UDR 8K 2010 Other Events | UDR Filing

Exhibit 99.1


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, 2010. The table should be read in conjunction with each of UDR, Inc.’s and the Operating Partnership’s respective consolidated financial statements and the notes thereto, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report.


	UDR, Inc.
	Years Ended December 31,
	(In thousands, except per share data
	and apartment homes owned)
	2010			2009			2008			2007		2006
OPERATING DATA:

Rental income (a)	$	605,295		$	575,342		$	536,045		$	475,861	$	444,134
(Loss)/income from continuing operations (a)		(114,715	)		(93,417	)		(62,933	)		45,099		(74,104	)
Income from discontinued operations (a)		8,127			1,794			806,800			181,631		206,449
Consolidated net (loss)/income		(106,588	)		(91,623	)		743,867			226,730		132,345
Distributions to preferred stockholders		9,488			10,912			12,138			13,910		15,370
Net (loss)/income attributable to common stockholders		(112,362	)		(95,858	)		688,708			198,958		109,738
Common distributions declared		126,085			127,066			308,313			177,540		168,408
Special Dividend declared		—			—			177,074			—		—

Earnings per share — basic and diluted:
(Loss)/income from continuing operations attributable to common stockholders	$	(0.73	)	$	(0.65	)	$	(0.91	)	$	0.12	$	(0.72	)
Income from discontinued operations (a)		0.05			0.01			6.20			1.36		1.54
Net (loss)/income attributable to common stockholders		(0.68	)		(0.64	)		5.29			1.48		0.82
Weighted average number of Common Share outstanding — basic and diluted		165,857			149,090			130,219			134,016		133,732
Weighted average number of Common Share outstanding, OP Units and Common Stock equivalents outstanding — diluted (b)		176,900			159,561			142,904			147,199		147,981

Common distributions declared	$	0.73		$	0.85		$	2.29		$	1.22	$	1.25

Balance Sheet Data:
Real estate owned, at cost (c)	$	6,881,347		$	6,315,047		$	5,831,753		$	5,956,481	$	5,820,122
Accumulated depreciation (c)		1,638,326			1,351,293			1,078,689			1,371,759		1,253,727
Total real estate owned, net of accumulated depreciation (c)		5,243,021			4,963,754			4,753,064			4,584,722		4,566,395
Total assets		5,529,540			5,132,617			5,143,805			4,800,454		4,675,875
Secured debt (c)		1,963,670			1,989,434			1,462,471			1,137,936		1,182,919
Unsecured debt		1,603,834			1,437,155			1,798,662			2,341,895		2,155,866
Total debt		3,567,504			3,426,589			3,261,133			3,479,831		3,338,785
Stockholders’ equity		1,606,343			1,395,441			1,415,989			941,205		942,467
Number of common shares outstanding		182,496			155,465			137,423			133,318		135,029


	UDR, Inc.
	Years Ended December 31,
	(In thousands, except per share data
	and apartment homes owned)
	2010			2009			2008			2007			2006

OPERATING DATA (continued):
Other Data (c)
Total apartments owned (at end of period)		48,553			45,913			44,388			65,867			70,339
Weighted average number of apartment homes owned during the year		47,571			45,113			46,149			69,662			73,731

Cash Flow Data
Cash provided by operating activities	$	214,180		$	229,383		$	179,754		$	269,281		$	237,881
Cash (used in)/provided by investing activities		(583,754	)		(158,045	)		302,304			(90,100	)		(158,241	)
Cash provided by/(used in) financing activities		373,075			(78,093	)		(472,537	)		(178,105	)		(93,040	)

Funds from Operations (b)
Funds from operations — basic	$	189,045		$	180,858		$	204,213		$	238,722		$	240,851
Funds from operations — diluted		192,771			184,582			207,937			242,446			244,577


(a)		Reclassified to conform to current year presentation in accordance with ACS Topic 205-20,Presentation of Financial Statements — Discontinued Operations, as described in Note 4 to the Consolidated Financial Statements included in this Report.

(b)		Funds from operations, or FFO, is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, premiums or original issuance costs associated with preferred stock redemptions, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in April 2002. We consider FFO in evaluating property acquisitions and our operating performance and believe that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of our activities in accordance with generally accepted accounting principles. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.

		RE³ is our subsidiary that focuses on development, land entitlement and short-term hold investments. RE³ tax benefits and gain on sales, net of taxes, is defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. We consider FFO with RE³ tax benefits and gain on sales, net of taxes, to be a meaningful supplemental measure of performance because the short-term use of funds produces a profit that differs from the traditional long-term investment in real estate for REITs.

		For 2010, FFO includes a loss of $1.2 million due to debt extinguishment of unsecured debt, partially offset by $6.8 million of severance and restructuring expenses and $567,000 of storm related expenses.

		For 2009, FFO includes a gain of $9.8 million due to the extinguishment of unsecured debt, partially offset by charges of $1.0 million prepayment penalty on debt restructure, $1.6 million on the write-off of a fair market adjustment for debt paid on a consolidated joint venture, $3.8 million of expenses related to a tender offer, and $127,000 of storm related expenses.

		For 2008, FFO includes a gain of $26.3 million due to the extinguishment of unsecured debt and $1.6 million of net hurricane related recoveries, partially offset by charges of $1.7 million incurred for exiting the condominium business, $1.7 million for cancelling a pre-sale contract, $4.7 million related to penalties and the write off of the associated deferred financing costs for debt refinancing and $0.7 million for severance.

		See “Funds from Operations” below for a reconciliation of FFO and Net (loss)/income attributable to UDR, Inc.

(c)		Includes amounts classified as Held for Sale, where applicable.


	United Dominion Realty, L.P.
	Years Ended December 31,
	(In thousands, except per OP unit data
	and apartment homes owned)
	2010			2009			2008			2007			2006
OPERATING DATA:

Rental income (a)	$	333,903		$	336,278		$	319,094		$	280,066		$	264,477
(Loss)/income from continuing operations (a)		(22,413	)		(2,952	)		11,410			118,174			18,002
Income/(loss) from discontinued operations		1,719			(1,093	)		487,498			76,256			151,265
Consolidated net (loss)/income		(20,694	)		(4,045	)		498,908			194,430			169,267
Net (loss)/income attributable to OP unitholders		(20,735	)		(4,176	)		497,720			193,688			168,772

Earnings per OP unit- basic and diluted:
(Loss)/income from continuing operations (a)	$	(0.13	)	$	(0.01	)	$	0.07		$	0.71		$	0.11
Income from discontinued operations		0.01			(0.01	)		2.93			0.46			0.91
Net (loss)/income attributable to OP unitholders		(0.12	)		(0.02	)		3.00			1.17			1.02
Weighted average number of OP units outstanding — basic and diluted		179,909			178,817			166,163			166,174			166,252

Balance Sheet Data:
Real estate owned, at cost (b)	$	3,706,184		$	3,640,888		$	3,569,239			2,685,249		$	2,584,495
Accumulated depreciation (b)		884,083			717,892			552,369			403,092			348,352
Total real estate owned, net of accumulated depreciation (b)		2,822,101			2,922,996			3,016,870			2,282,157			2,236,143
Total assets		2,861,395			2,961,067			3,254,851			2,909,707			2,961,297
Secured debt (b)		1,070,061			1,122,198			851,901			594,845			697,096
Total liabilities		1,299,772			1,339,319			1,272,101			920,698			951,735
Total partners’ capital		2,042,241			2,197,753			2,345,825			2,232,404			2,257,406
Receivable due from General Partner		492,709			588,185			375,124			254,256			257,963
Number of OP units outstanding		179,909			179,909			166,163			166,163			166,186

Other Data:
Total apartments owned (at end of period) (b)		23,351			23,351			23,351			36,965			40,653

Cash Flow Data
Cash provided by operating activities	$	146,604		$	157,333		$	168,660		$	212,727		$	203,195
Cash (used in)/provided by investing activities		(59,458	)		129,628			81,993			75,069			217,992
Cash used in financing activities		(86,668	)		(290,109	)		(247,150	)		(287,847	)		(422,117	)


(a)		Reclassified to conform to current year presentation in accordance with ASC Topic 205-20,Presentation of Financial Statements - Discontinued Operations, as described in Note 4 to the Consolidated Financial Statements included in this Report.

(b)		Includes amounts classified as Held for Sale, where applicable.


Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause 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, unanticipated adverse business developments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions.

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

•

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

•

delays in completing developments and lease-ups on schedule;

•

our failure to succeed in new markets;

•

changing interest rates, which could increase interest costs and affect the market price of our securities;

•

potential liability for environmental contamination, which could result in substantial costs to us;

•

the imposition of federal taxes if we fail to qualify as a REIT under the 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 and 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 and the accompanying notes for the years ended December 31, 2010, 2009 and 2008 of each of UDR, Inc. and United Domination Realty, L.P.

UDR, Inc.:

Business Overview

We are a self administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, redevelops, and manages apartment communities in select markets throughout the United States. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a Delaware limited partnership.

At December 31, 2010, our consolidated real estate portfolio included 172 communities located in 23 markets with a total of 48,553 completed apartment homes and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 37 communities with 9,891 completed apartment homes.

The following table summarizes our market information by major geographic markets as of December 31, 2010.


											Year Ended
	As of December 31, 2010										December 31, 2010
					Percentage			Total
	Number of		Number of		of Total			Carrying			Average			Total Income		Net Operating
	Apartment		Apartment		Carrying			Value			Physical			per Occupied		Income (a)
SAME COMMUNITIES	Communities		Homes		Value			(in thousands)			Occupancy			Home		(in thousands)
WESTERN REGION
Orange County, CA		12		3,989		10.7	%	$	736,670			95.4	%	$	1,483	$	47,400
San Francisco, CA		9		1,727		5.9	%		404,890			96.9	%		1,910		26,840
Monterey Peninsula, CA		7		1,565		2.2	%		152,645			94.1	%		1,066		12,820
Los Angeles, CA		4		621		2.2	%		148,924			95.6	%		1,641		7,258
San Diego, CA		3		689		1.4	%		99,585			95.1	%		1,258		6,472
Seattle, WA		9		1,725		4.4	%		304,462			96.4	%		1,173		15,841
Inland Empire, CA		3		1,074		2.2	%		150,275			94.9	%		1,220		9,909
Sacramento, CA		2		914		1.0	%		68,061			93.5	%		867		5,857
Portland, OR		3		716		1.0	%		69,543			95.9	%		946		5,211

MID-ATLANTIC REGION
Metropolitan DC		11		3,765		9.8	%		672,228			97.0	%		1,538		45,066
Richmond, VA		6		2,211		2.7	%		187,044			95.9	%		1,012		18,182
Baltimore, MD		10		2,121		3.7	%		252,236			96.7	%		1,269		21,895
Norfolk VA		6		1,438		1.2	%		84,400			95.5	%		958		10,565
Other Mid-Atlantic		5		1,132		1.1	%		78,761			96.2	%		1,017		9,201

SOUTHEASTERN REGION
Tampa, FL		10		3,278		3.7	%		254,713			95.4	%		919		21,275
Orlando, FL		10		2,796		3.2	%		220,743			95.2	%		896		18,562
Nashville, TN		8		2,260		2.6	%		180,413			96.5	%		847		14,170
Jacksonville, FL		5		1,857		2.3	%		156,540			95.0	%		818		10,654
Other Florida		4		1,184		1.6	%		112,072			94.2	%		978		7,936

SOUTHWESTERN REGION
Dallas, TX		9		2,595		3.9	%		269,684			95.7	%		949		16,101
Phoenix, AZ		3		914		1.0	%		71,646			95.3	%		855		5,620
Austin, TX		1		390		0.9	%		60,181			95.8	%		1,115		2,684
Houston, TX		1		320		0.4	%		22,226			93.1	%		893		1,764


Total/Average Same Communities		141		39,281		69.1	%		4,757,942			95.7	%	$	1,144	$	341,283


Non Matures, Commercial Properties & Other		31		9,272		30.5	%		2,025,493


Total Real Estate Held for Investment		172		48,553		99.6	%		6,783,435


Real Estate Under Development (b)		—		—		0.4	%		97,912


Total Real Estate Owned		172		48,553		100.0	%		6,881,347


Total Accumulated Depreciation									(1,638,326	)


Total Real Estate Owned, Net of Accumulated Depreciation								$	5,243,021


(a)		Total Income per Occupied Home represents total revenues divided by the product of occupancy and the number of mature apartment homes.

(b)		The Company is currently developing four wholly-owned communities with 930 apartment homes, none of which have been completed.

We report in two segments: Same Communities and Non-Mature/Other Communities. Our Same Communities segment includes those communities acquired, developed, and stabilized prior to January 1, 2009, and held as of December 31, 2010. 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 sale within the current quarter. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. Our Non-Mature/Other Communities segment includes those communities that were acquired or developed in 2008, 2009 or 2010, sold properties, redevelopment properties, properties classified as real estate held for sale, condominium conversion properties, joint venture properties, properties managed by third parties, and the non-apartment components of mixed use properties.

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 and equity. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings under credit agreements. We routinely use our unsecured 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 repositioned our portfolio.

We expect to meet our short-term liquidity requirements generally through cash flow provided by operations and borrowings under credit agreements. 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 secured and unsecured borrowings, the issuance of debt or equity securities, and the disposition of properties. We believe that our net cash provided by operations and borrowings under credit agreements 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, and the issuance of debt or equity securities.

We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC” which provides for the issuance of an indeterminate amount of Common Stock, Preferred Stock, 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.

On September 13, 2010, the Company entered into an agreement to sell 16,000,000 shares of its Common Stock at a price of $20.35 per share in an underwritten public offering. The Company granted the underwriters a 30-day option to purchase up to an additional 2,400,000 shares of Common Stock to cover overallotments. We sold 18,400,000 shares of Common Stock in this offering, with aggregate gross proceeds of approximately $374.4 million at a price per share of $20.35. Aggregate net proceeds from the offering, after deducting related expenses were approximately $359.2 million.

On September 15, 2009, the Company entered into an equity distribution agreement under which the Company may offer and sell up to 15,000,000 shares of its Common Stock over time to or through its sales agents. During the year ended December 31, 2010, we sold 6,144,367 shares of Common Stock through this program for aggregate gross proceeds of approximately $110.8 million at a weighted average price per share of $18.04. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $2.2 million, were approximately $108.6 million.

On December 7, 2009, the Company entered into an Amended and Restated Distribution Agreement with respect to the issue and sale by the Company from time to time of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. In February 2010, the Company issued $150 million of 5.25% senior unsecured medium-term notes under the Amended and Restated Distribution Agreement. These notes were priced at 99.46% of the principal amount at issuance and had a discount of $519,000 at December 31, 2010.

Future Capital Needs

Future development expenditures are expected to be funded with proceeds from construction loans, through joint ventures, unsecured or secured credit facilities, proceeds from the issuance of equity or debt securities, the sale of properties and to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be financed 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 2011, we have approximately $63.4 million of secured debt maturing, inclusive of principal amortization and net of extension rights of $188.1 million, and $95.8 million of unsecured debt maturing. We anticipate repaying that debt with proceeds from debt and equity offerings and by exercising extension rights with respect to the secured debt.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with 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.

Capital Expenditures

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.

During 2010, $47.1 million or $1,047 per apartment home was spent on recurring capital expenditures. These include revenue enhancing capital expenditures, exterior/interior upgrades, turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as exterior paint, roofs, siding, parking lots, and asset preservation capital expenditures. In addition, major renovations totaled $30.8 million for the year ended December 31, 2010. Total capital expenditures, which in aggregate include recurring capital expenditures and major renovations, of $77.9 million or $1,732 per home was spent on all of our communities, excluding development and commercial properties, for the year ended December 31, 2010.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, condominium conversions and commercial properties, for the periods presented:


	Year ended December 31,
	(dollars in thousands, except for per apartment homes)
								Per Apartment Home
	2010		2009		% Change			2010		2009		% Change

Revenue enhancing improvements	$	15,043	$	23,626		-36.3	%	$	334	$	543		-38.5	%
Turnover capital expenditures		9,528		9,401		1.4	%		212		216		-1.9	%
Asset preservation expenditures		22,538		19,912		13.2	%		501		458		9.4	%

Total recurring capital expenditures		47,109		52,939		-11.0	%		1,047		1,217		-14.0	%

Major renovations		30,816		33,466		-7.9	%		685		769		-10.9	%

Total capital expenditures	$	77,925	$	86,405		-9.8	%	$	1,732	$	1,986		-12.8	%


Repair and maintenance expense	$	33,224	$	30,450		9.1	%	$	738	$	700		5.4	%


Average stabilized home count		44,999		43,505

We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment substantially in excess of our cost of capital. Recurring capital expenditures during 2011 are currently expected to be approximately $1,050 per apartment home.

Investment in Unconsolidated Joint Ventures

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 upon industry trends and reference to market rates and transactions.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and allocate the purchase price to various components, such as land, buildings, and intangibles related to in-place leases. The purchase price is allocated based on the fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period.

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, 2010 in our Consolidated Statements of Operations we would have incurred immaterial federal and state GAAP income taxes if we had failed to qualify as a REIT.

Statements of Cash Flow

The following discussion explains the changes in net cash provided by operating activities and net cash provided by/(used in) investing and net cash (used in)/provided by financing activities that are presented in our Consolidated Statements of Cash Flows.

Operating Activities

For the year ended December 31, 2010, our net cash flow provided by operating activities was $214.2 million compared to $229.4 million for 2009. The decrease in cash flow from operating activities is primarily due to changes in operating assets, which include an increase in lease tangibles related to the acquisition of five operating communities in 2010, and operating liabilities, which include accrued restructuring and severance charges. This decrease is partially offset by an increase in property net operating income.

For the year ended December 31, 2009, our net cash flow provided by operating activities was $229.4 million compared to $179.8 million for 2008. The increase in cash flow from operating activities is primarily due to changes in operating liabilities and is partially offset by a reduction in property operating income.

Investing Activities

For the year ended December 31, 2010, net cash used in investing activities was $583.8 million compared to net cash used in investing activities of $158 million for 2009. The change relates to acquisitions of real estate assets and investments in unconsolidated joint ventures, which are discussed in further detail throughout this Report.

For the year ended December 31, 2009, net cash used in investing activities was $158 million compared to net cash provided by investing activities of $302.3 million for 2008. The change is primarily driven by a reduction in the disposition of real estate investments partially offset by a reduction in the acquisition of real estate assets and capital expenditures, all of which are discussed in further detail throughout this Report.

Acquisitions

For the year ended December 31, 2010, the Company acquired five apartment communities located in Orange County, California; Baltimore, Maryland; Los Angeles, California; and Boston, Massachusetts for a total gross purchase price of $412 million. During the same period, the Company also acquired land located in San Francisco, California for a gross purchase price of $23.6 million.

The following table summarizes UDR’s real estate community acquisitions for the year ended December 31, 2010(dollar amounts in thousands):

Apartment

Purchase

Property Name

Market

Acquisition Date

Homes

Price (a)

1818 Platinum Triangle

Orange County, CA

August 2010

265

70,500

Domain Brewers Hill

Baltimore, MD

August 2010

180

46,000

Garrison Square

Boston, MA

September 2010

160

98,000

Marina Pointe

Los Angeles, CA

September 2010

583

157,500

Ridge at Blue Hills

Boston, MA

September 2010

186

40,000

1,374

412,000


(a)		The purchase price is the contractual amount paid by UDR to the third party and does not include any costs that the Company incurred in the pursuit of the property.

Our long-term strategic plan is to continue achieving greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been seeking to expand our interests in communities located in California, Boston, Metropolitan D.C., Oregon and Washington state markets over the past years. Prospectively, we plan to channel new investments into those markets we believe will provide the best investment returns. Markets will be targeted based upon defined criteria including favorable job formation, low single-family home affordability and favorable demand/supply ratio for multifamily housing.

For the year ended December 31, 2009, we acquired one community in Dallas, Texas with 289 apartment homes for $28.5 million.

Real Estate Under Development

At December 31, 2010, our development pipeline for wholly-owned communities totaled 930 apartment homes with a budget of $338.9 million in which we have a carrying value of $97.9 million. We anticipate the completion of these communities from the first quarter of 2012 through the third quarter of 2013.

For the year ended December 31, 2010, we invested approximately $92.1 million in development projects, a decrease of $91.0 million from our 2009 level of $183.2 million. In 2010, we completed development on four wholly-owned communities with 1,575 apartment homes that have a carrying value of $259.7 million and one community held by a consolidated joint venture with 274 apartment homes and a carrying value of $122.3 million.

Consolidated Joint Ventures

UDR is a partner with an unaffiliated third party in a joint venture (“Elements Too”) which owns and operates a 274 home apartment community in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and was completed in the first quarter of 2010. At closing, we owned 49% of the joint venture. Our initial investment was $10.0 million. On October 16, 2009, our partner resigned as managing member and appointed UDR as managing member. In addition, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture. As a result of UDR’s appointment as managing member, the Company was required to consolidate the joint venture. In March 2010, the Company paid $3.2 million to acquire our partner’s 49% interest in the joint venture. At the closing of the agreement and at December 31, 2010, the Company held a 98% interest in Elements Too.

UDR is a partner with an unaffiliated third party in a joint venture (“989 Elements”) which owns and operates a 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the joint venture. Our initial investment was $11.8 million. On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in 989 Elements for $7.7 million. Concurrently, our partner resigned as managing member and appointed UDR as managing member. In addition, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture. In March 2010, the Company paid $7.7 million and acquired our partner’s 49% interest in the joint venture. At the closing of the agreement and December 31, 2010, the Company held a 98% interest in 989 Elements.

Prior to their consolidation in 2009, we evaluated our investments in these joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We considered various factors to determine if a decrease in value of each of these investments is other-than-temporary. In 2009, we recognized a non-cash charge of $16 million representing the other-than-temporary decline in fair values below the carrying values of two of the Company’s Bellevue, Washington joint ventures.

For additional information regarding these joint ventures, see Note 5,Joint Ventures, in the Consolidated Financial Statements included in this Report.

Unconsolidated Joint Ventures

In November 2010, the Company acquired The Hanover Company’s (“Hanover”) partnership interests in the Hanover/MetLife Master Limited Partnership (the “UDR/MetLife Partnership”). The UDR/MetLife Partnership owns a portfolio of 26 operating communities containing 5,748 homes and 11 land parcels with the potential to develop approximately 2,300 additional homes. Under the terms of the UDR/MetLife Partnership, UDR will act as the general partner and earn fees for property and asset management and financing transactions. UDR acquired ownership interests of 12.27% in the operating communities and 4.14% in the land parcels for $100.8 million. The initial investment of $100.8 million consists of $71.8 million in cash, which includes associated transaction costs, and a $30 million payable (includes discount of $1 million) to Hanover. UDR agreed to pay the $30 million balance to Hanover in two interest free installments in the amounts of $20 million and $10 million on the first and second anniversaries of the closing, respectively. At December 31, 2010, the Company’s investment in the Partnership was $122.2 million.

In October 2010, the Company entered into a venture with an affiliate of Hanover to develop a 240 apartment home community in the metropolitan Boston, Massachusetts area. At the closing and at December 31, 2010, UDR owned a noncontrolling interest of 95% in the joint venture. Our initial investment was $10 million and our investment at December 31, 2010 was $10.3 million.

During 2009, UDR and an unaffiliated third party formed a joint venture for the investment of up to $450 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180 million of which the Company’s maximum equity will be 30% or $54.0 million when fully invested. During 2010, the joint venture acquired its first property (151 homes) located in Metropolitan Washington D.C. for $43.1 million. At closing and at December 31, 2010, the Company owned 30%. Our investment at December 31, 2010 and 2009 was $5.2 million and $242,000, respectively.

In November 2007, UDR and an unaffiliated third party formed a joint venture which owns and operates various properties located in Texas. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at December 31, 2010 and 2009 was $10.3 million and $13.9 million, respectively.

Disposition of Investments

During the six months ended June 30, 2011, UDR sold seven communities representing 1,707 apartment homes. The results of operations of these communities have been retrospectively included in Discontinued Operations in the Consolidated Statements of Operations. In addition, the assets and liabilities related to these communities have been retrospectively classified as held for sale in the Consolidated Balance Sheets.

In 2010, UDR sold one 149 apartment home community. UDR recognized an after-tax gain for financial reporting purposes of $4 million on this sale that is included in discontinued operations. Proceeds from the sale were used primarily to reduce debt.

During the year ended December 31, 2009, we did not dispose of any communities.

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

During the year ended December 31, 2008, UDR sold 86 communities with a total of 25,684 apartment homes, for gross consideration of $1.7 billion, 53 condominiums from two communities with a total of 640 condominiums for gross consideration of $6.9 million, one parcel of land for gross proceeds of $1.6 million and one commercial property for gross proceeds of $6.5 million. We received $1.5 billion in cash and a note in the principal amount of $200 million. We recognized after-tax gains for financial reporting purposes of $786.4 million on these sales. Proceeds from the sales were used primarily to acquire new communities and reduce debt. During 2008, we decided to discontinue sales of units with the two communities identified for condominium conversion until such time that the market conditions turn favorable and it is economically beneficial to sell those units versus operate the residual 525 apartment homes of those communities. As a result of our decision to revert the remaining units to operations the Company recorded a charge to earnings of $1.7 million, excluding the catch up for depreciation on the units when they were returned to operations.

As a result of our disposition activities in 2008, the Company declared a Special Dividend payable to holders of our common stock for $0.96 per share included with our recurring distribution for the Company’s fourth quarter of 2008 for a total of $1.29 per share payable on January 29, 2009 to stockholders of record on December 9, 2008. Additional information regarding the Special Dividend is set forth in Item 1. Business in Part 1 of this Report.

In conjunction with the transaction in which we sold 86 communities for $1.7 billion, we received a note in the amount of $200.0 million. The note was paid in full in 2009.

Financing Activities

For the year ended December 31, 2010, our net cash provided by/(used in) financing activities was $373.1 million compared to ($78.1 million) for the comparable period of 2009.

The following significant financing activity occurred during the year ended December 31, 2010:

•

repaid $187.3 million of secured debt and $50.0 million of maturing medium-term unsecured notes. The $187.3 million of secured debt includes $70.5 million for a maturing construction loan held by one of our consolidated joint ventures, repayment of $52.7 million of credit facilities and $64.1 million of mortgage payments;

	•		repurchased unsecured debt with a notional amount of $29.2 million for $29.4 million resulting in a loss on extinguishment of $1 million, which includes the write off of related deferred finance charges. The unsecured debt repurchased by the Company matures in 2011. As a result of this repurchase, the loss is represented as an addition to interest expense on the Consolidated Statement of Operations;

	•		net repayments of $157.6 million were applied toward our $600 million revolving credit facility;

•

received proceeds of $70.2 million from secured debt financings. The $70.2 million includes $37.8 million in variable rate mortgages, $21.1 million in fixed rate mortgages, and $11.3 million in credit facilities;

•

closed on a $250 million, five-year unsecured term loan facility of which $100 million was swapped into a fixed rate of 3.76% and $150 million has rate of LIBOR plus 200 basis points;

•

in February 2010, we issued $150 million of 5.25% senior unsecured medium-term notes under our Amended and Restated Distribution Agreement with respect to the issue and sale by us from time to time of our Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. These notes were priced at 99.46% of the principal amount at issuance and had a discount of $519,000 at December 31, 2010;

•

we sold 6,144,367 shares of Common Stock for aggregate gross proceeds of approximately $110.8 million at a weighted average price per share of $18.04 through our “At the Market” equity distribution program, which we initiated in 2009, pursuant to which we may sell up to 15,000,000 shares of common stock from time to time to or through sales agents, by means of ordinary brokers’ transactions on the New York Stock Exchange at prevailing market prices at the time of sale, or as otherwise agreed with the applicable agent. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $2.2 million, were approximately $108.6 million;

•

initiated an underwritten public offering to sell 16,000,000 shares of our common stock at a price of $20.35 per share. We granted the underwriters a 30-day option to purchase up to an additional 2,400,000 shares of common stock to cover overallotments, if any. We sold 18,400,000 shares of common stock in this offering for aggregate gross proceeds of approximately $374.4 million at a price of $20.35 per share. Aggregate net proceeds from the offering, after deducting related expenses were approximately $359.2 million; and

•

repurchased 27,400 shares of our 6.75% Series G Cumulative Redeemable Preferred Stock for $637,000, less than their liquidation value of $685,000.

For the year ended December 31, 2009, our net cash used in financing activities was $78.1 million compared to $472.5 million for the comparable period of 2008. The decrease in financing activities was due to a net issuance of debt in 2009 versus net payments in 2008 and the repurchase of shares of our Common Stock in 2008. These cash outflows were offset by the issuance of common equity through a public offering.

Credit Facilities

As of December 31, 2010 and 2009, we have secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion with $1.2 billion outstanding. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. We have $897.3 million of the funded balance fixed at a weighted average interest rate of 5.3% and the remaining balance on these facilities is currently at a weighted average variable rate of 1.7% as of December 31, 2010. We had $950.0 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining balance on these facilities was at a weighted average variable rate of 1.7% as of December 31, 2009.

We have a $600 million unsecured revolving credit facility that matures on July 26, 2012. Under certain circumstances, we may increase the $600 million credit facility to $750 million. Based on our current credit rating, the $600 million credit facility carries an interest rate equal to LIBOR plus 47.5 basis points. In addition, the unsecured credit facility contains a provision that allows us to bid up to 50% of the commitment and we can bid out the entire unsecured credit facility once per quarter so long as we maintain an investment grade rating. As of December 31, 2010, we had $31.8 million of borrowings outstanding under the credit facility leaving $568.2 million of unused capacity (excluding $4.8 million of letters of credit at December 31, 2010). As of December 31, 2009, we had $189.3 million of borrowings outstanding under the credit facility.

The Fannie Mae credit facilities and the bank revolving credit facility are subject to customary financial covenants and limitations. As of December 31, 2010, we were in compliance with all financial covenants under these credit facilities.

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 $1 billion in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2010. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $9.3 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. These analyses do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.

Funds from Operations

Funds from operations, or FFO, is defined as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust’s (“NAREIT”) April 1, 2002 White Paper. We consider FFO in evaluating property acquisitions and our operating performance, and believe that FFO should be considered along with, but not as an alternative to, net income and cash flow as a measure of our activities in accordance with generally accepted accounting principles. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance and defines FFO as net income (computed in accordance with accounting principles generally accepted in the United States), excluding gains (or losses) from sales of depreciable property, premiums or original issuance costs associated with preferred stock redemptions, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The use of FFO, combined with the required presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help one compare the operating performance of a Company’s real estate between periods or as compared to different companies. We believe that FFO is the best measure of economic profitability for real estate investment trusts.

The following table outlines our FFO calculation and reconciliation to GAAP for the three years ended December 31, 2010(dollars in thousands):


	For the year ended December 31,
	2010			2009			2008

Net (loss)/income attributable to UDR, Inc.	$	(102,899	)	$	(87,532	)	$	697,790
Adjustments:
Distributions to preferred stockholders		(9,488	)		(10,912	)		(12,138	)
Real estate depreciation and amortization, including discontinued operations		303,446			278,391			251,984
Net loss attributable to redeemable non-controlling interests in OP		(3,835	)		(4,282	)		45,875
Net income attributable to non-controlling interests		146			191			202
Real estate depreciation and amortization on unconsolidated joint ventures		5,698			4,759			4,502
Net gains on the sale of depreciable property in discontinued operations, excluding RE³		(4,048	)		(2,343	)		(787,058	)
Discount on preferred stock repurchases, net		25			2,586			3,056


Funds from operations — basic	$	189,045		$	180,858		$	204,213


Distributions to preferred stockholders — Series E (Convertible)		3,726			3,724			3,724


Funds from operations — diluted	$	192,771		$	184,582		$	207,937


Weighted average number of common shares and OP Units outstanding — basic		171,569			155,796			138,971

Weighted average number of common shares and OP Units outstanding — diluted		176,900			159,561			142,904

In the computation of diluted FFO, OP Units, unvested restricted stock, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count. The effect of the conversion of the Series E Out-Performance Partnership Shares (the Series E Out-Performance Program terminated on December 31, 2009) are anti-dilutive for the years ended December 31, 2009 and 2008 and are excluded from the diluted share count.

RE³ is our subsidiary that focuses on development, land entitlement and short-term hold investments. RE³ tax benefits and gain on sales, net of taxes, is defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. We consider FFO with RE³ tax benefits and gain on sales, net of taxes, to be a meaningful supplemental measure of performance because the short-term use of funds produces a profit that differs from the traditional long-term investment in real estate for REITs.

