UDR
Annual Report 2007

Plain-text annual report

Time-Tested Value Creation Strengthen Our Portfolio Source Low Cost Capital Create Value with RE3 Innovate with Operations 2.0 UDR | 2007 Annual Report The Experience and Vision to Lead Message from the Chairman and the Chief Executive Officer Operationally and financially, 2007 was a great year for UDR. Revenue growth, expense control and net operating income growth were among the best of our public company peers and far exceeded historic norms. Monthly income per home grew to $1,138, the highest in our history. We increased our dividend for the 31st consecutive year and extended our record of continuous dividend payments to 140 quarters. The major investment in technology that we complete full redevelopment of 1,832 homes in have made over the past several years five communities. This investment is expected contributed to these stellar results. Apartment to increase the annual cash flow at these shopping is increasingly conducted on the communities by 58%. Another 6 communities with internet. The redesigned UDR website, which 1,900 homes are currently under redevelopment. can be accessed by mobile devices and is fully available in Spanish and English, now delivers 50% of our prospective residents. We completed nearly $745 million in asset sales during 2007, realizing a gain of $256 million. Over $485 million of those proceeds were reinvested While leasing and operating our existing in target markets consistent with our strategy of communities is at the core of our business, focusing on geographic areas that demonstrate the development of new communities plays an high rent growth, strong job growth and low important part in our growth strategy as well. single family home affordability. In 2007, the value of projects in our development pipeline increased to over $2.5 billion. During the year, we completed and began leasing five new communities in California and Texas that were developed at a cost of $130 million. In 2008, we expect to complete an additional 2,100 new apartment homes in Arizona, California, Florida, Texas and Washington. Early in 2008, we completed a carefully planned and highly strategic transaction in which we sold 25,684 apartment homes for sales proceeds of $1.7 billion. As a result, the Company materially strengthened its balance sheet and, at the same time, selectively disposed of properties at attractive prices that no longer fit our high quality, high rent, high growth potential business model. Reinvesting in existing properties also helps While we will continue to be an opportunistic ensure that our communities will continue to buyer and seller, this sale fundamentally completes generate high rent and occupancy. During 2007, we spent $62 million or $33,900 per home to the transformation of the UDR portfolio that has been underway for the past seven years. Market Capitalization Total market capitalization at March 31, 2008: Apartment Homes Portfolio at March 31, 2008: $6.8 Billion 43,188 While our 2007 results met and, in many ways to operate effectively for the foreseeable future. exceeded, our expectations, we were disappointed Both the management team and your Board will by the decline in our stock price that was continue to work hard to create shareholder triggered by macroeconomic factors associated value through improved operational performance with credit markets and widespread distress in and by enhancing the value of the high quality, the single family housing industry. Over the past strategically located, professionally managed few years, many industries have benefited from apartment communities that we own. rapid global growth and cheap credit. Conditions changed dramatically during 2007 and the key question for 2008 is how well the economy will deal with “bubble” deflation in the housing and financial markets. Economists have observed that over the past 60 years, the United States has experienced 10 recessions averaging 11 months in duration with the longest lasting 16 months. Although there is no way of knowing how long we will be faced with the current environment, we are encouraged by real estate’s historical resilience and the fact that your Company is exceptionally well positioned and capitalized All that we accomplish is a product of the work our associates do every day to make UDR a great company. We recognize and thank them for their dedication and the extraordinary contributions they have made to the Company’s strong performance this past year. Robert C. Larson Chairman Thomas W. Toomey President and Chief Executive Officer 1 2007 Achievements Strengthen Our Portfolio Leverage our capacity and infrastructure with quality assets in selected markets. $680 Million in Acquisitions and Capital Expenditures Create Value with RE3 Pursue development, land entitlement and short-term hold investments. $ 2.5 Billion Development Pipeline Dramatically improved the quality of our portfolio with Development pipeline has grown to $2.5 billion and nearly $745 million in property sales in 2007, and another is geographically aligned with our operating portfolio. $1.7 billion in early 2008. We are reinvesting the proceeds We intend to deliver over 2,100 new homes during in markets with above-average job growth expectations 2008 and are targeting annual deliveries of $400 to and low affordability. $500 million annually. Innovate with Operations 2.0 Grow NOI through automation and efficiency, led by talented, innovative associates. #1 Ranked Website Among Our Peers Source Low Cost Capital Leverage research capabilities and operating, financial and investment platforms to attract low cost capital alternatives. $709 Million in Joint Ventures Redesigned website ranked first by a worldwide independent Established a $650 million joint venture with a large domestic research firm. Best-in-class features include side-by-side institutional partner. The venture owns over 4,000 apartment apartment comparisons, geo-targeted localized content, homes in Texas and contains a $300 million expansion feature RSS feeds, Spanish version, accessibility for the visually for future acquisitions. We are putting capital proceeds from impaired and from mobile devices. property sales to work in new community acquisitions, debt At the end of 2007, our same community total monthly income per home reached $1,138 and our operating margin was 68.2%. payoff and share repurchases. Increased credit facility to $600 million and extended maturity to July 2012. 2 A Record That Speaks for Itself Funds From Operations (per share) $1.71 $1.68 $1.61 $1.52 $1.51 Common Dividends (per share) $1.32 $1.25 $1.20 $1.17 $1.14 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Operating Margin (same store) 61.7% 61.0% 61.5% 68.2% 63.5% Monthly Income (per apartment home) $719 $728 $766 $1,138 $884 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Prospective Resident Internet Visits (thousands) 1,300 1,100 645 428 300 2003 2004 2005 2006 2007 NYSE: UDR UDR, Inc., an S&P 400 company, is a leading multifamily real estate investment trust (REIT). For over 30 years, UDR has delivered long-term value to shareholders, the best standard of service to residents, and the highest quality experience for associates. Additional information can be found at www.UDR.com. 3 Key Financial Highlights Same Community Results Revenue Growth Up Net Operating Income Up Operating Margin Increased To Average Physical Occupancy Reached 5.0% 7.0% 68.2% 94.6% Years ended December 31. In millions, except per share data and apartment homes owned. 2007 2006 2005 Rental income from continuing property operations Income from continuing property operations excluding depreciation (NOI) Income/(loss) 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 497 310 13 208 221 14 205 251 178 $ 464 282 (92) 214 129 15 113 248 168 $ 407 244 (63) 214 155 15 140 242 164 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 $ 1.53 1.71 1.32 $ 0.85 1.68 1.25 $ 1.03 1.61 1.20 $ 5,953 1,138 2,365 1,019 133 $ 5,820 1,183 2,156 1,055 135 $ 5,512 1,116 2,044 1,108 134 65,867 70,339 74,875 (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, premiums or original issuance costs associated with preferred stock redemptions, 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. 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 and 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 produce profits which differ from the traditional long-term investment in real estate for REITs. (b) Includes real estate held for investment, real estate held for disposition, and real estate under development, before depreciation. Disclosure Of Section 303a.12(A) Certifications On May 31, 2007, the Company’s Chief Executive Officer submitted to the New York Stock Exchange the annual certification required by Section 303A.12(a) of the NYSE Listed Company Manual regarding the Company’s compliance with NYSE corporate governance listing standards. In addition, the certifications of the Company’s Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002 were filed as Exhibits 31.1 and 31.2, respectively, to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. 4 Board of Directors Executive Officers General Information Katherine A. Cattanach 2, 4 Private Investor Formerly General Partner INVESCO Private Capital, Inc. Thomas W. Toomey Chief Executive Officer and President Corporate Office 1745 Shea Center Drive, Suite 200 Highlands Ranch, Colorado 80129 Warren L. Troupe Senior Executive Vice President and General Counsel W. Mark Wallis Senior Executive Vice President Acquisitions, Dispositions, Asset Quality & Development Michael A. Ernst Executive Vice President and Chief Financial Officer Richard A. Giannotti Executive Vice President Redevelopment Senior Vice Presidents Matthew T. Akin Acquisitions & Dispositions Mark M. Culwell Development Jerry A. Davis Property Operations David L. Messenger Chief Accounting Officer Katie Miles-Ley Human Resources Stacy M. Riffe Chief Financial Officer – RE3 Dhrubo K. Sircar Chief Information Officer Thomas A. Spangler Business Opportunities Services S. Douglas Walker Asset Quality and Green Initiatives (720) 283-6120 (720) 283-2452 FAX Investor Services E-Mail: ir@udr.com Website: www.udr.com Transfer Agent And Registrar Wells Fargo Shareowner Services 161 North Concord Exchange South St. Paul, Minnesota 55075 Investor Information: (800) 468-9716 Common Stockholders At March 31, 2008, UDR had 5,499 common stockholders of record. Associates At March 31, 2008, UDR had 1,328 full and part-time associates. Annual Meeting The Annual Meeting of Stockholders is scheduled for Friday, May 30, 2008, at 9:00 a.m., at the Crescent Hotel in Dallas, Texas. All stockholders are cordially invited to attend. Member National Association of Real Estate Investment Trusts (NAREIT) National Apartment Association National Multi-Housing Council The Real Estate Roundtable Dividend Reinvestment and Stock Purchase Plan UDR offers its common and preferred stockholders the opportunity to purchase additional shares of common stock through the Dividend Reinvestment and Stock Purchase Plan. Information regarding the Plan can be obtained by contacting Investor Services. Stock Listing New York Stock Exchange (NYSE) Symbols: UDR (Common) UDRpfb (Preferred) Eric J. Foss 2, 4 President and Chief Executive Officer The Pepsi Bottling Group, Inc. Robert P. Freeman 2 Managing Director Greyfields Jon A. Grove 3 Private Investor Formerly Chairman, President and Chief Executive Officer ASR Investments Corporation James D. Klingbeil 1, 3 Vice Chairman of the Board Chairman and Chief Executive Officer, Klingbeil Multifamily Funds IV and V Robert C. Larson 1 Chairman of the Board Managing Director Lazard Alternative Investments LLC and Chairman of Lazard Real Estate Partners, LLC Thomas R. Oliver 3, 4 Private Investor Formerly Chairman and Chief Executive Officer InterContinental Hotels, Inc. Lynne B. Sagalyn 3, 4 Professor of Real Estate Development and Planning University of Pennsylvania Mark J. Sandler 2, 4 Private Investor Formerly Senior Managing Director Bear, Stearns & Co., Inc. Thomas W. Toomey 1 Chief Executive Officer and President Thomas C. Wajnert 2, 4 Private Investor Senior Advisor to Bear Stearns Merchant Banking and formerly Chairman and Chief Executive Officer AT&T Capital Corporation Committees: 1Executive 2Audit 3Compensation 4Governance 5 Experienced Leadership Time-Tested Performance 35 Years of Value Creation $1,000 invested in UDR in 1972 equals $255,228 today, a 17% compound annual growth rate. 2,888 1.32 1.11 1.01 1,858 .66 1,526 .51 .28 445 .1 .03 3.2 .12 9.9 102 1972 1977 1982 1987 1992 1997 2002 2007 Shareholder Equity (Millions) Dividend (Dollars Per Share) UDR commenced operations on July 24, 1972 and had its Initial Public Offering (IPO) on July 3, 1978. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 or n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-10524 UDR, INC. (Exact name of registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 54-0857512 (I.R.S. Employer Identification No.) 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129 (Address of principal executive offices) (zip code) Registrant’s telephone number, including area code: (720) 283-6120 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.01 par value 6.75% Series G Cumulative Redeemable Preferred Stock 8.50% Monthly Income Notes Due 2008 Name of Each Exchange on Which Registered New York Stock Exchange New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¥ No n Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes n No ¥ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥ No n Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¥ Accelerated filer n Non-accelerated filer n (Do not check if a smaller reporting company) Smaller reporting company n Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes n No ¥ The aggregate market value of the shares of common stock held by non-affiliates on June 29, 2007 was approximately $2.2 billion. This calculation excludes shares of common stock held by the registrant’s officers and directors and each person known by the registrant to beneficially own more than 5% of the registrant’s outstanding shares, as such persons may be deemed to be affiliates. This determination of affiliate status should not be deemed conclusive for any other purpose. As of February 15, 2008 there were 133,347,522 shares of the registrant’s common stock outstanding. The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from the registrant’s definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2008. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS PART I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1. Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Item 12. Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 14. PAGE 2 13 20 20 21 21 22 26 27 42 42 42 42 43 43 43 43 44 44 Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 PART IV PART I Item 1. BUSINESS General UDR, Inc. is a self administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. At December 31, 2007, our apartment portfolio included 234 communities located in 30 markets, with a total of 65,867 completed apartment homes. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code. To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders annually. As a qualified REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our stockholders annually. In 2007, we declared total distributions of $1.32 per common share to our stockholders, which represents our 31st year of consecutive dividend increases to our stockholders. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our corporate offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado. As of February 15, 2008, we had 1,787 full-time employees and 132 part-time employees. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty L.P., a Delaware limited partnership, and RE3, our subsidiary that focuses on development, land entitlement and short-term hold investments. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the company,” or “UDR” refer collectively to UDR, Inc. and its subsidiaries. Business Objectives Our principal business objective is to maximize the economic returns of our apartment communities to provide our stockholders with the greatest possible total return and value. To achieve this objective, we intend to continue to pursue the following goals and strategies: (cid:129) own and operate apartments in markets that have the best growth prospects based on favorable job formation and low single-family home affordability, thus enhancing stability and predictability of returns to our stockholders, (cid:129) manage real estate cycles by taking an opportunistic approach to buying, selling, and building apartment communities, (cid:129) empower site associates to manage our communities efficiently and effectively, (cid:129) measure and reward associates based on specific performance targets, and (cid:129) manage our capital structure to ensure predictability of earnings and dividends. 2007 Accomplishments (cid:129) We increased our common stock dividend for the 31st consecutive year. (cid:129) We completed over $1.7 billion of capital transactions in 2007. (cid:129) We acquired 2,671 apartment homes in 13 communities for approximately $404.1 million, six parcels of land for $70.7 million, and invested $11.8 million in an operating joint venture. 2 (cid:129) We completed the disposition of 12 apartment communities with 3,435 apartment homes for an aggregate sales price of approximately $403.0 million, and one parcel of land for $4.5 million. In addition, we sold 61 condominiums within two communities for a total consideration of $10.4 million. (cid:129) We established a $650 million joint venture with a large domestic institutional partner. The venture owns a portfolio of 3,690 stabilized homes located in nine multi-family communities in Austin, Dallas and Houston, Texas, and another 302 homes currently under development in Dallas, Texas. UDR realized proceeds of $326.2 million for the properties and has a 20% interest in the venture. UDR’s Strategies and Vision In the first quarter of 2007, UDR announced its vision to be the innovative multifamily real estate investment of choice. We identified four strategies to guide decision-making and accelerated growth: 1. Strengthen our portfolio 2. Expand RE3 3. Transform operations 4. Source low-cost capital Strengthen our Portfolio UDR is focused on increasing its presence in markets with strong job growth, low housing affordability, and a favorable demand/supply ratio for multifamily housing. Portfolio decisions consider third-party research, taking into account job growth, multifamily permitting, and housing affordability. In January 2008, UDR announced that it has entered into a contract to sell 25,684 apartment homes in 86 communities for $1.7 billion. The transaction is expected to close on or about March 3, 2008, at which time UDR will receive $1.5 billion in cash and a note in the principal amount of $200 million. The note matures on the same date as the buyer’s senior financing, may be prepaid 14 months from the date of the note, bears interest at a fixed rate of 7.5% per annum and is secured by a pledge and security agreement and a guarantee. Closing is subject to customary closing conditions. Upon completion of the transaction, UDR will own 40,183 homes in 148 communities. This portfolio sale dramatically accelerates UDR’s transformation to focus on markets that have the best growth prospects based on favorable job formation and low single-family home affordability. Upon completion of the sale, UDR expects that approximately 90% of its net operating income will be generated from homes located in markets on the Pacific Coast, the Virginia-Washington, D.C. corridor and Florida. Acquisitions During 2007, in conjunction with our strategy to strengthen our portfolio, UDR acquired 13 communities with 2,671 apartment homes at a total cost of approximately $404.1 million, including the assumption of secured debt. In addition, we purchased six parcels of land for $70.7 million and invested $11.8 million in an operating joint venture. UDR is targeting apartment community acquisitions in markets where job growth expectations are above the national average, home affordability is low, and the demand/supply ratio for multi- family housing is favorable. When evaluating potential acquisitions, we consider: (cid:129) population growth, cost of alternative housing, overall potential for economic growth and the tax and regulatory environment of the community in which the property is located, (cid:129) geographic location, including proximity to our existing communities which can deliver significant economies of scale, (cid:129) construction quality, condition and design of the community, (cid:129) current and projected cash flow of the property and the ability to increase cash flow, 3 (cid:129) potential for capital appreciation of the property, (cid:129) ability to increase the value and profitability of the property through upgrades and repositioning, (cid:129) terms of resident leases, including the potential for rent increases, (cid:129) occupancy and demand by residents for properties of a similar type in the vicinity, (cid:129) prospects for liquidity through sale, financing, or refinancing of the property, and (cid:129) competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area. The following table summarizes our apartment acquisitions and our year-end ownership position for the past five years (dollars in thousands): Homes acquired . . . . . . . . . . Homes owned at December 31 . . . . . . . . . . Total real estate owned, at 2007 2006 2005 2004 2003 2,671 2,763 2,561 8,060 5,220 65,867 70,339 74,875 78,855 76,244 cost . . . . . . . . . . . . . . . . . $5,952,541 $5,820,122 $5,512,424 $5,243,296 $4,351,551 Dispositions We regularly monitor and adjust our assets to increase the quality and performance of our portfolio. During 2007, we sold over 7,000 of our slower growing, non-core apartment homes while exiting some markets, specifically Colorado and Georgia, in an effort to increase the quality and performance of our portfolio. Proceeds from the disposition program were used primarily to reduce debt and fund acquisitions. Factors we consider in deciding whether to dispose of a property include: (cid:129) current market price for an asset compared to projected economics for that asset, (cid:129) potential increases in new construction in the market area, (cid:129) areas where the economy is not expected to grow substantially, and (cid:129) markets where we do not intend to establish long-term concentration. At December 31, 2007, we had 86 communities with a total of 25,684 apartment homes, two communities with a total of 579 condominiums, and one commercial unit classified as real estate held for disposition. In January 2008, UDR announced that it had entered into a contract in the fourth quarter of 2007 to sell 25,684 apartment homes in 86 communities for $1.7 billion. Expanding RE3 RE3 is our subsidiary that focuses on development, land entitlement and short-term hold investments. We expanded its development and redevelopment pipelines through a variety of activities. At December 31, 2007, UDR’s total development pipeline totaled over 16,600 homes with a budget over $2.7 billion. Our wholly owned, under development pipeline stands at 6,386 homes with a budgeted cost of $1.0 billion, of which 3,234 homes in five communities are under construction and the remaining 3,152 homes will be built on 12 land sites. An additional 1,594 homes budgeted at $244 million are completed developments or developments in progress in a pre-sale, contract-to-purchase program. Our completed redevelopment and redevelopment pipeline stands at 2,956 homes with a budgeted cost of $150 million, our future development pipeline of owned properties provides for construction of an additional 4,419 homes budgeted at $848 million, and the remaining 1,304 homes with a budgeted cost of $395 million comprise our interest in one consolidated development joint venture and three unconsolidated joint ventures. 4 Development Activities The following wholly owned projects were under development as of December 31, 2007: Number of Apartment Homes Completed Apartment Homes Cost to Date (In thousands) Budgeted Cost (In thousands) Estimated Cost Per Home Expected Completion Date Riachi at One21 — Phase I Plano, TX . . . . . . . . . . . . . . . . . 202 202 $18,197 $ 18,000 $ 89,109 4Q07 Tiburon — Phase I Houston, TX . . . . . . . . . . . . . . . 320 184 19,244 22,000 68,750 2Q08 Addison Assemblage Dallas, TX . . . . . . . . . . . . . . . . . 2,712 3,234 — 386 60,842 352,000 129,794 — $98,283 $392,000 $121,212 The first phase of the Addison Assemblage will deliver 684 homes in the third quarter of 2010. In addition, we owned 12 parcels of land held for future development aggregating $124.5 million at December 31, 2007. Redevelopment Activities During 2007, we continued to reposition properties in targeted markets where we concluded there was an opportunity to add value and achieve greater than inflationary increases in rents over the long term. In 2007, we spent $194.4 million or $2,829 per home on capital expenditures for all of our communities, excluding development, condominium conversions and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as roofs, siding, parking lots, and asset preservation capital expenditures, which aggregated $44.4 million or $646 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, upgrades to HVAC equipment, and other extensive exterior/interior upgrades totaled $78.2 million or $1,138 per home, and major renovations totaled $71.8 million or $1,045 per home for the year ended December 31, 2007. Joint Venture Activities The following consolidated joint venture project was under development as of December 31, 2007: Number of Apartment Homes Completed Apartment Homes Cost to Date (In thousands) Budgeted Cost (In thousands) Estimated Cost Per Home Expected Completion Date Jefferson at Marina del Rey Marina del Rey, CA . . . . . . . . . . 298 — $123,185 $138,000 $463,087 2Q08 The following unconsolidated joint venture projects were under development as of December 31, 2007: Number of Apartment Homes Completed Apartment Homes Cost to Date (In thousands) Budgeted Cost (In thousands) Estimated Cost Per Home Expected Completion Date Lincoln Towne Square — Phase II Plano, TX . . . . . . . . . . . . . . . . . 302 Ashwood Commons Bellevue, WA . . . . . . . . . . . . . . . 274 Bellevue Plaza Bellevue, WA . . . . . . . . . . . . . . . 430 1,006 $13,476 $ 25,000 $ 82,781 3Q08 47,171 97,000 354,015 4Q08 37,990 135,000 313,953 4Q10 $98,637 $257,000 $255,467 — — — 5 UDR owns a 20% interest in a joint venture to which UDR sold nine operating properties, consisting of 3,690 homes, and contributed Lincoln Town Square II, as noted above. In addition, UDR owns a 49% interest in an operating joint venture which owns and operates a recently completed 23-story, 166 apartment home high rise community in Bellevue, WA. Transforming Operations During 2007, UDR has been committed to growing net operating income through automation and improving the ease of doing business with us. Since adopting our new Corporate Strategies, UDR selected and began to deploy YieldStar revenue management software, launched a newly redesigned, customer-oriented web site with better features, and improved the quality of our photos on the web. The new www.udr.com web site features side-by-side apartment and floor plan comparisons, enhanced mapping, additional pricing options, 360 degree virtual tours, a furniture arrangement feature, mobile web site access, and click-to-chat and click-to-call for online support. In the first month following the launch, UDR experienced the highest unique visitor traffic in its history. UDR also launched a new Spanish-language site, marketing to Latinos, the nation’s fastest-growing ethnic group. The site offers over 4,000 Spanish translated web pages and includes apartments for rent search resources. The website can be found at http://es.udr.com and can also be found on any web-enabled mobile device. These enhancements have increased traffic and reduced administrative and marketing costs as we implemented internet initiatives and technology solutions to drive traffic from low cost or no cost sources. As a result, customer acquisition costs have been reduced significantly. Sourcing Low-Cost Capital During 2007, UDR established a $650 million joint venture with a large domestic institutional partner. The venture owns a portfolio of 3,690 stabilized homes located in nine multi-family communities in Austin, Dallas and Houston, Texas, and another 302 homes currently under development in Dallas, Texas. In addition to this $350 million initial pool of assets, the joint venture contains a $300 million expansion feature for future acquisitions. At closing, the venture secured a $232 million, seven year, interest only mortgage which is recourse only to the properties and bears interest at a rate of 5.61% per annum. The venture secured a commitment for a loan in the principal amount of $21.7 million to replace construction financing on an apartment community under development. The take-out loan provides for interest only, bears interest at 5.55% per annum and will have a term of 6 years. UDR realized proceeds of $326.2 million for the properties and we hold a 20% interest in the venture. In addition to the upfront proceeds, UDR has the opportunity for future proceeds after certain IRR hurdles are achieved. Financing Activities As part of our plan to strengthen our capital structure, we utilized proceeds from dispositions, debt and equity offerings and refinancings to extend maturities, pay down existing debt, and acquire apartment communities. The following is a summary of our major financing activities in 2007: (cid:129) Repaid $186.8 million of secured debt and $167.3 million of unsecured debt. (cid:129) Sold $150 million aggregate principal amount of 5.50% senior unsecured notes due April 2014 in March 2007 under our medium-term note program. The net proceeds of approximately $149 million were used for debt repayment. (cid:129) Redeemed 5,416,009 shares of our 8.60% Series B Cumulative Redeemable Preferred Stock on May 29, 2007, the redemption date, for a cash redemption price of $25 per share plus accrued and unpaid dividends to the redemption date. (cid:129) Sold $135 million, or 5,400,000 shares, of our 6.75% Series G Cumulative Redeemable Preferred Stock in May 2007. The shares have a liquidation preference of $25 per share and will be redeemable at par 6 at the option of UDR on or after May 31, 2012. The net proceeds from the offering were used to fund the redemption of all of the outstanding shares of our 8.60% Series B Cumulative Redeemable Preferred Stock. (cid:129) Amended and restated our existing three-year $500 million unsecured revolving credit facility with a maturity date of May 31, 2008, to increase the facility to $600 million and to extend its maturity to July 26, 2012. Under certain circumstances, we may increase the facility to $750 million. (cid:129) Repurchased 3,114,500 shares of our common stock at an average price per share of $25.02 under our 10 million share repurchase program during the twelve months ended December 31, 2007. Markets and Competitive Conditions Upon completion of the portfolio sale announced in January 2008, we expect that approximately 90% of our net operating income will be generated from homes located in markets on the Pacific Coast, the Virginia- Washington, D.C. corridor and Florida. We believe that this diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of our earnings. In many of our markets, competition for new residents is intense. Some competing communities offer features that our communities do not have. Competing communities can use concessions or lower rents to obtain temporary competitive advantages. Also, some competing communities are larger or newer than our communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. In addition, other real estate investors compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources, or lower capital costs, than we do. We believe that, in general, we are well-positioned to compete effectively for residents and investments. We believe our competitive advantages include: (cid:129) a fully integrated organization with property management, development, acquisition, marketing and financing expertise, (cid:129) scalable operating and support systems, (cid:129) purchasing power, (cid:129) geographic diversification with a presence in 30 markets across the country, and (cid:129) significant presence in many of our major markets that allows us to be a local operating expert. Moving forward, we will continue to emphasize aggressive lease management, improved expense control, increased resident retention efforts and the realignment of employee incentive plans tied to our bottom line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational improvement. Communities At December 31, 2007, our apartment portfolio included 234 communities having a total of 65,867 completed apartment homes. The overall quality of our portfolio has significantly improved with the disposition of non-core apartment homes and our upgrade and rehabilitation program. The upgrading of the portfolio provides several key benefits related to portfolio profitability. It enables us to raise rents more significantly and to attract residents with higher levels of disposable income who are more likely to accept the transfer of expenses, such as water and sewer costs, from the landlord to the resident. In addition, it potentially reduces recurring capital expenditures per apartment home, and therefore should result in increased cash flow. Same Community Comparison Same community property net operating income increased 7.0% or $17.7 million compared to 2006. The increase in property net operating income was primarily attributable to a 5.0% or $18.8 million increase in 7 revenues from rental and other income and a 0.9% or $1.1 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 4.2% or $16.2 million increase in rental rates, an 11.4% or $3.0 million increase in reimbursement income and fee income, and a 16.2% or $1.0 million decrease in rental concessions. These increases were partially offset by a 6.8% or $1.3 million increase in vacancy loss. Physical occupancy decreased 0.2% to 94.6%. The increase in property operating expenses was primarily driven by a 5.2% or $1.8 million increase in real estate taxes that was partially offset by a 7.6% or $0.8 million decrease in administrative and marketing costs. Customers Our upgrade and rehabilitation programs enable us to raise rents and attract residents with higher levels of disposable income who are more likely to accept the transfer of expenses, such as water and sewer costs, from the landlord to the resident. We believe this segment provides the highest profit potential in terms of rent growth, stability of occupancy and investment opportunities. Tax Matters We have elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, we must continue to meet certain tests that, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than net capital gains) to our stockholders annually. Provided we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent such net income is distributed to our stockholders annually. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property. We may utilize taxable REIT subsidiaries to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Taxable REIT subsidiaries generally are taxable as regular corporations and therefore are subject to federal, state and local income taxes. Inflation Substantially all of our leases are for a term of one year or less, which may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty. Short-term leases and relatively consistent demand allow rents to provide an attractive hedge against inflation. Environmental Matters Various environmental laws govern certain aspects of the ongoing operation of our communities. Such environmental laws include those regulating the existence of asbestos-containing materials in buildings, manage- ment of surfaces with lead-based paint (and notices to residents about the lead-based paint), use of active underground petroleum storage tanks, and waste-management activities. The failure to comply with such requirements could subject us to a government enforcement action and/or claims for damages by a private party. To date, compliance with federal, state and local environmental protection regulations has not had a material effect on our capital expenditures, earnings or competitive position. We have a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigations and reports have been completed for each property we acquire. In addition, all proposed acquisitions are inspected prior to acquisition. The inspections are conducted by qualified environmental consultants, and we review the issued report prior to the purchase or development of any property. Nevertheless, it is possible that our environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of 8 which we are unaware. In some cases, we have abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or we have been unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large- scale abatement at any of our properties. We believe that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a relatively conservative posture toward accepting known environmental risk, we can minimize our exposure to potential liability associated with environmental hazards. Federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and imposes treble damages for failure to provide such notification. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and we may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities. We are unaware of any environmental hazards at any of our properties that individually or in the aggregate may have a material adverse impact on our operations or financial position. We have not been notified by any governmental authority, and we are not otherwise aware, of any material non-compliance, liability, or claim relating to environmental liabilities in connection with any of our properties. We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on us or our financial condition or results of operations. Future environmental laws, regulations, or ordinances, however, may require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed on us in the future, the costs of compliance could have a material adverse effect on us and our financial condition. Insurance We carry comprehensive general liability coverage on our communities, with limits of liability customary within the industry to insure against liability claims and related defense costs. We are also insured, in all material respects, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Executive Officers of the Company The following table sets forth information about our executive officers as of February 15, 2008. The executive officers listed below serve in their respective capacities at the discretion of our board of directors. Name Age Office Thomas W. Toomey . . . . . . . . . W. Mark Wallis . . . . . . . . . . . . Michael A. Ernst . . . . . . . . . . . Richard A. Giannotti . . . . . . . . Matthew T. Akin . . . . . . . . . . . Mark M. Culwell, Jr. . . . . . . . . Jerry A. Davis . . . . . . . . . . . . . David L. Messenger . . . . . . . . . Katie Miles-Ley . . . . . . . . . . . . Stacy M. Riffe . . . . . . . . . . . . . Dhrubo K. Sircar . . . . . . . . . . . Thomas A. Spangler . . . . . . . . . Senior Executive Vice President 47 Chief Executive Officer — President and Director 57 47 Executive Vice President and Chief Financial Officer 52 Executive Vice President — Asset Quality 40 56 45 37 46 42 55 47 Senior Vice President — Acquisitions & Dispositions Senior Vice President — Development Senior Vice President — Property Operations Senior Vice President & Chief Accounting Officer Senior Vice President — Human Resources Senior Vice President, Chief Financial Officer — RE3 Senior Vice President, Chief Information Officer Senior Vice President — Business Development Since 2001 2001 2006 1985 1994 2006 2007 2002 2007 2007 2007 1998 9 Name Age Office S. Douglas Walker . . . . . . . . . . 52 Mary Ellen Norwood . . . . . . . . 53 Vice President — Legal Administration & Secretary Thomas P. Simon . . . . . . . . . . . 47 Vice President & Treasurer Senior Vice President — Transactions Since 2006 2001 2006 Set forth below is certain biographical information about our executive officers. Mr. Toomey spearheads the vision and strategic direction of the company and oversees its executive officers. He joined us in February 2001 as President, Chief Executive Officer and Director. Prior to joining us, Mr. Toomey was with Apartment Investment and Management Company (AIMCO) from January 1995 until February 2001, where he served as Chief Operating Officer for two years and Chief Financial Officer for four years. During his tenure at AIMCO, Mr. Toomey was instrumental in the growth of AIMCO from 34,000 apartment homes to 360,000 apartment homes. He has also served, from 1990 to 1995, as a Senior Vice President and Treasurer at Lincoln Property Company, a national real estate development, property manage- ment and real estate consulting company. Mr. Toomey began his career at Arthur Andersen & Co. serving real estate and banking clients as an Audit Manager. He currently serves as a member of the boards of the National Association of Real Estate Investment Trusts (NAREIT) and the National Multi Housing Council (NMHC). Additionally, Mr. Toomey serves as Chairman of the Real Estate Roundtable Task Force on Avian Flu Pandemic Preparedness and is an Oregon State University Foundation Trustee. Mr. Wallis oversees the areas of acquisitions, dispositions, asset quality and development. He joined us in April 2001 as Senior Executive Vice President responsible for acquisitions, dispositions, condominium conversions, legal and certain administrative matters. Since that time, his focus has shifted to acquisitions, dispositions, asset quality and development. Prior to joining us, Mr. Wallis was the President of Golden Living Communities, a company he established in 1995 to develop senior housing. During his tenure at Golden Living, Mr. Wallis was involved in the development of eight communities containing over 1,200 assisted and independent living apartments. From 1980 to 1995, Mr. Wallis was Executive Vice President of Finance and Administration at Lincoln Property Company where he handled interim and permanent financing for office, retail, multi-family and mixed-use developments. His responsibilities also included the negotiation of acquisi- tions, dispositions, and management contracts, and he oversaw the direction of the national accounting and computer services divisions. Prior to joining Lincoln, Mr. Wallis served as Vice President of Finance for Folsom Investments, Inc., a large diversified real estate developer. Mr. Wallis began his career as an auditor at Alford, Meroney and Company, a Dallas CPA firm. Mr. Ernst oversees the areas of corporate accounting, financial planning and analysis, investor relations, treasury operations and SEC reporting. He joined us in July 2006 as Executive Vice President and Chief Financial Officer. Prior to joining us, Mr. Ernst was with Prentiss Properties Trust (Prentiss), where he most recently served as Executive Vice President and Chief Financial Officer. He joined Prentiss in 1997 in the role of Vice President and Treasurer, and was promoted to Senior Vice President and Chief Financial Officer in 1999, and then to Executive Vice President and Chief Financial Officer in 2001. During his tenure at Prentiss, Mr. Ernst was involved in the development of corporate strategy, was active in corporate mergers and acquisitions activity and structured in excess of $3.5 billion in capital transactions. He was a member of Prentiss’s investment committee and was responsible for corporate and property accounting, capital markets, investor relations and financial planning and analysis. Prior to that, Mr. Ernst worked for Nations Bank, now Bank of America, where he was a Senior Vice President in their real estate finance group. Mr. Giannotti oversees redevelopment projects and acquisition efforts and development projects in the mid-Atlantic region. He joined us in September 1985 as Director of Development and Construction. He was elected Assistant Vice President in 1988, Vice President in 1989, and Senior Vice President in 1996. In 1998, he was assigned the additional responsibilities of Director of Development for the Eastern Region. In 2003, Mr. Giannotti was promoted to Executive Vice President — Asset Quality to manage the company’s Asset Quality program and to be responsible for the direction of recurring capital expenditures for asset preservation, initial capital expenditures relating to acquisitions and redevelopment projects. In 2006, Mr. Giannotti’s responsibilities shifted to focus on acquisition efforts and development projects in the mid-Atlantic region as well as redevelopment projects. 10 Mr. Akin oversees the company’s acquisition and disposition efforts. He joined us in 1996 in connection with the merger with SouthWest Property Trust, where he had been a Financial Analyst since 1994. He was promoted to Due Diligence Analyst in April 1998 and to Asset Manager for the Western Region in 1999. Mr. Akin was promoted to Vice President, Senior Business Analyst in September 2000 and his focus shifted to acquisitions for the Western Region. In May 2004, he was promoted to Vice President — Acquisitions, and in August 2006, he was promoted to Senior Vice President — Acquisitions and Dispositions. Prior to joining SouthWest Property Trust, Mr. Akin was with Lexford Properties from 1989 to 1994, where he began as Staff Accountant and was promoted to Assistant Controller. Mr. Culwell oversees all aspects of in-house development, joint venture development and pre-sale opportunities. He joined us in June 2006 as Senior Vice President — Development. Prior to joining us, Mr. Culwell served as Regional Vice President of Development for Gables Residential, where he established a $300 million pipeline of new development and redevelopment opportunities. Before joining Gables Residential, Mr. Culwell had over 30 years of real estate experience, including working for Elsinore Group, LLC, Lexford Residential Trust, Cornerstone Housing Corporation and Trammell Crow Residential Company, where his development and construction responsibilities included site selection and acquisition, construction oversight, asset management, as well as obtaining financing for acquisitions and rehabilitations. Mr. Culwell began his career, in Houston, as a broker with Vallone and Associates Real Estate Brokerage. Mr. Davis oversees property operations. He originally joined us in March 1989 as Controller and subsequently moved into Operations as an Area Director. In 2001, Mr. Davis accepted the position of Chief Operating Officer of JH Management Co., a California-based apartment company. He returned to UDR in March 2002 and was promoted to Vice President, Area Director in September 2004, where he oversaw operations in California, Washington, Oregon and Arizona. In November 2007, he was promoted to Senior Vice President — Property Operations, responsible for company-wide property operations. Prior to joining us in 1989, Mr. Davis was with Crestar Bank as a Financial Analyst from 1986 to 1989. He began his career in 1984 as a Staff Accountant for Arthur Young & Co. Mr. Messenger oversees all aspects of the company’s accounting functions. He joined us in August 2002 as Vice President and Controller. In that role, Mr. Messenger was responsible for SEC reporting, Sarbanes- Oxley compliance and supervision of all accounting functions. In March 2006, Mr. Messenger was appointed Vice President and Chief Accounting Officer and in January 2007, while retaining the Chief Accounting Officer title, he was promoted to Senior Vice President. Prior to joining us, Mr. Messenger was owner and President of TRC Management Company, a restaurant management company in Chicago. He has worked as a Controller at HMS Resource, Inc. Mr. Messenger began his career with Ernst & Young LLP, as a manager in their Chicago real estate division. Ms. Miles-Ley oversees employee relations, organizational development, succession planning, staffing and recruitment, compensation, training and development, benefits administration, HRIS and payroll. She joined us in June 2007 as Senior Vice President — Human Resources. Prior to joining us, Ms. Miles-Ley was with Starz Entertainment Group LLC (SEG) from 2001 to 2007 where she served as Vice President, Human Resources & Organizational Development. In this role, Ms. Miles-Ley was primarily responsible for the strategic planning and implementation of human resource functions in alignment with SEG’s business plan. Prior to her time at SEG, Ms. Miles-Ley had over twenty years of experience with both domestic and international work forces, including her tenure from 1994 to 1997 as Corporate Director of Employee Relations and Development with Tele-Communications, Incorporated. From 1993 to 1994, she held the position of HR Generalist with Sprint International, where she was responsible for the execution of HR policies across numerous worldwide business units. Ms. Miles-Ley was with Close Up Foundation in Alexandria, VA, as an HR Generalist from 1992 to 1993. She began her career at the American Red Cross as an Employee Relations Case Manager in Wildflecken, West Germany. Ms. Riffe oversees all accounting and tax planning in our RE3 subsidiary, manages enterprise-wide forecasting, oversees Corporate Tax, Risk Management, Legal Administration, and is the company’s Corporate Compliance Officer. She joined us in February 2007 as Senior Vice President, Chief Financial Officer — RE3, the company’s subsidiary that focuses on development, redevelopment, land entitlement and short term hold 11 investments. In June 2007, she assumed the added responsibilities of Corporate Compliance Officer and oversight of the Corporate Tax, Risk Management and Legal Administration departments. Prior to joining us, Ms. Riffe was with Sunset Financial Resources, Inc. (SFO), where she most recently served as Interim Chief Executive Officer. She joined SFO in 2005, as Chief Financial Officer and Secretary, and was appointed in 2006 to serve as Interim Chief Executive Officer through the completion of SFO’s merger with Alesco Financial. From 2002 to 2005, Ms. Riffe held the position of Chief Financial Officer and Secretary for U.S. Restaurant Properties Inc. (USRP), where she was responsible for capital markets, corporate governance, SEC reporting, tax compliance and was the USRP point person for the merger between USRP and CNL Restaurant Properties, Inc., now Trustreet Properties, Inc. From 1999 to 2002, she held the position of Vice President and Chief Financial Officer with The Mail Box, a privately held print and mail company in Dallas. She was with Pinnacle Restaurant Group LLC from 1998 to 1999 in the role of Vice President and Chief Financial Officer. Prior to that, Ms. Riffe was employed by Casa Olé Restaurants, Inc. from 1996 to 1997 as Senior Vice President, Chief Financial Officer, Secretary and Treasurer. From 1991 to 1996, Ms. Riffe was employed by Spaghetti Warehouse, Inc., where she began as Assistant Controller, was promoted to Director of Budgeting and Financial Planning in July 1992, and to Controller and Treasurer in May 1993. Ms. Riffe began her career in the audit department of KPMG Peat Marwick’s Dallas office. Mr. Sircar oversees all aspects of the company’s Technology Management. He joined us in July 2007 as Senior Vice President, Chief Information Officer. Prior to joining the company, Mr. Sircar was with Wachovia Corporation from 1995 to 2007, where he began as a Systems Manager. In 1997 he was promoted to Strategic Technology Partner and to Vice President, Division Information Officer in 1999. Mr. Sircar was promoted to Senior Vice President, Division Information Officer of Finance Technology in 2003, where he oversaw the technology aspects of numerous business transformations and optimization initiatives. Prior to Mr. Sircar’s tenure with Wachovia, he was with Royal Insurance Company as Applications Manager from 1985 to 1995. He began his career as Project Leader, Professional Services, for Burroughs Corporation. Mr. Spangler oversees internal audit, utilities management, procurement and non-rental revenue programs. He joined us in August 1998 as Assistant Vice President, Operational Planning and Asset Management, and was promoted to Vice President, Director of Operational Planning and Asset Management that same year. He was promoted to Senior Vice President — Business Development in February 2003, and served in the additional role of Chief Risk Officer from 2003 to December 2006. Prior to joining us, Mr. Spangler served for nine years as an Asset Manager for Summit Enterprises, Inc. of Virginia, a private investment management firm, where he oversaw a portfolio consisting of agricultural, commercial, mixed-use commercial, industrial and residential properties. Mr. Walker oversees the company’s Asset Quality, Kitchen & Bath and “Green Building” programs in addition to all non-residential owned and leased real estate. He joined us in May 2006 as Senior Vice President — Transactions. Mr. Walker is responsible for the direction of recurring capital expenditures for asset preservation, initial capital expenditures relating to acquisitions, insurance claims, the kitchen & bath program, all of UDR owned and leased real estate, and the company’s “Green Building” program. He has authored “Green Building” articles for industry publications and has been recognized by the EPA and the Department of Energy for his contributions to the commercial real estate industry. Prior to joining us, Mr. Walker served as a consultant to the multi-family industry. He served as President of Harwood Pacific, a Dallas-based developer of mixed-use high-rise office projects. He was also President of Harwood Management, a division of Harwood International, from 1994 to 2002, where he was responsible for operations of an $800 million portfolio of properties in Europe and the U.S. Ms. Norwood oversees the company’s legal department, coordinates outside legal services and is the company’s Corporate Secretary. She joined us in August 2001 as Vice President — Legal Administration and Corporate Secretary. Prior to joining us, Ms. Norwood was employed by Centex Corporation in various legal capacities for 15 years, the most recent of which was as its Legal Administrator. Centex is a New York Stock Exchange listed company that operates in the home building, financial services, construction products, construction services and investment real estate business segments. 12 Mr. Simon oversees capital markets and treasury management. He joined us in October 2006 as Vice President and Treasurer. Prior to joining us, Mr. Simon was with Prentiss Properties Trust (Prentiss) where he most recently served as Senior Vice President and Treasurer. Mr. Simon’s tenure at Prentiss began in 1985 when he joined Cadillac Fairview US, a publicly-held precursor to Prentiss, in the role of tax analyst. In 1987 he was promoted to Corporate Controller, to Vice President Accounting in 1992, and to Senior Vice President and Chief Accounting Officer in 1999. In May 2004, Mr. Simon took over the role of Senior Vice President and Treasurer. During his tenure at Prentiss, Mr. Simon was responsible for the design and implementation of new accounting systems; served as project leader for the implementation of Sarbanes Oxley; and the negotiation of construction financing, property level financing, corporate financings and interest rate hedge transactions. He was integrally involved in the merger of Prentiss with Brandywine Realty Trust, including the transfer, pay-off, or defeasance of the Prentiss debt portfolio. Mr. Simon began his career at Fox & Company, now Grant Thornton, as a tax accountant. Available Information We file electronically with the Securities and Exchange Commission our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports on the day of filing with the SEC on our website at www.udr.com, or by sending an e-mail message to ir@udr.com. NYSE Certification On May 31, 2007, our Chief Executive Officer submitted to the New York Stock Exchange the annual certification required by Section 303A.12(a) of the NYSE Listed Company Manual regarding our compliance with NYSE corporate governance listing standards. In addition, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2, respectively, to this Report. Item 1A. RISK FACTORS There are many factors that affect our business and our results of operations, some of which are beyond our control. The following is a description of important factors that may cause our actual results of operations in future periods to differ materially from those currently expected or discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date on which it is made. Unfavorable Changes in Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels and Rental Rates. Market and economic conditions in the metropolitan areas in which we operate may significantly affect our occupancy levels and rental rates and, therefore, our profitability. Factors that may adversely affect these conditions include the following: (cid:129) a reduction in jobs and other local economic downturns, (cid:129) declines in mortgage interest rates, making alternative housing more affordable, (cid:129) government or builder incentives which enable first time homebuyers to put little or no money down, making alternative housing decisions easier to make, (cid:129) oversupply of, or reduced demand for, apartment homes, (cid:129) declines in household formation, and (cid:129) rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs. 13 The strength of the United States economy has become increasingly susceptible to global events and threats of terrorism. At the same time, productivity enhancements and the increased exportation of labor have resulted in limited job growth despite an improving economy. Continued weakness in job creation, or any worsening of current economic conditions, generally and in our principal market areas, could have a material adverse effect on our occupancy levels, our rental rates and our ability to strategically acquire and dispose of apartment communities. This may impair our ability to satisfy our financial obligations and pay distributions to our stockholders. New Acquisitions, Developments and Condominium Projects May Not Achieve Anticipated Results. We intend to continue to selectively acquire apartment communities that meet our investment criteria and to develop apartment communities for rental operations, to convert properties into condominiums and to develop condominium projects. Our acquisition, development and condominium activities and their success are subject to the following risks: (cid:129) an acquired apartment community may fail to perform as we expected in analyzing our investment, or a significant exposure related to the acquired property may go undetected during our due diligence procedures, (cid:129) when we acquire an apartment community, we often invest additional amounts in it with the intention of increasing profitability. These additional investments may not produce the anticipated improvements in profitability, (cid:129) new developments may not achieve pro forma rents or occupancy levels, or problems with construction or local building codes may delay initial occupancy dates for all or a portion of a development community, and (cid:129) an over supply of condominiums in a given market may cause a decrease in the prices at which we expect to sell condominium properties or cause us to be unable to sell condominium properties. Possible Difficulty of Selling Apartment Communities Could Limit Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but market conditions could change and purchasers may not be willing to pay prices acceptable to us. A weak market may limit our ability to change our portfolio promptly in response to changing economic conditions. Furthermore, a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify as like-kind exchanges under Section 1031 of the Internal Revenue Code, so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash flow generated from our property sales. In addition, federal tax laws limit our ability to profit on the sale of communities that we have owned for fewer than four years, and this limitation may prevent us from selling communities when market conditions are favorable. Increased Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents. Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents. Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk. We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow will be insufficient to make required payments of principal and interest, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. Sufficient cash flow may not be available to make all required principal payments and still satisfy our distribution requirements to maintain our status as a REIT for federal income tax purposes, and the full limits of our line of credit may not be available to us if our operating performance falls outside the constraints of our debt covenants. Additionally, we are likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise not choose to do so. In 14 addition, our failure to comply with our debt covenants could result in a requirement to repay our indebtedness prior to its maturity, which could have an adverse effect on our cash flow and increase our financing costs. Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to If our apartment communities do not generate sufficient net rental income to meet rental Stockholders. expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to our stockholders will be adversely affected. The following factors, among others, may affect the net rental income generated by our apartment communities: (cid:129) the national and local economies, (cid:129) local real estate market conditions, such as an oversupply of apartment homes, (cid:129) tenants’ perceptions of the safety, convenience, and attractiveness of our communities and the neighborhoods where they are located, (cid:129) our ability to provide adequate management, maintenance and insurance, and (cid:129) rental expenses, including real estate taxes and utilities. Expenses associated with our investment in a community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgage holder. Debt Level May Be Increased. Our current debt policy does not contain any limitations on the level of debt that we may incur, although our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt. Financing May Not Be Available and Could Be Dilutive. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. We and other companies in the real estate industry have experienced limited availability of financing from time to time. Debt or equity financing may not be available in sufficient amounts, or on favorable terms or at all. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted. Development and Construction Risks Could Impact Our Profitability. We intend to continue to develop and construct apartment communities. Development activities may be conducted through wholly owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities may be exposed to the following risks: (cid:129) we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased development costs and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations, (cid:129) if we are unable to find joint venture partners to help fund the development of a community or otherwise obtain acceptable financing for the developments, our development capacity may be limited, (cid:129) we may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring such opportunities, (cid:129) we may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs, 15 (cid:129) occupancy rates and rents at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our profitability goals for that community, and (cid:129) when we sell to third parties homes or properties that we developed or renovated, we may be subject to warranty or construction defect claims that are uninsured or exceed the limits of our insurance. Construction costs have been increasing in our existing markets, and the costs of upgrading acquired communities have, in some cases, exceeded our original estimates. We may experience similar cost increases in the future. Our inability to charge rents that will be sufficient to offset the effects of any increases in these costs may impair our profitability. Some Potential Losses Are Not Covered by Insurance. We have a comprehensive insurance program covering our property and operating activities. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of extraordinary losses for which we may not have insurance. Accordingly, we may sustain uninsured losses due to insurance deductibles, self- insured retention, uninsured claims or casualties, or losses in excess of applicable coverage. We may not be able to renew insurance coverage in an adequate amount or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and mold, or, if offered, these types of insurance may be prohibitively expensive. If an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Material losses in excess of insurance proceeds may occur in the future. If one or more of our significant properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could adversely affect our cash flow and ability to make distributions to stockholders. Failure to Succeed in New Markets May Limit Our Growth. We may from time to time make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets, and we may not be able to operate successfully in new markets. These risks include, among others: (cid:129) inability to accurately evaluate local apartment market conditions and local economies, (cid:129) inability to obtain land for development or to identify appropriate acquisition opportunities, (cid:129) inability to hire and retain key personnel, and (cid:129) lack of familiarity with local governmental and permitting procedures. Changing Interest Rates Could Increase Interest Costs and Adversely Affect Our Cash Flow and the Market Price of Our Securities. We currently have, and expect to incur in the future, interest-bearing debt at rates that vary with market interest rates. As of December 31, 2007, we had approximately $522.1 million of variable rate indebtedness outstanding, which constitutes approximately 15% of our total outstanding indebted- ness as of such date. An increase in interest rates would increase our interest expenses and increase the costs of refinancing existing indebtedness and of issuing new debt. Accordingly, higher interest rates could adversely affect cash flow and our ability to service our debt and to make distributions to security holders. In addition, an increase in market interest rates may lead our security holders to demand a higher annual yield, which could adversely affect the market price of our common and preferred stock and debt securities. Risk of Inflation/Deflation. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses. Limited Investment Opportunities Could Adversely Affect Our Growth. We expect that other real estate investors will compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely 16 pursue, and our competitors may have greater resources than we do. As a result, we may not be able to make attractive investments on favorable terms, which could adversely affect our growth. Failure to Integrate Acquired Communities and New Personnel Could Create Inefficiencies. To grow successfully, we must be able to apply our experience in managing our existing portfolio of apartment communities to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability. Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges. From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the terms of new debt securities are not within the parameters of, or market interest rates fall below that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges. Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property. We Would Incur Adverse Tax Consequences if We Fail to Qualify as a REIT. We have elected to be taxed as a REIT under the Internal Revenue Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method of operation enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to our stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year in which we first failed to qualify. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to our stockholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property. We May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which are Subject to Certain Tax Risks. We have established several taxable REIT subsidiaries. Despite our qualification as a REIT, our taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must 17 comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected. Certain Property Transfers May Generate Prohibited Transaction Income, Resulting in a Penalty Tax on Gain Attributable to the Transaction. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Internal Revenue Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT for federal income tax purposes. Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of Our Common Stock. The stock markets, including the New York Stock Exchange, on which we list our common shares, have experienced significant price and volume fluctuations. As a result, the market price of our common stock could be similarly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Property Ownership Through Joint Ventures May Limit Our Ability to Act Exclusively in Our Interest. We have in the past and may in the future develop and acquire properties in joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. If we use such a structure, we could become engaged in a dispute with one or more of our joint venture partners that might affect our ability to operate a jointly-owned property. Moreover, joint venture partners may have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the appropriate timing and terms of any sale or refinancing of a property. In some instances, joint venture partners may have competing interests in our markets that could create conflicts of interest. Compliance or Failure to Comply with the Americans with Disabilities Act of 1990 or Other Safety Regulations and Requirements Could Result in Substantial Costs. The Americans with Disabilities Act generally requires that public buildings, including our properties, be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. From time to time claims may be asserted against us with respect to some of our properties under this Act. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations. 18 Real Estate Tax and Other Laws. Generally we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes, to tenants under leases. These costs may adversely affect funds from operations and the ability to make distributions to stockholders. Similarly, compliance with or changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions or (ii) rent control or rent stabilization laws or other laws regulating housing, such as the Americans with Disabilities Act and the Fair Housing Amendments Act of 1988, may result in significant unanticipated expenditures, which would adversely affect funds from operations and the ability to make distributions to stockholders. Risk of Damage from Catastrophic Weather Events. Certain of our communities are located in the general vicinity of active earthquake faults, mudslides and fires, and others where there are hurricanes, tornadoes or risks of other inclement weather. The adverse weather events could cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could materially and adversely affect our business and our financial condition and results of operations. Insurance coverage for such catastrophic events is expensive due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available. Terrorist Attacks May Have an Adverse Effect on Our Business and Operating Results and Could Decrease the Value of Our Assets. Terrorist attacks and other acts of violence or war could have a material adverse effect on our business and operating results. Attacks that directly impact one or more of our apartment communities could significantly affect our ability to operate those communities and thereby impair our ability to achieve our expected results. Further, our insurance coverage may not cover all losses caused by a terrorist attack. In addition, the adverse effects that such violent acts and threats of future attacks could have on the U.S. economy could similarly have a material adverse effect on our business and results of operations. Any Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on Our Stock Price. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal report over financial reporting. If we identify one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on our stock price. Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in Our Stockholders’ Best Interests. Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 662⁄3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Limitations on Share Ownership and Limitations on the Ability of Our Stockholders to Effect a Change in Control of Our Company May Prevent Takeovers That are Beneficial to Our Stockholders. One of the requirements for maintenance of our qualification as a REIT for U.S. federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Internal Revenue Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to our stock primarily to assist us in complying with this and other 19 REIT ownership requirements; however, the restrictions may have the effect of preventing a change of control, which does not threaten REIT status. These restrictions include a provision that generally limits ownership by any person of more than 9.9% of the value of our outstanding equity stock, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our outstanding equity stock. These provisions may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for our stockholders or might otherwise be in our stockholders’ best interests. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES At December 31, 2007, our apartment portfolio included 234 communities located in 30 markets, with a total of 65,867 completed apartment homes. We own approximately 50,300 square feet of office space in Richmond, Virginia, and we lease approximately 15,500 square feet of office space in Highlands Ranch, Colorado, for our corporate headquarters. The table below sets forth a summary of our real estate portfolio by geographic market at December 31, 2007. SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2007 Number of Apartment Communities Number of Apartment Homes Percentage of Carrying Value Carrying Value (In thousands) Encumbrances (In thousands) Cost per Home Average Physical Occupancy Average Home Size (Square Feet) WESTERN REGION Orange Co., CA . . . . . . . . . San Francisco, CA . . . . . . . . Los Angeles, CA . . . . . . . . . San Diego, CA . . . . . . . . . . Inland Empire, CA . . . . . . . Seattle, WA . . . . . . . . . . . . Monterey Peninsula, CA. . . . Portland, OR. . . . . . . . . . . . Sacramento, CA . . . . . . . . . MID-ATLANTIC REGION Metropolitan DC . . . . . . . . . Raleigh, NC . . . . . . . . . . . . Richmond, VA . . . . . . . . . . Baltimore, MD . . . . . . . . . . Wilmington, NC . . . . . . . . . Charlotte, NC . . . . . . . . . . . Norfolk, VA . . . . . . . . . . . . Other Mid-Atlantic . . . . . . . SOUTHEASTERN REGION Tampa, FL . . . . . . . . . . . . . Orlando, FL . . . . . . . . . . . . Nashville, TN . . . . . . . . . . . Jacksonville, FL . . . . . . . . . Other Florida . . . . . . . . . . . Other Southeastern . . . . . . . 13 9 7 5 3 7 7 5 2 10 11 9 10 6 6 6 13 12 12 10 5 8 7 4,067 1,896 1,380 1,123 1,074 1,270 1,565 1,365 914 3,138 3,663 2,636 2,119 1,868 1,226 1,438 2,817 4,106 3,476 2,966 1,857 2,400 1,752 89,574 39,847 11.7% $ 696,332 $ 146,319 $171,215 — 179,148 201,721 148,620 — 137,198 115,959 — 93,498 67,060 71,626 339,664 278,375 166,900 147,351 147,268 146,325 91,537 65,466 5.7% 4.7% 2.8% 2.5% 2.5% 2.5% 1.5% 1.1% 20,891 48,167 68,920 94.9% 96.3% 92.9% 94.1% 92.2% 95.7% 93.5% 95.2% 92.1% 821 791 940 797 886 871 724 887 820 928 89.1% 957 93.8% 968 90.5% 924 93.2% 952 94.0% 94.5% 990 94.5% 1,016 922 94.2% 90,563 56,862 40,715 137,956 64,114 74,333 — 88,885 — 57,516 — 74,852 53,608 — 54,067 28,388 51,994 84,098 78,814 16,011 71,808 70,303 68,908 80,307 — 70,419 — 46,830 88.4% 90.0% 93.2% 93.0% 89.4% 94.7% 977 955 918 913 917 819 432,905 234,849 195,943 188,347 107,439 91,768 77,089 152,308 294,845 244,373 204,382 149,131 169,006 82,046 7.3% 3.9% 3.3% 3.2% 1.8% 1.5% 1.3% 2.6% 5.0% 4.1% 3.4% 2.5% 2.8% 1.4% 20 Number of Apartment Communities Number of Apartment Homes Percentage of Carrying Value Carrying Value (In thousands) Encumbrances (In thousands) Cost per Home Average Physical Occupancy Average Home Size (Square Feet) SOUTHWESTERN REGION Dallas, TX . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . Phoenix, AZ . . . . . . . . . . . . Arlington, TX . . . . . . . . . . . Austin, TX . . . . . . . . . . . . . MIDWESTERN REGION Columbus, OH . . . . . . . . . . Other Midwestern . . . . . . . . Real Estate Under Development . . . . . . . . . . . Land. . . . . . . . . . . . . . . . . . . Total Apartments(a) . . . . . . Commercial Property . . . . . . Richmond — Corporate . . . . Total Real Estate Owned . . 13 13 4 5 3 6 3 4 n/a 234 n/a n/a 234 3,729 4,263 1,205 1,428 792 2,530 444 1,360 n/a 4.4% 3.4% 1.6% 1.2% 0.9% 2.8% 0.4% 1.7% 4.2% 264,749 201,233 94,730 73,125 50,843 169,237 25,342 98,283 247,717 60,639 22,955 30,257 19,186 6,630 70,997 47,205 78,614 51,208 64,196 834 90.6% 93.9% 801 86.3% 1,008 808 94.8% 767 96.6% 39,987 66,892 — 57,077 95.0% 91.6% — 86,608 n/a n/a n/a n/a 65,867 99.7% $5,928,908 $1,127,425 $ 90,013 92.6% n/a n/a 0.3% 0.0% 21,390 2,243 10,511 — n/a n/a n/a n/a 65,867 100.0% $5,952,541 $1,137,936 $ 90,013 92.6% 904 955 n/a n/a 895 n/a n/a 895 (a) Includes real estate held for disposition, real estate under development, and land, but excludes commercial property. Item 3. LEGAL PROCEEDINGS We are subject to various legal proceedings and claims arising in the ordinary course of business. We cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. We believe that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our security holders during the fourth quarter of the year ended December 31, 2007. 21 PART II Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “UDR.” The following tables set forth the quarterly high and low sale prices per common share reported on the NYSE for each quarter of the last two fiscal years. Distribution information for common stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month. High Low Distributions Declared 2007 1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34.10 31.24 2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.68 3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.12 2006 1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29.05 28.82 2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.81 3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.75 4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.01 25.76 21.03 19.51 $23.41 25.50 26.97 29.95 $.3300 .3300 .3300 .3300 $.3125 .3125 .3125 .3125 On February 15, 2008, the closing sale price of our common stock was $22.51 per share on the NYSE and there were 5,521 holders of record of the 133,347,522 outstanding shares of our common stock. We have determined that, for federal income tax purposes, approximately 16% of the distributions for each of the four quarters of 2007 represented ordinary income, 64% represented long-term capital gain, and 20% represented unrecaptured section 1250 gain. We pay regular quarterly distributions to holders of shares of our common stock. Future distributions will be at the discretion of our board of directors and will depend on our actual funds from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, and other factors. The annual distribution payment for calendar year 2007 necessary for us to maintain our status as a REIT was approximately $0.18 per share of common stock. We declared total distributions of $1.32 per share of common stock for 2007. Series E Preferred Stock The Series E Cumulative Convertible Preferred Stock 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. 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 in 2007 were $1.33 per share or $0.3322 per quarter. The Series E is not listed on any exchange. At December 31, 2007, a total of 2,803,812 shares of the Series E were outstanding. 22 Series F Preferred Stock We are authorized to issue up to 20,000,000 shares of our Series F Preferred Stock. Our Series F Preferred Stock may be purchased by holders of our operating partnership units, or OP Units, described below under “Operating Partnership Units,” at a purchase price of $0.0001 per share. OP Unitholders are entitled to subscribe for and purchase one share of our Series F Preferred Stock for each OP Unit held. At December 31, 2007, a total of 666,293 shares of the Series F Preferred Stock were outstanding at a value of $66.63. Holders of the Series F Preferred Stock are entitled to one vote for each share of the Series F Preferred Stock they hold, voting together with the holders of our common stock, on each matter submitted to a vote of securityholders at a meeting of our stockholders. The Series F Preferred Stock does not entitle its holders to any other rights, privileges or preferences. Dividend Reinvestment and Stock Purchase Plan We have a Dividend Reinvestment and Stock Purchase Plan under which holders of our common stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of our common stock. Stockholders who do not participate in the plan continue to receive dividends as declared. As of February 15, 2008, there were 3,183 participants in the plan. Operating Partnership Units From time to time we issue shares of our common stock in exchange for OP Units tendered to our operating partnerships, United Dominion Realty, L.P. and Heritage Communities L.P., for redemption in accordance with the provisions of their respective partnership agreements. At December 31, 2007, there were 8,653,560 OP Units and 316,452 OP Units in United Dominion Realty, L.P. and Heritage Communities L.P., respectively, that were owned by limited partners. The holder of the OP Units has the right to require United Dominion Realty, L.P. to redeem all or a portion of the OP Units held by the holder in exchange for a cash payment based on the market value of our common stock at the time of redemption. However, United Dominion Realty, L.P.’s obligation to pay the cash amount is subject to the prior right of the company to acquire such OP Units in exchange for either the cash amount or shares of our common stock. Heritage Communities L.P. OP Units are convertible into common stock in lieu of cash, at our option, once the holder elects to convert, at an exchange ratio of 1.575 shares for each OP Unit. In December 2007, the Series A limited liability company was dissolved, the Series A OPPS were distributed to the members of the Series A limited liability company and, as a result, the members of Series A limited liability company became limited partners in United Dominion Realty, L.P. These OP Units are convertible into common stock, once the holders elected to convert, at an exchange ratio of 1.5091 shares for each OP Unit. During 2007, we issued a total of 1,031,627 shares of common stock in exchange for OP Units. Purchases of Equity Securities In February 2006, our Board of Directors authorized a 10 million share repurchase program. This program authorizes the repurchase of our common stock in open market purchases, in block purchases, privately negotiated transactions, or otherwise. As reflected in the table below, 1,232,300 shares of common stock were repurchased under this program or otherwise during the quarter ended December 31, 2007. 23 The following table sets forth certain information regarding our common stock repurchases during the quarter ended December 31, 2007: Total Number of Shares Purchased Average Price per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 1,882,200 $27.18 1,882,200 8,117,800 150,000 24.42 150,000 7,967,800 Period Beginning Balance . . . . . . . . . October 1, 2007 through October 31, 2007 . . . . . . . . November 1, 2007 through November 30, 2007. . . . . . . 536,000 21.17 536,000 7,431,800 December 1, 2007 through December 31, 2007 . . . . . . . 546,300 Total. . . . . . . . . . . . . . . . . . 3,114,500 21.53 25.02 546,300 3,114,500 6,885,500 6,885,500* * This number reflects the number of shares that were available for purchase under our 10 million share repur- chase program on December 31, 2007. In January 2008, our Board of Directors authorized a new 15 million share repurchase program. Under the two share repurchase programs, UDR may repurchase shares of our common stock in open market purchase, block purchases, privately negotiated transactions or otherwise. 24 Comparison of Cumulative Total Returns The following graph provides a comparison from December 31, 2002 through December 31, 2007 of the cumulative total stockholder return (assuming reinvestment of any dividends) among UDR, the NAREIT Equity REIT Index, Standard & Poor’s 500 Stock Index, the NAREIT Equity Apartment Index and the MSCI US REIT Index. The graph assumes that $100 was invested on December 31, 2002, in each of our common stock and the indices presented. Historical stock price performance is not necessarily indicative of future stock price performance. Performance Graph UDR NAREIT Equity REIT Index S&P 500 Index NAREIT Equity Apartment Index MSCI US REIT Index 400 350 300 250 200 150 100 50 0 S R A L L O D 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 December 31 UDR $100 $125.34 $172.17 $171.66 $243.40 $159.13 NAREIT Equity REIT Index $100 $137.13 $180.44 $202.38 $273.34 $230.45 S&P 500 Index $100 $128.68 $142.69 $149.70 $173.34 $182.86 NAREIT Equity Apartment Index $100 $125.49 $169.06 $193.83 $271.25 $203.28 MSCI US REIT Index $100 $136.74 $179.80 $201.61 $274.03 $227.95 The foregoing graph and chart shall not be deemed incorporated by reference by any general statement incorporating by reference this Report into any filing under the Securities Act or under the Exchange Act, except to the extent we specifically incorporate this information by reference. 25 Item 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial and other information as of and for each of the years in the five-year period ended December 31, 2007. The table should be read in conjunction with our 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. Years Ended December 31, (In thousands, except per share data and apartment homes owned) 2005 2006 2004 2003 2007 Operating Data(a) Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 497,474 (100,596) Loss before minority interests and discontinued operations . . . . . . . . . 208,130 Income from discontinued operations, net of minority interests . . . . . . 221,349 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,911 Distributions to preferred stockholders . . . . . . . . . . . . . . . . . . . . . . 205,177 Net income available to common stockholders . . . . . . . . . . . . . . . . . 177,540 Common distributions declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,016 Weighted average number of common shares outstanding — basic . . . . 134,016 Weighted average number of common shares outstanding — diluted . . . Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted . . . . . . . . . . . . . . . . . . . . 146,936 $ 463,719 $ 407,038 $ 306,691 (58,003) 150,073 97,152 19,531 71,892 152,203 128,097 128,097 (91,870) 214,102 128,605 15,370 113,235 168,408 133,732 133,732 (63,499) 214,126 155,166 15,370 139,796 163,690 136,143 136,143 $ 244,758 (59,187) 123,453 70,404 26,326 24,807 134,876 114,672 114,672 147,981 150,141 145,842 136,975 Per share — basic and diluted: Loss from continuing operations available to common stockholders, net of minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.02) $ 1.55 1.53 1.32 (0.75) $ 1.60 0.85 1.25 (0.54) $ 1.57 1.03 1.20 (0.61) $ 1.17 0.56 1.17 (0.86) 1.08 0.22 1.14 Income from discontinued operations, net of minority interests . . . . . Net income available to common stockholders . . . . . . . . . . . . . . . Common distributions declared . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance Sheet Data Real estate owned, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,952,541 $5,820,122 $5,512,424 $5,243,296 1,007,887 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,235,409 Total real estate owned, net of accumulated depreciation . . . . . . . . . . 4,332,001 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,197,924 Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,682,058 Unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,879,982 Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195,451 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of common shares outstanding . . . . . . . . . . . . . . . . . . . . . 136,430 Other Data Cash Flow Data Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . $ 250,578 (71,397) Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (178,105) Cash (used in)/provided by financing activities . . . . . . . . . . . . . . . . . Funds from Operations(b) Funds from operations — basic . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,210 250,936 Funds from operations — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . Apartment Homes Owned Total apartment homes owned at December 31 . . . . . . . . . . . . . . . . . Weighted average number of apartment homes owned during the year. . $ 229,613 $ 248,186 $ 251,747 (595,966) 347,299 1,123,829 4,388,595 4,541,593 1,116,259 2,043,518 3,159,777 1,107,724 134,012 1,253,727 4,566,395 4,675,875 1,182,919 2,155,866 3,338,785 1,055,255 135,029 1,371,759 4,580,782 4,801,121 1,137,936 2,364,740 3,502,676 1,019,393 133,318 $ 244,471 $ 238,254 $ 211,670 219,557 (149,973) (93,040) (219,017) (21,530) 65,867 69,662 78,855 76,873 70,339 73,731 74,875 76,069 248,197 241,980 $4,351,551 896,630 3,454,921 3,543,643 1,018,028 1,114,009 2,132,037 1,163,436 127,295 $ 234,945 (304,217) 70,944 $ 193,750 208,431 76,244 74,550 (a) Reclassified to conform to current year presentation in accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as described in Note 3 to the consolidated financial statements. (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 defini- tion 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 per- formance because the short-term use of funds produce a profit that differs from the traditional long-term investment in real estate for REITs. For 2005, FFO includes $2.5 million of hurricane related insurance recoveries. For 2004, FFO includes a charge of $5.5 million to cover hurricane related expenses. For the years ended December 31, 2007, 2004 and 2003, distributions to preferred stockholders exclude $2.6 million, $5.7 million and $19.3 million, respectively, related to premiums on preferred stock repurchases. 26 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 develop- ments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions. 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. Business Overview We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a Delaware limited partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the company,” or “UDR” refer collectively to UDR, Inc. and its subsidiaries. 27 At December 31, 2007, our portfolio included 234 communities with 65,867 apartment homes nationwide. The following table summarizes our market information by major geographic markets (includes real estate held for disposition, real estate under development, and land, but excludes commercial properties): Number of Apartment Communities As of December 31, 2007 Number of Apartment Homes Percentage of Carrying Value Year Ended December 31, 2007 Carrying Value (In thousands) Average Physical Occupancy WESTERN REGION Orange Co., CA. . . . . . . . . . . . . . . . . San Francisco, CA . . . . . . . . . . . . . . . Los Angeles, CA . . . . . . . . . . . . . . . . San Diego, CA . . . . . . . . . . . . . . . . . Inland Empire, CA . . . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . . . . . . . . . Monterey Peninsula, CA . . . . . . . . . . Portland, OR . . . . . . . . . . . . . . . . . . . Sacramento, CA . . . . . . . . . . . . . . . . MID-ATLANTIC REGION Metropolitan DC . . . . . . . . . . . . . . . . Raleigh, NC . . . . . . . . . . . . . . . . . . . Richmond, VA. . . . . . . . . . . . . . . . . . Baltimore, MD . . . . . . . . . . . . . . . . . Wilmington, NC . . . . . . . . . . . . . . . . Charlotte, NC . . . . . . . . . . . . . . . . . . Norfolk, VA . . . . . . . . . . . . . . . . . . . Other Mid-Atlantic . . . . . . . . . . . . . . SOUTHEASTERN REGION Tampa, FL . . . . . . . . . . . . . . . . . . . . Orlando, FL . . . . . . . . . . . . . . . . . . . Nashville, TN . . . . . . . . . . . . . . . . . . Jacksonville, FL . . . . . . . . . . . . . . . . Other Florida . . . . . . . . . . . . . . . . . . . Other Southeastern . . . . . . . . . . . . . . SOUTHWESTERN REGION Dallas, TX . . . . . . . . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . . . . . . . Phoenix, AZ . . . . . . . . . . . . . . . . . . . Arlington, TX . . . . . . . . . . . . . . . . . . Austin, TX . . . . . . . . . . . . . . . . . . . . MIDWESTERN REGION Columbus, OH . . . . . . . . . . . . . . . . . Other Midwestern . . . . . . . . . . . . . . . Real Estate Under Development . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9 7 5 3 7 7 5 2 10 11 9 10 6 6 6 13 12 12 10 5 8 7 13 13 4 5 3 6 3 4 — 4,067 1,896 1,380 1,123 1,074 1,270 1,565 1,365 914 3,138 3,663 2,636 2,119 1,868 1,226 1,438 2,817 4,106 3,476 2,966 1,857 2,400 1,752 3,729 4,263 1,205 1,428 792 2,530 444 1,360 — 11.7% 5.7% 4.7% 2.8% 2.5% 2.5% 2.5% 1.5% 1.1% 7.3% 4.0% 3.3% 3.2% 1.8% 1.5% 1.3% 2.6% 5.0% 4.1% 3.4% 2.5% 2.8% 1.4% 4.5% 3.4% 1.6% 1.2% 0.9% 2.9% 0.4% 1.7% 4.2% $ 696,332 339,664 278,375 166,900 147,351 147,268 146,325 91,537 65,466 432,905 234,849 195,943 188,347 107,439 91,768 77,089 152,308 294,845 244,373 204,382 149,131 169,006 82,046 264,749 201,233 94,730 73,125 50,843 169,237 25,342 98,283 247,717 Total . . . . . . . . . . . . . . . . . . . . . . . 234 65,867 100.0% $5,928,908 94.9% 96.3% 92.9% 94.1% 92.2% 95.7% 93.5% 95.2% 92.1% 89.1% 93.8% 90.5% 93.2% 94.0% 94.5% 94.5% 94.2% 88.4% 90.0% 93.2% 93.0% 89.4% 94.7% 90.6% 93.9% 86.3% 94.8% 96.6% 95.0% 91.6% — — 92.6% Liquidity and Capital Resources Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale or maturity of existing assets, or by the acquisition of additional funds through capital 28 management. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes. We routinely use our unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities. We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit arrangements. We expect to meet certain long-term liquidity require- ments such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties, and the issuance of additional debt or equity securities. We believe that our net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends by the company in accordance with REIT requirements in both the short- and long-term. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations. We have a shelf registration statement filed with the Securities and Exchange Commission which provides for the issuance of an indeterminate amount of common stock, preferred stock, debt securities, warrants, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance. Future Capital Needs Future development expenditures are expected to be funded with proceeds from the sale of property, with construction loans, through joint ventures, the use of our unsecured revolving credit facility, and to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed through the issuance of equity and debt securities, the issuance of operating partnership units, the assumption or placement of secured and/or unsecured debt and by the reinvestment of proceeds from the sale of properties. During 2008, we have approximately $11.7 million of secured debt and $275.9 million of unsecured debt maturing and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities, the issuance of new unsecured debt securities or equity or from disposition proceeds. Critical Accounting Policies and Estimates Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, and (3) real estate investment properties. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented. Capital Expenditures In conformity with accounting principles generally accepted in the United States, we capitalize those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. During 2007, $194.4 million or $2,829 per home was spent on capital expenditures for all of our communities, excluding development, condominium conversions and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as roofs, siding, parking lots, and asset preservation capital expenditures, which aggregated $44.4 million or $646 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, upgrades to HVAC equipment, and other extensive exterior/interior upgrades totaled $78.2 million or 29 $1,138 per home, and major renovations totaled $71.8 million or $1,045 per home for the year ended December 31, 2007. 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) 2006 2007 % Change Year Ended December 31, (per home) 2007 2006 % Change Turnover capital expenditures . . . . . . . . Asset preservation expenditures . . . . . . . $ 13,362 31,071 $ 14,214 20,409 (6.0)% $ 194 452 52.2% $ 197 283 Total recurring capital expenditures . . Revenue enhancing improvements . . . . . Major renovations . . . . . . . . . . . . . . . . . 44,433 78,209 71,785 34,623 144,102 36,996 646 28.3% (45.7)% 1,138 1,045 94.0% 480 2,002 514 (1.5)% 59.7% 34.6% (43.2)% 103.3% Total capital expenditures . . . . . . . . . . . $194,427 $215,721 (9.9)% $2,829 $2,996 (5.6)% Repair and maintenance expense . . . . . . $ 42,518 $ 43,498 (2.3)% $ 619 $ 604 2.5% Total capital expenditures for our communities decreased $21.3 million or $167 per home for the year ended December 31, 2007 compared to the same period in 2006. This decrease was attributable to a $65.9 million decrease in revenue enhancing improvements at certain of our properties that was offset by an additional $9.8 million being invested in recurring capital expenditures and an additional $34.8 million being invested in major renovations as compared to the same period in 2006. 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 2008 are currently expected to be approximately $650 per home. 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 in accordance with FASB Statement No. 141, “Business Combinations.” The purchase price is allocated based on the relative 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. 30 Statements of Cash Flow The following discussion explains the changes in net cash provided by operating activities and net cash used in investing and financing activities that are presented in our Consolidated Statements of Cash Flows. Operating Activities For the year ended December 31, 2007, our net cash flow provided by operating activities was $250.6 million compared to $229.6 million for 2006. During 2007, the increase in cash flow from operating activities resulted primarily from the increase in property operating income from our apartment community portfolio (see discussion under “Apartment Community Operations”). Investing Activities For the year ended December 31, 2007, net cash used in investing activities was $71.4 million compared to $150.0 million for 2006. Changes in the level of investing activities from period to period reflects our strategy as it relates to our acquisition, capital expenditure, development, and disposition programs, as well as the impact of the capital market environment on these activities, all of which are discussed in further detail below. Acquisitions For the year ended December 31, 2007, we acquired 13 apartment communities with 2,671 apartment homes, six parcels of land, and one operating joint venture for an aggregate consideration of $486.5 million. In 2006, we acquired eight apartment communities with 2,763 apartment homes for an aggregate consideration of $327.5 million and two parcels of land for $19.9 million. Our long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been expanding our interests in the fast growing Southern California, Florida, and Metropolitan Washington DC markets over the past years. During 2008, we plan to continue 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 and low single-family home affordability. Real Estate Under Development Development activity is focused in core markets in which we have strong operations in place. For the year ended December 31, 2007, we invested approximately $101.3 million in development projects, a decrease of $0.5 million from our 2006 level of $101.8 million. The following wholly owned projects were under development as of December 31, 2007: Number of Apartment Homes Completed Apartment Homes Cost to Date (In thousands) Budgeted Cost (In thousands) Estimated Cost per Home Expected Completion Date Riachi at One21 — Phase I Plano, TX . . . . . . . . . . . . Tiburon — Phase I Houston, TX . . . . . . . . . . Addison Assemblage Dallas, TX. . . . . . . . . . . . 202 320 2,712 3,234 202 184 — 386 $18,197 $ 18,000 $ 89,109 4Q07 19,244 22,000 68,750 2Q08 60,842 $98,283 352,000 129,794 — $392,000 $121,212 The first phase of the Addison Assemblage will deliver 684 homes in the third quarter of 2010. In addition, we owned 12 parcels of land held for future development aggregating $124.5 million at December 31, 2007. 31 Consolidated Development Joint Venture In June 2006, we completed the formation of a development joint venture that will invest approximately $138 million to develop one apartment community with 298 apartment homes in Marina del Rey, California. UDR is the financial partner and is responsible for funding the costs of development and receives a preferred return from 7% to 8.5% before our partner receives a 50% participation. Our initial investment was $27.5 million. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” this venture has been consolidated into UDR’s financial statements. Our joint venture partner is the managing partner as well as the developer, general contractor, and property manager. The following consolidated joint venture project was under development as of December 31, 2007: Number of Apartment Homes Completed Apartment Homes Cost to Date (In thousands) Budgeted Cost (In thousands) Estimated Cost per Home Expected Completion Date Jefferson at Marina del Rey Marina del Rey, CA . . . . . 298 — $123,185 $138,000 $463,087 2Q08 Unconsolidated Joint Ventures UDR is a partner in a joint venture to develop a site in Bellevue, Washington. At closing, we owned 49% of the project that involves building a 430 home high rise apartment building with ground floor retail. Our investment at December 31, 2007 was $8.1 million. UDR is a partner in a joint venture which will develop 274 apartment homes in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in 2008. At closing, we owned 49% of the project. Our investment at December 31, 2007 and 2006 was $8.9 million and $5.9 million, respectively. In January 2007, we entered into a joint venture which owns and operates a recently completed 23-story, 166 apartment home high rise community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the project (subject to a $34 million mortgage). Our initial investment was $11.8 million. Our investment at December 31, 2007 was $11.2 million. In November 2007, UDR and an institutional unaffiliated partner formed a joint venture which owns and operates various properties located in Texas. On the closing date, UDR sold nine operating properties, consisting of 3,690 units, and contributed one property under development to the joint venture. The property under development will have 302 units and is expected to be completed in the third quarter of 2008. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated partner contributed cash equal to 80% of the fair value of the properties comprising the venture, which was then used to purchase the nine operating properties from UDR. Our investment at December 31, 2007 was $20.1 million. The following unconsolidated joint venture projects were under development as of December 31, 2007: Number of Apartment Homes Completed Apartment Homes Cost to Date (In thousands) Budgeted Cost (In thousands) Estimated Cost per Home Expected Completion Date Lincoln Town Square — Phase II Plano, TX . . . . . . . . . . . . . Ashwood Commons Bellevue, WA . . . . . . . . . Bellevue Plaza Bellevue, WA . . . . . . . . . 