This is not
just a report
about last year’s
42% total return:
UDR 2006 Annual Report
See how 4 growth strategies
will drive value:
Message from the Chairman
2
Message from the CEO
Growth Strategies
Q&A
Financial Highlights
Form 10-K
3-5
6-13
14-15
16
17
It’s about the
Future
Our Growth
Strategies
1
Strengthen Our
Research-Driven
Portfolio
Expand RE32
3
4
Source Low
Cost Capital
Transform
Operations
Leverage our capacity and
infrastructure with quality
Expand RE3, our subsidiary
that focuses on development,
Grow net operating income
Leverage research capabilities
through automation and
and operating, financial and
assets in selected markets.
redevelopment, land entitlement
efficiency, led by talented,
investment platforms to attract
Page 6
and short-term hold investments.
innovative associates.
low cost capital alternatives.
Page 8
Page 10
Page 12
1
$84M valuat21M – $26M pri-or valuation – $21M 26M = cost
We have the right team, vision and strategies for value creation.
Message from the Chairman
Message from the CEO
UDR enjoyed stellar growth and achievement in 2006. We posted our strongest operating results in
over eight years, more than doubled our development and redevelopment pipeline, increased our
dividend for the 30th consecutive year, and far outperformed the major stock market indices.
In recent years, your Company has established an enviable reputation for creating shareholder value by
bringing a rigorous, bottom-line oriented discipline to operations, property acquisitions, dispositions,
development and redevelopment. However, the focus of this Annual Report, as the cover suggests, is not
just about our past accomplishments. Rather, it also looks forward by sharing with you the key strategic
initiatives, incorporated in an updated Strategic Plan developed by management and adopted by your
Board in 2006, that we believe will generate enhanced growth and profitability in the years ahead.
1 The right team 2 The right strategies 3 Strong board governance
Of course, our ability to successfully execute these initiatives is dependent on our people. I am delighted to
report that we have a committed and experienced management team and an extraordinary group of UDR
associates, all of whom are dedicated to building a strong, sustainable business while continuing to deliver
value to residents and shareholders alike.
Your Board of Directors takes seriously its responsibility to participate
actively with management in guiding and supporting our collective
commitment to best practices in corporate governance and continuous
improvement in the performance of the business. Accordingly, we
welcome this opportunity to share with you both our 2006 results
and our confidence that, for UDR, the best is yet to come.
Robert C. Larson
Chairman of the Board
Our vision is to be the innovative multi-family real estate investment
of choice. With innovation and execution as core capabilities,
we continued to make great progress and delivered superior
performance in 2006. Our same community monthly income per
home grew to $884, a better than 15% increase over 2005. We
delivered net operating income growth of 8.6% and boosted our
operating margin by 200 basis points to 63.5%. We strengthened
our balance sheet and improved our apartment portfolio by
completing over $1 billion of asset acquisitions, dispositions, and
capital improvements. We laid the foundation to continue to improve
our portfolio by expanding our development and redevelopment
pipeline to more than $2 billion, which will be completed over the
next five years.
2
3
By almost any measure, 2006 was an exceptional year for UDR.
Funds From Operations
(per share)
Monthly Income per Apartment Home
(same communities)
Common Dividends
(per share)
Average Stock Price
(per share)
’02
’03
$1.32
$1.52
’04
$1.51
’05
$1.61
’06
$1.68
’02
$729
’03
$719
’04
$728
’05
$766
’06
$884
’02
’03
$1.11
$1.14
’04
$1.17
’05
$1.20
’06
$1.25
’02
’03
’04
’05
$15.36
$17.36
$20.05
$22.90
’06
$28.55
We are well on our way to realizing our vision as we
through entitlement, zoning changes, new development,
implement four strategies to guide our actions and
redevelopment, conversion to condominiums and owning
accelerate growth.
property for short time periods. It gives us flexibility to act
First, strengthen our research-driven portfolio, owning
communities in markets with tremendous upside,
where rigorous analysis of economic data, demographic
trends, industry statistics and local policies support our
investment, acquisition and disposition decisions. We
believe this will produce predictable growth, supporting
consistent future dividend increases.