The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the Consolidated Statements of Operations for the three years ended December 31, 2010(shares in thousands):


	For the year ended December 31,
	2010			2009			2008

Weighted average number of Common Shares and OP Units outstanding basic		171,569			155,796			138,971
Weighted average number of OP Units outstanding		(5,712	)		(6,706	)		(8,752	)

Weighted average number of Common Shares outstanding - basic per the Consolidated Statement of Operations		165,857			149,090			130,219


Weighted average number of Common Shares, OP Units, and common stock equivalents outstanding — diluted		176,900			159,561			142,904
Weighted average number of OP Units outstanding		(5,712	)		(6,706	)		(8,752	)
Weighted average incremental shares from assumed conversion of stock options		(1,637	)		(567	)		(412	)
Weighted average incremental shares from unvested restricted stock		(658	)		(162	)		(717	)
Weighted average number of Series E preferred shares outstanding		(3,036	)		(3,036	)		(2,804	)


Weighted average number of Common Shares outstanding — diluted per the Consolidated Statements of Operations		165,857			149,090			130,219

FFO also does not represent cash generated from operating activities in accordance with GAAP, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of liquidity. Additionally, it is not necessarily indicative of cash availability to fund cash needs. A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):


	For the year ended December 31,
	2010			2009			2008

Net cash provided by operating activities	$	214,180		$	229,383		$	179,754
Net cash (used in)/provided by investing activities		(583,754	)		(158,045	)		302,304
Net cash provided by/(used in) financing activities		373,075			(78,093	)		(472,537	)

Results of Operations

The following discussion includes the results of both continuing and discontinued operations for the periods presented.

Net (Loss)/ Income Attributable to Common Stockholders

2010 -vs-2009

Net loss attributable to common stockholders was $112.4 million ($0.68 per diluted share) for the year ended December 31, 2010 as compared to net loss attributable to common stockholders of $95.9 million ($0.64 per diluted share) for the comparable period in the prior year. The increase in net loss attributable to common stockholders for the year ended December 31, 2010 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	•		an increase in depreciation expense primarily due to the Company’s acquisition of five apartment communities in the third quarter of 2010, consolidation of certain joint venture assets in the fourth quarter of 2009, and the completion of redevelopment and development communities in 2009 and 2010;

	•		an increase in interest expense primarily due to debt extinguishment gain from the repurchase of unsecured debt securities in 2009; and

•

an increase in severance costs and restructuring charges in the fourth quarter of 2010 due to the consolidation of corporate operations and the centralization of job functions from its Richmond, Virginia office to its Highlands Ranch, Colorado headquarters, in addition to severance costs related to the retirement of an executive officer of the Company.

The increase to our net loss attributable to common stockholders was partially offset by:

•

an increase in our net operating income (“NOI”); and

•

a decrease in our loss from unconsolidated entities primarily due to the recognition of a $16 million non-cash charge representing an other-than-temporary decline in the fair value of equity investments in two of our unconsolidated joint ventures during the year ended December 31, 2009.

2009 -vs-2008

Net loss attributable to common stockholders was ($95.9 million) ($0.64 per diluted share) for the year ended December 31, 2009 as compared to net income attributable to common stockholders of $688.7 million ($5.29 per diluted share) for the comparable period in the prior year. The decrease in net income available to common stockholders for the year ended December 31, 2009 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•

a reduction in disposition gains in 2009 as compared to 2008. The Company recognized net gains of $3.2 million and $807.1 million for the years ended December 31, 2009 and 2008, respectively;

•

an increase in our loss from unconsolidated entities, primarily due to the recognition of a $16 million non-cash charge representing an other-than-temporary decline in the fair value of equity investments in two of our unconsolidated joint ventures during the year ended December 31, 2009;

•

the recognition of an income tax benefit from the Company’s Taxable REIT Subsidiaries, or “TRS” during 2008;

•

an increase in depreciation expense primarily due to the Company’s acquisition of operating properties and the completion of redevelopment and development communities in 2008 and 2009;

•

a decrease in other income primarily due to a reduction in fees earned for both recurring and non-recurring items related to the Company’s joint ventures and a decrease in interest income;

•

change in net income/(loss) attributable to redeemable non-controlling interest of $50.2 million.

The decreases to our net income available to common stockholders were partially offset by a decrease in general and administrative expense of $7.4 million when compared to 2008.

Apartment Community Operations

Our net income is primarily generated from the operation of our apartment communities. The following table summarizes the operating performance of our total apartment portfolio which includes communities classified in discontinued operations and excludes commercial operating income and expense for each of the periods presented(dollars in thousands):


	Year Ended December 31,									Year Ended December 31,
	2010			2009			% Change			2009			2008			% Change
Property rental income	$	624,981		$	594,359			5.2	%	$	594,359		$	599,343			-0.8	%
Property operating expense (a)		(220,279	)		(202,773	)		8.6	%		(202,773	)		(207,563	)		-2.3	%

Property net operating income	$	404,702		$	391,586			3.3	%	$	391,586		$	391,780			0.0	%


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

The following table is our reconciliation of property NOI to net (loss)/income attributable to UDR, Inc. as reflected, for both continuing and discontinued operations, for the periods presented(dollars in thousands):


	Year Ended December 31,
	2010			2009			2008
Property net operating income	$	404,702		$	391,586		$	391,780
Other net operating income		6,362			6,874			5,206
Non-property income		14,347			12,363			27,190
Real estate depreciation and amortization		(303,446	)		(278,391	)		(251,984	)
Interest, net		(150,796	)		(142,152	)		(145,630	)
General and administrative and property management		(60,142	)		(55,925	)		(55,359	)
Severance costs and other restructuring charges		(6,803	)		—			(653	)
Other depreciation and amortization		(4,843	)		(5,161	)		(4,866	)
Loss from unconsolidated entities		(4,204	)		(18,665	)		(3,612	)
Other operating expenses		(5,848	)		(6,488	)		(4,569	)
Redeemable non-controlling interests in OP		3,835			4,282			(45,875	)
Non-controlling interests		(146	)		(191	)		(202	)
Gain on consolidation of joint ventures		—			1,912			—
Net gain on the sale of depreciable property		4,083			2,424			786,364

Net (loss)/income attributable to UDR, Inc.	$	(102,899	)	$	(87,532	)	$	697,790

Same Communities

2010-vs.-2009

Our same store communities (those acquired, developed, and stabilized prior to January 1, 2009 and held on December 31, 2010) consisted of 39,281 apartment homes and provided $341.3 million or 84% of our total property NOI for the year ended December 31, 2010.

NOI for our same community properties decreased 1.8% or $6.2 million for the year ended December 31, 2010 compared to the same period in 2009. The decrease in property NOI was primarily attributable to a 0.9% or $4.6 million decrease in property rental income and a 0.9% or $1.5 million increase in operating expenses. The decrease in revenues was primarily driven by a 2.4% or $12.1 million decrease in rental rates which was offset by a 57.8% or $2.7 million decrease in concessions, a 7.9% or $1.7 million decrease in vacancy loss and a 12.4% or $2.7 million increase in reimbursement income. Physical occupancy increased 0.4% to 95.7% and total income per occupied home decreased $15 to $1,144.

The increase in property operating expenses was primarily driven by a 3.2% or $874,000 increase in utilities expense, a 3.9% or $1.1 million increase in repairs and maintenance, and a 2.6% or $1.1 million increase in personnel costs, which was partially offset by a 2.5% or $1.3 million decrease in real estate taxes.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) decreased to 66.1% as compared to 66.7% in the comparable period in the prior year.

2009-vs.-2008

Our same store communities (those acquired, developed, and stabilized prior to January 1, 2008 and held on December 31, 2009) consisted of 31,748 apartment homes and provided $279.7 million or 71% of our total NOI for the year ended December 31, 2009.

NOI for our same community properties decreased 2.0% or $5.8 million for the year ended December 31, 2009 compared to the same period in 2008. The decrease in property NOI was primarily attributable to a 1.9% or $7.9 million decrease in property rental income, which was partially offset by a 1.5% or $2.0 million decrease in operating expenses. The decrease in revenues was primarily driven by a 2.9% or $11.9 million decrease in rental rates, which was offset by a 19.2% or $3.8 million decrease in vacancy loss and an 9.3% or $1.5 million increase in reimbursement income. Physical occupancy increased 0.6% to 95.4% and total income per occupied home decreased $29 to $1,134.

The decrease in property operating expenses was primarily driven by a 1.8% or $707,000 decrease in real estate taxes due to favorable tax appeals, a 2.9% or $640,000 decrease in repairs and maintenance, and a 10.2% or $979,000 decrease in administrative and marketing costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) decreased to 67.9% as compared to 68.0% in the comparable period in the prior year.

Non-Mature Communities

2010-vs.-2009

The remaining $63.4 million and $44.1 million of our NOI during the year ended December 31, 2010 and 2009, respectively, was generated from communities that we classify as “non-mature communities.” UDR’s non-mature communities consist of communities that do not meet the criteria to be included in same communities, which include communities developed or acquired, redevelopment properties, sold properties, properties classified as real estate held for sale, joint venture properties, properties managed by third-parties, and the non-apartment components of mixed use properties, and condominium properties. For the year ended December 31, 2010, we recognized NOI for our properties held for sale of $18.6 million, developments of $15.6 million, acquired communities of $10.8 million, redeveloped properties of $12.3 million, and sold properties of $980,000. For the year ended December 31, 2009, we recognized NOI for our properties held for sale of $17.3 million, developments of $7.0 million, acquired communities of $2.1 million, redeveloped properties of $11.5 million, and sold properties of $1.4 million.

2009-vs.-2008

The remaining $118.7 million and $111.4 million of our NOI during the year ended December 31, 2009 and 2008, respectively, was generated from communities that we classify as “non-mature communities.” UDR’s non-mature communities consist of communities that do not meet the criteria to be included in same communities, which include communities developed or acquired, redevelopment properties, sold properties, properties classified as real estate held for sale, joint venture properties, properties managed by third-parties, and the non-apartment components of mixed use properties, and condominium properties. For the year ended December 31, 2009, we recognized NOI for our developments of $11.0 million, acquired communities of $53.8 million, redeveloped properties of $24.8 million, and held for sale of $17.3 million. For the year ended December 31, 2008, we recognized NOI for our developments of $2.5 million, acquired communities of $38.2 million, redeveloped properties of $22.1 million, held for sale of $17.4 million and sold properties of $23.5 million.

Other Income

For the year ended December 31, 2010, significant amounts reflected in other income on both continuing and discontinued operations include: a gain of $4.7 million from the sale of marketable securities, a reversal of certain tax accruals of $2.1 million, and $3.2 million of fees earned for both recurring and non-recurring items related to the Company’s joint ventures. For the years ended December 31, 2010 and 2009, other income also included interest income and discount amortization from an interest in a convertible debt security of $2.9 million and $3.6 million, respectively. For the year ended December 31, 2009, other income also included $5.1 million of interest income from a note for $200 million that the Company received related to the disposition of 86 properties during 2008. In May 2009, the $200 million note was paid in full.

Tax Benefit/Expense of TRS

UDR elected for certain consolidated subsidiaries to be treated as 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. For the year ended December 31, 2010, we recognized a net benefit of $2.5 million from the write-off of income taxes payable (net of income taxes paid). For the year ended December 31, 2009, we recognized tax expense of $311,000 to the extent of cash taxes paid. For the year ended December 31, 2008, we recognized a benefit of $9.7 million in continuing operations due to the results of operations and temporary differences associated with the TRS. Tax benefits and expenses recognized during the years are included in “General and administrative” in the Consolidated Statements of Operations included in this Report.

Other Operating Expenses

Other operating expenses decreased 9.9% or $639,000 for the year ended December 31, 2010 from the comparable period in 2009. The decrease was due to a number of factors, none of which are significant. For the year ended December 31, 2009, other operating expenses increased 42.2% or $1.9 million compared to the comparable period in 2008. The increase is primarily due to additional costs incurred by the Company related to long-term ground leases associated with properties acquired in December 2007 and July 2008. A schedule of future obligations related to ground leases is set forth under “Contractual Obligations” below.

Real Estate Depreciation and Amortization

For the year ended December 31, 2010, real estate depreciation and amortization on both continuing and discontinued operations increased 9.0% or $25.1 million as compared to the comparable period in 2009. The increase in depreciation and amortization for the year ended December 31, 2010 is primarily the result of the Company’s acquisition of five communities with 1,374 apartment homes during 2010, development completions during 2010 and 2009, and additional capital expenditures. As part of the Company’s acquisition activity a portion of the purchase price is allocated to intangible assets and are typically amortized over a period of less than one year.

For the year ended December 31, 2009, real estate depreciation and amortization on both continuing and discontinued operations increased 10.5% or $26.4 million as compared to the comparable period in 2008. The increase in depreciation and amortization for the year ended December 31, 2009 is primarily the result of the Company’s acquisition of 13 communities with 4,558 apartment homes during 2008, development completions during 2009 and 2008, and additional capital expenditures. As part of the Company’s acquisition activity a portion of the purchase price is allocated to intangible assets and are typically amortized over a period of less than one year.

Interest Expense

For the year ended December 31, 2010, interest expense on both continuing and discontinued operations increased 6.1% or $8.6 million as compared to 2009. This increase is primarily due to the Company’s debt repurchase activity during 2010 and 2009. During the year ended December 31, 2010, we recognized a loss of $1.0 million as a result of repurchasing some of our 3.625% convertible Senior Notes in the open market as compared to our recognition of $9.8 million in gains resulting from the repurchase of unsecured debt securities with a notional amount of $238.9 million in the open market in 2009. The decrease in our gain from debt repurchase activity was partially offset by a decrease of $3.8 million of expenses related to the tender of $37.5 million of unsecured debt in 2009.

For the year ended December 31, 2009, interest expense on both continuing and discontinued operations decreased 2.4% or $3.5 million as compared to 2008. This decrease is primarily due to the Company’s debt repurchase activity during 2008 and 2009. During 2009, we recognized a gain of $9.8 million as a result of repurchasing unsecured debt securities with a notional amount of $238.9 million in the open market throughout the year. The gains were partially offset by $3.8 million of expenses related to the tender of $37.5 million of unsecured debt and $2.6 million for prepayment penalties and the write-off of the fair market value adjustment for consolidated joint venture debt. In addition, the weighted average interest rate decreased from 4.9% in 2008 to 4.5% in 2009, which further reduced our interest expense. The decrease in the weighted average interest rate during 2009 reflects short-term bank borrowings and variable rate debt that had lower interest rates in 2009 when compared to the same period in 2008.

General and Administrative

For the year ended December 31, 2010, general and administrative expenses increased 8.6% or $3.4 million as compared to 2009. The increase is primarily due to an increase in acquisition costs of $2.9 million related to the Company’s acquisitions of five operating communities and one parcel of land in 2010; an increase of $4.8 million in compensation expense, including deferred compensation and bonuses; which was partially offset by a decrease in taxes of $1.6 million and an increase in tax benefit, which is discussed in “Tax Benefit/Expense of TRS” above.

For the year ended December 31, 2009, general and administrative expenses increased 1.5% or $568,000 as compared to 2008. The increase was due to a decrease in tax benefit, which is discussed in “Tax Benefit/Expense of TRS” above and is offset by a number of factors, including the Company writing off acquisition-related costs, the Company no longer pursuing a condominium strategy (which resulted in writing off $1.7 million in deferred sales charges), the renegotiation and/or cancellation of certain operating leases and/or vendor contracts of $0.8 million, the Company cancelling a contract to acquire a pre-sale property (which resulted in a charge of $1.7 million), and the acquisitions of certain contractual rights related to a joint venture (which resulted in the Company incurring a charge of $305,000 for the profit component of the contracts which were in recognized in 2008).

Severance Costs and Other Restructuring Charges

For the year ended December 31, 2010, the Company recognized $6.8 million of severance and restructuring charges as the Company consolidated its corporate operations and centralized job functions to its Highlands Ranch, Colorado headquarters from its Richmond, Virginia office. Also included in these charges were severance costs related to the retirement of an executive officer.

For the year ended December 31, 2008, the Company recognized $653,000 of severance and restructuring charges as the Company consolidated its operations in Highlands Ranch, Colorado. In addition, we announced reductions to certain positions related to both operations and corporate staff.

Gains on the Sale of Land and Depreciable Property

For the years ended December 31, 2010, 2009 and 2008, we recognized after-tax gains for financial reporting purposes of $4.1 million, $2.4 million, and $786.2 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period as well as the extent of gains related to specific properties sold.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, utilities and material costs, substantially all of our leases are for a term of one year or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in energy and food 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, 2010.

Off-Balance Sheet Arrangements

In connection with the purchase of Hanover’s interests in the UDR/MetLife Partnership, UDR agreed to indemnify Hanover from liabilities from Hanover’s guaranty of $333 million in loans which are secured by a security interest in the operating community subject to the loan at December 31, 2010. The loans are to the sub-tier partnerships which own the 26 operating communities. The Company anticipates that the balance of these loans will be refinanced by the Partnership over the next twelve months.

We do not have any other 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, 2010(dollars in thousands):


	Payments Due by Period
Contractual Obligations	2011		2012-2013		2014-2015		Thereafter		Total

Long-term debt obligations	$	347,283	$	847,182	$	762,570	$	1,610,469	$	3,567,504
Interest on debt obligations		147,655		240,750		156,901		275,503		820,809
Letters of credit		4,727		23		—		—		4,750
Unfunded commitments on development projects (a)		240,963		—		—		—		240,963
Operating lease obligations:
Operating space		671		864		939		50		2,524
Ground leases (b)		4,557		9,114		9,114		294,866		317,651


	$	745,856	$	1,097,933	$	929,524	$	2,180,888	$	4,954,201


(a)		Any unfunded costs at December 31, 2010 are shown in the year of estimated completion. The Company has project debt on many of our development projects.

(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 reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

During 2010, we incurred gross interest costs of $158.6 million, of which $12.5 million was capitalized.

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 (as amended from time to time, or any successor to such statute, the “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, 2010, the Operating Partnership’s real estate portfolio included 81 communities located in 8 states plus the District of Columbia, with a total of 23,351 apartment homes.

As of December 31, 2010, UDR owned 110,883 units of our general limited partnership interests and 174,736,557 units of our limited partnership interests (the “OP Units”), or approximately 97.2% 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 Report to the Operating Partnership refer to the Operating Partnership together with its consolidated subsidiaries, and all references in this “Item 7. Management’s Discussion and Analysis—United Dominion Realty, L.P.” to “we,” “us” or “our” refer to the Operating Partnership together with its consolidated subsidiaries. We refer to our General Partner together with its consolidated subsidiaries (including us) and the General Partner’s consolidated joint ventures as “UDR” or the “General Partner.”

UDR operates as a self administered real estate investment trust, or REIT, for federal income tax purposes. UDR focuses on owning, acquiring, renovating, developing, redeveloping, and managing apartment communities in select markets throughout the United States. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in September 2003. At December 31, 2010, the General Partner’s consolidated real estate portfolio included 172 communities located in 23 markets with a total of 48,553 apartment homes. In addition, the General Partner has an ownership interest in 37 communities with 9,891 completed apartment homes through unconsolidated joint ventures.

The following table summarizes our market information by major geographic markets as of December 31, 2010.


			As of December 31, 2010								Year Ended December 31, 2010
					Percentage			Total
	Number of		Number of		of Total			Carrying			Average			Total Income		Net Operating
	Apartment		Apartment		Carrying			Value			Physical			per Occupied		Income (a)
	Communities		Homes		Value			(in thousands)			Occupancy			Home		(in thousands)
SAME COMMUNITIES

WESTERN REGION
Orange Co, CA		11		3,899		19.3	%	$	716,409			95.4	%	$	1,479	$	46,188
San Francisco, CA		8		1,703		10.6	%		392,398			96.9	%		1,907		26,620
Monterey Peninsula, CA		7		1,565		4.1	%		152,645			94.1	%		1,066		12,820
Los Angeles, CA		3		463		3.4	%		124,507			95.6	%		1,701		5,552
San Diego, CA		3		689		2.7	%		99,585			95.1	%		1,258		6,472
Seattle, WA		5		932		5.6	%		206,953			96.6	%		1,191		8,584
Inland Empire, CA		2		834		3.2	%		119,199			95.0	%		1,243		7,876
Sacramento, CA		2		914		1.8	%		68,061			93.5	%		867		5,857
Portland, OR		3		716		1.9	%		69,543			95.9	%		946		5,211

MID-ATLANTIC REGION
Metropolitan DC		7		2,347		14.4	%		535,141			96.4	%		1,642		30,221
Baltimore, MD		5		994		3.9	%		145,968			96.4	%		1,314		10,673

SOUTHEASTERN REGION
Tampa, FL		3		1,154		2.9	%		109,081			95.6	%		1,000		8,338
Nashville, TN		6		1,612		3.4	%		127,177			96.5	%		824		9,717
Jacksonville, FL		1		400		1.2	%		42,292			94.9	%		852		2,379
Other Florida		1		636		2.1	%		76,310			95.1	%		1,148		5,224

SOUTHWESTERN REGION
Dallas, TX		2		1,348		4.9	%		182,840			95.6	%		1,131		10,554
Phoenix, AZ		3		914		2.0	%		71,646			95.3	%		855		5,621


Total/Average Same Communities		72		21,120		87.4	%		3,239,755			95.6	%	$	1,279	$	207,907


Non Matures, Commercial Properties & Other		9		2,231		12.6	%		466,429


Total Real Estate Held for Investment		81		23,351		100.0	%		3,706,184


Total Accumulated Depreciation									(884,083	)


Total Real Estate Owned, Net of Accumulated Depreciation								$	2,822,101


(a)		Total Income per Occupied Home represents total revenues divided by the product of occupancy and the number of mature apartment homes.

We report in two segments: Same Communities and Non-Mature/Other Communities. Our Same Communities segment includes those communities acquired, developed, and stabilized prior to January 1, 2009, and held as of December 31, 2010. 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 sale within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. Our Non-Mature/Other Communities segment includes those communities that were acquired or developed in 2008, 2009 or 2010, sold properties, redevelopment properties, properties classified as real estate held for sale, condominium conversion properties, joint venture properties, properties managed by third parties, and the non-apartment components of mixed use properties.

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 allocated to us under the General Partner’s credit agreements. The General Partner will routinely use its unsecured 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 repositioned our portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings allocated to 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 borrowings and the disposition of properties. We believe that our net cash provided by 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 and borrowings allocated to us under the General Partner’s credit agreements the Operating Partnership is a party to.

Future Capital Needs

Future capital expenditures are expected to be funded with proceeds from the issuance of secured debt, the sale of properties, the borrowings allocated to us under our General Partner’s credit agreements, and to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed by the reinvestment of proceeds from the sale of properties, the issuance of OP Units and the assumption or placement of secured debt.

During 2011, we have approximately $42.2 million of secured debt maturing and we anticipate that we will repay that debt with operating cash flows, proceeds from borrowings allocated to us under our General Partner’s credit agreements, or by exercising extension rights on such secured debt, as applicable. The repayment of debt will be recorded as an offset to the “Receivable due from General Partner”.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with 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 and that 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.

Capital Expenditures

During year ended December 31, 2010, $59.5 million was spent on capital expenditures for all of our communities as compared to $70.4 million for the twelve months ended December 31, 2009. These capital improvements included turnover-related capital expenditures, revenue enhancing capital expenditures, asset preservation expenditures, kitchen and bath upgrades, other extensive interior/exterior upgrades and major renovations.

We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment substantially in excess of our cost of capital.

Impairment of Long-Lived Assets

Real Estate Investment Properties

We purchase real estate investment properties from time to time and allocate the purchase price to various components, such as land, buildings, and intangibles related to in-place leases in accordance with FASB ASC 805,Business Combinations(formerly SFAS 141R, “Business Combinations”). The purchase price is allocated based on the fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period.

Statements of Cash Flows

The following discussion explains the changes in net cash provided by operating activities, net cash (used in)/provided by investing activities and net cash used in financing activities that are presented in our Consolidated Statements of Cash Flows.

Operating Activities

For the year ended December 31, 2010, net cash flow provided by operating activities was $146.6 million compared to $157.3 million for the comparable period in 2009. The decrease in net cash flow from operating activities is primarily due an increase in consolidated net loss, primarily due to a decrease in property net operating income and an increase in allocated general and administrative costs.

For the year ended December 31, 2009, our net cash flow provided by operating activities was $157.3 million compared to $168.7 million for 2008. The decrease in net cash flow from operating activities is primarily due to a decrease in property net operating income from our apartment community portfolio, a decrease in interest income related to a $200 million note receivable that was paid off during 2009 and higher interest expense, partially offset by a decrease in other operating liabilities.

Investing Activities

For the year ended December 31, 2010, net cash used in investing activities was $59.5 million compared to net cash provided by investing activities of $129.6 million for the comparable period in 2009. This change was primarily due to the full payment received on a $200 million note receivable in 2009. The activity during 2010 consisted entirely of capital expenditures.

For the year ended December 31, 2009, net cash provided by investing activities was $129.6 million compared to $82.0 million for 2008. The increase in cash is primarily driven by the proceeds from a $200 million note receivable in 2009 and a reduction in acquisition activity and capital expenditures in 2009 as compared to 2008. This is partially offset by the proceeds from dispositions of $880 million in 2008.

Acquisitions

For the years ended December 31, 2010 and 2009, we had no property acquisitions. For the year ended December 31, 2008, we acquired nine apartment communities with 3,348 apartment homes for aggregate consideration of $713.6 million. The Operating Partnership’s long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been seeking to expand our interests in communities located in California, Metropolitan Washington D.C. and the Washington state markets over the past years. Prospectively, we plan to continue to channel new investments into those markets we believe will continue to provide the best investment returns. Markets will be targeted based upon defined criteria including favorable job formation, low single-family home affordability and favorable demand/supply ratio for multifamily housing.

Dispositions

During the six months ended June 30, 2011, the Operating Partnership sold four communities representing 984 apartment homes. The results of operations of these communities have been retrospectively included in Discontinued Operations in the Consolidated Statements of Operations. In addition, the assets and liabilities related to these communities have been retrospectively classified as held for sale in the Consolidated Balance Sheets.

During the years ended December 31, 2010 and 2009, we did not dispose of any communities. During the year ended December 31, 2008, we sold 55 communities with a total of 16,960 apartment homes, for net proceeds of $880 million. We recognized gains for financial reporting purposes of $475.2 million on these sales. Proceeds from the sales were used primarily to acquire new communities, reduce debt, and repay our General Partner.

In conjunction with this transaction, a subsidiary of the Operating Partnership received a note in the amount of $200 million. The note was paid in full in 2009.

Financing Activities

For the year ended December 31, 2010, our net cash used in financing activities was $86.7 million compared to $290.1 million for 2009. The decrease in cash used in financing activities was primarily due to a net decrease in payments to the General Partner, partially offset by a decrease in the proceeds from secured debt.

For the year ended December 31, 2009, our net cash used in financing activities was $290.1 million compared to $247.2 million for the comparable period of 2008. The increase in cash used in financing activities was primarily due to a net increase in payments to the General Partner, which was partially offset by the net activity on secured debt.

Credit Facilities

As of December 31, 2010 and 2009, the General Partner had secured credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion with $1.2 billion outstanding. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at the General Partner’s option. At December 31, 2010, $897.3 million of the funded balance was fixed at a weighted average interest rate of 5.3% and the remaining balance on these facilities was at a weighted average variable rate of 1.7%. At December 31, 2010, $736.9 million of these credit facilities are allocated to the Operating Partnership based on the ownership of the assets securing the debt.

At December 31, 2009, there was $950 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining balance on these facilities was at a weighted average variable rate of 1.7%. $750.4 million of these credit facilities were allocated to the Operating Partnership at December 31, 2009 based on the ownership of the assets securing the debt.

The Operating Partnership is a guarantor on the General Partner’s unsecured credit facility, with an aggregate borrowing capacity of $600 million, on a $100 million term loan, and on the $250 million term loan facility. At December 31, 2010 and December 31, 2009, the outstanding balance under the unsecured credit facility was $31.8 million and $189.3 million, respectively.

The credit facilities are subject to customary financial covenants and limitations.

Other Guarantees

At December 31, 2010, the Operating Partnership guaranteed certain outstanding securities of UDR, such that the Operating Partnership, as primary obligor and not merely as surety, irrevocably and unconditionally guarantees to each holder of the applicable securities and to the trustee and their successors and assigns under the respective indenture (a) the full and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of UDR under the respective indenture whether for principal of or interest on the securities (and premium, if any), and all other monetary obligations of UDR under the respective indenture and the terms of the applicable securities and (b) the full and punctual performance within the applicable grace periods of all other obligations of UDR under the respective indenture and the terms of the applicable securities.

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 $303.5 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2010. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $3 million based on the balance at December 31, 2010.

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


	For the year ended December 31,
	2010			2009			2008

Net cash provided by operating activities	$	146,604		$	157,333		$	168,660
Net cash (used in)/provided by investing activities		(59,458	)		129,628			81,993
Net cash used in financing activities		(86,668	)		(290,109	)		(247,150	)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for each of the three years in the period ended December 31, 2010, and includes the results of both continuing and discontinued operations for the periods presented.

Net (Loss)/Income Attributable to OP Unitholders

2010 — vs. — 2009

Net loss attributable to OP unit holders was $20.7 million ($0.12 per OP unit) for the year ended December 31, 2010 as compared to $4.2 million ($0.02 per OP unit) for the comparable period in the prior year. The increase in net loss attributable to OP unit holders for the year ended December 31, 2010 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•

a decrease in net operating income (“NOI”);

•

an increase in general and administrative expenses allocated to us by our General Partner; and

•

a decrease in other income.

2009 — vs. — 2008

Net loss attributable to OP unit holders was $4.2 million ($0.02 per OP unit) for the year ended December 31, 2009 as compared to net income attributable to OP unit holders of $497.7 million ($3.00 per OP unit) for the comparable period in the prior year. The decrease in net income attributable to OP unit holders for the year ended December 31, 2009 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	•		a reduction in disposition gains in 2009 as compared to 2008. We recognized net gains of $1.5 million and $475.2 million for the years ended December 31, 2009 and 2008, respectively;

	•		a decrease in net operating income due to the disposition of properties in 2008;

•

an increase in interest expense incurred on new debt;

•

an increase in depreciation expense primarily due to the acquisition of operating properties in 2008; and

•

a decrease in other income primarily due to a decrease in interest income.

Apartment Community Operations

Our net income is primarily generated from the operation of our apartment communities.

The following table summarizes the operating performance of our total portfolio which includes communities classified as discontinued operations for the years ended December 31, 2010, 2009 and 2008(dollars in thousands):


	Year Ended December 31,									Year Ended December 31,
	2010			2009			% Change			2009			2008			% Change

Property rental income	$	350,394		$	353,056			-0.8	%	$	353,056		$	362,012			-2.5	%
Property operating expense (a)		(116,278	)		(112,488	)		3.4	%		(112,488	)		(115,972	)		-3.0	%

Property net operating income (“NOI”)	$	234,116		$	240,568			-2.7	%	$	240,568		$	246,040			-2.2	%


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

The following table is our reconciliation of property NOI to net income attributable to OP unit holders as reflected, for both continuing and discontinued operations, for the years ended December 31, 2010, 2009 and 2008(dollars in thousands):


	Year Ended December 31,
	2010			2009			2008

Property net operating income	$	234,116		$	240,568		$	246,040
Other income		1,849			5,695			13,106
Real estate depreciation and amortization		(166,480	)		(166,773	)		(154,584	)
Interest expense		(52,222	)		(53,547	)		(47,139	)
General and administrative and property management		(32,927	)		(26,595	)		(29,037	)
Other depreciation and amortization		—			—			(327	)
Other operating expenses		(5,182	)		(4,868	)		(4,400	)
Net gain on sale of real estate		152			1,475			475,249
Non-controlling interests		(41	)		(131	)		(1,188	)

Net (loss)/income attributable to OP unitholders	$	(20,735	)	$	(4,176	)	$	497,720

Same Store Communities

2010 — vs. — 2009

Our same store communities (those acquired, developed, and stabilized prior to January 1, 2009 and held on December 31, 2010) consisted of 21,120 apartment homes and provided 88.8% of our total NOI for the year ended December 31, 2010.