302 274 430 1,006 — — — $13,476 $ 25,000 $ 82,781 3Q08 47,171 97,000 354,015 4Q08 37,990 $98,637 135,000 313,953 4Q10 $257,000 $255,467 32 Disposition of Investments For the year ended December 31, 2007, UDR sold 21 communities with a total of 7,125 apartment homes for a gross consideration of $729.2 million, one parcel of land for $4.5 million, and contributed one property under development, at cost, to a joint venture arrangement in Texas. In addition, we sold 61 condominiums from two communities with a total of 640 condominiums for a gross consideration of $10.4 million. We recognized after-tax gains for financial reporting purposes of $256.2 million on these sales. Proceeds from the sales were used primarily to reduce debt. For the year ended December 31, 2006, UDR sold 24 communities with 7,653 apartment homes for a gross consideration of $444.9 million. In addition, we sold 384 condominiums from four communities with a total of 612 condominiums for a gross consideration of $72.1 million. We recognized after-tax gains for financial reporting purposes of $148.6 million on these sales. Proceeds from the sales were used primarily to reduce debt. Financing Activities Net cash used in financing activities during 2007 was $178.1 million compared to $93.0 million in 2006. As part of the plan to improve our balance sheet, we utilized proceeds from dispositions, equity and debt offerings, and refinancings to extend maturities, pay down existing debt, and purchase new properties. The following is a summary of our financing activities for the year ended December 31, 2007: (cid:129) Repaid $186.8 million of secured debt and $167.3 million of unsecured debt. (cid:129) Sold $150 million aggregate principal amount of 5.50% senior unsecured notes due April 2014 in March 2007 under our medium-term note program. The net proceeds of approximately $149 million were used for debt repayment. (cid:129) Redeemed 5,416,009 shares of our 8.60% Series B Cumulative Redeemable Preferred Stock on May 29, 2007, the redemption date, for a cash redemption price of $25 per share plus accrued and unpaid dividends to the redemption date. (cid:129) Sold $135 million, or 5,400,000 shares, of our 6.75% Series G Cumulative Redeemable Preferred Stock in May 2007. The shares have a liquidation preference of $25 per share and will be redeemable at par at the option of UDR on or after May 31, 2012. The net proceeds from the offering were used to fund the redemption of all of the outstanding shares of our 8.60% Series B Cumulative Redeemable Preferred Stock. (cid:129) Amended and restated our existing three-year $500 million unsecured revolving credit facility with a maturity date of May 31, 2008, to increase the facility to $600 million and to extend its maturity to July 26, 2012. Under certain circumstances, we may increase the facility to $750 million. (cid:129) Repurchased 3,114,500 shares of UDR common stock at an average price per share of $25.02 under our 10 million share repurchase program during the twelve months ended December 31, 2007. Credit Facilities We have four secured revolving credit facilities with Fannie Mae with an aggregate commitment of $748.9 million. As of December 31, 2007, $663.9 million was outstanding under the Fannie Mae credit facilities leaving $85.0 million of unused capacity. The Fannie Mae credit facilities are for an initial term of ten 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 $583.1 million of the funded balance fixed at a weighted average interest rate of 5.9% and the remaining balance on these facilities is currently at a weighted average variable rate of 5.1%. On July 27, 2007, we amended and restated our existing three-year $500 million senior unsecured revolving credit facility with a maturity date of May 31, 2008, (which could be extended for an additional year at our option) to increase the facility to $600 million and to extend its maturity to July 26, 2012. Under certain circumstances, we may increase the new $600 million credit facility to $750 million. Based on our current credit ratings, the $600 million credit facility carries an interest rate equal to LIBOR plus a spread of 47.5 basis points, which represents a 10 basis point reduction to the previous $500 million credit facility. 33 Under a competitive bid feature and for so long as we maintain an Investment Grade Rating, we have the right under the new $600 million credit facility to bid out 50% of the commitment amount and we can bid out 100% of the commitment amount once per quarter. As of December 31, 2007, $309.5 million was outstanding under the credit facility leaving $290.5 million of unused capacity. The Fannie Mae credit facility and the bank revolving credit facility are subject to customary financial covenants and limitations. Interest Rate Risk We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. A large portion of our market risk is exposure to short-term interest rates from variable rate borrowings outstanding under our Fannie Mae credit facility and our bank revolving credit facility, which totaled $80.8 million and $309.5 million, respectively, at December 31, 2007. The impact on our financial statements of refinancing fixed rate debt that matured during 2007 was immaterial. If market interest rates for variable rate debt average 100 basis points more in 2008 than they did during 2007, our interest expense would increase, and income before taxes would decrease by $5.2 million. Comparatively, if market interest rates for variable rate debt had averaged 100 basis points more in 2007 than in 2006, our interest expense would have increased, and net income would have decreased by $4.9 million. If market rates for fixed rate debt were 100 basis points higher at December 31, 2007, the fair value of fixed rate debt would have decreased from $2.9 billion to $2.8 billion. If market interest rates for fixed rate debt were 100 basis points lower at December 31, 2007, the fair value of fixed rate debt would have increased from $2.9 billion to $3.1 billion. 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 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. 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 generally accepted accounting principles 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, 34 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 generally accepted accounting principles for the three years ended December 31, 2007 (dollars in thousands): Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments: Distributions to preferred stockholders . . . . . . . . . . . . . . . . . . . . . . . Real estate depreciation and amortization . . . . . . . . . . . . . . . . . . . . . Minority interests of unitholders in operating partnership . . . . . . . . . Contribution of unconsolidated joint ventures . . . . . . . . . . . . . . . . . . Real estate depreciation related to unconsolidated entities . . . . . . . . . Net gains on the sale of depreciable property . . . . . . . . . . . . . . . . . . Discontinued Operations: Real estate depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on the sale of land and depreciable property . . . . . . . . . . . . RE3 tax benefits and gain on sales, net of tax . . . . . . . . . . . . . . . . . . 2007 2006 2005 $ 221,349 $ 128,605 $ 155,166 (13,911) 191,342 (167) 1,784 — (113,799) 66,108 11,974 (142,383) 24,913 (15,370) 165,125 (6,476) — — — (15,370) 135,168 (4,647) — 311 — 78,764 13,836 (148,614) 28,601 77,256 13,377 (139,724) 16,717 Funds from operations — basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,210 $ 244,471 $ 238,254 Distributions to preferred stockholders — Series E (Convertible) . . . . 3,726 3,726 3,726 Funds from operations — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,936 $ 248,197 $ 241,980 Weighted average number of common shares and OP Units outstanding — basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,778 142,426 144,689 Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted . . . . . . . . . . . . . . . . . . . . . . 146,936 147,981 150,141 In the computation of diluted FFO, OP Units, out-performance partnership units, convertible debt, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in 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 produce a profit that differs from the traditional long-term investment in real estate for REITs. 35 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, 2007 (shares in thousands): 2007 2006 2005 Weighted average number of common shares and OP units outstanding — basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of OP units outstanding . . . . . . . . . . . . . . . . . . . . 141,778 (7,762) 142,426 (8,694) 144,689 (8,546) Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,016 133,732 136,143 Weighted average number of common shares, OP units, and common stock equivalents outstanding — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of OP units outstanding . . . . . . . . . . . . . . . . . . . . Weighted average number of incremental shares from assumed conversion of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of incremental shares from assumed conversion of $250 million convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of Series A OPPSs outstanding . . . . . . . . . . . . . . . Weighted average number of Series E preferred stock outstanding . . . . . . . . . 146,936 (7,762) 147,981 (8,694) 150,141 (8,546) (775) (966) (870) — (1,579) (2,804) (68) (1,717) (2,804) — (1,778) (2,804) Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,016 133,732 136,143 FFO also does not represent cash generated from operating activities in accordance with generally accepted accounting principles, 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 generally accepted accounting principles is as follows (dollars in thousands): 2007 2006 2005 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,578 (71,397) (178,105) $ 229,613 (149,973) (93,040) $ 248,186 (219,017) (21,530) Results of Operations The following discussion includes the results of both continuing and discontinued operations for the periods presented. Net Income Available to Common Stockholders 2007-vs.-2006 Net income available to common stockholders was $205.2 million ($1.53 per diluted share) for the year ended December 31, 2007, compared to $113.2 million ($0.85 per diluted share) for the year ended December 31, 2006. The increase for the year ended December 31, 2007, when compared to the same period in 2006, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: (cid:129) $107.6 million more in gains recognized from the sale of depreciable property in 2007, (cid:129) $11.4 million more in apartment community operating results in 2007, (cid:129) $3.2 million less in interest expense in 2007, and (cid:129) $1.5 million less in distributions on preferred shares in 2007. 36 These increases in income were partially offset by a $13.6 million increase in real estate depreciation and amortization expense, an $8.4 million increase in general and administrative expense, $4.3 million in severance costs and other restructuring charges in 2007, $2.3 million in premiums on preferred stock repurchases in 2007, and a $0.9 million decrease in non-property income during 2007 when compared to 2006. 2006-vs.-2005 Net income available to common stockholders was $113.2 million ($0.85 per diluted share) for the year ended December 31, 2006, compared to $139.8 million ($1.03 per diluted share) for the year ended December 31, 2005, representing a decrease of $26.6 million ($0.18 per diluted share). The decrease for the year ended December 31, 2006, when compared to the same period in 2005, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: (cid:129) $31.7 million more in depreciation and amortization expense in 2006, (cid:129) $18.5 million more in interest expense in 2006, (cid:129) $17.1 million less in non-property income in 2006, and (cid:129) $6.4 million more in general and administrative expense in 2006. These decreases in net income were partially offset by $5.1 million more in gains recognized from the sale of depreciable property and an unconsolidated joint venture, an $8.5 million decrease in losses on early debt retirement, and a $34.2 million increase in apartment community operating results in 2006 when compared to 2005. 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 for each of the periods presented (dollars in thousands): Year Ended December 31, 2006 % Change 2007 Year Ended December 31, 2005 % Change 2006 Property rental income . . . . . . . Property operating expense* . . . $ 735,293 (258,895) $ 736,329 (271,297) (0.1)% $ 736,329 (271,297) (4.6)% $ 700,344 (269,486) Property net operating income . . $ 476,398 $ 465,032 2.4% $ 465,032 $ 430,858 5.1% 0.7% 7.9% Weighted average number of homes . . . . . . . . . . . . . . . . . . Physical occupancy** . . . . . . . . 69,662 73,731 92.6% 94.3% (5.5)% (1.7)% 73,731 76,069 94.3% 94.1% (3.1)% 0.2% * Excludes depreciation, amortization, and property management expenses. Also excludes $5.5 million of hurricane related insurance recoveries in 2005. ** Based upon weighted average stabilized units. 37 The following table is our reconciliation of property operating income to net income as reflected on the Consolidated Statements of Operations for the periods presented (dollars in thousands): 2007 2006 2005 Property operating income . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial operating income/(loss) . . . . . . . . . . . . . . . . . . . Non-property income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative and property management . . . . . . Severance costs and other restructuring charges . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on the sale of land and depreciable property . . . . . . Loss on early debt retirement . . . . . . . . . . . . . . . . . . . . . . . . Hurricane related insurance recoveries. . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 476,398 2,721 2,721 (261,037) (178,020) (59,883) (4,333) (1,442) 256,182 — — (11,958) $ 465,032 (350) 3,590 (246,934) (181,183) (51,463) — (1,238) 148,614 — — (7,463) $ 430,858 1,997 20,672 (215,192) (162,723) (44,128) — (1,178) 139,724 (8,483) 2,457 (8,838) Net income per the Consolidated Statements of Operations . . $ 221,349 $ 128,605 $ 155,166 2007-vs.-2006 Same Communities Our same communities (those communities acquired, developed, and stabilized prior to December 31, 2006 and held on December 31, 2007, which consisted of 30,686 apartment homes) provided 57% of our property net operating income for the year ended December 31, 2007. Same community property net operating income increased 7.0% or $17.7 million compared to 2006. The increase in property operating income was primarily attributable to a 5.0% or $18.8 million increase in revenues from rental and other income and a 0.9% or $1.1 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 4.2% or $16.2 million increase in rental rates, an 11.4% or $3.0 million increase in reimbursement income and fee income, and a 16.2% or $1.0 million decrease in rental concessions. These increases were partially offset by a 6.8% or $1.3 million increase in vacancy loss. Physical occupancy decreased 0.2% to 94.6%. The increase in property operating expenses was primarily driven by a 5.2% or $1.8 million increase in real estate taxes that was partially offset by a 7.6% or $0.8 million 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 operating income divided by property rental income) increased 1.3% to 68.2%. Non-Mature Communities The remaining 43% or $206.2 million of our property net operating income during the year ended December 31, 2007, was generated from communities that we classify as “non-mature communities.” UDR’s non-mature communities consist primarily of communities acquired or developed in 2006 and 2007, sold properties, redevelopment properties, properties classified as real estate held for disposition and condominium properties. The largest component our non-mature portfolio are those properties that are classified as real estate held for disposition. At December 31, 2007, UDR had 86 apartment communities, two condominium projects and one commercial unit included in real estate held held for disposition. For the year ended December 31, 2007, these communities provided $136.5 million of property net operating income. 38 2006-vs.-2005 Same Communities Our same communities (those communities acquired, developed, and stabilized prior to December 31, 2005 and held on December 31, 2006, which consisted of 60,062 apartment homes) provided 82% of our property operating income for the year ended December 31, 2006. For the year ended December 31, 2006, same community property operating income increased 8.6% or $30.4 million compared to 2005. The increase in property operating income was primarily attributable to a 6.0% or $34.2 million increase in revenues from rental and other income that was offset by a 1.8% or $3.9 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 4.9% or $28.4 million increase in rental rates, a 17.6% or $2.2 million decrease in rental concessions, and a 12.5% or $5.0 million increase in utility reimbursement income and fee income. Physical occupancy increased 0.1% to 94.7%. The increase in property operating expenses was primarily driven by a 15.8% or $1.6 million increase in insurance costs, a 4.4% or $1.5 million increase in utility costs, a 2.8% or $1.5 million increase in personnel costs, a 1.1% or $0.4 million increase in repair and maintenance expenses, and a 0.5% or $0.3 million increase in real estate taxes. These increases in operating expenses were partially offset by a 6.0% or $1.2 million decrease in administrative and marketing expenses. As a result of the percentage changes in property rental income and property operating expenses, the operating margin increased 1.5% to 63.5%. Non-Mature Communities The remaining 18% of our property operating income during 2006 was generated from communities that we classify as “non-mature communities,” UDR’s non-mature communities consist primarily of communities acquired or developed in 2005 and 2006, sold properties, redevelopment properties, properties classified as real estate held for disposition and condominium properties. Real Estate Depreciation and Amortization For the year ended December 31, 2007, real estate depreciation and amortization on both continuing and discontinued operations increased $13.6 million or 5.6% compared to 2006, primarily due to the significant increase in per home acquisition cost compared to the existing portfolio and other capital expenditures. For the year ended December 31, 2006, real estate depreciation and amortization on both continuing and discontinued operations increased $31.7 million or 14.8% compared to 2005, primarily due to the significant increase in per home acquisition cost compared to the existing portfolio and other capital expenditures. Interest Expense For the year ended December 31, 2007, interest expense on both continuing and discontinued operations decreased 1.7% or $3.2 million compared to 2006. For the year ended December 31, 2007, the weighted average amount of debt outstanding increased 5.9% or $193.8 million compared to 2006 and the weighted average interest rate decreased from 5.4% in 2006 to 5.3% in 2007. The weighted average amount of debt outstanding during 2007 is slightly higher than 2006 as acquisition costs in 2007 have been funded primarily by the issuance of debt. The decrease in the weighted average interest rate during 2007 reflects short-term bank borrowings and variable rate debt that had lower interest rates in 2007 when compared to the same period in 2006. For the year ended December 31, 2006, interest expense on both continuing and discontinued operations increased $18.5 million or 11.3% from 2005 primarily due to the issuance of debt and higher interest rates. For the year ended December 31, 2006, the weighted average amount of debt outstanding increased 11.7% or $350.4 million compared to 2005 and the weighted average interest rate increased from 5.3% to 5.4% during 2006. The weighted average amount of debt outstanding during 2006 is higher than 2005 as acquisition costs 39 in 2005 and in 2006 have been funded primarily by the issuance of debt. The increase in the weighted average interest rate during 2006 reflects short-term bank borrowings and variable rate debt that had higher interest rates when compared to the prior year that were partially offset by the retirement of higher coupon debt with lower coupon debt. General and Administrative For the year ended December 31, 2007, general and administrative expenses increased $8.4 million or 26.8% compared to 2006. The increase was due to a number of factors, including increases in personnel costs, incentive compensation, and legal and professional fees. For the year ended December 31, 2006, general and administrative expenses increased $6.4 million or 25.7% over 2005 due to a number of factors, including increases in personnel expense, incentive compensa- tion, professional fees, dead deal costs, and an operating lease on an airplane. Severance Costs and Other Restructuring Charges For the year ended December 31, 2007, UDR recognized $4.3 million in severance costs and other restructuring charges. UDR is establishing Highlands Ranch, Colorado, as its corporate headquarters and is realigning resources to improve efficiencies and centralize job functions in fewer locations. As a result of a comprehensive review of the organizational structure of UDR and its operations, UDR recorded a charge of $3.6 million during the fourth quarter of 2007 related to workforce reductions, relocation costs, and other related costs. These charges are included in the Consolidated Statements of Operations within the line item “Severance costs and other restructuring charges.” All charges were approved by management and our Board of Directors in October 2007, and all of the $3.6 million charge will be paid during 2008. Premium on Preferred Stock Repurchases In May 2007, we exercised our right to redeem all of our shares of our 8.60% Series B Cumulative Redeemable Preferred Stock for a cash redemption price of $25 per share plus accrued and unpaid dividends to the redemption date. The premium amount recognized to repurchase these shares represents the cumulative accretion to date between the repurchase value of the preferred stock and the value at which it was recorded at the time of issuance. Hurricane Related Insurance Recoveries In 2005, $2.5 million of hurricane related insurance recoveries were recorded related to damages in Florida caused by hurricanes Charley, Frances, and Jeanne in 2004. UDR reported that 25 of our 34 Florida communities were affected by the hurricanes. Gains on the Sale of Land and Depreciable Property For the years ended December 31, 2007, 2006 and 2005, we recognized after-tax gains for financial reporting purposes of $256.2 million, $148.6 million and $143.5 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. Substantially all of our leases are for a term of one year or less which generally minimizes our risk from the adverse effects of inflation. 40 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2007 (dollars in thousands): Contractual Obligations Total 2008 2009-2010 2011-2012 Thereafter Payments Due by Period Long-Term Debt Obligations . . $3,502,676 Capital Lease Obligations . . . . — 273,655 Operating Lease Obligations . . Purchase Obligations . . . . . . . . 155,000 Other Long-Term Liabilities Reflected on the Balance Sheet Under GAAP . . . . . . . — $597,132 — 5,271 78,000 $672,441 — 10,114 77,000 $712,765 — 7,785 — $1,520,338 — 250,485 — — — — — During 2007, we incurred interest costs of $178.0 million, of which $13.2 million was capitalized. Factors Affecting Our Business and Prospects There are many factors that affect our business and the results of our operations, some of which are beyond our control. These factors include: (cid:129) unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates, (cid:129) the failure of acquisitions to achieve anticipated results, (cid:129) possible difficulty in selling apartment communities, (cid:129) the timing and closing of planned dispositions under agreement, (cid:129) competitive factors that may limit our ability to lease apartment homes or increase or maintain rents, (cid:129) insufficient cash flow that could affect our debt financing and create refinancing risk, (cid:129) failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders, (cid:129) development and construction risks that may impact our profitability, (cid:129) potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us, (cid:129) risks from extraordinary losses for which we may not have insurance or adequate reserves, (cid:129) uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage, (cid:129) delays in completing developments and lease-ups on schedule, (cid:129) our failure to succeed in new markets, (cid:129) changing interest rates, which could increase interest costs and affect the market price of our securities, (cid:129) potential liability for environmental contamination, which could result in substantial costs to us, 41 (cid:129) the imposition of federal taxes if we fail to qualify as a REIT under the Internal Revenue Code in any taxable year, (cid:129) 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 (cid:129) changes in real estate laws, tax laws and other laws affecting our business. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item is included in and incorporated by reference from Item 7. Manage- ment’s Discussion and Analysis of Financial Condition and Results of Operations of this Report. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and related financial information required to be filed are attached to this Report. Reference is made to page 46 of this Report for the Index to Consolidated Financial Statements and Schedule. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures As of December 31, 2007, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective under circumstances where our disclosure controls and procedures should reasonably be expected to operate effectively. Management’s Report on Internal Control over Financial Reporting UDR’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, UDR’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (COSO). Based on UDR’s evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2007. Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Report, has audited UDR’s internal control over financial reporting as of 42 December 31, 2007. The report of Ernst & Young LLP, which expresses an unqualified opinion on UDR’s internal control over financial reporting as of December 31, 2007, is included under the heading “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” contained in this Report. Changes in Internal Control Over Financial Reporting Our Chief Executive Officer and our Chief Financial Officer concluded that during the quarter ended December 31, 2007, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION None. PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated by reference to the information set forth under the headings “Election of Directors,” “Corporate Governance Matters,” “Audit Committee Report,” “Corporate Governance Matters-Audit Committee Financial Expert,” “Corporate Governance Matters-Identification and Selection of Nominees for Directors,” “Corporate Governance Matters-Board of Directors and Committee Meetings” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 29, 2008. Information required by this item regarding our executive officers is included in Part I of this Report in the section entitled “Business-Executive Officers of the Company.” We have a code of ethics for senior financial officers that applies to our principal executive officer, all members of our finance staff, including the principal financial officer, the principal accounting officer, the treasurer and the controller, our director of investor relations, our corporate secretary, and all other company officers. We also have a code of business conduct and ethics that applies to all of our employees. Information regarding our codes is available on our website, www.udr.com, and is incorporated by reference to the information set forth under the heading “Corporate Governance Matters” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 29, 2008. We intend to satisfy the disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of our codes by posting such amendment or waiver on our website. Item 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management,” “Corporate Governance Matters-Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” “Compen- sation of Directors” and “Compensation Committee Report” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 29, 2008. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management,” “Executive Compensation” and “Equity Compensation Plan Information” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 29, 2008. 43 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the information set forth under the heading “Security Ownership of Certain Beneficial Owners and Management,” “Corporate Governance Matters-Corporate Governance Overview,” “Corporate Governance Matters-Director Independence,” “Corporate Governance Matters-Independence of Audit, Compensation and Governance Committees,” and “Executive Compensation” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 29, 2008. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to the information set forth under the headings “Audit Fees” and “Pre-Approval Policies and Procedures” in our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 29, 2008. Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Report: PART IV 1. Financial Statements. See Index to Consolidated Financial Statements and Schedule on page 46 of this Report. 2. Financial Statement Schedule. See Index to Consolidated Financial Statements and Schedule on page 46 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto. 3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index. 44 Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES UDR, INC. Date: February 26, 2008 By: /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 26, 2008 by the following persons on behalf of the registrant and in the capacities indicated. /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer, President, and Director /s/ Michael A. Ernst Michael A. Ernst Executive Vice President and Chief Financial Officer /s/ David L. Messenger David L. Messenger Senior Vice President and Chief Accounting Officer /s/ Robert C. Larson Robert C. Larson Chairman of the Board /s/ James D. Klingbeil James D. Klingbeil Vice Chairman of the Board /s/ Katherine A. Cattanach Katherine A. Cattanach Director /s/ Eric J. Foss Eric J. Foss Director /s/ Robert P. Freeman Robert P. Freeman Director /s/ Jon A. Grove Jon A. Grove Director /s/ Thomas R. Oliver Thomas R. Oliver Director /s/ Lynne B. Sagalyn Lynne B. Sagalyn Director /s/ Mark J. Sandler Mark J. Sandler Director /s/ Thomas C. Wajnert Thomas C. Wajnert Director 45 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE UDR, INC. Page Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets at December 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations for each of the three years in the period ended December 31, 48 49 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SCHEDULE FILED AS PART OF THIS REPORT Schedule III — Summary of Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 55 83 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 financial statements and notes thereto. 46 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Board of Directors and Stockholders UDR, Inc. We have audited UDR Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting included at Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007 of UDR, Inc. and our report dated February 25, 2008 expressed an unqualified opinion thereon. Richmond, Virginia February 25, 2008 /s/ Ernst & Young LLP 47 Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders UDR, Inc. We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15(a). 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. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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 UDR, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, 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. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, 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 25, 2008 expressed an unqualified opinion thereon. Richmond, Virginia February 25, 2008 /s/ Ernst & Young LLP 48 UDR INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) December 31, 2007 2006 Real estate owned: ASSETS Real estate held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,131,881 (822,831) 3,309,050 Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,853,599 (708,233) 3,145,366 Real estate under development (net of accumulated depreciation of $963 and $527) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,037 203,786 Real estate held for disposition (net of accumulated depreciation of $547,965 and $544,967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total real estate owned, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred financing costs, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funds held in escrow from IRC 1031 exchanges pending the acquisition of real 926,695 4,580,782 3,219 6,295 34,136 12,655 48,264 1,217,243 4,566,395 2,143 5,602 34,656 10,500 5,850 estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets — real estate held for disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,217 45,428 14,125 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,801,121 — 33,060 17,669 $4,675,875 LIABILITIES AND STOCKHOLDERS’ EQUITY Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 910,611 227,325 Secured debt — real estate held for disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,364,740 Unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,808 Real estate taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,999 Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,897 Security deposits and prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,152 Distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,690 Deferred gains on the sale of depreciable property . . . . . . . . . . . . . . . . . . . . . . . . . 51,512 Accounts payable, accrued expenses, and other liabilities . . . . . . . . . . . . . . . . . . . . 28,945 Other liabilities — real estate held for disposition . . . . . . . . . . . . . . . . . . . . . . . . . 3,719,679 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,049 Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity: Preferred stock, no par value; 50,000,000 shares authorized 0 shares 8.60% Series B Cumulative Redeemable issued and outstanding $ 892,287 290,632 2,155,866 12,212 34,178 16,849 46,936 — 52,892 29,935 3,531,787 88,833 (5,416,009 in 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 135,400 2,803,812 shares 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 in 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,571 46,571 5,400,000 shares 6.75% Series G Cumulative Redeemable issued and outstanding (0 in 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock, $0.01 par value; 250,000,000 shares authorized 135,000 — 133,317,706 shares issued and outstanding (135,029,126 in 2006). . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions in excess of net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333 1,620,541 (783,238) (814) 1,019,393 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,801,121 1,350 1,682,809 (810,875) — 1,055,255 $4,675,875 See accompanying notes to consolidated financial statements. 49 UDR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Years Ended December 31, 2006 2007 2005 REVENUES Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 497,474 Non-property income: Gain on sale of technology investment . . . . . . . . . . . . . . . . . . . . Gain on sale of unconsolidated joint venture . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-property income . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 2,720 2,720 500,194 $463,719 $407,038 796 — 2,789 3,585 467,304 12,306 3,823 4,535 20,664 427,702 EXPENSES Rental expenses: 57,875 Real estate taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 42,462 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,765 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,041 Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,894 Administrative and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,317 Property management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,442 Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,342 Real estate depreciation and amortization . . . . . . . . . . . . . . . . . . . . 174,677 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,566 General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,333 Severance costs and other restructuring charges . . . . . . . . . . . . . . . . 3,076 Other depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . — Loss on early debt retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,790 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,596) Loss before minority interests and discontinued operations . . . . . . . . . . . (151) Minority interests of outside partnerships . . . . . . . . . . . . . . . . . . . . . . . . 167 Minority interests of unitholders in operating partnerships. . . . . . . . . . . . 113,799 Net gain on the sale of depreciable property to a joint venture . . . . . . . . 13,219 Income/(loss) before discontinued operations, net of minority interests . . 208,130 Income from discontinued operations, net of minority interests . . . . . . . . 221,349 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,819) Distributions to preferred stockholders — Series B . . . . . . . . . . . . . . . . . (3,726) Distributions to preferred stockholders — Series E (Convertible) . . . . . . . (5,366) Distributions to preferred stockholders — Series G . . . . . . . . . . . . . . . . . (2,261) Premium on preferred stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . Net income available to common stockholders . . . . . . . . . . . . . . . . . . . . $ 205,177 55,152 41,222 24,556 25,852 12,979 20,265 1,238 165,125 179,074 31,198 — 2,513 — 559,174 (91,870) (103) 6,476 — (85,497) 214,102 128,605 (11,644) (3,726) — — $113,235 48,645 37,046 21,897 21,966 12,847 19,309 1,178 135,168 159,433 24,819 — 2,231 6,662 491,201 (63,499) (108) 4,647 — (58,960) 214,126 155,166 (11,644) (3,726) — — $139,796 Earnings per common share — basic and diluted: Loss from continuing operations available to common stockholders, net of minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Income from discontinued operations, net of minority interests . . . . . . $ Net income available to common stockholders . . . . . . . . . . . . . . . . . . $ Common distributions declared per share . . . . . . . . . . . . . . . . . . . . . . . . $ Weighted average number of common shares outstanding — basic . . . . . Weighted average number of common shares outstanding — diluted . . . . (0.02) 1.55 1.53 1.32 134,016 134,016 $ (0.75) $ 1.60 $ 0.85 1.25 $ 133,732 133,732 $ (0.54) $ 1.57 $ 1.03 1.20 $ 136,143 136,143 See accompanying notes to consolidated financial statements. 50 UDR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2006 2005 2007 Operating Activities Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains on the sale of land and depreciable property . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on the sale of depreciable property to a joint venture . . . . . . . . . . . . . . . . . . . . . Cancellation of operating partnership units in connection with the sale of equity investment . . Gain on the sale of technology investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on the sale of unconsolidated joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of earnings from unconsolidated joint venture . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred financing costs and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities: (Increase)/decrease in operating assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Decrease)/increase in operating liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Refunds/(prepayments) on income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing Activities Proceeds from the sale of real estate investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collection of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures . . . . Development of real estate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures — non-real estate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to consolidated joint venture partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from the sale of technology investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase deposits on pending real estate acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of capital from unconsolidated joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase)/decrease in funds held in escrow from IRC 1031 exchanges pending the acquisition of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing Activities Proceeds from the issuance of secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments on secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from the issuance of unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments on unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net proceeds/(repayment) of revolving bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of capped call equity instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from the issuance of Series G preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment of preferred stock issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from the investment of performance based programs . . . . . . . . . . . . . . . . . . . . . . . Purchase of minority interests owned by Series A LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of minority interest from outside partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of operating partnership units to cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions paid to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions paid to preferred stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions paid to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchases of common and preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption of Series B preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,349 $ 128,605 $ 155,166 261,037 (142,383) (113,799) — — — — 11,958 7,482 6,356 (3,453) (4,253) 6,284 250,578 754,315 4,000 (435,997) (101,460) (194,427) (4,547) (23,365) — — (7,544) (6,155) — 246,934 (148,614) — — (796) — — 7,463 6,063 — (2,713) (1,041) (6,288) 229,613 492,744 59,805 (365,606) (101,849) (215,721) (3,465) — (6,823) 796 (4,354) (5,500) — 215,192 (139,724) — (1,000) (12,306) (3,823) 124 8,838 5,287 2,939 8,695 8,798 — 248,186 308,753 64,845 (413,744) (49,343) (156,122) (3,209) — — 12,306 — — 458 (56,217) (71,397) — (149,973) 17,039 (219,017) 91,804 (186,831) 150,000 (167,255) 222,300 — (6,775) 2,524 135,000 (4,252) 50 — — — (12,099) (13,312) (175,923) (77,936) (135,400) (178,105) 1,076 2,143 3,219 $ 78,860 (70,339) 375,000 (138,849) (123,600) (12,588) (10,284) 5,303 — — 400 (2,059) — — (12,729) (15,370) (166,785) — — (93,040) (13,400) 15,543 2,143 $ 25,342 (133,832) 499,983 (70,860) (67,300) — (14,455) 4,334 — — 343 — (522) (50) (12,900) (15,370) (163,001) (73,242) — (21,530) 7,639 7,904 $ 15,543 51 UDR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) (In thousands) Years Ended December 31, 2006 2005 2007 Supplemental Information: Interest paid during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash transactions: Conversion of operating partnership minority interests to common stock (935,471 shares in 2007, 381,001 shares in 2006, 99,573 shares in 2005) . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of minority interests in Series B, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of restricted stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of operating partnership units in connection with acquisitions . . . . . . . . . . . . . . . . Secured debt assumed with the acquisition of properties . . . . . . . . . . . . . . . . . . . . . . . . . Receipt of a note receivable in connection with sales of real estate investments . . . . . . . . . . Deferred gain in connection with the sale of real estate investments . . . . . . . . . . . . . . . . . . Real estate asset contributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash transactions associated with consolidated joint venture: Real estate assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt assumed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 197,722 $ 174,871 $ 160,367 8,790 — 1 — 72,680 — — 10,350 — — — 7,988 — 3 — 24,512 — — — 62,059 33,627 3,840 1,444 690 350 7,653 26,825 124,650 6,410 — — — — See accompanying notes to consolidated financial statements. 52 UDR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share data) Preferred Stock Shares Amount Common Stock Shares Amount Paid-in Capital Distributions in Excess of Net Income Accumulated Other Comprehensive Loss Total Balance, December 31, 2004 . . . 8,219,821 $ 181,971 136,429,592 $ 136,430 $1,608,858 $(731,808) $ — $1,195,451 Comprehensive Income Net income . . . . . . . . . . . . . . Comprehensive income . . . . . . Issuance of common and restricted shares . . . . . . . . . Common shares repurchased . . Adjustment for change in par value from $1.00 to $0.01. . . Adjustment for conversion of minority interests of unitholders in operating partnerships . . . . . . . . . . . . Adjustment for conversion of minority interests in Series B LLC . . . . . . . . . . . . . . . . . Common stock distributions declared ($1.20 per share). . . Preferred stock distributions declared-Series B ($2.15 per share) . . . . . . . . . . . . . . . . Preferred stock distributions declared-Series E ($1.33 per share) . . . . . . . . . . . . . . . . 155,166 155,166 663,238 (3,180,350) 680 (32) 6,595 (73,210) (135,822) 135,822 99,573 84 1,360 690 155,166 155,166 7,275 (73,242) — 1,444 690 (163,690) (163,690) (11,644) (11,644) (3,726) (3,726) Balance, December 31, 2005 . . . 8,219,821 181,971 134,012,053 1,340 1,680,115 (755,702) — 1,107,724 Comprehensive Income Net income . . . . . . . . . . . . . . Comprehensive income . . . . . . Issuance of common and restricted shares and other. . . Adjustment for conversion of minority interests of unitholders in operating partnerships . . . . . . . . . . . . Adjustment for conversion of minority interests owned by Series A LLC . . . . . . . . . . Purchase of capped call equity instrument . . . . . . . . . . . . . Common stock distributions declared ($1.25 per share). . . Preferred stock distributions declared-Series B ($2.15 per share) . . . . . . . . . . . . . . . . Preferred stock distributions declared-Series E ($1.33 per share) . . . . . . . . . . . . . . . . 128,605 128,605 636,072 381,001 6 4 9,357 7,984 (2,059) (12,588) (168,408) 128,605 128,605 9,363 7,988 (2,059) (12,588) (168,408) (11,644) (11,644) (3,726) (3,726) 53 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY — (Continued) (In thousands, except share data) UDR, INC. Preferred Stock Shares Amount Common Stock Shares Amount Paid-in Capital Distributions in Excess of Net Income Accumulated Other Comprehensive Loss Total Balance, December 31, 2006 . . . 8,219,821 $ 181,971 135,029,126 $ 1,350 $1,682,809 $(810,875) $ — $1,055,255 Comprehensive Income Net income . . . . . . . . . . . . . . Other comprehensive income: Unrealized loss on derivative financial instruments . . . . Comprehensive income . . . . . . Issuance of common and restricted shares . . . . . . . . . Purchase of common shares . . . 221,349 221,349 221,349 (814) (814) (814) 220,535 8,852 (77,936) 371,453 (3,114,500) 4 (31) 8,848 (77,905) Redemption of 8.60% Series B Cumulative Redeemable shares . . . . . . . . . . . . . . . . (5,416,009) Issuance of 6.75% Series G Cumulative Redeemable shares . . . . . . . . . . . . . . . . 5,400,000 (135,400) 135,000 2,261 (2,261) (135,400) (4,252) 130,748 Adjustment for conversion of minority interests of unitholders in operating partnerships . . . . . . . . . . . . Common stock distributions declared ($1.32 per share). . . Preferred stock distributions declared-Series B ($1.07 per share) . . . . . . . . . . . . . . . . Preferred stock distributions declared-Series E ($1.33 per share) . . . . . . . . . . . . . . . . Preferred stock distributions declared -Series G ($1.13 per share) . . . . . . . . . . . . . . . . 1,031,627 10 8,780 (177,540) (4,819) (3,726) (5,366) 8,790 (177,540) (4,819) (3,726) (5,366) Balance, December 31, 2007 . . . 8,203,812 $ 181,571 133,317,706 $ 1,333 $1,620,541 $(783,238) $(814) $1,019,393 See accompanying notes to consolidated financial statements. 54 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2007 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and formation UDR, Inc., a Maryland corporation, was formed in 1972. We have activities related to the ownership, management, development, acquisition, renovation, and disposition of multifamily apartment communities nationwide. At December 31, 2007, we owned 234 communities. Basis of presentation The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P., (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”), (collectively, “UDR”). As of December 31, 2007, there were 166,130,747 units in the Operating Partnership outstanding, of which 157,477,187 units or 95% were owned by UDR and 8,653,560 units or 5% were owned by limited partners. As of December 31, 2007, there were 5,542,200 units in the Heritage OP outstanding, of which 5,225,748 units or 94% were owned by UDR and 316,452 units or 6% were owned by limited partners. The consolidated financial statements of UDR include the minority interests of the unitholders in the Operating Partnership and the Heritage OP. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of estimates The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. Real estate Real estate assets held for investment are carried at historical cost less accumulated depreciation and any recorded impairment losses. 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 at cost 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 recognizes impairment losses on long-lived assets used in operations when there is an event or change in circumstance that indicates an impairment in the value of an asset and the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. 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. If such indicators of impairment are present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions. UDR purchases real estate investment properties from time to time and allocates the purchase price to various components, such as land, buildings, and intangibles related to in-place leases in accordance with FASB Statement No. 141, “Business Combinations.” The purchase price is allocated based on the relative 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 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. the present value of all cash flows expected to be generated from the property including an initial lease up period. UDR determines 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. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period. UDR determines the fair value of in-place leases by considering 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. 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 which are expected to close 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 is 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. The value of acquired in-place leases is amortized over the remaining term of each acquired in-place lease. All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheet 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 cost of development projects includes interest, real estate taxes, insurance, and allocated development overhead during the construction period. Interest, real estate taxes, and incremental labor and support costs for personnel working directly on the development site are capitalized as part of the real estate under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 2007, 2006, and 2005, total interest capitalized was $13.2 million, $5.2 million, and $2.8 million, respectively. Cash equivalents Cash equivalents include all cash and liquid investments with maturities of three months or less when purchased. Restricted cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits. Deferred financing costs Deferred financing costs include fees and other external costs incurred to obtain debt financings and 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. Unamortized financing costs are written-off when debt is retired before its maturity date. During 2007, 2006, and 2005, amortization expense was $7.3 million, $6.1 million, and $6.5 million, respectively. 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Consolidation of joint venture partnerships FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities,” requires the Company to consolidate the assets, liabilities and results of operations of the activities of a variable interest entity if the Company is the primary beneficiary of the variable interest entity. The primary beneficiary is the partner that is entitled to receive a majority of the entity’s residual returns and/or is subject to a majority of the risk of loss from such entity’s activities. As of December 31, 2007, UDR has one development joint venture partnership in Marina del Rey, California, that is consolidated under FIN 46. Investments in unconsolidated joint ventures Investments in unconsolidated joint ventures are accounted for using the equity method when major business decisions require approval by the other partners and UDR does not have control of the assets or if the venture is a variable interest entity, but the Company is not the primary beneficiary. Investments are recorded at cost and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. UDR eliminates intercompany profits on sales of services that are provided to joint ventures. Differences between the carrying value of investments and the underlying equity in net assets of the investee are due to capitalized interest on the investment balance and capitalized development and leasing costs that are recovered by UDR through fees earned during construction. At December 31, 2007, UDR has three unconsolidated development joint ventures and one unconsolidated operating joint ventures that are accounted for under the equity method. Revenue recognition UDR’s apartment homes are leased under operating leases with terms generally of one year or less. Rental income is recognized as it is earned. 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 2007, 2006, and 2005, total advertising expense was $7.8 million, $9.3 million, and $11.2 million, respectively. 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 Statements of Stockholders’ Equity. For the year ended December 31, 2007, other comprehensive income consists of an unrealized loss from derivative financial instruments on an unconsolidated development joint venture in which UDR has a 49% interest. Stock-based employee compensation plans UDR adopted the fair-value-based method of accounting for share-based payments effective January 1, 2004 using the prospective method described in FASB Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” UDR adopted FASB Statement No. 123(R), “Share-Based Payments,” (FAS 123(R)) on January 1, 2006 and has continued to use the Black-Scholes-Merton formula to estimate the value of stock options granted to employees, which have not been granted since 2002. FAS 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date (as of January 1, 2006, there were no unvested stock options). UDR adopted FAS 123(R) using the modified prospective transition method (which applied only to awards granted, modified or settled after the adoption date). The adoption of the provisions of FAS 123(R) did not have a material impact on our financial position, results of operations, or cash flows. 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Minority interests of unitholders in operating partnerships Interests in operating partnerships held by limited partners are represented by operating partnership units (“OP Units”). The operating partnerships’ 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 minority interests in accordance with the terms of the individual partnership agreements. OP Units can be exchanged for cash or shares of UDR’s common stock on a one-for-one basis, at the option of UDR. OP Units, as a percentage of total OP Units and shares outstanding, were 5.4% at December 31, 2007, 6.1% at December 31, 2006, and 5.9% at December 31, 2005. Minority interests of outside partnerships UDR has limited partners in certain real estate partnerships acquired in certain merger transactions. Net income for these partnerships is allocated based upon the percentage interest owned by these limited partners in each respective real estate partnership. 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 stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on UDR’s average stock price. The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts): Numerator for basic and diluted earnings per share — Net income available to common stockholders. . . . . . . . . . . . $205,177 $113,235 $139,796 2007 2006 2005 Denominator: Denominator for basic earnings per share — Weighted average common shares outstanding . . . . . . . . . . . . Non-vested restricted stock awards . . . . . . . . . . . . . . . . . . . . 134,888 (872) 134,533 (801) 136,920 (777) 134,016 133,732 136,143 Effect of dilutive securities: Employee stock options, non-vested restricted stock awards, and convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — Denominator for dilutive earnings per share . . . . . . . . . . . . . . . 134,016 133,732 136,143 Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.53 Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.53 $ $ 0.85 0.85 $ $ 1.03 1.03 The effect of the conversion of the operating partnership units, Series A Out-Performance Partnership Units, convertible preferred stock, and convertible debt, is not dilutive and is therefore not included in the above calculations. 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. If the operating partnership units were converted to common stock, the additional shares of common stock outstanding for the three years ended December 31, 2007, would be 7,762,070, 8,693,981 and 8,545,786 weighted average common shares, respectively. If the Series A Out-Performance Partnership Shares were converted to common stock, the additional shares of common stock outstanding for the three years ended December 31, 2007, would be 0, 1,716,659 and 1,778,251 weighted average common shares, respectively. The Series A limited liability company was dissolved as of December 21, 2007. At December 31, 2007, if the measurement periods had ended on that date, no Series C, D or E Out- Performance Partnership Shares would have been issued had each Program terminated on that date. Accordingly, no additional operating partnership units would have been issued at that date. At December 31, 2006, if the measurement periods had ended on that date, Series C and D Out- Performance Partnership Shares would have been issued if each Program terminated on that date. Accordingly, 713,790 and 799,459 operating partnership units, respectively, would have been issued had the measurement periods ended on that date; however, those units have been excluded in the calculation of diluted earnings per share because their effect would be anti-dilutive. If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the years ended December 31, 2007 and 2006, would be 2,803,812 weighted average common shares. Income taxes UDR is operated as, and elects to be taxed as, a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). 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. The differences between net income available to common stockholders for financial reporting purposes and taxable income before dividend deductions relate primarily 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. Impact of recently issued accounting pronouncements In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements,” (“FAS 157”) and in February 2007, Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“FAS 159”). FAS 157 increases the consistency and comparability in fair value measurements and expands disclosures about fair value measurements. FAS 159 allows an entity to make a one-time election to measure many financial assets and financial liabilities at fair value (the “fair value option”). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, this statement specifies that all subsequent changes in fair value for that instrument are reported in earnings. Both 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. statements are effective for fiscal years beginning after November 15, 2007. UDR does not believe the provisions of FAS 157 related to financial assets and liabilities will have a material impact on its consolidated financial statements. UDR is still assessing the impact of the provisions of FAS 157 related to non-financial assets and liabilities on its consolidated financial statements. UDR does not believe the provisions of FAS 159 will have a material impact on its consolidated financial statements. In December 2007, the FASB issued “Business Combinations,” (“FAS 141R”). FAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing assets acquired and liabilities assumed arising from contingencies, and determining what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. FAS 141R is effective for fiscal years beginning after December 15, 2008. In December 2007, the FASB issued “Non-controlling Interests in Consolidated Financial Statements” (“FAS 160”). FAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the non-controlling interest with disclosure of both amounts on the consolidated statement of operations. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. FAS 160 is effective for fiscal years beginning after December 15, 2008. 2. REAL ESTATE OWNED UDR operates in 30 markets dispersed throughout 14 states. At December 31, 2007, our largest apartment market was Orange County, California, where we owned 12% of our apartment homes, based upon carrying value. Excluding Orange County, California, UDR did not own more than 8% of its apartment homes in any one market, based upon carrying value. The following table summarizes real estate held for investment at December 31, (dollars in thousands): 2007 2006 Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,130,016 2,832,547 169,318 $1,062,480 2,627,669 163,450 Real estate held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,131,881 (822,831) 3,853,599 (708,233) Real estate held for investment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,309,050 $3,145,366 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. The following is a summary of real estate held for investment by major geographic markets (in order of carrying value, excluding real estate held for disposition and real estate under development) at December 31, 2007 (dollars in thousands): Number of Apartment Communities Initial Acquisition Cost Carrying Value Accumulated Depreciation Encumbrances WESTERN REGION Orange County, CA . . . . . . . . . . . San Francisco, CA . . . . . . . . . . . . Los Angeles, CA . . . . . . . . . . . . . San Diego, CA . . . . . . . . . . . . . . . Inland Empire, CA . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . . . . . . Monterey Peninsula, CA . . . . . . . . Sacramento, CA . . . . . . . . . . . . . . Portland, OR . . . . . . . . . . . . . . . . MID-ATLANTIC REGION Metropolitan DC . . . . . . . . . . . . . Richmond, VA . . . . . . . . . . . . . . . Baltimore, MD . . . . . . . . . . . . . . . Norfolk, VA . . . . . . . . . . . . . . . . . Other Mid-Atlantic . . . . . . . . . . . . SOUTHEASTERN REGION Tampa, FL . . . . . . . . . . . . . . . . . . Orlando, FL . . . . . . . . . . . . . . . . . Nashville, TN . . . . . . . . . . . . . . . . Jacksonville, FL . . . . . . . . . . . . . . Other Florida . . . . . . . . . . . . . . . . SOUTHWESTERN REGION Dallas, TX . . . . . . . . . . . . . . . . . . Phoenix, AZ . . . . . . . . . . . . . . . . . Austin, TX . . . . . . . . . . . . . . . . . . Richmond Corporate . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . 13 9 7 5 3 7 7 2 3 10 7 9 6 5 10 10 8 5 4 9 3 1 — — $ 642,350 314,775 263,038 154,551 91,763 138,380 85,323 51,899 53,202 $ 696,332 339,664 278,375 166,900 147,351 147,268 146,325 65,466 63,387 $ 72,650 52,198 29,860 22,415 22,019 23,248 32,264 19,288 11,965 385,708 97,307 138,094 42,741 42,897 173,175 120,739 103,040 116,068 94,568 137,005 45,168 17,420 — 20,223 432,905 176,873 174,345 77,089 71,192 240,240 208,846 166,445 149,131 109,356 162,386 68,446 19,926 2,243 21,390 55,272 64,332 50,459 36,960 27,356 69,228 76,999 46,078 38,340 23,449 13,307 24,742 6,019 841 3,542 $146,319 — 89,574 39,847 — 68,920 — 48,167 10,741 90,563 25,851 — 28,388 — 51,994 71,423 68,853 16,011 — 26,584 30,257 — — 10,511 143 $3,329,434 $4,131,881 $822,831 $824,003 The following is a summary of real estate held for disposition by major category at December 31, 2007 (dollars in thousands): Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,033,277 $1,474,660 $547,965 $227,325 $1,033,277 $1,474,660 $547,965 $227,325 Initial Acquisition Cost Carrying Value Accumulated Depreciation Encumbrances 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. The following is a summary of real estate under development by major category at December 31, 2007 (dollars in thousands): Initial Acquisition Cost Carrying Value Accumulated Depreciation Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Land and joint ventures . . . . . . . . . . . . . . . . . . 62,238 164,042 $ 98,283 247,717 $ 226,280 $ 346,000 $ $ 861 102 963 Encumbrances $ $ — 86,608 86,608 Total Real Estate Owned . . . . . . . . . . . . . . . . $4,588,991 $5,952,541 $1,371,759 $1,137,936 3. INCOME FROM DISCONTINUED OPERATIONS FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (FAS 144) requires, among other things, that the primary assets and liabilities and the results of operations of UDR’s real properties which have been sold or are held for disposition, be classified as discontinued operations and segregated in UDR’s Consolidated Statements of Operations and Consolidated Balance Sheets. Properties classified as real estate held for disposition generally represent properties that are actively marketed or contracted for sale which are expected to close within the next twelve months. For purposes of these financial statements, FAS 144 results in the presentation of the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition through December 31, 2007, as discontinued operations for all periods presented. FAS 144 does not have an impact on net income available to common stockholders. FAS 144 only results in the reclassification of the operating results of all properties sold or classified as held for disposition through December 31, 2007, within the Consolidated Statements of Operations for the years ended December 31, 2007, 2006, and 2005, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets as of December 31, 2007 and 2006. For the year ended December 31, 2007, UDR sold 21 communities, 61 condominiums from two communities with a total of 640 condominiums, and one parcel of land. UDR recognized after-tax gains for financial reporting purposes of $256.2 million on these sales, of which $142.4 million are included in discontinued operations. The remaining $113.8 million of gains recognized, related to our sale of nine communities and the contribution of one development property, at cost, to a joint venture in which UDR will hold a 20% interest, is reported as a component of continuing operations as disclosed in Note 4 — Joint Ventures. At December 31, 2007, UDR had 86 communities with a net book value of $885.5 million, two communities with a total of 579 condominiums and a net book value of $40.8 million, and one commercial unit with a net book value of $0.4 million included in real estate held for disposition. During 2006, UDR sold 24 communities and 384 condominiums from four communities with a total of 612 condominiums. We recognized gains for financial reporting purposes of $148.6 million on these sales. During 2005, UDR sold 22 communities, 240 condominiums from five communities with a total of 648 condominiums, and one parcel of land. We recognized gains for financial reporting purposes of $139.7 million on these sales. In conjunction with the sale of ten properties in July 2005, UDR received short- term notes for $124.7 million that bear interest at 6.75% and had maturities ranging from September 2005 to July 2006. As of December 31, 2006, all of the notes receivable had matured and had been repaid. Previously deferred gains for financial reporting purposes of $6.4 million were recognized during the year ended December 31, 2006. The results of operations for these properties and the interest expense associated with the secured debt on these properties are classified on the Consolidated Statements of Operations in the line item entitled “Income from discontinued operations, net of minority interests.” 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. The following is a summary of income from discontinued operations for the years ended December 31, (dollars in thousands): Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-property income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $241,340 1 $273,195 5 $295,331 8 2007 2006 2005 Rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on early debt retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before net gain on the sale of land and depreciable property, and minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on the sale of land and depreciable property . . . . . . . . . . . . . . . Income before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests in income from discontinued operations . . . . . . . . . . . . 241,341 93,658 66,108 3,343 — 511 273,200 112,471 78,764 2,109 — 532 295,339 124,656 77,256 3,290 1,821 537 163,620 193,876 207,560 77,721 142,383 220,104 (11,974) 79,324 148,614 227,938 (13,836) 87,779 139,724 227,503 (13,377) Income from discontinued operations, net of minority interests. . . . . . . . . $208,130 $241,102 $214,126 4. JOINT VENTURES Consolidated Development Joint Venture In June 2006, we completed the formation of a development joint venture that will invest approximately $138 million to develop one apartment community with 298 apartment homes in Marina del Rey, California. UDR is the financial partner and is responsible for funding the costs of development and receives a preferred return from 7% to 8.5% before our partner receives a 50% participation. Our initial investment was $27.5 million. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” this venture has been consolidated into UDR’s financial statements. Our joint venture partner is the managing partner as well as the developer, general contractor, and property manager. The project is currently expected to be completed in the second quarter of 2008. Unconsolidated Joint Ventures As of December 31, 2007, UDR had investments in the following unconsolidated joint ventures which are accounted for under the equity method of accounting: UDR is a partner in a joint venture to develop a site in Bellevue, Washington. At closing, we owned 49% of the project that involves building a 430 home high rise apartment building with ground floor retail. Our initial investment was $5.7 million. The project is currently expected to be completed in the fourth quarter of 2010. Our investment at December 31, 2007 was $8.1 million. UDR is a partner in a joint venture which will develop 274 apartment homes in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in the fourth quarter of 2008. At closing, we owned 49% of the project. Our initial investment was $10.0 million. Our investment at December 31, 2007 and 2006 was $8.9 million and $5.9 million, respectively. 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. In January 2007, UDR and an unaffiliated partner formed a joint venture which owns and operates a recently completed 23-story, 166 apartment home high rise community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the project (subject to a $34 million mortgage). Our initial investment was $11.8 million. Our investment at December 31, 2007 was $11.2 million. In November 2007, UDR and an unaffiliated partner formed a joint venture which owns and operates various properties located in Texas. On the closing date, UDR sold nine operating properties, consisting of 3,690 units, and contributed one property under development, at cost, to the joint venture. The property under development will have 302 units and is expected to be completed in the third quarter of 2008. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated partner contributed cash equal to 80% of the fair value of the properties comprising the 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, 2007 was $20.1 million. In accordance with EITF No. 03-13, the cash flows of the Texas joint venture assets have been classified as a component of continuing operations on the Consolidated Statement of Operations as UDR will recognize significant direct cash flows from the disposed properties over the duration of the venture arrangement. 5. SECURED DEBT Secured debt on continuing and discontinued operations of UDR’s real estate portfolio, which encumbers $1.7 billion or 29% of real estate owned based upon book value ($4.2 billion or 71% of UDR’s real estate owned is unencumbered) consists of the following as of December 31, 2007 (dollars in thousands): Principal Outstanding December 31, 2007 December 31, 2006 Weighted Average Interest Rate 2007 Weighted Average Years to Maturity 2007 Number of Properties Encumbered 2007 Fixed Rate Debt Mortgage notes payable . . . . . . . . Tax-exempt secured notes payable . . . . . . . . . . . . . . . . . . Fannie Mae credit facilities . . . . . Total fixed rate secured debt . . . . Variable Rate Debt Mortgage notes payable . . . . . . . . Tax-exempt secured note payable . . . . . . . . . . . . . . . . . . Fannie Mae credit facility . . . . . . $ 324,059 $ 352,159 5.57% 18,230 583,071 925,360 26,070 399,362 777,591 5.58% 5.94% 5.80% 124,023 105,089 5.35% 7,770 80,783 7,770 292,469 405,328 3.47% 5.08% 5.18% 5.69% 3.6 17.0 5.5 5.0 2.9 20.5 4.8 4.3 4.9 17 2 9 28 3 1 34 38 66 Total variable rate secured debt . . 212,576 Total secured debt . . . . . . . . . . . . $1,137,936 $1,182,919 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 February 2009 through July 2027 and carry interest rates ranging from 4.32% to 8.18%. 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Tax-exempt secured notes payable. Fixed rate mortgage notes payable that secure tax-exempt housing bond issues mature at various dates from May 2008 through March 2031 and carry interest rates ranging from 5.30% to 6.47%. Interest on these notes is generally payable in semi-annual installments. Secured credit facilities. At December 31, 2007, UDR’s fixed rate secured credit facilities consisted of $583.1 million of the $663.9 million outstanding on a $748.9 million aggregate commitment under four revolving secured credit facilities with Fannie Mae. The Fannie Mae credit facilities are for an initial term of ten 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, 2007, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 5.94%. 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 October 2009 through July 2013. As of December 31, 2007, these notes had interest rates ranging from 5.28% to 5.53%. Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in July 2028. As of December 31, 2007, this note had an interest rate of 3.47%. Interest on this note is payable in monthly installments. Secured credit facilities. At December 31, 2007, UDR’s variable rate secured credit facilities consisted of $80.8 million outstanding on the Fannie Mae credit facilities. As of December 31, 2007, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 5.08%. The aggregate maturities of secured debt for the five years subsequent to December 31, 2007 are as follows (dollars in thousands): Year 2008 . . . . . . . . . . . 2009 . . . . . . . . . . . 2010 . . . . . . . . . . . 2011 . . . . . . . . . . . 2012 . . . . . . . . . . . Thereafter . . . . . . . Mortgage Notes $ 4,475 33,980 107,669 59,202 57,071 61,662 Fixed Tax-Exempt Notes $ 4,905 — — — — 13,325 Credit Facilities Mortgage Notes $ 2,340 2,507 141,529 52,809 177,944 205,942 $ — 86,608 — — — 37,415 $324,059 $18,230 $583,071 $124,023 Variable Tax-Exempt Notes $ — — — — — 7,770 $7,770 Credit Facilities $ — $ — — 15,783 — 65,000 Total 11,720 123,095 249,198 127,794 235,015 391,114 $80,783 $1,137,936 During the first quarter of 2005, we prepaid approximately $110 million of secured debt. In conjunction with these prepayments, we incurred prepayment penalties of $8.5 million in both continuing and discontinued operations as “Loss on early debt retirement.” These penalties were funded by the proceeds from the sale of our technology investment of $12.3 million. 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. 6. UNSECURED DEBT A summary of unsecured debt as of December 31, 2007 and 2006 is as follows (dollars in thousands): 2007 2006 Commercial Banks Borrowings outstanding under an unsecured credit facility due July 2012(a) . . . . $ 309,500 $ 87,200 Senior Unsecured Notes — Other 7.25% Notes due January 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.30% Medium-Term Notes due July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% Medium-Term Notes due March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50% Monthly Income Notes due November 2008 . . . . . . . . . . . . . . . . . . . . . . 4.25% Medium-Term Notes due January 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50% Notes due June 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.90% Medium-Term Notes due March 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.625% Convertible Senior Notes due September 2011(b) . . . . . . . . . . . . . . . . . 5.00% Medium-Term Notes due January 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05% Medium-Term Notes due June 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13% Medium-Term Notes due January 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50% Medium-Term Notes due April 2014(c). . . . . . . . . . . . . . . . . . . . . . . . . . 5.25% Medium-Term Notes due January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . 5.25% Medium-Term Notes due January 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50% Debentures due September 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00% Convertible Senior Notes due December 2035(d). . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 200,000 29,081 50,000 200,000 50,000 250,000 100,000 125,000 200,000 150,000 250,000 100,000 54,118 250,000 158 92,255 75,000 200,000 29,081 50,000 200,000 50,000 250,000 100,000 121,345 200,000 — 250,000 100,000 54,118 250,000 167 Unsecured Notes — Other ABAG Tax-Exempt Bonds due August 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,700 46,700 2,008,357 2,021,966 Unsecured Notes — Premiums & Discount Premium on $50 million Medium-Term Notes due March 2010 . . . . . . . . . . . . . Premium on $250 million Medium-Term Notes due January 2015 . . . . . . . . . . . Discount on $150 million Medium-Term Notes due April 2014 . . . . . . . . . . . . . 344 343 (504) 183 — — — — Total Unsecured Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,364,740 $2,155,866 (a) On July 27, 2007, UDR amended and restated its existing three-year $500 million senior unsecured revolv- ing credit facility with a maturity date of May 31, 2008, (which can be extended for an additional year at UDR’s option) to increase the facility to $600 million and extend its maturity to July 26, 2012. The terms of the $600 million credit facility provide that UDR has the right to increase the credit facility to $750 mil- lion under certain circumstances. Based on UDR’s current credit ratings, the $600 million credit facility carries an interest rate equal to LIBOR plus a spread of 47.5 basis points. Under a competitive bid feature and for so long as UDR maintains an Investment Grade Rating, UDR has the right to bid out 50% of the commitment amount under the $600 million credit facility and can bid out 100% of the commitment amount once per quarter. 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. (b) At any time on or after July 15, 2011, prior to the close of business on the second business day prior to September 15, 2011, and also following the occurrence of certain events, the notes will be convertible at the option of the holder. 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 is 26.6326 shares of our common stock, subject to adjustment under certain circumstances. In connection with the issuance of the 3.625% convertible senior notes, UDR entered into a capped call transaction with respect to its common stock. The convertible note and capped call transaction, both of which expire Sep- tember 2011, must be net share settled. The maximum number of shares to be issued under the convertible notes is 6.7 million shares, subject to certain adjustment provisions. 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. These transactions have no effect on the terms of the 3.625% convertible senior notes by effec- tively increasing the initial conversion price to $43.806 per share, representing a 40% conversion premium. The net cost of $12.6 million of the capped call transaction was included in stockholders’ equity. (c) In March 2007, UDR sold $150 million aggregate principal amount of 5.50% senior unsecured notes due April 2014 under its medium-term note program. The net proceeds of approximately $149 million were used for debt repayment. (d) Prior to December 15, 2030, upon the occurrence of specified events, the notes will be convertible at the option of the holder into cash and, in certain circumstances, shares of UDR’s common stock at an initial conversion price of approximately 35.2988 shares per $1,000 principal amount of notes. On or after December 15, 2030, the notes will be convertible at any time prior to the second business day prior to maturity at the option of the holder into cash, and, in certain circumstances, shares of UDR’s common stock at the above initial conversion rate. The initial conversion rate is subject to adjustment in certain circumstances. The following is a summary of short-term bank borrowings under UDR’s bank credit facility at December 31, (dollars in thousands): 2007 2006 2005 Total revolving credit facilities at December 31. . . . . . . . . . . . . $600,000 309,500 Borrowings outstanding at December 31 . . . . . . . . . . . . . . . . . . 222,216 Weighted average daily borrowings during the year . . . . . . . . . . 408,400 Maximum daily borrowings during the year . . . . . . . . . . . . . . . Weighted average interest rate during the year . . . . . . . . . . . . . . Weighted average interest rate at December 31 . . . . . . . . . . . . . 5.6% 5.4% $500,000 87,200 264,102 415,800 $500,000 210,800 315,487 440,200 5.3% 5.6% 3.6% 4.7% The aggregate maturities of unsecured debt for the five years subsequent to December 31, 2007 are as follows (dollars in thousands): Year Credit Facility Unsecured Debt 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,912 $309,500 250,131 — 50,017 — 249,978 — — 99,978 — 1,129,224 Total $ 585,412 250,131 50,017 249,978 99,978 1,129,224 $309,500 $2,055,240 $2,364,740 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. 7. STOCKHOLDERS’ EQUITY Preferred Stock The Series E Cumulative Convertible Preferred Stock 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. 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 in 2007 were $1.33 per share. The Series E is not listed on any exchange. At December 31, 2007 and 2006, a total of 2,803,812 shares of the Series E were outstanding. In May 2007, UDR sold 5,400,000 shares of our 6.75% Series G Cumulative Redeemable Preferred Stock. The Series G Cumulative Redeemable Preferred Stock 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. All dividends due and payable on the Series G have been accrued or paid as of the end of each fiscal year. Distributions declared on the Series G in 2007 were $1.13 per share. The Series G is listed on the NYSE under the symbol “UDRPrG.” At December 31, 2007, a total of 5,400,000 shares of the Series G were outstanding. UDR is authorized to issue up to 20,000,000 shares of our Series F Preferred Stock. The Series F Preferred Stock 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 Preferred Stock for each OP Unit held. At December 31, 2007 and 2006, a total of 666,293 shares of the Series F Preferred Stock were outstanding at a value of $66.63. Holders of the Series F Preferred Stock are entitled to one vote for each share of the Series F Preferred Stock 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 Preferred Stock does not entitle its holders to any other rights, privileges or preferences. In May 2007, UDR completed the redemption of all of its outstanding 8.60% Series B Cumulative Redeemable Preferred Stock at $25 per share plus accrued and unpaid dividends using the net proceeds from the Series G Cumulative Redeemable Preferred Stock offering. Distributions declared on the Series B in 2007 were $1.07 per share. Dividend Reinvestment and Stock Purchase Plan UDR’s Dividend 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. As of December 31, 2007, 9,957,233 shares of common stock had been issued under the Stock Purchase Plan. Shares in the amount of 15,042,767 were reserved for further issuance under the Stock Purchase Plan as of December 31, 2007. During 2007, 63,533 shares were issued under the Stock Purchase Plan for a total consideration of approximately $1.8 million. 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Restricted Stock Awards UDR’s 1999 Long-Term Incentive Plan (“LTIP”) authorizes the grant of restricted stock awards to employees, officers, consultants, and directors of UDR. Compensation expense is recorded over the vesting period and is based upon the value of the common stock on the date of issuance. For the years ended December 31, 2007, 2006 and 2005, we recognized $6.1 million, $4.5 million, and $3.2 million, respectively, of compensation expense related to the amortization of restricted stock. As of December 31, 2007, 1,361,282 shares of restricted stock have been issued under the LTIP. Shareholder Rights Plan UDR’s First Amended and Restated Rights Agreement was intended to protect long-term interests of stockholders in the event of an unsolicited, coercive or unfair attempt to take over UDR. The plan authorized a dividend of one Preferred Share Purchase Right (the “Rights”) on each share of common stock outstanding. Each Right entitled the holder to purchase 1⁄1000 of a share of a new series of UDR’s preferred stock, designated as Series C Junior Participating Cumulative Preferred Stock, at a price to be determined upon the occurrence of the event, and for which the holder must be paid $45 should the takeover occur. Under the Plan, the Rights were exercisable if a person or group acquired more than 15% of UDR’s common stock or announced a tender offer that would result in the ownership of 15% of UDR’s common stock. The Rights expired on February 4, 2008. 8. FINANCIAL INSTRUMENTS The following estimated fair values of financial instruments were determined by UDR 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 UDR 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 carrying amounts and estimated fair value of UDR’s financial instruments, where different, as of December 31, 2007 and 2006, are summarized as follows (dollars in thousands): 2007 2006 Carrying Amount Fair Value Carrying Amount Fair Value Secured debt . . . . . . . . . . . . . . . . . . . . . . . Unsecured debt . . . . . . . . . . . . . . . . . . . . . $1,137,936 2,364,740 $1,159,503 2,288,542 $1,182,919 2,155,866 $1,178,078 2,056,929 The following methods and assumptions were used by UDR in estimating fair values. Cash equivalents The carrying amount of cash equivalents approximates fair value. Notes receivable In June 2003, UDR received a promissory note in the principal amount of $5 million that is due October 2011. The note was received in connection with one of our acquisitions and bears interest of 9.0% that is payable in annual installments. The carrying amount of this note receivable approximates its fair value. At December 31, 2007, UDR has a promissory note in the principal amount of $1.5 million that is due in February 2016. The note was received in connection with our investment in the development of an online leasing software and bears interest at 10.0%. The carrying amount of this note receivable approximates its fair value. 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. In August 2007, UDR received a convertible secured promissory note from a marketing and consulting firm, in the principal amount of $300,000. As of December 31, 2007, $150,000 has been drawn on the note, which represents the first of three scheduled draws. The note will become fully due and payable in August 2009 unless paid sooner or converted in accordance with the terms of the note. The carrying amount of this note receivable approximates its fair value. In November 2007, UDR entered into a construction loan agreement with an initial principal amount of $6.0 million that is due in October 2008. The note can be drawn up to a maximum of approximately $20.2 million. The note was received in connection with our investment in a development joint venture. The carrying amount of this note receivable approximates its fair value. Secured and unsecured debt Estimated fair value is based on mortgage rates, tax-exempt bond rates, and corporate unsecured debt rates believed to be available to UDR for the issuance of debt with similar terms and remaining lives. The carrying amount of UDR’s variable rate secured debt approximates fair value as of December 31, 2007 and 2006. The carrying amounts of UDR’s borrowings under variable rate unsecured debt arrangements, short-term revolving credit agreements, and lines of credit approximate their fair values as of December 31, 2007 and 2006. 9. INCOME TAXES The aggregate cost of our real estate assets for federal income tax purposes was approximately $5.5 billion at December 31, 2007. UDR adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, UDR recognized no material adjustments to liabilities related to unrecognized income tax benefits. At the adoption date of January 1, 2007, UDR’s taxable REIT subsidiaries had $538,000 of net unrecognized tax benefits, which would favorably impact our effective tax rate if recognized. At December 31, 2007, UDR had $415,000 of net unrecognized tax benefits. UDR and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years 2004 — 2007 remain open to examination by the major taxing jurisdictions to which we are subject. UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of December 31, 2007, UDR had $62,000 accrued for interest and $0 accrued for penalties. 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. The following table reconciles UDR’s net income to REIT taxable income for the three years ended December 31, 2007 (dollars in thousands): 2007 2006 2005 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $221,349 13,284 Elimination of TRS income . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,018) Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,539 Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . (52,192) Disposition of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,439) Revenue recognition timing differences . . . . . . . . . . . . . . . . . . . 1,991 Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,804) Compensation related differences . . . . . . . . . . . . . . . . . . . . . . . (1,444) Other expense timing differences . . . . . . . . . . . . . . . . . . . . . . . (3,925) Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,605 (6,955) (4,219) 66,754 47,168 (1,249) 1,620 (3,264) 173 (47,522) $155,166 (17,802) (1,828) 56,274 (74,323) (87) 1,720 (2,174) (706) — REIT taxable income before dividends . . . . . . . . . . . . . . . . . . . $189,341 $181,111 $116,240 Dividend paid deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $189,341 $181,111 $149,475 For income tax purposes, distributions paid to common stockholders may consist of ordinary income, capital gains, and non-taxable 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, 2007, distributions paid per common share were taxable as follows: 2007 2006 2005 Ordinary income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term capital gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecaptured section 1250 gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return of capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.20 0.84 0.26 — $1.30 $0.48 0.46 0.30 $0.63 0.22 0.13 — 0.21 $1.19 $1.24 We have taxable REIT subsidiaries that are subject to state and federal income taxes. Income tax expense consists of the following for the three years ended December 31, 2007, and is included in gains on the sales of land and depreciable property in income from discontinued operations (dollars in thousands): 2007 2006 2005 Income tax (benefit)/expense Current Deferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,581) (1,019) Total income tax (benefit)/expense . . . . . . . . . . . . . . . . . . . . . . $(8,600) $5,533 (680) $4,853 $11,090 313 $11,403 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income for the three years ended December 31, 2007, as follows (dollars in thousands): Income tax (benefit)/expense Computed tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,659) 2 Permanent book/tax difference . . . . . . . . . . . . . . . . . . . . . . . . . . . (943) State income tax (net of federal benefit) and other . . . . . . . . . . . . . Total income tax (benefit)/expense . . . . . . . . . . . . . . . . . . . . . . $(8,600) $4,134 (99) 818 $10,193 — 1,210 $4,853 $11,403 2007 2006 2005 Deferred income taxes reflect the estimated net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts for income tax purposes. Our taxable REIT subsidiary’s deferred tax assets and liabilities are as follows for the three years ended December 31, 2007 (dollars in thousands): 2007 2006 2005 Deferred tax assets: Depreciation and gain/loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 593 605 Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Pre-paid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Warranty expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,702 Deferred tax liabilities: Depreciation and gain/loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (281) (35) Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (316) Net deferred tax asset/(liability) . . . . . . . . . . . . . . . . . . . . . . . . . . $1,386 $ 550 159 84 11 — 804 $ — — 19 — — 19 — (437) — (437) (17) (315) — (332) $ 367 $(313) 10. EMPLOYEE BENEFIT PLANS 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, 2007, 2006, and 2005 were $0.8 million, $0.7 million, and $0.6 million, respectively. Stock Option Plan In May 2001, the stockholders of UDR approved the 1999 Long-Term Incentive Plan (the “LTIP”), which supersedes the 1985 Stock Option Plan. With the approval of the LTIP, no additional grants will be made under 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. The Board of Directors reserved four million shares for issuance upon the grant or exercise of awards under the LTIP. The LTIP generally provides, among other things, that options are granted at exercise prices not lower than the 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. market value of the shares on the date of grant and that options granted must be exercised within ten years. The maximum number of shares of stock that may be issued subject to incentive stock options is four million shares. Shares under options that expire or are cancelable are available for subsequent grant. UDR adopted the fair-value-based method of accounting for share-based payments effective January 1, 2004, using the prospective method described in FASB Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” UDR adopted FAS 123(R) on January 1, 2006, and has continued to use the Black-Scholes-Merton formula to estimate the value of stock options granted to employees, which have not been granted since 2002. FAS 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date (as of January 1, 2006, there were no unvested stock options). UDR adopted FAS 123(R) using the modified prospective transition method (which applied only to awards granted, modified or settled after the adoption date). The adoption of the provisions of FAS 123(R) did not have a material impact on our financial position, results of operations, or cash flows. A summary of UDR’s stock option activity during the three years ended December 31, 2007, is provided in the following table: Number Outstanding Weighted Average Exercise Price Range of Exercise Prices Balance, December 31, 2004. . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2005. . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2006. . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,960,623 (298,566) (19,834) 1,642,223 (315,333) (27,500) 1,299,390 (213,731) (7,000) Balance, December 31, 2007 . . . . . . . . . . . . . . . . . . 1,078,659 Exercisable at December 31, 2005. . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,635,666 1,299,390 1,078,659 $11.88 12.02 13.80 11.84 13.52 11.47 11.44 12.25 12.76 11.25 $11.82 11.44 11.25 $9.63 — $15.38 9.88 — 14.63 9.88 — 15.25 9.63 — 15.38 9.63 — 15.38 9.63 — 14.63 9.63 — 15.38 9.94 — 15.38 9.88 — 14.50 9.63 — 14.88 $9.63 — $15.38 9.63 — 15.38 9.63 — 14.88 The weighted average remaining contractual life on all options outstanding is 2.6 years. 463,944 of share options had exercise prices between $9.63 and $10.88, 525,296 of share options had exercise prices between $11.15 and $12.23, and 89,419 of share options had exercise prices between $13.94 and $14.88. As of December 31, 2007 and 2006, stock-based awards for 2,079,360 and 2,286,091 shares of common stock, respectively, were available for future grants under the 1999 LTIP’s existing authorization. 11. COMMITMENTS AND CONTINGENCIES Commitments Real Estate Under Development UDR is committed to completing its wholly owned real estate currently under development, which has an estimated cost to complete of $293.9 million as of December 31, 2007. UDR is committed to completing its development joint venture projects, which have an estimated cost to complete of $173.2 million at December 31, 2007. The estimated cost to complete consists of $14.8 million 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. related to a consolidated joint venture and $158.4 million related to two unconsolidated joint ventures in which UDR owns 49% and one unconsolidated joint venture in which UDR owns 20%. These projects are expected to be completed at various times between the second quarter of 2008 and the fourth quarter of 2010. UDR has entered into four contracts to purchase apartment communities upon their development completion. Provided that the developer meets certain conditions, UDR will purchase these communities for approximately $155 million. These apartment communities are expected to be completed at various times between the fourth quarter of 2007 and the fourth quarter of 2009. Land and Other Leases UDR is party to several ground leases relating to operating communities. In addition, UDR is party to various other operating leases related to the operation of its regional offices and equipment. Future minimum lease payments for non-cancelable land and other leases as of December 31, 2007 are as follows (dollars in thousands): Ground Leases Operating Leases 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,685 3,689 3,689 3,689 3,689 250,485 $1,586 1,620 1,116 361 46 — $268,926 $4,729 UDR incurred $3.4 million, $2.8 million and $2.4 million of rent expense for the years ended December 31, 2007, 2006, and 2005. In January 2008, we executed our option to purchase land for $9.0 million that had been previously leased. The future minimum lease payments of $1.3 million related to this ground lease are included in the table above. Contingencies 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 will be measured over the 36-month period from June 1, 2005 to May 30, 2008. The Series C Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on 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”). 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. 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. 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. Based on the results through December 31, 2007, no Series C OPPSs would have been issued had the Program terminated on that date. However, since the ultimate determination of Series C OPPSs to be issued will not occur until May 30, 2008, and the number of Series C OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events. Accordingly, the contingently issuable Series C OPPSs will only be included in basic earnings per share after the measurement period has ended and the applicable hurdle has been met. Furthermore, the Series C OPPSs will only be included in common stock and common stock equivalents in the calculation of diluted earnings per share after the hurdle has been met at the end of the reporting period (if any), assuming the measurement period ended at the end of the reporting period. 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 is part of the New Out-Performance Program approved by UDR’s stockhold- ers in May 2005. The Series D LLC has agreed to sell 830,000 membership units 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, is based upon the advice of an independent valuation expert. The Series D Program will measure 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 is 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 D LLC as holder of the Series D OPPSs will receive (for the indirect benefit of the Series D 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Participants as holders of interests in the Series D LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by: i. determining the amount by which the cumulative total return of 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 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 D Participants will forfeit their entire initial investment. Based on the results through December 31, 2007, no Series D OPPSs would have been issued had the Program terminated on that date. However, since the ultimate determination of Series D OPPSs to be issued will not occur until December 31, 2008, and the number of Series D OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events. Accordingly, the contingently issuable Series D OPPSs will only be included in basic earnings per share after the measurement period has ended and the applicable hurdle has been met. Furthermore, the Series D OPPSs will only be included in common stock and common stock equivalents in the calculation of diluted earnings per share after the hurdle has been met at the end of the reporting period (if any), assuming the measurement period ended at the end of the reporting period. 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 is part of the New Out-Performance Program approved by UDR’s stockhold- ers in May 2005. The Series E LLC has 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, is based upon the advice of an independent valuation expert. The Series E Program will measure 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 is 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 E LLC as holder of the Series E OPPSs will 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 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. 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, 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 E OPPSs, the number determined pursuant to clause (ii) above is capped at 0.5% 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 E Participants will forfeit their entire initial investment. Based on the results through December 31, 2007, no Series E OPPSs would have been issued had the Program terminated on that date. However, since the ultimate determination of Series E OPPSs to be issued will not occur until December 31, 2009, and the number of Series E OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events. Accordingly, the contingently issuable Series E OPPSs will only be included in basic earnings per share after the measurement period has ended and the applicable hurdle has been met. Furthermore, the Series E OPPSs will only be included in common stock and common stock equivalents in the calculation of diluted earnings per share after the hurdle has been met at the end of the reporting period (if any), assuming the measurement period ended at the end of the reporting period. 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. 12. REPORTABLE SEGMENTS FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (FAS 131”), 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. 77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. UDR’s two reportable segments are same communities and non-mature/other communities: (cid:129) Same communities represent those communities acquired, developed, and stabilized prior to Decem- ber 31, 2006, and held as of December 31, 2007. 