8.8 million, respectively. During the years ended December 31, 2019, 2018, and 2017, total interest capitalized was $5.1 million, $10.6 million and $18.6 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Company’s cash and cash equivalents are held at major commercial banks.

F - 13

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Restricted Cash

Restricted cash primarily consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits. 

Real Estate Sales Gain Recognition 

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Company generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Company will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

Sale transactions to entities in which the Company sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Company will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value. 

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Company will record a full gain or loss in the period the property is contributed.

To the extent that the Company acquires a controlling financial interest in a property that it previously accounted for as an equity method investment, the Company will not remeasure its previously held interest if the acquisition is treated as an asset acquisition. The Company will include the carrying amount of its previously held equity method interest along with the consideration paid and transaction costs incurred in determining the amounts to allocate to the related assets and liabilities acquired on its Consolidated Balance Sheets. When treated as an asset acquisition, the Company will not recognize a gain on consolidation of a property.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Notes Receivable

Notes receivable relate to financing arrangements which are typically secured by real estate or real estate related projects. Certain of the loans we extend may include characteristics such as options to purchase the project within a specific time window following expected project completion. These characteristics can cause the loans to fall under the definition of a variable interest entity (“VIE”), and thus trigger consolidation consideration. We consider the facts and circumstances pertinent to each loan, including the relative amount of financing we are contributing to the overall project cost, decision making rights or control we hold, and our rights to expected residual gains or our obligations to absorb expected residual losses from the project. If we are deemed to be the primary beneficiary of a VIE due to holding a controlling financial interest, the majority of decision making control, or by other means, consolidation of the VIE would be required. The Company has concluded that it is not the primary beneficiary of the borrowing entities which were deemed to be VIEs.

Additionally, we analyze each loan arrangement for consideration of whether the loan qualifies for accounting as a loan or as an investment in a real estate development project. The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310-10. For each loan, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate.

The following table summarizes our Notes receivable, net as of December 31, 2019 and 2018 (dollars in thousands):

	Interest rate at		Balance Outstanding
	December 31,		December 31,		December 31,
	2019		2019		2018
Note due February 2020 (a)	10.00	%	$	16,400	$	14,659
Note due March 2020 (b)	12.00	%		20,000		20,000
Note due October 2020 (c)	8.00	%		2,250		2,000
Note due August 2022 (d)	10.00	%		—		5,600
Note due October 2022 (e)	4.75	%		115,000		—
Total notes receivable, net			$	153,650	$	42,259

(a) The Company has a secured note with an unaffiliated third party with an aggregate commitment of $16.4 million, of which $16.4 million has been funded, including $1.7 million funded during the year ended December 31, 2019. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the eighth anniversary of the date of the note (February 2020).

In January 2020, the terms of this secured note were amended to increase the aggregate commitment from $16.4 million to $19.4 million and to extend the maturity date of the note from the eighth anniversary of the note (February 2020) to January 2023.

(b) The Company has a secured note with an unaffiliated third party with an aggregate commitment of $20.0 million, of which $20.0 million has been funded. The note is secured by a parcel of land and related land improvements. Interest payments are due when the loan matures. In December 2019, the term of the secured note was extended to March 30, 2020, and any interest incurred during the extension period will be due monthly.

(c) The Company has a secured note with an unaffiliated third party with an aggregate commitment of $2.3 million, of which $2.3 million has been funded, including $0.3 million funded during the year ended December 31, 2019. Interest payments are due when the loan matures. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $10.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (October 2020).

(d) The Company previously had a secured note with an unaffiliated third party under which $5.6 million had been funded. In January 2019, the $5.6 million secured note was repaid in full along with the contractually accrued

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

interest of $0.2 million and an additional $8.5 million of promoted interest in conjunction with the unaffiliated third party being acquired.

(e) In November 2019, the Company entered into a secured note with an unaffiliated third party with an aggregate commitment of $115.0 million, all of which was funded during the year ended December 31, 2019. Interest payments are due when the loan matures. The note is secured by a first priority deed of trust on a 259 home operating community in Bellevue, Washington, which is expected to be completed in 2020. When the note was funded, the Company also entered into a purchase option agreement and paid a deposit of $10.0 million, which will give the Company the option to acquire the community at a fixed price of $170.0 million. The purchase option must be exercised within 30 days following the date the temporary certificate of occupancy is issued. The deposit is generally nonrefundable other than due to a failure of closing conditions pursuant to the terms of the agreement. If the Company does not exercise the purchase option, or if the Company exercises and fails to close the purchase other than due to seller’s failure or other breaches in the purchase option agreement, per the terms of the agreement, the note will be modified to extend the maturity date to 10 years following the date the temporary certificate of occupancy is issued. Upon modification, the loan will be interest only for the first three years and after such date will be based on a 30 year amortization schedule.

The Company recognized $5.5 million, $4.1 million, and $1.8 million of interest income and $8.5 million, 0, and 0 of promoted interest from notes receivable during the years ended December 31, 2019, 2018, and 2017, respectively, NaN of which was related party interest. Interest income and promoted interest are included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.

Investment in Joint Ventures and Partnerships

We use the equity method to account for investments in joint ventures and partnerships that qualify as VIEs where we are not the primary beneficiary and other entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operating and financial policies of the investee. Throughout these financial statements we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest. The Company also uses the equity method when we function as the managing partner and our venture partner has substantive participating rights or where we can be replaced by our venture partner as managing partner without cause. For a joint venture or partnership accounted for under the equity method, our share of net earnings or losses is reflected as income/loss when earned/incurred and distributions are credited against our investment in the joint venture or partnership as received.

In determining whether a joint venture or partnership is a VIE, the Company considers: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including necessity of subordinated debt; estimates of future cash flows; ours and our partner’s ability to participate in the decision making related to acquisitions, disposition, budgeting and financing of the entity; obligation to absorb losses and preferential returns; nature of our partner’s primary operations; and the degree, if any, of disproportionality between the economic and voting interests of the entity. As of December 31, 2019, the Company did not determine any of our joint ventures or partnerships to be VIEs.

We evaluate our investments in unconsolidated joint ventures for events or changes in circumstances that indicate there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, the fair value of the property of the joint venture, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken into consideration as a whole by management in determining the valuation of our equity method investments. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Derivative Financial Instruments

The Company utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for cash flow hedges that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income available to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.

Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of Common Stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.

Income Taxes

Due to the structure of the Company as a REIT and the nature of the operations for the operating properties, 0 provision for federal income taxes has been provided for at UDR. Historically, the Company has generally incurred only state and local excise and franchise taxes. UDR has elected for certain consolidated subsidiaries to be treated as taxable REIT subsidiaries (“TRS”).

Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets are generally the result of differing depreciable lives on capitalized assets, unrealized gains on other investment ventures and timing of expense recognition for certain accrued liabilities. As of December 31, 2019 and 2018, UDR’s net deferred tax assets/(liabilities) was $(1.6) million and less than $(0.1) million, respectively. The net deferred tax assets/(liabilities) are recorded in Accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets.

GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The Company invests in assets that qualify for federal investment tax credits (“ITC”) through our TRS. An ITC reduces federal income taxes payable when qualifying depreciable property is acquired. The ITC is determined as a percentage of cost of the assets. The Company accounts for ITCs under the deferral method, under which the tax benefit from the ITC is deferred and amortized as a tax benefit into Tax (provision)/benefit, net on the Consolidated Statements of Operations over the book life of the qualifying depreciable property. The ITCs are recorded in Accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets.

UDR had 0 material unrecognized tax benefit, accrued interest or penalties at December 31, 2019. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2016 through 2018 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax (provision)/benefit, net on the Consolidated Statements of Operations.

Principles of Consolidation

The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the consolidation guidance. The Company first evaluates whether each entity is a VIE. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

Discontinued Operations

In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.

Stock-Based Employee Compensation Plans

The Company measures the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognizes the cost over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. The fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For performance based awards, the Company remeasures the fair value each balance sheet date with adjustments made on a cumulative basis until the award is settled and the final compensation is known. The fair value for market based awards issued by the Company is calculated utilizing a Monte Carlo simulation. For further discussion, see Note 10, Employee Benefit Plans.

Advertising Costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2019, 2018, and 2017, total advertising expense was $6.5 million, $6.7 million, and $6.2 million, respectively.

Cost of Raising Capital

Costs incurred in connection with the issuance of equity securities are deducted from stockholders’ equity. Costs incurred in connection with the issuance or renewal of debt are recorded based on the terms of the debt issuance or renewal. Accordingly, if the terms of the renewed or modified debt instrument are deemed to be substantially different (i.e. a 10 percent or greater difference in the cash flows between instruments), all unamortized financing costs associated

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

with the extinguished debt are charged to earnings in the current period and certain costs of new debt issuances are capitalized and amortized over the term of the debt. When the cash flows are not substantially different, the lender costs associated with the renewal or modification are capitalized and amortized into interest expense over the remaining term of the related debt instrument and other related costs are expensed. The balance of any unamortized financing costs associated with retired debt is expensed upon retirement. Deferred financing costs for new debt instruments include fees and costs incurred by the Company to obtain financing. Deferred financing costs 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.

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2019, 2018, and 2017, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 14, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the years ended December 31, 2019, 2018, and 2017 was $(0.8) million, $0.2 million, and $0.3 million, respectively.

Forward Sales Agreements

The Company utilizes forward sales agreements for the future issuance of its common stock. When the Company enters into a forward sales agreement, the contract requires the Company to sell its shares to a counterparty at a predetermined price at a future date. The net sales price and proceeds attained by the Company will be determined on the dates of settlement, with adjustments during the term of the contract for the Company’s anticipated dividends as well as for a daily interest factor that varies with changes in the federal funds rate. The Company generally has the ability to determine the dates and method of settlement (i.e., gross physical settlement, net share settlement or cash settlement), subject to certain conditions and the right of the counterparty to accelerate settlement under certain circumstances.

The Company accounts for the shares of common stock reserved for issuance upon settlement as equity in accordance with ASC 815-40, Contracts in Entity's Own Equity, which permits equity classification when a contract is considered indexed to its own stock and the contract requires or permits the issuing entity to settle the contract in shares (either physically or net in shares).

The guidance establishes a two-step process for evaluating whether an equity-linked financial instrument is considered indexed to its own stock, first, evaluating the instrument’s contingent exercise provisions and second, evaluating the instrument’s settlement provisions. When entering into forward sales agreements, we determine that (i) none of the agreement’s exercise contingencies are based on observable markets or indices besides those related to the market for our own stock price; and (ii) none of the settlement provisions preclude the agreements from being indexed to our own stock.

Before the issuance of shares of common stock, upon physical or net share settlement of the forward sales agreements, the Company expects that the shares issuable upon settlement of the forward sales agreements will be reflected in its diluted income/(loss) per share calculations using the treasury stock method. Under this method, the number of shares of common stock used in calculating diluted income/(loss) per share is deemed to be increased by the excess, if any, of the number of shares of common stock that would be issued upon full physical settlement of the forward sales agreements over the number of shares of common stock that could be purchased by the Company in the open market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). When the Company physically or net share settles any forward sales agreement, the delivery of shares of common stock would result in an increase in the number of weighted average common shares outstanding and dilution to basic income/(loss) per share. (See Note 8, Income/(Loss) per Share for further discussion.)

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Use of Estimates

The preparation of these financial statements in accordance with GAAP 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.

Market Concentration Risk

The Company is subject to increased exposure from economic and other competitive factors specific to markets where the Company holds a significant percentage of the carrying value of its real estate portfolio. At December 31, 2019, the Company held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California; Metropolitan D.C., New York, New York and Boston, Massachusetts markets.

3. REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of December 31, 2019, the Company owned and consolidated 148 communities in 13 states plus the District of Columbia totaling 47,010 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2019 and 2018 (dollars in thousands):

	December 31,		December 31,
	2019		2018
Land	$	2,164,032	$	1,849,799
Depreciable property — held and used:
Land improvements		224,964		213,224
Building, improvements, and furniture, fixtures and equipment		10,102,758		8,133,136
Real estate intangible assets		40,570		—
Under development:
Land and land improvements		29,226		—
Building, improvements, and furniture, fixtures and equipment		40,551		—
Real estate owned		12,602,101		10,196,159
Accumulated depreciation		(4,131,353)		(3,654,160)
Real estate owned, net	$	8,470,748	$	6,541,999

Acquisitions

In January 2019, the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located in Anaheim, California, for a cash purchase price of approximately $33.5 million. In connection with the acquisition, the Company repaid approximately $59.8 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as an equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in 0 gain upon consolidation and increased its real estate assets owned by approximately $115.7 million and recorded approximately $2.4 million of in-place lease intangibles.

In January 2019, the Company increased its ownership interest from 49% to 100% in a 155 apartment home operating community located in Seattle, Washington, for a cash purchase price of approximately $20.0 million. In connection with the acquisition, the Company repaid approximately $26.0 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in 0 gain upon consolidation and increased its real estate assets owned by approximately $58.1 million and recorded approximately $2.4 million of real estate intangibles and approximately $0.6 million of in-place lease intangibles.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

In January 2019, the Company acquired a to-be-developed parcel of land located in Washington D.C. for approximately $27.1 million.

In February 2019, the Company acquired a to-be-developed parcel of land located in Denver, Colorado for approximately $13.7 million.

In February 2019, the Company acquired a 188 apartment home operating community located in Brooklyn, New York for approximately $132.1 million. The Company increased its real estate assets owned by approximately $97.5 million and recorded approximately $33.6 million of real estate intangibles and approximately $1.0 million of in-place lease intangibles.

In February 2019, the Company acquired a 381 apartment home operating community located in St. Petersburg, Florida for approximately $98.3 million. The Company increased its real estate assets owned by approximately $96.0 million and recorded approximately $2.3 million of in-place lease intangibles.

In April 2019, the Company acquired a 498 apartment home operating community located in Towson, Maryland for approximately $86.4 million. The Company increased its real estate assets owned by approximately $82.5 million and recorded approximately $3.9 million of in-place lease intangibles.

In May 2019, the Company acquired a 313 apartment home operating community located in King of Prussia, Pennsylvania for approximately $107.3 million. The Company increased its real estate assets owned by approximately $106.4 million and recorded approximately $0.9 million of in-place lease intangibles.

In May 2019, the Company acquired a 240 apartment home operating community located in St. Petersburg, Florida for approximately $49.4 million. The Company increased its real estate assets owned by approximately $48.2 million and recorded approximately $1.2 million of in-place lease intangibles.

In June 2019, the Company acquired a 200 apartment home operating community located in Waltham, Massachusetts for approximately $84.6 million. The Company increased its real estate assets owned by approximately $82.6 million and recorded approximately $2.0 million of in-place lease intangibles.

In August 2019, the Company acquired a 914 apartment home operating community located in Norwood, Massachusetts for approximately $270.2 million. The Company increased its real estate assets owned by approximately $260.1 million and recorded approximately $10.1 million of in-place lease intangibles.

In August 2019, the Company acquired a 185 apartment home operating community located in Englewood, New Jersey for approximately $83.6 million. The Company increased its real estate assets owned by approximately $77.5 million and recorded approximately $4.6 million of real estate intangibles and approximately $1.5 million of in-place lease intangibles.

In August 2019, the Company purchased a 292 apartment home operating community in Washington, D.C., directly from the UDR/KFH joint venture, thereby increasing its ownership interest from 30% to 100%, for a purchase price at 100% of approximately $184.0 million, before $2.8 million of closing costs incurred by UDR at acquisition (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition, resulting in 0 gain upon consolidation, and increased its real estate assets owned by approximately $156.0 million and recorded approximately $5.9 million of in-place lease intangibles.

In November 2019, the Company acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife operating communities, 1 development community and 4 land parcels valued at $1.1 billion, or $564.2 million at UDR’s share, and sold its approximately 50% ownership interest in 5 UDR/MetLife operating communities valued at $645.8 million, or $322.9 million at UDR’s share, to MetLife, and recognized a net gain on sale of $114.9 million at our share. The Company paid $109.2 million directly to MetLife to complete the transaction. As a result, the Company consolidated the 10 operating communities, 1 development community and 4 land parcels, and they are no longer accounted for as equity method investments in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in 0 gain

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

upon consolidation and increased its real estate assets owned by approximately $977.8 million and recorded approximately $30.0 million of in-place lease intangibles. In connection with the acquisition, the Company assumed 6 secured fixed rate mortgage notes payable and 1 credit facility secured by 4 communities with a combined outstanding balance of $518.4 million and estimated fair value of $551.8 million. The Company recorded the debt at its fair value in Secured debt, net on the Consolidated Balance Sheets.

The following table summarizes the 10 communities, 1 development community and 4 land parcels acquired from the UDR/MetLife II and the UDR/MetLife Vitruvian Park^® joint ventures:

Property	Type	Number of Homes	Location
Strata	Operating Community	163	San Diego, CA
Crescent Falls Church	Operating Community	214	Washington, D.C.
Charles River Landing	Operating Community	350	Boston, MA
Lodge at Ames Pond	Operating Community	364	Boston, MA
Lenox Farms	Operating Community	338	Boston, MA
Towson Promenade	Operating Community	379	Baltimore, MD
Savoye	Operating Community	394	Addison, TX
Savoye2	Operating Community	351	Addison, TX
Fiori on Vitruvian Park ®	Operating Community	391	Addison, TX
Vitruvian West	Operating Community	383	Addison, TX
Vitruvian West Phase 2 (a)	Development Community	366	Addison, TX
Vitruvian Park ®	4 Land Parcels	N/A	Addison, TX

(a) The number of apartment homes for the community under development presented in the table above is based on the projected number of total homes upon completion of development. As of December 31, 2019, no apartment homes had been completed.

In January 2020, the Company acquired a 294 home operating community located in Tampa, Florida for approximately $85.2 million.

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. In connection with the acquisition, the Company repaid approximately $35.6 million of joint venture construction financing. As a result, in January 2020, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships).

During the year ended December 31, 2018, the Company did not have any acquisitions of real estate.

Dispositions

In June 2019, the Company sold a parcel of land located in Los Angeles, California for $38.0 million, resulting in a gain of approximately $5.3 million. Prior to the sale, the parcel of land was subject to a ground lease, under which UDR was the lessor, scheduled to expire in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the ground lease term. During the second quarter, the lessee exercised the purchase option resulting in this sale by the Company and the ground lease being terminated.

Prior to the sale, the purchase option was not deemed to be a bargain purchase option. This ground lease existed as of the adoption of the new lease accounting guidance on January 1, 2019 and we did not reassess lease classification per the practical expedient provided by the standard. As a result, this ground lease continued to be classified as an operating lease and the land parcel subject to the ground lease continued to be recognized in Real estate held for investment on our Consolidated Balance Sheets until the sale in June 2019.

In February 2018, the Company sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

In December 2018, the Company sold an operating community in Fairfax, Virginia with a total of 604 apartment homes for gross proceeds of $160.0 million, resulting in a gain of $65.9 million.

In February 2017, the Company sold a parcel of land in Richmond, Virginia for gross proceeds of $3.5 million, resulting in a gain of $2.1 million.

In December 2017, the Company sold 2 operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in a gain of $41.3 million.

Developments

At December 31, 2019, the Company was developing 3 wholly-owned communities totaling 878 homes, none of which have been completed, with a budget of $278.5 million, in which we have a carrying value of $69.8 million. The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2022.

Other Activity

In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax deferred Section 1031 exchange. 

Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.

Amortization of Intangible Assets

The following table provides a summary of the aggregate amortization for the intangible assets acquired in the acquisition of real estate for each of the next five years and thereafter (in thousands):

	Unamortized Balance as of December 31, 2019		2020		2021		2022		2023		2024		Thereafter
Real estate intangible assets, net (a)	$	37,844	$	3,062	$	2,840	$	2,740	$	2,643	$	2,525	$	24,034
In-place lease intangible assets, net (b)		43,614		41,179		501		470		386		358		720
Total	$	81,458	$	44,241	$	3,341	$	3,210	$	3,029	$	2,883	$	24,754

(a) Real estate intangible assets, net is recorded net of accumulated amortization of $2.7 million in Real estate held for investment, net on the Consolidated Balance Sheets. For the year ended December 31, 2019, $2.7 million of amortization expense was recorded in Depreciation and Amortization on the Consolidated Statement of Operations.

(b) In-place lease intangible assets, net is recorded net of accumulated amortization of $23.6 million in Other assets on the Consolidated Balance Sheets. For the year ended December 31, 2019, $20.8 million was recorded in Depreciation and Amortization on the Consolidated Statement of Operations.