NOI for our same store community properties decreased 2.8% or $6.0 million for the year ended December 31, 2010 compared to the same period in 2009. The decrease in property NOI was primarily attributable to a 1.4% or $4.3 million decrease in property rental income and by a 1.7% or $1.7 million increase in operating expenses. The decrease in revenues was primarily driven by a 2.8% or $8.8 million decrease in rental rates which was partially offset by a 54.8% or $1.7 million decrease in concessions, a 7.3% or $926,000 decrease in vacancy loss and a 4.7% or $1.1 million increase in reimbursement income. Physical occupancy increased 0.3% to 95.6% and total income per occupied home decreased $22 to $1,279 for the year ended December 31, 2010 as compared to the prior year.

The increase in property operating expenses was primarily driven by a 3.5% or $533,000 increase in utilities, a 4.9% or $743,000 increase in repairs and maintenance, and a 3.0% or $719,000 increase in personnel costs which was partially offset by a 0.7% or $242,000 decrease in real estate taxes and a 3.7% or $241,000 decrease in administrative and marketing costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) was 67.1% for the year ended December 31, 2010 as compared to 68.1% for the comparable period in 2009.

2009 — vs. — 2008

Our same store communities (those acquired, developed, and stabilized prior to January 1, 2008 and held on December 31, 2009) consisted of 16,348 apartment homes and provided 67% of our total NOI for the year ended December 31, 2009.

NOI for our same store community properties decreased 2.3% or $3.8 million for the year ended December 31, 2009 compared to the same period in 2008. The decrease in property NOI was primarily attributable to a 2.3% or $5.4 million decrease in property rental income, which was partially offset by a 2.2% or $1.6 million decrease in operating expenses. The decrease in revenues was primarily driven by a 2.9% or $6.9 million decrease in rental rates and a 57.9% or $585,000 increase in bad debt which was offset by an 13.4% or $1.4 million decrease in vacancy loss and an 8.0% or $749,000 increase in reimbursement income. Physical occupancy increased 0.3% to 95.3% and total income per occupied home decreased $33 to $1,252.

The decrease in property operating expenses was primarily driven by a 4.3% or $153,000 decrease in insurance, a 1.3% or $146,000 decrease in utilities, a 5.2% or $626,000 decrease in repairs and maintenance, a 39.7% or $297,000 decrease in incentive bonuses, and a 7.8% or $405,000 decrease in administrative and marketing costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) was 69.3% in 2009 as compared to 69.4% in the comparable period of the prior year.

Non-Mature/Other Communities

2010 — vs. — 2009

The remaining $26.2 million and $26.7 million of our NOI during the year ended December 31, 2010 and 2009, respectively, was generated from communities that we classify as “non-mature communities.” Our non-mature communities consist of communities that do not meet the criteria to be included in same store communities, which includes communities developed or acquired, redevelopment properties, sold properties, properties managed by third-parties, the non-apartment components of mixed use properties, and properties classified as real estate held for sale. For the year ended December 31, 2010, we recognized NOI of $11.4 million for our properties held for sale and $10.2 million of NOI for our redevelopments. The remainder was primarily due to the non-apartment components of mixed use properties. For the year ended December 31, 2009, we recognized NOI of $11.5 million for our properties and $9.5 million of NOI for redeveloped properties. The remaining NOI was primarily due to the non-apartment components of mixed use properties.

2009 — vs. — 2008

The remaining $78.2 million and $79.9 million of our NOI during the year ended December 31, 2009 and 2008, respectively, was generated from communities that we classify as “non-mature communities.” Our non-mature communities consist of communities that do not meet the criteria to be included in same store communities, which includes communities developed or acquired, redevelopment properties, sold properties and properties classified as real estate held for sale. For the year ended December 31, 2009, we recognized NOI for our acquired communities of $46.0 million, redevelopments of $15.1 million and properties held for sale of $11.5 million. For the year ended December 31, 2008, we recognized NOI for our acquired communities of $32.3 million, sold communities of $15.2 million, redeveloped properties of $14.9 million, and properties held for sale of $12.1 million.

Other Income

For the year ended December 31, 2010, other income on both continuing and discontinued operations primarily includes a reversal of certain real estate tax accruals partially offset by losses due to the change in the fair value of derivatives.

For the years ended December 31, 2009 and 2008, other income primarily includes interest income on a note for $200 million that a subsidiary of the Operating Partnership received related to the disposition of 55 properties during 2008. In May 2009, the $200 million note was paid in full.

Real Estate Depreciation and Amortization

For the years ended December 31, 2010 and 2009, real estate depreciation and amortization did not change significantly as the Operating Partnership did not have any acquisitions or dispositions during these respective periods.

For the year ended December 31, 2009, real estate depreciation and amortization on both continuing and discontinued operations increased 7.9% or $12.2 million as compared to the comparable period in 2008. The increase in depreciation and amortization for the year ended December 31, 2009 is primarily the result of the acquisition of nine communities with 3,348 apartment homes during 2008, and additional capital expenditures. As part of the Operating Partnership’s acquisition activity a portion of the purchase price is allocated to intangible assets and are typically amortized over a period of less than one year.

Interest Expense

For the year ended December 31, 2010, interest expense on both continuing and discontinued operations decreased 2.5% or $1.3 million, as compared to the same period in 2009. This decrease is primarily due a decrease in the interest rate charged on the note payable due to the General Partner partially offset by slightly higher average borrowings on secured credit facilities.

For the year ended December 31, 2009, interest expense on both continuing and discontinued operations increased 14.7% or $6.9 million as compared to 2008. This increase is primarily due to additional borrowings on FNMA credit facilities offset by debt repayments and maturities.

General and Administrative

The Operating Partnership is charged directly for general and administrative expenses it incurs. The Operating Partnership is also charged for other general and administrative expenses that have been allocated by UDR to each of its subsidiaries, including the Operating Partnership, based on each subsidiary’s pro-rata portion of UDR’s total apartment homes.

For the year ended December 31, 2010, general and administrative expenses increased 37.9% or $6.4 million, as compared to the comparable period in 2009. The increase was due to a number of factors including acquisition-related costs and severance and other restructuring charges recognized in 2010. The increases were consistent with the changes in UDR’s general and administrative expenses and severance and other restructuring expenses for the year ended December 31, 2010.

For the year ended December 31, 2009, general and administrative expenses decreased 11.5% or $2.2 million as compared to 2008. The decrease was primarily due to a number of factors including the write off of acquisition-related costs and severance and restructuring costs recognized in 2008.

Income from Discontinued Operations

For the years ended December 31, 2010, 2009 and 2008, we recognized property sale gains for financial reporting purposes of $152,000, $1.5 million and $475.2 million, respectively. Changes in the level of gains recognized from period to period reflect the residual activities from specific properties sold. We recognized income/(loss) before property sale gains of $1.6 million, ($2.6) million and $12.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.

Inflation

Off-Balance Sheet Arrangements

The Operating Partnership is a guarantor on the General Partner’s unsecured credit facility, with an aggregate borrowing capacity of $600 million, a $100 million term loan, and a $250 million term loan. At December 31, 2010 and 2009, the outstanding balance under the unsecured credit facility was $31.8 million and $189.3 million, respectively.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2010 (dollars in thousands):


	Payments Due by Period
Contractual Obligations	2011		2012-2013		2014-2015		Thereafter		Total

Long-term debt obligations	$	42,183	$	373,746	$	1,270	$	652,862	$	1,070,061
Interest on debt obligations		46,854		74,252		59,180		89,334		269,620
Operating lease obligations- Ground leases (a)		4,456		8,913		8,913		294,377		316,659


	$	93,493	$	456,911	$	69,363	$	1,036,573	$	1,656,340

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


	PAGE

FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT

UDR, INC.:

Report of Independent Registered Public Accounting Firm		38

Consolidated Balance Sheets at December 31, 2010 and 2009		39

Consolidated Statements of Operations for each of the three years in the period ended December 31, 2010		40

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2010		41

Consolidated Statements of Stockholders’ Equity and Comprehensive Income/(Loss) for each of the three years in the period ended December 31, 2010		43

Notes to Consolidated Financial Statements		44

UNITED DOMINION REALTY, L.P.:

Report of Independent Registered Public Accounting Firm		81

Consolidated Balance Sheets at December 31, 2010 and 2009		82

Consolidated Statements of Operations for each of the three years in the period ended December 31, 2010		83

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2010		84

Consolidated Statements of Partners’ Capital and Comprehensive Income/(Loss) for each of the three years in the period ended December 31, 2010		85

Notes to Consolidated Financial Statements		86

SCHEDULES FILED AS PART OF THIS REPORT

UDR, INC.:

Schedule III- Summary of Real Estate Owned		109

UNITED DOMINION REALTY, L.P.:

Schedule III- Summary of Real Estate Owned		113

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.

See accompanying notes to consolidated financial statements.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
UDR, Inc.

We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity and comprehensive income/(loss), and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the accompanying Index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of UDR, Inc. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 4 to the consolidated financial statements, the Company retrospectively adjusted the consolidated financial statements to reflect assets and liabilities and the results of operations of the Company’s real estate properties which have been sold prior to June 30, 2011 as discontinued operations pursuant to FASB Accounting Standards Codification Topic 205-20.Presentation of Financial Statements-Discontinued Operations.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), UDR, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2011(which is not included herein) expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado
February 23, 2011, except for Notes 3, 4 and 15, as to which the date is August 5, 2011

UDR, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)


	December 31,
	2010			2009
ASSETS

Real estate owned:
Real estate held for investment	$	6,490,791		$	5,683,676
Less: accumulated depreciation		(1,566,618	)		(1,288,053	)

Real estate investment, net		4,924,173			4,395,623
Real estate under development (net of accumulated depreciation of $0 and $1,226)		97,912			318,531
Real estate held for sale (net of accumulated depreciation of $71,708 and $62,014)		220,936			249,600

Total real estate owned, net of accumulated depreciation		5,243,021			4,963,754
Cash and cash equivalents		9,486			5,985
Marketable securities		3,866			37,650
Restricted cash		15,447			8,879
Deferred financing costs, net		27,267			26,601
Notes receivable		7,800			7,800
Investment in unconsolidated joint ventures		148,057			14,126
Other assets		74,596			67,822

Total assets	$	5,529,540		$	5,132,617


LIABILITIES AND STOCKHOLDERS’ EQUITY

Secured debt	$	1,908,068		$	1,932,738
Secured debt — real estate held for sale		55,602			56,696
Unsecured debt		1,603,834			1,437,155
Real estate taxes payable		14,585			16,976
Accrued interest payable		20,889			19,146
Security deposits and prepaid rent		26,046			31,798
Distributions payable		36,561			30,857
Deferred fees and gains on the sale of depreciable property		28,943			28,826
Accounts payable, accrued expenses, and other liabilities		105,925			80,685

Total liabilities		3,800,453			3,634,877

Redeemable non-controlling interests in operating partnership		119,057			98,758

Stockholders’ equity
Preferred stock, no par value; 50,000,000 shares authorized
2,803,812 shares of 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 shares at December 31, 2009)		46,571			46,571
3,405,562 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (3,432,962 shares at December 31, 2009)		85,139			85,824
Common stock, $0.01 par value; 250,000,000 shares authorized 182,496,330 shares issued and outstanding (155,465,482 shares at December 31, 2009)		1,825			1,555
Additional paid-in capital		2,450,141			1,948,669
Distributions in excess of net income		(973,864	)		(687,180	)
Accumulated other comprehensive loss, net		(3,469	)		2

Total UDR, Inc. stockholders’ equity		1,606,343			1,395,441
Non-controlling interest		3,687			3,541

Total equity		1,610,030			1,398,982

Total liabilities and stockholders’ equity	$	5,529,540		$	5,132,617

UDR, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)


	Years Ended December 31,
	2010			2009			2008
REVENUES
Rental income	$	605,295		$	575,342		$	536,045
Non-property income:
Other income		12,494			12,363			27,190
Gain on consolidation of joint ventures		—			1,912			—

Total revenues		617,789			589,617			563,235

EXPENSES
Rental expenses:
Real estate taxes and insurance		75,041			71,036			63,660
Personnel		55,411			49,765			46,700
Utilities		33,140			30,467			28,041
Repair and maintenance		34,369			30,403			29,005
Administrative and marketing		15,814			13,925			14,104
Property management		16,646			15,823			14,742
Other operating expenses		5,848			6,487			4,563
Real estate depreciation and amortization		289,957			265,049			239,678
Interest
Expense incurred		142,984			136,137			153,275
Net loss/(gain) on debt extinguishment		1,204			(9,849	)		(26,306	)
Amortization of convertible debt discount		3,530			4,283			6,598
Prepayment penalty on debt restructure		—			1,022			4,201
Write-off of fair market value adjustment for debt paid off on consolidated joint venture		—			1,552			—
Expenses related to tender offer		—			3,764			—
General and administrative		42,710			39,344			38,776
Severance costs and other restructuring charges		6,803			—			653
Other depreciation and amortization		4,843			5,161			4,866

Total expenses		728,300			664,369			622,556

Loss from operations		(110,511	)		(74,752	)		(59,321	)
Loss from unconsolidated entities		(4,204	)		(18,665	)		(3,612	)

Loss from continuing operations		(114,715	)		(93,417	)		(62,933	)
Income from discontinued operations		8,127			1,794			806,800

Consolidated net (loss)/income		(106,588	)		(91,623	)		743,867
Net loss attributable to redeemable non-controlling interests in OP		3,835			4,282			(45,875	)
Net income attributable to non-controlling interests		(146	)		(191	)		(202	)

Net (loss)/income attributable to UDR, Inc.		(102,899	)		(87,532	)		697,790
Distributions to preferred stockholders — Series E (Convertible)		(3,726	)		(3,724	)		(3,724	)
Distributions to preferred stockholders — Series G		(5,762	)		(7,188	)		(8,414	)
Discount on preferred stock repurchases, net		25			2,586			3,056

Net (loss)/income attributable to common stockholders	$	(112,362	)	$	(95,858	)	$	688,708


Earnings per weighted average common share — basic:
Loss from continuing operations attributable to common stockholders	$	(0.73	)	$	(0.65	)	$	(0.91	)
Income from discontinued operations	$	0.05		$	0.01		$	6.20
Net (loss)/income attributable to common stockholders	$	(0.68	)	$	(0.64	)	$	5.29

Earnings per weighted average common share — diluted:
Loss from continuing operations attributable to common stockholders	$	(0.73	)	$	(0.65	)	$	(0.91	)
Income from discontinued operations	$	0.05		$	0.01		$	6.20
Net (loss)/income attributable to common stockholders	$	(0.68	)	$	(0.64	)	$	5.29

Common distributions declared per share	$	0.73		$	0.85		$	2.29

Weighted average number of common shares outstanding — basic		165,857			149,090			130,219
Weighted average number of common shares outstanding — diluted		165,857			149,090			130,219

See accompanying notes to consolidated financial statements.

UDR, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)


	Years Ended December 31,
	2010			2009			2008
Operating Activities
Consolidated net (loss)/income	$	(106,588	)	$	(91,623	)	$	743,867
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization		308,289			283,552			256,850
Net gain on sale of marketable securities		(4,725	)		—			—
Net gains on the sale of depreciable property		(4,083	)		(2,424	)		(786,181	)
Net gains on the sale of land		—			—			(183	)
Gain on consolidation of joint ventures		—			(1,912	)		—
Write off of the fair market adjustment for debt paid off on consolidated joint venture		—			1,552			—
Loss/(gain) on debt extinguishment		1,204			(9,849	)		(26,306	)
Write off of bad debt		2,838			3,570			2,411
Write off of note receivable and other assets		—			1,354			—
Loss from unconsolidated entities		4,204			18,665			3,612
Amortization of deferred financing costs and other		8,957			7,953			7,585
Amortization of deferred compensation		11,411			7,605			7,024
Amortization of convertible debt discount		3,530			4,283			6,598
Changes in income tax accrual		(865	)		2,854			(6,846	)
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(5,332	)		3,512			(1,532	)
(Decrease)/increase in operating liabilities		(4,660	)		291			(27,145	)

Net cash provided by operating activities		214,180			229,383			179,754

Investing Activities
Proceeds from sales of real estate investments, net		20,738			—			1,487,067
Proceeds from the sale of marketable securities		39,488			—			—
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures		(347,582	)		(28,528	)		(936,538	)
Development of real estate assets		(92,142	)		(183,157	)		(160,074	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(73,977	)		(85,403	)		(123,234	)
Capital expenditures — non-real estate assets		(4,342	)		(6,269	)		(23,249	)
Payments related to the buyout of joint venture partner		(16,141	)		—			—
Investment in unconsolidated joint ventures		(110,921	)		(24,988	)		(1,595	)
Distributions received from/(paid to) unconsolidated joint venture		1,125			1,741			(801	)
Disbursements related to notes receivable		—			(500	)		(13,569	)
Purchase of marketable securities		—			(30,941	)		—
Proceeds from note receivable		—			200,000			18,774
Purchase deposits on pending real estate acquisitions		—			—			(694	)
Change in funds held in escrow from IRC Section 1031 exchanges		—			—			56,217

Net cash (used in)/provided by investing activities		(583,754	)		(158,045	)		302,304

Financing Activities
Payments on secured debt		(187,308	)		(159,612	)		(216,354	)
Proceeds from the issuance of secured debt		68,380			560,436			445,162
Proceeds from the issuance of unsecured debt		399,190			100,000			240,000
Payments on unsecured debt		(79,236	)		(641,759	)		(452,156	)
Net (repayment)/proceeds of revolving bank debt		(157,550	)		189,300			(309,500	)
Payment of financing costs		(8,244	)		(8,650	)		(6,702	)
Issuance of common and restricted stock, net		5,446			398			2,588
Proceeds from the issuance of common shares through public offering, net		467,565			67,151			184,327
Payments from the repurchase of Series G preferred stock, net		(637	)		(21,505	)		(20,347	)
Repayment from the investment of performance based programs, net		—			—			(944	)
Distributions paid to non-controlling interests		(4,314	)		(7,275	)		(18,666	)
Distributions paid to preferred stockholders		(9,488	)		(11,203	)		(12,429	)
Distributions paid to common stockholders		(120,729	)		(144,576	)		(166,983	)
Repurchase of common stock		—			(798	)		(140,533	)

Net cash provided by/(used in) financing activities		373,075			(78,093	)		(472,537	)

See accompanying notes to consolidated financial statements.

UDR, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands, except for share data)


	Years Ended December 31,
	2010		2009			2008

Net increase/(decrease) in cash and cash equivalents		3,501		(6,755	)		9,521
Cash and cash equivalents, beginning of year		5,985		12,740			3,219

Cash and cash equivalents, end of year	$	9,486	$	5,985		$	12,740


Supplemental Information:
Interest paid during the year, net of amounts capitalized	$	160,184	$	164,357		$	176,087
Non-cash transactions:
Secured debt assumed with the acquisition of properties, net of fair value adjustment		93,262		—			95,728
Conversion of operating partnership non-controlling interests to Common Stock (923,944 in 2010; 2,130,452 in 2009; and 1,474,532 in 2008)		18,429		21,117			12,175
Retirement of fully depreciated or amortized real estate or other assets		8,680		4,407			—
Issuance of restricted stock awards		16		2			6
Payment of Special Dividend through the issuance of 11,358,042 shares of Common Stock		—		132,787			—
Issuance of note receivable upon the disposition of real estate		—		—			200,000

See accompanying notes to consolidated financial statements.

UDR, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/(LOSS)
(In thousands, except per share data)


																			Accumulated
																Distributions in			Other
	Preferred Stock						Common Stock						Paid-in			Excess of			Comprehensive			Non-controlling
	Shares			Amount			Shares			Amount			Capital			Net Income			Income/(Loss)			interest		Total
Balance, January 1, 2008	$	8,203,812		$	181,571		$	133,317,706		$	1,333		$	1,653,143		$	(894,072	)	$	(770	)	$	3,148	$	944,353
Comprehensive Income
Net income attributable to UDR, Inc.		—			—			—			—			—			697,790			—					697,790
Change in equity due to non-controlling interest		—			—			—			—			—			—			—			202		202
Other comprehensive income:
Unrealized loss on derivative financial instruments		—			—			—			—			—			—			(11,901	)		—		(11,901	)
Allocation to redeemable non-controlling interests		—			—			—			—			—			—			744			—		744

Comprehensive income/(loss)		—			—			—			—			—			697,790			(11,157	)		202		686,835

Issuance of common and restricted shares		—			—			630,536			6			9,191			—			—			—		9,197
Issuance of common shares through public offering		—			—			8,000,000			80			183,085			—			—			—		183,165
Redemption of 969,300 shares of 6.75% Series G Cumulative Redeemable Shares		(969,300	)		(24,232	)		—			—			829			3,056			—			—		(20,347	)
Purchase of common shares		—			—			(5,999,700	)		(60	)		(140,468	)		—			—			—		(140,528	)
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—			—			1,474,532			15			12,160			—			—			—		12,175
Common stock distributions declared ($2.2900 per share)		—			—			—			—			—			(308,312	)		—			—		(308,312	)
Preferred stock distributions declared-Series E ($1.3288 per share)		—			—			—			—			—			(3,724	)		—			—		(3,724	)
Preferred stock distributions declared-Series G ($1.6875 per share)		—			—			—			—			—			(8,414	)		—			—		(8,414	)
Adjustment to reflect redeemable non-controlling OP units at redemption value		—			—			—			—			—			64,939			—			—		64,939

Balance, December 31, 2008		7,234,512			157,339			137,423,074			1,374			1,717,940			(448,737	)		(11,927	)		3,350		1,419,339

Comprehensive (loss)/income
Net loss attributable to UDR, Inc.		—			—			—			—			—			(87,532	)		—					(87,532	)
Change in equity due to non-controlling interest		—			—			—			—			—			—			—			191		191
Other comprehensive income
Change in fair value of marketable securities		—			—			—			—			—			—			4,584			—		4,584
Unrealized gain on derivative financial instruments		—			—			—			—			—			—			8,133			—		8,133
Allocation to redeemable non-controlling interests		—			—			—			—			—			—			(788	)		—		(788	)

Comprehensive income/(loss)																	(87,532	)		11,929			191		(75,412	)

Issuance of common and restricted shares		—			—			193,882			2			8,262			—			—			—		8,264
Issuance of common shares through public offering, net of issuance costs		—			—			4,460,032			45			67,186											67,231
Redemption of 997,738 shares of 6.75% Series G Cumulative Redeemable Shares		(997,738	)		(24,944	)		—			—			853			2,586			—			—		(21,505	)
Purchase of common shares		—			—			(100,000	)		(1	)		(797	)		—			—			—		(798	)
Adjustment for conversion of non-controlling Series C, D and E LLC		—			—			—			—			1,456			—			—			—		1,456
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—			—			2,130,452			21			21,096			—			—			—		21,117
Issuance of common shares through special dividend		—			—			11,358,042			114			132,673			—			—			—		132,787
Common stock distributions declared ($0.845 per share)		—			—			—			—			—			(127,066	)		—			—		(127,066	)
Preferred stock distributions declared-Series E ($1.3288 per share)		—			—			—			—			—			(3,724	)		—			—		(3,724	)
Preferred stock distributions declared-Series G ($1.6875 per share)		—			—			—			—			—			(7,188	)		—			—		(7,188	)
Adjustment to reflect redeemable non-controlling redemption value		—			—			—			—			—			(15,519	)		—					(15,519	)

Balance, December 31, 2009		6,236,774			132,395			155,465,482			1,555			1,948,669			(687,180	)		2			3,541		1,398,982

Comprehensive (loss)/income
Net loss attributable to UDR, Inc.		—			—			—			—			—			(102,899	)		—					(102,899	)
Change in equity due to non-controlling interest		—			—			—			—			—			—			—			146		146
Other comprehensive income
Change in fair value of marketable securities		—			—			—			—			—			—			(1,092	)		—		(1,092	)
Unrealized gain on derivative financial instruments		—			—			—			—			—			—			(2,497	)		—		(2,497	)
Allocation to redeemable non-controlling interests		—			—			—			—			—			—			118			—		118

Comprehensive income/(loss)																	(102,899	)		(3,471	)		146		(106,224	)

Issuance of common and restricted shares		—			—			1,562,537			16			15,710			—			—			—		15,726
Issuance of common shares through public offering		—			—			24,544,367			245			467,319											467,564
Repurchase of 27,400 shares of 6.75% Series G Cumulative		(27,400	)		(685	)								23			25			—			—		(637	)
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—			—			923,944			9			18,420			—			—			—		18,429
Common stock distributions declared ($0.73 per share)		—			—			—			—			—			(126,086	)		—			—		(126,086	)
Preferred stock distributions declared-Series E ($1.3288 per share)		—			—			—			—			—			(3,726	)		—			—		(3,726	)
Preferred stock distributions declared-Series G ($1.6875 per share)		—			—			—			—			—			(5,762	)		—			—		(5,762	)
Adjustment to reflect redeemable non-controlling redemption value		—			—			—			—			—			(48,236	)		—					(48,236	)

Balance, December 31, 2010		6,209,374		$	131,710			182,496,330		$	1,825		$	2,450,141		$	(973,864	)	$	(3,469	)	$	3,687	$	1,610,030

See accompanying notes to consolidated financial statements.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

1. CONSOLIDATION AND BASIS OF PRESENTATION

Organization, formation and special dividend

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, 2010, our apartment portfolio consisted of 172 consolidated communities located in 23 markets consisting of 48,553 apartment homes. In addition, the Company has an ownership interest in 9,891 apartment homes through unconsolidated joint ventures.

On November 5, 2008, our Board of Directors declared a dividend of $1.29 per share (“the Special Dividend”) payable to holders of our Common Stock. The Special Dividend was paid on January 29, 2009 to stockholders of record on December 9, 2008. The Special Dividend represented the Company’s 2008 fourth quarter recurring distribution of $0.33 per share and an additional special distribution in the amount of $0.96 per share due to taxable income arising from our disposition activity occurring during the year. Subject to the Company’s right to pay the entire Special Dividend in cash, stockholders had the option to make an election to receive payment in cash or in shares, however, the aggregate amount of cash payable to stockholders, other than cash payable in lieu of fractional shares, would not be less than $44.0 million.

The Special Dividend, totaling $177.1 million was paid on 137,266,557 Common Shares issued and outstanding on the record date. Approximately $133.1 million of the Special Dividend was paid through the issuance of 11,358,042 shares of Common Stock, which was determined based on the volume weighted average closing sales price of our Common Stock of $11.71 per share on the NYSE on January 21, 2009 and January 22, 2009. In January 2010, the Financial Accounting Standards Board’s (“FASB”) issued Accounting Standards Update 2010-01,Accounting for Distributions to Shareholders with Components of Stock and Cash(“ASU 2010-01”), which considers distributions that contain components of cash and stock and allows shareholders to select their preferred form of distribution. Such a distribution, to the extent paid in stock, is now treated as a stock issuance on the date the dividend is paid. At December 31, 2008, the Company accrued $133.1 million of distribution payable related to the Special Dividend. ASU 2010-01 was effective for the Company on December 15, 2009 and was applied on a retrospective basis. As a result, the Company reversed the effect of the issuance of additional shares of Common Stock pursuant to the Special Dividend, which was retroactively reflected in each of the historical periods presented within the Company’s Form 8-K filed with the SEC on May 22, 2009, and effectively issued these shares on January 29, 2009 (the payment date of the Special Dividend). For the year ended December 31, 2008, basic and diluted net income attributable to Common Stockholders per weighted average common share prior to retrospective adjustment was $4.89. This was based on weighted average common shares of 140,982,000 (basic and diluted) for the year ended December 31, 2008.

Basis of presentation

The accompanying Consolidated Financial Statements of UDR and its wholly-owned subsidiaries includes certain joint ventures, which the Company previously accounted for as investments under the equity method (see Note 5,Joint Ventures, for further discussion). All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s subsidiaries include United Dominion Realty, L.P., (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”). As of December 31, 2010, there were 179,909,408 units in the Operating Partnership outstanding, of which 174,847,440 units or 97.2% were owned by UDR and 5,061,968 units or 2.8% were owned by limited partners. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Operating Partnership. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Heritage OP prior to UDR’s ownership of 100% of 6,264,260 units outstanding in Heritage OP as of December 31, 2009.

The Company evaluated subsequent events through the date of issuance of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and Disclosures.” This amendment provides for more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. ASU No. 2010-06 was effective for the Company for our fiscal year beginning in January 1, 2010.

In December 2010, the FASB issued ASU 2010-29, which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU 2010-29 also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.

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.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

Investment in joint ventures

We use the equity method to account for investments that qualify as variable interest entities where we are not the primary beneficiary and 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” when referring to entities in which we do not have a 100% ownership interest. The Company will also use the equity method when we function as the managing member and our joint venture partner has substantive participating rights or where we can be replaced by our joint venture partner as managing member without cause. For a joint venture accounted for under the equity method, our share of net earnings or losses is reflected as income when earned and distributions are credited against our investment in the joint venture as received.

In determining whether a joint venture is a variable interest entity, 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 disproportionally between the economic and voting interests of the entity. As of December 31, 2010, the Company did not assess any of our joint ventures as variable interest entities where UDR was the primary beneficiary.

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 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.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Discontinued operations

For properties accounted for under FASB ASC 360,Property, Plant and Equipment(formerlySFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”) (“Topic 360”), the results of operations for those properties sold during the year or classified as held-for-sale at the end of the current year are classified as discontinued operations in the current and prior periods pursuant to FASB ASC 205-20,Presentation of Financial Statements — Discontinued Operations (“Topic 205-20”). Further, to meet the discontinued operations criteria, the Company will not have any significant continuing involvement in the ownership or operation of the property after the sale or disposition. Once a property is deemed as held-for-sale, depreciation is no longer recorded. However, if the Company determines that the property no longer meets the criteria for held-for-sale, the Company will recapture any unrecorded depreciation on the property. The sales related to condominium units are also included in discontinued operations (see Note 4,Discontinued Operationsfor further discussion).

Real estate

Real estate assets held for investment are carried at historical cost and consist of land, 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 allocates the purchase price to the tangible and identifiable intangible assets 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 allocating cost to an acquired community, we first allocate costs 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 contractual life. Property acquisition costs are expensed as incurred.

Quarterly or when changes in circumstances warrant, UDR will assess our real estate portfolio 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 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 dispose, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. As of December 31, 2010 and 2009, the value of our net intangible assets which are reflected in “Other assets” was $13.3 million and $7.3 million, respectively. As of December 31, 2010 and 2009, the value of our net intangible liabilities which are reflected in “Accounts payable, accrued expenses, and other liabilities” was $3.9 million and $5.2 million in our Consolidated Balance Sheets. The balances are being amortized over the remaining life of the respective intangible.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheets as “Real estate under development.” As each building in a project is completed and becomes available for lease-up, the total cost of the building is transferred to real estate held for investment and the assets are depreciated over their estimated useful lives. The costs of development projects which include interest, real estate taxes, insurance, and allocated development overhead related to support costs for personnel working directly on the development site are capitalized during the construction period. During 2010, 2009, and 2008, total interest capitalized was $12.5 million, $16.9 million, and $14.9 million, respectively.

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.

Restricted cash

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

Escrow — 1031 exchange funds

In most cases, disposition proceeds are set aside and designated to fund future tax-deferred exchanges of qualifying real estate investments. If these proceeds are not redeployed to qualifying real estate investment within 180 days, these funds are redesignated as cash and cash equivalents.

Derivative financial instruments

The Company utilizes derivative financial instruments to manage interest rate risk and will generally designate 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 and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

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 subject to the provisions of FASB ASC 470-50,Debt Modification and Extinguishment(formerly EITF 96-19, “Debtors’ Accounting for a Modification or Exchange of Debt Instruments”). 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 with the extinguished debt are charged to earnings in the current period. When the cash flows are not substantially different, the 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.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Preferred Share repurchases

When repurchasing Preferred Stock, the Company recognizes share issuance costs as a charge to the Preferred Stock on a pro rata basis to the total costs incurred for the Preferred Stock offering. The Company, during the years ended December 31, 2010, 2009, and 2008, recognized share issuance costs of $23,000, $853,000, and $829,000, respectively as part of the amount reported in “Discount/(premium) on Preferred Stock repurchases, net” in the Consolidated Statement of Stockholders’ Equity and Comprehensive Income/(Loss).

