UDR
Annual Report 2014

Plain-text annual report

UDR 10-K 12/31/2014 Section 1: 10-K (10-K) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K þ o ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-10524 (UDR, Inc.) Commission file number 333-156002-01 (United Dominion Realty, L.P.) UDR, Inc. United Dominion Realty, L.P. (Exact name of registrant as specified in its charter) Maryland (UDR, Inc.) Delaware (United Dominion Realty, L.P.) (State or other jurisdiction of incorporation or organization) 54-0857512 54-1776887 (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 Name of Each Exchange on Which Registered Common Stock, $0.01 par value (UDR, Inc.) New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) UDR, Inc. United Dominion Realty, L.P. Yes þ Yes o No o No þ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. UDR, Inc. Yes o No þ United Dominion Realty, L.P. Yes o No þ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. UDR, Inc. United Dominion Realty, L.P. Yes þ Yes þ No o No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). UDR, Inc. United Dominion Realty, L.P. Yes þ Yes þ No o No o 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 Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o 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): UDR, Inc.: Large accelerated filer þ United Dominion Realty, L.P.: Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Do not check if a smaller reporting company) UDR, Inc. United Dominion Realty, L.P. Yes o Yes o No þ No þ The aggregate market value of the shares of common stock of UDR, Inc. held by non-affiliates on June 30, 2014 was approximately $3.0 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 19, 2015, there were 258,765,713 shares of UDR, Inc.’s common stock outstanding. There is no public trading market for the partnership units of United Dominion Realty, L.P. As a result, an aggregate market value of the partnership units of United Dominion Realty, L.P. cannot be determined. The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from UDR, Inc.’s definitive proxy statement for the 2015 Annual Meeting of Stockholders. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS PAGE PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures 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 Item 8. Financial Statements and Supplementary Data 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 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules 2 9 21 22 24 24 25 29 32 63 63 63 63 64 65 65 65 65 65 66 EXPLANATORY NOTE This Report combines the annual reports on Form 10-K for the fiscal year ended December 31, 2014 of UDR, Inc. a Maryland corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR, Inc. is the parent company and sole general partner. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” the “Company,” “UDR” or “UDR, Inc.” refer collectively to UDR, Inc., together with its consolidated subsidiaries and joint ventures, including United Dominion Realty, L.P. Unless the context otherwise requires, the references in this Report to the “Operating Partnership” or the “OP” refer to United Dominion Realty, L.P., together with its consolidated subsidiaries. “Common stock” refers to the common stock of UDR and “stockholders” means the holders of shares of UDR’s common stock and preferred stock. The limited partnership interests of the Operating Partnership are referred to as “OP Units” and the holders of the OP Units are referred to as “unitholders.” This combined Form 10-K is being filed separately by UDR and the Operating Partnership. There are a number of differences between the Company and the Operating Partnership, which are reflected in our disclosure in this Report. UDR is a real estate investment trust (“REIT”), whose most significant asset is its ownership interest in the Operating Partnership. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiary (“TRS”) whose activities include development of land and land entitlement. UDR acts as the sole general partner of the Operating Partnership, holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of our subsidiaries. The Operating Partnership conducts the operations of a substantial portion of the business and is structured as a partnership with no publicly traded equity securities. The Operating Partnership has guaranteed certain outstanding debt of UDR. As of December 31, 2014, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,002,342 units (or approximately 95.0%) of the limited partnership interests of the Operating Partnership. UDR conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership, and, by virtue of its ownership of the OP Units and being the Operating Partnership’s sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Separate financial statements and accompanying notes, as well as separate discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities” and “Control and Procedures” are provided for each of UDR and the Operating Partnership. In addition, certain disclosures in “Business” are separated by entity to the extent that the discussion relates to UDR’s business outside of the Operating Partnership. Forward-Looking Statements PART I This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward- looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning availability of capital and the stabilization of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments, redevelopments and lease-ups on schedule, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels, expectations concerning the joint ventures with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income. 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 Annual 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. For a further discussion of these and other factors that could impact future results, performance or transactions, see “Item 1A. Risk Factors” elsewhere in this Annual Report. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Annual Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law. 1 Item 1. BUSINESS General UDR is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages multifamily apartment communities generally located in high barrier-to-entry markets located throughout the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement processes, low single-family home affordability and strong employment growth potential. At December 31, 2014, our consolidated real estate portfolio included 139 communities located in 20 markets, with a total of 39,851 completed apartment homes, which are held through our subsidiaries, including the Operating Partnership, and consolidated joint ventures. In addition, we have an ownership interest in 36 communities containing 10,055 apartment homes through unconsolidated joint ventures or partnerships. As of December 31, 2014, the Company was developing one wholly-owned community with 369 apartment homes and three unconsolidated joint venture communities with 1,018 apartment homes, none of which have been completed. At December 31, 2014, the Operating Partnership’s consolidated real estate portfolio included 68 communities located in 17 markets, with a total of 20,814 completed apartment homes. The Operating Partnership owns, operates, acquires, renovates, develops, redevelops, and manages multifamily apartment communities generally located in high barrier-to-entry markets located throughout the United States. During the year ended December 31, 2014, revenues of the Operating Partnership represented approximately 52% of our total rental revenues. UDR has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to in this Report as the “Code.” To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gains) to our stockholders annually. As a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our stockholders annually. In 2014, we declared total distributions of $1.04 per common share and paid dividends of $1.015 per common share. First Quarter Second Quarter Third Quarter Fourth Quarter Total Dividends Declared in 2014 Dividends Paid in 2014 $ $ 0.260 0.260 0.260 0.260 1.040 $ $ 0.235 0.260 0.260 0.260 1.015 UDR was formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations in 1995. The Operating Partnership was redomiciled in 2004 as a Delaware limited partnership. Our corporate offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado and our telephone number is (720) 283-6120. Our website is www.udr.com. The information contained on our website, including any information referred to in this Report as being available on our website, is not a part of or incorporated into this Report. As of February 19, 2015, we had 1,523 full-time associates and 59 part-time associates, all of whom were employed by UDR. Reporting Segments We report in two segments: Same-Store Communities and Non-Mature Communities/Other. Our Same-Store Communities segment includes those communities acquired, developed, and stabilized prior to January 1, 2013, and held as of December 31, 2014. 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 classified as held for sale at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. 