F - 23

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

4. VARIABLE INTEREST ENTITIES

The Company has determined that the Operating Partnership and DownREIT Partnership are VIEs as the limited partners lack substantive kick-out rights and substantive participating rights. The Company has concluded that it is the primary beneficiary of, and therefore consolidates, the Operating Partnership and DownREIT Partnership based on its role as the sole general partner of the Operating Partnership and DownREIT Partnership. The Company’s role as community manager and its equity interests give us the power to direct the activities that most significantly impact the economic performance and the obligation to absorb potentially significant losses or the right to receive potentially significant benefits of the Operating Partnership and DownREIT Partnership.

See the consolidated financial statements of the Operating Partnership presented within this Report and Note 4, Unconsolidated Entities, to the Operating Partnership’s consolidated financial statements for condensed summarized financial information of the DownREIT Partnership.

5. JOINT VENTURES AND PARTNERSHIPS

UDR has entered into joint ventures and partnerships with unrelated third parties to own, operate, acquire, renovate, develop, redevelop, dispose of, and manage real estate assets that are either consolidated and included in Real estate owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net, on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are typically limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships.

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships.

F - 24

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2019 and 2018 (dollars in thousands):

				Number of
		Number of		Apartment
		Properties		Homes	Investment at				UDR’s Ownership Interest
	Location of	December 31,		December 31,	December 31,		December 31,		December 31,		December 31,
Joint Venture	Properties	2019		2019	2019		2018		2019		2018
Operating and development:
UDR/MetLife I	Los Angeles, CA	1	operating community	150	$	28,812	$	30,839	50.0	%	50.0	%
UDR/MetLife II (a)	Various	7	operating communities	1,250		150,893		296,807	50.0	%	50.0	%
Other UDR/MetLife Joint Ventures	Various	5	operating communities	1,437		98,441		115,668	50.6	%	50.6	%
UDR/MetLife Vitruvian Park® (a)	Addison, TX	—		—		—		71,730	—	%	50.0	%
UDR/KFH (b)	Washington, D.C.	—		—		—		5,507	—	%	30.0	%
West Coast Development Joint Ventures	Los Angeles, CA	1	operating community	293		34,907		36,143	47.0	%	47.0	%
Investment in and advances to unconsolidated joint ventures, net, before preferred equity investments and other investments					$	313,053	$	556,694

							Investment at				Income from investments
Developer Capital Program				Years To	UDR		December 31,		December 31,		Year Ended December 31,
and Other Investments (c)	Location	Rate		Maturity	Commitment (d)		2019		2018		2019		2018		2017
Preferred equity investments:
West Coast Development Joint Ventures (e)	Hillsboro, OR	6.5	%	N/A	$	—	$	17,064	$	65,417	$	(447)	$	865	$	23,230
1532 Harrison	San Francisco, CA	11.0	%	2.5		24,645		30,585		24,986		3,147		2,228		511
1200 Broadway (f)	Nashville, TN	8.0	%	2.8		55,558		63,958		58,982		4,888		2,970		370
Junction (g)	Santa Monica, CA	12.0	%	2.6		8,800		10,379		9,211		1,169		406		—
1300 Fairmount (h)	Philadelphia, PA	Variable		3.6		51,393		51,215		8,318		3,098		159		—
Essex (i)	Orlando, FL	12.5	%	3.7		12,886		14,804		9,940		1,639		258		—
Modera Lake Merritt (j)	Oakland, CA	9.0	%	4.3		27,250		22,653		—		1,067		—		—
Other investments:
The Portals	Washington, D.C.	11.0	%	1.4		38,559		48,181		43,167		5,012		3,692		839
Other investment ventures	N/A	N/A		N/A	$	18,000		13,598		4,154	$	4,053	$	(267)	$	(30)
Total Developer Capital Program and Other Investments								272,437		224,175
Total investment in and advances to unconsolidated joint ventures, net (k)							$	585,490	$	780,869

(a) In November 2019, the Company acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife operating communities, 1 development community and 4 land parcels valued at $1.1 billion, or $564.2 million at UDR’s share, and sold its approximately 50% ownership interest in 5 UDR/MetLife operating communities valued at $645.8 million, or $322.9 million at UDR’s share, to MetLife, and recognized a net gain on sale of $114.9 million at our share, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. As a result, the Company consolidated the 10 operating communities, 1 development community and 4 land parcels, and they are no longer accounted for as equity method investments in an unconsolidated joint venture (see Note 3, Real Estate Owned). Upon closing of the transaction, the UDR/MetLife II joint venture holds 7 operating communities and the UDR/MetLife Vitruvian Park^® joint venture no longer holds any properties.

(b) As of January 1, 2019, the joint venture held 3 operating communities.

During 2019, the joint venture sold 2 communities with 368 homes, located in Arlington, Virginia, and Silver Spring, Maryland, for a combined sales price of approximately $118.3 million. As a result, the Company recorded total gains on the sales of approximately $10.6 million, which are included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations.

In August 2019, the joint venture sold the third community, a 292 home operating community located in Washington, D.C., directly to the Company for a sales price at 100% of approximately $184.0 million, before $2.8 million of closing costs incurred by UDR at acquisition. The Company deferred its share of the gain on sale of approximately $23.8 million and recorded it as a reduction of the carrying amount of real estate assets owned (see Note 3, Real Estate Owned).

(c) The Developer Capital Program is the program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments that may receive a fixed yield on the investment and may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options.

F - 25

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

(d) Represents UDR’s maximum funding commitment only and therefore excludes other activity such as income from investments.

(e) In January 2019, the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located in Anaheim, California, for a cash purchase price of approximately $33.5 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). In connection with the purchase, the construction loan on the community was paid in full.

In January 2019, the Company increased its ownership interest from 49% to 100% in a 155 apartment home operating community located in Seattle, Washington, for a cash purchase price of approximately $20.0 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). In connection with the purchase, the construction loan on the community was paid in full.

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. As a result, in January 2020, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned).

(f) The Company’s preferred equity investment receives a variable percentage of the value created from the project upon a capital or liquidating event.

(g) In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 66 apartment home community located in Santa Monica, CA. The Company’s preferred equity investment of $8.8 million earns a preferred return of 12.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.

(h) In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 471 apartment home community located in Philadelphia, PA. The Company’s preferred equity investment of up to $51.4 million earns a preferred return between 8.5% and 12.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.

(i) In September 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 330 apartment home community located in Orlando, FL. The Company’s preferred equity investment of up to $12.9 million earns a preferred return of 12.5% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.

(j) In April 2019, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 173 apartment home community located in Oakland, CA. The Company’s preferred equity investment of up to $27.3 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.

(k) As of December 31, 2019, the Company’s negative investment in 13^th and Market Properties LLC of $2.8 million is included in Other UDR/MetLife Joint Ventures in the table above and recorded in Accounts payable, accrued expenses, and other liabilities on the Consolidated Balance Sheet.

As of December 31, 2019 and 2018, the Company had deferred fees of $9.0 million and $11.0 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.

F - 26

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The Company recognized management fees of $14.0 million, $11.6 million, and $11.4 million during the years ended December 31, 2019, 2018, and 2017, respectively, for management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.

The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2019, 2018, and 2017.

Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

							UDR/
					Other		MetLife				West Coast
As of and For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2019	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	9,834	$	151,226	$	64,273	$	26,398	$	12,217	$	14,058	$	278,006
Property operating expenses		4,533		54,445		22,019		12,541		4,982		6,829		105,349
Real estate depreciation and amortization		5,787		44,077		35,001		9,832		5,746		5,440		105,883
Gain/(loss) on sale of real estate (a)		—		—		—		—		115,516		—		115,516
Operating income/(loss)		(486)		52,704		7,253		4,025		117,005		1,789		182,290
Interest expense		(3,070)		(44,825)		(17,399)		(5,948)		(4,300)		(4,656)		(80,198)
Net gain/(loss) on revaluation of assets and liabilities (b)		—		458,195		—		25,711		—		—		483,906
Other income/(loss)		—		—		—		—		—		159		159
Net income/(loss)	$	(3,556)	$	466,074	$	(10,146)	$	23,788	$	112,705	$	(2,708)	$	586,157
Condensed Balance Sheets:
Total real estate, net	$	120,055	$	663,492	$	621,335	$	—	$	—	$	140,224	$	1,545,106
Cash and cash equivalents		2,317		4,208		7,973		—		—		5,692		20,190
Other assets		1,053		9,777		5,400		—		—		1,305		17,535
Total assets		123,425		677,477		634,708		—		—		147,221		1,582,831
Third party debt, net		70,890		425,303		454,972		—		—		90,498		1,041,663
Accounts payable and accrued liabilities		4,037		9,303		9,757		—		—		3,440		26,537
Total liabilities		74,927		434,606		464,729		—		—		93,938		1,068,200
Total equity	$	48,498	$	242,871	$	169,979	$	—	$	—	$	53,283	$	514,631

(a) Represent the gains on the sale of 3 operating communities at the UDR/KFH joint venture level, as described in note (b) to the table above summarizing the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net.

(b) Represent the net gains on the revaluation of the assets and liabilities to fair value of 15 operating communities at the UDR/MetLife II joint venture level and 1 development community and 4 land parcels at the UDR/MetLife Vitruvian Park® joint venture level prior to their distribution to the Company or MetLife in November 2019, as described in note (a) to the table above summarizing the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net. The net gain on revaluation of assets and liabilities to fair value was recognized at the joint venture level as the respective joint ventures distributed their equity interests in the real estate to the Company or MetLife at fair value.

For the approximately 50% ownership interest acquired in the 10 operating communities, 1 development community and 4 land parcels described above, the Company deferred its share of the net gain on revaluation of approximately $131.5 million and recorded it as a reduction of the carrying amount of real estate owned. (see Note 3, Real Estate Owned). For the 50% ownership interest acquired in the 5 communities by MetLife, the Company recognized a net gain on sale of $114.9 million at our share, when the communities were disposed of by the UDR/MetLife II joint venture.

F - 27

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

							UDR/
					Other		MetLife				West Coast
As of and For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2018	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	3,187	$	158,738	$	61,967	$	26,096	$	20,703	$	16,392	$	287,083
Property operating expenses		3,066		56,403		21,998		13,732		8,318		8,830		112,347
Real estate depreciation and amortization		3,392		44,721		35,437		9,495		14,487		7,679		115,211
Operating income/(loss)		(3,271)		57,614		4,532		2,869		(2,102)		(117)		59,525
Interest expense		(1,872)		(49,118)		(17,408)		(6,051)		(6,739)		(6,175)		(87,363)
Other income/(loss)		—		—		—		—		—		148		148
Net income/(loss)	$	(5,143)	$	8,496	$	(12,876)	$	(3,182)	$	(8,841)	$	(6,144)	$	(27,690)
Condensed Balance Sheets:
Total real estate, net	$	124,112	$	1,609,903	$	653,729	$	315,541	$	182,970	$	281,729	$	3,167,984
Cash and cash equivalents		698		11,192		8,242		8,865		1,794		8,614		39,405
Other assets		1,074		18,670		4,904		2,241		1,320		1,610		29,819
Total assets		125,884		1,639,765		666,875		326,647		186,084		291,953		3,237,208
Third party debt, net		70,833		1,089,231		454,647		162,131		165,699		171,879		2,114,420
Accounts payable and accrued liabilities		1,935		21,258		9,753		14,968		1,860		9,943		59,717
Total liabilities		72,768		1,110,489		464,400		177,099		167,559		181,822		2,174,137
Total equity	$	53,116	$	529,276	$	202,475	$	149,548	$	18,525	$	110,131	$	1,063,071

							UDR/
					Other		MetLife				West Coast
For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2017	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	—	$	156,920	$	48,032	$	23,025	$	20,327	$	18,812	$	267,116
Property operating expenses		93		52,450		21,908		11,839		8,159		9,520		103,969
Real estate depreciation and amortization		—		45,144		32,625		7,169		14,480		7,387		106,805
		(17)		(609)		—		—		—		72,216		71,590
Operating income/(loss)		(110)		58,717		(6,501)		4,017		(2,312)		74,121		127,932
Interest expense		—		(50,603)		(13,894)		(5,030)		(5,264)		(4,038)		(78,829)
Other income/(loss)		—		—		—		—		—		439		439
Net income/(loss)	$	(110)	$	8,114	$	(20,395)	$	(1,013)	$	(7,576)	$	69,644	$	48,664

Other than the West Coast Development Joint Ventures, the condensed summary financial information relating to the entities in which we have an interest through the Developer Capital Program is not included in the tables above. As of and for the year ended December 31, 2019, combined total assets, liabilities, equity, revenues, expenses, and other income/(loss), for such entities were $521.0 million, $135.0 million, $386.0 million, $11.2 million, $3.5 million, and $26.4 million, respectively. As of and for the year ended December 31, 2018, combined total assets, liabilities, equity, revenues, and expenses for such entities were $248.1 million, $22.5 million, $225.6 million, $6.0 million, and $1.8 million, respectively. For the year ended December 31, 2017, combined total revenues and expenses for such entities were $7.8 million, and $9.5 million, respectively.

F - 28

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

6. LEASES

Lessee - Ground and Office Leases

UDR owns 6 communities that are subject to ground leases, under which UDR is the lessee, expiring between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases existed as of the adoption of the new lease accounting guidance on January 1, 2019 and we did not reassess lease classification per the practical expedient provided by the standard. As such, these leases will continue to be classified as operating leases through the lease term expiration. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. We currently do not hold any finance leases.

As of December 31, 2019, the Operating lease right-of-use assets was $204.2 million and the Operating lease liabilities was $198.6 million on our Consolidated Balance Sheets related to our ground leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred.

As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Company’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral.

The weighted average remaining lease term for these leases was 44.7 years at December 31, 2019 and the weighted average discount rate was 5.0% at December 31, 2019.

Future minimum lease payments and total operating lease liabilities from our ground leases as of December 31, 2019 are as follows (dollars in thousands):

	Ground Leases
2020	$	12,442
2021		12,442
2022		12,442
2023		12,442
2024		12,442
Thereafter		455,221
Total future minimum lease payments (undiscounted)		517,431
Difference between future undiscounted cash flows and discounted cash flows		(318,873)
Total operating lease liabilities (discounted)	$	198,558

For purposes of recognizing our ground lease contracts, the Company uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. If there is a contingency upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Company will remeasure the right-of-use asset and lease liability on the reset date. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $111.1 million due to future minimum payments on 2 of our ground leases becoming fixed for the remainder of their terms.

F - 29

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The components of operating lease expenses from our ground leases and office space were as follows (dollars in thousands):

	Year Ended
	December 31, 2019
Ground lease expense:
Contractual ground lease rent expense	$	8,272
Variable ground lease expense (a)		664
Total ground lease expense (b)		8,936
Contractual office space lease expense (b)		70
Total operating lease expense (c) (d)	$	9,006

(a) Variable ground lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.

(b) Ground lease and office space lease expense is reported within the line item Other operating expenses and office space expense is recorded in General and administrative on the Consolidated Statements of Operations.

(c) For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities amortized by $1.2 million and $0.8 million, respectively. The Company recorded $0.4 million of total operating lease expense during the year ended December 31, 2019, due to the net impact of the amortization. 

(d) No leases qualified for the short-term lease exception during the year ended December 31, 2019. As such, short-term lease expense was 0 for the year ended December 31, 2019.

As of December 31, 2018, in accordance with previously applicable lease accounting guidance, ASC 840, Leases, the future minimum lease payments from our ground leases and office space were as follows (dollars in thousands):

	Ground
	Leases		Office Space
2019	$	4,901	$	76
2020		4,901		76
2021		4,901		32
2022		4,901		—
2023		4,901		—
Thereafter		313,918		—
Total	$	338,423	$	184

UDR incurred $7.3 million and $6.2 million of ground rent expense for the years ended December 31, 2018 and 2017, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. The Company incurred $0.2 million and $0.2 million of rent expense related to office space for the years ended December 31, 2018 and 2017, respectively. These costs are included in General and Administrative on the Consolidated Statements of Operations.

Lessor - Apartment Home, Retail and Commercial Space Leases

UDR’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2019, our apartment home leases generally have initial terms of 12 months or less and represent approximately 98.1% of our total lease revenue. As of December 31, 2019, our retail and commercial space leases generally have initial terms of between 5 and 15 years and represent approximately 1.9% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential increases in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates due to market-based or fixed-price renewal options and certain other conditions. (See Note 16, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.)

We previously owned a parcel of land subject to a ground lease under which UDR was the lessor, expiring in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

ground lease term. In June 2019, the lessee exercised the purchase option and acquired the parcel of land for $38.0 million. (See Note 3, Real Estate Owned for further discussion.)

Future minimum lease payments from our retail and commercial leases as of December 31, 2019 are as follows (dollars in thousands):

	Retail and Commercial Leases
2020	$	22,568
2021		22,055
2022		20,443
2023		19,057
2024		17,304
Thereafter		78,818
Total future minimum lease payments (a)	$	180,245

(a) We have excluded our apartment home leases from this table as our apartment home leases generally have initial terms of 12 months or less.

Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Company recorded variable percentage rents of $0.4 million during the year ended December 31, 2019.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

7. SECURED AND UNSECURED DEBT, NET

The following is a summary of our secured and unsecured debt at December 31, 2019 and 2018 (dollars in thousands):

	Principal Outstanding				As of December 31, 2019
					Weighted		Weighted
					Average		Average	Number of
	December 31,		December 31,		Interest		Years to	Communities
	2019		2018		Rate		Maturity	Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)	$	884,869	$	417,989	3.61	%	6.2	15
Credit facilities (b)		204,590		90,000	4.90	%	3.0	4
Deferred financing costs and other non-cash adjustments		33,046		(1,343)
Total fixed rate secured debt, net		1,122,505		506,646	3.85	%	5.6	19
Variable Rate Debt
Tax-exempt secured notes payable (c)		27,000		94,700	1.79	%	12.2	1
Deferred financing costs		(64)		(119)
Total variable rate secured debt, net		26,936		94,581	1.79	%	12.2	1
Total Secured Debt, net		1,149,441		601,227	3.80	%	5.7	20
Unsecured Debt:
Variable Rate Debt
Borrowings outstanding under unsecured credit facility due January 2023 (d) (m)		—		—	—	%	3.1
Borrowings outstanding under unsecured commercial paper program due January 2020 (e) (m)		300,000		101,115	1.99	%	0.1
Borrowings outstanding under unsecured working capital credit facility due January 2021 (f)		16,583		16	2.59	%	1.0
Term Loan due September 2023 (d) (m)		35,000		35,000	2.59	%	3.8
Fixed Rate Debt
3.70% Medium-Term Notes due October 2020 (net of discounts of $0 and $14, respectively) (k) (m)		—		299,986	—	%	—
4.63% Medium-Term Notes due January 2022 (net of discounts of $0 and $1,087, respectively) (l) (m)		—		398,913	—	%	—
1.93% Term Loan due September 2023 (d) (m)		315,000		315,000	1.93	%	3.8
3.75% Medium-Term Notes due July 2024 (net of discounts of $470 and $574, respectively) (g) (m)		299,530		299,426	3.75	%	4.5
8.50% Debentures due September 2024		15,644		15,644	8.50	%	4.7
4.00% Medium-Term Notes due October 2025 (net of discounts of $396 and $465, respectively) (h) (m)		299,604		299,535	4.00	%	5.8
2.95% Medium-Term Notes due September 2026 (m)		300,000		300,000	2.95	%	6.7
3.50% Medium-Term Notes due July 2027 (net of discounts of $529 and $600, respectively) (l)		299,471		299,400	3.50	%	7.5
3.50% Medium-Term Notes due January 2028 (net of discounts of $954 and $1,072, respectively) (m)		299,046		298,928	3.50	%	8.0
4.40% Medium-Term Notes due January 2029 (net of discounts of $5 and $6, respectively) (i) (m)		299,995		299,994	4.40	%	9.1
3.20% Medium-Term Notes due January 2030 (net of premiums of $2,281 and $0, respectively) (j) (l) (m)		402,281		—	3.20	%	10.0
3.00% Medium-Term Notes due August 2031 (net of discounts of $1,123 and $0, respectively) (k) (m)		398,877		—	3.00	%	11.6
3.10% Medium-Term Notes due November 2034 (net of discounts of $1,309 and $0, respectively) (l) (m)		298,691		—	3.10	%	14.8
Other		13		16
Deferred financing costs		(21,652)		(16,413)
Total Unsecured Debt, net		3,558,083		2,946,560	3.27	%	7.5
Total Debt, net	$	4,707,524	$	3,547,787	3.43	%	7.1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of December 31, 2019, secured debt encumbered $2.1 billion or 16.8% of UDR’s total real estate owned based upon gross book value ($10.5 billion or 83.2% of UDR’s real estate owned based on gross book value is unencumbered).

(a) At December 31, 2019, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2020 through February 2030 and carry interest rates ranging from 2.70% to 4.35%.