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. (cid:129) Non-mature/other communities represent those communities that were acquired or developed in 2006 and 2007, 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. Executive 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 FAS 131 as each of our apartment communities generally have similar economic characteristics, facilities, services, and tenants. Therefore, UDR’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, 2007, 2006, or 2005. The accounting policies applicable to the operating segments described above are the same as those described in Note 1, “Summary of Significant Accounting Policies.” The following table details rental income and NOI for UDR’s reportable segments, for both continuing and discontinued operations, for the three years ended December 31, 2007, 2006, and 2005, and reconciles NOI to net income per the consolidated statement of operations (dollars in thousands): Reportable apartment home segment rental income: Same communities: Years Ended December 31, 2006 2005 2007 Western Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $190,781 95,377 Mid-Atlantic Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,681 Southeastern Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,444 Southwestern Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,531 Non-mature communities/Other . . . . . . . . . . . . . . . . . . . . . . . . $178,339 91,605 95,514 11,988 359,468 $153,675 87,235 86,754 10,673 364,032 Total segment and consolidated rental income . . . . . . . . . . $738,814 $736,914 $702,369 78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. Reportable apartment home segment net operating income (NOI): Same communities: Years Ended December 31, 2006 2007 2005 Western Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mid-Atlantic Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Southeastern Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Southwestern Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-mature communities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133,111 66,246 62,401 8,468 206,172 $ 121,971 62,864 59,813 7,901 212,483 $ 102,186 59,213 53,378 6,592 209,489 Total segment and consolidated NOI . . . . . . . . . . . . . . . 476,398 465,032 430,858 Reconciling items: Commercial operating income/(loss) . . . . . . . . . . . . . . . . . Non-property income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative and property management . . . . Severance costs and other restructuring charges . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on the sale of land and depreciable property. . . . . Loss on early debt retirement . . . . . . . . . . . . . . . . . . . . . . Hurricane related insurance recoveries . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per the Consolidated Statement of 2,721 2,721 (261,037) (178,020) (59,883) (4,333) (1,442) 256,182 — — (11,958) (350) 3,590 (246,934) (181,183) (51,463) — (1,238) 148,614 — — (7,463) 1,997 20,672 (215,192) (162,723) (44,128) — (1,178) 139,724 (8,483) 2,457 (8,838) Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,349 $ 128,605 $ 155,166 79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. The following table details the assets of UDR’s reportable segments for the years ended December 31, 2007 and 2006 (dollars in thousands): Reportable apartment home segment assets: Same communities: Years Ended December 31, 2007 2006 Western Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,737,799 603,518 Mid-Atlantic Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689,163 Southeastern Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,373 Southwestern Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,833,688 Non-mature communities/Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,706,811 584,643 663,757 86,677 2,778,234 Total segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,952,541 (1,371,759) 5,820,122 (1,253,727) Total segment assets — net book value . . . . . . . . . . . . . . . . . . . . . 4,580,782 4,566,395 Reconciling items: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . Funds held in escrow from IRC Section 1031 exchanges pending the acquisition of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets — real estate held for disposition . . . . . . . . . . . . . . . . . 3,219 6,295 34,136 12,655 48,264 56,217 45,428 14,125 2,143 5,602 34,656 10,500 5,850 — 33,060 17,669 Total consolidated assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,801,121 $ 4,675,875 Capital expenditures related to our same communities totaled $69.5 million, $86.2 million, and $66.6 mil- lion for the three years ended December 31, 2007, 2006, and 2005, respectively. Capital expenditures related to our non-mature/other communities totaled $70.2 million, $115.8 million, and $90.8 million for the three years ended December 31, 2007, 2006, and 2005, respectively. Markets included in the above geographic segments are as follows: i. Western — Orange Co., San Francisco, Los Angeles, Monterey Peninsula, Seattle, San Diego, Inland Empire, Portland, and Sacramento. ii. Mid-Atlantic — Metropolitan DC, Richmond, Raleigh, Baltimore, Norfolk, and Other Mid- Atlantic. iii. Southeastern — Tampa, Orlando, Nashville, Jacksonville, and Other Florida. iv. Southwestern — Phoenix, Dallas, and Austin. 13. RESTRUCTURING CHARGES UDR is establishing Highlands Ranch, Colorado, as its corporate headquarters and is realigning resources to improve efficiencies and centralize job functions in fewer locations. As a result of a comprehensive review of the organizational structure of UDR and its operations, UDR recorded a charge of $3.6 million during the fourth quarter of 2007 related to workforce reductions, relocation costs, and other related costs. These charges 80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. are included in the Consolidated Statements of Operations within the line item “Severance costs and other restructuring charges.” The planned workforce reductions resulted in the termination of approximately 70 full-time equivalent positions, or approximately 20% of total staffing in corporate functions, including management and general and administrative functions, and in apartment operations. Employee termination benefits included severance packages and related benefits and outplacement services for employees terminated. 14. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Summarized consolidated quarterly financial data for the year ended December 31, 2007, with restated amounts that reflect discontinued operations as of December 31, 2007, is as follows (dollars in thousands, except per share amounts): Previously Reported March 31 Restated March 31 Previously Reported June 30 Restated June 30 Previously Reported September 30 Restated September 30 December 31 Three Months Ended Rental income(a) . . . . . . . . . . . . . . . . . . . . $181,145 $121,413 $178,231 $123,689 (Loss)/income before minority interests and $183,065 $128,192 $124,180 discontinued operations . . . . . . . . . . . . . . (8,823) (24,115) (6,005) (21,838) (6,798) (23,761) 83,783 Gain on sale of land and depreciable property . . . . . . . . . . . . . . . . . . . . . . . . 41,532 41,532 8,921 8,921 86,804 86,804 118,057 Income from discontinued operations, net of minority interests . . . . . . . . . . . . . . . . . . 39,961 54,536 12,031 27,018 85,085 101,143 24,614 Net income available to common stockholders . . . . . . . . . . . . . . . . . . . . . 27,990 27,990 811 811 75,570 75,570 100,806 Earnings per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 0.21 $ 0.21 0.21 $ 0.21 0.01 $ 0.01 0.01 0.01 $ 0.56 0.56 $ 0.56 0.56 $ 0.76 0.75 (a) Represents rental income from continuing operations. Summarized consolidated quarterly financial data for the year ended December 31, 2006, with restated amounts that reflect discontinued operations as of December 31, 2007, is as follows (dollars in thousands, except per share amounts): Previously Reported March 31 Restated March 31 Previously Reported June 30 Restated June 30 Previously Reported September 30 Restated September 30 Previously Reported December 31 Restated December 31 Three Months Ended Rental income(a) . . . . . . . . . . . $166,432 $110,954 $165,197 $114,025 Loss before minority interests $170,393 $118,293 $179,749 $120,447 and discontinued operations . . (7,193) (22,707) (6,986) (22,276) (7,655) (22,459) (9,139) (24,428) Gain on sale of land and depreciable property . . . . . . . 15,347 15,347 33,482 33,482 65,669 65,669 34,116 34,116 Income from discontinued operations, net of minority interests . . . . . . . . . . . . . . . Net income available to 18,550 33,123 38,545 52,923 66,245 80,171 33,525 47,885 common stockholders . . . . . . 8,165 8,165 28,342 28,342 55,510 55,510 21,218 21,218 Earnings per common share: Basic . . . . . . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . . . . . 0.06 $ 0.06 0.06 $ 0.06 0.21 $ 0.21 0.21 0.21 $ 0.42 0.42 $ 0.42 0.42 $ 0.16 0.16 $ 0.16 0.16 (a) Represents rental income from continuing operations. 81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) UDR, INC. 15. SUBSEQUENT EVENTS In the fall of 2007, UDR commenced a formal plan of disposition for a portfolio of its properties. In January 2008, UDR announced that it had entered into an agreement dated January 23, 2008, to sell 86 communities for $1.7 billion. In accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the primary assets and liabilities and results of operations of these properties have been classified as discontinued operations at December 31, 2007, and have been segregated in UDR’s Consolidated Statement of Operations and Consolidated Balance Sheets. The transaction is expected to close on or about March 3, 2008, at which time UDR will receive $1.5 billion in cash and will provide the buyer a note in the principal amount of $200 million. The note matures on the same date as the buyer’s senior financing, may be prepaid 14 months from the date of the note, bears interest at a fixed rate of 7.5% per annum and is secured by a pledge and security agreement and a guarantee. Closing is subject to customary closing conditions. Upon completion of the transaction, UDR will own 148 communities. In January 2008, the Board of Directors authorized a new 15 million share repurchase program. This program is in addition to our already existing 10 million share repurchase program. The program authorizes the repurchase of our common stock in open market purchases, in block purchases, privately negotiated transactions, or otherwise. 82 UDR, INC. SCHEDULE III — REAL ESTATE OWNED FOR THE YEAR ENDED DECEMBER 31, 2007 Initial Costs Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Encumbrances Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) Gross Amount at Which Carried at Close of Period Land and Land Improvements Buildings and Improvements Total Carrying Value (A) Accumulated Depreciation (B) Date of Construction Date Acquired WESTERN REGION . . . . . . . North . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Harbor at Mesa Verde . . . Pine Brook Village . . . Pacific Shores . . . . . . Huntington Vista . . Pacific Palms . . . . . . Missions at Back Bay . Coronado at Newport — . . . . . . . . . . . . . . . . . . Huntington Villas . . . . . Villa Venetia . . . . . . . . Vista Del Rey . . . . . . . . Foxborough . . . . . Coronado South . . . The Arboretum . . . . . . ORANGE COUNTY, CA . . . . . 2000 Post Street . . . . . . . . . Birch Creek . . . . . Highlands of Marin . . . . . . . Marina Playa . . . . . . . Crossroads . . . . . . . . . River Terrace . . . . . . . . . Lake Pines Bay Terrace . . . . . . . . Highlands of Marin . . . . . . Phase II . . . 2000 Post III . . . . . . . SAN FRANCISCO, CA . . . . . . The Crest . . . Rosebeach . . . . . . The Villas at San Dimas . . . . . . The Villas at Bonita . . . . . . . Ocean Villa . . . . . . Tierra Del Rey . . . . Pine Avenue DCO . . . LOS ANGELES, CA . . . . Presidio at Rancho Del Oro. . . . . Villas at Carlsbad . . Summit at Mission Bay . . . . . . . . . Rancho Vallecitos . . . . . . . Milazzo . . . . SAN DIEGO, CA . . . . . . . . . Verano at Town Square . Windemere at Sycamore . . . . . Waterstone at Murrieta . . . . INLAND EMPIRE, CA . . . . . . . . . Arbor Terrace . . . . Aspen Creek . . . . . . . Crowne Pointe . . . . . . Hilltop . . . . . . . . The Hawthorne . . . . . . . The Kennedy . . . . . Borgata . . . . SEATTLE, WA . . . . . . . . . . . . . . . . Highland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,776,586 18,270,000 19,145,000 — — — 53,358,910 — — — — — 21,768,024 146,318,520 — — — — — — — — — — — 58,704,570 — 13,040,479 8,296,117 9,532,489 — — 89,573,655 13,325,000 9,088,032 — 17,433,829 — 39,846,861 — — — — 13,382,479 — 10,599,918 8,176,807 26,825,490 — 9,935,736 68,920,430 20,476,466 2,581,763 7,345,226 8,055,452 12,285,059 229,270 62,515,901 61,535,270 70,825,106 10,670,493 12,070,601 58,784,785 29,562,468 356,937,860 9,860,627 4,365,315 5,995,838 6,224,383 4,811,488 22,161,247 14,031,365 8,544,559 5,352,554 1,755,643 83,103,019 21,953,480 8,414,478 8,180,619 4,498,439 5,134,982 39,585,534 5,805,234 93,572,766 9,163,939 6,516,636 22,598,529 3,302,967 15,920,401 57,502,471 13,557,235 5,809,490 10,597,865 29,964,590 1,453,342 1,177,714 2,486,252 2,173,969 6,473,970 6,178,440 6,378,894 26,322,581 28,537,805 25,504,086 22,623,676 22,485,746 6,236,783 14,128,763 46,082,056 18,017,201 24,179,600 7,079,834 6,186,721 50,066,757 14,283,292 285,412,320 44,577,506 16,695,509 24,868,350 23,916,283 10,169,520 40,137,141 30,536,982 14,457,992 18,558,883 7,753,477 231,671,642 67,808,654 17,449,593 16,735,364 11,699,117 12,788,885 36,678,725 6,305,030 169,465,368 22,694,492 10,717,601 17,181,401 10,877,286 35,577,599 97,048,379 3,645,406 23,450,119 34,702,760 61,798,285 11,994,972 9,115,789 6,437,256 7,407,628 30,226,079 22,306,568 24,569,021 112,057,312 49,014,271 28,085,849 29,968,902 30,541,198 18,521,843 14,358,033 108,597,957 79,552,471 95,004,706 17,750,327 18,257,322 108,851,542 43,845,760 642,350,180 54,438,133 21,060,824 30,864,188 30,140,666 14,981,008 62,298,388 44,568,346 23,002,551 23,911,437 9,509,120 314,774,661 89,762,134 25,864,072 24,915,983 16,197,556 17,923,867 76,264,259 12,110,264 263,038,134 31,858,431 17,234,237 39,779,930 14,180,253 51,498,000 154,550,850 17,202,641 29,259,609 45,300,625 91,762,875 13,448,314 10,293,503 8,923,508 9,581,597 36,700,049 28,485,008 30,947,914 138,379,893 20,504,790 3,817,429 7,377,088 8,117,805 12,562,735 10,633,621 62,603,677 61,729,371 70,863,311 10,696,202 12,106,986 58,896,295 29,621,038 369,530,348 10,080,046 4,876,077 6,216,187 6,549,216 4,886,649 22,162,242 14,031,365 8,544,559 5,352,554 3,290,476 85,989,371 21,965,475 8,423,228 8,223,012 4,502,814 5,160,237 39,585,534 5,888,878 93,749,177 9,382,167 6,572,275 22,599,544 3,608,337 15,923,283 58,085,606 22,845,505 5,865,695 10,643,706 39,354,906 1,671,289 1,380,498 2,659,938 2,436,373 6,475,086 6,185,070 6,378,894 27,187,149 37,498,609 28,265,602 29,100,469 26,938,115 7,330,781 4,612,949 55,052,455 20,439,511 27,372,798 8,054,200 7,479,646 56,693,709 17,962,460 326,801,303 48,582,603 20,294,132 28,449,417 28,663,636 12,023,163 39,878,365 32,842,815 15,253,305 18,648,674 9,038,095 253,674,204 72,841,990 18,520,291 17,928,637 12,234,812 13,343,253 36,692,273 13,064,745 184,626,000 25,471,043 11,536,441 19,696,271 14,073,895 38,036,894 108,814,544 45,437,438 24,613,877 37,944,560 107,995,875 13,739,160 10,082,188 9,178,028 9,143,525 31,037,909 22,574,881 24,325,163 120,080,854 58,003,398 32,083,031 36,477,557 35,055,920 19,893,516 15,246,569 117,656,132 82,168,882 98,236,109 18,750,402 19,586,632 115,590,004 47,583,498 696,331,651 58,662,649 25,170,209 34,665,604 35,212,852 16,909,812 62,040,607 46,874,179 23,797,864 24,001,228 12,328,570 339,663,575 94,807,465 26,943,519 26,151,649 16,737,625 18,503,489 76,277,806 18,953,623 278,375,177 34,853,211 18,108,716 42,295,815 17,682,232 53,960,176 166,900,150 68,282,943 30,479,572 48,588,266 147,350,781 15,410,449 11,462,686 11,837,966 11,579,899 37,512,995 28,759,951 30,704,057 147,268,002 10,112,219 7,391,631 7,456,363 7,055,335 2,255,443 1,204,177 10,790,005 4,386,281 5,623,668 1,666,194 1,523,270 9,617,722 3,568,023 72,650,333 11,930,556 7,069,872 8,050,844 9,812,671 2,553,977 5,870,941 3,965,449 1,999,811 257,783 685,913 52,197,817 14,165,069 3,628,798 3,471,247 2,351,059 2,506,183 68,451 3,669,274 29,860,081 5,640,856 2,171,328 3,934,018 6,997,111 3,671,257 22,414,570 6,912,541 7,561,274 7,544,692 22,018,507 5,135,239 3,256,878 3,398,962 3,089,442 4,631,143 2,810,683 925,965 23,248,313 8,989,127 3,997,182 6,508,655 4,514,722 1,371,674 888,536 9,058,175 2,616,411 3,231,403 1,000,075 1,329,310 6,738,462 3,737,738 53,981,471 4,224,516 4,109,385 3,801,416 5,072,186 1,928,804 (257,781) 2,305,833 795,313 89,791 2,819,450 24,888,914 5,045,331 1,079,447 1,235,666 540,070 579,622 13,548 6,843,359 15,337,043 2,994,780 874,479 2,515,885 3,501,979 2,462,177 12,349,300 51,080,302 1,219,963 3,287,641 55,587,906 1,962,135 1,169,183 2,914,458 1,998,302 812,946 274,943 (243,858) 8,888,109 83 1965 1979 1971 1970 1962 1969 1968 1972 1972 1969 1969 1970 1970 1987 1968 1991 1971 1986 2005 1972 1962 1968 2006 1989 1970 1981 1981 1965 1998 1987 1987 1966 1953 1988 1986 2006 2001 1990 1996 1996 1987 1985 2003 2005 2001 06/12/03 06/12/03 06/12/03 06/12/03 07/31/03 12/16/03 10/28/04 09/30/04 10/28/04 09/30/04 09/30/04 03/31/05 10/28/04 12/07/98 12/07/98 12/07/98 12/07/98 07/28/04 08/01/05 11/29/05 10/07/05 10/05/07 12/07/98 09/30/04 09/30/04 10/28/04 10/28/04 10/28/04 12/20/07 08/28/06 06/25/04 10/28/04 11/01/04 10/13/99 05/04/06 10/18/02 11/21/02 11/02/04 03/27/98 12/07/98 12/07/98 12/07/98 07/21/05 11/10/05 05/01/07 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) Initial Costs Land and Land Improvements 1,946,423 888,038 3,038,877 1,303,902 Buildings and Improvements 8,981,742 4,187,950 12,883,312 5,115,356 Total Initial Acquisition Costs 10,928,165 5,075,988 15,922,189 6,419,258 Encumbrances — — — — — — — — 16,907,337 31,259,581 48,166,918 10,741,316 — — 10,741,316 6,388,446 2,043,736 1,329,064 16,938,486 3,617,507 6,772,438 10,389,945 3,272,585 2,916,576 6,014,006 12,203,167 23,853,534 8,028,443 5,334,004 68,384,341 14,542,028 26,966,750 41,508,778 9,134,089 16,994,580 14,870,326 40,998,995 30,241,980 10,072,179 6,663,068 85,322,827 18,159,535 33,739,188 51,898,723 12,406,674 19,911,155 20,884,332 53,202,162 Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) 7,336,430 3,665,912 11,622,359 4,610,187 21,556,921 7,778,483 4,431,436 61,001,728 4,632,029 8,935,595 13,567,624 3,375,176 4,300,135 2,509,580 10,184,891 Gross Amount at Which Carried at Close of Period Land and Buildings Land and Improvements Improvements 15,229,836 3,034,759 7,319,133 1,422,767 22,627,969 4,916,579 9,017,788 2,011,657 Total Carrying Value (A) 18,264,595 8,741,900 27,544,548 11,029,445 9,562,155 3,126,492 2,030,141 26,104,549 3,889,659 7,351,759 11,241,418 3,533,462 2,987,041 6,106,819 12,627,322 42,236,747 14,724,170 9,064,363 51,798,901 17,850,662 11,094,504 120,220,006 18,901,905 35,323,024 54,224,929 12,248,388 21,224,249 17,287,093 50,759,731 146,324,555 22,791,564 42,674,783 65,466,347 15,781,850 24,211,290 23,393,912 63,387,052 Accumulated Depreciation (B) 4,138,006 2,042,119 6,342,172 2,494,878 10,866,755 3,923,738 2,456,483 32,264,151 6,685,734 12,602,299 19,288,033 4,175,075 4,232,053 3,558,294 11,965,421 . . . Boronda Manor . Garden Court . . . . Cambridge Court . . Laurel Tree . . . . . The Pointe at . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CA . . Harden Ranch . . . . . The Pointe at Northridge . . . . . . The Pointe at Westlake . MONTEREY PENINSULA, . . . Foothills Tennis Village . . . . . . Woodlake Village . . . . SACREMENTO, CA . . . . . . . . . Tualatin Heights . . . . . Andover Park . . . . . . . Hunt Club . . PORTLAND, OR . . . . . . . . . . . . . . TOTAL WESTERN . . . REGION . . . . . . . 403,567,700 686,934,886 1,108,345,419 1,795,280,305 255,786,985 723,869,845 1,327,197,445 2,051,067,290 285,907,225 MID-ATLANTIC REGION . . . . . . Dominion Middle Ridge . . . . . . Dominion Lake Ridge . . . . . . Presidential Greens . . . . . . . . . Taylor Place . . . . . . . . . . Ridgewood . . The Calvert . . . . . . . . . . Commons at Town Square . . . . . . . Waterside Towers . . Waterside Townhomes . . . . Wellington Place at Olde Town . . . . . . . . . . Andover House . . . Sullivan Place . . . . . . . METROPOLITAN DC . . . . . . Dominion Olde West . . . . . Dominion Creekwood . Dominion English Hills. . . . Gayton Pointe Townhomes . . . . . Dominion West End . . Waterside at Ironbridge . . . . Carriage Homes at Wyndham . . . . . . . . . . . . . . . Legacy at Mayland . RICHMOND, VA . . . . . . Dominion Kings Place . . . . Dominion at Eden Brook . . . Dominion Great Oaks. . . . . Dominion Constant Friendship . Lakeside Mill . Tamar Meadow . Calvert’s Walk . . . Arborview . . . . . . Liriope . . BALTIMORE, MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,195,541 22,191,823 — — — — — — — — 36,175,668 — 90,563,032 — — — — 25,851,093 — — — 25,851,093 — — — — — — — — — — 3,311,468 2,366,061 11,237,698 6,417,889 5,612,147 262,807 135,780 873,713 129,000 13,753,346 14,357,021 1,136,778 59,593,708 1,965,097 — 1,979,174 825,760 2,059,252 1,843,819 473,695 — 9,146,797 1,564,942 2,361,167 2,919,481 903,122 2,665,869 4,144,926 4,408,192 4,653,393 1,620,382 25,241,474 13,283,047 8,386,439 18,789,985 13,411,278 20,085,474 11,188,623 7,723,647 38,209,345 3,723,896 36,059,193 51,577,112 103,676,103 326,114,142 12,203,965 — 11,524,313 5,147,968 15,049,088 13,238,590 30,996,525 — 88,160,449 7,006,574 9,384,171 9,099,691 4,668,956 10,109,175 17,149,514 24,692,115 23,951,828 6,790,681 112,852,704 16,594,515 10,752,500 30,027,683 19,829,167 25,697,621 11,451,430 7,859,427 39,083,059 3,852,896 49,812,539 65,934,133 104,812,881 385,707,850 14,169,062 — 13,503,487 5,973,728 17,108,340 15,082,409 31,470,220 — 97,307,246 8,571,516 11,745,338 12,019,172 5,572,078 12,775,044 21,294,440 29,100,307 28,605,221 8,411,063 138,094,178 4,996,383 4,047,708 5,704,288 7,331,483 4,944,401 4,133,585 731,209 5,029,481 405,439 9,223,205 517,729 131,869 47,196,781 7,351,938 4,918,803 8,223,926 22,750,992 7,472,697 4,283,601 3,341,498 21,221,936 79,565,391 2,621,438 4,437,547 14,759,680 2,348,594 2,309,202 2,954,599 2,882,552 3,573,873 363,733 36,251,219 84 3,592,078 2,637,838 11,498,286 6,618,148 5,757,516 2,373,734 6,866,030 26,108,974 2,724,925 13,811,219 14,357,596 1,136,779 97,483,122 2,564,004 117,792 2,873,091 2,822,492 2,981,709 2,179,850 3,673,353 1,593,230 18,805,519 1,689,157 2,870,614 4,442,702 1,109,417 2,739,633 4,433,600 4,477,965 4,737,619 1,625,963 28,126,671 17,998,820 12,162,370 24,233,685 20,542,502 24,884,506 13,211,281 1,724,606 18,003,566 1,533,410 45,224,525 52,094,266 103,807,971 335,421,509 18,956,996 4,801,011 18,854,322 25,902,229 21,599,329 17,186,160 31,138,365 19,628,706 158,067,118 9,503,797 13,312,271 22,336,150 6,811,255 12,344,613 19,815,439 27,504,894 27,441,475 7,148,833 146,218,726 21,590,898 14,800,208 35,731,971 27,160,650 30,642,022 15,585,015 8,590,636 44,112,540 4,258,335 59,035,744 66,451,861 104,944,750 432,904,631 21,521,000 4,918,803 21,727,413 28,724,720 24,581,037 19,366,010 34,811,718 21,221,936 176,872,637 11,192,954 16,182,885 26,778,852 7,920,672 15,084,246 24,249,039 31,982,859 32,179,094 8,774,796 174,345,397 7,616,826 5,386,635 8,386,647 7,007,823 8,545,222 3,802,833 525,493 4,993,323 398,622 5,999,784 2,268,761 340,311 55,272,280 11,619,624 2,063,987 11,134,039 9,696,446 10,122,141 6,100,580 7,658,610 5,936,246 64,331,673 4,818,094 6,828,132 8,329,156 3,131,797 6,239,269 6,392,681 6,507,676 6,543,132 1,669,223 50,459,159 Date of Construction 1979 1973 1974 1977 1986 1979 1975 1988 1979 1989 1989 1985 1990 1987 1938 1962 1988 1962 1971 1971 1971 1987 2004 2007 Date Acquired 12/07/98 12/07/98 12/07/98 12/07/98 12/07/98 12/07/98 12/07/98 12/07/98 12/07/98 12/07/98 09/30/04 09/30/04 06/25/96 02/23/96 05/15/02 04/17/02 08/26/02 11/26/03 12/03/03 12/03/03 12/03/03 09/13/05 03/27/07 12/11/07 1978/82/84/85/87 12/31/84 & 8/27/91 1984 1969/76 1973 1989 1987 1998 1983 1984 1974 1990 1989 1990 1988 1992 1997 08/27/91 12/06/91 09/28/95 12/28/95 09/30/97 11/25/03 12/29/92 12/29/92 07/01/94 05/04/95 12/10/99 11/22/02 03/30/04 03/30/04 03/30/04 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) Initial Costs Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) Gross Amount at Which Carried at Close of Period Land and Buildings Land and Improvements Improvements Total Carrying Value (A) Accumulated Depreciation (B) Date of Construction Date Acquired Point Forest Lake at Oyster . . . . . . . . . . . . . Woodscape . . Eastwind. . . . Dominion Waterside at . . . . . . Encumbrances . . . . . . . . . 12,701,681 — — . . . . . . . . . . . . . Lynnhaven . Heather Lake . . . . Dominion Yorkshire . . . . . . . . Downs . . . NORFOLK, VA . . . . . . . . . . Greens at Falls Run . . . . . . Manor at England Run . Brittingham Square . . . . . . Greens at Schumaker Pond . . Greens at Cross Court . . . OTHER MID- . ATLANTIC . . . . . . . . — — 15,686,271 28,387,952 — — — — — 780,117 798,700 155,000 1,823,983 616,800 1,088,887 5,263,487 2,730,722 3,194,527 650,143 709,559 1,182,414 8,861,878 7,209,525 5,316,738 4,106,710 3,400,672 8,581,771 37,477,294 5,300,203 13,505,239 4,962,246 6,117,582 4,544,012 9,641,995 8,008,225 5,471,738 5,930,693 4,017,472 9,670,658 42,740,781 8,030,925 16,699,766 5,612,389 6,827,141 5,726,426 6,332,429 7,106,274 4,571,432 4,241,354 8,004,288 4,092,692 34,348,469 3,253,521 15,413,949 2,494,107 4,013,906 3,119,474 1,257,325 1,903,394 580,221 14,717,099 13,211,105 9,462,949 15,974,424 15,114,499 10,043,170 2,129,608 1,133,207 8,042,439 10,888,552 10,172,047 12,021,760 1,381,397 8,385,152 2,979,477 5,006,403 894,396 941,481 1,422,194 12,381,953 68,704,097 8,304,969 27,107,312 7,212,100 9,899,567 7,423,707 13,763,350 77,089,250 11,284,446 32,113,715 8,106,496 10,841,047 8,845,900 6,711,349 8,451,277 5,479,770 4,100,487 7,693,323 4,523,736 36,959,942 3,701,698 12,943,362 3,121,437 4,221,255 3,367,789 — 8,467,365 34,429,282 42,896,647 28,294,957 11,243,950 59,947,654 71,191,604 27,355,541 TOTAL MID-ATLANTIC REGION . . . . . . . . . . 144,802,077 107,712,831 599,033,871 706,746,702 225,656,817 164,044,415 768,359,104 932,403,519 234,378,595 SOUTHEASTERN REGION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Villas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summit West The Breyley . . . Lakewood Place . . . . . . Hunters Ridge . Bay Meadow . . Cambridge . . . . . . Sugar Mill Creek . . Inlet Bay . . . . MacAlpine Place . . . . . . . Island Walk . . TAMPA, FL . . . . . . Seabrook . . . . . . . . The Canopy Apartment . . . . . . . . . . . . . Altamira Place . . . . . . . . Regatta Shore . . . . . . . . . Alafaya Woods . . . . . . . . . . . Los Altos . . . . . . . . . . . Lotus Landing . . . . Seville on the Green . . Ashton at Waterford . . . . . Arbors at Lee Vista DCO . . . ORLANDO, FL . . . . . . . . . . . Legacy Hill . . . . . Hickory Run . . . . . . . Carrington Hills . . . . . . . . . Brookridge . . . . . . . . Breckenridge . . . . . . . Colonnade . . . The Preserve at Brentwood . . . . . Polo Park . . . . . . NASHVILLE, TN . . . . . . . . . . . . . . . . . . . . . . 2,813,111 2,804,811 1,935,245 3,254,799 3,706,746 2,235,678 2,585,755 7,920,002 10,928,302 8,684,541 46,868,990 2,456,919 4,349,935 3,100,133 1,633,039 2,268,766 3,541,643 2,586,827 1,598,745 4,022,913 6,818,615 32,377,535 1,547,380 1,912,416 4,071,233 958,350 1,065,221 1,719,875 3,219,153 5,045,323 19,538,949 9,881,039 16,931,007 16,109,903 14,649,969 15,630,802 12,054,698 11,826,471 31,080,999 38,509,069 26,696,681 193,370,637 9,334,360 23,931,257 27,541,055 18,334,099 14,635,217 17,482,907 14,393,975 11,268,527 18,515,135 21,032,034 176,468,566 11,990,321 17,141,740 27,142,679 8,326,249 10,117,734 17,921,608 27,372,845 26,893,047 146,906,224 12,694,150 19,735,818 18,045,148 17,904,768 19,337,548 14,290,376 14,412,226 39,001,001 49,437,370 35,381,222 240,239,627 11,791,279 28,281,192 30,641,189 19,967,138 16,903,982 21,024,550 16,980,802 12,867,272 22,538,049 27,850,649 208,846,101 13,537,701 19,054,156 31,213,912 9,284,599 11,182,955 19,641,483 30,591,998 31,938,370 166,445,173 6,220,818 6,351,885 7,545,030 7,123,651 7,073,857 4,908,716 4,005,685 9,166,745 7,520,016 9,311,721 69,228,125 5,488,444 8,827,854 11,871,337 9,496,593 6,947,015 7,929,730 5,341,911 4,582,042 8,218,766 8,295,207 76,998,900 6,192,071 7,144,865 10,261,110 3,787,925 4,059,953 5,882,952 6,214,228 2,534,888 46,077,991 — — 20,646,838 20,852,500 — — 10,494,390 — — — 51,993,728 — — — — 20,617,024 24,026,538 — — 26,779,854 — 71,423,416 — — 18,763,215 — — 11,591,550 24,997,634 13,500,774 68,853,173 2,176,500 1,780,375 1,395,051 2,461,548 2,892,526 1,790,804 2,241,880 7,701,679 10,869,386 7,230,575 40,540,324 1,845,853 2,894,702 1,532,700 757,008 1,653,000 2,803,805 2,184,723 1,282,616 3,871,744 6,692,423 25,518,574 1,147,660 1,468,727 2,117,244 707,508 766,428 1,459,754 3,181,524 4,582,666 15,431,511 4,709,970 2,458,172 10,647,377 10,942,434 9,253,525 7,166,329 7,552,520 23,149,670 36,857,512 19,897,415 132,634,924 4,155,275 6,456,100 11,076,062 6,607,367 9,042,256 12,348,464 8,638,664 6,498,062 17,537,879 12,860,210 95,220,339 5,867,567 11,583,786 — 5,461,251 7,713,862 16,014,857 24,674,264 16,293,022 87,608,609 6,886,470 4,238,547 12,042,428 13,403,982 12,146,051 8,957,133 9,794,400 30,851,349 47,726,898 27,127,990 173,175,248 6,001,128 9,350,802 12,608,762 7,364,375 10,695,256 15,152,269 10,823,387 7,780,678 21,409,623 19,552,633 120,738,913 7,015,227 13,052,513 2,117,244 6,168,759 8,480,290 17,474,611 27,855,788 20,875,688 103,040,120 5,807,680 15,497,271 6,002,720 4,500,786 7,191,497 5,333,243 4,617,826 8,149,652 1,710,472 8,253,232 67,064,379 5,790,151 18,930,390 18,032,427 12,602,763 6,208,726 5,872,281 6,157,415 5,086,594 1,128,426 8,298,016 88,107,188 6,522,474 6,001,643 29,096,668 3,115,840 2,702,665 2,166,872 2,736,210 11,062,682 63,405,054 85 1986 1974/76 1970 1966 1972/74 1987 1989 1990 1991 1988 1987 1972 1977 1986 1992 1985 1985 1988 1988/89 2001 1985/87 1984 1981 1984 1988 1988/90 1990 1985 1986 2000 1992 1977 1989 1999 1986 1986 1998 1998 1987 08/15/95 12/29/87 04/04/88 08/15/96 03/01/80 12/23/97 05/04/95 05/04/95 05/04/95 05/04/95 05/04/95 12/16/92 09/28/93 03/10/94 06/30/95 12/09/96 06/06/97 12/07/98 06/30/03 12/01/04 07/10/06 02/20/96 03/31/93 04/14/94 06/30/94 10/21/94 10/31/96 07/01/97 10/21/97 05/28/98 08/28/06 11/06/95 12/29/95 12/06/95 03/28/96 03/27/97 01/07/99 06/01/04 05/02/06 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) Initial Costs Land and Land Improvements 1,634,330 1,834,535 4,034,039 4,288,214 3,178,992 14,970,110 15,968,090 789,953 765,949 3,373,265 20,897,257 Buildings and Improvements 11,226,990 14,864,742 11,192,842 33,101,763 30,711,474 101,097,811 56,400,716 4,767,055 5,407,683 7,095,763 73,671,217 Total Initial Acquisition Costs 12,861,320 16,699,277 15,226,881 37,389,977 33,890,466 116,067,921 72,368,806 5,557,008 6,173,632 10,469,028 94,568,474 Encumbrances 16,010,749 — — — — 16,010,749 — — — — — Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) 10,734,860 8,259,385 9,767,472 3,761,454 540,375 33,063,546 2,153,378 4,589,658 2,561,381 5,482,751 14,787,168 Gross Amount at Which Carried at Close of Period Land and Buildings Land and Improvements Improvements 20,996,248 2,599,932 22,135,216 2,823,447 19,937,789 5,056,564 36,804,802 4,346,629 31,245,261 3,185,580 131,119,316 18,012,152 58,518,286 16,003,898 8,596,214 1,550,451 7,667,572 1,067,442 12,171,264 3,780,515 86,953,336 22,402,306 Total Carrying Value (A) 23,596,180 24,958,662 24,994,353 41,151,431 34,430,841 149,131,467 74,522,184 10,146,666 8,735,013 15,951,779 109,355,642 Accumulated Depreciation (B) 9,931,373 11,123,783 10,454,809 5,960,553 869,676 38,340,194 11,094,480 4,251,739 3,440,510 4,662,021 23,448,750 Date of Construction 1986 1990 1985 1989 2004 1999/2001 1989 1985 1985 208,281,066 117,357,776 490,232,900 607,590,676 266,427,335 139,199,932 734,818,078 874,018,011 254,093,960 . . . . . . . . . . . . . . . . . Greentree . . . . . . . . . . . . Westland. . . . . . . . . . Antlers . . . . . St John’s Plantation . . . . . The Kensley . . . JACKSONVILLE, FL . . . . . . . . . Riverbridge . . . . . . . The Groves . . Mallards of Brandywine . . . . . . Piermont . . . . . . OTHER FLORIDA . . . . . . . . . . . . . . TOTAL SOUTHEASTERN . . . REGION . . . . . . . SOUTHWESTERN REGION . . . . . . . . . . THIRTY377 . . . . . Inn at Los Patios . . Ridgeview Park . . . . . Townhomes . . . . . . Garden Oaks . . . Glenwood . . . . . . . . Talisker of Addison . . . . . . Springhaven . . . . . . . Clipper Pointe . Highlands of Preston . . DALLAS, TX. . . . . . . . Finisterra . . . . . . . . Sierra Foothills . . . . . . . . Sierra Canyon . PHOENIX, AZ . . . . . Barton Creek Landing . AUSTIN, TX . . . . . . — — 24,035,881 3,005,300 32,950,822 11,544,700 56,986,703 14,550,000 2,998,959 (1,453,572) 24,060,382 3,023,264 35,925,280 10,073,164 59,985,662 13,096,428 2,928,463 2,995,702 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5,321,131 6,075,835 7,840,602 — 7,346,894 — 26,584,462 — 16,280,029 13,976,934 30,256,963 — — 2,349,923 2,131,988 7,902,690 10,439,794 6,687,621 13,220,993 2,151,056 71,925,247 1,273,798 2,728,172 1,809,864 5,811,834 3,150,998 3,150,998 — 5,367,040 554,021 634,320 3,354,680 2,506,569 8,167,630 65,079,782 26,392,207 — 12,963,581 39,355,788 14,269,086 14,269,086 2,349,923 7,499,028 8,456,711 11,074,115 10,042,301 15,727,562 10,318,686 137,005,029 27,666,005 2,728,172 14,773,444 45,167,621 17,420,084 17,420,084 8,214,788 407,389 144,092 365,776 139,823 465,082 14,098,832 25,381,169 2,208,821 19,922,003 1,148,041 23,278,865 2,505,988 2,505,988 2,352,630 6,821,043 8,039,494 10,760,070 8,203,548 14,756,838 5,029,664 83,046,933 1,547,847 4,967,882 1,944,578 8,460,307 3,201,848 3,201,848 8,212,081 1,085,374 561,309 679,821 1,978,576 1,435,806 19,387,854 79,339,266 28,326,979 17,682,293 13,976,908 59,986,180 16,724,224 16,724,224 10,564,711 7,906,417 8,600,803 11,439,891 10,182,125 16,192,644 24,417,518 162,386,198 29,874,826 22,650,175 15,921,486 68,446,486 19,926,072 19,926,072 396,325 171,064 85,272 155,957 385,240 347,143 5,841,857 13,307,022 9,517,704 9,803,924 5,420,569 24,742,197 6,018,770 6,018,770 1999 1990 2007 1979 1970 1975 1977 1978 1985 1997 1998 2001 1986 Date Acquired 07/22/94 05/09/96 05/28/96 06/30/05 07/17/07 12/01/04 12/13/95 07/01/97 12/29/05 08/24/06 08/15/98 03/15/07 05/03/07 05/03/07 04/30/07 05/11/07 03/27/98 03/27/98 02/18/98 12/28/01 03/28/02 TOTAL SOUTHWESTERN . . . REGION . . . . . . . 56,841,425 80,888,079 118,704,656 199,592,735 51,166,023 94,709,087 156,049,670 250,758,757 44,067,989 TOTAL APARTMENTS . . . 