Second, expand RE3, our subsidiary that solves the
puzzle of market cycles. Traditionally, REITs have bought
and held property for many years. RE3 provides us the
flexibility to assemble a portfolio and harvest value
quickly when markets change.
Third, transform operations to grow income. Residents
embrace the instant nature of the internet and want a
“self-service” approach where they have control. We will
enhance web applications for online leasing, electronic
rent payment and online service orders as well as for
internal processes. These initiatives meet customer
needs and improve profitability. Our associates are a
vital component of our success and we are focused
on expanding training programs, reducing turnover,
encouraging innovative thinking and being known as
an employer of choice.
Fourth, source capital matched to opportunities. We will
partner with third parties, pension funds and institutions for
funding. Access to alternative sources of low cost capital
is critical for the successful execution of our plan.
These initiatives, which are discussed on the following
pages, complement each other and offer flexibility to
create value through all real estate cycles. They set us
apart from the competition and put us on the right path
to accelerate growth.
We are executing our strategies and demonstrating
innovation throughout the Company. I am proud of our
2,000 associates who put value creation at the heart of
everything they do. From operating the most efficient
multi-family housing enterprise, to developing and
redeveloping attractive properties in identified markets,
to harvesting value from selected assets, every action we
take and decision we make is predicated on creating value.
UDR is a dynamic company with many opportunities for
continued success and future growth. We invite you to join
us as we open doors to a promising future.
Thomas W. Toomey
Chief Executive Officer and President
4
5
1
Strategy:
Strengthen Our
Research-Driven
Portfolio
Leverage our capacity
and infrastructure
with quality assets in
selected markets.
Why now:
What is the objective:
How do we measure success:
Example:
To increase our presence in the
right markets to capture growth.
We will add homes in markets where
job growth expectations are high, home
affordability is low, and the demand/
supply ratio for multi-family housing is
favorable. We have an infrastructure
that will support 90,000 homes without
adding significant incremental costs.
We will sell communities in slower
growth markets based on research.
Key Statistics:
To outperform the industry in net
operating income (NOI) growth.
Our research and analysis will identify
communities that meet defined criteria.
Strong job growth combined with
high home prices and limited housing
alternatives support rent increases and
occupancy gains. Revenue expansion
plus cost control fuels growth in
operating income.
Produce industry leading return
on invested capital.
In addition to increasing our presence
in selected markets, we will emphasize
redevelopment activity and invest
capital in kitchen and bath upgrades
and full community renovations. These
investments will generate superior
returns to new development and can
be completed in half the time.
Tripling our California presence
to 27% of NOI from 9% in 2001.
California has high demand for
apartment homes due to strong job
growth and median home prices that are
135% above the national average. We
grew our California presence and sold
homes in other areas based on research
that analyzed housing affordability and
the demand/supply ratio of job growth
and multi-family construction.
1.5 Million
new U.S. households per year.
40%
job growth in UDR’s top 10 markets is
40% greater than the U.S. average.
35% – 50%
of “Echo Boomers” will be renters.
Employment growth, household formation,
immigration and housing affordability will
boost demand for apartment homes.
Mark Wallis, Senior Executive Vice President
California: 27%*
* At December 31, 2006, UDR owned 70,339 apartment
homes in 16 states and the District of Columbia. We
expect that 69% of our 2007 net operating income (NOI)
will be generated in the states of California, Florida and
Texas and the Washington D.C. Corridor.
6
D.C. Corridor: 14%*
Texas: 12%*
7
Florida: 16%*
2
Strategy:
Expand RE3
Expand development,
redevelopment,
land entitlement and
short-term hold
investments.
Why now:
What is the objective:
How do we measure success:
Example:
To capture value from demand
for quality housing.
REITs have traditionally bought, held
and operated properties. To compete
for talent, capital and investors, we
need to evolve and explore new
opportunities. Market conditions
dictate that the time is right to expand
our expertise in this area.