Comprehensive income

Comprehensive income, which is defined as all changes in equity during each period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Stockholders’ Equity and Comprehensive Income/(Loss). For the year ended December 31, 2010, other comprehensive income/(loss) consisted of the change in fair value of marketable securities, the change in the fair value of effective cash flow hedges from our consolidated subsidiaries, and the allocation of other comprehensive income/(loss) to redeemable non-controlling interests. (See Note 5,Joint Venturesfor further discussion.)

Revenue and real estate sales gain recognition

Rental income related to leases is recognized on an accrual basis when due from residents in accordance with FASB ASC 840,Leases(formerly SFAS 13 “Accounting for Leases”) and SEC Staff Accounting Bulletin No. 104, “Revenue Recognition”. Rental payments are generally due on a monthly basis and recognized when earned. The Company recognizes interest income, management and other fees and incentives when earned, fixed and determinable.

The Company accounts for sales of real estate in accordance with FASB ASC 360-20,Real Estate Sales(formerly SFAS 66, “Accounting for Sales of Real Estate”). For sale transactions meeting the requirements for full accrual profit recognition, such as the Company no longer having continuing involvement in the property, we remove the related assets and liabilities from our Consolidated Balance Sheets and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting.

Sales to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and will defer the gain on the interest we retain. The Company will recognize any deferred gain when the property is then sold to a third party. In transactions accounted by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property.

Advertising costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item “Administrative and marketing”. During 2010, 2009, and 2008, total advertising expense was $6.4 million, $5.7 million, and $6.1 million, respectively.

Stock-based employee compensation plans

UDR accounts for its stock-based employee compensation plans in accordance with FASB ASC 718,Compensation- Stock Compensation(formerly SFAS 123(R), “Share-Based Payments”). This standard requires an entity to measure 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 recognize 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.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Redeemable non-controlling interests in the Operating Partnership

Interests in operating partnerships held by limited partners are represented by operating partnership units (“OP Units”). Income is allocated to holders of OP Units based upon net income available to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to non-controlling interests in accordance with the terms of the individual partnership agreements.

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 limited partnership agreement of the Operating Partnership (the “Partnership Agreement”)), provided that such OP Units have been outstanding for at least one year. UDR, as the 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 the Company for each OP Unit), as defined in the Partnership Agreement. Accordingly, the Company records the OP Units outside of permanent equity and reports the OP Units at their redemption value at each balance sheet date.

Earnings per share

Basic earnings per Common Share is computed based upon the weighted average number of Common Shares outstanding during the year. Diluted earnings per Common Share is computed based upon Common Shares outstanding plus the effect of dilutive stock options and other potentially dilutive Common Stock equivalents. The dilutive effect of OP units, stock options and other potentially dilutive Common Stock equivalents is determined using the treasury stock method based on UDR’s average stock price. The number of shares used to compute basic and dilutive earnings per share have been adjusted to reflect the Special Dividend during the year ended December 31, 2009.

The following table sets forth the computation of basic and diluted earning per share(dollars in thousands, except per share amounts):


	Years Ended December 31,
	2010			2009			2008

Numerator for earnings per share — basic and diluted:
Net (loss)/earnings attributable to common stockholders	$	(112,362	)	$	(95,858	)	$	688,708


Denominator for earnings per share — basic and diluted:
Weighted average common shares outstanding		167,365			150,067			131,364
Non-vested restricted stock awards		(1,508	)		(977	)		(1,145	)


Denominator for basic and diluted earnings per share		165,857			149,090			130,219


Net (loss)/income attributable to common stockholders- basic and diluted	$	(0.68	)	$	(0.64	)	$	5.29

The effect of the conversion of the OP Units, convertible Preferred Stock, convertible debt, stock options, and restricted stock is not dilutive and is therefore not included in the above calculations as the Company reported a loss from continuing operations.

If the operating partnership units were converted to Common Stock, the additional shares of Common Stock outstanding for the years ended December 31, 2010, 2009, and 2008 would be 5,711,275; 6,705,624; and 8,751,367 weighted average Common Shares, respectively.

If the convertible Preferred Stock were converted to Common Stock, the additional shares of Common Stock outstanding would be 3,035,548 weighted average Common Shares for the years ended December 31, 2010 and 2009, and 2,803,812 weighted average Common Shares for the year ended December 31, 2008.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

If the stock options and unvested restricted stock were converted to Common Stock, the additional weighted average Common Shares outstanding using the treasury stock method for the three years ended December 31, 2010, 2009, and 2008 would be 2,296,097; 729,592; and 1,129,907 weighted average Common Shares, respectively.

Income taxes

UDR is operated as, and elects to be taxed as a REIT. Generally, a REIT complies with the provisions of the Code if it meets certain requirements concerning its income and assets, as well as if it distributes at least 90% of its REIT taxable income to its stockholders and will not be subject to U.S. federal income taxes if it distributes at least 100% of its income. Accordingly, no provision has been made for federal income taxes of the REIT. UDR is subject to certain state and local excise or franchise taxes, for which provision has been made. If we fail to qualify as a REIT in any taxable year, our taxable income will be subject to United States Federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to United States Federal income tax. We also will be required to pay a 100% tax on non-arms length transactions between us and a taxable REIT subsidiary and on any net income from sales of property that the IRS successfully asserts was property held for sale to customers in the ordinary course.

UDR elected for certain consolidated subsidiaries to be treated as Taxable REIT Subsidiaries (“TRS”) relating to the Company’s development activities. 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.

Market concentration risk

Approximately 11% and 10% of our apartment communities are located in Orange County, California and Metropolitan Washington D.C., respectively, based on the carrying value of our real estate portfolio as of December 31, 2010. Therefore, the Company is subject to increased exposure (positive or negative) from economic and other competitive factors specific to these markets.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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 properties deemed as held for sale. As of December 31, 2010, the Company owned and consolidated 172 communities in 10 states and the District of Columbia totaling 48,553 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2010 and December 31, 2009(dollar amounts in thousands):


	December 31,
	2010			2009

Land	$	1,693,775		$	1,533,096
Depreciable property — held and used:
Building and improvements		4,499,920			3,908,055
Furniture, fixtures and equipment		297,096			242,525
Under development:
Land		62,410			65,525
Construction in progress		35,502			254,232
Held for disposition:
Land		89,932			102,305
Building and improvements		196,494			203,199
Furniture, fixtures and equipment		6,218			6,110

Real estate owned		6,881,347			6,315,047
Accumulated depreciation		(1,638,326	)		(1,351,293	)


Real estate owned, net	$	5,243,021		$	4,963,754

The following table summarizes UDR’s real estate community acquisitions for the year ended December 31, 2010(dollar amounts in thousands):

Apartment

Purchase

Property Name

Market

Acquisition Date

Homes

Price (a)

1818 Platinum Triangle

Orange County, CA

August 2010

265

70,500

Domain Brewers Hill

Baltimore, MD

August 2010

180

46,000

Garrison Square

Boston, MA

September 2010

160

98,000

Marina Pointe

Los Angeles, CA

September 2010

583

157,500

Ridge at Blue Hills

Boston, MA

September 2010

186

40,000

1,374

412,000


(a)		The purchase price is the contractual amount paid by UDR to the third party and does not include any costs that the Company incurred in the pursuit of the property.

The $412 million purchase price, which includes assumed debt with a fair value of $93.3 million, was allocated $81.1 million to land; $317.7 million to building and improvements; $3.1 million to furniture, fixtures, and equipment; and $10.1 million to intangible assets.

During the year ended December 31, 2010, the Company also acquired land located in San Francisco, California with a purchase price of $23.6 million.

The Company incurred $2.9 million and $0 of acquisition-related costs during the years ended 2010 and 2009, respectively. These expenses are classified on the Consolidated Statements of Operations in the line item entitled “General and administrative.”

During the year ended December 31, 2009, the Company acquired one community with 289 apartment homes in Dallas, Texas. The purchase related to an agreement previously entered into by UDR, which contains provisions that will require the Company and the builder to jointly agree upon the fair market value of each property at a later point in time (generally within two years of stabilization). A percentage of the increase in the fair market value over cost will then be paid to the developer, ranging from 50% to 70%, which is not included in the initial purchase price of $28.5 million nor is the contingent obligation accrued for by the Company.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

4. DISCONTINUED OPERATIONS

The results of operations for properties sold during the year or designated as held-for-sale at the end of the year are classified as discontinued operations for all periods presented. 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. The application of Topic 205-20 does not have an impact on net income available to common stockholders. The application of Topic 205-20 results in the retrospective reclassification of the operating results of all properties sold or classified as held for disposition through June 30, 2011, within the Consolidated Statements of Operations for the years ended December 31, 2010, 2009, and 2008, and the retrospective reclassification of the assets and liabilities within the Consolidated Balance Sheets as of December 31, 2010 and 2009, if applicable. During the six months ended June 30, 2011, UDR sold seven communities representing 1,707 apartment homes. The results of operations of these communities have been retrospectively included in Discontinued Operations in the Consolidated Statements of Operations. In addition, the assets and liabilities related to these communities have been retrospectively classified as held for sale in the Consolidated Balance Sheets.

During the year ended December 31, 2010, UDR sold one 149 apartment home community. UDR recognized gains for financial reporting purposes of $4.0 million on this sale, which is also included in discontinued operations. For the year ended December 31, 2009, the Company did not dispose of any communities. For the year ended December 31, 2008, UDR sold 86 communities, one commercial property, one parcel of land, and 53 condominiums from two communities with a total of 640 condominiums. UDR recognized after-tax gains for financial reporting purposes of $786.4 million on these sales. In conjunction with the sale of the 86 communities during 2008, UDR received a $200.0 million note. The Company received full payment of the note during the year ended December 31, 2009.

The following is a summary of income from discontinued operations for the three years ended December 31, 2010(dollars in thousands):


	December 31,
	2010		2009			2008

Rental income	$	28,573	$	27,557		$	66,960
Non-property income		1,853		—			183

		30,426		27,557			67,143

Rental expenses		9,029		8,843			24,509
Property management fee		786		758			1,841
Real estate depreciation		13,489		13,342			12,306
Interest		3,078		5,243			7,862
Other expenses		—		1			6

		26,382		28,187			46,524
Income/(loss) before net gain on the sale of depreciable property		4,044		(630	)		20,619
Net gain on the sale of depreciable property, excluding TRS		4,048		2,343			787,059
TRS gain/(loss) on sale of real estate, net of tax		35		81			(878	)

Income from discontinued operations	$	8,127	$	1,794		$	806,800

In the fourth quarter of 2008, the Company made the strategic decision to exit our activity related to the conversion and sale of condominium units. As a result of our decision, the Company incurred a charge to earnings of $1.7 million. The unsold units were reverted to operating apartment homes. In addition, as the Company reverted the former condominium properties to operating communities and removed operating results from discontinued operations to continuing operations. Previously unrecorded depreciation of $3.7 million was recorded during the year ended December 31, 2008.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

5. JOINT VENTURES

UDR has entered into joint ventures with unrelated third parties for real estate assets that are either consolidated and included in real estate owned on our Consolidated Balance Sheets or are accounted for under the equity method of accounting, which are not consolidated and are included in investment in unconsolidated joint ventures on our Consolidated Balance Sheets. The Company consolidates an entity in which we own less than 100% but control the joint venture as well as any variable interest entity where we are the primary beneficiary. In addition, the Company consolidates any joint venture in which we are the general partner or managing member and the third party does not have the ability to substantively participate in the decision-making process nor do they have the ability to remove us as general partner or managing member without cause.

UDR’s joint ventures are funded with a combination of debt and equity. Our losses are 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 venture portfolio.

Consolidated Joint Ventures

UDR is a partner with an unaffiliated third party in a joint venture (“989 Elements”) which owns and operates a 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in 989 Elements for $7.7 million. Concurrently, our partner resigned as managing member and appointed UDR as managing member. In addition, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture. The joint venture assets and liabilities were recorded at fair value. The fair value of the assets was $55 million ($54.8 million of real estate owned and $200,000 of current assets) and the fair value of liabilities was $34.1 million ($33.4 million of a construction loan, net of fair market value adjustment of $1.6 million and $700,000 of current liabilities) at the consolidation date. During the year ended December 31, 2009, UDR recognized a gain on the remeasurement of our previously held equity interest in the joint venture, acquired assets and assumed liabilities to fair value of $3.4 million and is included in “Gain on consolidation of joint ventures” on our Consolidated Statements of Operations.

On December 31, 2009, the Company repaid the outstanding balance of $35 million on the construction loan held by 989 Elements. As a result, the Company wrote off the adjustment to record the fair value of the construction loan assumed on December 30, 2009 of $1.6 million and is included in “Write off of fair market value adjustment” on our Consolidated Statements of Operations for the year ended December 31, 2009. In March 2010, the Company paid $7.7 million and acquired our partner’s 49% interest in the joint venture. At the closing of the agreement and at December 31, 2010, the Company’s interest in 989 Elements was 98%. The activities and accounts of 989 Elements are included in the Company’s consolidated financial position as of December 31, 2010 and 2009 and consolidated results of operations and cash flows during the year ended December 31, 2010 and the two day period ending December 31, 2009.

UDR is a partner with an unaffiliated third party in a joint venture (“Elements Too”) which owns and operates a 274 home apartment community in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and was completed in the first quarter of 2010. On October 16, 2009, our partner resigned as managing member and appointed UDR as managing member. In addition, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture. The joint venture assets and liabilities were recorded at fair value. Prior to consolidation, our equity investment in Elements Too was $24.4 million (net of an $11 million impairment loss discussed below) at October 16, 2009. The fair value of the assets was $100.3 million ($99.5 million of real estate owned and $814,000 of other assets) and the fair value of liabilities was $75.6 million ($70.5 million of a construction loan, $917,000 of a derivative instrument, and $4.2 million of other liabilities). During the year ended December 31, 2009, UDR recognized a loss on the remeasurement of our previously held equity interest in the joint venture, acquired assets and assumed liabilities to fair value of $1.9 million and is included in “Gain on consolidation of joint ventures” on our Consolidated Statements of Operations.

On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in Elements Too for $3.2 million. In March 2010, the Company paid the outstanding balance of $3.2 million and acquired our partner’s 49% interest in the joint venture. At the closing of the agreement and at December 31, 2010, the Company’s interest in Elements Too was 98%. During the year ended December 31, 2010, the Company repaid the outstanding balance of $70.5 million on the construction loan held by Elements Too. The activities and accounts of Elements Too are included in the Company’s consolidated financial position as of December 31, 2010 and 2009 and consolidated results of operations and cash flows during the year ended December 31, 2010 and the seventy-six day period ending December 31, 2009.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

UDR is a partner with an unaffiliated third party in a joint venture (“Bellevue”) which owns an operating retail site in Bellevue, Washington. The Company initially planned to develop a 430 home high rise apartment building with ground floor retail on an existing operating retail center. However, during the year ended December 31, 2009, the joint venture decided to continue to operate the retail property as opposed to developing a high rise apartment building on the site. On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in Bellevue for $5.2 million. In addition, our partner resigned as managing member and appointed UDR as managing member. Concurrent with its resignation, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture at fair value. Prior to consolidation, our equity investment in Bellevue was $5 million (net of a $5 million impairment loss discussed below). The fair value of the assets was $33 million ($32.8 million of real estate owned and $211,000 of other assets) and the fair value of liabilities was $23.0 million ($22.3 million of a mortgage payable, $506,000 of a derivative instrument, and $213,000 of other liabilities). During the year ended December 31, 2009, UDR recognized a gain on the remeasurement of our previously held equity interest in the joint venture, acquired assets and assumed liabilities to fair value of $315,000 and is included in “Gain on consolidation of joint ventures” on our Consolidated Statements of Operations. In March 2010, the Company paid $5.2 million and acquired our partner’s 49% interest in the joint venture. At the closing of the agreement, the Company’s interest in Bellevue was 98%. At December 31, 2010, the carrying value of the mortgage payable guaranteed by the Company was $22.3 million. The activities and accounts of Elements Too are included in the Company’s consolidated financial position as of December 31, 2010 and 2009 and consolidated results of operations and cash flows during year ended December 31, 2010 and the two-day period ending December 31, 2009.

Prior to their consolidation in 2009, we evaluated our investments in these joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We considered various factors to determine if a decrease in value of each of these investments was other-than-temporary. In 2009, we recognized a non-cash charge of $16 million representing the other-than-temporary decline in fair values below the carrying values of two of the Company’s investments in Bellevue, Washington joint ventures.

During 2008, we completed the development of a consolidated joint venture located in Marina del Rey, California with 298 apartment homes and a carrying value of $139.3 million. In December 2008, we acquired for $1.5 million our joint venture partner’s interest in their profit participation and terminated the property management agreement that had approximately two years remaining on the pre-existing contract. As a result of terminating our arrangement, the Company recorded a charge to earnings of $305,000 as the profit component related to the management agreement and capitalized the balance as part of the investment in real estate. The component capitalized as the investment in real estate is depreciated over the average remaining life of the tangible assets. As of December 31, 2008, the Company included this property as a component of our wholly-owned communities.

Unconsolidated Joint Ventures

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures consisting of our proportionate share of the net earnings or loss of the joint venture. In addition, we may earn fees for providing management services to the unconsolidated joint ventures. As of December 31, 2010, UDR had investments in the following unconsolidated joint ventures which are accounted for under the equity method of accounting.

UDR acquired ownership interests of 12.27% in the operating communities and 4.14% in the land parcels for $100.8 million. The initial investment of $100.8 million consists of $71.8 million in cash, which includes associated transaction costs, and a $30 million payable (includes discount of $1 million) to Hanover. UDR agreed to pay the $30 million balance to Hanover in two interest free installments in the amounts of $20 million and $10 million on the first and second anniversaries of the closing, respectively. The $30 million payable was recorded at its present value of $29 million using an effective interest rate of 2.67%. At December 31, 2010, the net carrying value of the payable was $29.1 million, and interest expense of $129,000 was recorded during the year ended December 31, 2010. At December 31, 2010, the Company’s investment was $122.2 million.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

UDR’s total cost of its equity investment of $100.8 million differed from the fair value of its proportionate share in the underlying net assets of the UDR/MetLife Partnership of $111.4 million. The difference of $10.6 million was attributable to certain assets and adjustments were allocated to UDR’s proportionate share in the UDR/MetLife Partnership’s buildings of $8.4 million, land of $3.9 million, and ($1.6 million) of lease intangible assets. With the exception of land, the difference related to buildings is amortized and recorded as a component of loss from unconsolidated entities over 45 years and the difference related to lease intangible assets is amortized and recorded as a component of loss from unconsolidated entities over 11 months with the offset to the Company’s carrying value of its equity investment. During the year ended December 31, 2010, the Company recorded $264,000 of amortization.

In connection with the purchase of Hanover’s interests in the UDR/MetLife Partnership, UDR agreed to indemnify Hanover from liabilities from Hanover’s guaranty of $333 million (outstanding at December 31, 2010) in loans which are secured by a security interest in the operating communities subject to the loan. The loans are to the sub-tier partnerships which own the 26 operating communities. The Company anticipates that the balance of these loans will be refinanced by the UDR/MetLife Partnership over the next twelve months.

In October 2010, the Company entered into a venture with an affiliate of Hanover to develop a 240-home community in Stoughton, Massachusetts. At closing and at December 31, 2010, UDR owned a noncontrolling interest of 95% in the joint venture. Our initial investment was $10 million and our investment at December 31, 2010 was $10.3 million.

During 2009, UDR and an unaffiliated third party formed a joint venture for the investment of up to $450 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180 million of which the Company’s maximum equity will be 30% or $54 million when fully invested. During the year ended December 31, 2010, the joint venture acquired its first property (151 homes) located in Metropolitan Washington D.C. for $43.1 million. At closing and at December 31, 2010, the Company owned 30%. Our investment at December 31, 2010 and 2009 was $5.2 million and $242,000, respectively.

In November 2007, UDR and an unaffiliated third party formed a joint venture which owns and operates 10 operating properties located in Texas (3,992 homes). UDR contributed cash and a property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at December 31, 2010 and 2009 was $10.3 million and $13.9 million, respectively.

We 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. Prior to their consolidation and during the year ended December 31, 2009, we recognized a non-cash charge of $16 million representing the other-than-temporary decline in the fair values below the carrying values of two of the Company’s Bellevue, Washington joint ventures, which were previously accounted for under the equity method. The Company did not recognize any other-than-temporary decrease in the value of its other investments in unconsolidated joint ventures during the years ended December 31, 2010 and 2009.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Summarized combined financial information relating to all the unconsolidated joint ventures operations (not just our proportionate share), is presented below for the three years ended December 31, 2010 (dollars in thousands):


	Year Ended December 31,
	2010			2009 (a)			2008 (a)

For the year ended:
Revenues	$	60,234		$	48,575		$	43,486
Real estate depreciation and amortization		28,744			21,133			22,509
Net loss		(29,737	)		(11,719	)		(18,167	)
UDR recorded loss from unconsolidated entities		(4,204	)		(18,665	)		(3,612	)


(a)		Includes results of operations of equity method joint ventures through the effective date of consolidation. See “Consolidated Joint Ventures” above.

Combined summary balance sheets relating to all the unconsolidated joint ventures (not just our proportionate share) is presented below for the years ended December 31, (dollars in thousands):


	2010		2009
Real estate, net	$	2,692,167	$	320,786
Total assets		2,807,886		332,694
Amount due to UDR		672		779
Third party debt		1,524,872		254,000
Total liabilities		1,580,733		265,091
Non-controlling interest		14,537		—
Equity		1,212,616		67,603

As of December 31, 2010, the Company had deferred fees and deferred profit from the sale of properties of $28.9 million, the majority of which the Company will not recognize until the underlying properties are sold to a third party. The Company recognized $3.2 million of management fees during the year ended December 31, 2010 for our involvement in the joint ventures.

The Company may be required to make additional capital contributions to certain of our joint ventures should additional capital contributions be necessary to fund development costs or operating shortfalls.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

6. SECURED DEBT

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 Company having effectively established the interest rate for the underlying debt instrument. Secured debt including that related to real estate held for sale, which encumbers $3.1 billion or 45% of UDR’s real estate owned based upon gross book value ($3.8 billion or 55% of UDR’s real estate owned is unencumbered) consists of the following as of December 31, 2010 (dollar amounts in thousands):


					2010
	Principal Outstanding				Weighted			Weighted		Number of
	December 31,				Average			Average		Communities
	2010		2009		Interest Rate			Years to Maturity		Encumbered
Fixed Rate Debt
Mortgage notes payable	$	292,236	$	506,203		5.18	%		2.8		8
Tax-exempt secured notes payable		13,325		13,325		5.30	%		20.2		1
Fannie Mae credit facilities		897,318		949,971		5.32	%		6.4		14

Total fixed rate secured debt		1,202,879		1,469,499		5.29	%		5.7		23

Variable Rate Debt
Mortgage notes payable		405,641		243,810		2.33	%		2.6		14
Tax-exempt secured note payable		94,700		27,000		1.05	%		19.2		2
Fannie Mae credit facilities		260,450		249,125		1.68	%		5.1		32

Total variable rate secured debt		760,791		519,935		1.95	%		5.5		48

Total secured debt	$	1,963,670	$	1,989,434		3.99	%		5.6		71

UDR entered into secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion at December 31, 2010. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. We have $897.3 million of the funded balance fixed at a weighted average interest rate of 5.3% and the remaining balance on these facilities is currently at a weighted average variable rate of 1.7%. Further information related to these credit facilities is as follows:


	December 31, 2010			December 31, 2009
	(dollar amounts in thousands)

Borrowings outstanding	$	1,157,768		$	1,199,096
Weighted average borrowings during the period ended		1,198,771			1,033,658
Maximum daily borrowings during the period ended		1,209,739			1,199,322
Weighted average interest rate during the period ended		4.6	%		4.6	%
Weighted average interest rate at the end of the period		4.5	%		4.6	%

The Company will 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 unamortized fair market adjustment was a net discount of $694,000 and $987,000 at December 31, 2010 and 2009, respectively.

Fixed Rate Debt

Mortgage notes payable.Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from January 2011 through February 2017 and carry interest rates ranging from 2.66% to 6.60%. Mortgage notes payable includes debt associated with development activities.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Tax-exempt secured notes payable.Fixed rate mortgage notes payable that secure tax-exempt housing bond issues mature in March 2031 and carry an interest rate of 5.30%. Interest on these notes is payable in semi-annual installments.

Secured credit facilities.At December 31, 2010, UDR’s fixed rate secured credit facilities consisted of $897.3 million on a $1.4 billion aggregate commitment under five revolving secured credit facilities with Fannie Mae (the Company also owes $260.5 million under the variable rate component of this instrument). The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. As of December 31, 2010, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 5.3%.

Variable Rate Debt

Mortgage notes payable.Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from January 2011 through April 2016. The mortgage notes payable interest is based on LIBOR plus some basis points, which translate into interest rates ranging from 0.94% to 5.25% at December 31, 2010.

Tax-exempt secured note payable.The variable rate mortgage notes payable that secures tax-exempt housing bond issues mature at various dates from August 2019 and March 2030. Interest on this note is payable in monthly installments. The mortgage notes payable have interest rates of 1.05% and 1.07% as of December 31, 2010.

Secured credit facilities.The variable rate secured credit facilities consisted of $260.5 million outstanding on the Fannie Mae credit facilities. As of December 31, 2010, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 1.7%.

The aggregate maturities of our secured debt due during each of the next five calendar years and thereafter are as follows(dollars in thousands):


	Fixed						Variable
	Mortgage		Tax-Exempt		Credit		Mortgage		Tax Exempt		Credit
	Notes		Notes Payable		Facilities		Notes		Notes Payable		Facilities		Total

2011	$	78,978	$	—	$	2,808	$	130,215	$	—	$	39,513	$	251,514
2012		57,397		—		177,944		59,285		—		59,529		354,155
2013		62,021		—		38,631		38,509		—		—		139,161
2014		382		—		3,328		101,102		—		—		104,812
2015		403		—		3,522		16,313		—		—		20,238
Thereafter		93,055		13,325		671,085		60,217		94,700		161,408		1,093,790

Total	$	292,236	$	13,325	$	897,318	$	405,641	$	94,700	$	260,450	$	1,963,670

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

7. UNSECURED DEBT

A summary of unsecured debt as of December 31, 2010 and 2009 is as follows(dollars in thousands):


	December 31,
	2010		2009
Commercial Banks

Borrowings outstanding under an unsecured credit facility due July 2012 (a)		31,750		189,300

Senior Unsecured Notes

3.90% Medium-Term Notes due March 2010 (includes premium of $34)		—		50,034
3.625% Convertible Senior Notes due September 2011 (net of Subtopic 470-20 discount of $1,138 and $3,351) (b), (d), (h)		95,961		122,984
5.00% Medium-Term Notes due January 2012		100,000		100,000
3.04% Term Notes due December 2013 (c)		100,000		100,000
6.05% Medium-Term Notes due June 2013		122,500		122,500
5.13% Medium-Term Notes due January 2014 (e)		184,000		184,000
5.50% Medium-Term Notes due April 2014 (net of discount of $226 and $295) (e)		128,274		128,205
5.25% Medium-Term Notes due January 2015 (includes discount of $519 and $177) (e),(f)		324,656		175,352
5.25% Medium-Term Notes due January 2016		83,260		83,260
2.26% Term Notes due January 2016		150,000		—
3.76% Term Notes due January 2016		100,000		—
8.50% Debentures due September 2024		15,644		15,644
4.00% Convertible Senior Notes due December 2035 (net of Subtopic 470-20 discount of $0 and $1,916) (g), (h)		167,750		165,834
Other		39		42

		1,572,084		1,247,855


	$	1,603,834	$	1,437,155


(a)		Our unsecured credit facility provides us with an aggregate borrowing capacity of $600 million, which at our election we can increase to $750 million under certain circumstances. Our unsecured credit facility with a consortium of financial institutions carries an interest rate equal to LIBOR plus a spread of 47.5 basis points (0.9% interest rate at December 31, 2010) and matures in July 2012. In addition, the unsecured credit facility contains a provision that allows us to bid up to 50% of the commitment and we can bid out the entire unsecured credit facility once per quarter so long as we maintain an investment grade rating.

(b)		Subject to the restrictions on ownership of our common stock and certain other conditions, at any time on or after July 15, 2011 and prior to the close of business on the second business day prior to the maturity date of September 15, 2011, and also following the occurrence of certain events, holders of outstanding 3.625% notes may convert their notes into cash and, if applicable, shares of our common stock, at the conversion rate in effect at such time. Upon conversion of the notes, UDR will deliver cash and common stock, if any, based on a daily conversion value calculated on a proportionate basis for each trading day of the relevant 30 trading day observation period. The initial conversion rate for each $1,000 principal amount of notes was 26.6326 shares of our common stock (equivalent to an initial conversion price of approximately $37.55 per share), subject to adjustment under certain circumstances. The Company’s Special Dividend paid in January 2009 met the criteria to adjust the conversion rate and resulted in an adjusted conversion rate of 29.0207 shares of our common stock for each $1,000 of principal (equivalent to a conversion price of approximately $34.46 per share). If UDR undergoes certain change in control transactions, holders of the 3.625% notes may require us to repurchase their notes in whole or in part for cash equal to 100% of the principal amount of the notes to be repurchased plus any unpaid interest accrued to the repurchase date. In connection with the issuance of the 3.625% notes, UDR entered into a capped call transaction covering approximately 6.7 million shares of our common stock, subject to anti-dilution adjustments similar to those contained in the notes. The capped call expires on the maturity date of the 3.625% notes. The capped call transaction combines a purchased call option with a strike price of $37.548 with a written call option with a strike price of $43.806. The capped call transaction effectively increased the initial conversion price to $43.806 per share, representing a 40% conversion premium. The net cost of approximately $12.6 million of the capped call transaction was included in stockholders’ equity.

(c)		The Company had an interest rate swap agreement related to these notes, which expired during the year ended December 31, 2010. The notes carried a variable interest rate of 3.04% at December 31, 2010 and a fixed interest rate of 6.26% at December 31, 2009.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010


(d)		During the year ended December 31, 2010, the Company repurchased some of its 3.625% convertible Senior Notes in open market purchases. As a result of these transactions, we retired debt with a notional value of $29.2 million for $29.4 million of cash. Consistent with our accounting policy, the Company expensed $206,000 of unamortized financing costs and $599,000 of unamortized discount on convertible debt as a result of these debt retirements for the year ended December 31, 2010. The loss of $1.0 million is included within a separate component of interest expense on our Consolidated Statements of Operations for the year ended December 31, 2010.

(e)		During the year ended December 31, 2009, the Company repurchased several different traunches of its unsecured debt in open market purchases resulting in retired debt with a notional value of $238.9 million for $222.3 million of cash. The gain of $9.8 million is presented as a separate component of interest expense on our Consolidated Statements of Operations for the year ended December 31, 2009. Consistent with our accounting policy, the Company expensed $2.3 million of unamortized financing costs and $3.4 million of unamortized discount on convertible debt as a result of these debt retirements for the year ended December 31, 2009.

(f)		On December 7, 2009, the Company entered into an Amended and Restated Distribution Agreement with respect to the issue and sale by the Company from time to time of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. During the three months ended March 31, 2010, the Company issued $150 million of 5.25% senior unsecured medium-term notes under the Amended and Restated Distribution Agreement. These notes were priced at 99.46% of the principal amount at issuance and had a discount of $519,000 at December 31, 2010.

(g)		Holders of the outstanding 4.00% notes may require us to repurchase their notes in whole or in part on January 15, 2011, December 15, 2015, December 15, 2020, December 15, 2025 and December 15, 2030, or upon the occurrence of a fundamental change, for cash equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest. On or after January 15, 2011, UDR will have the right to redeem the 4.00% notes in whole or in part, at any time or from time to time, for cash equal to 100% of the principal amount of the notes to be redeemed plus any accrued and unpaid interest. Subject to the restrictions on ownership of shares of our Common Stock and certain other conditions, holders of the 4.00% notes may convert their notes, into cash and, if applicable, shares of our Common Stock, at the conversion rate in effect at such time, as follows: (i) prior to the close of business on the second business day immediately preceding the stated maturity date at any time on or after December 15, 2030, and (ii) prior to December 15, 2030 under certain specified circumstances. The initial conversion rate for the notes was 35.2988 shares of our Common Stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $28.33 per share), subject to adjustment under certain circumstances. The Company’s Special Dividend paid in January 2009 met the criteria to adjust the conversion rate and the conversion rate was adjusted to 38.7123 shares of our Common Stock for each $1,000 of principal (equivalent to a conversion price of approximately $25.83 per share).