813,492,267 992,893,571 2,316,316,846 3,309,210,417 799,037,160 1,121,823,279 2,986,424,298 4,108,247,577 818,447,770 86 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) Initial Costs Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Encumbrances Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) Gross Amount at Which Carried at Close of Period Land and Buildings Land and Improvements Improvements Total Carrying Value (A) Accumulated Depreciation (B) Date of Construction Date Acquired REAL ESTATE HELD FOR DISPOSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Apartments Dominion Laurel Springs . . . . . . Courthouse Green . . . . . . . Greens at Hollymead . . . . . Gatewater Landing . . . . . . Greens at Hilton Run . . . . . . Dover Country . . . . Greens at Cedar Chase . . . . . . Sycamore Ridge. . . . . . . . Heritage Green . . . . . . . . . . Alexander Court . . . . . Governour’s Square . . . . . . Hickory Creek . . . . . . . . Britton Woods . . . . . . . . . Washington Park . . . . . . . . . . Fountainhead . . . . Jamestown Of Toledo . . . . . Colony Village . . . . . . . . . Brynn Marr . . . . Liberty Crossing . . . . . . . . Bramblewood . . . . . Cape Harbor . . . . Mill Creek . . . . . . The Creek . . . . . . Forest Hills . . . . . Clear Run . . . Crosswinds . . . . . Dominion on Spring Forest . . Remington on the Green . . . Dominion on Lake Lynn . . . Dominion Courtney Place . . Dominion Walnut Ridge . . . Dominion Walnut Creek . . . . . . Dominion Ramsgate . . . . . . . Copper Mill . . . . . . . Trinity Park . . . . . Meadows at Kildaire . . . . . Oaks at Weston . . . . . Dominion Harris Pond . . . . Dominion Mallard Creek . . . . . . Dominion at Sharon . . . . . . . Providence Court . . . . . . . Dominion Crossing . . . . . . Dominion Norcroft . . . . Gable Hill . . . . . . . . . . . St. Andrew’s Commons . . . . . . . . . Forestbrook . . . . . . . Waterford . . . . . . . . . . . Hampton Greene . . . . . . . . . . Rivergate . . . . . . . . . . . Patriot Place . . . . . . . . . . Bay Cove . . . Laurel Oaks . . . . . . . . . . Mallards of Wedgewood . . . . . . . . . — 14,864,111 — — — — — — — 13,250,085 26,736,531 — — — — — — — — — — — — — — — — — — — 10,208,218 15,263,426 — — 12,237,558 19,153,177 — — — — — — — — — — — — — — — — — 464,480 732,050 965,114 2,078,422 2,754,447 2,007,878 1,528,667 4,067,900 2,990,199 1,573,412 7,512,513 3,421,413 3,476,851 2,011,520 390,542 1,800,271 346,330 432,974 840,000 401,538 1,891,671 1,404,498 417,500 1,028,000 874,830 1,096,196 1,257,500 500,000 3,622,103 1,114,600 1,791,215 3,170,290 907,605 1,548,280 4,579,648 2,846,027 9,943,644 886,788 698,860 667,368 — 1,666,312 1,968,664 824,847 1,428,826 395,516 957,980 1,363,046 1,122,500 212,500 2,928,847 1,361,553 959,284 3,119,716 4,702,353 5,250,374 6,084,526 10,482,579 6,365,053 4,830,738 15,433,285 11,391,797 — 28,695,050 13,539,402 19,213,411 7,565,279 1,420,166 7,053,585 3,036,956 3,821,508 3,873,139 3,150,912 18,113,109 4,489,398 2,506,206 5,420,478 8,740,602 18,230,236 8,586,255 4,321,872 12,405,020 5,119,259 11,968,852 21,717,407 6,819,154 16,066,720 17,575,712 20,768,425 23,305,862 6,728,097 6,488,061 4,856,103 22,047,803 4,774,020 13,051,238 5,307,194 9,371,378 2,902,040 6,947,939 10,118,453 12,055,625 1,600,757 6,578,257 6,541,980 6,864,666 3,584,196 5,434,403 6,215,488 8,162,948 13,237,026 8,372,931 6,359,405 19,501,185 14,381,996 1,573,412 36,207,563 16,960,815 22,690,262 9,576,799 1,810,708 8,853,856 3,383,286 4,254,482 4,713,139 3,552,450 20,004,780 5,893,896 2,923,706 6,448,478 9,615,432 19,326,432 9,843,755 4,821,872 16,027,123 6,233,859 13,760,067 24,887,697 7,726,759 17,615,000 22,155,360 23,614,452 33,249,506 7,614,885 7,186,921 5,523,471 22,047,803 6,440,332 15,019,902 6,132,041 10,800,204 3,297,556 7,905,919 11,481,499 13,178,125 1,813,257 9,507,104 7,903,533 7,823,950 4,476,874 5,574,976 2,201,355 5,838,287 4,966,980 5,931,167 2,182,199 3,395,547 10,399,882 22,186,878 10,687,369 5,757,999 5,494,287 1,574,667 710,199 2,815,350 3,354,440 4,287,633 4,809,214 3,295,129 3,877,594 16,448,838 3,735,893 6,854,693 7,911,158 4,398,058 6,594,026 8,430,796 7,369,931 5,706,524 5,331,920 7,787,090 2,525,256 2,917,224 4,204,209 2,764,584 1,282,023 3,316,460 2,814,454 2,330,329 15,830,617 1,680,661 1,962,511 2,846,829 4,842,634 3,026,546 3,316,630 3,257,286 3,721,918 6,425,206 9,389,815 3,543,325 3,506,660 87 834,688 1,241,669 1,120,604 2,423,283 3,185,600 2,503,798 1,747,832 4,504,000 3,314,628 6,416,917 8,182,842 3,865,760 4,304,913 2,194,251 456,852 1,991,562 647,962 820,976 1,575,434 681,632 2,394,785 2,066,026 587,672 1,262,547 1,372,318 1,318,437 1,914,953 1,267,674 4,500,106 1,587,338 2,343,370 3,839,317 1,123,056 1,999,288 4,747,785 6,980,594 10,281,833 1,334,028 752,229 1,009,899 7,941,774 1,687,981 2,023,799 1,234,294 2,095,403 624,808 1,377,622 2,034,294 1,606,038 1,574,583 3,558,833 1,659,635 1,295,334 7,226,382 9,767,710 7,296,239 11,577,953 15,018,405 11,800,301 6,793,772 18,392,732 21,467,250 17,343,373 38,712,091 18,853,054 23,879,636 8,957,215 2,064,055 9,677,644 6,089,764 7,721,139 7,946,919 6,165,947 21,487,588 20,276,708 6,071,927 12,040,624 16,154,272 22,406,054 14,522,828 11,984,993 18,896,947 10,353,046 16,748,616 28,835,471 9,128,959 18,532,936 21,611,784 19,398,442 24,249,696 9,597,317 9,249,146 6,843,901 29,936,647 6,433,013 14,958,613 7,744,576 13,547,435 5,699,294 9,844,927 12,704,491 15,294,006 6,663,880 15,338,087 9,787,222 10,035,277 8,061,070 11,009,379 8,416,843 14,001,235 18,204,006 14,304,098 8,541,604 22,896,732 24,781,878 23,760,290 46,894,932 22,718,814 28,184,549 11,151,466 2,520,907 11,669,206 6,737,726 8,542,115 9,522,353 6,847,579 23,882,374 22,342,734 6,659,599 13,303,171 17,526,590 23,724,490 16,437,781 13,252,668 23,397,054 11,940,383 19,091,987 32,674,787 10,252,015 20,532,224 26,359,569 26,379,036 34,531,529 10,931,345 10,001,375 7,853,800 37,878,420 8,120,994 16,982,412 8,978,870 15,642,838 6,324,102 11,222,549 14,738,785 16,900,043 8,238,463 18,896,919 11,446,858 11,330,610 3,934,784 6,258,879 3,239,986 6,009,304 6,645,148 5,857,798 2,994,280 6,274,819 7,582,066 9,029,742 13,455,693 6,481,205 11,186,505 3,215,253 823,522 3,679,086 4,578,417 5,591,777 5,931,292 4,261,534 8,795,569 8,902,347 3,716,137 6,202,099 7,593,814 8,491,891 9,554,070 5,341,509 9,732,458 6,118,307 8,370,410 14,398,721 4,063,716 6,985,839 8,126,235 9,687,246 8,788,486 4,658,021 3,892,189 3,190,109 12,319,663 1,482,774 3,168,235 4,719,954 7,062,153 3,696,247 4,957,530 6,241,488 6,285,357 5,272,450 8,878,287 4,269,432 4,917,211 1972 1974/78 1990 1970 1988 1970 1988 1997 1998 1999 1967 1988 1991 1998 1966 1965 1972/74 1973/77 1972/74 1980/82 1996 1986/98 1973 1964/69 1987/89 1990 1978/81 1987 1986 1979/81 1982/84 1985/86 1988 1997 1987 2000 2001 1987 1989 1984 1997 1985 1991/97 1985 1986 1974 1985 1990 1989 1974 1972 1986 1985 09/06/91 12/31/84 05/04/95 12/16/92 05/04/95 07/01/94 05/04/95 07/02/98 07/02/98 07/02/98 12/07/98 12/07/98 04/20/01 12/07/98 12/07/98 12/07/98 12/31/84 12/31/84 11/30/90 12/31/84 08/15/96 09/30/91 06/30/92 06/30/92 07/22/94 02/28/97 05/21/91 09/27/91 12/01/92 07/08/93 03/04/94 05/17/94 08/15/96 12/31/96 02/28/97 05/25/00 06/28/02 07/01/94 08/16/94 08/15/96 09/30/97 08/31/04 08/31/04 12/04/89 05/20/93 07/01/93 07/01/94 08/19/94 08/15/96 10/23/85 12/16/92 07/01/97 07/27/95 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) Initial Costs Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Encumbrances Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) Gross Amount at Which Carried at Close of Period Land and Buildings Land and Improvements Improvements Total Carrying Value (A) Accumulated Depreciation (B) Date of Construction Date Acquired — — 12,674,781 — — 9,960,674 — — — 14,671,288 19,383,491 6,581,552 9,069,354 3,535,679 — — — — 12,171,464 — 5,036,047 5,747,706 — — — — — — 6,629,608 — — 10,149,805 — — — — 2,387,368 1,840,230 3,692,187 1,446,553 1,434,450 2,139,774 1,376,190 2,412,180 2,925,372 3,966,129 5,630,740 1,725,508 3,121,153 776,587 1,543,000 5,313,920 2,297,741 4,058,090 3,048,212 3,604,483 1,991,478 498,632 1,688,948 2,018,478 1,150,669 1,413,851 1,333,958 1,406,750 3,134,669 1,913,177 2,523,670 2,485,291 3,878,138 3,079,034 5,091,616 5,775,144 7,458,897 11,571,625 7,756,919 9,287,878 4,940,166 15,231,201 10,931,309 8,687,820 10,527,738 22,227,701 23,293,922 6,308,032 11,764,974 4,944,947 5,457,000 19,626,181 7,157,965 14,755,809 10,961,749 11,592,432 5,787,626 6,520,172 6,684,229 6,667,450 4,155,411 6,453,847 5,308,884 5,293,250 11,170,376 7,086,823 8,976,330 7,451,165 9,973,051 7,256,292 11,997,769 17,236,146 9,846,265 13,411,855 11,449,106 10,734,431 6,374,616 17,370,975 12,307,499 11,100,000 13,453,110 26,193,830 28,924,662 8,033,540 14,886,127 5,721,534 7,000,000 24,940,101 9,455,706 18,813,899 14,009,961 15,196,915 7,779,104 7,018,804 8,373,177 8,685,928 5,306,080 7,867,698 6,642,842 6,700,000 14,305,045 9,000,000 11,500,000 9,936,456 13,851,189 10,335,326 17,089,385 23,011,290 7,573,118 7,523,386 6,658,533 5,057,141 5,218,337 4,560,692 3,697,922 3,448,942 5,944,784 5,716,022 12,961,618 3,939,810 4,489,189 2,107,922 5,021,648 8,163,621 4,055,516 10,021,117 4,580,872 6,924,163 4,784,656 2,700,810 1,663,102 4,181,284 1,931,363 3,430,554 2,684,433 1,930,117 7,981,931 3,313,252 4,753,364 1,408,314 2,581,125 (9,962,536) 22,164,886 1,250,267 3,459,499 2,947,348 4,819,847 1,730,561 1,973,303 2,839,349 1,711,425 2,873,548 3,399,825 5,735,628 6,796,666 2,431,700 4,001,968 1,203,386 2,007,379 6,331,473 2,928,917 5,096,173 3,677,697 3,919,128 2,549,507 819,641 2,198,519 2,712,287 1,233,441 1,628,832 1,777,270 1,554,296 3,608,898 2,510,600 3,297,710 2,674,489 4,246,587 — 5,726,954 9,533,379 13,959,884 17,987,893 13,287,792 14,061,012 9,619,650 19,092,318 14,293,996 11,675,393 15,998,070 26,174,224 35,089,614 9,541,650 15,373,348 6,626,070 10,014,268 26,772,249 10,582,306 23,738,843 14,913,136 18,201,950 10,014,253 8,899,973 7,837,760 10,154,926 6,004,002 9,669,420 7,550,006 7,075,821 18,678,078 9,802,652 12,955,654 8,670,281 12,185,726 372,790 20,555,991 14,728,177 17,419,383 20,935,241 18,107,639 15,791,572 11,592,953 21,931,667 16,005,421 14,548,942 19,397,894 31,909,852 41,886,280 11,973,350 19,375,316 7,829,456 12,021,648 33,103,722 13,511,222 28,835,016 18,590,833 22,121,078 12,563,760 9,719,614 10,036,279 12,867,212 7,237,443 11,298,252 9,327,275 8,630,117 22,286,976 12,313,252 16,253,364 11,344,770 16,432,314 372,790 26,282,944 24,261,557 7,263,621 8,967,023 7,066,033 5,039,829 5,353,624 8,036,572 5,418,324 5,210,835 7,256,443 11,529,433 15,909,110 4,175,536 6,766,982 2,835,481 5,080,621 11,193,611 5,070,380 10,709,908 6,330,218 8,935,888 4,126,630 3,486,055 3,491,145 4,617,013 2,250,255 3,176,484 3,536,592 2,681,421 8,538,897 4,159,635 5,682,879 3,023,715 4,366,958 — 5,572,547 4,194,174 1984 1984/86 1988 1989 1984 1987 1986 1984 1984 1982/98 1996/98 1983 1984 1986 1978 1985 1984 1985 1982 1979 1983 1985 1983 1983 1983 1979 1984 1984 1984 1985 1984 1992 1988 1980 1996 1985/87 12/29/95 10/31/94 09/29/95 & 09/30/96 03/27/98 09/24/93 02/21/97 05/20/98 12/31/96 12/31/96 12/31/96 12/31/96 03/27/98 03/27/98 03/27/98 12/31/96 06/25/97 05/08/97 09/26/97 09/26/97 11/20/97 03/27/98 03/27/98 03/27/98 03/27/98 03/27/98 03/27/98 03/27/98 12/31/96 03/27/97 12/31/96 12/31/96 12/07/98 03/27/98 02/11/05 05/11/06 10/23/06 Grove . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fisherman’s Village . . . . . . . Vinyards . . . . . . . . . . Andover Place. . . . . . . Heron Lake . . LakePointe . . . . . . . . Club at Hickory Hollow . . . . . . . . . Williamsburg . . . . . . . Autumnwood . . . . . . . Cobblestone . . . . . . . . Oak Park . . . . . . . . . Oak Forest. . . . . . . . . Summit Ridge . . . . . . . Derby Park . . . . . . . . Aspen Court . . . . . . . . Woodtrail . . . . . . . . . Green Oaks . . Sky Hawk . . . . . . . . . South Grand at Pecan . . . . . . . . . . . . . Braesridge . . . . . . . . Skylar Pointe . . . Chelsea Park . . . . . . Country Club Place . . . . . . Arbor Ridge . . . . . . . London Park . . . . . . Marymont . . . . . . . . Riviera Pines . . . . . . Towne Lake . . . . . . . Pecan Grove . . . . . . . Anderson Mill . . . . . . Turtle Creek . . Shadow Lake . . . . . . Lancaster Commons . . Evergreen Park . . . . . University Park TRS . . Sierra Palms . . . . Gallery at Bayport II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Held for Disposition . . . . . . . 227,324,555 189,356,389 843,921,093 1,033,277,482 454,353,403 249,370,083 1,225,289,476 1,474,659,558 547,964,914 REAL ESTATE UNDER DEVELOPMENT . . Apartments Greenhaven Village . The Addison at . . Brookhaven . Tiburon . . . . . . RIACHI AT ONE21 . . . . . . . The Brooks . . . . Greenbrook . . . . . . Addison Development . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Apartments . . . . . — — — — — — — — 916,415 14,914,802 15,831,218 2,222,811 15,994,275 2,059,754 18,054,029 12,625 16,720,828 3,600,000 2,341,936 1,341,911 10,569,355 — 8,374,842 — — 3,882,110 (424,090) — 25,095,670 3,600,000 2,341,936 5,224,022 10,145,265 — 2,440,615 15,643,611 15,854,944 382,785 589,983 (1,090,171) 24,935,288 4,694,415 4,662,823 5,139,104 10,167,046 — 2,600,997 14,549,196 13,534,057 467,703 568,202 (1,090,171) 27,536,285 19,243,611 18,196,880 5,606,807 10,735,248 (1,090,171) 35,490,446 26,747,665 62,238,111 36,044,577 65,592,951 32,689,737 98,282,688 203,059 107,762 492,515 66,776 (21,507) — 861,230 88 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) Initial Costs Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Encumbrances Cost of Improvements Capitalized Subsequent to Acquisition (Net of Disposals) Gross Amount at Which Carried at Close of Period Land and Buildings Land and Improvements Improvements Total Carrying Value (A) Accumulated Depreciation (B) Date of Construction Date Acquired — — — — — — — — — — 86,607,584 — — — 11,861,682 1,523,922 17,297,661 1,709,606 3,458,393 7,930,171 13,290,186 1,120,322 4,718,622 — 55,651,137 31,747,409 11,720,456 1,918,411 93,478 — 11,955,160 1,523,922 — 17,297,661 1,709,606 — 3,458,393 — 7,930,171 — — 13,290,186 1,120,322 — 4,718,622 — — — — 55,651,137 — 31,747,409 — 11,720,456 1,918,411 — 68,818 401,197 1,197,928 663,681 5,920,849 2,009,163 2,065,131 148,426 437,308 491,261 67,042,406 1,771,208 566,618 892,211 11,861,682 1,300,000 16,311,758 1,217,551 3,582,612 8,075,814 13,263,436 1,120,322 4,718,622 — 56,495,731 31,747,409 11,720,456 1,469,609 162,296 625,119 12,023,978 1,925,119 102,548 — 2,183,830 1,155,736 5,796,629 1,863,520 2,091,881 148,426 437,308 491,261 18,495,589 2,373,287 9,379,242 9,939,334 15,355,317 1,268,748 5,155,930 491,261 66,197,812 1,771,208 566,618 1,341,013 122,693,543 33,518,617 12,287,074 2,810,622 — — — — — — — — — — — (463) . . . . . . Land . . Waterside . . . . . . . . Presidio . UDR Pacific Los Alisos, . . . . . . . . . . . . . . LP . . . . . . Parkers Landing II TRS . . . Laurelwoode . . . . Residences at Stadium . . . . . . . . . . . . . . . . . . Village . . . Signal Hill . . . . . . Gessner Dev TRS Phase II . . . . . The Tribute . . . . . Jefferson JV LLC . . . . . Jefferson at Marina del . . . . . . . . . . 2400 14th Street Bennett . . . . . . . Riachi at One21 Ph II . . . . . . . . . . . . . . . . . . . . . . Ray . Total Land . . . . . . . . . 86,607,584 163,947,978 93,478 164,041,456 83,676,205 162,885,003 84,832,658 247,717,660 102,085 Total Real Estate Under Development . . . . . . Commercial Held for Investment . . . . . Hanover Village . . . The Calvert — commercial . . . . . . Grandview DCO . . side . . . . . . . . . . . . 86,607,584 199,438,424 26,841,143 226,279,567 119,720,781 228,477,954 117,522,394 346,000,348 963,315 — 1,623,910 — 1,623,910 5 1,103,600 520,315 1,623,915 491,869 — 10,511,295 34,128 7,266,024 1,597,359 9,701,625 1,631,486 16,967,649 420 1,166,770 326,899 10,749,574 1,305,008 7,384,845 1,631,906 18,134,419 311,005 2,739,046 Total Commerical . . . . . 10,511,295 8,924,062 11,298,984 20,223,045 1,167,195 12,180,073 9,210,167 21,390,240 3,541,920 . . . Trust . . . . . . Richmond Corporate . . United Dominion Realty . . . . . . Coastal Monerey Properties . . . . . RE3 Elimination . . . . . . . . . Richmond Corporate . . . . . . . — — — — — — — — — — — — — — — — — — — — 2,427,117 285,993 2,141,124 2,427,117 840,415 — — — — 975 640 (184,401) 2,243,355 — — 285,993 640 (184,401) 1,957,362 640 (184,401) 2,243,355 30 — 841,420 Commercial & Corporate . . . . . . . . 10,511,295 8,924,062 11,298,984 20,223,045 3,410,550 12,466,066 11,167,530 23,633,595 4,383,340 TOTAL REAL ESTATE . . OWNED . . . . . . . . 1,137,935,701 1,390,612,446 3,198,378,065 4,588,990,511 1,376,521,895 1,612,137,381 4,340,403,698 5,952,541,079 1,371,759,339 (A) The aggregate cost for federal income tax purposes was approximately $5.5 billion at December 31, 2007. (B) The depreciable life for all buildings is 35 years. 89 UDR, INC. SCHEDULE III — REAL ESTATE OWNED — (Continued) 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: 2007 2006 2005 Balance at beginning of year . . . . . . . . . . . . . . . . Real estate acquired . . . . . . . . . . . . . . . . . . . . . . Capital expenditures & development . . . . . . . . . . Real estate sold . . . . . . . . . . . . . . . . . . . . . . . . . $5,820,122,155 509,976,871 230,784,997 (608,342,944) $5,512,424,090 392,058,366 379,629,467 (463,989,768) $5,243,295,963 439,559,832 205,465,000 (375,896,705) Balance at end of year . . . . . . . . . . . . . . . . . . . . $5,952,541,079 $5,820,122,155 $5,512,424,090 The following is a reconciliation of total accumulated depreciation for real estate owned at December 31: 2007 2006 2005 Balance at beginning of year . . . . . . . . . . . . . . . . Depreciation expense for the year . . . . . . . . . . . . Accumulated depreciation on sales . . . . . . . . . . . $1,253,726,781 256,931,873 (138,899,315) $1,123,829,081 243,348,343 (113,450,643) $1,007,887,007 208,393,075 (92,451,001) Balance at end of year . . . . . . . . . . . . . . . . . . . . $1,371,759,339 $1,253,726,781 $1,123,829,081 90 EXHIBIT INDEX The exhibits listed below are filed as part of this Report. References under the caption “Location” to exhibits or other filings indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. Management contracts and compensatory plans or arrangements filed as exhibits to this Report are identified by an asterisk. The Commission file number for our Exchange Act filings referenced below is 1-10524. Exhibit 2.01 2.02 2.03 2.04 2.05 Description Location Agreement and Plan of Merger dated as of December 19, 1997, between the Company, ASR Investment Corporation and ASR Acquisition Sub, Inc. Agreement of Plan of Merger dated as of September 10, 1998, between the Company and American Apartment Communities II, Inc. including as exhibits thereto the proposed terms of the Series D Preferred Stock and the proposed form of Investment Agreement between the Company, United Dominion Realty, L.P., American Apartment Communities II, Inc., American Apartment Communities Operating Partnership, L.P., Schnitzer Investment Corp., AAC Management LLC and LF Strategic Realty Investors, L.P. Partnership Interest Purchase and Exchange Agreement dated as of September 10, 1998, between the Company, United Dominion Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. Agreement of Purchase and Sale dated as of August 13, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein. First Amendment to Agreement of Purchase and Sale dated as of September 29, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein. Exhibit 2(a) to the Company’s Form S-4 Registration Statement (Registration No. 333-45305) filed with the Commission on January 30, 1998. Exhibit 2(c) to the Company’s Form S-3 Registration Statement (Registration No. 333-64281) filed with the Commission on September 25, 1998. Exhibit 2(d) to the Company’s Form S-3 Registration Statement (Registration No. 333-64281) filed with the Commission on September 25, 1998. Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 28, 2004 and filed with the Commission on September 29, 2004. Exhibit 2.2 to the Company’s Current Report on Form 8-K dated September 29, 2004 and filed with the Commission on October 5, 2004. Description Location Exhibit 2.06 2.07 3.01 3.02 3.03 3.04 Second Amendment to Agreement of Purchase and Sale dated as of October 26, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein. Agreement of Purchase and Sale dated January 23, 2008, by and between the Company, DRA Fund VI LLC and the other signatories thereto. Articles of Restatement. Articles of Amendment to the Articles of Restatement dated and filed with the State Department of Assessments and Taxation of the State of Maryland on March 14, 2007. Articles Supplementary relating to the Company’s 6.75% Series G Cumulative Redeemable Preferred Stock, dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 30, 2007. Amended and Restated Bylaws (as amended through March 14, 2007). 4.01 Form of Common Stock Certificate. 4.02 4.03 4.04 Note Purchase Agreement dated as of February 15, 1993, between the Company and CIGNA Property the Company and CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans. Senior Indenture dated as of November 1, 1995. Supplemental Indenture dated as of June 11, 2003. Exhibit 2.3 to the Company’s Current Report on Form 8-K/A dated September 29, 2004 and filed with the Commission on November 1, 2004. Exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 23, 2008 and filed with the Commission on January 29, 2008. Exhibit 3.09 to the Company’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005. Exhibit 3.2 to the Company’s Current Report on Form 8-K dated March 14, 2007 and filed with the SEC on March 15, 2007. Exhibit 3.4 to the Company’s Form 8-A Registration Statement dated and filed with the SEC on May 30, 2007. Exhibit 3.3 to the Company’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007. Exhibit 4.1 to the Company’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007. Exhibit 6(c)(5) to the Company’s Form 8-A Registration Statement dated April 19, 1990. Exhibit 4(ii)(h)(1) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. Exhibit 4.03 to the Company’s Current Report on Form 8-K dated June 17, 2004 and filed with the Commission on June 18, 2004. Description Location Exhibit 4.05 4.06 4.07 Subordinated Indenture dated as of August 1, 1994. Indenture dated December 19, 2005 between the Company and SunTrust Bank, as Trustee, relating to the Company’s 4.00% Convertible Senior Notes due 2035, including the form of note. Form of Senior Debt Security. 4.08 Form of Subordinated Debt Security. 4.09 4.10 Form of Fixed Rate Medium-Term Note, Series A. Form of Floating Rate Medium-Term Note, Series A. 4.11 6.50% Notes due 2009. 4.12 4.50% Medium-Term Notes due March 2008. 4.13 5.13% Medium-Term Note due January 2014. 4.14 4.25% Medium-Term Note due January 2009. 4.15 4.30% Medium-Term Note due July 2007. 4.16 3.90% Medium-Term Note due March 2010. 4.17 5.00% Medium-Term Notes due January 2012. 4.18 4.30% Medium-Term Note due July 2007. 4.19 5.25% Medium-Term Note due January 2015, issued November 1, 2004. Exhibit 4(i)(m) to the Company’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 13, 2005 and filed with the Commission on December 19, 2005. Exhibit 4(i)(n) to the Company’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995. Exhibit 4(i)(o) to the Company’s Form S-3 Registration Statement (Registration No. 33-55159) filed with the Commission on August 19, 1994. Exhibit 4.01 to the Company’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007. Exhibit 4.02 to the Company’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007. Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. Exhibit 4.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, and Exhibits 4.1 and 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. Exhibit 4.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. Exhibit 4.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Exhibit 4.20 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Exhibit 4.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Description Location Exhibit 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 10.01* 5.25% Medium-Term Note due January 2015, issued February 14, 2005. 5.25% Medium-Term Note due January 2015, issued March 8, 2005. 5.25% Medium-Term Note due January 2015, issued May 3, 2005. 5.25% Medium-Term Note due January 2016, issued September 7, 2005. Registration Rights Agreement dated October 12, 2006 between the Company and the Initial Purchasers of the Company’s 3.625% Convertible Senior Notes due 2011. Indenture dated October 12, 2006 between the Company and U.S. Bank National Association, as Trustee, relating to the Company’s 3.625% Convertible Senior Notes due 2011, including the form of note. 6.05% Medium-Term Note due June 2013, issued June 7, 2006. 5.50% Medium-Term Note, Series A due April 2014, issued March 27, 2007. Form of Certificate for Shares of the Company’s 6.75% Series G Cumulative Redeemable Preferred Stock. Articles Supplementary relating to the Company’s 6.75% Series G Cumulative Redeemable Preferred Stock. 1985 Stock Option Plan, as amended. 10.02* 1991 Stock Purchase and Loan Plan. 10.03 10.04 10.05* Subordination Agreement dated April 16, 1998, between the Company and United Dominion Realty, L.P. Servicing and Purchase Agreement dated as of June 24, 1999, including as an exhibit thereto the Note and Participation Agreement forms. Form of Restricted Stock Awards. 10.06 Description of Shareholder Value Plan. Exhibit 4.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Exhibit 4.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 5, 2006 and filed with the Commission on October 12, 2006. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2006 and filed with the Commission on October 12, 2006. Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007. Exhibit 4.1 to the Company’s Form 8-A Registration Statement dated and filed with the SEC on May 30, 2007. See Exhibit 3.03. Exhibit 10(iv) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. Exhibit 10(viii) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. Exhibit 10(vi)(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. Exhibit 10(vii) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. Exhibit 99.6 to the Company’s Current Report on Form 8-K dated December 31, 2004 and filed with the Commission on January 11, 2005. Exhibit 10(x) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999. Exhibit Description Location Exhibit 10(xi) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999. Exhibit 10(xv) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. Exhibit 10(xvii) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. Exhibit 10.03 to the Company’s Current Report on Form 8-K dated May 3, 2005 and filed with the Commission on May 9, 2005. Appendix A to the Company’s Definitive Proxy Statement dated March 31, 2006 and filed with the Commission on March 30, 2006. Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 25, 2005 and filed with the Commission on May 27, 2005. 10.07* Description of Executive Deferral Plan. 10.08* 10.09* 10.10* 10.11* 10.12 10.13 10.14 10.15 10.16 10.17 Retirement Agreement and Covenant Not to Compete between the Company and John P. McCann dated March 20, 2001. Description of Series A Out-Performance Program. Description of Amendment to Series A Out- Performance Program. 1999 Long-Term Incentive Plan (as amended and restated through February 10, 2006). Second Amended and Restated Agreement of Limited Partnership of Heritage Communities L.P. First Amendment of Second Amended and Restated Agreement of Limited Partnership of Heritage Communities L.P. Second Amendment to Second Amended and Restated Agreement of Limited Partnership of Heritage Communities L.P. Credit Agreement dated as of August 14, 2001, between the Company and certain subsidiaries and ARCS Commercial Mortgage Co., L.P., as Lender, as amended through October 5, 2006. Credit Agreement dated as of December 12, 2001, between the Company and certain subsidiaries and ARCS Commercial Mortgage Co., L.P., as Lender, as amended through September 29, 2006. Amended and Restated Credit Agreement dated May 25, 2005 between the Company and Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc., as Joint Lead Arrangers and Joint Bookrunners, Wachovia Bank, National Association, as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, SunTrust Bank and Wells Fargo Bank, National Association, as Documentation Agents, Citicorp North America, Inc., KeyBank, N.A. and U.S. Bank National Association, as Managing Agents, and LaSalle Bank National Association, Mizuho Corporate Bank, Ltd., New York Branch and UFJ Bank Limited, New York Branch as Co-Agents, and each of the financial institutions initially signatory thereto and their assignees. Description Location Exhibit 10.18* 10.19* 10.20* 10.21* 10.22 10.23 10.24* 10.25 10.26* 10.27 Description of Series B Out-Performance Program. Description of New Out-Performance Program. Description of Series C Out-Performance Program. Participation in the Series C Out-Performance Program. Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2004. First Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. Employment Agreement of Richard A. Giannotti dated December 8, 1998. Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. Description of the Series D Out-Performance Program. Description of the Series E Out-Performance Program. 10.28* Executive Compensation Summary. 10.29* 10.30 10.31* Agreement between the Company and Thomas W. Toomey dated November 7, 2005, regarding corporate aircraft. Indenture dated October 12, 2006 between the Company and U.S. Bank National Association, as Trustee, including the form of note. Letter Agreement between the Company and Michael A. Ernst. 10.32* Form of Indemnification Agreement. 10.33* 10.34* Form of Notice of Performance Contingent Restricted Stock Award. Separation Agreement dated November 9, 2006 between the Company and Christopher D. Genry. Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Exhibit 10.01 to the Company’s Current Report on Form 8-K dated May 3, 2005 and filed with the Commission on May 9, 2005. Exhibit 10.02 to the Company’s Current Report on Form 8-K dated May 3, 2005 and filed with the Commission on May 9, 2005. Exhibit 10.07 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Exhibit 10.06 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Filed herewith. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 2, 2006 and filed with the Commission on May 8, 2006. Company’s Definitive Proxy Statement dated March 26, 2007 and filed with the Commission on March 23, 2007. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 15, 2006 and filed with the Commission on February 21, 2006. Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. See Exhibit 4.25. Exhibit 10.01 to the Company’s Current Report on Form 8-K dated May 31, 2006 and filed with the Commission on June 5, 2006. Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 2, 2006 and filed with the Commission on May 8, 2006. Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 2, 2006 and filed with the Commission on May 8, 2006. Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. Exhibit Description Location 10.35* Summary of 2007 Director Compensation. 10.36 10.37 10.38* 10.39* 10.40* 10.41 10.42 10.43* 10.44 10.45 10.46 10.47 10.48* 12 21 23 Senior Indenture dated as of November 1, 1995, as supplemented by Supplemental Indenture dated as of June 11, 2003. Indenture dated December 19, 2005 between the Company and SunTrust Bank, as Trustee, including form of note. Notice of Performance Contingent Restricted Stock Award, including Restricted Stock Award Agreement for 2,350 Shares, for Mark M. Culwell, Jr. Restricted Stock Award Agreement for 7,418 Shares for Mark M. Culwell, Jr. Restricted Stock Award Agreement for 37,092 Shares for Mark M. Culwell, Jr. Second Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. Amended and Restated Master Credit Facility Agreement dated June 24, 2002 between the Company and Green Park Financial Limited Partnership, as amended through February 14, 2007. Letter Agreement between the Company and Martha R. Carlin. Agreement of Purchase and Sale dated January 23, 2008, by and between the Company, DRA Fund VI LLC and the other signatories thereto. Limited Liability Company Agreement of UDR Texas Ventures LLC, a Delaware limited liability company, dated as of November 5, 2007. Second Amended and Restated Credit Agreement dated as of July 27, 2007. Letter Agreement dated May 31, 2007 between the Company and Lester C. Boeckel. Form of Restricted Stock Award Agreement for awards outside of the 1999 Long-Term Incentive Plan. Computation of Ratio of Earnings to Fixed Charges. Subsidiaries. Consent of Independent Registered Public Accounting Firm. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 7, 2006 and filed with the Commission on December 12, 2006. See Exhibits 4.03 and 4.04. See Exhibit 4.06. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 21, 2006 and filed with the Commission on June 23, 2006. Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 21, 2006 and filed with the Commission on June 23, 2006. Exhibit 10.3 to the Company’s Current Report on Form 8-K dated June 21, 2006 and filed with the Commission on June 23, 2006. Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2007 and filed with the Commission on January 3, 2008. See Exhibit 2.07. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 5, 2007 and filed with the Commission on November 9, 2007. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 27, 2007 and filed with the Commission on August 2, 2007. Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 31, 2007 and filed with the Commission on June 4, 2007. Exhibit 99.3 to Company’s Current Report on Form 8-K dated March 19, 2007 and filed with the Commission on March 19, 2007. Filed herewith. Filed herewith. Filed herewith. Exhibit Description Location 31.1 31.2 32.1 32.2 Rule 13a-14(a) Certification of the Chief Executive Officer. Rule 13a-14(a) Certification of the Chief Financial Officer. Section 1350 Certification of the Chief Executive Officer. Section 1350 Certification of the Chief Financial Officer. Filed herewith. Filed herewith. Filed herewith. Filed herewith. UDR, INC. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Dollars in thousands) Exhibit 12 2007 Years Ended December 31, 2005 2004 2006 2003 Income/(loss) before discontinued operations, net of minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,219 $ (85,497) $ (58,960) $ (52,921) $ (53,049) Add: Portion of rents representative of the interest factor . . Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on indebtedness from continuing operations . . 871 (16) 174,677 679 (6,373) 179,074 667 (4,539) 159,433 651 (5,082) 118,504 651 (6,138) 109,275 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $188,751 $ 87,883 $ 96,601 $ 61,152 $ 50,739 Fixed charges and preferred stock dividend: Interest on indebtedness from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest Portion of rents representative of the interest factor . . $174,677 13,244 871 $179,074 5,173 679 $159,433 2,769 667 $118,504 986 651 $109,275 1,808 651 Fixed charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,792 184,926 162,869 120,141 111,734 Add: Preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . Accretion of preferred stock . . . . . . . . . . . . . . . . . . . 13,911 2,261 15,370 — 15,370 — 19,531 5,729 26,326 19,271 Preferred stock dividend and accretion of preferred stock . . . . . . . . . . . . . . . . . . . . . . . 16,172 15,370 15,370 25,260 45,597 Combined fixed charges and preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . $204,964 $200,296 $178,239 $145,401 $157,331 Ratio of earnings to fixed charges. . . . . . . . . . . . . . . . . Ratio of earnings to combined fixed charges and preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — For the year ended December 31, 2007, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $41.0 thousand. For the year ended December 31, 2007, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $16.2 million. For the year ended December 31, 2006, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $97.0 million. For the year ended December 31, 2006, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $112.4 million. For the year ended December 31, 2005, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $66.3 million. For the year ended December 31, 2005, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $81.6 million. For the year ended December 31, 2004, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $59.0 million. For the year ended December 31, 2004, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $84.2 million. For the year ended December 31, 2003, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $61.0 million. For the year ended December 31, 2003, the ratio of earnings to combined fixed charges and preferred stock dividend was deficient of achieving a 1:1 ratio by $106.6 million. 

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