To accelerate growth in funds
from operations (FFO) and
outperform the industry.
Participating in new ventures and
using innovative approaches to create
value diversifies our income base and
supplements profits from traditional
operations. RE3 enables us to earn
more income to support our dividend.
Generate 20% of FFO from RE3.
We are establishing a performance
history of capturing value. During 2006,
RE3’s FFO contribution increased by
41% over 2005 and represented 11%
of total company FFO. We expect
continued growth in 2007.
Las Colinas, Texas.
In 2006, we completed development of
a 367 home community in Las Colinas,
Texas at a budgeted cost of $32 million.
At the end of the year, we sold it for
$45 million, generating an unleveraged
internal rate of return of 15%.
Key Statistics:
Over $2 billion
budgeted cost of development /
redevelopment pipeline.
15,000 homes
in our development /
redevelopment pipeline.
$5 to $7 per share
in estimated value creation from
development / redevelopment.
RE3, our subsidiary that focuses
on development, redevelopment,
land entitlement and short-term
hold investments, is poised to
capture superior returns through
Opportunity
all market cycles.
Mark Wallis, Senior Executive Vice President
Innovation
Agility
8
9
The RE3 senior team: Les Boeckel, Richard Giannotti,
Mark Culwell, Matt Akin & Mark Wallis
3
Strategy:
Transform
Operations
Grow net operating
income through
automation and
efficiency, led by
talented, innovative
associates.
Why now:
What is the objective:
How do we measure success:
Example:
Increase efficiency and drive
profitability.
In our sales and service operation,
customer satisfaction is a priority. We
must anticipate trends and deliver new
initiatives before customers know they
want them. We have an obligation to
utilize technology to delight customers,
conserve natural resources and
improve financial returns.
Key Statistics:
To develop an automated,
systematic approach to customer
service and internal operations.
In five years, we expect to generate 90%
of our leases online and process 100%
of our rent payments electronically. In
2007, we will implement an automated
systematic approach to pricing.
Technology will enable consistent
customer experiences, streamline
processes and improve margins.
Grow funds from operations at
top-quartile industry rate.
Market research drives smart decision
making for pricing, service expectations,
customer interaction and amenities.
We must stay ahead of the competition
to attract and retain residents, generate
revenue and control costs. Transforming
internal processes to improve efficiency
further improves financial performance.
Online leasing; online service
requests.
Today, customers can take a virtual
tour of an apartment, be screened for
credit, complete an application and
reserve an apartment online. We are
expanding online payment options and
are implementing a resident portal for
online service requests.
1.1 million
unique visitors went to our
website in 2006.
34%
of 2006 leases were initiated
via the internet.
$100
cost to attract a new resident
online vs. $800 using print ads
and brokers.
Automated operating technologies
will provide next generation services
and convenience for residents and
expand our profitability.
Martha Carlin, Executive Vice President
10
11
4
Strategy:
Source Low
Cost Capital
Leverage research
capabilities and
operating, financial and
investment platforms
to attract a variety of
low cost capital.
Why now:
What is the objective:
How do we measure success:
Example:
To match our strengths with
capital and create opportunities
that accelerate growth and
improve returns.
UDR has a unique platform for value
creation. We know our markets well
and are able to create value through
operations and through our investment
platform in a variety of ways. Our skills
benefit shareholders and investment
partners who team with us.
Key Statistics:
To achieve industry-leading
returns on invested capital.
We will match opportunities to capital,
leveraging our talents by providing
services to generate additional return on
capital. Our analytical approach identifies
value creation opportunities which will
be financed with an appropriate blend of
capital and expertise from financial and
operating partners.
Grow return on invested capital.
We will use our capital strength to
access investments that have high
return potential. Our goal is to
achieve an industry-leading return
on invested capital.
Joint ventures with local
partners.