(h)		During the year ended December 31, 2009, pursuant to a cash tender offer announced on August 4, 2009, the Company repurchased $37.5 million in aggregate principal amount of its 8.50% Debentures due September 15, 2024 for $41.2 million of cash. In connection with this repurchase, the Company recorded a premium and related transaction costs. The tender offer expired on September 3, 2009.

Subtopic 470-20 applies to all convertible debt instruments that have a “net settlement feature”, which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. This guidance requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. The Company adopted provisions under Subtopic 470-20 as of January 1, 2009, and the adoption impacted the historical accounting for the 3.625% convertible senior notes due September 2011 and the 4.00% convertible senior notes due December 2035, and resulted in increased interest expense of $3.5 million, $4.3 million, and $6.6 million for the years ended December 31, 2010, 2009, and 2008, respectively.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The following is a summary of short-term bank borrowings under UDR’s bank credit facility at December 31, 2010 and 2009(dollars in thousands):


	December 31,
	2010			2009

Total revolving credit facility	$	600,000		$	600,000
Borrowings outstanding at end of year (1)		31,750			189,300
Weighted average daily borrowings during the year		161,260			83,875
Maximum daily borrowings during the year ended		337,600			279,400
Weighted average interest rate during the year		0.8	%		0.9	%
Interest rate at end of the year		0.9	%		0.7	%


(1)		Excludes $4.8 million of letters of credit at December 31, 2010

The convertible notes are convertible at the option of the holder and, as such, are presented as if the holder will convert the debt instrument at the earliest available date. The aggregate maturities of unsecured debt for the five years subsequent to December 31, 2010 are as follows(dollars in thousands):


	Bank		Unsecured
	Lines		Debt		Total

2011 (a)	$	—	$	95,769	$	95,769
2012		31,750		99,808		131,558
2013		—		222,308		222,308
2014		—		312,353		312,353
2015		—		325,167		325,167
Thereafter		—		516,679		516,679


	$	31,750	$	1,572,084	$	1,603,834


(a)		The convertible debt balances have been adjusted to reflect the effect of Subtopic 470-20. Excluding the adjustment, total maturities in 2011 would be $97.1 million.

8. 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 has the ability to issue 250,000,000 shares of common stock and 50,000,000 shares of preferred shares as of December 31, 2010.

During the year ended December 31, 2010, the Company entered into the following equity transactions for our common stock:

•

Issued 6,144,367 shares of common stock in connection with an “at the market” equity distribution program where we received gross proceeds of approximately $110.8 million;

•

Issued 18,400,000 shares of common stock in connection with an underwritten public offering where we received gross proceeds of approximately $374.4 million;

•

Issued 553,097 shares of common stock in connection with stock options exercised;

•

Issued 1,009,440 shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”), net of forfeitures; and

•

Converted 923,944 OP Units into Company common stock.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR common distributions for the years ended December 31, 2010 and 2009 totaled $0.73 and $0.85 per share, respectively. For taxable years ending on or before December 31, 2010, the IRS is allowing REITS to distribute up to 90% of total distributions in common shares with the residual distributed in cash as a means of enhancing liquidity.

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 and from time to time at the holder’s option into one share of our common stock prior to the Special Dividend (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, 2010 and 2009 were $1.33 per share. The Series E is not listed on any exchange. At December 31, 2010 and 2009, a total of 2,803,812 shares of the Series E were outstanding.

UDR is authorized to issue up to 20,000,000 shares of the Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of UDR’s operating partnership units, or OP Units, at a purchase price of $0.0001 per share. OP Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP Unit held. A total of 3,208,706 and 2,959,428 shares of the Series F were outstanding at a value of $321 and $296 at December 31, 2010 and 2009, 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 any other rights, privileges or preferences.

In May 2007, UDR issued 5,400,000 shares of the 6.75% Series G Cumulative Redeemable Preferred Stock (“Series G”). The Series G has no stated par value and a liquidation preference of $25 per share. The Series G generally has no voting rights except under certain limited circumstances and as required by law. The Series G has no stated maturity and is not subject to any sinking fund or mandatory redemption and is not convertible into any of our other securities. The Series G is not redeemable prior to May 31, 2012. On or after this date, the Series G may be redeemed for cash at our option, in whole or in part, at a redemption price of $25 per share plus accrued and unpaid dividends. During the years ended December 31, 2010 and 2009, the Company repurchased 27,400 and 997,738 shares of Series G, respectively, for less than the liquidation preference of $25 per share resulting in a $25,000 and $2.6 million benefit to our net income/(loss) attributable to common stockholders, respectively.

Distributions declared on the Series G for the year ended December 31, 2010 and 2009 was $1.69 per share. The Series G is listed on the NYSE under the symbol “UDRPrG.” At December 31, 2010 and 2009, a total of 3,405,562 and 3,432,962 shares of the Series G were outstanding, respectively.

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, 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 9,957,233 shares of Company common stock. Shares in the amount of 13,134,256 were reserved for issuance under the Stock Purchase Plan as of December 31, 2010. During the year ended December 31, 2010, UDR acquired all shares issued through the open market.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

9. 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, 2009, the stockholders of UDR voted to amend and restate the LTIP to increase the number of shares reserved from 4,000,000 shares to 16,000,000 shares on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP, which all can be for incentive stock option grants. The LTIP generally provides, among other things, that options are granted at exercise prices not lower than the market value of the shares on the date of grant and that options granted must be exercised within 10 years. As of December 31, 2010, there were 9,019,122 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. Further, upon the retirement 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.

Stock Option Plan

UDR has granted stock options to our employees, subject to certain conditions. Each stock option is exercisable into one common share.

A summary of UDR’s stock option activity on an unadjusted basis during the three years ended December 31, 2010 is as follows:


	Option Outstanding					Option Exercisable
				Weighted				Weighted
				Average				Average
	Number of			Exercise		Number of		Exercise
	Options			Price		Options		Price

Balance, January 1, 2008		1,078,659		$	11.25
Granted		465,841			26.55
Exercised		(220,333	)		10.67
Forfeited		—			—

Balance, December 31, 2008		1,324,167			16.73		1,124,167	$	15.01

Granted		3,260,752			10.24
Exercised		(153,525	)		8.95
Forfeited		(20,570	)		10.33

Balance, December 31, 2009		4,410,824			11.85		1,475,311	$	13.84

Granted		—			—
Exercised		(565,820	)		10.69
Forfeited		(7,827	)		25.10

Balance, December 31, 2010		3,837,177		$	12.00		1,880,168	$	13.19

Total remaining compensation cost related to unvested share options as of December 31, 2010 was approximately $1.4 million.

The weighted average remaining contractual life on all options outstanding as of December 31, 2010 is 13.9 years. 3,287,639 of share options had exercise prices between $10.06 and $10.30; 53,004 of share options had exercise prices between $13.15 and $13.74; 496,534 of share options had exercise prices between $24.38 and $25.10.

During the years ended December 31, 2010, 2009, and 2008 we recognized $1.3 million, $1.3 million, and $372,000 of net compensation expense related to outstanding stock options.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Restricted Stock Awards

Restricted stock is granted to Company employees, officers, consultants, and directors. The restricted stock is valued on the grant date based upon the market price of UDR common stock on the date of grant. Compensation expense is recorded over the vesting period, which is generally three to four years. Restricted stock earn dividends payable in cash until the earlier of the date of the underlying restricted stock is exercised or the expiration of the underlying restricted stock award. Some of the restricted stock is performance based and is adjusted based on the Company’s performance. For the years ended December 31, 2010, 2009 and 2008, we recognized $12.2 million, $7.6 million, and $7.0 million of compensation expense related to the amortization of restricted stock, respectively. As of December 31, 2010, the Company had issued 2,750,363 shares of restricted stock under the LTIP. The total remaining compensation cost on unvested restricted stock awards was $14.0 million and has a weighted average remaining contractual life of 2.0 years as of December 31, 2010.

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 three years ended December 31, 2010, 2009, and 2008 were $0.7 million, $0.7 million, and $0.9 million, respectively.

10. INCOME TAXES

For 2010, 2009, and 2008, 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.

The following table reconciles UDR’s net income to REIT taxable income for the three years ended December 31,(dollars in thousands):


	December 31,
	2010			2009			2008

Net (loss)/income attributable to common stockholders	$	(112,362	)	$	(95,858	)	$	688,708
Book to tax differences
Elimination of TRS loss		43,206			49,012			44,436
Depreciation and amortization		75,109			50,745			52,662
Disposition of properties		2,102			103,296			(449,599	)
Revenue recognition		(3,722	)		161			(1,897	)
Operating expense		(7,353	)		(5,285	)		(19,197	)
Other adjustments		9,488			7,893			50,609


REIT taxable income before dividends	$	6,468		$	109,964		$	365,722


Dividend paid deduction	$	95,072		$	109,964		$	365,722

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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. For the three years ended December 31, 2010, taxable distributions paid per common share were taxable as follows:


	December 31,
	2010		2009		2008

Ordinary income	$	0.69	$	0.08	$	0.20
Long-term capital gain		0.03		0.54		1.82
Unrecapture section 1250 gain		0.01		0.05		0.59


	$	0.73	$	0.67	$	2.61

We have Taxable REIT Subsidiaries (“TRS”) that are subject to state and federal 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 for the three years ended December 31, are as follows(dollars in thousands):


	December 31,
	2010			2009			2008

Income tax (benefit)/expense
Current
Federal	$	(3,510	)	$	(11,925	)	$	2,421
State		977			(2,573	)		(1,873	)

Total current		(2,533	)		(14,498	)		548


Deferred
Federal		119			12,030			(10,504	)
State		(119	)		2,779			83

Total deferred		—			14,809			(10,421	)


Total income tax (benefit)/expense	$	(2,533	)	$	311		$	(9,873	)

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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 upon enacted tax laws. The components of our TRS deferred tax assets and liabilities are as follows for the three years ended December 31,(dollars in thousands):


	2010			2009			2008
Deferred tax assets:
Federal and state tax attributes	$	33,053		$	20,239		$	21,123
Book/tax depreciation		9,708			3,946			3,851
Construction capitalization differences		5,235			3,045			468
Investment in partnerships		3,346			4,711			—
Debt and interest deductions		10,784			8,175			12,262
Other		586			285			270

Total deferred tax assets		62,712			40,401			37,974
Valuation allowance		(55,516	)		(33,554	)		(15,304	)

Net deferred income tax assets		7,196			6,847			22,670


Deferred tax liabilities
Investment in partnerships		—			—			(177	)
Other		(640	)		(291	)		(1,149	)

Total deferred tax liabilities		(640	)		(291	)		(1,326	)

Net deferred tax asset	$	6,556		$	6,556		$	21,344

Income tax (benefit) or expense differed from the amounts computed by applying the U.S. statutory rate of 35% to pretax income or (loss) for the three years ended December 31, 2010, as follows(dollars in thousands):


	December 31,
	2010			2009			2008

Income tax (benefit)/expense
U.S. federal income tax benefit	$	(16,006	)	$	(17,042	)	$	(19,019	)
State income tax (net of federal benefit)		19			(1,391	)		(1,991	)
Other items		(5,100	)		1,260			1
Valuation allowance		18,554			17,484			11,136


Total income tax (benefit)/expense	$	(2,533	)	$	311		$	(9,873	)


Classification of income tax (benefit)/expense
Continuing operations	$	(2,533	)	$	311		$	(9,713	)
Discontinued operations		—			—			(160	)

As of December 31, 2010, the Company through our TRS had federal net loss carryovers (“NOL”) of approximately $81.4 million. Of the total NOL, $20.5 million will be expiring in 2028, $30.0 million expiring in 2029 and the remaining $30.9 million expiring in 2030. As of December 31, 2010, the TRS had state NOL of approximately $92.0 million, of which approximately $1.8 million begins to expire in 2012 with the remainder expiring in 2020 through 2030. As of December 31, 2010, the Company had a valuation allowance of $55.5 million against 100% of its deferred tax assets and 78% of its federal net operating losses. During the year ended December 31, 2010, the Company had a net change of $21.9 million in the valuation allowance.

FASB ASC 740,Income Taxes(“Topic 740”) (formerly FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109”) 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. Topic 740 requires 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. Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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. Then the Company will 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 income tax expense. As of December 31, 2008, we reduced our recognized tax benefits as a result of a change in measurement of certain items. As of December 31, 2010 and 2009, UDR does not believe we have any unrecognized tax benefits.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties is as follows (dollars in thousands):


	December 31,
	2010		2009		2008

Balance at beginning of year	$	—	$	—	$	415
Reductions for tax positions of prior years		—		—		(415	)


Balance at end of year	$	—	$	—	$	—

The total amount of unrecognized tax benefits that, if recognized would affect the effective rate is $0. We do not currently believe the unrecognized tax benefits will change significantly within the next 12 months.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of the provision for income taxes. During the year ended December 31, 2010, the Company recognized $0 in interest and penalties. As of December 31, 2010 and 2009, UDR had $0 of interest and penalties accrued, respectively.

The Company files income tax returns in federal and various state 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 2007.

11. NONCONTROLLING INTERESTS

Redeemable noncontrolling interests in operating partnerships

Interests in operating partnerships held by limited partners are represented by operating partnership units (“OP Units”). The income is allocated to holders of OP Units based upon net income attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to non-controlling interests in accordance with the terms of the individual partnership agreements.

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 limited partnership agreement of the Operating Partnership (the “Partnership Agreement”)], provided that such OP Units have been outstanding for at least one year. UDR, as the 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 the Company for each OP Unit), as defined in the Partnership Agreement. Accordingly, the Company records the OP Units outside of permanent equity and reports the OP Units at their redemption value using the Company’s stock price at each balance sheet date.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The following table sets forth redeemable noncontrolling interests in the Operating Partnership for the following periods (dollars in thousands):


	Years Ended December 31,
	2010			2009
Beginning redeemable noncontrolling interests in the OP	$	98,758		$	108,092
Mark to market adjustment to redeemable noncontrolling interests in the OP		48,236			15,519
Conversion of OP Units to Common Stock		(18,429	)		(21,117	)
Forfeitures of Out-Performance Partnership Shares		—			(1,458	)
Repurchase of OP units from redeemable noncontrolling interests		(327	)		—
Net loss attributable to redeemable noncontrolling interests in the OP		(3,835	)		(4,282	)
Distributions to redeemable noncontrolling interests in the OP		(5,228	)		(6,081	)
Issuance of OP Units through Special Dividend		—			7,297
Allocation of other comprehensive (loss)/income		(118	)		788


Ending redeemable noncontrolling interests in the OP	$	119,057		$	98,758

The following sets forth net loss attributable to common stockholders and transfers from redeemable noncontrolling interests in the Operating Partnership for the following periods (dollars in thousands):


	Years Ended December 31,
	2010			2009			2008
Net (loss)/income attributable to common stockholders	$	(112,362	)	$	(95,858	)	$	688,708
Conversion of OP units to UDR Common Stock		18,429			21,117			12,175

Change in equity from net (loss)/income attributable to common stockholders and conversion of OP units to UDR Common Stock	$	(93,933	)	$	(74,741	)	$	700,883

Non-controlling interests

Non-controlling interests represent interests of unrelated partners in certain consolidated affiliates, and is presented as part of equity in the Consolidated Balance Sheets since these interests are not redeemable into any other ownership interests of the Company. During the years ended December 31, 2010, 2009, and 2008, net income attributable to non-controlling interests was $146,000; $191,000 and $202,000, respectively.

12. 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.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2010 and 2009 are summarized as follows(dollars in thousands):


			Fair Value at December 31, 2010 Using
			Quoted Prices in
			Active Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Description:

Available-for-sale equity securities	$	3,866	$	3,866	$	—	$	—
Derivatives- Interest rate contracts (c)		514		—		514		—

Total assets	$	4,380	$	3,866	$	514	$	—


Derivatives- Interest rate contracts (c)	$	6,597	$	—	$	6,597	$	—
Contingent purchase consideration (d)		5,402		—		—		5,402
Secured debt instruments- fixed rate: (a)
Mortgage notes payable		306,515		—		—		306,515
Tax-exempt secured notes payable		13,885		—		—		13,885
Fannie Mae credit facilities		927,413		—		—		927,413
Secured debt instruments- variable rate: (a)
Mortgage notes payable		405,641		—		—		405,641
Tax-exempt secured notes payable		94,700		—		—		94,700
Fannie Mae credit facilities		260,450		—		—		260,450
Unsecured debt instruments: (b)
Commercial bank		31,750		—		—		31,750
Senior Unsecured Notes		1,625,492		264,849		—		1,360,643

Total liabilities	$	3,677,845	$	264,849	$	6,597	$	3,406,399

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010


			Fair Value at December 31, 2009 Using
			Quoted Prices in
			Active Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
	December 31, 2009		(Level 1)		(Level 2)		(Level 3)

Description:

Available-for-sale debt securities- Corporate debt	$	37,650	$	37,650	$	—	$	—
Derivatives- Interest rate contracts (c)		2,294		—		2,294		—

Total assets	$	39,944	$	37,650	$	2,294	$	—


Derivatives- Interest rate contracts (c)	$	5,947	$	—	$	5,947	$	—

Secured debt instruments- fixed rate: (a)
Mortgage notes payable		516,578		—		—		516,578
Tax-exempt secured notes payable		13,540		—		—		13,540
Fannie Mae credit facilities		952,468		—		—		952,468
Secured debt instruments- variable rate: (a)
Mortgage notes payable		243,810		—		—		243,810
Tax-exempt secured notes payable		27,000		—		—		27,000
Fannie Mae credit facilities		249,125		—		—		249,125
Unsecured debt instruments: (b)
Commercial bank		189,300		—		—		189,300
Senior Unsecured Notes		1,247,512		294,085		—		953,427

Total liabilities	$	3,445,280	$	294,085	$	5,947	$	3,145,248


(a)		See Note 6,Secured Debt

(b)		See Note 7,Unsecured Debt

(c)		See Note 10,Derivatives and Hedging Activity

(d)		As of March 31, 2010, the Company accrued a liability of $6 million related to a contingent purchase consideration on one of its properties. The contingent consideration was determined based on the fair market value of the related asset which is estimated using Level 3 inputs utilized in a third party appraisal. The Company paid approximately $635,000 of the liability in 2010.

Financial Instruments Carried at Fair Value

The fair values of the corporate debt securities and equity securities are determined by Level 1 inputs which utilize quoted prices in active markets where we have the ability to access values for identical assets.

The cost, gross unrealized gains and fair values of the Company’s investments at December 31, 2010 and 2009 are as follows (dollars in thousands):


	Corporate debt		Corporate debt		Total available-for-
	securities-U.S.		securities-U.S.		sale securities

As of December 31, 2010:

Cost (a)	$	—	$	374	$	374
Gross unrealized gains		—		3,492		3,492

Estimated fair value (net carrying amount)	$	—	$	3,866	$	3,866


As of December 31, 2009:			$	—

Cost (a)	$	33,066	$	—	$	33,066
Gross unrealized gains		4,584		—		4,584

Estimated fair value (net carrying amount)	$	37,650	$	—	$	37,650


(a)		Amortized cost is presented for corporate debt securities.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Proceeds from the sale of available for sale securities during the year ended December 31, 2010 were $39.5 million, resulting in gross realized gains of $4.7 million. These gains are included in “Other income” in the Consolidated Statements of Operations.

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.

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, 2010 and 2009, 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.

We estimate the fair value of our Convertible Senior Unsecured Notes based on Level 1 inputs which utilize quoted prices in active markets where we have the ability to access value for identical liabilities.

Redeemable non-controlling interests in the Operating Partnership have a redemption feature and are marked to its 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 non-controlling interests in the Operating Partnership are classified as Level 2.

Financial Instruments Not Carried at Fair Value

At December 31, 2010, the fair values of cash and cash equivalents, restricted cash, notes receivable, 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 were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

We estimate the fair value of our debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality (Level 3).

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.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. In 2009, we recognized a non-cash charge of $16 million representing the other-than-temporary decline in fair values below the carrying values of two of our unconsolidated joint ventures. The Company did not recognize any other-than-temporary decrease in the value of its other investments in unconsolidated joint ventures during the years ended December 31, 2010 and 2009.

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 asset. The inputs and assumptions utilized to estimate the future cash flows of the underlying asset 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.

13. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk 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 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 effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated Other Comprehensive Income/(Loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2010 and 2009, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2010 and 2009, the Company recorded less than a $1,000 loss of ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item, and the fair value of interest rate swaps that were not zero at inception of the hedging relationship.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Amounts reported in “Accumulated Other Comprehensive Income/(Loss)” related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2011, the Company estimates that an additional $6.7 million will be reclassified as an increase to interest expense.

As of December 31, 2010, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):


	Number of
Interest Rate Derivative	Instruments		Notional
Interest rate swaps		15	$	455,287

Interest rate caps		3	$	137,004

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 FASB ASC 815,Derivatives and Hedging(formerly SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”) (“Topic 815”). Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a loss of $991,000 for the year ended December 31, 2010, and a gain of $593,000 for the year ended December 31, 2009. As of December 31, 2010, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollar amounts in thousands):


	Number of
Product	Instruments		Notional
Interest rate caps		5	$	309,984

Tabular Disclosure of Fair Values of Derivative Instruments on the 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, 2010.


	Asset Derivatives					Liability Derivatives
		Fair Value at:					Fair Value at:
	Balance	December 31,		December 31,		Balance	December 31,		December 31,
	Sheet Location	2010		2009		Sheet Location	2010		2009

Derivatives designated as hedging instruments:

Interest Rate Products	Other Assets	$	243	$	1,348	Other Liabilities	$	6,597	$	5,282


Total		$	243	$	1,348		$	6,597	$	5,282


Derivativesnotdesignated as hedging instruments:

Interest Rate Products	Other Assets	$	271	$	946	Other Liabilities	$	—	$	665


Total		$	271	$	946		$	—	$	665

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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, 2010 and 2009 (dollar amounts in thousands):


														Location of Loss
														Recognized in Income
							Location of Loss							on Derivative
Derivatives in Topic							Reclassified from							(Ineffective Portion	Amount of Gain or (Loss) Recognized in
815 Cash Flow							Accumulated OCI	Amount of Gain or (Loss) Reclassified						and Amount Excluded	Income on Derivative (Ineffective
Hedging	Amount of Gain or (Loss) Recognized in						into Income (Effective	from Accumulated OCI into Income						from Effectiveness	Portion and Amount Excluded from
Relationships	OCI on Derivative (Effective Portion)						Portion)	(Effective Portion)						Testing)	Effectiveness Testing)
	December 31,			December 31,				December 31,			December 31,				December 31,			December 31,
	2010			2009				2010			2009				2010			2009

Interest Rate Products	$	(9,273	)	$	(3,949	)	Interest expense	$	(6,777	)	$	(12,082	)	Other expense	$	(1	)	$	—


Total	$	(9,273	)	$	(3,949	)		$	(6,777	)	$	(12,082	)		$	(1	)	$	—

Derivatives Not Designated as

Location of Gain or (Loss)

Hedging Instruments Under

Recognized in Income on

Amount of Gain Recognized in Income on

Topic 815

Derivative

December 31,

2010

2009

Interest Rate Products

Other income / (expense)

(991

)

593

Total

(991

)

593

Credit-risk-related Contingent Features

The Company has agreements with some of its derivative counterparties that contain a provision where (1) if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations; or (2) 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.

Certain of the Company’s agreements with its derivative counterparties contain provisions where if there is a change in the Company’s financial condition that materially changes the Company’s creditworthiness in an adverse manner, the Company may be required to fully collateralize its obligations under the derivative instrument.

The Company also has an agreement with a derivative counterparty that incorporates the loan and financial covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with these covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of December 31, 2010, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $7.1 million. As of December 31, 2010, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at December 31, 2010, it would have been required to settle its obligations under the agreements at their termination value of $7.1 million.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

14. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Under Development

The Company is committed to completing our real estate projects under development. As of December 31, 2010, the Company had four wholly owned properties under development with estimated costs of $338.9 million of which $97.9 million was incurred to date.

Ground and Other Leases

UDR owns five communities which are subject to ground leases expiring between 2019 and 2072. In addition, UDR is party to various operating leases related to office space rented by the Company with expiration dates though 2016. The leases are accounted for in accordance with FASB ASC 840,Leases. Future minimum lease payments as of December 31, 2010 are as follows(dollars in thousands):


	Ground		Office
	Leases (a)		Space

2011	$	4,557	$	671
2012		4,557		423
2013		4,557		441
2014		4,557		460
2015		4,557		479
Thereafter		294,866		50


	$	317,651	$	2,524


(a)		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 reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

UDR incurred $4.8 million, $5.0 million, and $4.1 million of ground rent expense for the years ended December 31, 2010, 2009, and 2008, respectively. The Company incurred $1.1 million, $2.0 million, and $1.4 million of rent expense related to office space for the years ended December 31, 2010, 2009, and 2008, respectively.

Contingencies

Litigation and Legal Matters

UDR is subject to various legal proceedings and claims arising in the ordinary course of business. UDR cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. UDR believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

15. REPORTABLE SEGMENTS

FASB ASC Topic 280,Segment Reporting(formerly SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”) (“Topic 280”), 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 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 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 total revenues less direct property operating expenses. UDR’s chief operating decision maker utilizes NOI as the key measure of segment profit or loss.

UDR’s two reportable segments are same communities and non-mature/other communities:

•

Same store communitiesrepresent those communities acquired, developed, and stabilized prior to January 1, 2009, and held as of December 31, 2010. 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/other communitiesrepresent those communities that were acquired or developed in 2008, 2009 or 2010, sold properties, redevelopment properties, properties classified as real estate held for disposition, condominium conversion properties, joint venture properties, properties managed by third parties, and the non-apartment components of mixed use properties.

Management evaluates the performance of each of our apartment communities on a same community and non-mature/other basis, as well as individually and geographically. This is consistent with the aggregation criteria of Topic 280 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.

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 three years ended December 31, 2010, 2009, or 2008.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The accounting policies applicable to the operating segments described above are the same as those described in Note 2,Significant Accounting Policies. The following table details rental income and NOI for UDR’s reportable segments for the years ended December 31, 2010, 2009, and 2008, and reconciles NOI to (loss)/income from continuing operations per the consolidated statement of operations(dollars in thousands):


	December 31,
	2010			2009			2008
Reportable apartment home segment rental income
Same Communities
Western Region	$	201,531		$	207,460		$	202,222
Mid-Atlantic Region		153,468			150,849			141,232
Southeastern Region		115,664			116,976			119,569
Southwestern Region		45,420			45,416			39,206
Non-Mature communities/Other		117,785			82,198			100,776


Total segment and consolidated rental income	$	633,868		$	602,899		$	603,005


Reportable apartment home segment NOI
Same Communities
Western Region	$	137,609		$	145,697		$	142,225
Mid-Atlantic Region		104,909			103,022			95,781
Southeastern Region		72,597			73,095			74,643
Southwestern Region		26,169			25,629			22,373
Non-Mature communities/Other		69,780			51,017			61,964


Total segment and consolidated NOI		411,064			398,460			396,986


Reconciling items:
Non-property income		14,347			12,363			27,190
Property management		(17,432	)		(16,581	)		(16,583	)
Other operating expenses		(5,848	)		(6,488	)		(4,569	)
Depreciation and amortization		(303,446	)		(278,391	)		(251,984	)
Interest, net		(150,796	)		(142,152	)		(145,630	)
General and administrative		(42,710	)		(39,344	)		(38,776	)
Severance costs and other restructuring charges		(6,803	)		—			(653	)
Other depreciation and amortization		(4,843	)		(5,161	)		(4,866	)
Loss from unconsolidated entities		(4,204	)		(18,665	)		(3,612	)
Redeemable non-controlling interests in OP		3,835			4,282			(45,875	)
Non-controlling interests		(146	)		(191	)		(202	)
Gain on consolidation of joint ventures		—			1,912			—
Net gain on the sale of depreciable property		4,083			2,424			786,364

Net (loss)/income attributable to UDR, Inc.	$	(102,899	)	$	(87,532	)	$	697,790

Included within non-property income as other income for the year ended December 31, 2008 is net revenue of $2.9 million for insurance related recoveries owed from one of the Company’s joint ventures as a result of Hurricane Ike.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The following table details the assets of UDR’s reportable segments for the years ended December 31, 2010 and 2009(dollars in thousands):


	December 31,
	2010			2009

Reportable apartment home segment assets
Same Communities
Western Region	$	2,135,055		$	2,120,944
Mid-Atlantic Region		1,274,669			1,263,755
Southeastern Region		924,481			911,973
Southwestern Region		423,737			418,303
Non-Mature communities/Other		2,123,405			1,600,072


Total segment assets		6,881,347			6,315,047
Accumulated depreciation		(1,638,326	)		(1,351,293	)


Total segment assets — net book value		5,243,021			4,963,754


Reconciling items:
Cash and cash equivalents		9,486			5,985
Marketable securities		3,866			37,650
Restricted cash		15,447			8,879
Deferred financing costs, net		27,267			26,601
Notes receivable		7,800			7,800
Investment in unconsolidated joint ventures		148,057			14,126
Other assets		74,596			67,822


Total consolidated assets	$	5,529,540		$	5,132,617

Capital expenditures related to our same communities totaled $43.6 million, $49.7 million, and $75.5 million for the three years ended December 31, 2010, 2009, and 2008, respectively. Capital expenditures related to our non-mature/other communities totaled $5.0 million, $6.6 million, and $8.2 million for the three years ended December 31, 2010, 2009, and 2008, respectively.

Markets included in the above geographic segments are as follows:

	i.		Western — Orange County, San Francisco, Monterey Peninsula, Los Angeles, Seattle, San Diego, Inland Empire, Sacramento and Portland

	ii.		Mid-Atlantic — Metropolitan DC, Baltimore, Richmond, Norfolk, and Other Mid-Atlantic

	iii.		Southeastern — Tampa, Orlando, Nashville, Jacksonville, and Other Florida

	iv.		Southwestern — Dallas, Phoenix, Austin, and Houston

16. RESTRUCTURING CHARGES

As of December 31, 2010, UDR decided to consolidate corporate operations and centralize job functions to its Highlands Ranch, Colorado headquarters from its Richmond, Virginia office. During the fourth quarter of 2010, the Company recorded a severance charge of $6.8 million, which includes costs related to these activities in addition to severance related to the retirement of an executive officer of the Company. These costs are reported in the Consolidated Statements of Operations within the line item “Severance costs and other restructuring charges”.

UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

As of December 31, 2008, UDR restructured our operations resulting in a severance related charge of $653,000 reported in the Consolidated Statements of Operations within the line item “Severance costs and other restructuring charges”. The Company incurred this charge as a result of the restructuring and consolidating positions.

17. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2010 and 2009 is summarized in the table below(dollars in thousands, except per share amounts):


	Three months ended
	March 31,			June 30,			September 30,			December 31,
2010

Rental income (a)	$	144,324		$	146,647		$	153,120		$	161,204
Loss from continuing operations		(27,356	)		(28,501	)		(28,913	)		(29,945	)
Income from discontinued operations		2,330			861			4,308			628
Net loss attributable to common stockholders		(26,435	)		(28,968	)		(26,134	)		(30,825	)

Loss per share (b)
Basic and diluted	$	(0.17	)	$	(0.18	)	$	(0.16	)	$	(0.17	)

2009

Rental income (a)	$	143,889		$	145,144		$	143,394		$	142,915
Loss from continuing operations		(13,251	)		(14,770	)		(39,915	)		(25,481	)
(Loss)/income from discontinued operations		(172	)		2,110			160			(304	)
Net loss attributable to common stockholders		(15,429	)		(14,858	)		(40,776	)		(24,795	)

Loss per share (b)
Basic and diluted	$	(0.11	)	$	(0.10	)	$	(0.27	)	$	(0.16	)


(a)		Represents rental income from continuing operations, excluding amounts classified as discontinued operations.

(b)		Quarterly earnings per common share amounts may not total to the annual amounts due to rounding.

[This page is intentionally left blank.]

Report of Independent Registered Public Accounting Firm

The Partners
United Dominion Realty, L.P.

We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the “Partnership”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, partners’ capital and comprehensive income and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the accompanying Index. These financial statements and schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Partnership at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.

As discussed in Note 4 to the consolidated financial statements, the Partnership retrospectively adjusted the consolidated financial statements to reflect assets and liabilities and the results of operations of the Partnership’s real estate properties which have been sold prior to June 30, 2011 as discontinued operations pursuant to FASB Accounting Standards Codification Topic 205-20,Presentation of Financial Statements-Discontinued Operations.