2 Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. For additional information regarding our operating segments, see Note 15, Reportable Segments, in the Notes to the UDR Consolidated Financial Statements included in this Report and Note 12, Reportable Segments, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report. Business Objectives Our principal business objective is to maximize the economic returns of our apartment communities to provide our stockholders with the greatest possible total return and value. To achieve this objective, we intend to continue to pursue the following goals and strategies: • own and operate apartments in high barrier-to-entry markets, which are characterized by limited land for new construction, difficult and lengthy entitlement processes, low single-family home affordability and strong employment growth potential, thus enhancing stability and predictability of returns to our stockholders; • manage real estate cycles by taking an opportunistic approach to buying, selling, renovating, redeveloping, and developing apartment communities; • empower site associates to manage our communities efficiently and effectively; • measure and reward associates based on specific performance targets; and • manage our capital structure to help enhance predictability of earnings and dividends. 2014 Highlights • In July 2014, the Company marked its 42nd year as a REIT and paid its 168th consecutive quarterly dividend in October. The Company’s annualized declared 2014 dividend of $1.04 represented a 10.6% increase over the previous year. • We achieved Same-Store revenue growth of 4.3% and Same-Store net operating income (“NOI”) growth of 5.2%. • During the year ended December, 31, 2014, we invested approximately $251.5 million in wholly-owned development projects and $31.5 million in redevelopment projects and major renovations, including completion of 980 development apartment homes and 401 redevelopment apartment homes in primary markets. • We expanded our relationship with the Metropolitan Life Insurance Company (“MetLife”): • We increased our ownership interest in the remaining six operating communities in the UDR/MetLife I Joint Venture from 12% to 50%, and MetLife and the Company contributed the communities to the UDR/MetLife II Joint Venture. We paid MetLife $82.5 million for the additional ownership interests. • We increased our ownership interest in four land sites in the UDR/MetLife I Joint Venture from approximately 3% to 50%. The remaining interest continues to be held by our joint venture partner MetLife. We paid MetLife approximately $36.8 million for the additional ownership interests. • We sold 50% of our interest in 3033 Wilshire and 49% of our interest in 13th and Market to MetLife for gross proceeds of approximately $62.5 million, resulting in the assets being held by unconsolidated joint ventures. • We issued $300 million of 3.75%, 10-year senior unsecured medium-term notes in June. Net proceeds were used to pay down borrowings outstanding on our unsecured revolving credit facility and for general corporate purposes. • We completed five developments containing 1,396 homes for an estimated aggregate cost of $480.0 million. • We acquired land parcels for future development located in Huntington Beach, California for $77.8 million and Boston, Massachusetts for $32.2 million. • We acquired two communities located in Seattle, Washington and Kirkland, Washington with a total of 358 apartment homes for $45.5 million and $75.2 million, respectively. • We recognized gains on the sale of real estate of $143.6 million, net of tax, which consisted of: 3 • • the sale of nine communities with a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in a gain, net of tax, of approximately $138.6 million; and the sale of our 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million and our 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. • We sold common stock under our amended equity distribution agreement for net proceeds of approximately $99.8 million, which was primarily used to fund the Company's Steele Creek participating loan investment. Other than the following, there were no significant changes to the Operating Partnership’s business during 2014 (the above 2014 highlights relate to UDR or other subsidiaries of UDR): • The Operating Partnership sold one operating community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a gain of approximately $24.4 million and net proceeds of $47.9 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further information on the Company’s and the Operating Partnership’s activities in 2014. Our Strategies and Vision Our vision is to be the innovative multifamily public REIT of choice. Our strategic priorities are: 1. Strengthen the Quality of Our Portfolio 2. Flexible/Strong Balance Sheet 3. Increase Cash Flow to Support Dividend Growth 4. A Great Place to Work and Live Capital Allocation Acquisitions and Dispositions When evaluating potential acquisitions, we consider: • • • • • • 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; geographic location, including proximity to jobs, entertainment, transportation, and our existing communities which can deliver significant economies of scale; construction quality, condition and design of the property; current and projected cash flow of the property and the ability to increase cash flow; potential for capital appreciation of the property; ability to increase the value and profitability of the property through operations and redevelopment; • whether it is located in a high barrier-to-entry market; • • • • terms of resident leases, including the potential for rent increases; occupancy and demand by residents for properties of a similar type in the vicinity; prospects for liquidity through sale, financing, or refinancing of the property; and competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area. We regularly monitor our assets to increase the quality and performance of our portfolio. Factors we consider in deciding whether to dispose of a property include: • current market price for an asset compared to projected economics for that asset; 4 • • potential increases in new construction in the market area; areas with low job growth prospects; • markets where we do not intend to establish a long-term concentration; and • operating efficiencies. The following table summarizes our apartment community acquisitions and dispositions and our consolidated year-end ownership position for the past five years (dollars in thousands): Homes acquired Homes disposed Homes owned at December 31, Total real estate owned, at cost 2014 358 2,500 39,851 8,383,259 $ $ 2013 2012 2011 2010 — 914 41,250 8,207,977 $ 633 6,507 41,571 8,055,828 $ 3,161 4,488 47,343 8,074,471 $ 1,374 149 48,553 6,881,347 The following table summarizes our apartment community acquisitions and dispositions and our year-end ownership position of the Operating Partnership for the past five years (dollars in thousands): Homes acquired Homes disposed Homes owned at December 31, Total real estate owned, at cost Development Activities 2014 — 264 20,814 4,238,770 $ $ 2013 2012 2011 2010 — 914 20,746 4,188,480 $ — 1,314 21,660 4,182,920 $ 1,833 2,024 23,160 4,205,298 $ — — 23,351 3,706,184 Our objective in developing a community is to create value while improving the quality of our portfolio. Demographic trends, economic drivers, and how multifamily fundamentals/valuations have trended over the long-term govern our review process on where to allocate development capital. At December 31, 2014, our development pipeline included one wholly-owned community located in Boston, Massachusetts with 369 homes and a budget of $217.7 million, in which we have a carrying value of $177.6 million. Redevelopment Activities Our objective in redeveloping a community is twofold: we aim to meaningfully grow rental rates while also producing a higher yielding and more valuable asset through asset quality improvement. During 2014, we continued to redevelop properties in primary markets where we concluded there was an opportunity to add value. At December 31, 2014, the Company was redeveloping 708 apartment homes, 694 of which have been completed, at one wholly-owned community with 739 apartment homes located in New York, New York. During the year ended December 31, 2014, we incurred $31.5 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings. Joint Venture Activities We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships) through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint ventures. Our decision to either hold an apartment community in fee simple or have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by the seller of land or a community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projections, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement. The Operating Partnership is not a party to any of the joint venture activities described above. Balance Sheet Management 5 We maintain a capital structure that we believe allows us to proactively source potential investment opportunities in the marketplace. We have structured our debt maturity schedule to be able to opportunistically access both secured and unsecured debt markets when appropriate. Financing Activities As part of our plan to finance our activities, we utilize proceeds from debt and equity offerings and refinancings to extend maturities, pay down existing debt, fund development and redevelopment activities, and acquire apartment communities. Operational Excellence, Cash Flow and Dividend Growth Investment in new technologies continues to drive operating efficiencies in our business and help us to better meet the changing