In 2006, we closed three joint ventures
with local developers: a $138 million
project with JPI in Marina del Rey,
California, and two projects totaling
$232 million with Su Development in
Bellevue, Washington. In both cases
we combined low cost capital with our
partners’ unique investment opportuni-
ties and proven execution talent.
$8.2 billion
market capitalization.
41%
debt to market capital ratio.
BBB rating from S&P; Baa2
from Moody’s.
30 years
of consecutive annual
dividend increases.
We will maximize our returns by focusing skills and capital
on assets with high levels of value creation potential.
Mike Ernst, Chief Financial Officer
$84M valuation – $26M prior valuation – $21M redevelopment cost
= $37M value created
12
13
The senior finance team:
Stacy Riffe, David Messenger & Mike Ernst
Q&A
1
What are the key demographic
trends that will affect your
business?
Demographers project that the “echo
boom” generation will grow by four million
by 2011 and that 35% to 50% of them
will be renters. In addition, immigration
is expected to grow by as much as one
million people each year during this same
time period with one third expected to
rent. These are incremental to the current
renter population of 40 million, so we
anticipate a future of increasing demand.
6
How are you demonstrating
innovation?
We use internet marketing programs and
creative methods to maximize search
engine leads. Redevelopment and
renovation programs are leading edge
and improve the value of our communi-
ties. We have an environmentally friendly
lifecycle cost purchasing program. We
champion mixed-use development,
including live/work/retail in the same
community. Innovative deal structures
with partners expand our portfolio.
2
How are you using technology to
transform your business?
Technology drives efficiencies and
simplifies leasing for residents. Along with
computers, we will utilize mobile devices
for lead generation, customer service and
resident communications. Blogging and
social networking capture search engine
traffic and increase brand recognition.
Streamlining administrative workflows
improves productivity by reducing manual
processes, accelerating decision-making,
revenue growth and profitability.
7
What is involved in your kitchen
and bath improvement program?
We install upgraded kitchen appliances,
cabinets, countertops, lighting, flooring
and new bathroom fixtures. Each
community selects from several
standardized packages and installation
can be complete in as little as three days.
In some homes, we change floor plans
to open the space and improve the flow.
We typically invest between $8,000 and
$12,000 per upgrade and target an 8% to
10% initial cash return on the investment.
3
What are you doing to conserve
energy?
In the last two years, we have spent $36
million on new central air conditioners
and heat pumps, installing efficient,
energy friendly systems. We use a
total lifecycle cost analysis approach for
purchasing appliances, which analyzes
lifetime expectancy, energy costs, repair
frequency and initial cost to determine
the best purchase. Landscaping
decisions consider irrigation needs and
water conservation.
4
How does UDR attract new talent
to the team?
We have a solid reputation in the
industry, and are recognized as having
a high performance culture. Our core
values of integrity, respect, teamwork,
ownership and growth define the way we
work together. We encourage innovative
thinking and reward success, and we
continually focus on ways that make
UDR a great place to work.
5
Is your portfolio repositioning
complete?
We are essentially finished repositioning
our portfolio. In the past five years, we
have sold over 40% of our portfolio,
representing nearly 30,000 homes, and
repositioned another 20% through
redevelopment. We purchased over
22,000 homes in locations having strong
job growth, low housing affordability and
a favorable demand /supply ratio for
multi-family housing.
8
What is the financial impact from
your redevelopment program?
Our redevelopment program includes
full exterior renovation of communities
in addition to complete interior remodel-
ing. In many instances, we expect cash
flow from redeveloped communities to
increase by 50% to 100% and market
value to increase by 20% to 50%. During
renovation, we collect lower revenue from
homes out of service but the long-term
value creation far exceeds the short-
term dilution.
9
Can you provide more details
on your investment pipeline?
Developments/redevelopments in process
total $900 million. This includes new
construction of 896 homes that we own,
860 homes under contract for purchase
and are being developed by others and
969 homes in joint ventures with local
partners. We have 4,060 homes in our full
scope redevelopment program. In addition
to this, our future investment pipeline totals
nearly 8,400 homes with an expected
investment of over $1.3 billion.