/s/ Ernst & Young LLP

Denver, Colorado
February 23, 2011, except for Notes 3, 4 and 11, as to which the date is August 5, 2011

UNITED DOMINION REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)


	December 31,
	2010			2009
ASSETS

Real estate owned:
Real estate held for investment	$	3,516,918		$	3,452,440
Less: accumulated depreciation		(835,892	)		(677,857	)

Total real estate owned, net of accumulated depreciation		2,681,026			2,774,583
Real estate held for sale (net of accumulated depreciation of $48,191 and $40,035)		141,075			148,413

Total real estate owned, net of accumulated depreciation		2,822,101			2,922,996
Cash and cash equivalents		920			442
Restricted cash		8,022			6,865
Deferred financing costs, net		7,465			8,727
Other assets		22,887			22,037

Total assets	$	2,861,395		$	2,961,067


LIABILITIES AND CAPITAL

Secured debt	$	1,014,459		$	1,065,502
Secured debt — real estate held for sale		55,602			56,696
Note payable due to General Partner		78,271			71,547
Real estate taxes payable		5,245			8,561
Accrued interest payable		518			933
Security deposits and prepaid rent		13,158			13,728
Distributions payable		33,559			32,642
Deferred gains on the sale of depreciable property		63,838			63,838
Accounts payable, accrued expenses, and other liabilities		35,122			25,872

Total liabilities		1,299,772			1,339,319

Capital:
Partners’ capital:
Operating partnership units: 179,909,408 OP units outstanding at December 31, 2010 and 2009
General partner: 110,883 OP units outstanding at December 31, 2010 and 2009		1,363			1,456
Limited partners: 179,798,525 OP units outstanding at December 31, 2010 and 2009		2,046,380			2,199,450
Accumulated other comprehensive loss		(5,502	)		(3,153	)

Total partners’ capital		2,042,241			2,197,753
Receivable due from General Partner		(492,709	)		(588,185	)
Non-controlling interest		12,091			12,180

Total capital		1,561,623			1,621,748

Total liabilities and capital	$	2,861,395		$	2,961,067

See accompanying notes to the consolidated financial statements.

UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)


	Years Ended December 31,
	2010			2009			2008
REVENUES
Rental income	$	333,903		$	336,278		$	319,094
Non-property income:
Other income		—			5,695			13,106

Total revenues		333,903			341,973			332,200

EXPENSES
Rental expenses:
Real estate taxes and insurance		41,108			40,756			36,599
Personnel		27,881			26,187			25,444
Utilities		17,331			16,542			14,870
Repair and maintenance		17,767			16,545			16,341
Administrative and marketing		7,114			7,167			7,079
Property management		9,183			9,248			8,776
Other operating expenses		5,182			4,868			4,400
Real estate depreciation and amortization		158,318			158,415			146,452
Interest expense:
Interest on secured debt		48,717			43,283			36,393
Interest on note payable due to General Partner		424			5,028			5,028
General and administrative		23,291			16,886			19,081
Other depreciation and amortization		—			—			327

Total expenses		356,316			344,925			320,790

(Loss)/income from continuing operations		(22,413	)		(2,952	)		11,410
Income/(loss) from discontinued operations		1,719			(1,093	)		487,498

Consolidated net (loss)/income		(20,694	)		(4,045	)		498,908
Net income attributable to non-controlling interests		(41	)		(131	)		(1,188	)

Net (loss)/income attributable to OP unitholders	$	(20,735	)	$	(4,176	)	$	497,720


Earnings per OP unit- basic and diluted:
(Loss)/income from continuing operations attributable to OP unitholders	$	(0.12	)	$	(0.02	)	$	0.06
Income from discontinued operations	$	0.01		$	(0.01	)	$	2.93
(Loss)/income attributable to OP unitholders	$	(0.12	)	$	(0.02	)	$	3.00

Weighted average OP units outstanding		179,909			178,817			166,163

See accompanying notes to the consolidated financial statements.

United Dominion Realty, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for unit data)
(unaudited)


	Year ended December 31,
	2010			2009			2008
Operating Activities
Consolidated net (loss)/income	$	(20,694	)	$	(4,045	)	$	498,908
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization		166,480			166,773			154,911
Net gain on the sale of depreciable property		(152	)		(1,475	)		(475,249	)
Write off of bad debt		1,760			2,216			1,439
Amortization of deferred financing costs and other		1,652			2,195			1,766
Changes in operating assets and liabilities:
Increase in operating assets		(3,705	)		(3,340	)		(3,463	)
Increase/(decrease) in operating liabilities		1,263			(4,991	)		(9,652	)

Net cash provided by operating activities		146,604			157,333			168,660

Investing Activities
Proceeds from sales of real estate investments, net		—			—			879,930
Proceeds from note receivable		—			200,000			—
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures		—			—			(713,649	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(59,458	)		(70,372	)		(84,288	)

Net cash (used in)/provided by investing activities		(59,458	)		129,628			81,993

Financing Activities
Payments to General Partner		(31,359	)		(550,392	)		(319,478	)
Proceeds from the issuance of secured debt		11,326			340,608			292,120
Payments on secured debt		(60,686	)		(64,455	)		(204,205	)
Payment of financing costs		(391	)		(4,073	)		(3,639	)
Repurchase of Out-Performance Partnership Units		—			—			(524	)
OP unit redemption		(327	)		—			—
Distributions paid to partnership unitholders		(5,231	)		(11,797	)		(11,424	)

Net cash used in financing activities		(86,668	)		(290,109	)		(247,150	)

Net increase/(decrease) in cash and cash equivalents		478			(3,148	)		3,503
Cash and cash equivalents, beginning of year		442			3,590			87

Cash and cash equivalents, end of year	$	920		$	442		$	3,590


Supplemental Information:
Interest paid during the year, net of amounts capitalized	$	51,854		$	46,029		$	41,929

Non-cash transactions:
Issuance of note receivable upon the disposition of real estate	$	—		$	—		$	200,000
Secured debt assumed at acquisition		—			—			95,705

See accompanying notes to the consolidated financial statements.

UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME/(LOSS)
(In thousands)
(unaudited)


													Out-									Receivable
	Class A						UDR, Inc.						Performance			Accumulated Other			Total			due from			Non-
	Limited			Limited			Limited			General			Partnership			Comprehensive			Partnership			General			Controlling
	Partner			Partners			Partner			Partner			Shares			Income/(Loss)			Equity			Partner			Interest			Total
Balance, January 1, 2008	$	32,114		$	139,660		$	2,057,267		$	1,381		$	1,982		$	—		$	2,232,404		$	(254,256	)	$	10,861		$	1,989,009
Distributions		(3,719	)		(13,067	)		(361,879	)		(236	)		—			—			(378,901	)		—			—			(378,901	)
Repurchases		—			—			—			—			(524	)		—			(524	)		—			—			(524	)
OP Unit Redemptions for common shares of UDR		—			(29,136	)		29,136			—			—			—			—			—			—			—
Adjustment to reflect limited partners’ capital at redemption value		(10,949	)		(35,863	)		46,812			—			—			—			—			—			—			—
Other comprehensive income/(loss):
Unrealized loss on derivative financial instruments		—			—			—			—			—			(4,874	)		(4,874	)		—			—			(4,874	)
Net income		4,864			17,091			475,458			307			—			—			497,720			—			1,188			498,908

Total comprehensive income/(loss)		4,864			17,091			475,458			307			—			(4,874	)		492,846			—			1,188			494,034
Net change in receivable due from General Partner		—			—			—			—			—			—			—			(120,868	)		—			(120,868	)

Balance, December 31, 2008		22,310			78,685			2,246,794			1,452			1,458			(4,874	)		2,345,825			(375,124	)		12,049			1,982,750

Distributions		(2,328	)		(3,600	)		(146,954	)		(94	)		—			—			(152,976	)		—			—			(152,976	)
Issuance of OP Units through Special Dividend		1,568			5,691			—			100			—						7,359			153,611						160,970
Forfeitures- OPPS units		14			34			1,409			1			(1,458	)		—			—			—			—			—
OP Unit Redemptions for common shares of UDR		—			(23,308	)		23,308			—			—			—			—			—			—			—
Adjustment to reflect limited partners’ capital at redemption value		7,274			12,218			(19,492	)		—			—			—			—			—			—			—
Other comprehensive income/(loss):
Unrealized gain on derivative financial instruments		—			—			—			—			—			1,721			1,721			—			—			1,721
Net loss		(41	)		(98	)		(4,034	)		(3	)		—			—			(4,176	)		—			131			(4,045	)

Total comprehensive loss		(41	)		(98	)		(4,034	)		(3	)		—			1,721			(2,455	)		—			131			(2,324	)
Net change in receivable due from General Partner		—			—			—			—			—			—			—			(366,672	)					(366,672	)

Balance, December 31, 2009		28,797			69,622			2,101,031			1,456			—			(3,153	)		2,197,753			(588,185	)		12,180			1,621,748

Distributions		(2,328	)		(2,819	)		(127,201	)		(80	)		—			—			(132,428	)		—			—			(132,428	)
OP Unit Redemptions for common shares of UDR		—			(18,214	)		18,214			—			—			—			—			—			—			—
OP Unit Redemptions for cash		—			(327	)		327			—			—			—			—			—			—			—
Adjustment to reflect limited partners’ capital at redemption value		14,932			30,019			(44,951	)		—			—			—			—			—			—			—
Change in UDR, L.P. non-controlling interest		—			—			—			—			—			—			—			—			(130	)		(130	)
Other comprehensive income/(loss):
Unrealized loss on derivative financial instruments		—			—			—			—			—			(2,349	)		(2,349	)		—			—			(2,349	)
Net loss		(202	)		(423	)		(20,097	)		(13	)		—			—			(20,735	)		—			41			(20,694	)

Total comprehensive loss		(202	)		(423	)		(20,097	)		(13	)		—			(2,349	)		(23,084	)		—			41			(23,043	)
Net change in receivable due from General Partner		—			—			—			—			—			—			—			95,476			—			95,476

Balance, December 31, 2010	$	41,199		$	77,858		$	1,927,323		$	1,363		$	—		$	(5,502	)	$	2,042,241		$	(492,709	)	$	12,091		$	1,561,623

See accompanying notes to the consolidated financial statements.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

1. CONSOLIDATION AND BASIS OF PRESENTATION

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, develops, 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 real estate investment trust under the Internal Revenue Code of 1986, and through which UDR conducts a significant portion of its business. During the twelve months ended December 31, 2010 and 2009, rental revenues of the Operating Partnership represented of 55% and 59% of the General Partner’s consolidated rental revenues. At December 31, 2010, the Operating Partnership’s apartment portfolio consisted of 81 communities located in 19 markets consisting of 23,351 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, 2010, there were 179,909,408 OP units in the Operating Partnership outstanding, of which 174,847,440 or 97.2% were owned by UDR and affiliated entities and 5,061,968 or 2.8%, which were owned by non-affiliated limited partners. There were 179,909,408 OP units in the Operating Partnership outstanding as of December 31, 2009 of which, 173,922,816 or 96.7% were owned by UDR and affiliated entities and 5,986,592 or 3.3%, which were owned by non-affiliated limited partners. See Note 9,Capital Structure.

As sole general partner of the Operating Partnership, UDR owned 110,883 general partnership interest units or 0.06% of the total OP Units outstanding as of December 31, 2010 and 2009. At December 31, 2010 and 2009, there were 179,798,525 OP units outstanding of limited partnership interest, of which 1,751,671 were Class A Limited Partnership OP units. UDR owned 174,736,557 or 97.2% and 173,811,933 or 96.7% at December 31, 2010 and 2009, respectively. The remaining 5,061,968 or 2.8% and 5,986,592 or 3.3% OP units outstanding of limited partnership interest were held by non- affiliated partners at December 31, 2010 and 2009, respectively, of which 1,751,671 were Class A Limited Partnership units.

Basis of presentation

The accompanying Consolidated Financial Statements consists of the Operating Partnership and its subsidiaries. Profits and losses are allocated in accordance with the terms of the Operating Partnership agreement. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Operating Partnership evaluated subsequent events through the date of issuance of the Operating Partnership’s financial statements. No recognized or non-recognized subsequent events were noted.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and Disclosures.” This amendment provides for more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. ASU No. 2010-06 was effective for the Operating Partnership for our fiscal year beginning in January 1, 2010.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Use of estimates

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

Discontinued operations

For properties accounted for under FASB ASC 360,Property, Plant and Equipment(formerlySFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”) (“Topic 360”), the results of operations for those properties sold during the year or classified as held-for-sale at the end of the current year are classified as discontinued operations in the current and prior periods pursuant to FASB ASC 205-20,Presentation of Financial Statements — Discontinued Operations. Further, to meet the discontinued operations criteria, the Operating Partnership or related parties will not have any significant continuing involvement in the ownership or operation of the property after the sale or disposition. Once a property is deemed as held-for-sale, depreciation is no longer recorded. However, if the Operating Partnership determines that the property no longer meets the criteria for held-for-sale, the Company will recapture any unrecorded depreciation on the property (see Note 4,Discontinued Operationsfor further discussion).

Real estate

The Operating Partnership purchases real estate investment properties and allocates the purchase price to the tangible and identifiable intangible assets 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 allocating cost to an acquired community, we first allocate costs 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 contractual life. Property acquisition costs are expense as incurred.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Quarterly or when changes in circumstances warrant, UDR, L.P. will assess our real estate portfolio 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 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.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. As of December 31, 2010 and 2009, the value of our net intangible assets which are reflected in “Other assets” was $4.1 million and $4.8 million, respectively. As of December 31, 2010 and 2009, the value of our net intangible liabilities which are reflected in “Accounts payable, accrued expenses, and other liabilities” was $3.3 million and $3.6 million in our Consolidated Balance Sheets. The balances are being amortized over the remaining life of the respective intangible.

All development and redevelopment projects and related carrying costs are capitalized during periods in which activities necessary to get the property ready for its intended use are in progress. As each building in a project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization and the assets are depreciated over their estimated useful lives. The costs of projects which include interest, real estate taxes, insurance, and allocated development overhead related to support costs for personnel working directly on the development site are capitalized during the construction period. During 2010, 2009, and 2008, total interest capitalized pertaining to redevelopment projects and land held for future development was $1.3 million, $444,000, and $580,000, respectively.

Cash, cash equivalents and restricted cash

Cash and cash equivalents consist of cash on hand and demand deposits with financial institutions. Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.

Derivative financial instruments

The General Partner utilizes derivative financial instruments to manage interest rate risk and will generally designate 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 and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

Comprehensive income

Comprehensive income, which is defined as all changes in capital during each period except for those resulting from investments by or distributions to partners, is displayed in the accompanying Consolidated Statements of Partners’ Capital and Comprehensive Income/(Loss). For the year ended December 31, 2010, other comprehensive income/(loss) consisted of the change in the fair value of the General Partner’s effective cash flow hedges that are allocated to the Operating Partnership.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Income taxes

The taxable income or loss of the Operating Partnership is reported on the tax returns of the partners. Accordingly, no 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.

The Operating Partnership adopted certain accounting guidance within ASC Topic 740,Income Taxes, with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. The guidance requires 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 (2005- 2009) and major jurisdictions and concluded the adoption of the new accounting guidance resulted in no impact to the Operating Partnership’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

Revenue and real estate sales gain recognition

Rental income related to leases is recognized on an accrual basis when due from residents in accordance with FASB ASC 840,Leases(formerly SFAS 13 “Accounting for Leases”) and SEC Staff Accounting Bulletin No. 104, “Revenue Recognition”. Rental payments are generally due on a monthly basis and recognized when earned. The Operating Partnership recognizes interest income, management and other fees and incentives when earned, fixed and determinable.

The Operating Partnership accounts for sales of real estate in accordance with FASB ASC 360-20,Real Estate Sales(formerly SFAS 66, “Accounting for Sales of Real Estate”). For sale transactions meeting the requirements for full accrual profit recognition, such as the Operating Partnership no longer having continuing involvement in the property, we remove the related assets and liabilities from our Consolidated Balance Sheets and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting.

Sales to entities in which we or our General Partner retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and will defer the gain on the interest we or our General Partner retain. The Operating Partnership will recognize any deferred gain when the property is then sold to a third party. In transactions accounted by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property.

Earnings per Operating Partnership Unit

Basic earnings per OP Unit is computed by dividing net (loss)/income attributable to general and limited partner unitholders by the weighted average number of general and limited partner units (including redeemable OP Units) outstanding during the year. Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the earnings of the Operating Partnership. For the years ended December 31, 2010, 2009, and 2008, there were no dilutive instruments, and therefore, diluted earnings per OP Unit and basic earnings per OP Unit are the same. See Note 9,Capital Structure, for further discussion on redemption rights of OP Units.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Non-controlling 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.

Advertising costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item “Administrative and marketing”. During 2010, 2009, and 2008, total advertising expense from continuing and discontinued operations was $2.3 million, $2.4 million, and $2.6 million, respectively.

Allocation of General and Administrative Expenses

The Operating Partnership is charged directly with 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 each subsidiary’s pro-rata portion of UDR’s total apartment homes. (See Note 6,Related Party Transactions.)

Market concentration risk

Approximately 20.6%, 14.4% and 10.6% of our apartment communities are located in Orange County, California; Metropolitan Washington DC; and San Francisco, California, respectively, based on the carrying value of our real estate portfolio as of December 31, 2010. Therefore, the Partnership is subject to increased exposure (positive or negative) from economic and other competitive factors specific to those markets.

3. REAL ESTATE OWNED

Real estate assets owned by the Operating Partnership consists of income producing operating properties and land held for future development. As of December 31, 2010, the Operating Partnership owned and consolidated 81 communities in 8 states plus the District of Columbia totaling 23,351 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2010 and 2009(dollar amounts in thousands):


	December 31,
	2010			2009

Land	$	925,326		$	920,635
Depreciable property — held and used:
Buildings and improvements		2,452,746			2,404,943
Furniture, fixtures and equipment		112,831			105,006
Land held for future development		26,015			21,856
Held for disposition:
Land		64,598			64,491
Building and improvements		121,175			120,869
Furniture, fixtures and equipment		3,493			3,088

Investment in real estate		3,706,184			3,640,888
Accumulated depreciation		(884,083	)		(717,892	)


Investment in real estate, net	$	2,822,101		$	2,922,996

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The Operating Partnership did not have any acquisitions during the years ended December 31, 2010 and 2009.

4. DISCONTINUED OPERATIONS

The results of operations for properties sold during the year or designated as held-for-sale at the end of the year are classified as discontinued operations for all periods presented. 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. The application of ASC Topic 205-20 does not have an impact on net income attributable to unit holders. The application of ASC Topic 205-20 results in the retrospective reclassification of the operating results of all properties sold or classified as held for disposition through June 30, 2011, within the Consolidated Statements of Operations for the years ended December 31, 2010, 2009, and 2008, and the retrospective reclassification of the assets and liabilities within the Consolidated Balance Sheets as of December 31, 2010 and 2009, if applicable. During the six months ended June 30, 2011, the Operating Partnership sold four communities representing 984 apartment homes. The results of operations of these communities have been retrospectively included in Discontinued Operations in the Consolidated Statements of Operations. In addition, the assets and liabilities related to these communities have been retrospectively classified as held for sale in the Consolidated Balance Sheets.

For the years ended December 31, 2010 and 2009, the Operating Partnership did not dispose of any communities. For the year ended December 31, 2008, the Operating Partnership sold 55 communities and recognized gains for financial reporting purposes of $475.2 million on these sales. In conjunction with the sale of these communities, the Operating Partnership received a $200 million note that was fully repaid in 2009.

The following is a summary of income from discontinued operations for the three years ended December 31, 2010(dollars in thousands):


	2010		2009			2008

Rental income	$	16,491	$	16,778		$	42,918
Non-property income		1,849		—			—

Rental expenses		5,077		5,291			15,639
Property management fee		453		461			1,180
Real estate depreciation		8,162		8,358			8,132
Interest		3,081		5,236			5,718


		16,773		19,346			30,669

Income/(loss) before net gain on the sale of property		1,567		(2,568	)		12,249
Net gain on the sale of property		152		1,475			475,249

Income/(loss) from discontinued operations	$	1,719	$	(1,093	)	$	487,498

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

5. DEBT

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 interest rate for the underlying debt instrument. Secured debt, including that related to real estate held for sale, consists of the following as of December 31, 2010 and 2009 (dollars in thousands):


					2010
	Principal Outstanding				Weighted			Weighted		Number of
	December 31				Average			Average		Communities
	2010		2009		Interest Rate			Years to Maturity		Encumbered
Fixed Rate Debt
Mortgage notes payable	$	192,205	$	230,852		5.54	%		3.3		5
Tax-exempt secured notes payable		13,325		13,325		5.30	%		20.2		1
Fannie Mae credit facilities		560,993		587,403		5.21	%		6.4		9

Total fixed rate secured debt		766,523		831,580		5.29	%		5.8		15

Variable Rate Debt
Mortgage notes payable		100,590		100,590		2.75	%		4.2		4
Tax-exempt secured note payable		27,000		27,000		1.07	%		19.2		1
Fannie Mae credit facilities		175,948		163,028		1.93	%		4.7		18

Total variable rate secured debt		303,538		290,618		2.13	%		5.8		23

Total secured debt	$	1,070,061	$	1,122,198		4.40	%		5.8		38

As of December 31, 2010, the General Partner had secured credit facilities with Fannie Mae (“FNMA”) with an aggregate commitment of $1.4 billion with $1.2 billion outstanding. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at the General Partner’s option. At December 31, 2010, $897.3 million of the funded balance was fixed at a weighted average interest rate of 5.3% and the remaining balance of $260.5 million on these facilities had a weighted average variable rate of 1.7%. $736.9 million of these credit facilities were allocated to the Operating Partnership at December 31, 2010 based on the ownership of the assets securing the debt. Further information related to these credit facilities is as follows:


	December 31, 2010			December 31, 2009
	(dollar amounts in thousands)

Borrowings outstanding	$	736,941		$	750,431
Weighted average borrowings during the year ended		763,040			646,895
Maximum daily borrowings during the year		770,021			750,572
Weighted average interest rate during the year ended		4.5	%		4.6	%
Interest rate at the end of the year		4.4	%		4.6	%

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 unamortized fair value adjustment of the fixed rate debt instruments on the Operating Partnership’s properties was a net discount of $1.1 million and $1.2 million at December 31, 2010 and 2009, respectively.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Fixed Rate Debt

Mortgage notes payable.Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2011 through June 2016 and carry interest rates ranging from 5.03% to 5.94%.

Secured credit facilities.At December 31, 2010, the General Partner had borrowings against its fixed rate facilities of $897.3 million of which $561.0 million was allocated to the Operating Partnership based on the ownership of the assets securing the debt. As of December 31, 2010, the fixed rate Fannie Mae credit facilities allocated to the Operating Partnership had a weighted average fixed rate of interest of 5.21%.

Variable Rate Debt

Mortgage notes payable.Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from July 2013 through April 2016. Interest on the variable rate mortgage notes is based on LIBOR plus some basis points, which translated into interest rates ranging from 1.10% to 3.89% at December 31, 2010.

Tax-exempt secured note payable.The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in March 2030. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 1.07% as of December 31, 2010.

Secured credit facilities.At December 31, 2010, the General Partner had borrowings against its variable rate facilities of $260.5 million of which $175.9 million was allocated to the Operating Partnership based on the ownership of the assets securing the debt. As of December 31, 2010, the variable rate borrowings under the Fannie Mae credit facilities allocated to the Operating Partnership had a weighted average floating rate of interest of 1.93%.

The aggregate maturities of the Operating Partnership’s secured debt due during each of the next five calendar years and thereafter are as follows(dollars in thousands):


	Fixed						Variable
	Mortgage		Tax-Exempt		Credit		Mortgage		Tax Exempt		Credit
	Notes		Notes Payable		Facilities		Notes		Notes Payable		Facilities		Total
2011	$	10,874	$	—	$	—	$	423	$	—	$	30,886	$	42,183
2012		49,623		—		136,792		633		—		59,529		246,577
2013		61,381		—		27,739		38,049		—		—		127,169
2014		—		—		—		634		—		—		634
2015		—		—		—		636		—		—		636
Thereafter		70,327		13,325		396,462		60,215		27,000		85,533		652,862

Total	$	192,205	$	13,325	$	560,993	$	100,590	$	27,000	$	175,948	$	1,070,061

Guarantor on Unsecured Debt

The Operating Partnership is a guarantor on the General Partner’s unsecured credit facility, with an aggregate borrowing capacity of $600 million, a $100 million term loan, and a $250 million term loan. At December 31, 2010 and December 31, 2009, the outstanding balance under the unsecured credit facility was $31.8 million and $189.3 million, respectively.

On September 30, 2010, the Operating Partnership guaranteed certain outstanding debt securities of the General Partner. These guarantees provide that the Operating Partnership, as primary obligor and not merely as surety, irrevocably and unconditionally guarantees to each holder of the applicable securities and to the trustee and their successors and assigns under the respective indenture (a) the full and punctual payment when due, whether as stated maturity, by acceleration or otherwise, of all obligations of the General Partner under the respective indenture whether for principal or interest on the securities (and premium, if any), and all other monetary obligations of the General Partner under the respective indenture and the terms of the applicable securities and (b) the full and punctual performance within the applicable grace periods of all other obligations of the General Partner under the respective indenture and the terms of applicable securities. There was $96 million (net of a discount of $1.1 million) and $123 million (net of a discount of $3.4 million) outstanding of the General Partner’s 3.625% Convertible Senior Notes at December 31, 2010 and 2009, respectively. There was $167.8 million and $165.8 million (net of a discount of $1.9 million) outstanding of the General Partner’s 4.00% Convertible Senior Notes at December 31, 2010 and 2009, respectively.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

6. RELATED PARTY TRANSACTIONS

Receivable due from the General Partner

The Operating Partnership participates in the General Partner’s central cash management program, wherein all the Operating Partnership’s cash receipts are remitted to the General Partner and all cash disbursements are funded by the General Partner. In addition, other miscellaneous costs such as administrative expenses are incurred by the General Partner on behalf of the Operating Partnership. As a result of these various transactions between the Operating Partnership and the General Partner, the Operating Partnership had a net receivable balance of $492.7 million and $588.2 million at December 31, 2010 and 2009, respectively, which is reflected as a reduction of capital on the consolidated balance sheets.

Allocation of General and Administrative Expenses

The General Partner performs various general and administrative and other overhead services, including property management, for the Operating Partnership including legal assistance, acquisitions analysis, marketing and advertising, and allocates these expenses to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on its pro-rata portion of UDR’s apartment homes excluding units held in UDR’s taxable REIT subsidiary. During the years ended December 31, 2010, 2009 and 2008, the general and administrative expenses and property management expenses, allocated to the Operating Partnership by UDR were $32.4 million and $25.9 million and $28.9 million, respectively, and are included in “General and Administrative” expenses and “Property management” expenses 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.

Guaranty by the General Partner

The General Partner provided a “bottom dollar” guaranty to certain limited partners as part of their original contribution to the Operating Partnership. The guaranty protects the tax basis of the underlying contribution and is reflected on the OP unitholder’s Schedule K-1 tax form. The guaranty was made in the form of a loan from the General Partner to the Operating Partnership at an annual interest rate of 0.593% and 5.83% at December 31, 2010 and 2009, respectively. Interest payments are made monthly and the note is due December 31, 2011. At December 31, 2010 and 2009, the note payable due to the General Partner was $78.3 million and $71.5 million, respectively.

7. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

•

Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

•

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2010 and 2009 are summarized as follows(dollars in thousands):


			Fair Value at December 31, 2010 Using
			Quoted Prices in
			Active Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
	December 31, 2010		(Level 1)		(Level 2)		(Level 3)

Description:
Derivatives- Interest rate contracts (b)	$	376	$	—	$	376	$	—

Total assets	$	376	$	—	$	376	$	—


Derivatives- Interest rate contracts (b)	$	5,111	$	—	$	5,111	$	—
Contingent purchase consideration (c)		5,402		—		—		5,402
Secured debt instruments- fixed rate: (a)
Mortgage notes payable		205,750		—		—		205,750
Tax-exempt secured notes payable		13,885		—		—		13,885
Fannie Mae credit facilities		576,069		—		—		576,069
Secured debt instruments- variable rate: (a)
Mortgage notes payable		100,590		—		—		100,590
Tax-exempt secured notes payable		27,000		—		—		27,000
Fannie Mae credit facilities		175,948		—		—		175,948

Total liabilities	$	1,109,755	$	—	$	5,111	$	1,114,866

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010


			Fair Value at December 31, 2009 Using
			Quoted Prices in
			Active Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
	December 31, 2009		(Level 1)		(Level 2)		(Level 3)

Description:

Derivatives- Interest rate contracts (b)	$	1,992	$	—	$	1,992	$	—

Total assets	$	1,992	$	—	$	1,992	$	—


Derivatives- Interest rate contracts (b)	$	3,832	$	—	$	3,832	$	—
Secured debt instruments- fixed rate: (a)
Mortgage notes payable		239,814		—		—		239,814
Tax-exempt secured notes payable		13,540		—		—		13,540
Fannie Mae credit facilities		592,783		—		—		592,783
Secured debt instruments- variable rate: (a)
Mortgage notes payable		100,590		—		—		100,590
Tax-exempt secured notes payable		27,000		—		—		27,000
Fannie Mae credit facilities		163,028		—		—		163,028

Total liabilities	$	1,140,587	$	—	$	3,832	$	1,136,755


(a)		See Note 5,Debt

(b)		See Note 8,Derivatives and Hedging Activity

(c)		In March 2010, the Operating Partnership accrued a liability of $6.0 million related to a contingent purchase consideration on one of its properties. The contingent consideration was determined based on the fair market value of the related asset which is estimated using Level 3 inputs utilized in a third party appraisal. In July 2010, the Company paid approximately $635,000 towards the liability.

Financial Instruments Carried at Fair Value

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.

Although 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, 2010 and 2009, 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.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Financial Instruments Not Carried at Fair Value

At December 31, 2010, 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 were determined by the Operating Partnership using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Operating Partnership would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

The General Partner estimates the fair value of our debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality (Level 3).

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 rental rates, operating expenses, growth rates, discount rates, capitalization rates, industry trends, and references to market rates and transactions.

8. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Operating Partnership is exposed to certain risk 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 receipts and its known or expected cash payments principally related to the General Partner’s investments and 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.

A portion of the General Partner’s interest rate derivatives have been allocated to the Operating Partnership based on the General Partner’s underlying debt instruments allocated to the Operating Partnership. (See Note 5,Debt.)

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated Other Comprehensive Income/(Loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2010, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the year ended December 31, 2010, the Operating Partnership recorded less than $1,000 of ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item.

Amounts reported in “Accumulated Other Comprehensive Income/(Loss)” related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is allocated to the Operating Partnership. During the year ended December 31, 2011, we estimate that an additional $5.5 million will be reclassified as an increase to interest expense.

As of December 31, 2010, the Operating Partnership had the following outstanding interest rate derivatives designated as cash flow hedges of interest rate risk (dollar amounts in thousands):


	Number of
Interest Rate Derivative	Instruments		Notional
Interest rate swaps		6	$	261,532

Interest rate caps		2	$	108,628

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 FASB ASC 815,Derivatives and Hedging(formerly SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”). Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a loss of $684,000 and a gain of $538,000 for the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollar amounts in thousands):


	Number of
Product	Instruments		Notional
Interest rate caps		4	$	217,173

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of our derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2010.