During the year ended December 31, 2019, the Company refinanced a $90.0 million credit facility with Fannie Mae to a fixed rate mortgage due in October 2029 and took out a new mortgage of $72.5 million due in February 2030. Interest payments are due monthly at interest rates of 2.70% and 3.10%, respectively. The refinancing was accounted for as a debt modification.

The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par value to interest expense over the life of the underlying debt instrument.

In November 2019, the Company assumed secured fixed rate mortgage notes payable with an outstanding balance of $313.4 million and a fair value of $332.5 million in connection with the acquisition of approximately 50% ownership interest not previously owned in 6 operating communities from the UDR/MetLife joint venture. The 6 mortgages had outstanding balances ranging from $32.6 million to $94.1 million and carry interest rates from 3.25% to 4.12% (see Note 3, Real Estate Owned).

(b) During the year ended December 31, 2019, the Company prepaid the $90.0 million outstanding balance under its secured credit facility with Fannie Mae from proceeds received from the refinancing of the debt.

In November 2019, the Company assumed a secured credit facility with New York Life with an outstanding balance of $205.0 million and a fair value of $219.3 million in connection with the acquisition of the approximately 50% ownership not previously owned in 4 operating communities from the UDR/MetLife joint venture. The credit facility is a pooled facility and secured by those 4 properties. The credit facility is due in January 2023 and has an interest rate of 4.90% (see Note 3, Real Estate Owned).

Further information related to the credit facility is as follows (dollars in thousands):

	December 31,			December 31,
	2019			2018
Borrowings outstanding	$	204,590		$	90,000
Weighted average borrowings during the period ended		94,098			253,813
Maximum daily borrowings during the period ended		204,590			314,869
Weighted average interest rate during the period ended		4.3	%		4.7	%
Weighted average interest rate at the end of the period		4.9	%		4.0	%

During the years ended December 31, 2019, 2018, and 2017, the Company had $3.0 million, $3.0 million, and $3.0 million, respectively, of amortization of the fair market adjustment of debt assumed in the acquisition of properties inclusive of its fixed rate mortgage notes payable and credit facilities, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $35.3 million and $5.0 million at December 31, 2019 and 2018, respectively.

(c) The variable rate mortgage note payable secures a tax-exempt housing bond issue that matures in March 2032. Interest on this note is payable in monthly installments. As of December 31, 2019, the variable interest rate

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

on the mortgage note was 1.79%. During the year ended December 31, 2019, the Company paid off a $67.7 million variable rate mortgage note due on August 1, 2019.

(d) The Company has a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan (the “Term Loan”). The credit agreement for these facilities (the “Credit Agreement”) allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with 2 six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 75 to 145 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 80 to 165 basis points.

The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Credit Agreement also includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable.

The following is a summary of short-term bank borrowings under the Revolving Credit Facility at December 31, 2019 and 2018 (dollars in thousands):

	December 31,			December 31,
	2019			2018
Total revolving credit facility	$	1,100,000		$	1,100,000
Borrowings outstanding at end of period (1)		—			—
Weighted average daily borrowings during the period ended		55			—
Maximum daily borrowings during the period ended		20,000			—
Weighted average interest rate during the period ended		2.6	%		—	%
Interest rate at end of the period		—	%		—	%

(1) Excludes $2.9 million and $3.3 million of letters of credit at December 31, 2019 and 2018, respectively.

(e) The Company has an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500.0 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of the Company’s other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership.

The following is a summary of short-term bank borrowings under the unsecured commercial paper program at December 31, 2019 and 2018 (dollars in thousands):

	December 31,			December 31,
	2019			2018
Total unsecured commercial paper program	$	500,000		$	500,000
Borrowings outstanding at end of period		300,000			101,115
Weighted average daily borrowings during the period ended		173,353			344,235
Maximum daily borrowings during the period ended		435,000			440,000
Weighted average interest rate during the period ended		2.5	%		2.4	%
Interest rate at end of the period		2.0	%		2.9	%

(f) The Company has a working capital credit facility, which provides for a $75.0 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 15, 2021. Based on the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points. Depending on the Company’s credit rating, the margin ranges from 75 to 145 basis points.

The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at December 31, 2019 and 2018 (dollars in thousands):

	December 31,			December 31,
	2019			2018
Total working capital credit facility	$	75,000		$	75,000
Borrowings outstanding at end of period		16,583			16
Weighted average daily borrowings during the period ended		23,487			26,101
Maximum daily borrowings during the period ended		66,170			64,633
Weighted average interest rate during the period ended		3.1	%		2.9	%
Interest rate at end of the period		2.6	%		3.3	%

(g) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $100.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 3.69%.

(h) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.53%.

(i) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $150.0 million of this debt. The all in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.27%.

(j) In July 2019, the Company issued $300.0 million of 3.20% senior unsecured medium-term notes due January 15, 2030. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The notes were priced at 99.66% of the principal amount at issuance. The Company previously entered into forward starting interest rate swaps to hedge against the interest rate risk of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 3.42%. The Company used the net proceeds for the repayment of debt, including amounts outstanding under the Company’s commercial paper program and Working Capital Credit Facility, and for other general corporate purposes. The Operating Partnership is the guarantor of this debt.

(k) In August 2019, the Company issued $400.0 million of 3.00% senior unsecured medium-term notes due August 15, 2031. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020. The notes were priced at 99.71% of the principal amount at issuance. In combination with the issuance, the Company entered into a treasury lock agreement to hedge against interest rate risk on $150.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury lock, was 3.01%. The Company used the net proceeds for the repayment of debt, including the repayment of all $300.0 million aggregate principal amount (plus the make-whole amount of approximately $5.4 million) of its 3.70% senior unsecured medium-term notes due October 1, 2020, and to fund acquisitions and for other general corporate purposes.

(l) In October 2019, the Company issued $100.0 million of 3.20% senior unsecured medium-term notes due 2030 and $300.0 million of 3.10% senior unsecured medium-term notes due 2034. Interest is payable semi-annually in arrears on January 15 and July 15 for the 2030 notes, and May 1 and November 1 for the 2034 notes. The 2030 notes were priced at 103.32% of the principal amount at issuance, and the 2034 notes were priced at 99.56% of the principal amount at issuance. In combination with the issuance, the Company entered into treasury lock agreements to hedge against interest rate risk on all of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury locks, was 3.24% for the 2030 notes and 3.13% for the 2034 notes. The Company used the net proceeds for the repayment of all $400.0 million aggregate principal amount (plus the make-whole amount of approximately $22.0 million and accrued and unpaid interest) of its 4.63% senior unsecured medium-term notes due January 2022. The 2034 notes were issued as “green” bonds and, as a result, the Company allocated the net proceeds from the sale of the 2034

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

notes to fund eligible green projects, including previously incurred development costs related to properties that have received at least a LEED Silver certification. The Operating Partnership is the guarantor of both the 2030 notes and the 2034 notes.

The 2030 notes are a further issuance of, and form a single series with, the $300.0 million aggregate principal amount of the Company’s 3.20% notes due 2030 that were issued in July 2019. As of the completion of the offering, the aggregate principal amount of outstanding 2030 notes was $400.0 million.

(m) The Operating Partnership is a guarantor of this debt.

The aggregate maturities, including amortizing principal payments on secured and unsecured debt, of total debt for the next ten years subsequent to December 31, 2019 are as follows (dollars in thousands):

	Total Fixed		Total Variable		Total		Total		Total
Year	Secured Debt		Secured Debt		Secured Debt		Unsecured Debt		Debt
2020	$	110,645	$	—	$	110,645	$	300,000	$	410,645
2021		3,797		—		3,797		16,583		20,380
2022		3,945		—		3,945		—		3,945
2023		310,873		—		310,873		350,000		660,873
2024		95,280		—		95,280		315,644		410,924
2025		173,189		—		173,189		300,000		473,189
2026		51,070		—		51,070		300,000		351,070
2027		1,111		—		1,111		300,000		301,111
2028		122,465		—		122,465		300,000		422,465
2029		144,584		—		144,584		300,000		444,584
Thereafter		72,500		27,000		99,500		1,100,000		1,199,500
Subtotal		1,089,459		27,000		1,116,459		3,582,227		4,698,686
Non-cash (a)		33,046		(64)		32,982		(24,144)		8,838
Total	$	1,122,505	$	26,936	$	1,149,441	$	3,558,083	$	4,707,524

(a) Includes the unamortized balance of fair market value adjustments, premiums/discounts, and deferred financing costs. For the years ended December 31, 2019 and 2018, the Company amortized $4.2 million and $4.2 million, respectively, of deferred financing costs into Interest expense.

We were in compliance with the covenants of our debt instruments at December 31, 2019.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

8. INCOME/(LOSS) PER SHARE

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

	Year Ended December 31,
	2019		2018		2017
Numerator for income/(loss) per share:
Net income/(loss)	$	199,579	$	221,542	$	132,655
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(14,426)		(18,215)		(10,933)
Net (income)/loss attributable to noncontrolling interests		(188)		(221)		(164)
Net income/(loss) attributable to UDR, Inc.		184,965		203,106		121,558
Distributions to preferred stockholders — Series E (Convertible)		(4,104)		(3,868)		(3,708)
Income/(loss) attributable to common stockholders - basic and diluted	$	180,861	$	199,238	$	117,850
Denominator for income/(loss) per share:
Weighted average common shares outstanding		285,509		268,513		267,567
Non-vested restricted stock awards		(262)		(334)		(543)
Denominator for basic income/(loss) per share		285,247		268,179		267,024
Incremental shares issuable from assumed conversion of stock options, unvested LTIP Units, and unvested restricted stock		768		1,304		1,806
Denominator for diluted income/(loss) per share		286,015		269,483		268,830
Income/(loss) per weighted average common share:
Basic	$	0.63	$	0.74	$	0.44
Diluted	$	0.63	$	0.74	$	0.44

Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units (“LTIP Units”), unvested restricted stock and continuous equity program forward sales agreements. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods. For the years ended December 31, 2019, 2018, and 2017, the effect of the conversion of the OP Units, DownREIT Units, LTIP Units and the Company’s Series E preferred stock was not dilutive and therefore not included in the above calculation.

In July 2017, the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20.0 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into in April 2017, which replaced the prior at-the-market equity offering program entered into in April 2012. During the year ended December 31, 2019, the Company sold 7.0 million shares of common stock through its ATM program for aggregate gross proceeds of approximately $316.5 million at a weighted average price per share of $45.29. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $4.0 million, were approximately $312.3 million, which were primarily used to fund the Company’s recent acquisitions.

In connection with any forward sales agreement under the Company’s ATM program, the relevant forward purchasers will borrow from third parties and, through the relevant sales agent, acting in its role as forward seller, sell a number of shares of the Company’s common stock equal to the number of shares underlying the agreement. The Company does not initially receive any proceeds from any sale of borrowed shares by the forward seller.

In September 2019, the Company entered into a forward sales agreement under its ATM program for 1.3 million shares of common stock at an initial forward price per share of $47.68. The initial forward price per share received by the Company upon settlement was determined on the applicable settlement date based on adjustments made

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward sales agreement.

In December 2019, the Company settled all 1.3 million shares sold under the forward sales agreement at a forward price per share of $47.41, which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of UDR common stock and commissions paid to sales agents of approximately $0.6 million, for net proceeds of $63.5 million. Aggregate net proceeds from such sales, after deducting related expenses, was $63.2 million.

As of December 31, 2019, we had 11.7 million shares of common stock available for future issuance under the ATM program.

In August 2019, the Company sold 7.5 million shares of its common stock for aggregate gross proceeds of approximately $349.9 million at a price per share of $46.65. Aggregate net proceeds from the sale, after offering-related expenses, were approximately $349.8 million, which were used for planned acquisitions of assets, working capital and general corporate purposes.

The following table sets forth the additional shares of common stock outstanding by equity instrument if converted to common stock for each of the years ended December 31, 2019, 2018, and 2017 (in thousands):

	Year Ended December 31,
	2019	2018	2017
OP/DownREIT Units	22,773	24,548	24,821
Convertible preferred stock	3,011	3,011	3,021
Stock options, unvested LTIP Units, and unvested restricted stock	768	1,304	1,806

9. STOCKHOLDERS’ EQUITY

UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as defined in the prospectus. The Company had the ability to issue 350.0 million shares of common stock and 50.0 million shares of preferred shares as of December 31, 2019.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The following table presents the changes in the Company’s issued and outstanding shares of common and preferred stock for the years ended December 31, 2019, 2018 and 2017 (shares in thousands)

	Common	Preferred Stock
	Stock	Series E	Series F
Balance at December 31, 2016	267,259	2,797	16,196
Issuance/(forfeiture) of common and restricted shares, net	70	—	—
Issuance of common shares through public offering	87	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	8	—	—
Conversion of Series E Cumulative Convertible shares	17	(16)	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	381	—	—
Forfeiture of Series F shares	—	—	(344)
Balance at December 31, 2017	267,822	2,781	15,852
Issuance/(forfeiture) of common and restricted shares, net	47	—	—
Issuance of common shares upon exercise of stock options	772
Issuance of common shares through public offering	7,150
Repurchase of common shares	(593)
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	11	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	337	—	—
Forfeiture of Series F shares	—	—	(50)
Balance at December 31, 2018	275,546	2,781	15,802
Issuance/(forfeiture) of common and restricted shares, net	50	—	—
Issuance of common shares through public offering	7,500	—	—
Issuance of common shares though ATM program	6,988	—	—
Issuance of common shares through forward sales agreement	1,339	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	1,969	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	1,196	—	—
Forfeiture of Series F shares	—	—	(1,111)
Balance at December 31, 2019	294,588	2,781	14,691

Common Stock

The Company has an equity distribution agreement which allows it from time to time, through its sales agents, to offer and sell up to 20.0 million shares of its common stock. Sales of such shares will be made by means of ordinary brokers’ transactions on the NYSE at market prices. In July 2017, the Company updated its equity distribution agreement to also permit the entry into separate forward sales agreements to or through its forward purchasers. As of December 31, 2019, 11.7 million shares were available for sale under the continuous equity program.

During the year ended December 31, 2019, the Company entered into the following equity transactions for our common stock:

● Issued 7.0 million shares of common stock through the Company’s ATM program at an average price per share of $45.29, for aggregate net proceeds of approximately $312.3 million;

● Issued 7.5 million shares of common stock through a public offering at a price per share of $46.65, for aggregate net proceeds of approximately $349.8 million;

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

● Issued 1.3 million shares of common stock through a forward sales agreement under the Company’s ATM program at a forward price per share of $47.41, for aggregate net proceeds of approximately $63.2 million after deducting related expenses;

● Issued 0.1 million shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”);

● Issued 2.0 million shares of common stock upon redemption of OP Units, none of which resulted in the forfeiture of Series F Preferred Shares; and

● Issued 1.2 million shares of common stock upon redemption of DownREIT Units, resulting in the forfeiture of 1.1 million Series F Preferred Shares.

Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR’s common distributions for the years ended December 31, 2019, 2018, and 2017 totaled $1.37, $1.29, and $1.24 per share, respectively.

Preferred Stock

The Series E Cumulative Convertible Preferred Stock (“Series E”) has 0 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 at the holder’s option into 1 share of our common stock prior to a “Special Dividend” declared in 2008 (1.083 shares after the Special Dividend). 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.

Distributions declared on the Series E for the years ended December 31, 2019, 2018, and 2017 were $1.48, $1.40, and $1.33 per share, respectively. The Series E is not listed on any exchange. At December 31, 2019 and 2018, a total of 2,780,994 shares of the Series E were outstanding.

UDR is authorized to issue up to 20.0 million shares of the Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of OP Units and DownREIT Units, at a purchase price of $0.0001 per share. OP/DownREIT Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP/DownREIT Unit held. During the years ended December 31, 2019 and 2018, 1.1 million and less than 0.1 million of the Series F shares were forfeited upon the conversion of OP Units and DownREIT Units into Company common stock, respectively.

At December 31, 2019 and 2018, a total of 14.7 million and 15.8 million shares, respectively, of the Series F were outstanding with an aggregate purchase value of $1,469 and $1,580, respectively. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to dividends or any other rights, privileges or preferences.

Distribution Reinvestment and Stock Purchase Plan

UDR’s Distribution Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends and by making additional cash payments, additional shares of UDR’s common stock. From inception through December 31, 2008, shareholders have elected to utilize the Stock Purchase Plan to reinvest their distribution for the equivalent of 10.0 million shares of Company common stock. Shares in the amount of 11.0 million were reserved for issuance under the Stock Purchase Plan as of December 31, 2019. During the year ended December 31, 2019, UDR acquired all shares issued through the open market.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

10. EMPLOYEE BENEFIT PLANS

In May 2001, the stockholders of UDR approved the long term incentive plan (“LTIP”), which supersedes 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 incentive awards to Company directors, employees and outside trustees to promote the success of the Company by linking individual’s compensation via grants of share based payment.

During the year ended December 31, 2015, the LTIP was amended to set forth the terms of new classes of partnership interests in the Operating Partnership designated as LTIP Units. LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value to one-for-one parity with common stock by operation of special tax rules applicable to profits interests. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.

As of December 31, 2019, 19.0 million shares were reserved on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2019, there were 6.3 million common shares available for issuance under the LTIP.

The LTIP contains change of control provisions allowing for the immediate vesting of an award upon certain events such as a merger where UDR is not the surviving entity. Upon the death or disability of an award recipient all outstanding instruments will vest and all restrictions will lapse. The LTIP specifies that in the event of a capital transaction, which includes but is not limited to stock dividends, stock splits, extraordinary cash dividends and spin-offs, the number of shares available for grant in totality or to a single individual is to be adjusted proportionately. The LTIP specifies that when a capital transaction occurs that would dilute the holder of the stock award, prior grants are to be adjusted such that the recipient is no worse as a result of the capital transaction.

A summary of UDR’s LTIP Units and restricted stock activities during the year ended December 31, 2019 is as follows (shares in thousands):

	LTIP Units			Restricted Stock
					Weighted
		Weighted			Average Fair
		Average Fair			Value Per
	Number of	Value Per		Number	Restricted
	LTIP Units	LTIP Unit		of shares	Stock
Balance, December 31, 2018	611	$	37.00	307	$	36.58
Granted	674		39.74	124		38.35
Vested	(427)		39.33	(176)		36.61
Forfeited	—		37.69	(7)		37.73
Balance, December 31, 2019	858	$	37.77	248	$	37.29

As of December 31, 2019, the Company had granted 6.3 million shares of restricted stock and 2.9 million LTIP Units under the LTIP.

Stock Option Plan

The Company has 0 unexercised stock options outstanding and 0 remaining compensation expense related to unvested stock options as of December 31, 2019.

During the years ended December 31, 2019, 2018, and 2017, respectively, we did not recognize any net compensation expense related to outstanding stock options.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Restricted Stock Awards

Restricted stock awards are granted to Company employees, officers, and directors. The restricted stock awards are valued based upon the closing sales price of UDR common stock on the date of grant. Compensation expense is recorded under the straight-line method over the vesting period, which is generally three to four years. Restricted stock awards earn dividends payable in cash. Some of the restricted stock grants are based on the Company’s performance and are subject to adjustment during the initial one year performance period. For the years ended December 31, 2019, 2018, and 2017, we recognized $4.8 million, $4.3 million, and $4.0 million of compensation expense, net of capitalization, related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $3.9 million and had a weighted average remaining contractual life of 1.6 years as of December 31, 2019.

Short-Term Incentive Compensation

In January 2019, certain officers of the Company were awarded a STI Unit grant under the 2019 Long-Term Incentive Program (“2019 LTI”). The STI Unit awards represent short-term incentive compensation for the officers and were valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant in accordance with ASC 718, Compensation - Stock Compensation, or $33.40 per unit, inclusive of a discount due to uncertainty associated with the STI Unit reaching parity with the value of a share of UDR common stock. Compensation expense is recorded under the straight-line method over the vesting period, which is one year. The STI Unit awards are primarily based on the Company’s performance and are subject to adjustment based on performance against predefined metrics during the one-year performance period. For the year ended December 31, 2019, we recognized $7.2 million of compensation expense, net of capitalization, related to the amortization of STI Unit awards. For the years ended December 31, 2018 and 2017, 0 expense was recognized for STI Unit awards. As the STI Unit awards vest over a one-year period, there was 0 remaining unrecognized compensation expense as of December 31, 2019.