10
How can you generate more
monthly revenue per home?
The primary method is rent increases
where demand for housing is supported
by strong job growth and high cost of
alternative housing. Secondary methods
include reimbursement programs where
residents pay for utilities and trash
removal, and for pets, late payments, and
damages. For 2006, our total monthly
income per home was $884, up over 15%
from 2005. We are exploring additional
strategies to grow revenues including
implementing yield management software.
14
Tom Toomey
Chief Executive Officer
and President
Mark Wallis
Senior Executive Vice President
Acquisitions, Dispositions,
Asset Quality and Development
Martha Carlin
Executive Vice President
Operations
Mike Ernst
Executive Vice President
and Chief Financial Officer
15
Key Financial Highlights for 2006
Corporate Information
Same Community Results:
Revenue growth up
6%
Net operating income up
8.6%
Operating margin reached
63.5%
Average physical occupancy reached
94.7%
(In millions, except per share data and apartment homes owned)
For the Year
Rental income from continuing property operations
Income from continuing property operations excluding depreciation (NOI)
(Loss) /income before minority interests and discontinued operations
Income from discontinued operations, net of minority interests
Net income
Distributions to preferred stockholders
Net income available to common stockholders
Funds from operations - diluted (a)
Common distributions declared
Per Share
Earnings per common share - diluted
Funds from operations - diluted (a)
Common distributions declared
At Year End
Real estate owned, at carrying value (b)
Secured debt
Unsecured debt
Stockholders’ equity
Number of common shares outstanding
Number of completed apartment homes owned
2006
2005
2004
$
694
$
622
$ 513
419
(30)
156
129
15
113
248
168
370
-
154
155
15
140
242
164
295
6
90
97
20
72
220
152
$ 0.85
$ 1.03
1.68
1.25
1.61
1.20
$ 0.56
1.51
1.17
r
e
d
n
a
x
e
A
y
d
n
a
S
l
:
g
n
i
t
n
i
r
P
$ 5,820
$ 5,512
1,183
2,156
1,055
135
70,339
1,116
2,044
1,108
134
$ 5,243
1,198
1,682
1,195
136
74,875
78,855
(a) Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principles), excluding
gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in
April 2002. For 2004, FFO and FFO per share include a charge of $5.5 million to cover hurricane related expenses. For 2005, FFO and FFO
per share include $2.5 million of hurricane related insurance recoveries.
Net incremental gains on the sale of condominium homes and the net incremental gain on the disposition of real estate investments
developed for sale are defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated
depreciation. We consider FFO with gains/losses on the sale of condominium homes and gains/losses on the disposition of real estate
investments developed for sale to be a meaningful supplemental measure of performance because the short-term use of funds produce a
profit that differs from the traditional long-term investment in real estate for REITs.
16
(b) Includes real estate held for investment, real estate held for disposition, and real estate under development, before depreciation.
left to right:
Katherine A. Cattanach
Eric J. Foss
Robert P. Freeman
Jon A. Grove
James D. Klingbeil
Jon A. Grove 3
Private Investor
Formerly Chairman, President
& Chief Executive Officer
ASR Investment Corporation
James D. Klingbeil 1,3
Vice Chairman of the Board
Chairman & Chief Executive Officer
Klingbeil Multi-family Funds IV , V & VI
Robert C. Larson 1
Chairman of the Board
Managing Director Lazard Alternative
Investments LLC & Chairman of
Lazard Real Estate Partners, LLC
Thomas R. Oliver 4
Private Investor
Formerly Chairman &
Chief Executive Officer
InterContinental Hotels, Inc.
Lynne B. Sagalyn 3,4
Professor of Real Estate
Development & Planning
University of Pennsylvania
Mark J. Sandler 2,4
Private Investor
Formerly Senior Managing Director
Bear, Stearns & Co., Inc.
left to right:
Robert C. Larson
Thomas R. Oliver
Lynne B. Sagalyn
Mark J. Sandler
Thomas W. Toomey
Thomas C. Wajnert
Thomas W. Toomey 1
Chief Executive Officer
& President
Thomas C. Wajnert 2,3
Private Investor
Senior Advisor, Bear Stearns
Merchant Banking
& formerly Chairman &
Chief Executive Officer
AT&T Capital Corporation
committees:
1 – executive
2 – audit
3 – compensation
4 – corporate governance /
nominating
Senior Vice Presidents cont.