	Asset Derivatives					Liability Derivatives
		Fair Value at:					Fair Value at:
	Balance	December 31,		December 31,		Balance	December 31,		December 31,
	Sheet Location	2010		2009		Sheet Location	2010		2009
Derivatives designated as hedging instruments:
Interest Rate Products	Other Assets	$	217	$	1,046	Other Liabilities	$	5,111	$	3,832


Total derivatives designated as hedging instruments		$	217	$	1,046		$	5,111	$	3,832


Derivativesnotdesignated as hedging instruments:
Interest Rate Products	Other Assets	$	159	$	946	Other Liabilities	$	—	$	—


Total derivativesnotdesignated as hedging instruments		$	159	$	946		$	—	$	—

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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, 2010 and 2009 (dollar amounts in thousands):


							Location of Loss	Amount of Gain or (Loss) Reclassified
	Amount of Gain or (Loss) Recognized in						Reclassified from	from Accumulated OCI into Income
Derivatives in Cash Flow Hedging	OCI on Derivative (Effective Portion)						Accumulated OCI into	(Effective Portion)
Relationships	2010			2009			Income (Effective Portion)	2010			2009

For the year ended December 31,

Interest Rate Products	$	(4,281	)	$	(2,676	)	Interest expense	$	(6,631	)	$	(4,397	)


Total	$	(4,281	)	$	(2,676	)		$	(6,631	)	$	(4,397	)


	Location of Gain or (Loss)	Amount of Gain or (Loss) Recognized
Derivatives Not Designated as Hedging	Recognized in Income on	in Income on Derivative
Instruments	Derivative	2010			2009
For the ended December 31,
Interest Rate Products	Other income / (expense)	$	(684	)	$	538

Total		$	(684	)	$	538

Credit-risk-related Contingent Features

The General Partner has agreements with some of its derivative counterparties that contain a provision where (1) if the General Partner defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the General Partner could also be declared in default on its derivative obligations; or (2) 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.

Certain of the General Partner ‘s agreements with its derivative counterparties contain provisions where if there is a change in the General Partner’s financial condition that materially changes the General Partner ‘s creditworthiness in an adverse manner, the General Partner may be required to fully collateralize its obligations under the derivative instrument.

The General Partner also has an agreement with a derivative counterparty that incorporates the loan and financial covenant provisions of the General Partner’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with these covenant provisions would result in the General Partner being in default on any derivative instrument obligations covered by the agreement.

As of December 31, 2010, the fair value of derivatives in a net liability position that were allocated to the Operating Partnership, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $5.5 million. As of December 31, 2010, the General Partner has not posted any collateral related to these agreements. If the General Partner had breached any of these provisions at December 31, 2010, it would have been required to settle its obligations under the agreements at their termination value of $5.5 million.

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

9. 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 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. There were 110,883 OP units of general partnership interest at December 31, 2010 and 2009, all of which were held by UDR.

Limited Partnership Units

At December 31, 2010 and 2009, there were 179,798,525 OP units outstanding of limited partnership interest, of which 1,751,671 were Class A Limited Partnership OP units. UDR owned 174,736,557 or 97.2% and 173,811,933 or 96.7% at December 31, 2010 and 2009, respectively. The remaining 5,061,968 or 2.8% and 5,986,592 or 3.3% OP units outstanding of limited partnership interest were held by non- affiliated partners at December 31, 2010 and 2009, respectively, of which 1,751,671 were Class A Limited Partnership units.

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. (Pursuant to the Fourth Amendment to the Operating Partnership Agreement, redemptions related to the Series A Out-Performance Partnership Shares [discussed below] were made on a one for 1.5091 during the period from December 27, 2007 to March 13, 2009.)

The non-affiliated limited partners’ capital is adjusted to redemption value at the end of each reporting period with the corresponding offset against the UDR limited partner capital account based on the redemption rights note above. The aggregate value upon redemption of the then-outstanding OP units held by limited partners was $119.1 million, $98.4 million, and $101.0 million as of December 31, 2010, 2009, and 2008, respectively, based on the value of UDR’s common stock at each period end. Once each OP unit has been redeemed, the redeeming partner has no right to receive any distributions from the Operating Partnership on or after the date of redemption.

Class A Limited Partnership Units

Class A 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 perform the following without approval of the holders of the Class A Partnership units: (i) increase the authorized or issued amount of Class A Partnership Units, (ii) reclassify any other partnership interest into Class A Partnership Units, (iii) create, authorize or issue any obligations or security convertible into or the right to purchase any Class Partnership Units, without the approval of the holders of the Class A Partnership units, (iv) enter into a merger or acquisition, or (v) amend or modify the Operating Partnership Agreement that affects the rights, preferences or privileges of the Class A Partnership Units.

100

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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.

Out-Performance Programs

Series A Out-Performance Program

In May 2001, the Board of Directors of UDR approved the Series A Out-Performance Program (the “Series A Program”) pursuant to which certain executive officers and other key officers of UDR (the “Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in a limited liability company (the “Series A LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series A Out-Performance Partnership Shares” or “Series A OPPSs”), for an initial investment of $1.27 million (the full market value of the Series A OPPS, at inception, as determined by an independent investment banking firm). The Series A Program measured the cumulative total return on UDR’s common stock over a 28-month period beginning February 2001 and ending May 31, 2003.

The Series A Program was designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period, exceeded the greater of (a) the cumulative total return of the Morgan Stanley REIT Index over the same period; and (b) is at least the equivalent of a 30% total return, or 12% annualized.

At the conclusion of the measurement period on May 31, 2003, UDR’s total return satisfied these criteria. As a result, the Series A LLC as holder of the Series A OPPSs received distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that were received on 1,853,204 OP Units, which distributions and allocations were distributed to the participants on a pro rata basis based on the ownership of the Series A LLC.

Series C Out-Performance Program

In May 2005, the stockholders of UDR approved a new Out-Performance Program and the first series of new Out-Performance Partnership Shares under the program are the Series C Out-Performance Units (the “Series C Program”) pursuant to which certain executive officers and other key employees of UDR (the “Series C Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in UDR Out-Performance III, LLC, a Delaware limited liability company (the “Series C LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series C Out-Performance Partnership Shares” or “Series C OPPSs”). The purchase price for the Series C OPPSs was determined by the Compensation Committee of UDR’s Board of Directors to be $750,000, assuming 100% participation, and was based upon the advice of an independent valuation expert. UDR’s performance for the Series C Program was measured over the 36-month period from June 1, 2005 to May 30, 2008.

The Series C Program was designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if UDR’s cumulative total return satisfies these criteria, the Series C LLC as holder of the Series C OPPSs will receive (for the indirect benefit of the Series C Participants as holders of interests in the Series C LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by:

i. determining the amount by which the cumulative total return of UDR’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);

ii. multiplying 2% of the Excess Return by UDR’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, common stock equivalents and OP Units); and

iii. dividing the number obtained in clause (ii) by the market value of one share of UDR’s common stock on the valuation date, computed as the volume-weighted average price per day of common stock for the 20 trading days immediately preceding the valuation date.

101

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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

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

At the conclusion of the measurement period, May 30, 2008, the total cumulative return on UDR’s common stock did not meet the minimum return threshold. As a result, there were no payouts under the Series C OPPSs program and the investment made by the holders of the Series C OPPSs was forfeited.

Series D Out-Performance Program

In February 2006, the Board of Directors of UDR approved the Series D Out-Performance Program (the “Series D Program”) pursuant to which certain executive officers of UDR (the “Series D Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in UDR Out-Performance IV, LLC, a Delaware limited liability company (the “Series D LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series D Out-Performance Partnership Shares” or “Series D OPPSs”). The Series D Program was part of the New Out-Performance Program approved by UDR’s stockholders in May 2005. The Series D LLC agreed to sell 830,000 membership units unadjusted for the Special Dividend to certain members of UDR’s senior management at a price of $1.00 per unit. The aggregate purchase price of $830,000 for the Series D OPPSs, assuming 100% participation, was based upon the advice of an independent valuation expert. The Series D Program measured the cumulative total return on our common stock over the 36-month period beginning January 1, 2006 and ending December 31, 2008.

The Series D Program was designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period was at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if UDR’s cumulative total return satisfied these criteria, the Series D LLC as holder of the Series D OPPSs would receive (for the indirect benefit of the Series D Participants as holders of interests in the Series D LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would have been received on the number of OP Units obtained by:

determining the amount by which the cumulative total return of UDR’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);

ii.

multiplying 2% of the Excess Return by UDR’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, OP Units, common stock equivalents and OP Units); and

iii.

dividing the number obtained in (ii) by the market value of one share of UDR’s common stock on the valuation date, computed as the volume-weighted average price per day of the common stock for the 20 trading days immediately preceding the valuation date.

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

At the conclusion of the measurement period, December 31, 2008, the total cumulative return on UDR’s common stock did not meet the minimum return threshold. As a result, there were no payouts under the Series D OPPSs program and the investment made by the holders of the Series D OPPSs was forfeited.

102

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Series E Out-Performance Program

In February 2007, the Board of Directors of UDR approved the Series E Out-Performance Program (the “Series E Program”) pursuant to which certain executive officers of UDR (the “Series E Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in UDR Out-Performance V, LLC, a Delaware limited liability company (the “Series E LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series E Out-Performance Partnership Shares” or “Series E OPPSs”). The Series E Program was part of the New Out-Performance Program approved by UDR’s stockholders in May 2005. The Series E LLC agreed to sell 805,000 membership units to certain members of UDR’s senior management at a price of $1.00 per unit. The aggregate purchase price of $805,000 for the Series E OPPSs, assuming 100% participation, was based upon the advice of an independent valuation expert. The Series E Program measured the cumulative total return on our common stock over the 36-month period beginning January 1, 2007 and ending December 31, 2009.

The Series E Program was designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period was at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if UDR’s cumulative total return satisfied these criteria, the Series E LLC as holder of the Series E OPPSs would receive (for the indirect benefit of the Series E Participants as holders of interests in the Series E LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would have been received on the number of OP Units obtained by:

determining the amount by which the cumulative total return of UDR’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);

ii.

iii.

For the Series E OPPSs, the number determined pursuant to clause (ii) above was capped at 0.5% of market capitalization.

If, on the valuation date, the cumulative total return of UDR’s common stock did not meet the Minimum Return, then the Series E Participants would forfeit their entire initial investment.

At the conclusion of the measurement period, December 31, 2009, the total cumulative return on UDR’s common stock did not meet the minimum return threshold. As a result, there were no payouts under the Series E OPPSs program and the investment made by the holders of the Series E OPPSs was forfeited.

The following table shows OP Unit activity and OP units outstanding during the three years ended December 31, 2010:


						UDR, Inc.
	Class A Limited		Limited			Limited		General
	Partner		Partners			Partner		Partner		Total
Beginning balance at January 1, 2008		1,617,815		7,035,746			157,407,216		102,410		166,163,187
OP redemptions for UDR stock		—		(1,329,782	)		1,329,782		—		—

Ending balance at December 31, 2008		1,617,815		5,705,964			158,736,998		102,410		166,163,187

Issuance of units through Special Dividend		133,856		485,986			13,117,906		8,473		13,746,221
OP redemptions for UDR stock		—		(1,957,029	)		1,957,029		—		—

Ending balance at December 31, 2009		1,751,671		4,234,921			173,811,933		110,883		179,909,408

Issuance of units
OP redemptions for UDR cash		—		(19,076	)		19,076		—		—
OP redemptions for UDR stock		—		(905,548	)		905,548		—		—

Ending balance at December 31, 2010		1,751,671		3,310,297			174,736,557		110,883		179,909,408

103

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

10. COMMITMENTS AND CONTINGENCIES

Commitments

Ground Leases

The Operating Partnership owns four communities which are subject to ground leases expiring between 2019 and 2103. The leases are accounted for in accordance with FASB ASC 840,Leases (formerly SFAS 13). Future minimum lease payments as of December 31, 2010 are $4.5 million for each of the years ending December 31, 2011 to 2015, and a total of $294.4 million for years thereafter. 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 reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term.

The Operating Partnership incurred $4.7 million, $4.6 million, and $4.3 million of ground rent expense for the years ended December 31, 2010, 2009, and 2008, respectively.

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 flow.

11. REPORTABLE SEGMENTS

FASB ASC Topic 280,Segment Reporting(formerly SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”) (“Topic 280”), 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 UDR’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. The chief operating decision maker utilizes NOI as the key measure of segment profit or loss.

The Operating Partnership’s two reportable segments are same communities and non-mature/other communities:

•

104

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

Management evaluates the performance of each of our apartment communities on a same community and non-mature/other basis, as well as individually and geographically. This is consistent with the aggregation criteria of Topic 280 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, 2010, 2009, and 2008.

The accounting policies applicable to the operating segments described above are the same as those described in Note 2,Summary of Significant Accounting Policies. The following table details rental income and NOI for the Operating Partnership’s reportable segments for the years ended December 31, 2010, 2009, and 2008, and reconciles NOI to income from continuing and discontinued operations per the consolidated statement of operations(dollars in thousands):


	December 31,
	2010			2009			2008

Reportable apartment home segment rental income
Same Store Communities
Western Region	$	182,896		$	188,397		$	183,412
Mid-Atlantic Region		59,696			57,883			49,899
Southeastern Region		40,846			41,210			41,610
Southwestern Region		26,428			26,669			24,144
Non-Mature communities/Other		40,528			38,897			62,947


Total segment and consolidated rental income	$	350,394		$	353,056		$	362,012


Reportable apartment home segment NOI
Same Store Communities
Western Region	$	125,179		$	132,452		$	128,966
Mid-Atlantic Region		40,893			39,172			33,316
Southeastern Region		25,659			25,984			26,260
Southwestern Region		16,175			16,271			14,879
Non-Mature communities/Other		26,210			26,689			42,619


Total segment and consolidated NOI		234,116			240,568			246,040


Reconciling items:
Non-property income		1,849			5,695			13,106
Property management		(9,636	)		(9,709	)		(9,956	)
Other operating expenses		(5,182	)		(4,868	)		(4,400	)
Depreciation and amortization		(166,480	)		(166,773	)		(154,584	)
Interest		(52,222	)		(53,547	)		(47,139	)
General and administrative		(23,291	)		(16,886	)		(19,081	)
Other depreciation and amortization		—			—			(327	)
Net gain on the sale of real estate		152			1,475			475,249
Non-controlling interests		(41	)		(131	)		(1,188	)

Net (loss)/income attributable to OP unit holders	$	(20,735	)	$	(4,176	)	$	497,720

105

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

The following table details the assets of the Operating Partnership’s reportable segments for the years ended December 31, 2010 and 2009(dollars in thousands):


	December 31,
	2010			2009
Reportable apartment home segment assets
Same Store Communities
Western Region	$	1,949,300		$	1,936,244
Mid-Atlantic Region		681,109			675,223
Southeastern Region		354,861			350,084
Southwestern Region		254,485			251,778
Non-Mature communities/Other		466,429			427,559


Total segment assets		3,706,184			3,640,888
Accumulated depreciation		(884,083	)		(717,892	)


Total segment assets - net book value		2,822,101			2,922,996


Reconciling items:
Cash and cash equivalents		920			442
Restricted cash		8,022			6,865
Deferred financing costs, net		7,465			8,727
Other assets		22,887			22,037


Total consolidated assets	$	2,861,395		$	2,961,067

Capital expenditures related to our same communities totaled $23.8 million, $29.9 million, and $40.7 million for the three years ended December 31, 2010, 2009, and 2008, respectively. Capital expenditures related to our non-mature/other communities totaled $1.2 million, $2.0 million, and $5.1 million for the three years ended December 31, 2010, 2009, and 2008, respectively.

Markets included in the above geographic segments are as follows:

Western — Orange County, San Francisco, Monterey Peninsula, Los Angeles, Seattle, Sacramento, Inland Empire, Portland, and San Diego

ii.

Mid-Atlantic — Metropolitan DC and Baltimore

iii.

Southeastern — Nashville, Tampa, Jacksonville, and Other Florida

iv.

Southwestern — Dallas and Phoenix

106

UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2010 and 2009 is summarized in the table blow (dollars in thousands, except per share amounts):


	Three months ended
	March 31,			June 30,			September 30,			December 31,
2010

Rental income (a)	$	82,069		$	82,975		$	84,131		$	84,728
Loss from continuing operations (b)		(4,781	)		(2,543	)		(6,719	)		(8,370	)
Income/(loss) from discontinued operations		1,848			(9	)		(117	)		(3	)
Loss attributable to OP unitholders (b)		(2,950	)		(2,570	)		(6,845	)		(8,370	)

Loss per OP unit- basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.05	)

2009

Rental income (a)	$	85,551		$	85,102		$	83,654		$	81,971
Income/(loss) from continuing operations		4,282			1,953			(2,716	)		(6,471	)
Income from discontinued operations		(420	)		875			(655	)		(893	)
Income/(loss) attributable to OP unitholders		3,861			2,827			(3,371	)		(7,493	)

Income/(loss) per OP unit- basic and diluted	$	0.02		$	0.02		$	(0.02	)	$	(0.04	)


(a)		Represents rental income from continuing operations

(b)		Previously reported amounts have been restated to correct the amount of general and administrative expenses allocated to the Operating Partnership by the General Partner.

107

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108

Schedule

REAL ESTATE OWNED

UDR, INC.
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands)


									Cost of
									Improvements		Gross Amount at Which
			Initial Costs				Total		Capitalized		Carried at Close of Period
			Land and		Buildings		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

WESTERN REGION
Harbor at Mesa Verde	$	47,091		20,477		28,538		49,015	$	10,872	$	20,716	$	39,171	$	59,887	$	18,028		2003	Jun-03
Pine Brook Village		18,270		2,582		25,504		28,086		4,480		3,841		28,725		32,566		12,393		1979	Jun-03
Pacific Shores		19,145		7,345		22,624		29,969		7,200		7,477		29,692		37,169		13,220		2003	Jun-03
Huntington Vista		31,274		8,055		22,486		30,541		5,863		8,238		28,166		36,404		12,670		1970	Jun-03
Missions at Back Bay		11,326		229		14,129		14,358		1,648		10,727		5,279		16,006		2,523		1969	Dec-03
Huntington Villas		55,752		61,535		18,017		79,552		4,624		61,819		22,357		84,176		9,274		1972	Sep-04
Vista Del Rey		12,659		10,670		7,080		17,750		1,465		10,776		8,439		19,215		3,514		1969	Sep-04
Foxborough		—		12,071		6,187		18,258		2,003		12,139		8,122		20,261		3,035		1969	Sep-04
Coronado at Newport — North		49,766		62,516		46,082		108,598		14,632		63,244		59,986		123,230		24,367		2000	Oct-04
Villa Venetia		—		70,825		24,179		95,004		4,769		70,938		28,835		99,773		11,484		1972	Oct-04
The Arboretum (c)		—		29,563		14,283		43,846		4,843		29,685		19,004		48,689		7,843		1970	Oct-04
Coronado South		103,525		58,785		50,067		108,852		11,106		59,002		60,956		119,958		23,819		2000	Mar-05
Pine Brook Village II		—		25,922		60,961		86,883		1,141		25,924		62,100		88,024		9,498		1975	May-08
1818 Platinum Triangle		—		16,663		51,905		68,568		26		16,663		51,931		68,594		1,161		2009	Aug-10
ORANGE COUNTY, CA		348,808		387,238		392,042		779,280		74,672		401,189		452,763		853,952		152,829
2000 Post Street		—		9,861		44,578		54,439		6,574		10,158		50,855		61,013		17,723		1987	Dec-98
Birch Creek		—		4,365		16,696		21,061		5,010		4,991		21,080		26,071		9,758		1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		26,113		6,972		50,005		56,977		13,800		1991	Dec-98
Marina Playa		—		6,224		23,916		30,140		7,242		6,727		30,655		37,382		13,618		1971	Dec-98
2000 Post III		—		1,756		7,753		9,509		2,983		3,290		9,202		12,492		2,999		2006	Dec-98
Crossroads Apartments		—		4,811		10,170		14,981		3,396		5,024		13,353		18,377		5,763		1986	Jul-04
River Terrace		33,130		22,161		40,137		62,298		1,604		22,250		41,652		63,902		13,429		2005	Aug-05
Bay Terrace		—		8,545		14,458		23,003		1,596		8,549		16,050		24,599		4,868		1962	Oct-05
CitySouth		—		14,031		30,537		44,568		14,981		14,033		45,516		59,549		10,321		1972	Nov-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		9,696		5,706		27,902		33,608		4,559		1968	Oct-07
Edgewater		45,106		30,657		83,872		114,529		1,551		30,663		85,417		116,080		13,843		2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		1,864		622		44,351		44,973		6,555		1999	Jul-08
SAN FRANCISCO, CA		105,236		114,354		358,059		472,413		82,610		118,985		436,038		555,023		117,236
The Crest (c)		55,602		21,953		67,809		89,762		6,708		22,136		74,334		96,470		28,264		1989	Sep-04
Rosebeach		—		8,414		17,449		25,863		1,754		8,462		19,155		27,617		7,294		1970	Sep-04
The Villas @ San Dimas (c)		—		8,181		16,735		24,916		2,221		8,241		18,896		27,137		7,413		1981	Oct-04
The Villas at Bonita (c)		—		4,499		11,699		16,198		771		4,536		12,433		16,969		4,671		1981	Oct-04
Ocean Villas		8,896		5,135		12,789		17,924		1,092		5,205		13,811		19,016		5,036		1965	Oct-04
Pine@Sixth		—		5,805		6,305		12,110		12,306		6,238		18,178		24,416		9,704		2008	Aug-06
Jefferson at Marina del Rey		100,000		55,651		—		55,651		87,751		61,125		82,277		143,402		9,892		2008	Sep-07
Tierra Del Rey		—		39,586		36,679		76,265		1,610		39,589		38,286		77,875		6,976		1999	Dec-07
Marina Pointe		67,700		48,182		102,364		150,546		105		48,186		102,465		150,651		—		1993	Sep-10
LOS ANGELES, CA		232,198		197,406		271,829		469,235		114,318		203,718		379,835		583,553		79,250
Arbor Terrace		9,682		1,453		11,995		13,448		2,518		1,732		14,234		15,966		6,797		1996	Mar-98
Aspen Creek		10,819		1,178		9,116		10,294		1,788		1,411		10,671		12,082		4,529		1996	Dec-98
Crowne Pointe		8,229		2,486		6,437		8,923		3,961		2,737		10,147		12,884		5,014		1987	Dec-98
Hilltop		7,607		2,174		7,408		9,582		2,971		2,635		9,918		12,553		4,561		1985	Dec-98
The Hawthorne		—		6,474		30,226		36,700		1,613		6,511		31,802		38,313		10,559		2003	Jul-05
The Kennedy		17,941		6,179		22,307		28,486		913		6,212		23,187		29,399		7,026		2005	Nov-05
Borgata		—		6,379		24,569		30,948		200		6,384		24,764		31,148		5,214		2001	May-07
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		1,507		6,859		32,418		39,277		5,099		2000	May-08
Island Square		—		21,284		89,389		110,673		2,167		21,331		91,509		112,840		13,022		2007	Jul-08
989elements		—		8,541		45,990		54,531		358		8,507		46,382		54,889		2,666		2006	Dec-09
elements too		—		27,468		72,036		99,504		6,806		29,649		76,661		106,310		6,844		2010	Feb-10
SEATTLE, WA		54,278		90,464		350,395		440,859		24,802		93,968		371,693		465,661		71,331
Rancho Vallecitos (c)		—		3,303		10,877		14,180		5,040		3,774		15,446		19,220		10,030		1988	Oct-99
Presidio at Rancho Del Oro		13,325		9,164		22,694		31,858		4,879		9,571		27,166		36,737		11,350		1987	Jun-04
Villas at Carlsbad		8,449		6,517		10,718		17,235		1,288		6,618		11,905		18,523		4,351		1966	Oct-04
Summit at Mission Bay		—		22,598		17,182		39,780		4,546		22,627		21,699		44,326		7,840		1953	Nov-04
Milazzo (c)		—		15,920		35,578		51,498		4,355		15,936		39,917		55,853		11,548		1986	May-06
SAN DIEGO, CA		21,774		57,502		97,049		154,551		20,108		58,526		116,133		174,659		45,119
Boronda Manor		—		1,946		8,982		10,928		8,210		3,099		16,039		19,138		6,056		1979	Dec-98
Garden Court		—		888		4,188		5,076		4,142		1,454		7,764		9,218		3,048		1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		12,804		5,131		23,595		28,726		9,345		1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		5,255		2,058		9,616		11,674		3,715		1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		22,990		9,731		43,501		53,232		16,496		1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		8,980		3,190		15,862		19,052		6,269		1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		4,942		2,106		9,499		11,605		3,604		1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		67,323		26,769		125,876		152,645		48,533
Verano at Rancho Cucamonga Town Square		54,308		13,557		3,645		17,202		51,947		22,898		46,251		69,149		18,494		2006	Oct-02
Windemere at Sycamore Highland		26,971		5,810		23,450		29,260		1,817		5,953		25,124		31,077		12,150		2001	Nov-02
Waterstone at Murrieta		—		10,598		34,703		45,301		4,749		10,858		39,192		50,050		15,894		1990	Nov-04
INLAND EMPIRE, CA		81,279		29,965		61,798		91,763		58,513		39,709		110,567		150,276		46,538
Foothills Tennis Village		15,629		3,618		14,542		18,160		5,277		3,958		19,479		23,437		9,740		1988	Dec-98
Woodlake Village		30,982		6,772		26,967		33,739		10,885		7,722		36,902		44,624		18,857		1979	Dec-98
SACRAMENTO, CA		46,611		10,390		41,509		51,899		16,162		11,680		56,381		68,061		28,597
Tualatin Heights		10,079		3,273		9,134		12,407		5,391		3,688		14,110		17,798		6,871		1989	Dec-98
Andover Park		15,938		2,916		16,995		19,911		6,257		3,102		23,066		26,168		9,794		1989	Sep-04
Hunt Club		17,020		6,014		14,870		20,884		4,693		6,281		19,296		25,577		8,265		1985	Sep-04
PORTLAND, OR		43,037		12,203		40,999		53,202		16,341		13,071		56,472		69,543		24,930

TOTAL WESTERN REGION		933,221		916,460		1,682,064		2,598,524		474,849		967,615		2,105,758		3,073,373		614,363

109

UDR, INC.
SCHEDULE III — REAL ESTATE OWNED- (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands)


									Cost of
									Improvements		Gross Amount at Which
			Initial Costs				Total		Capitalized		Carried at Close of Period
			Land and		Buildings		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

MID-ATLANTIC REGION
Dominion Lake Ridge		23,257		2,366		8,387		10,753		5,027		2,765		13,015		15,780		7,627		1987	Feb-96
Dominion Middle Ridge		34,042		3,311		13,283		16,594		6,216		3,626		19,184		22,810		10,660		1990	Jun-96
The Whitmore		—		6,418		13,411		19,829		19,534		7,423		31,940		39,363		14,032		2008	Apr-02
Presidential Greens		—		11,238		18,790		30,028		6,970		11,518		25,480		36,998		14,241		1938	May-02
Ridgewood		—		5,612		20,086		25,698		6,972		5,814		26,856		32,670		14,404		1988	Aug-02
The Calvert				263		11,189		11,452		15,457		8,275		18,634		26,909		8,111		1962	Nov-03
Commons at Town Square		—		136		7,724		7,860		985		6,871		1,974		8,845		966		1971	Dec-03
Waterside Towers		—		874		38,209		39,083		9,218		26,194		22,107		48,301		10,258		1971	Dec-03
Waterside Townhomes		—		129		3,724		3,853		435		2,725		1,563		4,288		737		1971	Dec-03
Wellington Place at Olde Town		28,681		13,753		36,059		49,812		16,131		14,497		51,446		65,943		18,594		2008	Sep-05
Andover House		—		14,357		51,577		65,934		2,335		14,360		53,909		68,269		11,806		2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		2,676		1,175		106,314		107,489		19,073		2007	Dec-07
Circle Towers		69,493		33,011		107,051		140,062		4,689		32,827		111,924		144,751		17,226		1972	Mar-08
Delancey at Shirlington		—		21,606		66,765		88,371		804		21,616		67,559		89,175		10,740		2006/07	Mar-08
Signal Hill		38,699		13,290		—		13,290		65,362		24,612		54,040		78,652		1,599		2010	Nov-10
METROPOLITAN, DC		194,172		127,501		499,931		627,432		162,811		184,298		605,945		790,243		160,074
Dominion Kings Place		16,582		1,565		7,007		8,572		3,538		1,794		10,316		12,110		6,296		1983	Dec-92
Dominion At Eden Brook		21,308		2,361		9,384		11,745		5,611		2,881		14,475		17,356		9,211		1984	Dec-92
Ellicott Grove		—		2,920		9,099		12,019		22,044		5,189		28,874		34,063		15,546		2008	Jul-94
Dominion Constant Freindship		10,683		903		4,669		5,572		3,220		1,138		7,654		8,792		4,457		1990	May-95
Lakeside Mill		15,242		2,666		10,109		12,775		3,484		2,845		13,414		16,259		8,566		1989	Dec-99
Tamar Meadow		17,602		4,145		17,150		21,295		4,230		4,490		21,035		25,525		10,757		1990	Nov-02
Calvert’s Walk		18,043		4,408		24,692		29,100		5,478		4,549		30,029		34,578		12,624		1988	Mar-04
Arborview Apartments		—		4,653		23,952		28,605		5,342		4,994		28,953		33,947		12,997		1992	Mar-04
Liriope Apartments		—		1,620		6,791		8,411		819		1,629		7,601		9,230		3,228		1997	Mar-04
20 Lambourne		32,000		11,750		45,590		57,340		3,036		11,808		48,568		60,376		8,417		2003	Mar-08
Domain Brewers Hill		—		4,669		40,630		45,299		150		4,669		40,780		45,449		865		2009	Aug-10
BALTIMORE, MD		131,460		41,660		199,073		240,733		56,952		45,986		251,699		297,685		92,964
Dominion Olde West		—		1,965		12,204		14,169		5,155		2,605		16,719		19,324		11,597		1978/82/84/85/87	Dec-84 & Aug-91
Dominion Creekwood		—		—		—		—		4,562		187		4,375		4,562		2,552		1984	Aug-91
Dominion English Hills		—		1,979		11,524		13,503		8,224		2,873		18,854		21,727		11,134		1969/76	Dec-91
Legacy at Mayland		41,507		—		—		—		18,906		1,701		17,205		18,906		9,761		2007	Dec-91
Gayton Pointe Townhomes		—		826		5,148		5,974		28,589		3,302		31,261		34,563		18,433		2007	Sep-95
Dominion West End		26,313		2,059		15,049		17,108		11,704		4,453		24,359		28,812		13,795		1989	Dec-95
Waterside At Ironbridge		—		1,844		13,238		15,082		6,321		2,249		19,154		21,403		9,281		1987	Sep-97
Carriage Homes at Wyndham		—		474		30,997		31,471		6,276		3,729		34,018		37,747		15,035		1998	Nov-03
RICHMOND, VA		67,820		9,147		88,160		97,307		89,737		21,099		165,945		187,044		91,588
Heather Lake		—		617		3,400		4,017		9,311		1,157		12,171		13,328		10,205		1972/74	Mar-80
Woodscape		—		798		7,209		8,007		8,493		1,996		14,504		16,500		11,249		1974/76	Dec-87
Eastwind		—		155		5,317		5,472		5,404		600		10,276		10,876		7,384		1970	Apr-88
Forest Lake At Oyster Point		—		780		8,862		9,642		7,892		1,337		16,197		17,534		9,911		1986	Aug-95
Dominion Waterside At Lynnhave		—		1,824		4,107		5,931		5,344		2,154		9,121		11,275		5,930		1966	Aug-96
Dominion Yorkshire Downs		—		1,089		8,582		9,671		5,217		1,489		13,399		14,888		7,029		1987	Dec-97
NORFOLK, VA		—		5,263		37,477		42,740		41,661		8,733		75,668		84,401		51,708
Garrison Square		—		5,591		91,027		96,618		48		5,591		91,075		96,666		1,629		1887/1990	Sep-10
Ridge at Blue Hills		25,375		6,039		34,869		40,908		118		6,039		34,987		41,026		—		2007	Sep-10
BOSTON, MA		25,375		11,630		125,896		137,526		166		11,630		126,062		137,692		1,629
Greens At Falls Run		—		2,731		5,300		8,031		4,359		3,069		9,321		12,390		5,398		1989	May-95
Manor At England Run		—		3,194		13,505		16,699		19,423		5,095		31,027		36,122		17,608		1990	May-95
Brittingham Square		—		650		4,962		5,612		3,453		916		8,149		9,065		4,654		1991	May-95
Greens At Schumaker Pond		—		710		6,118		6,828		4,844		958		10,714		11,672		6,478		1988	May-95
Greens At Cross Court		—		1,182		4,544		5,726		3,786		1,433		8,079		9,512		4,866		1987	May-95
The Tribute on Glenwood		32,126		4,719		—		4,719		44,736		12,128		37,327		49,455		2,153		2010	Jun-10
OTHER MID-ATLANTIC		32,126		13,186		34,429		47,615		80,601		23,599		104,617		128,216		41,157