Long-Term Incentive Compensation

In January 2019, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2019 LTI. For both restricted stock grants and LTIP Unit grants, 30 percent of the 2019 LTI award is based upon FFO as Adjusted over a one-year period and will vest 50 percent on the one-year anniversary and 50 percent on the two-year anniversary. NaN percent of the 2019 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining NaN percent of the 2019 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $38.39 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $17.47 per unit on the grant date, inclusive of a 9% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $18.24 per unit on the grant date, inclusive of a 5% discount. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $43.63 per share for the comparable apartment REITs component and $43.42 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $20.89 per unit, inclusive of a 5% discount, for the comparable apartment REITs component and $20.79 per unit, inclusive of a 5% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.0%.

In January 2018, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2018 Long-Term Incentive Program (“2018 LTI”). For both restricted stock grants and LTIP Unit grants, 30 percent of the 2018 LTI award is based upon FFO as Adjusted over a one-year period and will vest 50 percent on the one-year anniversary and 50 percent on the two-year anniversary. NaN percent of

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

the 2018 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining NaN percent of the 2018 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $38.06 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $17.13 per unit on the grant date, inclusive of a 10% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $18.08 per unit on the grant date, inclusive of a 5% discount. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $42.18 per share for the comparable apartment REITs component and $40.49 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 17.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $20.12 per unit, inclusive of a 5% discount, for the comparable apartment REITs component and $19.35 per unit, inclusive of a 5% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 17.0%.

In January 2017, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2017 Long-Term Incentive Program (“2017 LTI”). For both restricted stock grants and LTIP Unit grants, 30 percent of the 2017 LTI award is based upon FFO as Adjusted over a one-year period and will vest 50 percent on the one-year anniversary and 50 percent on the two-year anniversary. NaN percent of the 2017 LTI award is based upon FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining 60 percent of the 2017 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and on an absolute basis over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $35.95 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $16.18 per unit on the grant date, inclusive of a 10% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $16.63 per unit on the grant date, inclusive of a 7.5% discount. The portion of the restricted stock grant based upon TSR was valued for compensation expense purposes at $44.26 per share for the relative component and $31.40 per share for the absolute component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.0%. The portion of the LTIP Unit grant based upon TSR was valued for compensation expense purposes at $20.54 per unit, inclusive of a 7.5% discount, for the relative component and $14.71 per unit, inclusive of a 7.5% discount, for the absolute component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.0%.

For the years ended December 31, 2019, 2018, and 2017, we recognized $12.4 million, $9.9 million and $8.9 million, respectively, of compensation expense, net of capitalization, related to the amortization of the awards. The total remaining compensation cost on unvested LTI awards was $9.8 million and had a weighted average remaining contractual life of 1.4 years as of December 31, 2019.

Profit Sharing Plan

Our profit sharing plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, UDR makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in UDR’s Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017, was $1.2 million, $1.3 million, and $1.3 million, respectively.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

11. INCOME TAXES

For 2019, 2018, and 2017, UDR believes that we have complied with the REIT requirements specified in the Code. As such, the REIT would generally not be subject to federal income taxes.

For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, 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. Taxable distributions paid per common share were taxable as follows for the years ended December 31, 2019, 2018 and 2017 (unaudited):

	Year Ended December 31,
	2019		2018		2017
Ordinary income	$	0.981	$	0.774	$	1.018
Qualified ordinary income		0.004		0.006		0.011
Long-term capital gain		0.021		0.058		0.133
Unrecaptured section 1250 gain		0.063		0.233		0.063
Nondividend distributions		0.281		0.207		—
Total	$	1.350	$	1.278	$	1.225

We have a TRS that is subject to federal and state income taxes. A TRS is a C-corporation which has not elected REIT status and as such is subject to United States federal and state income tax. The components of the provision for income taxes are as follows for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Income tax (benefit)/provision
Current
Federal	$	1,466	$	220	$	(1,205)
State		735		396		407
Total current		2,201		616		(798)
Deferred
Federal		1,266		66		568
State		371		6		(10)
Total deferred		1,637		72		558
Total income tax (benefit)/provision	$	3,838	$	688	$	(240)
Classification of income tax (benefit)/provision:
Continuing operations	$	3,838	$	688	$	(240)

Deferred income taxes are provided for the change in temporary differences between the basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes. The expected future tax rates are based

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

upon enacted tax laws. The components of our TRS deferred tax assets and liabilities are as follows for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Deferred tax assets:
Federal and state tax attributes	$	22	$	28	$	8
Other		87		70		139
Total deferred tax assets		109		98		147
Valuation allowance		(19)		(16)		(9)
Net deferred tax assets		90		82		138
Deferred tax liabilities:
Book/tax depreciation and basis		(367)		—		—
Other investment ventures		(1,291)		(17)		—
Other		(67)		(67)		(67)
Total deferred tax liabilities		(1,725)		(84)		(67)
Net deferred tax assets/(liabilities)	$	(1,635)	$	(2)	$	71

Income tax provision/(benefit), net from our TRS differed from the amounts computed by applying the U.S. statutory rate of 21% to pretax income/(loss) for the years ended December 31, 2019, and 2018 and 35% for the year ended 2017 as follows (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Income tax provision/(benefit)
U.S. federal income tax provision/(benefit)	$	2,905	$	321	$	581
State income tax provision		1,013		527		493
Other items		(139)		(167)		(188)
New tax law benefit		—		—		(1,129)
ITC basis adjustment		56		—		—
Valuation allowance		3		7		3
Total income tax provision/(benefit)	$	3,838	$	688	$	(240)

As of December 31, 2019, the Company had federal net operating loss carryovers (“NOL”) of $27.1 million expiring in 2032 through 2035 and state NOLs of $68.1 million expiring in 2020 through 2032. A portion of these attributes are still available to the subsidiary REITs, but are carried at a zero effective tax rate.

The Company’s Tax benefit/(provision), net was $(3.8) million and $(0.7) million for the years ended December 31, 2019 and 2018, respectively. The increase of $3.1 million was primarily attributable to a $2.0 million tax on a promoted interest and by $1.3 million on unrealized gains related to other investment ventures. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company evaluates our tax position using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax benefit/(provision), net. As of December 31, 2019 and 2018, UDR has 0 material unrecognized income tax benefits/(provisions).

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The Company files income tax returns in federal and various state and local jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local income tax examination by tax authorities for years prior to 2014. The tax years 2016 through 2018 remain open to examination by the major taxing jurisdictions to which the Company is subject.

12. NONCONTROLLING INTERESTS

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income attributable to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.

Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.

The following table sets forth redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the years ended December 31, 2019 and 2018 (dollars in thousands):

	Year Ended December 31,
	2019		2018
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, December 31, 2018	$	972,740	$	948,138
Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		183,884		43,552
Conversion of OP Units/DownREIT Units to Common Stock		(134,031)		(13,328)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		14,426		18,215
Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(32,270)		(32,798)
OP Units Issued		—		4,320
Vesting of Long-Term Incentive Plan Units		14,742		4,397
Allocation of other comprehensive income/(loss)		(826)		244
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, December 31, 2019	$	1,018,665	$	972,740

Noncontrolling Interests

Noncontrolling interests represent interests of unrelated partners and unvested LTIP Units in certain consolidated affiliates, and are presented as part of equity on the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was $(0.2) million, $(0.2) million, and $(0.2) million during the years ended December 31, 2019, 2018, and 2017, respectively.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The Company grants LTIP Units to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have vesting terms of between one and three years, specific to the individual grants.

Noncontrolling interests related to long-term incentive plan units represent the unvested LTIP Units of these employees and non-employee directors in the Operating Partnership. The net income/(loss) allocated to the unvested LTIP Units is included in Net (income)/loss attributable to noncontrolling interests on the Consolidated Statements of Operations.

13. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

● Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

● Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2019 and 2018 are summarized as follows (dollars in thousands):

						Fair Value at December 31, 2019, Using
	Total					Quoted
	Carrying		���			Prices in
	Amount in					Active
	Statement of					Markets		Significant
	Financial			Fair Value		for Identical		Other		Significant
	Position at			Estimate at		Assets or		Observable		Unobservable
	December 31,			December 31,		Liabilities		Inputs		Inputs
	2019			2019		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable (a)	$	153,650		$	160,197	$	—	$	—	$	160,197
Derivatives - Interest rate contracts (b)		6			6		—		6		—
Total assets	$	153,656		$	160,203	$	—	$	6	$	160,197
Derivatives - Interest rate contracts (b)	$	142		$	142	$	—	$	142	$	—
Secured debt instruments - fixed rate: (c)
Mortgage notes payable		906,228			898,329		—		—		898,329
Credit facilities		218,490			213,661		—		—		213,661
Secured debt instruments - variable rate: (c)
Tax-exempt secured notes payable		27,000			27,000		—		—		27,000
Unsecured debt instruments: (c)
Working capital credit facility		16,583			16,583		—		—		16,583
Commercial paper program		300,000			300,000		—		—		300,000
Unsecured notes		3,263,152			3,397,622		—		—		3,397,622
Total liabilities	$	4,731,595		$	4,853,337	$	—	$	142	$	4,853,195
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)	$	1,018,665		$	1,018,665	$	—	$	1,018,665	$	—

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

					Fair Value at December 31, 2018, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable (a)	$	42,259	$	45,026	$	—	$	—	$	45,026
Derivatives - Interest rate contracts (b)		4,757		4,757		—		4,757		—
Total assets	$	47,016	$	49,783	$	—	$	4,757	$	45,026
Derivatives - Interest rate contracts (b)	$	356	$	356	$	—	$	356	$	—
Secured debt instruments - fixed rate: (c)
Mortgage notes payable		417,989		416,314		—		—		416,314
Fannie Mae credit facility		90,000		90,213		—		—		90,213
Secured debt instruments - variable rate: (c)
Tax-exempt secured notes payable		94,700		94,700		—		—		94,700
Unsecured debt instruments: (c)
Working capital credit facility		16		16		—		—		16
Commercial paper program		101,115		101,115		—		—		101,115
Unsecured notes		2,861,842		2,829,390		—		—		2,829,390
Total liabilities	$	3,566,018	$	3,532,104	$	—	$	356	$	3,531,748
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)	$	972,740	$	972,740	$	—	$	972,740	$	—

(a) See Note 2, Significant Accounting Policies.

(b) See Note 14, Derivatives and Hedging Activity.

(c) See Note 7, Secured and Unsecured Debt, Net.

(d) See Note 12, Noncontrolling Interests.

There were 0 transfers into or out of any of the levels of the fair value hierarchy during the year ended December 31, 2019.

Financial Instruments Carried at Fair Value

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2019 and 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership are classified as Level 2.

Financial Instruments Not Carried at Fair Value

At December 31, 2019, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes notes receivable and debt instruments, are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.

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 value. Our estimates of fair value represent our best estimate based upon Level 3 inputs such as industry trends and reference to market rates and transactions.

We consider various factors to determine if a decrease in the value of our Investment in and advances to unconsolidated joint ventures, net is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2019, 2018, and 2017.

After determining an other-than-temporary decrease in the value of an equity method investment has occurred, we estimate the fair value of our investment by estimating the proceeds we would receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs reflect management’s best estimate of what market participants would use in pricing the investment giving consideration to the terms of the joint venture agreement and the estimated discounted future cash flows to be generated from the underlying joint venture assets. The inputs and assumptions utilized to estimate the future cash flows of the underlying assets are based upon the Company’s evaluation of the economy, market trends, operating results, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

14. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2019, 2018, and 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

During the year ended December 31, 2017, the Company recognized a loss of $0.1 million, reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. NaN amounts were de-designated during the years ended December 31, 2019 and 2018.

Amounts reported in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2020, the Company estimates that an additional $1.7 million will be reclassified as a decrease to Interest expense.

As of December 31, 2019, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):

	Number of
Product	Instruments	Notional
Interest rate swaps (a)	4	$	315,000

(a) In addition to the interest rate swaps summarized above, the Company entered into an additional interest rate swap with a notional value of $315.0 million that will become effective in January 2020 upon the maturity of the interest rate swaps summarized above. Additionally, the Company had previously entered into 2 additional interest rate swaps with a notional value totaling $75.0 million that were subsequently terminated and settled during the year ended December 31, 2019 in conjunction with the July 2019 issuance of $300.0 million of senior unsecured medium-term notes as disclosed in Note 7, Secured and Unsecured, Net.

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

resulted in 0 gain or loss for the years ended December 31, 2019 and 2018, and a loss of less than $0.1 million for the year ended December 31, 2017.

As of December 31, 2019, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

	Number of
Product	Instruments	Notional
Interest rate caps	1	$	19,880

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2019 and 2018 (dollars in thousands):

	Asset Derivatives				Liability Derivatives
	(included in Other assets)				(included in Other liabilities)
	Fair Value at:				Fair Value at:
	December 31,		December 31,		December 31,		December 31,
	2019		2018		2019		2018
Derivatives designated as hedging instruments:
Interest rate products	$	6	$	4,757	$	142	$	356

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

													Gain/(Loss) Recognized in
							Gain/(Loss) Reclassified						Interest expense
	Unrealized holding gain/(loss)						from Accumulated OCI into						(Amount Excluded from
	Recognized in OCI						Interest expense						Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2019		2018		2017		2019		2018		2017		2019		2018		2017
Interest rate products	$	(8,437)	$	4,806	$	1,802	$	2,770	$	1,948	$	(1,271)	$	—	$	—	$	(136)

	Year Ended
	December 31,
	2019		2018		2017
Total amount of Interest expense presented on the Consolidated Statements of Operations	$	170,917	$	134,168	$	128,711

	Gain/(Loss) Recognized in
	Interest income and other income/(expense), net
Derivatives Not Designated as Hedging Instruments	2019		2018		2017
Interest rate products	$	—	$	—	(1)

Credit-risk-related Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

The Company has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the Company or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement.

As of December 31, 2019, the fair value of derivatives was in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, of less than $0.1 million.

Tabular Disclosure of Offsetting Derivatives

The Company has elected not to offset derivative positions on the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of December 31, 2019 and 2018 (dollars in thousands):

			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Assets		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Assets	Assets		Sheets		(a)		Instruments		Received		Net Amount
December 31, 2019	$	6	$	—	$	6	$	(3)	$	—	$	3
December 31, 2018	$	4,757	$	—	$	4,757	$	—	$	—	$	4,757

(a) Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets” located in this footnote.

			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Liabilities		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Liabilities	Liabilities		Sheets		(a)		Instruments		Posted		Net Amount
December 31, 2019	$	142	$	—	$	142	$	(3)	$	—	$	139
December 31, 2018	$	356	$	—	$	356	$	—	$	—	$	356

(a) Amounts reconcile to the aggregate fair value of derivative liabilities in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets” located in this footnote.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

15. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Commitments

The following summarizes the Company’s real estate commitments at December 31, 2019 (dollars in thousands):

	Number	UDR's			UDR's Remaining
	Properties	Investment (a)			Commitment
Wholly-owned — under development	3	$	69,754		$	208,723
Wholly-owned — redevelopment	2		15,744			19,756
Joint ventures:
Preferred equity investments	2		73,868	(b)		9,121	(c)
Other investments	-		13,598			8,100	(d)
Total		$	172,964		$	245,700

(a) Represents UDR’s investment as of December 31, 2019.

(b) Represents UDR’s investment in 1300 Fairmount and Modera Lake Merritt, which were under development as of December 31, 2019.

(c) Represents UDR’s remaining commitment for 1300 Fairmount and Modera Lake Merritt.

(d) Represents UDR’s remaining commitment for other investment ventures.

Purchase Commitments

In 2019, the Company entered into a contract to purchase a development land parcel located in King of Prussia, Pennsylvania for a purchase price of approximately $14.8 million. The Company made a $0.8 million deposit on the purchase, which is generally non-refundable other than due to a failure of closing conditions pursuant to the terms of the purchase agreement. The acquisition is expected to close in 2020, subject to customary closing conditions.

Contingencies

Litigation and Legal Matters

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The Company 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 flows.

16. REPORTABLE SEGMENTS

GAAP guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker to decide how to allocate resources and for purposes of assessing such segments’ performance. UDR’s Chief Operating Decision Maker is comprised of several members of its executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

UDR owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures for UDR’s apartment communities are rental income and net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.875% of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

property revenue to cover the regional supervision and accounting costs related to consolidated property operations, and land rent. UDR’s Chief Operating Decision Maker utilizes NOI as the key measure of segment profit or loss.

UDR’s 2 reportable segments are Same-Store Communities and Non-Mature Communities/Other:

● Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

● Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

Management evaluates the performance of each of our apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Company’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.

Revenue is measured based on consideration specified in contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer. All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the years ended December 31, 2019, 2018, and 2017.

The following is a description of the principal streams from which the Company generates its revenue:

Lease Revenue

Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 842, Leases. Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the noncancellable lease term because collection of the lease payments was probable at lease commencement, inclusive of any periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the lease term.

Lease revenue also includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. These services represent non-lease components in a contract as the Company transfers a service to the lessee other than the right to use the underlying asset. The Company has elected the practical expedient under the leasing standard to not separate lease and non-lease components from its resident and retail lease contracts as the timing and pattern of revenue recognition for the non-lease component and related lease component are the same and the combined single lease component would be classified as an operating lease.

Other Revenue

Other revenue is generated by services provided by the Company to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

Joint venture management and other fees

The Joint venture management and other fees revenue consists of management fees charged to our equity method joint ventures per the terms of contractual agreements and other fees. Joint venture fee revenue is recognized

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DECEMBER 31, 2019

monthly as the management services are provided and the fees are earned or upon a transaction whereby the Company earns a fee. Joint venture management and other fees are not allocable to a specific reportable segment or segments.

The following table details rental income and NOI for UDR’s reportable segments for the years ended December 31, 2019, 2018, and 2017, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. on the Consolidated Statements of Operations (dollars in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

	Year Ended December 31,
	2019		2018		2017
Reportable apartment home segment lease revenue
Same-Store Communities (a)
West Region	$	392,456	$	377,259	$	361,277
Mid-Atlantic Region		210,391		204,733		199,206
Southeast Region		113,175		109,189		104,106
Northeast Region		119,910		117,572		115,713
Southwest Region		54,516		52,970		51,949
Non-Mature Communities/Other		162,969		94,176		77,524
Total segment and consolidated lease revenue	$	1,053,417	$	955,899	$	909,775
Reportable apartment home segment other revenue
Same-Store Communities (a)
West Region	$	31,045	$	28,493	$	27,493
Mid-Atlantic Region		17,049		15,717		14,951
Southeast Region		13,557		13,045		12,361
Northeast Region		4,858		4,590		4,307
Southwest Region		5,312		5,281		5,152
Non-Mature Communities/Other		12,900		12,080		10,270
Total segment and consolidated other revenue	$	84,721	$	79,206	$	74,534
Total reportable apartment home segment rental income
Same-Store Communities (a)
West Region	$	423,501	$	405,752	$	388,770
Mid-Atlantic Region		227,440		220,450		214,157
Southeast Region		126,732		122,234		116,467
Northeast Region		124,768		122,162		120,020
Southwest Region		59,828		58,251		57,101
Non-Mature Communities/Other		175,869		106,256		87,794
Total segment and consolidated rental income	$	1,138,138	$	1,035,105	$	984,309
Reportable apartment home segment NOI
Same-Store Communities (a)
West Region	$	321,890	$	306,307	$	291,265
Mid-Atlantic Region		159,665		153,670		150,126
Southeast Region		88,467		85,220		80,726
Northeast Region		83,832		84,059		83,569
Southwest Region		36,589		34,506		34,439
Non-Mature Communities/Other		117,860		68,353		58,378
Total segment and consolidated NOI		808,303		732,115		698,503
Reconciling items:
Joint venture management and other fees		14,055		11,754		11,482
Property management		(32,721)		(28,465)		(27,068)
Other operating expenses		(13,932)		(12,100)		(9,060)
Real estate depreciation and amortization		(501,257)		(429,006)		(430,054)
General and administrative		(51,533)		(46,983)		(48,566)
Casualty-related (charges)/recoveries, net		(474)		(2,121)		(4,335)
Other depreciation and amortization		(6,666)		(6,673)		(6,408)
Gain/(loss) on sale of real estate owned		5,282		136,197		43,404
Income/(loss) from unconsolidated entities		137,873		(5,055)		31,257
Interest expense		(170,917)		(134,168)		(128,711)
Interest income and other income/(expense), net		15,404		6,735		1,971
Tax (provision)/benefit, net		(3,838)		(688)		240
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(14,426)		(18,215)		(10,933)
Net (income)/loss attributable to noncontrolling interests		(188)		(221)		(164)
Net income/(loss) attributable to UDR, Inc.	$	184,965	$	203,106	$	121,558

(a) Same-Store Community population consisted of 37,959 apartment homes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2019

The following table details the assets of UDR’s reportable segments as of December 31, 2019 and 2018 (dollars in thousands):

	December 31,		December 31,
	2019		2018
Reportable apartment home segment assets:
Same-Store Communities (a):
West Region	$	3,810,672	$	3,763,366
Mid-Atlantic Region		2,350,341		2,317,369
Southeast Region		806,830		779,310
Northeast Region		1,500,597		1,491,994
Southwest Region		456,140		447,305
Non-Mature Communities/Other		3,677,521		1,396,815
Total segment assets		12,602,101		10,196,159
Accumulated depreciation		(4,131,353)		(3,654,160)
Total segment assets — net book value		8,470,748		6,541,999
Reconciling items:
Cash and cash equivalents		8,106		185,216
Restricted cash		25,185		23,675
Notes receivable, net		153,650		42,259
Investment in and advances to unconsolidated joint ventures, net		588,262		780,869
Operating lease right-of-use assets		204,225		—
Other assets		186,296		137,710
Total consolidated assets	$	9,636,472	$	7,711,728

(a) Same-Store Community population consisted of 37,959 apartment homes.