VICE PRESIDENTS / CORPORATE
Vice Presidents / Corporate cont.
David L. Messenger
Chief Accounting Officer
Erin Ditto O’Brien
Property Operations
Stacy M. Riffe
Chief Financial Officer – RE3
Thomas A. Spangler
Business Development
S. Douglas Walker
Transactions / Asset Quality
VICE PRESIDENTS / AREA DIRECTORS
Kathryn O. Clem
Texas / Colorado
Jerry A. Davis
West
Louis N. Kovalsky
Mid-Atlantic
Dennis E. Sandidge
Southeast
Kristin L. Stanton
Midwest / North Carolina
Charles L. Barth
Asset Quality
R. Bruce Blanton
Information Systems
Richard A. Crane
Asset Quality - Construction
Gregory M. Duggan
Redevelopment
Denise L. Fansler
Acquisitions & Dispositions
Douglas F. Fee
Asset Quality
Nellcine Ford
Human Resources
Terry D. Fulbright
Business Development
David F. Houghton
Purchasing
L. Devon Kistler
IT Operations
Thomas E. Lamberth
Development
Joseph A. Milan
Risk Management
Susan K. Northcutt
Recruiting / Associate Development
Mary Ellen Norwood
Legal Administration
Corporate Secretary
Thomas M. Pritzkau
Asset Quality
Cheryl F. Pucci
Business Development /
Regulatory
Michael B. Rogers
Property Tax Administration
R. L. Ross III
Development
Milton A. Scott, Jr.
Redevelopment
Thomas P. Simon
Treasurer
L. Scott St. Clair
Asset Quality –
Kitchen & Bath Program
Steven H. Taraborelli
Internet Marketing
Larry D. Thede
Investor Relations
James M. Wallace
Corporate Tax
Board of Directors
Katherine A. Cattanach 2,4
Private Investor
Formerly General Partner
INVESCO Private Capital, Inc.
Eric J. Foss 2,4
President & Chief Executive Officer
The Pepsi Bottling Group, Inc.
Robert P. Freeman 2
President
Landfall Capital LLC
Senior Officers
EXECUTIVE OFFICERS
Thomas W. Toomey
Chief Executive Officer & President
W. Mark Wallis
Senior Executive Vice President
Acquisitions, Dispositions, Asset
Quality & Development
Michael A. Ernst
Executive Vice President
& Chief Financial Officer
Martha R. Carlin
Executive Vice President
Operations
Richard A. Giannotti
Executive Vice President
Redevelopment
SENIOR VICE PRESIDENTS
Matthew T. Akin
Acquisitions & Dispositions
Lester C. Boeckel
Condominiums
Mark M. Culwell
Development
Patrick S. Gregory
Chief Information Officer
i
i
m
o
c
.
c
n
s
s
e
n
e
g
w
w
w
.
/
.
c
n
I
i
s
s
e
n
e
G
i
:
n
g
s
e
d
d
n
a
t
p
e
c
n
o
C
.
d
e
v
r
e
s
e
r
s
t
h
g
i
r
l
l
a
,
.
c
n
I
,
R
D
U
.
7
0
0
2
t
h
g
i
r
y
p
o
C
©
We changed our name and identity to UDR to reflect our focus on the future and
not the past. Even though we have a proven track record of delivering superior
shareholder returns, the fact is, markets are quickly changing and we must change
with them. Today, we’re the fourth largest multi-family real estate investment trust in
the nation, and an S&P 400 company. Our four strategies (pages 6-13) will drive our
future performance and create value for investors, residents, associates and partners.
Learn more at UDR.com, formerly UDRT.com