TOTAL MID-ATLANTIC REGION		450,953		208,387		984,966		1,193,353		431,928		295,345		1,329,936		1,625,281		439,120


SOUTHEASTERN REGION
Summit West		—		2,176		4,710		6,886		7,000		3,042		10,844		13,886		8,146		1972	Dec-92
The Breyley		—		1,780		2,458		4,238		16,302		3,131		17,409		20,540		12,030		2007	Sep-93
Lakewood Place		21,149		1,395		10,647		12,042		6,953		2,035		16,960		18,995		10,768		1986	Mar-94
Hunters Ridge		22,203		2,462		10,942		13,404		5,786		3,408		15,782		19,190		9,299		1992	Jun-95
Bay Meadow		—		2,893		9,254		12,147		8,328		3,791		16,684		20,475		10,291		2004	Dec-96
Cambridge Woods		—		1,791		7,166		8,957		6,778		2,451		13,284		15,735		7,877		1985	Jun-97
Sugar Mill Creek		7,330		2,242		7,553		9,795		5,508		2,648		12,655		15,303		6,572		1988	Dec-98
Inlet Bay		—		7,702		23,150		30,852		10,933		8,520		33,265		41,785		17,432		1988/89	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		4,266		10,970		41,023		51,993		15,769		2001	Dec-04
Island Walk		—		7,231		19,897		27,128		9,684		9,131		27,681		36,812		15,688		1985/87	Jul-06
Gallery at Bayport II		—		5,775		17,236		23,011		2,051		8,525		16,537		25,062		5,836		2008	Oct-06
The Vintage Lofts at West End		—		6,611		37,663		44,274		10,012		14,983		39,303		54,286		5,958		2009	Jul-09
TAMPA, FL		50,682		52,927		187,534		240,461		93,601		72,635		261,427		334,062		125,666
The Canopy Apartment Villas		—		2,895		6,456		9,351		21,457		5,204		25,604		30,808		16,542		2008	Mar-93
Altamira Place		15,640		1,533		11,076		12,609		18,430		3,150		27,889		31,039		19,087		2007	Apr-94
Regatta Shore		—		757		6,608		7,365		13,580		1,803		19,142		20,945		12,840		2007	Jun-94
Alafaya Woods		20,622		1,653		9,042		10,695		7,290		2,332		15,653		17,985		9,719		2006	Oct-94
Seabrook		—		1,846		4,155		6,001		6,771		2,532		10,240		12,772		7,113		2004	Feb-96
Los Altos		25,048		2,804		12,349		15,153		7,243		3,623		18,773		22,396		10,776		2004	Oct-96
Lotus Landing		—		2,185		8,639		10,824		7,426		2,657		15,593		18,250		8,068		2006	Jul-97
Seville On The Green		—		1,282		6,498		7,780		5,879		1,656		12,003		13,659		6,564		2004	Oct-97
Ashton @ Waterford		26,699		3,872		17,538		21,410		1,586		4,039		18,957		22,996		10,220		2000	May-98
Arbors at Lee Vista DCO		—		6,692		12,860		19,552		10,341		6,903		22,990		29,893		12,798		2007	Aug-06
The Place on Millenia Blvd		—		12,172		37,143		49,315		985		12,194		38,106		50,300		8,131		2007	Jan-08
ORLANDO, FL		88,009		37,691		132,364		170,055		100,988		46,093		224,950		271,043		121,858

110

UDR, INC.
SCHEDULE III — REAL ESTATE OWNED- (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands)


									Cost of
									Improvements			Gross Amount at Which
			Initial Costs				Total		Capitalized			Carried at Close of Period
			Land and		Buildings		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

Legacy Hill		—		1,148		5,867		7,015		7,615			1,669		12,961		14,630		8,722			1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		8,107			1,959		19,201		21,160		10,044			1989	Dec-95
Carrington Hills		—		2,117		—		2,117		31,902			4,214		29,805		34,019		14,760			1999	Dec-95
Brookridge		—		708		5,461		6,169		3,594			998		8,765		9,763		5,165			1986	Mar-96
Breckenridge		—		766		7,714		8,480		3,329			1,141		10,668		11,809		5,781			1986	Mar-97
Colonnade		—		1,460		16,015		17,475		3,284			1,799		18,960		20,759		8,339			1998	Jan-99
The Preserve at Brentwood		25,294		3,181		24,674		27,855		4,621			3,304		29,172		32,476		12,534			1998	Jun-04
Polo Park		—		4,583		16,293		20,876		14,921			5,485		30,312		35,797		11,216			2008	May-06
NASHVILLE, TN		25,294		15,432		87,608		103,040		77,373			20,569		159,844		180,413		76,561
Greentree		17,930		1,634		11,227		12,861		12,147			2,683		22,325		25,008		13,885			2007	Jul-94
Westland		—		1,835		14,865		16,700		10,521			3,085		24,136		27,221		15,014			1990	May-96
Antlers		—		4,034		11,193		15,227		11,329			5,130		21,426		26,556		13,906			1985	May-96
St Johns Plantation		—		4,288		33,102		37,390		4,902			4,474		37,818		42,292		14,071			2006	Jun-05
The Kensley		—		3,179		30,711		33,890		1,573			3,191		32,272		35,463		7,030			2004	Jul-07
JACKSONVILLE, FL		17,930		14,970		101,098		116,068		40,472			18,563		137,977		156,540		63,906
The Groves		—		790		4,767		5,557		5,110			1,606		9,061		10,667		6,059			1989	Dec-95
Mallards of Brandywine		—		766		5,407		6,173		2,875			1,101		7,947		9,048		4,531			1985	Jul-97
The Reserve and Park at Riverbridge		40,133		15,968		56,401		72,369		3,941			16,128		60,182		76,310		22,492			1999/2001	Dec-04
PIERPOINT Port Orange		—		3,373		7,096		10,469		5,578			3,792		12,255		16,047		9,479			2007	Dec-05
OTHER FLORIDA		40,133		20,897		73,671		94,568		17,504			22,627		89,445		112,072		42,561

TOTAL SOUTHEASTERN REGION		222,048		141,917		582,275		724,192		329,938			180,487		873,643		1,054,130		430,552


SOUTHWESTERN REGION
Highlands of Preston		—		2,151		8,168		10,319		29,371			5,877		33,813		39,690		13,667			2008	Mar-98
THIRTY377		31,175		24,036		32,951		56,987		5,544			24,213		38,318		62,531		10,981			2007	Aug-06
Garden Oaks		—		2,132		5,367		7,499		854			6,854		1,499		8,353		793			1979	Mar-07
Springhaven		—		6,688		3,354		10,042		521			8,225		2,338		10,563		1,410			1977	Apr-07
Glenwood		—		7,903		554		8,457		811			8,068		1,200		9,268		504			1970	May-07
Talisker of Addison		7,341		10,440		634		11,074		1,199			10,792		1,481		12,273		687			1975	May-07
Clipper Pointe		6,816		13,221		2,507		15,728		1,351			14,803		2,276		17,079		1,343			1978	May-07
Ridgeview Park		—		2,350		—		2,350		8,307			2,364		8,293		10,657		2,179			2007	Jul-07
RIACHI AT ONE21		17,704		2,342		—		2,342		16,310			4,691		13,961		18,652		3,955			2007	Dec-07
Legacy Village		59,300		16,882		100,102		116,984		3,325			16,991		103,318		120,309		17,609			2005/06/07	Mar-08
Riachi at One21 Ph II		12,791		1,918		—		1,918		14,895			4,156		12,657		16,813		1,982			2009	Mar-09
Mustang Park (c)		—		5,556		22,664		28,220		84			5,623		22,681		28,304		1,939			2009	Jul-09
The Belmont		47,056		11,720		—		11,720		54,251			20,929		45,042		65,971		4,424			2010	Apr-10
Savoye		29,082		7,374		3,367		10,741		54,905			14,556		51,090		65,646		2,693			2010	Aug-10
DALLAS, TX		211,265		114,713		179,668		294,381		191,728			148,142		337,967		486,109		64,166
Sierra Foothills		20,977		2,728		—		2,728		20,710			5,032		18,406		23,438		12,303			1998	Feb-98
Finisterra		—		1,274		26,392		27,666		3,885			1,673		29,878		31,551		12,835			1997	Mar-98
Sierra Canyon		12,035		1,810		12,964		14,774		1,883			2,014		14,643		16,657		8,361			2001	Dec-01
Lumiere		—		5,092		11,998		17,090		6,688			4,708		19,070		23,778		11,211			1996	May-06
Waterford at Peoria		—		2,225		21,593		23,818		1,527			2,971		22,374		25,345		3,215			2008	Aug-08
Residences at Stadium Village		29,120		7,930		—		7,930		41,291			15,157		34,064		49,221		3,631			2009	May-09
PHOENIX, AZ		62,132		21,059		72,947		94,006		75,984			31,555		138,435		169,990		51,556
Barton Creek Landing		—		3,151		14,269		17,420		14,760			3,535		28,645		32,180		9,717			1986	Mar-02
Residences at the Domain		25,079		4,034		55,256		59,290		891			4,053		56,128		60,181		8,039			2007	Aug-08
AUSTIN, TX		25,079		7,185		69,525		76,710		15,651			7,588		84,773		92,361		17,756
Inn @ Los Patios		—		3,005		11,545		14,550		4,629			4,279		14,900		19,179		4,052			1990	Aug-98
Tiburon		17,500		3,600		—		3,600		18,626			6,258		15,968		22,226		4,073			2008	Jul-06
Laurelwoode		19,201		3,459		—		3,459		20,354			7,302		16,511		23,813		3,582			2008	Jan-07
OTHER TEXAS		36,701		10,064		11,545		21,609		43,609			17,839		47,379		65,218		11,707

TOTAL SOUTHWESTERN REGION		335,177		153,021		333,685		486,706		326,972			205,124		608,554		813,678		145,185


REAL ESTATE UNDER DEVELOPMENT
Savoye II		—		6,510		3,774		10,284		16,700			6,510		20,474		26,984		—
Mission Bay		—		23,625		—		23,625		729			23,654		700		24,354		—
Belmont Townhomes		—		288		—		288		605			853		40		893		—
2400 14th Street		—		31,747		—		31,747		13,934			31,392		14,289		45,681		—

TOTAL REAL ESTATE UNDER DEVELOPMENT		—		62,170		3,774		65,944		31,968			62,409		35,503		97,912		—


LAND
Waterside		—		11,862		93		11,955		126			11,862		219		12,081		176
Presidio		—		1,524		—		1,524		921			1,300		1,145		2,445		—
UDR Pacific Los Alisos, LP		—		17,298		—		17,298		6,273			16,385		7,186		23,571		—
Parkers Landing II TRS		—		1,710		—		1,710		762			1,511		961		2,472		(1,310	)
3033 Wilshire		—		11,055		—		11,055		4,091			11,055		4,091		15,146		—
Vitruvian		—		15,664		19,607		35,271		40,903			46,038		30,136		76,174		—

TOTAL LAND		—		59,113		19,700		78,813		53,076			88,151		43,738		131,889		(1,134	)


TOTAL REAL ESTATE UNDER DEVELOPMENT		—		121,283		23,474		144,757		85,044			150,560		79,241		229,801		(1,134	)


COMMERCIAL
Hanover Village		—		1,624		—		1,624		—			1,104		520		1,624		518
The Calvert — commercial side		—		34		1,598		1,632		1,176			1,172		1,636		2,808		670
Circle Towers Office Bldg		—		1,407		4,498		5,905		900			1,380		5,425		6,805		744
Brookhaven Shopping Center		—		4,138		7,093		11,231		9,459			6,928		13,762		20,690		1,704
Bellevue Plaza retail		22,271		24,377		7,517		31,894		(61	)		29,920		1,913		31,833		105
Grandview DCO		—		7,266		9,702		16,968		2,097			10,750		8,315		19,065		6,501

TOTAL COMMERCIAL		22,271		38,846		30,408		69,254		13,571			51,254		31,571		82,825		10,242

Other (b)		—		—		—		—		2,259			5		2,254		2,259		(2	)

TOTAL CORPORATE		—		—		—		—		2,259			5		2,254		2,259		(2	)

TOTAL COMMERCIAL & CORPORATE		22,271		38,846		30,408		69,254		15,830			51,259		33,825		85,084		10,240

TOTAL REAL ESTATE OWNED	$	1,963,670	$	1,579,914	$	3,636,872	$	5,216,786	$	1,664,561		$	1,850,390	$	5,030,957	$	6,881,347	$	1,638,326

111

UDR, INC.
SCHEDULE III — REAL ESTATE OWNED- (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2010


(a)		Date of construction or date of last major renovation.

(b)		Includes unallocated accruals and capital expenditures.

		The aggregate cost for federal income tax purposes was approximately $6.2 billion at December 31, 2010.

		The depreciable life for all buildings is 35 years.

(c)		Classified as held for disposition at December 31, 2010.

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):


	2010			2009			2008
Balance at beginning of the year	$	6,315,047		$	5,831,753		$	5,956,481
Real estate acquired		425,825			28,220			1,014,232
Real estate acquired through JV consolidation		—			185,929			—
Capital expenditures and development		167,986			273,552			297,565
Real estate sold		(20,328	)		—			(1,436,525	)
Retirement of fully depreciated assets		(7,183	)		(4,407	)		—

Balance at end of the year	$	6,881,347		$	6,315,047		$	5,831,753

The following is a reconciliation of total accumulated depreciation for real estate owned at December 31:


	2010			2009			2008
Balance at beginning of the year	$	1,351,293		$	1,078,689		$	1,371,759
Depreciation expense for the year		297,889			277,011			245,898
Accumulated depreciation on sales		(3,673	)		—			(538,968	)
Accumulated depreciation on retirements		(7,183	)		(4,407	)		—

Balance at end of year	$	1,638,326		$	1,351,293		$	1,078,689

112

UNITED DOMINION REALTY, L.P.
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands)


									Cost of
									Improvements		Gross Amount at Which
			Initial Costs				Total		Capitalized		Carried at Close of Period
			Land and		Buildings		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

WESTERN REGION
Harbor at Mesa Verde	$	47,091	$	20,477	$	28,538	$	49,015	$	10,872	$	20,716	$	39,171	$	59,887	$	18,028		2003	Jun-03
Pine Brook Village		18,270		2,582		25,504		28,086		4,480		3,841		28,725		32,566		12,393		1979	Jun-03
Pacific Shores		19,145		7,345		22,624		29,969		7,200		7,477		29,692		37,169		13,220		2003	Jun-03
Huntington Vista		31,274		8,055		22,486		30,541		5,863		8,238		28,166		36,404		12,670		1970	Jun-03
Missions at Back Bay		11,326		229		14,129		14,358		1,648		10,727		5,279		16,006		2,523		1969	Dec-03
Coronado at Newport — North		49,766		62,516		46,082		108,598		14,632		63,244		59,986		123,230		24,367		2000	Oct-04
Huntington Villas		55,752		61,535		18,017		79,552		4,624		61,819		22,357		84,176		9,274		1972	Sep-04
Villa Venetia		—		70,825		24,179		95,004		4,769		70,938		28,835		99,773		11,484		1972	Oct-04
Vista Del Rey		12,659		10,670		7,080		17,750		1,465		10,776		8,439		19,215		3,514		1969	Sep-04
Coronado South		103,525		58,785		50,067		108,852		11,106		59,002		60,956		119,958		23,819		2000	Mar-05
Pine Brook Village II		—		25,922		60,961		86,883		1,141		25,924		62,100		88,024		9,498		1975	May-08
The Arboretum (c)		—		29,563		14,283		43,846		4,843		29,685		19,004		48,689		7,843		1970	Oct-04
ORANGE COUNTY, CA		348,808		358,504		333,950		692,454		72,643		372,387		392,710		765,097		148,633
2000 Post Street		—		9,861		44,578		54,439		6,574		10,158		50,855		61,013		17,723		1987	Dec-98
Birch Creek		—		4,365		16,696		21,061		5,010		4,991		21,080		26,071		9,758		1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		26,113		6,972		50,005		56,977		13,800		1991	Dec-98
Marina Playa		—		6,224		23,916		30,140		7,242		6,727		30,655		37,382		13,618		1971	Dec-98
Crossroads Apartments		—		4,811		10,170		14,981		3,396		5,024		13,353		18,377		5,763		1986	Jul-04
River Terrace		33,130		22,161		40,137		62,298		1,604		22,250		41,652		63,902		13,429		2005	Aug-05
CitySouth		—		14,031		30,537		44,568		14,981		14,033		45,516		59,549		10,321		1972	Nov-05
Bay Terrace		—		8,545		14,458		23,003		1,596		8,549		16,050		24,599		4,868		1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		9,696		5,706		27,902		33,608		4,559		1968	Oct-07
Edgewater		45,106		30,657		83,872		114,529		1,551		30,663		85,417		116,080		13,843		2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		1,864		622		44,351		44,973		6,555		1999	Jul-08
SAN FRANCISCO, CA		105,236		112,598		350,306		462,904		79,627		115,695		426,836		542,531		114,237
The Crest (c)		55,602		21,953		67,809		89,762		6,708		22,136		74,334		96,470		28,264		1989	Sep-04
Rosebeach		—		8,414		17,449		25,863		1,754		8,462		19,155		27,617		7,294		1970	Sep-04
The Villas @ San Dimas (c)		—		8,181		16,735		24,916		2,221		8,241		18,896		27,137		7,413		1981	Oct-04
The Villas at Bonita (c)		—		4,499		11,699		16,198		771		4,536		12,433		16,969		4,671		1981	Oct-04
Ocean Villas		8,896		5,135		12,789		17,924		1,092		5,205		13,811		19,016		5,036		1965	Oct-04
Tierra Del Rey		—		39,586		36,679		76,265		1,610		39,589		38,286		77,875		6,976		1999	Dec-07
LOS ANGELES, CA		64,498		87,768		163,160		250,928		14,156		88,169		176,915		265,084		59,654
Crowne Pointe		8,229		2,486		6,437		8,923		3,961		2,737		10,147		12,884		5,014		1987	Dec-98
Hilltop		7,607		2,174		7,408		9,582		2,971		2,635		9,918		12,553		4,561		1985	Dec-98
The Kennedy		17,941		6,179		22,307		28,486		913		6,212		23,187		29,399		7,026		2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		1,507		6,859		32,418		39,277		5,099		2000	May-08
Island Square		—		21,284		89,389		110,673		2,167		21,331		91,509		112,840		13,022		2007	Jul-08
SEATTLE, WA		33,777		38,971		156,463		195,434		11,519		39,774		167,179		206,953		34,722
Presidio at Rancho Del Oro		13,325		9,164		22,694		31,858		4,879		9,571		27,166		36,737		11,350		1987	Jun-04
Villas at Carlsbad		8,449		6,517		10,718		17,235		1,288		6,618		11,905		18,523		4,351		1966	Oct-04
Summit at Mission Bay		—		22,598		17,182		39,780		4,546		22,627		21,699		44,326		7,840		1953	Nov-04
SAN DIEGO, CA		21,774		38,279		50,594		88,873		10,713		38,816		60,770		99,586		23,541
Boronda Manor		—		1,946		8,982		10,928		8,210		3,099		16,039		19,138		6,056		1979	Dec-98
Garden Court		—		888		4,188		5,076		4,142		1,454		7,764		9,218		3,048		1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		12,804		5,131		23,595		28,726		9,345		1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		5,255		2,058		9,616		11,674		3,715		1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		22,990		9,731		43,501		53,232		16,496		1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		8,980		3,190		15,862		19,052		6,269		1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		4,942		2,106		9,499		11,605		3,604		1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		67,323		26,769		125,876		152,645		48,533
Verano at Rancho Cucamonga Town Square		54,308		13,557		3,645		17,202		51,947		22,898		46,251		69,149		18,494		2006	Oct-02
Waterstone at Murrieta		—		10,598		34,703		45,301		4,749		10,858		39,192		50,050		15,894		1990	Nov-04
INLAND EMPIRE, CA		54,308		24,155		38,348		62,503		56,696		33,756		85,443		119,199		34,388
Foothills Tennis Village		15,629		3,618		14,542		18,160		5,277		3,958		19,479		23,437		9,740		1988	Dec-98
Woodlake Village		30,982		6,772		26,967		33,739		10,885		7,722		36,902		44,624		18,857		1979	Dec-98
SACRAMENTO, CA		46,611		10,390		41,509		51,899		16,162		11,680		56,381		68,061		28,597
Tualatin Heights		10,079		3,273		9,134		12,407		5,391		3,688		14,110		17,798		6,871		1989	Dec-98
Andover Park		15,938		2,916		16,995		19,911		6,257		3,102		23,066		26,168		9,794		1989	Sep-04
Hunt Club		17,020		6,014		14,870		20,884		4,693		6,281		19,296		25,577		8,265		1985	Sep-04
PORTLAND, OR		43,037		12,203		40,999		53,202		16,341		13,071		56,472		69,543		24,930

TOTAL WESTERN REGION		718,049		699,806		1,243,713		1,943,519		345,180		740,117		1,548,582		2,288,699		517,235


MID-ATLANTIC REGION
The Whitmore		—		6,418		13,411		19,829		19,534		7,423		31,940		39,363		14,032		2008	Apr-02
Ridgewood		—		5,612		20,086		25,698		6,972		5,814		26,856		32,670		14,404		1988	Aug-02
The Calvert		—		263		11,189		11,452		15,457		8,275		18,634		26,909		8,111		1962	Nov-03
Wellington Place at Olde Town		28,681		13,753		36,059		49,812		16,131		14,497		51,446		65,943		18,594		2008	Sep-05
Andover House		—		14,357		51,577		65,934		2,335		14,360		53,909		68,269		11,806		2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		2,611		1,175		106,249		107,424		19,049		2007	Dec-07
Circle Towers		69,493		33,011		107,051		140,062		4,689		32,827		111,924		144,751		17,226		1972	Mar-08
Delancey at Shirlington		—		21,606		66,765		88,371		804		21,616		67,559		89,175		10,740		2006/07	Mar-08
METROPOLITAN, DC		98,174		96,157		409,814		505,971		68,533		105,987		468,517		574,504		113,962
Lakeside Mill		15,242		2,666		10,109		12,775		3,484		2,845		13,414		16,259		8,566		1989	Dec-99
Tamar Meadow		17,602		4,145		17,150		21,295		4,230		4,490		21,035		25,525		10,757		1990	Nov-02
Calvert’s Walk		18,043		4,408		24,692		29,100		5,478		4,549		30,029		34,578		12,624		1988	Mar-04
Liriope Apartments		—		1,620		6,791		8,411		819		1,629		7,601		9,230		3,228		1997	Mar-04
20 Lambourne		32,000		11,750		45,590		57,340		3,036		11,808		48,568		60,376		8,417		2003	Mar-08
BALTIMORE, MD		82,887		24,589		104,332		128,921		17,047		25,321		120,647		145,968		43,592

TOTAL MID-ATLANTIC REGION		181,061		120,746		514,146		634,892		85,580		131,308		589,164		720,472		157,554

113

UNITED DOMINION REALTY, L.P.
SCHEDULE III — REAL ESTATE OWNED- (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands)


										Cost of
										Improvements		Gross Amount at Which
			Initial Costs					Total		Capitalized		Carried at Close of Period
			Land and			Buildings		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

SOUTHEASTERN REGION
Sugar Mill Creek		7,330		2,242			7,553		9,795		5,508		2,648		12,655		15,303		6,572			1988	Dec-98
Inlet Bay		—		7,702			23,150		30,852		10,933		8,520		33,265		41,785		17,432			1988/89	Jun-03
MacAlpine Place		—		10,869			36,858		47,727		4,266		10,970		41,023		51,993		15,769			2001	Dec-04
TAMPA, FL		7,330		20,813			67,561		88,374		20,707		22,138		86,943		109,081		39,773
Legacy Hill		—		1,148			5,867		7,015		7,615		1,669		12,961		14,630		8,722			1977	Nov-95
Hickory Run		—		1,469			11,584		13,053		8,107		1,959		19,201		21,160		10,044			1989	Dec-95
Carrington Hills		—		2,117			—		2,117		31,902		4,214		29,805		34,019		14,760			1999	Dec-95
Brookridge		—		708			5,461		6,169		3,594		998		8,765		9,763		5,165			1986	Mar-96
Breckenridge		—		766			7,714		8,480		3,329		1,141		10,668		11,809		5,781			1986	Mar-97
Polo Park		—		4,583			16,293		20,876		14,921		5,485		30,312		35,797		11,216			2008	May-06
NASHVILLE, TN		—		10,791			46,919		57,710		69,468		15,466		111,712		127,178		55,688
St Johns Plantation		—		4,288			33,102		37,390		4,902		4,474		37,818		42,292		14,071			2006	Jun-05
JACKSONVILLE, FL		—		4,288			33,102		37,390		4,902		4,474		37,818		42,292		14,071
The Reserve and Park at Riverbridge		40,133		15,968			56,401		72,369		3,941		16,128		60,182		76,310		22,492			1999/2001	Dec-04
OTHER FLORIDA		40,133		15,968			56,401		72,369		3,941		16,128		60,182		76,310		22,492

TOTAL SOUTHEASTERN REGION		47,463		51,860			203,983		255,843		99,018		58,206		296,655		354,861		132,024


SOUTHWESTERN REGION
THIRTY377		31,175		24,036			32,951		56,987		5,544		24,213		38,318		62,531		10,981			2007	Aug-06
Legacy Village		59,300		16,882			100,102		116,984		3,325		16,991		103,318		120,309		17,609			2005/06/07	Mar-08
DALLAS, TX		90,475		40,918			133,053		173,971		8,869		41,204		141,636		182,840		28,590
Finisterra		—		1,274			26,392		27,666		3,885		1,673		29,878		31,551		12,835			1997	Mar-98
Sierra Foothills		20,977		2,728			—		2,728		20,710		5,032		18,406		23,438		12,303			1998	Feb-98
Sierra Canyon		12,036		1,810			12,964		14,774		1,883		2,014		14,643		16,657		8,361			2001	Dec-01
PHOENIX, AZ		33,013		5,812			39,356		45,168		26,478		8,719		62,927		71,646		33,499
Barton Creek Landing		—		3,151			14,269		17,420		14,760		3,535		28,645		32,180		9,717			1986	Mar-02
AUSTIN, TX		—		3,151			14,269		17,420		14,760		3,535		28,645		32,180		9,717
Inn @ Los Patios		—		3,005			11,545		14,550		4,629		4,279		14,900		19,179		4,052			1990	Aug-98
OTHER TEXAS		—		3,005			11,545		14,550		4,629		4,279		14,900		19,179		4,052

TOTAL SOUTHWESTERN REGION		123,488		52,886			198,223		251,109		54,736		57,737		248,108		305,845		75,858


LAND		—
Presidio		—		1,524			—		1,524		921		1,300		1,145		2,445		—
UDR Pacific Los Alisos, LP		—		17,298	��		—		17,298		6,273		16,385		7,186		23,571		—

TOTAL LAND		—		18,822			—		18,822		7,194		17,685		8,331		26,016		—


COMMERCIAL		—
The Calvert — commercial side		—		34			1,598		1,632		1,176		1,172		1,636		2,808		670
Circle Towers Office Bldg		—		1,407			4,498		5,905		900		1,380		5,425		6,805		745

TOTAL COMMERCIAL		—		1,441			6,096		7,537		2,076		2,552		7,061		9,613		1,415

Other (b)		—		—			—		—		678		5		673		678		(3	)

TOTAL CORPORATE		—		—			—		—		678		5		673		678		(3	)


TOTAL COMMERCIAL & CORPORATE		—		1,441			6,096		7,537		2,754		2,557		7,734		10,291		1,412


TOTAL REAL ESTATE OWNED	$	1,070,067	$	945,561		$	2,166,161	$	3,111,722	$	594,462	$	1,007,610	$	2,698,574	$	3,706,184	$	884,083


(a)		Date of construction or date of last major renovation.

(b)		Includes unallocated accruals and capital expenditures.

		The aggregate cost for federal income tax purposes was approximately $3.1 billion at December 31, 2010.

		The depreciable life for all buildings is 35 years.

(c)		Classified as held for disposition at December 31, 2010.

114

UNITED DOMINION REALTY, L.P.
SCHEDULE III — REAL ESTATE OWNED- (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2010

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):


	2010		2009		2008

Balance at beginning of the year	$	3,640,888	$	3,569,239	$	3,639,379
Real estate acquired		—		—		801,852
Capital expenditures and development		65,296		71,649		84,313
Real estate transferred		—		—		—
Real estate sold		—		—		(956,305	)


Balance at end of year	$	3,706,184	$	3,640,888	$	3,569,239

The following is a reconciliation of total accumulated depreciation for real estate owned at December 31:


	2010		2009			2008
Balance at beginning of the year	$	717,892	$	552,369		$	754,996
Depreciation expense for the year		166,191		165,757			148,997
Accumulated depreciation on assets transferred		—		—			—
Accumulated depreciation on asset retirements		—		(234	)		—
Accumulated depreciation on sales		—		—			(351,624	)


Balance at end of year	$	884,083	$	717,892		$	552,369

115

Exhibit 12.1

UDR, INC.
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(Dollars in thousands)


	Years Ended December 31,
	2010			2009			2008			2007		2006

(Loss)/income from continuing operations	$	(114,715	)	$	(93,417	)	$	(62,933	)	$	45,099	$	(74,104	)

Add (from continuing operations):
Interest on indebtedness (a)		146,514			144,184			159,873			163,028		174,506
Portion of rents representative of the interest factor		1,969			2,351			1,883			871		679

Earnings	$	33,768		$	53,118		$	98,823		$	208,998	$	101,081


Fixed charges and preferred stock dividend (from continuing operations:
Interest on indebtedness (a)	$	146,514		$	144,184		$	159,873		$	163,028	$	174,506
Capitalized interest		12,505			16,929			14,857			13,244		5,173
Portion of rents representative of the interest factor		1,969			2,351			1,883			871		679

Fixed charges		160,988			163,464			176,613			177,143		180,358


Add:
Preferred stock dividend		9,488			10,912			12,138			13,910		15,370
(Discount)/premium on preferred stock		(25	)		(2,586	)		(3,056	)		2,261		—

Combined fixed charges and preferred stock dividend	$	170,451		$	171,790		$	185,695		$	193,314	$	195,728


Ratio of earnings to fixed charges		—			—			—			1.18		—
Ratio of earnings to combined fixed charges and preferred stock		—			—			—			1.08		—

For the year ended December 31, 2010, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $127.2 million.

For the year ended December 31, 2010, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $136.7 million.

For the year ended December 31, 2009, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $110.3 million.

For the year ended December 31, 2009, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $118.7 million.

For the year ended December 31, 2008, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $77.8 million.

For the year ended December 31, 2008, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $86.9 million.

For the year ended December 31, 2006, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $79.3 million.

For the year ended December 31, 2006, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $94.6 million.


(a)		Interest on indebtedness for the year ended December 31, 2010 is presented gross of the loss on debt extinguishment of $1.2 million. Interest on indebtedness for the year ended December 31, 2009 is presented gross of the gain on debt extinguishment of $9.8 million, the prepayment penalty on debt restructure of $1.0 million, and expenses related to tender offer of $3.8 million. Interest on indebtedness for the year ended December 31, 2008 is presented gross of the gain on debt extinguishment of $26.3 million and prepayment penalty on debt restructure of $4.2 million.

Exhibit 12.2

UNITED DOMINION REALTY, L.P.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)


	Years Ended December 31,
	2010			2009			2008		2007		2006

(Loss)/income from continuing operations	$	(22,413	)	$	(2,952	)	$	11,410	$	118,174	$	18,002
Add from continuing operations:
Interest on indebtedness (a)		49,141			48,311			41,421		30,145		32,344
Portion of rents representative of the interest factor		1,564			1,543			1,437		447		379

Earnings	$	28,292		$	46,902		$	54,268	$	148,766	$	50,725


Fixed charges from continuing operations:
Interest on indebtedness (a)	$	49,141		$	48,311		$	41,421	$	30,145	$	32,344
Capitalized interest		1,340			444			573		909		1,096
Portion of rents representative of the interest factor		1,564			1,543			1,437		447		379

Fixed charges	$	52,045		$	50,298		$	43,431	$	31,501	$	33,819


Ratio of earnings to fixed charges		—			—			1.25		4.72		1.50

For the year ended December 31, 2010, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $23.8 million.

For the year ended December 31, 2009, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $3.4 million.

UDR (UDR) 8-K2010 FY Other Events