Markets included in the above geographic segments are as follows:

i. West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

ii. Mid-Atlantic Region — Metropolitan D.C., Richmond and Baltimore

iii. Southeast Region — Orlando, Nashville, Tampa and Other Florida

iv. Northeast Region — New York and Boston

v. Southwest Region — Dallas, Austin and Denver

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17. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2019 and 2018 is summarized in the table below (dollars in thousands, except per share amounts):

	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
2019
Rental income	$	267,922	$	278,463	$	289,008	$	302,745
Net income/(loss)		26,602		38,318		29,422		105,237
Net income/(loss) attributable to common stockholders (a)		23,492		34,588		26,173		96,928
Income/(loss) attributable to common stockholders per weighted average common share (a):
Basic	$	0.08	$	0.12	$	0.09	$	0.33
Diluted	$	0.08	$	0.12	$	0.09	$	0.33
Weighted average number of common shares outstanding:
Basic		277,002		281,960		288,706		293,107
Diluted		277,557		282,575		289,529		294,073
2018
Rental income	$	250,483	$	256,634	$	263,256	$	264,732
Net income/(loss)		89,225		22,444		20,258		89,615
Net income/(loss) attributable to common stockholders (a)		80,801		19,630		17,639		81,168
Income/(loss) attributable to common stockholders per weighted average common share (a):
Basic	$	0.30	$	0.07	$	0.07	$	0.30
Diluted	$	0.30	$	0.07	$	0.07	$	0.30
Weighted average number of common shares outstanding:
Basic		267,546		267,311		267,727		270,107
Diluted		269,208		268,890		268,861		270,755

(a) Due to the quarterly pro-rata calculation of noncontrolling interest and rounding, the sum of the quarterly per share and/or dollar amounts may not equal the annual totals.

(1)

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F - 60

Report of Independent Registered Public Accounting Firm

The Partners
United Dominion Realty, L.P.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the “Partnership”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income/loss, changes in capital, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Partnership’s auditor since 2010.

​
Denver, Colorado

February 18, 2020

F - 61

UNITED DOMINION REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data)

	December 31,		December 31,
	2019		2018
ASSETS
Real estate owned:
Real estate held for investment	$	3,875,160	$	3,811,985
Less: accumulated depreciation		(1,796,568)		(1,658,161)
Total real estate owned, net of accumulated depreciation		2,078,592		2,153,824
Cash and cash equivalents		24		125
Restricted cash		13,998		13,563
Investment in unconsolidated entities		76,222		103,026
Operating lease right-of-use assets		205,668		—
Other assets		24,241		34,052
Total assets	$	2,398,745	$	2,304,590
LIABILITIES AND CAPITAL
Liabilities:
Secured debt, net	$	99,071	$	26,929
Notes payable due to the General Partner		637,233		700,115
Operating lease liabilities		200,001		—
Real estate taxes payable		2,801		2,699
Accrued interest payable		217		32
Security deposits and prepaid rent		17,946		15,250
Distributions payable		63,364		59,461
Accounts payable, accrued expenses, and other liabilities		12,226		14,215
Total liabilities		1,032,859		818,701
Commitments and contingencies (Note 11)
Capital:
Partners’ capital:
General partner:
110,883 OP Units outstanding at December 31, 2019 and December 31, 2018		859		950
Limited partners:
183,952,659 and 183,525,660 OP Units outstanding at December 31, 2019 and December 31, 2018, respectively		1,347,622		1,471,120
Total partners’ capital		1,348,481		1,472,070
Noncontrolling interests		17,405		13,819
Total capital		1,365,886		1,485,889
Total liabilities and capital	$	2,398,745	$	2,304,590

See accompanying notes to the consolidated financial statements.

F - 62

UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

	Year Ended December 31,
	2019		2018		2017
REVENUES:
Rental income	$	441,773	$	431,920	$	419,377
OPERATING EXPENSES:
Property operating and maintenance		67,710		67,400		67,493
Real estate taxes and insurance		51,057		47,140		45,043
Property management		12,701		11,878		11,533
Other operating expenses		9,488		8,864		6,833
Real estate depreciation and amortization		139,975		143,481		152,473
General and administrative		18,014		16,889		17,875
Casualty-related charges/(recoveries), net		853		951		1,922
Total operating expenses		299,798		296,603		303,172
Gain/(loss) on sale of real estate owned		—		75,507		41,272
Operating income		141,975		210,824		157,477
Income/(loss) from unconsolidated entities		(8,313)		43,496		(19,256)
Interest expense		(1,639)		(8,733)		(18,156)
Interest expense on notes payable due to the General Partner		(28,028)		(14,102)		(12,210)
Net income/(loss)		103,995		231,485		107,855
Net (income)/loss attributable to noncontrolling interests		(1,832)		(1,722)		(1,548)
Net income/(loss) attributable to OP unitholders	$	102,163	$	229,763	$	106,307
Net income/(loss) per weighted average OP Unit - basic and diluted	$	0.56	$	1.25	$	0.58
Weighted average OP Units outstanding - basic and diluted		184,034		183,609		183,344

See accompanying notes to the consolidated financial statements.

F - 63

UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

	Year Ended December 31,
	2019		2018		2017
Net income/(loss)	$	103,995	$	231,485	$	107,855
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		—		—		106
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		—		—		106
Comprehensive income/(loss)		103,995		231,485		107,961
Comprehensive (income)/loss attributable to noncontrolling interests		(1,832)		(1,722)		(1,548)
Comprehensive income/(loss) attributable to OP unitholders	$	102,163	$	229,763	$	106,413

See accompanying notes to consolidated financial statements.

F - 64

UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL

(In thousands)

			Limited						Accumulated				Advances
	Class A		Partners		UDR, Inc.				Other		Total		(to)/from
	Limited		and LTIP		Limited		General		Comprehensive		Partners’		General		Noncontrolling
	Partner		Units		Partner		Partner		Income/(Loss), net		Capital		Partner		Interests		Total
Balance at December 31, 2016	$	63,901	$	269,928	$	1,243,460	$	1,026	$	(113)	$	1,578,202	$	19,659	$	20,638	$	1,618,499
Net income/(loss)		1,015		4,270		100,957		65		—		106,307		—		1,548		107,855
Distributions		(2,328)		(9,704)		(215,922)		(136)		—		(228,090)		—		—		(228,090)
OP Unit redemptions for common shares of UDR		—		(288)		288		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		4,886		11,599		(16,485)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		7,763		—		—		—		7,763		—		—		7,763
Unrealized gain/(loss) on derivative financial investments		—		—		—		—		113		113		—		(6)		107
Net change in advances (to)/from the General Partner		—		—		—		—		—		—		378,240		(9,244)		368,996
Balance at December 31, 2017		67,474		283,568		1,112,298		955		—		1,464,295		397,899		12,936		1,875,130
Net income/(loss)		2,221		9,977		217,426		139		—		229,763		—		1,722		231,485
Distributions		(2,328)		(10,718)		(224,637)		(144)		—		(237,827)		—		—		(237,827)
OP Unit redemptions for common shares of UDR		—		(416)		416		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		2,034		4,295		(6,329)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		15,839		—		—		—		15,839		—		—		15,839
Conversion of Advances (to)/from the General Partner to notes payable		—		—		—		—		—		—		(257,204)		—		(257,204)
Net change in advances (to)/from the General Partner		—		—		—		—		—		—		(140,695)		(839)		(141,534)
Balance at December 31, 2018		69,401		302,545		1,099,174		950		—		1,472,070		—		13,819		1,485,889
Net income/(loss)		971		3,404		97,727		61		—		102,163		—		1,832		103,995
Distributions		(2,396)		(9,063)		(241,207)		(152)		—		(252,818)		—		—		(252,818)
OP Unit redemptions for common shares of UDR		—		(79,010)		79,010		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		13,827		39,638		(53,465)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		27,066		—		—		—		27,066		—		—		27,066
Net contributions/(distributions) to/(from) noncontrolling interests		—		—		—		—		—		—		—		1,754		1,754
Balance at December 31, 2019	$	81,803	$	284,580	$	981,239	$	859	$	—	$	1,348,481	$	—	$	17,405	$	1,365,886

See accompanying notes to the consolidated financial statements.

F - 65

UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2019		2018		2017
Operating Activities
Net income/(loss)	$	103,995	$	231,485	$	107,855
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		139,975		143,481		152,473
(Gain)/loss on sale of real estate owned		—		(75,507)		(41,272)
(Income)/loss from unconsolidated entities		8,313		(43,496)		19,256
Other		3,534		1,771		5,642
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		1,084		(3,260)		(3,992)
Increase/(decrease) in operating liabilities		(1,808)		1,194		(4,705)
Net cash provided by/(used in) operating activities		255,093		255,668		235,257
Investing Activities
Acquisition of real estate assets		—		—		(137,332)
Proceeds from sales of real estate investments, net		—		98,533		67,985
Capital expenditures and other major improvements — real estate assets		(62,397)		(44,227)		(53,346)
Distributions received from unconsolidated entities		18,491		17,377		16,704
Net cash provided by/(used in) investing activities		(43,906)		71,683		(105,989)
Financing Activities
Advances (to)/from the General Partner, net		—		(348,381)		163,196
Proceeds from the issuance of secured debt		72,500		—		—
Payments on secured debt		—		(133,205)		(275,345)
Issuance/(repayment) of notes payable to the General Partner		(272,913)		169,577		—
Distributions paid to partnership unitholders		(10,064)		(12,705)		(11,694)
Other		(376)		(1,821)		(5,003)
Net cash provided by/(used in) financing activities		(210,853)		(326,535)		(128,846)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		334		816		422
Cash, cash equivalents, and restricted cash, beginning of year		13,688		12,872		12,450
Cash, cash equivalents, and restricted cash, end of year	$	14,022	$	13,688	$	12,872
Supplemental Information:
Interest paid during the period, net of amounts capitalized	$	38,400	$	17,173	$	24,331
Non-cash transactions:
Development costs and capital expenditures incurred but not yet paid		2,913		2,056		2,032
Recognition of operating lease right-of-use assets		94,174		—		—
Recognition of operating lease liabilities		88,161		—		—
Right-of-use assets obtained in exchange for operating lease liabilities remeasurements		112,498		—		—
LTIP Unit grants		27,066		15,839		7,763
Distributions declared but not yet paid		63,364		59,461		57,025
Conversion of Advances (to)/from the General Partner to notes payable		—		257,204		—
The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year
Cash and cash equivalents	$	125	$	293	$	756
Restricted cash		13,563		12,579		11,694
Total cash, cash equivalents, and restricted cash as shown above	$	13,688	$	12,872	$	12,450
Cash, cash equivalents, and restricted cash, end of year
Cash and cash equivalents	$	24	$	125	$	293
Restricted cash		13,998		13,563		12,579
Total cash, cash equivalents, and restricted cash as shown above	$	14,022	$	13,688	$	12,872

See accompanying notes to the consolidated financial statements.

F - 66

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

1. CONSOLIDATION AND BASIS OF PRESENTATION

United Dominion Realty, L.P. (“UDR, L.P.,” the “Operating Partnership,” “we” or “our”) is a Delaware limited partnership, that owns, acquires, renovates, redevelops, manages, and disposes of multifamily apartment communities generally located in high barrier to entry markets located in the United States. The high barrier to entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. UDR, L.P. is a subsidiary of UDR, Inc. (“UDR” or the “General Partner”), a self-administered real estate investment trust, or REIT, through which UDR conducts a significant portion of its business. During the years ended December 31, 2019, 2018, and 2017, rental revenues of the Operating Partnership represented 39%, 42%, and 43%, respectively, of the General Partner’s consolidated rental revenues. As of December 31, 2019, the Operating Partnership’s apartment portfolio consisted of 52 communities located in 15 markets consisting of 16,434 apartment homes.

Interests in UDR, L.P. are represented by operating partnership units (“OP Units”). The Operating Partnership’s net income is allocated to the partners, which is initially based on their respective distributions made during the year and secondly, their percentage interests. Distributions are made in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. (the “Operating Partnership Agreement”), on a per unit basis that is generally equal to the dividend per share on UDR’s common stock, which is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “UDR.”

As of December 31, 2019, there were 184.1 million OP Units outstanding, of which 176.2 million, or 95.7%, were owned by UDR and affiliated entities and 7.9 million, or 4.3%, were owned by outside limited partners. There were 183.6 million OP Units outstanding as of December 31, 2018, of which 174.2 million, or 94.9%, were owned by UDR and affiliated entities and 9.4 million, or 5.1%, were owned by outside limited partners. See Note 10, Capital Structure.

As sole general partner of the Operating Partnership, UDR owned all 0.1 million general partner OP units, or 0.1%, of the total OP Units outstanding as of December 31, 2019 and 2018. At December 31, 2019 and 2018, there were 184.0 million and 183.5 million, respectively, of limited partner OP Units outstanding, of which 1.9 million were Class A Limited Partnership Units as of both periods. Of the limited partner OP Units outstanding, UDR owned 176.1 million, or 95.7%, and 174.1 million, or 94.8%, at December 31, 2019 and 2018, respectively. The remaining 7.9 million, or 4.3%, and 9.4 million, or 5.1%, of the limited partner OP Units outstanding were held by outside limited partners at December 31, 2019 and 2018, respectively, of which 1.8 million were Class A Limited Partnership units as of both periods. See Note 10, Capital Structure.

The Operating Partnership evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amends the transition requirements and scope of ASU 2016-13 and clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The updated standard became effective for the Operating Partnership on January 1, 2020 and is to be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings on that date. While we are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements and related disclosures, we do not expect the updated standard to have a material impact on the consolidated financial statements.

F - 67

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

In February 2016, the FASB issued ASU 2016-02, Leases. The standard amended the existing lease accounting guidance and required lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases continued to recognize lease expense in a manner similar to previous accounting. For lessors, accounting for leases under the new guidance was substantially the same as in prior periods, but eliminated current real estate-specific provisions and changed the treatment of initial direct costs. The standard was effective for the Operating Partnership on January 1, 2019.

The Operating Partnership elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Operating Partnership also elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year.

Upon adoption of the standard on January 1, 2019, the Operating Partnership recognized right-of-use assets of $94.2 million and lease liabilities of $88.2 million. The right-of-use assets included $6.0 million of prepaid rent and intangible assets that was included within Other assets on our Consolidated Balance Sheets as of December 31, 2018.

The lease liabilities represent the present value of the remaining minimum lease payments as of January 1, 2019 related to ground leases for communities where we are the lessee. The right-of-use assets represent our right to use an underlying asset for the lease term, which are calculated utilizing the lease liabilities plus any prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. Our right-of-use assets and related lease liabilities recognized as of January 1, 2019 may change as a result of updates to the projected future minimum lease payments. Certain of our ground lease agreements where we are the lessee have future minimum lease payments that reset in the future based upon a percentage of the fair market value of the land at the time of the reset. The Operating Partnership will continue to recognize lease expense for these leases in a manner similar to previous accounting based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors will include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, subsequent to the adoption of the standard, we are expensing non-incremental leasing costs as incurred.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provided entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases. The ASU provided a practical expedient which allowed lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Operating Partnership elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provided a transition option that permitted entities to not recast the comparative periods presented when transitioning to the standard, which the Operating Partnership also elected.

Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, land improvements, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment.

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 and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

F - 68

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

The Operating Partnership purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Operating Partnership estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are capitalized as incurred if the acquisition does not meet the definition of a business.

Quarterly or when changes in circumstances warrant, the Operating Partnership will assess our real estate properties for indicators of impairment. In determining whether the Operating Partnership has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future 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 and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates and capitalization rates, industry trends and reference to market rates and transactions.

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 actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, 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 are 30 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Operating Partnership capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2019, 2018, and 2017 were $0.8 million, less than $0.1 million, and $0.5 million, respectively. During the years ended December 31, 2019, 2018, and 2017, total interest capitalized was $0.2 million, less than $0.1 million, and less than $0.1 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion and depreciation commences over the estimated useful life.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Operating Partnership’s cash and cash equivalents are held at major commercial banks.

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DECEMBER 31, 2019

Restricted Cash

Restricted cash primarily consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.

Real Estate Sales Gain Recognition 

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Operating Partnership generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Operating Partnership will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

Sale transactions to entities in which the Operating Partnership sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Operating Partnership will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value. 

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Operating Partnership will record a full gain or loss in the period the property is contributed.

To the extent that the Operating Partnership acquires a controlling financial interest in a property that it previously accounted for as an equity method investment, the Operating Partnership will not remeasure its previously held interest if the acquisition is treated as an asset acquisition. The Operating Partnership will include the carrying amount of its previously held equity method interest along with the consideration paid and transaction costs incurred in determining the amounts to allocate to the related assets and liabilities acquired on its Consolidated Balance Sheets. When treated as an asset acquisition, the Operating Partnership will not recognize a gain on consolidation of a property.

Derivative Financial Instruments

The General Partner utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments associated with the Operating Partnership’s allocation of the General Partner’s debt are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for the General Partner’s cash flow hedges allocated to the Operating Partnership that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

Noncontrolling Interests

The noncontrolling interests represent the General Partner’s interests in certain consolidated subsidiaries and are presented in the capital section of the Consolidated Balance Sheets since these interests are not convertible or redeemable into any other ownership interests of the Operating Partnership.

Income Taxes

The taxable income or loss of the Operating Partnership is reported on the tax returns of the partners. Accordingly, 0 provision has been made in the accompanying financial statements for federal or state income taxes on income that is passed through to the partners. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are recorded at the entity level. The Operating Partnership’s tax returns are subject to examination by federal and state taxing authorities. Net income for financial reporting purposes differs from the net income for income tax reporting purposes primarily due 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.

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DECEMBER 31, 2019

The Operating Partnership evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Operating Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management of the Operating Partnership is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Operating Partnership has no examinations in progress and none are expected at this time.

Management of the Operating Partnership has reviewed all open tax years (2016 through 2018) of tax jurisdictions and concluded there is 0 tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

Discontinued Operations

In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.

Allocation of General and Administrative Expenses

The Operating Partnership is charged directly for general and administrative expenses it incurs. The Operating Partnership is also charged with other general and administrative expenses that have been allocated by the General Partner to each of its subsidiaries, including the Operating Partnership, based on reasonably anticipated benefits to the parties. (See Note 7, Related Party Transactions.)

Advertising Costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2019, 2018, and 2017, total advertising expense was $1.9 million, $1.9 million, and $2.1 million, respectively.

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in capital during each period from transactions and other events and circumstances from nonowner sources, including all changes in capital during a period except for those resulting from investments by or distributions to unitholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2019, 2018, and 2017, the Operating Partnership’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges and (gain)/loss reclassified from other comprehensive income/(loss) into earnings. The (gain)/loss reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 9, Derivatives and Hedging Activity, for further discussion.

Use of Estimates

The preparation of these financial statements in accordance with GAAP 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.

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DECEMBER 31, 2019

Market Concentration Risk

The Operating Partnership is subject to increased exposure from economic and other competitive factors specific to those markets where it holds a significant percentage of the carrying value of its real estate portfolio at December 31, 2019, the Operating Partnership held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California, San Francisco, California; Metropolitan D.C. and New York, New York markets.

3. REAL ESTATE OWNED

Real estate assets owned by the Operating Partnership consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. At December 31, 2019, the Operating Partnership owned and consolidated 52 communities in 9 states plus the District of Columbia totaling 16,434 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2019 and 2018 (dollars in thousands):

	December 31,		December 31,
	2019		2018
Land	$	711,256	$	711,256
Depreciable property — held and used:
Land improvements		96,864		92,000
Buildings, improvements, and furniture, fixtures and equipment		3,067,040		3,008,729
Real estate owned		3,875,160		3,811,985
Accumulated depreciation		(1,796,568)		(1,658,161)
Real estate owned, net	$	2,078,592	$	2,153,824

Acquisitions

The Operating Partnership did not have any acquisitions of real estate during the years ended December 31, 2019 and 2018.

Dispositions

The Operating Partnership did not have any dispositions of real estate during the year ended December 31, 2019.

In February 2018, the Operating Partnership sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

In December 2018, the Operating Partnership sold a commercial office building in Fairfax, Virginia for gross proceeds of $9.3 million, resulting in a gain of $5.2 million.

Other Activity

In connection with the acquisition of certain properties, the Operating Partnership agreed to pay certain of the tax liabilities of certain contributors if the Operating Partnership sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Operating Partnership may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax deferred Section 1031 exchange. 

Further, the Operating Partnership has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Operating Partnership, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.

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DECEMBER 31, 2019

4. UNCONSOLIDATED ENTITIES

The DownREIT Partnership is accounted for by the Operating Partnership under the equity method of accounting and is included in Investment in unconsolidated entities on the Consolidated Balance Sheets. The Operating Partnership recognizes earnings or losses from its investments in unconsolidated entities consisting of our proportionate share of the net earnings or losses of the partnership in accordance with the Partnership Agreement.

The DownREIT Partnership is a VIE as the limited partners lack substantive kick-out rights and substantive participating rights. The Operating Partnership is not the primary beneficiary of the DownREIT Partnership as it lacks the power to direct the activities that most significantly impact its economic performance and will continue to account for its interest as an equity method investment.

As of December 31, 2019, the DownREIT Partnership owned 12 communities with 5,657 apartment homes. The Operating Partnership’s investment in the DownREIT Partnership was $76.2 million and $103.0 million as of December 31, 2019 and 2018, respectively.

In December 2018, the DownREIT Partnership sold an operating community in Fairfax, Virginia with a total of 604 apartment homes for gross proceeds of $150.7 million. As a result, the Operating Partnership recorded a gain of $51.1 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statement of Operations.

Condensed summary financial information relating to the DownREIT Partnership (not just our proportionate share), is presented below for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

	December 31,		December 31,
	2019		2018
Total real estate, net	$	1,106,703	$	1,167,720
Cash and cash equivalents		20		39
Note receivable from the General Partner		222,853		221,022
Other assets		4,829		5,561
Total assets	$	1,334,405	$	1,394,342
Secured debt, net	$	427,592	$	431,735
Other liabilities		28,087		26,597
Total liabilities		455,679		458,332
Total capital	$	878,726	$	936,010

	Year Ended
	December 31,
	2019		2018		2017
Total revenue	$	128,621	$	138,121	$	134,669
Property operating expenses		(51,747)		(56,998)		(55,487)
Real estate depreciation and amortization		(82,283)		(85,872)		(84,000)
Gain/(loss) on sale of real estate		—		24,053		—
Operating income/(loss)		(5,409)		19,304		(4,818)
Interest expense		(15,648)		(14,456)		(14,483)
Other income/(loss)		8,061		4,884		4,718
Net income/(loss)	$	(12,996)	$	9,732	$	(14,583)

5. LEASES

Lessee - Ground and Equipment Leases

The Operating Partnership owns 6 communities that are subject to ground leases, under which the Operating Partnership is the lessee, expiring between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases existed as of the adoption of the new lease accounting guidance on January 1, 2019 and

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DECEMBER 31, 2019

we did not reassess lease classification per the practical expedient provided by the standard. As such, these leases will continue to be classified as operating leases through the lease term expiration. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. In addition, the Operating Partnership leases equipment at 6 communities from the General Partner, which expire in 2029. We currently do not hold any finance leases.

As of December 31, 2019, the Operating lease right-of-use assets was $205.7 million and the Operating lease liabilities was $200.0 million on our Consolidated Balance Sheets related to our ground and equipment leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred.

As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Operating Partnership’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral.

The weighted average remaining lease term for these leases was 44.4 years at December 31, 2019 and the weighted average discount rate was 5.0% at December 31, 2019.

Future minimum lease payments and total operating lease liabilities from our ground and equipment leases as of December 31, 2019 are as follows (dollars in thousands):

	Ground Leases		Equipment Leases		Total
2020	$	12,442	$	152	$	12,594
2021		12,442		156		12,598
2022		12,442		159		12,601
2023		12,442		163		12,605
2024		12,442		166		12,608
Thereafter		455,221		869		456,090
Total future minimum lease payments (undiscounted)		517,431		1,665		519,096
Difference between future undiscounted cash flows and discounted cash flows		(318,873)		(222)		(319,095)
Total operating lease liabilities (discounted)	$	198,558	$	1,443	$	200,001

For purposes of recognizing our ground lease contracts, the Operating Partnership uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term. If there is a contingency, upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Operating Partnership will remeasure the right-of-use asset and lease liability on the reset date. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $111.1 million due to future minimum payments on 2 of our ground leases becoming fixed for the remainder of their terms. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $1.4 million due to the Operating Partnership entering into new equipment leases.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

The components of operating lease expenses from our ground and equipment leases were as follows (dollars in thousands):

	Year Ended
	December 31, 2019
Ground lease expense:
Contractual ground lease rent expense	$	8,272
Variable ground lease expense (a)		664
Total ground lease expense (b)		8,936
Contractual equipment lease expense (b)		19
Total operating lease expense (c) (d)	$	8,955

(a) Variable ground lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.

(b) Ground lease and equipment lease expense is reported within the line item Other operating expenses on the Consolidated Statements of Operations.

(c) For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities amortized by $1.0 million and $0.7 million, respectively. The Operating Partnership recorded $0.3 million of total operating lease expense during the year ended December 31, 2019, due to the net impact of the amortization. 

(d) No leases qualified for the short-term lease exception during the year ended December 31, 2019. As such, short-term lease expense was 0 for the year ended December 31, 2019.

As of December 31, 2018, in accordance with previously applicable lease accounting guidance, ASC 840, Leases, the future minimum lease payments from our ground leases were as follows;

Future minimum lease payments as of December 31, 2018 were $4.9 million for each of the years ending December 31, 2019 to 2023 and a total of $313.9 million for years thereafter.

The Operating Partnership incurred $7.3 million and $6.2 million of ground rent expense for the years ended December 31, 2018 and 2017, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations.

Lessor - Apartment Home, Retail and Commercial Leases

The Operating Partnership’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2019, our apartment home leases generally have initial terms of 12 months or less and represent 98.4% of our total lease revenue. As of December 31, 2019, our retail and commercial space leases generally have initial terms between 5 and 15 years and represent approximately 1.6% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential increases in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates due to market-based or fixed-price renewal options and certain other conditions. (See Note 12, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.)

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DECEMBER 31, 2019

Future minimum lease payments from our retail and commercial leases as of December 31, 2019 are as follows (dollars in thousands):

	Retail and Commercial Leases
2020	$	7,733
2021		7,395
2022		6,791
2023		6,466
2024		5,801
Thereafter		13,826
Total future minimum lease payments (a)	$	48,012

(a) We have excluded our apartment home leases from this table as our apartment home leases generally have initial terms of 12 months of less.

Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Operating Partnership recorded variable percentage rents of $0.1 million during the year ended December 31, 2019.

6. DEBT, NET

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Operating Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2019 and 2018 (dollars in thousands):

	Principal Outstanding				As of December 31, 2019
							Weighted
					Weighted		Average
	December 31,		December 31,		Average		Years to	Communities
	2019		2018		Interest Rate		Maturity	Encumbered
Fixed Rate Debt
Mortgage note payable	$	72,500	$	—	3.10	%	10.1	1
Deferred financing costs		(365)		—
Total fixed rate secured debt, net		72,135		—	3.10	%	10.1	1
Variable Rate Debt
Tax-exempt secured note payable	$	27,000	$	27,000	1.79	%	12.2	1
Deferred financing costs		(64)		(71)
Total Secured Debt, Net	$	99,071	$	26,929	2.78	%	10.7	2

The Operating Partnership may from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The Operating Partnership did not have any unamortized fair value adjustments associated with the secured debt instruments on the Operating Partnership’s properties.

Fixed Rate Debt

Mortgage notes payable. During the year ended December 31, 2019, the Operating Partnership entered into a fixed rate mortgage note payable for $72.5 million with an interest rate of 3.10%. Interest payments are due monthly and the note matures in February 2030.

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DECEMBER 31, 2019

Variable Rate Debt

Tax-exempt secured note payable. The variable rate mortgage note payable that secures a tax-exempt housing bond issue that matures in March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 1.79% as of December 31, 2019.

Guarantor on Unsecured Debt

The Operating Partnership is the guarantor on the General Partner’s unsecured revolving credit facility with an aggregate borrowing capacity of $1.1 billion, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, a $350 million term loan due September 2023, $300 million of medium-term notes due July 2024, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, $300 million of medium-term notes due January 2028, $300 million of medium-term notes due January 2029, $400 million of medium-term notes due January 2030, $400 million of medium-term notes due August 2031, and $300 million of medium-term notes due November 2034. As of December 31, 2019 and 2018, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $300.0 million and $101.1 million, respectively, outstanding under its unsecured commercial paper program.

7. RELATED PARTY TRANSACTIONS

Shared Services Agreement

The Operating Partnership self-manages its own properties and is party to an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the Operating Partnership’s allocable share of costs incurred by the General Partner for (a) general and administrative costs, and (b) shared services of corporate level property management employees and related support functions and costs.

Allocation of General and Administrative Expenses

The General Partner shares various general and administrative costs with the Operating Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. The general and administrative expenses allocated to the Operating Partnership by UDR were $13.8 million, $13.5 million, and $14.0 million during the years ended December 31, 2019, 2018 and 2017, respectively, and are included in General and administrative on the Consolidated Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the Operating Partnership from the General Partner.

During the years ended December 31, 2019, 2018 and 2017, the Operating Partnership also reimbursed the General Partner $16.9 million, $15.2 million, and $15.4 million, respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements are initially recorded within the line item General and administrative on the Consolidated Statements of Operations, and a portion related to property management costs is reclassified to Property management on the Consolidated Statements of Operations.

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DECEMBER 31, 2019

Notes Payable to the General Partner

The following table summarizes the Operating Partnership’s Notes payable due to General Partner as of December 31, 2019 and 2018 (dollars in thousands):

	Interest rate at		Balance Outstanding
	December 31,		December 31,		December 31,
	2019		2019		2018
Note due August 2021	5.34	%	$	5,500	$	5,500
Note due December 2023	5.18	%		83,196		83,196
Note due April 2026	4.12	%		184,638		184,638
Note due November 2028	4.69	%		133,205		133,205
Note due December 2028 (a)	3.43	%		230,694		293,576
Total notes payable due to the General Partner			$	637,233	$	700,115

(a) In December 2018, the Operating Partnership converted the remaining outstanding portion of the Advances (to)/from the General Partner capital balance in connection with entering into an unsecured revolving note payable with the General Partner. There is no limit on the total commitments under this note. Interest is incurred on the unpaid principal balance at a variable interest rate equivalent to the General Partner’s weighted average interest rate on borrowings, or 3.43% as of December 31, 2019. The note matures on December 1, 2028. To the extent there is an outstanding principal balance on the revolving note payable, the General Partner, at its discretion, can demand payment at any time prior to the stated maturity date of the note.

Certain limited partners of the Operating Partnership have provided guarantees or reimbursement agreements related to these notes payable. The guarantees were provided by the limited partners in conjunction with their contribution of properties to the Operating Partnership. The Operating Partnership recognized interest expense on the notes payable of $28.0 million, $14.1 million and $12.2 million for the years ended December 31, 2019, 2018, and 2017, respectively.

8. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

● Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

● Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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DECEMBER 31, 2019

The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2019 and 2018 are summarized as follows (dollars in thousands):

					Fair Value at December 31, 2019, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2019		2019		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instrument - fixed rate: (a)
Mortgage note payable	$	72,500	$	71,976	$	—	$	—	$	71,976
Secured debt instrument - variable rate: (a)
Tax-exempt secured note payable		27,000		27,000		—		—		27,000
Total liabilities	$	99,500	$	98,976	$	—	$	—	$	98,976

					Fair Value at December 31, 2018, Using
					Quoted
	Total				Prices in
	Carrying				Active
	Amount in				Markets
	Statement of				for Identical		Significant
	Financial		Fair Value		Assets		Other		Significant
	Position at		Estimate at		or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instrument - variable rate: (a)
Tax-exempt secured note payable	$	27,000	$	27,000	$	—	$	—	$	27,000
Total liabilities	$	27,000	$	27,000	$	—	$	—	$	27,000

(a) See Note 6, Debt, Net.

There were 0 transfers into or out of each of the levels of the fair value hierarchy during the year ended December 31, 2019.

Financial Instruments Carried at Fair Value

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The General Partner, on behalf of the Operating Partnership, incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Operating Partnership has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

Although the General Partner, on behalf of the Operating Partnership, has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2019 and 2018, the Operating Partnership has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Operating Partnership has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Operating Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Financial Instruments Not Carried at Fair Value

As of December 31, 2019, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes debt instruments, are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.

The Operating Partnership records 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. Cash flow estimates are based upon historical results adjusted to reflect management’s best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. The General Partner’s estimates of fair value represent management’s estimates based upon Level 3 inputs such as industry trends and reference to market rates and transactions. The Operating Partnership did not incur any other-than-temporary impairments in the value of its investments in unconsolidated entities during the years ended December 31, 2019 and 2018.

9. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Operating Partnership is exposed to certain risks arising from both its business operations and economic conditions. The General Partner principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The General Partner manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the General Partner enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The General Partner’s and the Operating Partnership’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the General Partner’s known or expected cash payments principally related to the General Partner’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The General Partner’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the General Partner primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the General Partner making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

December 31, 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. As of and during the years ended December 31, 2019 and 2018, 0 derivatives designated as cash flow hedges were held by the Operating Partnership.

During the year ended December 31, 2017, the Operating Partnership recognized a loss of $0.1 million reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. NaN amounts were de-designated during the years ended December 31, 2019 and 2018.

Amounts reported in Accumulated other comprehensive income/(loss), net related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is owed by the Operating Partnership. As of December 31, 2019, 0 derivatives designated as cash flow hedges were held by the Operating Partnership and, as a result, 0 amounts are anticipated to be reclassified as an increase to interest expense through December 31, 2020.

Derivatives not designated as hedges are not speculative and are used to manage the Operating Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in 0 gain or loss for the years ended December 31, 2019 and 2018 and a loss of less than $0.1 million for the year ended December 31, 2017.

As of December 31, 2019, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

	Number of
Product	Instruments	Notional
Interest rate caps	1	$	19,880

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets

As of December 31, 2019 and December 31, 2018, the fair value of the Operating Partnership’s derivative financial instruments was 0. 

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations

The tables below present the effect of the derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

													Gain/(Loss) Recognized in
							Gain/(Loss) Reclassified						Interest expense
	Unrealized holding gain/(loss)						from Accumulated OCI into						(Amount Excluded from
	Recognized in OCI						Interest expense						Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2019		2018		2017		2019		2018		2017		2019		2018		2017
Interest rate products	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(106)

	Year Ended
	December 31,
	2019		2018		2017
Total amount of Interest expense presented on the Consolidated Statements of Operations (a)	$	1,639	$	8,733		18,156

(a) Excludes Interest expense on notes payable due to the General Partner for the years ended December 31, 2019, 2018, and 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

	Gain/(Loss) Recognized in
	Interest income and other
	income/(expense), net
Derivatives Not Designated as Hedging Instruments	2019		2018		2017
Interest rate products	$	—	$	—	$	(1)

Credit-risk-related Contingent Features

The General Partner has agreements with its derivative counterparties that contain a provision where the General Partner could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the General Partner’s default on the indebtedness.

The General Partner has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the General Partner or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement. 

10. CAPITAL STRUCTURE

General Partnership Units

The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize, issue, sell, redeem or purchase any OP Unit or securities of the Operating Partnership without the approval of the limited partners. The General Partner can also approve, with regard to the issuances of OP Units, the class or one or more series of classes, with designations, preferences, participating, optional or other special rights, powers and duties including rights, powers and duties senior to limited partnership interests without approval of any limited partners except holders of Class A Limited Partnership Units. There were 0.1 million General Partnership units outstanding at December 31, 2019 and 2018, all of which were held by UDR.

Limited Partnership Units

As of December 31, 2019 and 2018, there were 184.0 million and 183.5 million, respectively, of limited partnership units outstanding, of which 1.9 million were Class A Limited Partnership Units for both periods. UDR owned 176.1 million, or 95.7%, and 174.1 million, or 94.9%, of OP Units outstanding at December 31, 2019 and 2018, respectively, of which 0.1 million were Class A Limited Partnership Units for both periods. The remaining 7.9 million, or 4.3%, and 9.4 million, or 5.1%, of OP Units outstanding were held by outside limited partners at December 31, 2019 and 2018, respectively, of which 1.8 million were Class A Limited Partnership Units for both periods.

Subject to the terms of the Operating Partnership Agreement, the limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the Operating Partnership Agreement), provided that such OP Units have been outstanding for at least one year. UDR, as general partner of the Operating Partnership, may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of UDR for each OP Unit), as defined in the Operating Partnership Agreement.

The outside limited partners’ capital is adjusted to redemption value at the end of each reporting period with the corresponding offset against UDR’s limited partner capital account based on the redemption rights noted above. The aggregate value upon redemption of the then-outstanding OP Units held by outside limited partners was $366.4 million and $371.9 million as of December 31, 2019 and 2018, respectively, based on the value of UDR’s common stock at each

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

period end. A limited partner has no right to receive any distributions from the Operating Partnership on or after the date of redemption of its OP Units.

Class A Limited Partnership Units

Class A Limited Partnership Units have a cumulative, annual, non-compounded preferred return, which is equal to 8% based on a value of $16.61 per Class A Limited Partnership Unit.

Holders of the Class A Limited Partnership Units exclusively possess certain voting rights. The Operating Partnership may not do the following without approval of the holders of the Class A Limited Partnership Units: (i) increase the authorized or issued amount of Class A Limited Partnership Units, (ii) reclassify any other partnership interest into Class A Limited Partnership Units, (iii) create, authorize or issue any obligations or security convertible into or the right to purchase Class A Limited Partnership Units, (iv) enter into a merger or acquisition, or (v) amend or modify the Operating Partnership Agreement in a manner that adversely affects the relative rights, preferences or privileges of the Class A Limited Partnership Units.

The following table shows OP Units outstanding and OP Unit activity as of and for the years ended December 31, 2019, 2018, and 2017 (units in thousands):

			UDR, Inc.
	Class A			Class A
	Limited	Limited	Limited	Limited	General
	Partners	Partners	Partner	Partner	Partner	Total
Ending balance at December 31, 2016	1,752	7,297	173,998	121	111	183,279
Vesting of LTIP Units	—	72	—	—	—	72
OP redemptions for UDR stock	—	(8)	8	—	—	—
Ending balance at December 31, 2017	1,752	7,361	174,006	121	111	183,351
Vesting of LTIP Units	—	286	—	—	—	286
OP redemptions for UDR stock	—	(11)	11	—	—	—
Ending balance at December 31, 2018	1,752	7,636	174,017	121	111	183,637
Vesting of LTIP Units	—	427	—	—	—	427
OP redemptions for UDR stock	—	(1,969)	1,969	—	—	—
Ending balance at December 31, 2019	1,752	6,094	175,986	121	111	184,064

LTIP Units

UDR grants short-term and long-term incentive plan units (“LTIP Units”) to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have voting and distribution rights consistent with OP Units. The LTIP Units are subject to the terms of UDR’s long-term incentive plan.

NaN classes of LTIP Units are granted, Class 1 LTIP Units and Class 2 LTIP Units. Class 1 LTIP Units are granted to certain employees and non-employee directors and vest over a period of up to four years. Class 2 LTIP Units are granted to certain employees and vest over a period from one to three years subject to certain performance and market conditions being achieved. Vested LTIP Units may be converted into OP Units provided that such LTIP Units have been outstanding for at least two years from the date of grant.

Allocation of Profits and Losses

Profit of the Operating Partnership is allocated in the following order: (i) to the General Partner and the Limited Partners in proportion to and up to the amount of cash distributions made during the year, and (ii) to the General Partner and Limited Partners in accordance with their percentage interests. Losses and depreciation and amortization expenses, non-recourse liabilities are allocated to the General Partner and Limited Partners in accordance with their percentage interests. Losses allocated to the Limited Partners are capped to the extent that such an allocation would not cause a deficit in the Limited Partners’ capital account. Such losses are, therefore, allocated to the General Partner. If any Partner’s capital balance were to fall into a deficit, any income and gains are allocated to each Partner sufficient to eliminate its negative capital balance.

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DECEMBER 31, 2019

11. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Commitments

The following summarizes the Operating Partnership’s real estate commitments at December 31, 2019 (dollars in thousands):

	Number			Operating Partnership's
	Properties	Investment		Remaining Commitment
Real estate communities - redevelopment	1	$	8,073	$	16,927

Contingencies

Litigation and Legal Matters

The Operating Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. The Operating Partnership cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The General Partner believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the Operating Partnership’s financial condition, results of operations or cash flows.

12. REPORTABLE SEGMENTS

GAAP guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker to decide how to allocate resources and for purposes of assessing such segments’ performance. The Operating Partnership has the same Chief Operating Decision Maker as that of its parent, the General Partner. The Chief Operating Decision Maker consists of several members of UDR’s executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

The Operating Partnership owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures of the Operating Partnership’s apartment communities are rental income and net operating income (“NOI”), and are included in the Chief Operating Decision Maker’s assessment of the Operating Partnership’s performance on a consolidated basis. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as total revenues less direct property operating expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs. The Chief Operating Decision Maker of the General Partner utilizes NOI as the key measure of segment profit or loss.

The Operating Partnership’s 2 reportable segments are Same-Store Communities and Non-Mature Communities/Other:

● Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

● Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

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DECEMBER 31, 2019

Management of the General Partner evaluates the performance of each of the Operating Partnership’s apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Operating Partnership’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Operating Partnership’s total revenues during the years ended December 31, 2019, 2018, and 2017.

The following is a description of the principal streams from which the Operating Partnership generates its revenue:

Lease Revenue

Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 842, Leases. Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the noncancellable lease term because collection of the lease payments was probable at lease commencement, inclusive of any periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the lease term.

Lease revenue also includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. These services represent non-lease components in a contract as the Operating Partnership transfers a service to the lessee other than the right to use the underlying asset. The Operating Partnership has elected the practical expedient under the leasing standard to not separate lease and non-lease components from its resident and retail lease contracts as the timing and pattern of revenue recognition for the non-lease component and related lease component are the same and the combined single lease component would be classified as an operating lease.

Other Revenue

Other revenue is generated by services provided by the Operating Partnership to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

The following table details rental income and NOI for the Operating Partnership’s reportable segments for the years ended December 31, 2019, 2018, and 2017, and reconciles NOI to Net income/(loss) attributable to OP unitholders on the Consolidated Statements of Operations (dollars in thousands):

	Year Ended December 31,
	2019		2018		2017
Reportable apartment home segment lease revenue
Same-Store Communities (a)
West Region	$	248,474	$	238,886	$	228,027
Mid-Atlantic Region		59,530		58,624		57,275
Southeast Region		50,795		49,132		46,946
Northeast Region		32,224		31,693		31,387
Non-Mature Communities/Other		36,735		40,547		43,127
Total segment and consolidated lease revenue	$	427,758	$	418,882	$	406,762
Reportable apartment home segment other revenue
Same-Store Communities (a)
West Region	$	7,873	$	7,161	$	6,996
Mid-Atlantic Region		1,975		1,765		1,730
Southeast Region		2,925		2,764		2,640
Northeast Region		646		622		589
Non-Mature Communities/Other		596		726		660
Total segment and consolidated other revenue	$	14,015		13,038	$	12,615
Total reportable apartment home segment rental income
Same-Store Communities (a)
West Region	$	256,347	$	246,047	$	235,023
Mid-Atlantic Region		61,505		60,389		59,005
Southeast Region		53,720		51,896		49,586
Northeast Region		32,870		32,315		31,976
Non-Mature Communities/Other		37,331		41,273		43,787
Total segment and consolidated rental income	$	441,773		431,920	$	419,377
Reportable apartment home segment NOI
Same-Store Communities (a)
West Region	$	196,302	$	187,664	$	177,228
Mid-Atlantic Region		42,413		41,642		40,292
Southeast Region		37,340		35,948		34,182
Northeast Region		24,103		24,578		24,510
Non-Mature Communities/Other		22,848		27,548		30,629
Total segment and consolidated NOI	$	323,006	$	317,380	$	306,841
Reconciling items:
Property management		(12,701)		(11,878)		(11,533)
Other operating expenses		(9,488)		(8,864)		(6,833)
Real estate depreciation and amortization		(139,975)		(143,481)		(152,473)
General and administrative		(18,014)		(16,889)		(17,875)
Casualty-related (charges)/recoveries, net		(853)		(951)		(1,922)
Gain/(loss) on sale of real estate owned		—		75,507		41,272
Income/(loss) from unconsolidated entities		(8,313)		43,496		(19,256)
Interest expense		(29,667)		(22,835)		(30,366)
Net (income)/loss attributable to noncontrolling interests		(1,832)		(1,722)		(1,548)
Net income/(loss) attributable to OP unitholders	$	102,163	$	229,763	$	106,307

(a) Same-Store Community population consisted of 15,723 apartment homes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

The following table details the assets of the Operating Partnership’s reportable segments as of December 31, 2019 and 2018 (dollars in thousands):

	December 31,		December 31,
	2019		2018
Reportable apartment home segment assets
Same-Store Communities (a):
West Region	$	2,011,495	$	1,981,007
Mid-Atlantic Region		669,417		663,083
Southeast Region		352,790		340,722
Northeast Region		408,703		406,149
Non-Mature Communities/Other		432,755		421,024
Total segment assets		3,875,160		3,811,985
Accumulated depreciation		(1,796,568)		(1,658,161)
Total segment assets - net book value		2,078,592		2,153,824
Reconciling items:
Cash and cash equivalents		24		125
Restricted cash		13,998		13,563
Investment in unconsolidated entities		76,222		103,026
Operating lease right-of-use assets		205,668		—
Other assets		24,241		34,052
Total consolidated assets	$	2,398,745	$	2,304,590

(a) Same-Store Community population consisted of 15,723 apartment homes.

Markets included in the above geographic segments are as follows:

i. West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

ii. Mid-Atlantic Region — Metropolitan, D.C. and Baltimore

iii. Southeast Region — Nashville, Tampa and Other Florida

iv. Northeast Region — New York and Boston

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019

13. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2019 and 2018 is summarized in the table below (dollars in thousands, except per unit amounts):

	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
2019
Rental income	$	108,334	$	110,350	$	111,700	$	111,389
Income/(loss)		24,334		27,810		27,283		24,568
Income/(loss) attributable to OP unitholders		23,946		27,394		26,835		23,988
Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (a)	$	0.13	$	0.15	$	0.15	$	0.13
2018
Rental income	$	106,592	$	107,266	$	109,539	$	108,523
Income/(loss)		91,845		25,181		28,135		86,324
Income/(loss) attributable to OP unitholders		91,427		24,761		27,695		85,880
Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (a)	$	0.50	$	0.13	$	0.15	$	0.47

(a) Quarterly net income/(loss) per weighted average OP Unit amounts may not total to the annual amounts.

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UDR, INC.

SCHEDULE III — REAL ESTATE OWNED

DECEMBER 31, 2019

(In thousands)

											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
WEST REGION
Harbor at Mesa Verde	$	—	$	20,476	$	28,538	$	49,014	$	22,350	$	22,175	$	49,189	$	71,364	$	35,561	1965/2003	Jun-03
27 Seventy Five Mesa Verde		—		99,329		110,644		209,973		104,036		114,820		199,189		314,009		137,814	1979/2013	Oct-04
Huntington Vista		—		8,055		22,486		30,541		14,117		9,277		35,381		44,658		25,545	1970	Jun-03
Missions at Back Bay		—		229		14,129		14,358		3,822		10,990		7,190		18,180		5,486	1969	Dec-03
Eight 80 Newport Beach - North		—		62,516		46,082		108,598		45,252		69,131		84,719		153,850		60,216	1968/2000/2016	Oct-04
Eight 80 Newport Beach - South		—		58,785		50,067		108,852		35,651		60,953		83,550		144,503		56,092	1968/2000/2016	Mar-05
Foxborough		—		12,071		6,187		18,258		4,701		12,528		10,431		22,959		7,409	1969	Sep-04
1818 Platinum Triangle		—		16,663		51,905		68,568		4,031		17,074		55,525		72,599		30,618	2009	Aug-10
Beach & Ocean		—		12,878		—		12,878		39,374		13,114		39,138		52,252		12,871	2014	Aug-11
The Residences at Bella Terra		—		25,000		—		25,000		129,030		25,476		128,554		154,030		50,709	2013	Oct-11
Los Alisos at Mission Viejo		—		17,298		—		17,298		71,351		16,674		71,975		88,649		26,850	2014	Jun-04
The Residences at Pacific City		—		78,085		—		78,085		276,247		78,143		276,189		354,332		37,475	2018	Jan-14
Parallel		—		15,181		100,595		115,776		705		15,184		101,297		116,481		7,003	2018	Jan-19
ORANGE COUNTY, CA		—		426,566		430,633		857,199		750,667		465,539		1,142,327		1,607,866		493,649
2000 Post Street		—		9,861		44,578		54,439		36,423		14,406		76,456		90,862		43,622	1987/2016	Dec-98
Birch Creek		—		4,365		16,696		21,061		9,895		1,376		29,580		30,956		17,725	1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		28,751		7,995		51,620		59,615		37,583	1991/2010	Dec-98
Marina Playa		—		6,224		23,916		30,140		13,977		1,242		42,875		44,117		24,745	1971	Dec-98
River Terrace		—		22,161		40,137		62,298		7,850		22,911		47,237		70,148		32,060	2005	Aug-05
CitySouth		—		14,031		30,537		44,568		38,610		16,545		66,633		83,178		48,737	1972/2012	Nov-05
Bay Terrace		—		8,545		14,458		23,003		7,231		11,637		18,597		30,234		12,278	1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		11,287		5,777		29,422		35,199		20,313	1968/2010	Oct-07
Edgewater		—		30,657		83,872		114,529		12,736		30,804		96,461		127,265		57,547	2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		9,265		963		51,411		52,374		31,947	1999	Jul-08
388 Beale		—		14,253		74,104		88,357		13,993		14,643		87,707		102,350		42,629	1999	Apr-11
Channel @ Mission Bay		—		23,625		—		23,625		131,471		23,983		131,113		155,096		48,635	2014	Sep-10
SAN FRANCISCO, CA		27,000		145,665		414,240		559,905		321,489		152,282		729,112		881,394		417,821
Crowne Pointe		—		2,486		6,437		8,923		9,323		3,177		15,069		18,246		10,776	1987	Dec-98
Hilltop		—		2,174		7,408		9,582		6,365		3,030		12,917		15,947		9,216	1985	Dec-98
The Hawthorne		—		6,474		30,226		36,700		8,473		7,101		38,072		45,173		26,389	2003	Jul-05
The Kennedy		—		6,179		22,307		28,486		3,261		6,300		25,447		31,747		17,028	2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		7,368		7,302		37,836		45,138		23,317	2000	May-08
Island Square		—		21,284		89,389		110,673		7,672		21,667		96,678		118,345		58,376	2007	Jul-08
Borgata		—		6,379		24,569		30,948		5,542		6,452		30,038		36,490		18,943	2001/2016	May-07
elements too		—		27,468		72,036		99,504		19,466		30,331		88,639		118,970		64,466	2010	Feb-10
989elements		—		8,541		45,990		54,531		5,009		8,679		50,861		59,540		28,277	2006	Dec-09
Lightbox		—		6,449		38,884		45,333		1,235		6,474		40,094		46,568		13,689	2014	Aug-14
Waterscape		—		9,693		65,176		74,869		3,222		9,784		68,307		78,091		20,951	2014	Sep-14
Ashton Bellevue		44,594		8,287		124,939		133,226		2,631		8,368		127,489		135,857		23,100	2009	Oct-16
TEN20		26,337		5,247		76,587		81,834		3,635		5,292		80,177		85,469		14,496	2009	Oct-16
Milehouse		—		5,976		63,041		69,017		741		5,995		63,763		69,758		12,863	2016	Nov-16
CityLine		—		11,220		85,787		97,007		348		11,228		86,127		97,355		16,232	2016	Jan-17
CityLine II		—		3,723		56,843		60,566		435		3,723		57,278		61,001		3,947	2018	Jan-19
SEATTLE, WA		70,931		138,428		840,541		978,969		84,726		144,903		918,792		1,063,695		362,066
Rosebeach		—		8,414		17,449		25,863		5,903		8,855		22,911		31,766		16,642	1970	Sep-04
Tierra Del Rey		—		39,586		36,679		76,265		8,415		39,857		44,823		84,680		27,165	1998	Dec-07
The Westerly		—		48,182		102,364		150,546		41,493		50,887		141,152		192,039		83,909	1993/2013	Sep-10
Jefferson at Marina del Rey		—		55,651		—		55,651		94,053		61,580		88,124		149,704		52,782	2008	Sep-07
LOS ANGELES, CA		—		151,833		156,492		308,325		149,864		161,179		297,010		458,189		180,498
Boronda Manor		—		1,946		8,982		10,928		11,332		3,330		18,930		22,260		11,809	1979	Dec-98
Garden Court		—		888		4,188		5,076		6,546		1,613		10,009		11,622		6,382	1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		18,449		5,695		28,676		34,371		18,243	1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		7,657		2,449		11,627		14,076		7,337	1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		33,268		10,345		53,165		63,510		32,804	1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		12,096		3,623		18,545		22,168		11,851	1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		7,960		2,361		12,262		14,623		7,544	1975	Dec-98

S - 1

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2019

(In thousands)

											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		97,308		29,416		153,214		182,630		95,970
Verano at Rancho Cucamonga Town Square		—		13,557		3,645		17,202		57,985		23,633		51,554		75,187		42,170	2006	Oct-02
Windemere at Sycamore Highland		—		5,810		23,450		29,260		4,934		6,271		27,923		34,194		21,136	2001	Nov-02
Strata		42,698		14,278		84,242		98,520		85		14,278		84,327		98,605		468	2010	Nov-19
OTHER SOUTHERN CA		42,698		33,645		111,337		144,982		63,004		44,182		163,804		207,986		63,774
Tualatin Heights		—		3,273		9,134		12,407		9,090		4,141		17,356		21,497		12,657	1989	Dec-98
Hunt Club		—		6,014		14,870		20,884		8,014		6,516		22,382		28,898		17,520	1985	Sep-04
PORTLAND, OR		—		9,287		24,004		33,291		17,104		10,657		39,738		50,395		30,177
TOTAL WEST REGION		140,629		922,362		2,045,631		2,967,993		1,484,162		1,008,158		3,443,997		4,452,155		1,643,955
MID-ATLANTIC REGION
Dominion Middle Ridge		—		3,311		13,283		16,594		11,745		4,054		24,285		28,339		16,308	1990	Jun-96
Dominion Lake Ridge		—		2,366		8,387		10,753		9,611		3,163		17,201		20,364		12,846	1987	Feb-96
Presidential Greens		—		11,238		18,790		30,028		13,019		11,826		31,221		43,047		24,563	1938	May-02
The Whitmore		—		6,418		13,411		19,829		24,170		7,564		36,435		43,999		28,764	1962/2008	Apr-02
Ridgewood -apts side		—		5,612		20,086		25,698		10,801		6,362		30,137		36,499		24,033	1988	Aug-02
DelRay Tower		—		297		12,786		13,083		116,038		9,652		119,469		129,121		40,394	2014	Jan-08
Waterside Towers		—		13,001		49,657		62,658		31,372		50,603		43,427		94,030		29,028	1971	Dec-03
Wellington Place at Olde Town		—		13,753		36,059		49,812		20,955		14,885		55,882		70,767		41,845	1987/2008	Sep-05
Andover House		—		183		59,948		60,131		6,813		317		66,627		66,944		39,795	2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		12,102		1,775		115,140		116,915		72,629	2007	Dec-07
Delancey at Shirlington		—		21,606		66,765		88,371		5,930		21,713		72,588		94,301		43,905	2006/2007	Mar-08
View 14		—		5,710		97,941		103,651		5,174		5,780		103,045		108,825		49,727	2009	Jun-11
Signal Hill Apartments		—		13,290		—		13,290		72,169		25,576		59,883		85,459		41,319	2010	Mar-07
Capitol View on 14th		—		31,393		—		31,393		96,501		31,471		96,423		127,894		40,878	2013	Sep-07
Domain College Park		—		7,300		—		7,300		60,095		7,508		59,887		67,395		22,856	2014	Jun-11
1200 East West		—		9,748		68,022		77,770		3,289		9,888		71,171		81,059		16,873	2010	Oct-15
Courts at Huntington Station		—		27,749		111,878		139,627		4,526		28,085		116,068		144,153		31,845	2011	Oct-15
Eleven55 Ripley		—		15,566		107,539		123,105		4,111		15,838		111,378		127,216		26,234	2014	Oct-15
Arbor Park of Alexandria		80,664		50,881		159,728		210,609		5,571		51,347		164,833		216,180		44,595	1969/2015	Oct-15
Courts at Dulles		—		14,697		83,834		98,531		10,035		14,767		93,799		108,566		26,917	2000	Oct-15
Newport Village		127,600		55,283		177,454		232,737		20,485		55,708		197,514		253,222		54,930	1968	Oct-15
1301 Thomas Circle		—		27,836		128,191		156,027		144		27,836		128,335		156,171		2,892	2006	Aug-19
Crescent Falls Church		43,803		13,687		88,692		102,379		27		13,687		88,719		102,406		577	2010	Nov-19
METROPOLITAN, D.C.		252,067		352,062		1,426,127		1,778,189		544,683		419,405		1,903,467		2,322,872		733,753
Gayton Pointe Townhomes		—		826		5,148		5,974		31,396		3,598		33,772		37,370		30,959	1973/2007	Sep-95
Waterside At Ironbridge		—		1,844		13,239		15,083		9,922		2,575		22,430		25,005		16,763	1987	Sep-97
Carriage Homes at Wyndham		—		474		30,997		31,471		10,475		4,056		37,890		41,946		28,644	1998	Nov-03
Legacy at Mayland		—		1,979		11,524		13,503		33,902		5,451		41,954		47,405		37,420	1973/2007	Dec-91
RICHMOND, VA		—		5,123		60,908		66,031		85,695		15,680		136,046		151,726		113,786
Calvert's Walk		—		4,408		24,692		29,100		9,266		4,996		33,370		38,366		25,052	1988	Mar-04
20 Lambourne		—		11,750		45,590		57,340		10,667		12,428		55,579		68,007		34,852	2003	Mar-08
Domain Brewers Hill		—		4,669		40,630		45,299		2,279		4,808		42,770		47,578		22,704	2009	Aug-10
Rodgers Forge		—		15,392		67,958		83,350		3,001		15,392		70,959		86,351		3,367	1945	Apr-19
Towson Promenade		58,600		12,599		78,847		91,446		29		12,599		78,876		91,475		501	2009	Nov-19
BALTIMORE, MD		58,600		48,818		257,717		306,535		25,242		50,223		281,554		331,777		86,476
TOTAL MID-ATLANTIC REGION		310,667		406,003		1,744,752		2,150,755		655,620		485,308		2,321,067		2,806,375		934,015
SOUTHEAST REGION
Seabrook		—		1,846		4,155		6,001		10,276		3,018		13,259		16,277		11,396	1984/2004	Feb-96
Altamira Place		—		1,533		11,076		12,609		22,790		3,887		31,512		35,399		28,929	1984/2007	Apr-94
Regatta Shore		—		757		6,608		7,365		18,177		2,301		23,241		25,542		20,424	1988/2007	Jun-94
Alafaya Woods		—		1,653		9,042		10,695		12,841		2,860		20,676		23,536		16,273	1989/2006	Oct-94
Los Altos		—		2,804		12,349		15,153		13,797		4,710		24,240		28,950		19,347	1990/2004	Oct-96
Lotus Landing		—		2,185		8,639		10,824		12,182		3,050		19,956		23,006		15,091	1985/2006	Jul-97
Seville On The Green		—		1,282		6,498		7,780		8,635		1,872		14,543		16,415		11,259	1986/2004	Oct-97
Ashton @ Waterford		—		3,872		17,538		21,410		6,886		4,406		23,890		28,296		16,848	2000	May-98

S - 2

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2019

(In thousands)

											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
Arbors at Lee Vista		—		6,692		12,860		19,552		16,125		7,669		28,008		35,677		21,670	1992/2007	Aug-06
ORLANDO, FL		—		22,624		88,765		111,389		121,709		33,773		199,325		233,098		161,237
Legacy Hill		—		1,148		5,867		7,015		11,083		2,026		16,072		18,098		13,203	1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		14,126		2,592		24,587		27,179		16,915	1989	Dec-95
Carrington Hills		—		2,117		—		2,117		39,283		4,925		36,475		41,400		26,945	1999	Dec-95
Brookridge		—		708		5,461		6,169		7,396		1,492		12,073		13,565		9,211	1986	Mar-96
Breckenridge		—		766		7,714		8,480		6,998		1,539		13,939		15,478		10,241	1986	Mar-97
Colonnade		—		1,460		16,015		17,475		8,865		2,317		24,023		26,340		16,356	1998	Jan-99
The Preserve at Brentwood		—		3,182		24,674		27,856		11,163		4,145		34,874		39,019		26,346	1998	Jun-04
Polo Park		—		4,583		16,293		20,876		18,611		6,140		33,347		39,487		27,026	1987/2008	May-06
NASHVILLE, TN		—		15,433		87,608		103,041		117,525		25,176		195,390		220,566		146,243
Summit West		—		2,176		4,710		6,886		12,423		3,688		15,621		19,309		13,431	1972	Dec-92
The Breyley		—		1,780		2,458		4,238		18,948		3,811		19,375		23,186		19,088	1977/2007	Sep-93
Lakewood Place		—		1,395		10,647		12,042		13,457		3,257		22,242		25,499		17,883	1986	Mar-94
Cambridge Woods		—		1,791		7,166		8,957		12,591		3,514		18,034		21,548		14,194	1985	Jun-97
Inlet Bay		—		7,702		23,150		30,852		19,716		10,421		40,147		50,568		32,988	1988/1989	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		11,770		12,194		47,303		59,497		35,105	2001	Dec-04
The Vintage Lofts at West End		—		6,611		37,663		44,274		21,768		15,826		50,216		66,042		33,876	2009	Jul-09
Peridot Palms		—		6,293		89,752		96,045		1,002		6,301		90,746		97,047		5,481	2017	Feb-19
The Preserve at Gateway		—		4,467		43,723		48,190		961		4,467		44,684		49,151		1,828	2013	May-19
TAMPA, FL		—		43,084		256,127		299,211		112,636		63,479		348,368		411,847		173,874
The Reserve and Park at Riverbridge		—		15,968		56,401		72,369		15,149		16,840		70,678		87,518		50,001	1999/2001	Dec-04
OTHER FLORIDA		—		15,968		56,401		72,369		15,149		16,840		70,678		87,518		50,001
TOTAL SOUTHEAST REGION		—		97,109		488,901		586,010		367,019		139,268		813,761		953,029		531,355
NORTHEAST REGION
10 Hanover Square		—		41,432		218,983		260,415		24,465		41,765		243,115		284,880		103,344	2005	Apr-11
21 Chelsea		—		36,399		107,154		143,553		14,695		36,529		121,719		158,248		55,758	2001	Aug-11
View 34		—		114,410		324,920		439,330		112,238		116,021		435,547		551,568		203,215	1985/2013	Jul-11
95 Wall Street		—		57,637		266,255		323,892		10,474		58,063		276,303		334,366		139,677	2008	Aug-11
Leonard Pointe		—		38,010		93,204		131,214		1,169		38,014		94,369		132,383		5,661	2015	Feb-19
One William		—		6,422		75,527		81,949		151		6,422		75,678		82,100		2,029	2018	Aug-19
NEW YORK, NY		—		294,310		1,086,043		1,380,353		163,192		296,814		1,246,731		1,543,545		509,684
Garrison Square		—		6,475		91,027		97,502		23,062		6,613		113,951		120,564		54,270	1887/1990	Sep-10
Ridge at Blue Hills		25,000		6,039		34,869		40,908		4,884		6,420		39,372		45,792		20,913	2007	Sep-10
Inwood West		80,000		20,778		88,096		108,874		13,326		19,799		102,401		122,200		52,250	2006	Apr-11
14 North		72,500		10,961		51,175		62,136		12,621		11,404		63,353		74,757		33,733	2005	Apr-11
100 Pier 4		—		24,584		—		24,584		202,433		24,689		202,328		227,017		51,639	2015	Dec-15
345 Harrison		—		32,938		—		32,938		326,016		44,889		314,065		358,954		25,913	2018	Nov-11
Currents on the Charles		—		12,580		70,149		82,729		285		12,580		70,434		83,014		2,431	2015	Jun-19
The Commons at Windsor Gardens		—		34,609		225,515		260,124		1,126		34,611		226,639		261,250		7,205	1969	Aug-19
Charles River Landing		69,315		17,068		112,777		129,845		51		17,068		112,828		129,896		722	2010	Nov-19
Lenox Farms		94,050		17,692		115,898		133,590		70		17,692		115,968		133,660		754	2009	Nov-19
Lodge at Ames Pond		48,774		12,645		70,653		83,298		76		12,645		70,729		83,374		466	2010	Nov-19
BOSTON, MA		389,639		196,369		860,159		1,056,528		583,950		208,410		1,432,068		1,640,478		250,296
Park Square		—		10,365		96,050		106,415		935		10,416		96,934		107,350		4,483	2018	May-19
PHILADELPHIA, PA		—		10,365		96,050		106,415		935		10,416		96,934		107,350		4,483
TOTAL NORTHEAST REGION		389,639		501,044		2,042,252		2,543,296		748,077		515,640		2,775,733		3,291,373		764,463
SOUTHWEST REGION
Thirty377		25,000		24,036		32,951		56,987		20,627		26,207		51,407		77,614		33,450	1999/2007	Aug-06
Legacy Village		90,000		16,882		100,102		116,984		22,641		21,394		118,231		139,625		74,746	2005/06/07	Mar-08
Addison Apts at The Park		—		22,041		11,228		33,269		11,058		30,969		13,358		44,327		10,768	1977/78/79	May-07
Addison Apts at The Park II		—		7,903		554		8,457		3,718		8,442		3,733		12,175		2,664	1970	May-07
Addison Apts at The Park I		—		10,440		634		11,074		4,158		11,055		4,177		15,232		3,270	1975	May-07
Savoye		32,575		8,432		50,482		58,914		47		8,432		50,529		58,961		331	2009	Nov-19
Savoye 2		36,023		6,451		56,616		63,067		11		6,451		56,627		63,078		365	2011	Nov-19

S - 3

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2019

(In thousands)

											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
Fiori on Vitruvian Park		50,609		7,934		78,574		86,508		59		7,934		78,633		86,567		519	2013	Nov-19
Vitruvian West 1		41,317		6,273		61,418		67,691		86		6,273		61,504		67,777		427	2018	Nov-19
DALLAS, TX		275,524		110,392		392,559		502,951		62,405		127,157		438,199		565,356		126,540
Barton Creek Landing		—		3,151		14,269		17,420		24,444		5,358		36,506		41,864		29,696	1986/2012	Mar-02
Residences at the Domain		—		4,034		55,256		59,290		14,140		4,524		68,906		73,430		41,561	2007	Aug-08
Red Stone Ranch		—		5,084		17,646		22,730		4,740		5,656		21,814		27,470		11,697	2000	Apr-12
Lakeline Villas		—		4,148		16,869		21,017		3,436		4,625		19,828		24,453		10,429	2002	Apr-12
AUSTIN, TX		—		16,417		104,040		120,457		46,760		20,163		147,054		167,217		93,383
Steele Creek		—		8,586		130,402		138,988		5,264		8,614		135,638		144,252		17,097	2015	Oct-17
DENVER, CO		—		8,586		130,402		138,988		5,264		8,614		135,638		144,252		17,097
TOTAL SOUTHWEST REGION		275,524		135,395		627,001		762,396		114,429		155,934		720,891		876,825		237,020
TOTAL OPERATING COMMUNITIES		1,116,459		2,061,913		6,948,537		9,010,450		3,369,307		2,304,308		10,075,449		12,379,757		4,110,808
REAL ESTATE UNDER DEVELOPMENT
Vitruvian West Phase 2		—		6,451		15,798		22,249		2,558		6,451		18,356		24,807		23
Cirrus		—		13,853		—		13,853		12,759		13,853		12,759		26,612		—
Dublin		—		8,922		—		8,922		9,436		8,922		9,436		18,358		—
TOTAL REAL ESTATE UNDER DEVELOPMENT		—		29,226		15,798		45,024		24,753		29,226		40,551		69,777		23
LAND
Vitruvian Park®		—		39,609		4,997		44,606		9,543		46,666		7,483		54,149		2,489
500 Penn		—		27,135		—		27,135		6,331		27,135		6,331		33,466		—
TOTAL LAND		—		66,744		4,997		71,741		15,874		73,801		13,814		87,615		2,489
COMMERCIAL
Brookhaven Shopping Center		—								29,808		7,793		22,015		29,808		14,297
TOTAL COMMERCIAL		—		—		—		—		29,808		7,793		22,015		29,808		14,297
Other (b)		—		—		—		—		9,581		—		9,581		9,581		—
1745 Shea Center I		—		3,034		20,534		23,568		1,995		3,094		22,469		25,563		3,736
TOTAL CORPORATE		—		3,034		20,534		23,568		11,576		3,094		32,050		35,144		3,736
TOTAL COMMERCIAL & CORPORATE		—		3,034		20,534		23,568		41,384		10,887		54,065		64,952		18,033
Deferred Financing Costs and Other Non-Cash Adjustments		32,982
TOTAL REAL ESTATE OWNED	$	1,149,441	$	2,160,917	$	6,989,866	$	9,150,783	$	3,451,318	$	2,418,222	$	10,183,879	$	12,602,101	$	4,131,353

(a) Date of original construction/date of last major renovation, if applicable.

(b) Includes unallocated accruals and capital expenditures.

The aggregate cost for federal income tax purposes was approximately $11.7 billion at December 31, 2019 (unaudited).

The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 30 to 55 years.

S - 4

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2019

(In thousands)

3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands):

	2019		2018		2017
Balance at beginning of the year	$	10,196,159	$	10,177,206	$	9,615,753
Real estate acquired		2,241,163		—		235,993
Capital expenditures and development		195,981		214,898		369,029
Real estate sold		(31,202)		(195,945)		(43,569)
Balance at end of the year	$	12,602,101	$	10,196,159	$	10,177,206

The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands):

	2019		2018		2017
Balance at beginning of the year	$	3,654,160	$	3,330,166	$	2,923,625
Depreciation expense for the year		477,193		426,006		424,772
Accumulated depreciation on sales		—		(102,012)		(18,231)
Balance at end of year	$	4,131,353	$	3,654,160	$	3,330,166

S - 5

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED

DECEMBER 31, 2019

(In thousands)

											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Cost of
									Improvements
									Capitalized
							Total Initial		Subsequent to				Buildings &						Date of
			Land and Land		Building and		Acquisition		Acquisition		Land and Land		Buildings		Total Carrying		Accumulated		Construction
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		(a)	Date Acquired
WEST REGION
Harbor at Mesa Verde	$	—	$	20,476	$	28,538	$	49,014	$	22,350	$	22,175	$	49,189	$	71,364	$	35,561	1965/2003	Jun-03
27 Seventy Five Mesa Verde		—		99,329		110,644		209,973		104,036		114,820		199,189		314,009		137,814	1979/2013	Oct-04
Huntington Vista		—		8,055		22,486		30,541		14,117		9,277		35,381		44,658		25,545	1970	Jun-03
Missions at Back Bay		—		229		14,129		14,358		3,822		10,990		7,190		18,180		5,486	1969	Dec-03
Eight 80 Newport Beach - North		—		62,516		46,082		108,598		45,252		69,131		84,719		153,850		60,216	1968/2000/2016	Oct-04
Eight 80 Newport Beach - South		—		58,785		50,067		108,852		35,651		60,953		83,550		144,503		56,092	1968/2000/2016	Mar-05
ORANGE COUNTY, CA		—		249,390		271,946		521,336		225,228		287,346		459,218		746,564		320,714
2000 Post Street		—		9,861		44,578		54,439		23,836		11,115		67,160		78,275		36,216	1987/2016	Dec-98
Birch Creek		—		4,365		16,696		21,061		9,895		1,376		29,580		30,956		17,725	1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		28,751		7,995		51,620		59,615		37,583	1991/2010	Dec-98
Marina Playa		—		6,224		23,916		30,140		13,977		1,242		42,875		44,117		24,745	1971	Dec-98
River Terrace		—		22,161		40,137		62,298		7,850		22,911		47,237		70,148		32,060	2005	Aug-05
CitySouth		—		14,031		30,537		44,568		38,610		16,545		66,633		83,178		48,737	1972/2012	Nov-05
Bay Terrace		—		8,545		14,458		23,003		7,231		11,637		18,597		30,234		12,278	1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		11,287		5,777		29,422		35,199		20,313	1968/2010	Oct-07
Edgewater		—		30,657		83,872		114,529		12,736		30,804		96,461		127,265		57,547	2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		9,265		963		51,411		52,374		31,947	1999	Jul-08
SAN FRANCISCO, CA		27,000		107,787		340,136		447,923		163,438		110,365		500,996		611,361		319,151
Crowne Pointe		—		2,486		6,437		8,923		9,323		3,177		15,069		18,246		10,776	1987	Dec-98
Hilltop		—		2,174		7,408		9,582		6,365		3,030		12,917		15,947		9,216	1985	Dec-98
The Kennedy		—		6,179		22,307		28,486		3,261		6,300		25,447		31,747		17,028	2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		7,368		7,302		37,836		45,138		23,317	2000	May-08
Island Square		—		21,284		89,389		110,673		7,672		21,667		96,678		118,345		58,376	2007	Jul-08
SEATTLE, WA		—		38,971		156,463		195,434		33,989		41,476		187,947		229,423		118,713
Rosebeach		—		8,414		17,449		25,863		5,903		8,855		22,911		31,766		16,642	1970	Sep-04
Tierra Del Rey		—		39,586		36,679		76,265		8,415		39,857		44,823		84,680		27,165	1998	Dec-07
LOS ANGELES, CA		—		48,000		54,128		102,128		14,318		48,712		67,734		116,446		43,807
Boronda Manor		—		1,946		8,982		10,928		11,332		3,330		18,930		22,260		11,809	1979	Dec-98
Garden Court		—		888		4,188		5,076		6,546		1,613		10,009		11,622		6,382	1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		18,449		5,695		28,676		34,371		18,243	1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		7,657		2,449		11,627		14,076		7,337	1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		33,268		10,345		53,165		63,510		32,804	1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		12,096		3,623		18,545		22,168		11,851	1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		7,960		2,361		12,262		14,623		7,544	1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		97,308		29,416		153,214		182,630		95,970
Verano at Rancho Cucamonga Town Square		—		13,557		3,645		17,202		57,985		23,633		51,554		75,187		42,170	2006	Oct-02
OTHER SOUTHERN CA		—		13,557		3,645		17,202		57,985		23,633		51,554		75,187		42,170
Tualatin Heights		—		3,273		9,134		12,407		9,090		4,141		17,356		21,497		12,657	1989	Dec-98
Hunt Club		—		6,014		14,870		20,884		8,014		6,516		22,382		28,898		17,520	1985	Sep-04
PORTLAND, OR		—		9,287		24,004		33,291		17,104		10,657		39,738		50,395		30,177
TOTAL WEST REGION		27,000		483,930		918,706		1,402,636		609,370		551,605		1,460,401		2,012,006		970,702
MID-ATLANTIC REGION
Ridgewood -apts side		—		5,612		20,086		25,698		10,801		6,362		30,137		36,499		24,033	1988	Aug-02
DelRay Tower		—		297		12,786		13,083		116,038		9,652		119,469		129,121		40,394	2014	Jan-08
Wellington Place at Olde Town		—		13,753		36,059		49,812		20,955		14,885		55,882		70,767		41,845	1987/2008	Sep-05
Andover House		—		183		59,948		60,131		6,813		317		66,627		66,944		39,795	2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		12,037		1,775		115,075		116,850		72,564	2007	Dec-07
Courts at Huntington Station		—		27,749		111,878		139,627		4,526		28,085		116,068		144,153		31,845	2011	Oct-15
METROPOLITAN D.C.		—		48,731		344,433		393,164		171,170		61,076		503,258		564,334		250,476
Calvert's Walk		—		4,408		24,692		29,100		9,266		4,996		33,370		38,366		25,052	1988	Mar-04
20 Lambourne		—		11,750		45,590		57,340		10,667		12,428		55,579		68,007		34,852	2003	Mar-08
BALTIMORE, MD		—		16,158		70,282		86,440		19,933		17,424		88,949		106,373		59,904
TOTAL MID-ATLANTIC REGION		—		64,889		414,715		479,604		191,103		78,500		592,207		670,707		310,380

S - 6

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2019

(In thousands)

											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Cost of
									Improvements
									Capitalized
							Total Initial		Subsequent to				Buildings &						Date of
			Land and Land		Building and		Acquisition		Acquisition		Land and Land		Buildings		Total Carrying		Accumulated		Construction
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		(a)	Date Acquired
SOUTHEAST REGION
Legacy Hill		—		1,148		5,867		7,015		11,083		2,026		16,072		18,098		13,203	1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		14,126		2,592		24,587		27,179		16,915	1989	Dec-95
Carrington Hills		—		2,117		—		2,117		39,283		4,925		36,475		41,400		26,945	1999	Dec-95
Brookridge		—		708		5,461		6,169		7,396		1,492		12,073		13,565		9,211	1986	Mar-96
Breckenridge		—		766		7,714		8,480		6,998		1,539		13,939		15,478		10,241	1986	Mar-97
Polo Park		—		4,583		16,293		20,876		18,611		6,140		33,347		39,487		27,026	1987/2008	May-06
NASHVILLE, TN		—		10,791		46,919		57,710		97,497		18,714		136,493		155,207		103,541
Inlet Bay		—		7,702		23,150		30,852		19,716		10,421		40,147		50,568		32,988	1988/1989	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		11,770		12,194		47,303		59,497		35,105	2001	Dec-04
TAMPA, FL		—		18,571		60,008		78,579		31,486		22,615		87,450		110,065		68,093
The Reserve and Park at Riverbridge		—		15,968		56,401		72,369		15,149		16,840		70,678		87,518		50,001	1999/2001	Dec-04
OTHER FLORIDA		—		15,968		56,401		72,369		15,149		16,840		70,678		87,518		50,001
TOTAL SOUTHEAST REGION		—		45,330		163,328		208,658		144,132		58,169		294,621		352,790		221,635
NORTHEAST REGION
10 Hanover Square		—		41,432		218,983		260,415		24,465		41,765		243,115		284,880		103,344	2005	Apr-11
95 Wall Street		—		57,637		266,255		323,892		10,474		58,063		276,303		334,366		139,677	2008	Aug-11
NEW YORK, NY		—		99,069		485,238		584,307		34,939		99,828		519,418		619,246		243,021
14 North		72,500		10,961		51,175		62,136		12,621		11,404		63,353		74,757		33,733	2005	Apr-11
BOSTON, MA		72,500		10,961		51,175		62,136		12,621		11,404		63,353		74,757		33,733
TOTAL NORTHEAST REGION		72,500		110,030		536,413		646,443		47,560		111,232		582,771		694,003		276,754
SOUTHWEST REGION
Steele Creek		—		8,586		130,400		138,986		5,266		8,614		135,638		144,252		17,097	2015	Oct-17
DENVER, CO		—		8,586		130,400		138,986		5,266		8,614		135,638		144,252		17,097
TOTAL SOUTHWEST REGION		—		8,586		130,400		138,986		5,266		8,614		135,638		144,252		17,097
TOTAL OPERATING COMMUNITIES		99,500		712,765		2,163,562		2,876,327		997,431		808,120		3,065,638		3,873,758		1,796,568
Other (b)		—		—		—		—		1,402		—		1,402		1,402		—
TOTAL CORPORATE		—		—		—		—		1,402		—		1,402		1,402		—
Deferred Financing Costs		(429)
TOTAL REAL ESTATE OWNED	$	99,071	$	712,765	$	2,163,562	$	2,876,327	$	998,833	$	808,120	$	3,067,040	$	3,875,160	$	1,796,568

(a) Date of original construction/date of last major renovation, if applicable.

(b) Includes unallocated accruals and capital expenditures.

The aggregate cost for federal income tax purpose was approximately $3.2 billion at December 31, 2019 (unaudited).

The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 30 to 55 years.

S - 7

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2019

(In thousands)

3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands):

	2019		2018		2017
Balance at beginning of the year	$	3,811,985	$	3,816,956	$	3,674,704
Real estate acquired		—		—		138,986
Capital expenditures and development		63,175		44,353		45,211
Real estate sold		—		(49,324)		(41,945)
Balance at end of year	$	3,875,160	$	3,811,985	$	3,816,956

The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands):

	2019		2018		2017
Balance at beginning of the year	$	1,658,161	$	1,543,652	$	1,408,815
Depreciation expense for the year		138,407		141,683		153,068
Accumulated depreciation on sales		—		(27,174)		(18,231)
Balance at end of year	$	1,796,568	$	1,658,161	$	1,543,652

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