needs of our residents. Since its launch in January 2009, our residents have been utilizing our web-based resident internet portal on our website. Our residents have the ability to conduct business with us 24 hours a day, 7 days a week and complete online leasing applications and renewals throughout our portfolio. We launched a new website at the end of 2014. This is the third major revision of UDR.com, and represents a complete rebuild of our on-line presence. It was completed after several months of research with customer focus groups that told us what they wanted to see in an on-line shopping experience. The new website features elements such as on-line appointment scheduling, enhanced neighborhood information, and comparison shopping tools, all of which are available via any device the customer may choose. To date, we are exceeding our initial targets for the site by converting a higher than expected amount of traffic to community visits. As a result of transforming our operations through technology, residents’ satisfaction improved, and our operating teams have become more efficient. Web-based technologies have also resulted in declining marketing and advertising costs, improved cash management, and better pricing management of our available apartment homes. Portfolio Improvement We are focused on increasing our presence in markets with favorable job formation, high propensity to rent, low single-family home affordability, and a favorable demand/supply ratio for multifamily housing. Portfolio investment decisions consider internal analyses and third-party research. For the year ended December 31, 2014, approximately 65.0% of our same-store NOI was generated by communities located in our primary markets of: Seattle, Washington; San Francisco Bay Area, California; Los Angeles, California; Orange County, California; Austin, Texas; Dallas, Texas; Boston, Massachusetts; New York, New York; and Metropolitan D.C. Operating Partnership Strategies and Vision The Operating Partnership’s long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets and enhance resident and associate service through technology. As a result, the Operating Partnership has sought to expand its interests in communities located in New York, New York; San Francisco Bay Area, California; Boston, Massachusetts; and Metropolitan D.C. over the past years. Prospectively, we plan to continue to channel new investments into those markets we believe will continue to provide the best investment returns. Markets will be targeted based upon defined criteria including above average job growth, low single-family home affordability and limited new supply for multifamily housing, which are three key drivers to strong rental growth. Markets and Competitive Conditions During the year ended December 31, 2014, 65.0% of our consolidated same-store NOI was generated from apartment homes located in our primary markets. At December 31, 2014, the Company held 70.7% of its same-store carrying value of its real estate portfolio in our primary markets. During the year ended December 31, 2014, 72.9% of the Operating Partnership’s same-store NOI was generated from apartment homes located in our primary markets. At December 31, 2014, the Operating Partnership held 76.1% of its same-store carrying value of its real estate portfolio in its primary markets. 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. Competition for new residents is generally intense across all of our markets. Some competing communities offer features that our communities do not have. Competing communities can use rental concessions or lower rents to obtain temporary competitive advantages. Also, some competing communities are larger or newer than our communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. In addition, 6 other real estate investors compete with us to acquire existing properties, redevelop existing properties, and to develop new properties. These competitors include insurance companies, pension and investment funds, public and private real estate companies, investment companies and other public and private apartment REITs, some of which may have greater resources, or lower capital costs, than we do. We believe that, in general, we are well-positioned to compete effectively for residents and investments. We believe our competitive advantages include: • • • • • a fully integrated organization with property management, development, redevelopment, acquisition, marketing, sales and financing expertise; scalable operating and support systems, which include automated systems to meet the changing electronic needs of our residents and to effectively focus on our Internet marketing efforts; access to sources of capital; geographic diversification with a presence in 20 markets across the country; and significant presence in many of our major markets that allows us to be a local operating expert. Moving forward, we will continue to optimize lease management, improve expense control, increase resident retention efforts and align employee incentive plans with our bottom line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational upside. Communities At December 31, 2014, our consolidated real estate portfolio included 139 communities with a total of 39,851 completed apartment homes, which included the Operating Partnership’s consolidated real estate portfolio of 68 communities with a total of 20,814 completed apartment homes. The overall quality of our portfolio enables us to raise rents and to attract residents with higher levels of disposable income who are more likely to absorb such rents. At December 31, 2014, the Company was developing one wholly-owned community with 369 apartment homes, none of which have been completed. In addition, at December 31, 2014, the Company had three communities with 825 apartment homes which were completed but not yet stabilized. At December 31, 2014, the Company was redeveloping 708 apartment homes, 694 of which have been completed, at one wholly-owned community with 739 apartment homes. Same-Store Community Comparison We believe that one pertinent quantitative measurement of the performance of our portfolio is tracking the results of our same-store communities’ NOI, which is total rental revenue, less rental expenses excluding property management and other operating expenses. Our same-store community population is comprised of operating communities which we own and have stabilized occupancy, revenues and expenses as of the beginning of the prior year. For the year ended December 31, 2014, our same-store NOI increased by $21.6 million or 5.2% compared to the prior year. Our same-store community properties provided 79.2% of our total NOI for the year ended December 31, 2014. The increase in NOI for the 34,581 same-store apartment homes, or 86.8% of our portfolio, was driven by an increase in rental rates, fee and reimbursement income, and increased occupancy, partially offset by an increase in real estate taxes and insurance expenses. For the year ended December 31, 2014, the Operating Partnership’s same-store NOI increased by $15.2 million or 6.1% compared to the prior year. Our same-store community properties provided 88.1% of our total NOI for the year ended December 31, 2014. The increase in NOI for the 19,010 same-store apartment homes, or 91.3% of the Operating Partnership’s portfolio, was driven by an increase in rental rates, fee and reimbursement income, and increased occupancy, partially offset by an increase in operating expenses. Revenue growth in 2015 may be impacted by adverse developments affecting the economy generally, reduced occupancy rates, increased rental concessions, new supply, increased bad debt and other factors which may adversely impact our ability to increase rents. Tax Matters 7 UDR has elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, UDR must continue to meet certain tests that, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than net capital gains) to our stockholders annually. Provided we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent such net income is distributed to our stockholders annually. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property. We may utilize our taxable REIT subsidiary (“TRS”) to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Our TRS generally is taxable as a regular corporation, and therefore, subject to federal, state and local income taxes. The Operating Partnership intends to qualify as a partnership for federal income tax purposes. As a partnership, the Operating Partnership generally is not a taxable entity and does not incur federal income tax liability. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are incurred at the entity level. Inflation We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, property taxes, utilities and material costs, substantially all of our leases are for a term of 14 months or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an escalation in energy and food costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2014. Environmental Matters Various environmental laws govern certain aspects of the ongoing operation of our communities. Such environmental laws include those regulating the existence of asbestos-containing materials in buildings, management of surfaces with lead-based paint (and notices to residents about the lead-based paint), use of active underground petroleum storage tanks, and waste-management activities. The failure to comply with such requirements could subject us to a government enforcement action and/or claims for damages by a private party. To date, compliance with federal, state and local environmental protection regulations has not had a material effect on our capital expenditures, earnings or competitive position. We have a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigations and reports have been completed for each property we acquire. In addition, all proposed acquisitions are inspected prior to acquisition. The inspections are conducted by qualified environmental consultants, and we review the issued report prior to the purchase or development of any property. Nevertheless, it is possible that the environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of which we are unaware. In some cases, we have abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or we have been unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large-scale abatement at any of our properties. We believe that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a relatively conservative posture toward accepting known environmental risk, we can minimize our exposure to potential liability associated with environmental hazards. Federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and imposes treble damages for failure to provide such notification. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and we may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities. We are unaware of any environmental hazards at any of our properties that individually or in the aggregate may have a material adverse impact on our operations or financial position. We have not been notified by any governmental authority, and we are not otherwise aware, of any material non-compliance, liability, or claim relating to environmental liabilities in connection with any of our properties. We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on us or our financial condition or results of operations. Future environmental laws, regulations, or ordinances, however, may require additional remediation of existing conditions that are not 8 currently actionable. Also, if more stringent requirements are imposed on us in the future, the costs of compliance could have a material adverse effect on our results of operations and our financial condition. Insurance We carry comprehensive general liability coverage on our communities, with limits of liability customary within the multi-family apartment industry to insure against liability claims and related defense costs. We are also insured, with limits of liability customary within the multi-family apartment industry, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Available Information Both UDR and the Operating Partnership file electronically with the Securities and Exchange Commission their respective annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports on the day of filing with the SEC on our website at www.udr.com, or by sending an e-mail message to ir@udr.com. Item 1A. RISK FACTORS There are many factors that affect the business and the results of operations of the Company and the Operating Partnership, some of which are beyond the control of the Company and the Operating Partnership. The following is a description of important factors that may cause the actual results of operations of the Company and the Operating Partnership in future periods to differ materially from those currently expected or discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law. Risks Related to Our Real Estate Investments and Our Operations Unfavorable Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels, Rental Revenues and the Value of Our Real Estate Assets. Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions generally may significantly affect our occupancy levels, our rental rates and collections, the value of the properties and our ability to strategically acquire or dispose of apartment communities on economically favorable terms. Our ability to lease our properties at favorable rates is adversely affected by the increase in supply in the multifamily and other rental markets and is dependent upon the overall level in the economy, which is adversely affected by, among other things, job losses and unemployment levels, recession, personal debt levels, a downturn in the housing market, stock market volatility and uncertainty about the future. Some of our major expenses, including mortgage payments, generally do not decline when related rents decline. We would expect that declines in our occupancy levels, rental revenues and/or the values of our apartment communities would cause us to have less cash available to pay our indebtedness and to distribute to UDR’s stockholders, which could adversely affect our financial condition and the market value of our securities. Factors that may affect our occupancy levels, our rental revenues, and/or the value of our properties include the following, among others: • downturns in the national, regional and local economic conditions, particularly increases in unemployment; • declines in mortgage interest rates, making alternative housing more affordable; • government or builder incentives which enable first time homebuyers to put little or no money down, making alternative housing options more attractive; • local real estate market conditions, including oversupply of, or reduced demand for, apartment homes; • declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants; • changes in market rental rates; • our ability to renew leases or re-lease space on favorable terms; 9 • the timing and costs associated with property improvements, repairs or renovations; • declines in household formation; and • rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs. We May Be Unable to Renew Leases or Relet Apartment Units as Leases Expire. When our residents decide to leave our apartments, whether because they decide not to renew their leases or they leave prior to their lease expiration date, we may not be able to relet their apartment units. Even if the residents do renew or we can relet the apartment units, the terms of renewal or reletting may be less favorable than current lease terms. If we are unable to promptly renew the leases or relet the apartment units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition may be adversely affected. If residents do not experience increases in their income, we may be unable to increase rent and/or delinquencies may increase. Substantial International, National and Local Government Spending and Increasing Deficits May Adversely Impact Our Business, Financial Condition and Results of Operations. The values of, and the cash flows from, the properties we own are affected by developments in global, national and local economies. As a result of the most recent recession and the significant government interventions, federal, state and local governments have incurred record deficits and assumed or guaranteed liabilities of private financial institutions or other private entities. These increased budget deficits and the weakened financial condition of federal, state and local governments may lead to reduced governmental spending, tax increases, public sector job losses, increased interest rates, currency devaluations or other adverse economic events, which may directly or indirectly adversely affect our business, financial condition and results of operations. Risk of Inflation/Deflation. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses. The general risk of inflation is that interest on our debt and general and administrative expenses increase at a rate faster than increases in our rental rates, which could adversely affect our results of operations, cash flow and ability to make distributions to UDR’s stockholders. The predominant effects of deflation include high unemployment and credit contraction. Restricted lending practices could impact our ability to obtain financing or refinancing for our properties. We Are Subject to Certain Risks Associated with Selling Apartment Communities, Which Could Limit Our Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it difficult to sell apartment communities like the ones we own. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. These conditions may limit our ability to dispose of properties and to change our portfolio promptly in order to meet our strategic objectives, which may in turn have a material adverse effect on our financial condition and the market value of our securities. We are also subject to the following risks in connection with sales of our apartment communities: • 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 of 1986, as amended, or the “Code,” so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash proceeds generated from our property sales; and • federal tax laws limit our ability to profit on the sale of communities that we have owned for less than two years, and this limitation may prevent us from selling communities when market conditions are favorable. Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents. Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities, condominiums and single-family rental homes, as well as owner occupied single-and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents, which could materially adversely affect our results of operations and financial condition. We May Not Realize the Anticipated Benefits of Past or Future Acquisitions, and the Failure to Integrate Acquired Communities and New Personnel Successfully Could Create Inefficiencies. We have selectively acquired in the past, and if presented with attractive opportunities we intend to selectively acquire in the future, apartment communities that meet our investment criteria. Our acquisition activities and their success are subject to the following risks: 10 • we may be unable to obtain financing for acquisitions on favorable terms or at all; • even if we are able to finance the acquisition, cash flow from the acquisition may be insufficient to meet our required principal and interest payments on the acquisition; • even if we enter into an acquisition agreement for an apartment community, we may be unable to complete the acquisition after incurring certain acquisition-related costs; • we may incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential acquisitions that we are subsequently unable to complete; • when we acquire an apartment community, we may invest additional amounts in it with the intention of increasing profitability, and these additional investments may not produce the anticipated improvements in profitability; • the expected occupancy rates and rental rates may differ from actual results; and • we may be unable to quickly and efficiently integrate acquired apartment communities and new personnel into our existing operations, and the failure to successfully integrate such apartment communities or personnel will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability. Competition Could Adversely Affect Our Ability to Acquire Properties. In the past, other real estate investors, including insurance companies, pension and investment funds, developer partnerships, investment companies and other public and private apartment REITs, have competed with us to acquire existing properties and to develop new properties, and such competition in the future may make it more difficult for us to pursue attractive investment opportunities on favorable terms, which could adversely affect our ability to grow or acquire properties profitably or with attractive returns. Development and Construction Risks Could Impact Our Profitability. In the past we have selectively pursued the development and construction of apartment communities, and we intend to do so in the future as appropriate opportunities arise. Development activities have been, and in the future may be, conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities are subject to the following risks: • we may be unable to obtain construction financing for development activities under favorable terms, including but not limited to interest rates, maturity dates and/or loan to value ratios, or at all which could cause us to delay or even abandon potential developments; • we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased development costs, could delay initial occupancy dates for all or a portion of a development community, and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations; • yields may be less than anticipated as a result of delays in completing projects, costs that exceed budget and/or higher than expected concessions for lease up and lower rents than expected; • 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; • 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; • 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; • 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 • when we sell to third parties communities 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. 11 In some cases in the past, the costs of upgrading acquired communities 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. Bankruptcy or Defaults of Our Counterparties Could Adversely Affect Our Performance. We have relationships with and, from time to time, we execute transactions with or receive services from many counterparties, such as general contractors engaged in connection with our development activities. As a result, bankruptcies or defaults by these counterparties could result in services not being provided, projects not being completed on time, or on budget, or at all, or volatility in the financial markets and economic weakness could affect the counterparties’ ability to complete transactions with us as intended, both of which could result in disruptions to our operations that may adversely affect our business and results of operations. 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/or acquire properties in joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. We currently have 15 active joint ventures and partnerships, excluding our participating loan investment, with a total equity investment of $655.5 million. We could become engaged in a dispute with one or more of our joint venture partners which 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. Also, our joint venture partners might refuse to make capital contributions when due and we may be responsible to our partners for indemnifiable losses. In general, we and our partners may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partners’ interest, at a time when we otherwise would not have initiated such a transaction and may result in the valuation of our interest in the joint venture (if we are the seller) or of the other partner’s interest in the joint venture (if we are the buyer) at levels which may not be representative of the valuation that would result from an arm’s length marketing process. We are also subject to risk in cases where an institutional owner is our joint venture partner, including (i) a deadlock if we and our joint venture partner are unable to agree upon certain major and other decisions, (ii) the limitation of our ability to liquidate our position in the joint venture without the consent of the other joint venture partner, and (iii) the requirement to provide guarantees in favor of lenders with respect to the indebtedness of the joint venture. We Could Incur Significant Insurance Costs and Some Potential Losses May Not Be Adequately Covered by Insurance. We have a comprehensive insurance program covering our property and operating activities with limits of liability customary within the multi-family industry. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of extraordinary losses which may not be adequately covered under our insurance program. In addition, we will sustain losses due to insurance deductibles, self-insured retention, uninsured claims or casualties, or losses in excess of applicable coverage. If an uninsured loss or a loss in excess of insured limits 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 UDR’s stockholders. As a result of our substantial real estate holdings, the cost of insuring our apartment communities is a significant component of expense. Insurance premiums are subject to significant increases and fluctuations, which are generally outside of our control. We insure our properties with insurance companies that we believe have a good rating at the time our policies are put into effect. The financial condition of one or more of our insurance companies that we hold policies with may be negatively impacted, which could result in their inability to pay on future insurance claims. Their inability to pay future claims may have a negative impact on our financial results. In addition, the failure of one or more insurance companies may increase the costs to renew our insurance policies or increase the cost of insuring additional properties and recently developed or redeveloped properties. Failure to Succeed in New Markets May Limit Our Growth. We have acquired in the past, and we may acquire in the future if appropriate opportunities arise, apartment communities that are outside of our existing markets. Entering into new markets may expose us to a variety of risks, and we may not be able to operate successfully in new markets. These risks include, among others: • inability to accurately evaluate local apartment market conditions and local economies; 12 • inability to hire and retain key personnel; • lack of familiarity with local governmental and permitting procedures; and • inability to achieve budgeted financial results. 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. In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of wastes and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us to liability. Changes in laws could increase the potential costs of compliance with environmental laws, health and safety laws or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations. As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM. Environmental, health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment. We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our stockholders, or that such costs or liabilities will not have a material adverse effect on our financial condition and results of operations. Our Properties May Contain or Develop Harmful Mold or Suffer from Other Indoor Air Quality Issues, Which Could Lead to Liability for Adverse Health Effects or Property Damage or Cost for Remediation. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation, which could adversely affect our results of operations and cash flow. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs. 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 the Americans with Disabilities Act. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations. 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 13 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. Compliance with or Changes in Real Estate Tax and Other Laws Could Adversely Affect Our Funds from Operations and Our Ability to Make Distributions to Stockholders. Generally we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes, to tenants under leases. These costs may adversely affect net operating income and the 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 our funds from operations and the ability to make distributions to stockholders. Risk of Damage from Catastrophic Weather and Natural Events and Potential Climate Change. Certain of our communities are located in areas that may experience catastrophic weather and other natural events from time to time, including mudslides, fires, hurricanes, tornadoes, snow or ice storms, or other severe inclement weather. These adverse weather and natural events could cause damage or losses that may be greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could materially and adversely affect our business and our financial condition and results of operations. To the extent that we experience any significant changes in the climate in areas where our communities are located, we may experience extreme weather conditions and prolonged changes in precipitation and temperature, all of which could result in physical damage to, and/or a decrease in demand for, our communities located in these areas. Should the impact of such climate change be material in nature, or occur for lengthy periods of time, our financial condition and results of operations may be adversely affected. Risk of Earthquake Damage. Some of our communities are located in the general vicinity of active earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We 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, financial condition and results of operations. Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management’s view, economically impractical. Risk of Accidental Death Due to Fire, Natural Disasters or Other Hazards. The accidental death of persons living in our communities due to fire, natural disasters or other hazards could have a material adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where such any such events have occurred, which could have a material adverse effect on our business and results of operations. Actual or Threatened Terrorist Attacks May Have an Adverse Effect on Our Business and Operating Results and Could Decrease the Value of Our Assets. Actual or threatened terrorist attacks and other acts of violence or war could have 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. Mezzanine Loan Assets Involve Greater Risks of Loss than Senior Loans Secured by Income-producing Properties. We may acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. Mezzanine loans may involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property, because the loan may become unsecured as a result of foreclosure by the senior lender and because it is in second position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower 14 bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some of or all our initial expenditure. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. We May Experience a Decline in the Fair Value of Our Assets and Be Forced to Recognize Impairment Charges, Which Could Materially and Adversely Impact Our Financial Condition, Liquidity and Results of Operations and the Market Price of UDR’s Common Stock. A decline in the fair value of our assets may require us to recognize an impairment against such assets under generally accepted accounting principles as in effect in the United States (“GAAP”), if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize asset impairment charges in the future, these charges could materially and adversely affect our financial condition, liquidity, results of operations and the per share trading price of UDR’s common stock. Any Material Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on UDR’s Stock Price. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. If we 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 UDR’s stock price. Our Business and Operations Would Suffer in the Event of System Failures or Breaches in Data Security. Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war, and telecommunication failures. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including financial transactions and keeping of records, which may include personal identifying information of tenants and lease data. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing confidential tenant information, such as individually identifiable information relating to financial accounts. Although we take steps to protect the security of the data maintained in our information systems, it is possible that our security measures will not be able to prevent the systems’ improper functioning, or the improper disclosure of personally identifiable information, such as in the event of cyber attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect us. Our Success Depends on Our Senior Management. Our success depends upon the retention of our senior management, whose continued service is not guaranteed. We may not be able to find qualified replacements for the individuals who make up our senior management if their services should no longer be available to us. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. We May be Adversely Affected by New Federal Laws and Regulations. The United States Administration and Congress have enacted, or called for consideration of, proposals relating to a variety of issues, including with respect to health care, financial regulation reform, climate change, executive compensation and others. We believe that these and other potential proposals could have varying degrees of impact on us ranging from minimal to material. At this time, we are unable to predict with certainty what level of impact specific proposals could have on us. Federal rulemaking and administrative efforts that may have an impact on us focus principally on the areas perceived as contributing to the global financial crisis and the most recent economic recession. These initiatives have created a degree of uncertainty regarding the basic rules governing the real estate industry and many other businesses that is unprecedented in the United States at least since the wave of lawmaking and regulatory reform that followed in the wake of the Great Depression. The federal legislative response in this area culminated in the enactment on July 21, 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Many of the provisions of the Dodd-Frank Act have extended implementation periods and delayed effective dates and continue to require extensive rulemaking by regulatory authorities; thus, the impact on us may not be known for an extended period of time. The Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals that are 15 proposed or pending in the United States Congress, may limit our revenues, impose fees or taxes on us, and/or intensify the regulatory framework in which we operate in ways that are not currently identifiable. Changing laws, regulations and standards relating to corporate governance and public disclosure in particular, including certain provisions of the Dodd- Frank Act and the rules and regulations promulgated thereunder, have created uncertainty for public companies like ours and could significantly increase the costs and risks associated with accessing the U.S. public markets. Because we are committed to maintaining high standards of internal control over financial reporting, corporate governance and public disclosure, our management team will need to devote significant time and financial resources to comply with these evolving standards for public companies. We intend to continue to invest appropriate resources to comply with both existing and evolving standards, and this investment has resulted and will likely continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. We May be Adversely Affected by New State and Local Laws and Regulations. We are subject to state and local laws, regulations and ordinances at locations where we operate and to the rules and regulations of various local authorities regarding a wide variety of matters that could affect, directly or indirectly, our operations. We cannot predict what matters might be considered in the future by these state and local authorities, nor can we judge what impact, if any, the implementation of new legislation might have on our business. Changes in U.S. Accounting Standards May Materially and Adversely Affect Our Reported Results of Operations. Accounting for public companies in the United States is in accordance with GAAP, which is established by the Financial Accounting Standards Board (the “FASB”), an independent body whose standards are recognized by the SEC as authoritative for publicly held companies. Uncertainties posed by various initiatives of accounting standard-setting by the FASB and the SEC, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements. Risks Related to Our Indebtedness and Financings Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk. We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow will be insufficient to make required payments of principal and interest, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. Sufficient cash flow may not be available to make all required principal payments and still satisfy UDR’s distribution requirements to maintain its status as a REIT for federal income tax purposes. In addition, 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. We are also likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise not choose to do so. In addition, our failure to comply with our debt covenants could result in a requirement to repay our indebtedness prior to its maturity, which could have an adverse effect on our cash flow, increase our financing costs and impact our ability to make distributions to UDR’s stockholders. Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Stockholders. If our apartment communities do not generate sufficient net rental income to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to UDR’s stockholders will be adversely affected. The following factors, among others, may affect the net rental income generated by our apartment communities: • the national and local economies; • local real estate market conditions, such as an oversupply of apartment homes; • tenants’ perceptions of the safety, convenience, and attractiveness of our communities and the neighborhoods where they are located; • our ability to provide adequate management, maintenance and insurance; • rental expenses, including real estate taxes and utilities; • competition from other apartment communities; 16 • changes in interest rates and the availability of financing; • changes in governmental regulations and the related costs of compliance; and • changes in tax and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing. Expenses associated with our investment in an apartment community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in 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. Our 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. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted. Failure To Maintain Our Current Credit Ratings Could Adversely Affect Our Cost of Funds, Related Margins, Liquidity, and Access to Capital Markets. Moody’s and Standard & Poor’s, the major debt rating agencies, routinely evaluate our debt and have given us ratings on our senior unsecured debt and preferred stock. These ratings are based on a number of factors, which included their assessment of our financial strength, liquidity, capital structure, asset quality, and sustainability of cash flow and earnings. Due to changes in these factors and market conditions, we may not be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity, and access to capital markets. Disruptions in Financial Markets May Adversely Impact Availability and Cost of Credit and Have Other Adverse Effects on Us and the Market Price of UDR’s Stock. Our ability to make scheduled payments or to refinance debt obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business and other factors beyond our control. During the global financial crisis and the economic recession that followed it, the United States stock and credit markets experienced significant price volatility, dislocations and liquidity disruptions, which caused market prices of many stocks to fluctuate substantially and the spreads on debt financings to widen considerably. Those circumstances materially impacted liquidity in the financial markets at times, making terms for certain financings less attractive, and in some cases resulted in the unavailability of financing. Any future disruptions or uncertainty in the stock and credit markets may negatively impact our ability to refinance existing indebtedness and access additional financing for acquisitions, development of our properties and other purposes at reasonable terms or at all, which may negatively affect our business and the market price of UDR’s common stock. If we are not successful in refinancing our existing indebtedness when it becomes due, we may be forced to dispose of properties on disadvantageous terms, which might adversely affect our ability to service other debt and to meet our other obligations. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of UDR’s common or preferred stock. A Change in U.S. Government Policy Regarding Fannie Mae or Freddie Mac Could Have a Material Adverse Impact on Our Business. Fannie Mae and Freddie Mac are a major source of financing for secured multifamily rental real estate. We and other multifamily companies depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing or guaranteeing apartment loans. In September 2008, the U.S. government assumed control of Fannie Mae and Freddie Mac and placed both companies into a government conservatorship under the Federal Housing Finance Agency. The Administration and lawmakers have proposed potential options for the future of mortgage finance in the U.S. that could involve the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government, it would significantly reduce our access to debt capital and adversely affect our ability to finance or refinance existing indebtedness at competitive rates and it may adversely affect our ability to sell assets. Uncertainty in the future activity and involvement of Fannie Mae and Freddie Mac as a source of financing could negatively impact our ability to make acquisitions and make it more difficult or not possible for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. 17 The Soundness of Financial Institutions Could Adversely Affect Us. We have relationships with many financial institutions, including lenders under our credit facilities, and, from time to time, we execute transactions with counterparties in the financial services industry. As a result, defaults by, or even rumors or questions about, financial institutions or the financial services industry generally, could result in losses or defaults by these institutions. In the event that the volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our business and results of operations. 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, 2014, UDR had approximately $579.7 million of variable rate indebtedness outstanding, which constitutes approximately 16.1% of total outstanding indebtedness as of such date. As of December 31, 2014, the Operating Partnership had approximately $219.8 million of variable rate indebtedness outstanding, which constitutes approximately 23.6% of total outstanding indebtedness to third parties 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. The effect of prolonged interest rate increases could negatively impact our ability to make acquisitions and develop properties. 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 UDR’s common and preferred stock and debt securities. Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges. From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the terms of new debt securities are not within the parameters of, or market interest rates fall below that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have desired beneficial impact on our results of operations or financial condition. Termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs. Risks Related to Tax Laws We Would Incur Adverse Tax Consequences if UDR Failed to Qualify as a REIT. UDR has elected to be taxed as a REIT under the Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method of operation enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect UDR’s stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to UDR’s stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we could not re-elect REIT status until the fifth calendar year after the year in which we first failed to qualify as a REIT. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to UDR’s stockholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to UDR’s stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property. Certain of our subsidiaries have also elected to be taxed as a REIT under the Code, and are therefore subject to the same risks in the event that they fail to qualify as a REIT in any taxable year. 18 Dividends Paid By REITs Generally Do Not Qualify for Reduced Tax Rates. In general, the maximum U.S. federal income tax rate for dividends paid to individual U.S. stockholders is 20%. Unlike dividends received from a corporation that is not a REIT, our distributions to individual stockholders generally are not eligible for the reduced rates. UDR 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 UDR’s qualification as a REIT, its taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected. REIT Distribution Requirements Limit Our Available Cash. As a REIT, UDR is subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make distributions to UDR’s stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code. Certain Property Transfers May Generate Prohibited Transaction Income, Resulting in a Penalty Tax on Gain Attributable to the Transaction. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction and subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales. In addition, income from a prohibited transaction might adversely affect UDR’s ability to satisfy the income tests for qualification as a REIT for federal income tax purposes. We Could Face Possible State and Local Tax Audits and Adverse Changes in State and Local Tax Laws. As discussed in the risk factors above, because UDR is organized and qualifies as a REIT it is generally not subject to federal income taxes, but it is subject to certain state and local taxes. From time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and municipalities in which we own apartment communities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional state and local taxes. These increased tax costs could adversely affect our financial condition and the amount of cash available for the payment of distributions to UDR’s stockholders. In the normal course of business, entities through which we own real estate may also become subject to tax audits. If such entities become subject to state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition. The Operating Partnership Intends to Qualify as a Partnership, But Cannot Guarantee That It Will Qualify. The Operating Partnership intends to qualify as a partnership for federal income tax purposes at any such time that the Operating Partnership admits additional limited partners other than UDR. If classified as a partnership, the Operating Partnership generally will not be a taxable entity and will not incur federal income tax liability. However, the Operating Partnership would be treated as a corporation for federal income tax purposes if it were a “publicly traded partnership,” unless at least 90% of the Operating Partnership’s income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although the Operating Partnership’s partnership units are not traded on an established securities market, because of the redemption right, the Operating Partnership’s units held by limited partners could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and the Operating Partnership may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. The Operating Partnership may not meet this qualifying income test. If the Operating Partnership were to be taxed as a corporation, it would incur substantial tax 19 liabilities, and UDR would then fail to qualify as a REIT for tax purposes, unless it qualified for relief under certain statutory savings provisions, and our ability to raise additional capital would be impaired. Qualifying as a REIT Involves Highly Technical and Complex Provisions of the Code. Our qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes. Risks Related to Our Organization and Ownership of UDR’s Stock Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of UDR’s Common Stock. The stock markets, including the New York Stock Exchange (“NYSE”), on which we list UDR’s common stock, have experienced significant price and volume fluctuations. As a result, the market price of UDR’s common stock could be similarly volatile, and investors in UDR’s common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the price per share of UDR’s common stock, including: • general market and economic conditions; • actual or anticipated variations in UDR’s quarterly operating results or dividends or UDR’s payment of dividends in shares of UDR’s stock; • changes in our funds from operations or earnings estimates; • difficulties or inability to access capital or extend or refinance existing debt; • decreasing (or uncertainty in) real estate valuations; • changes in market valuations of similar companies; • publication of research reports about us or the real estate industry; • the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate companies); • general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of UDR’s stock to demand a higher annual yield from future dividends; • a change in analyst ratings; • additions or departures of key management personnel; • adverse market reaction to any additional debt we incur in the future; • speculation in the press or investment community; • terrorist activity which may adversely affect the markets in which UDR’s securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending; • failure to qualify as a REIT; • strategic decisions by us or by our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy; 20 • failure to satisfy listing requirements of the NYSE; • governmental regulatory action and changes in tax laws; and • the issuance of additional shares of UDR’s common stock, or the perception that such sales might occur, including under UDR’s at-the-market equity distribution program. Many of the factors listed above are beyond our control. These factors may cause the market price of shares of UDR’s common stock to decline, regardless of our financial condition, results of operations, business or our prospects. We May Change the Dividend Policy for UDR’s Common Stock in the Future. The decision to declare and pay dividends on UDR’s common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our board of directors considers relevant. Any change in our dividend policy could have a material adverse effect on the market price of UDR’s common stock. Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in UDR’s Stockholders’ Best Interests. Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our Company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in UDR’s stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of UDR’s stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66 2/3 % of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Limitations on Share Ownership and Limitations on the Ability of UDR’s Stockholders to Effect a Change in Control of Our Company Restricts the Transferability of UDR’s Stock and May Prevent Takeovers That are Beneficial to UDR’s Stockholders. One of the requirements for maintenance of our qualification as a REIT for U.S. federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to UDR’s stock primarily to assist us in complying with this and other REIT ownership requirements; however, the restrictions may have the effect of preventing a change of control, which does not threaten REIT status. These restrictions include a provision that generally limits ownership by any person of more than 9.9% of the value of our outstanding equity stock, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our outstanding equity stock. Absent such an exemption from our board of directors, the transfer of UDR’s stock to any person in excess of the applicable ownership limit, or any transfer of shares of such stock in violation of the ownership requirements of the Code for REITs, will be considered null and void, and the intended transferee of such stock will acquire no rights in such shares. These provisions of our charter may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for UDR’s stockholders or might otherwise be in UDR’s stockholders’ best interests. Item 1B. UNRESOLVED STAFF COMMENTS None. 21 Item 2. PROPERTIES At December 31, 2014, our consolidated apartment portfolio included 139 communities located in 20 markets, with a total of 39,851 completed apartment homes. As of December 31, 2014, we leased approximately 44,000 square feet of office space in Highlands Ranch, Colorado for our corporate headquarters. We also leased an aggregate of approximately 9,000 square feet of office space in Dallas, Texas, Richmond, Virginia and Alexandria, Virginia. In February 2015, the Company acquired the office building in Highlands Ranch, Colorado housing its corporate offices, as well as other leased office space, for total consideration of approximately $24.0 million, which was comprised of assumed debt. The building consists of approximately 120,000 square feet, of which UDR occupies approximately 44,000 square feet. All existing leases were assumed by the Company at the time of the acquisition. 22 The tables below set forth a summary of real estate portfolio by geographic market of the Company and of the Operating Partnership at December 31, 2014. SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2014 UDR, INC. Number of Apartment Communities Number of Apartment Homes Percentage of Carrying Value Gross Amount (in thousands) Encumbrances (in thousands) Cost per Home Average Physical Occupancy Average Home Size (in square feet) WEST REGION San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR MID-ATLANTIC REGION Metropolitan D.C. Baltimore, MD Richmond, VA Norfolk, VA Other Mid-Atlantic SOUTHEAST REGION Tampa, FL Orlando, FL Nashville, TN Other Florida NORTHEAST REGION New York, NY Boston, MA SOUTHWEST REGION Dallas, TX Austin, TX Total Operating Communities Real Estate Under Development (a) Land Other Total Real Estate Owned 12 14 11 4 7 4 3 16 11 4 4 1 9 10 8 1 4 4 8 4 139 — — — 139 2,751 5,214 2,085 1,225 1,565 875 716 5,156 2,301 1,358 846 168 2,775 2,796 2,260 636 1,947 1,179 2,725 1,273 39,851 — — — 39,851 $ 9.7 % $ 14.3 % 6.9 % 5.3 % 1.9 % 1.7 % 0.9 % 14.4 % 3.7 % 1.7 % 0.6 % 0.2 % 3.3 % 2.8 % 2.3 % 0.9 % 815,153 1,202,995 575,008 440,329 161,633 141,660 73,811 1,211,295 309,894 139,538 54,077 12,971 275,355 238,375 191,393 81,316 66,310 193,873 58,457 100,335 — 46,471 35,141 $ 296,312 230,724 275,783 359,452 103,280 161,897 103,088 184,172 66,711 34,567 — — 31,239 63,394 38,834 39,179 234,929 134,678 102,753 63,921 77,208 99,227 85,256 84,687 127,855 15.2 % 3.9 % 1,278,432 323,419 190,462 79,286 656,616 274,316 3.5 % 1.8 % 292,848 147,873 102,438 30,660 107,467 116,161 95.0 % 7,967,375 1,361,529 $ 199,929 2.1 % 2.1 % 0.8 % 177,632 171,253 66,999 100.0 % $ 8,383,259 $ — — — 1,361,529 94.6 % 89.2 % 85.6 % 95.2 % 95.8 % 96.1 % 97.6 % 90.7 % 96.6 % 96.5 % 94.6 % 95.4 % 96.6 % 96.7 % 97.5 % 96.5 % 95.0 % 96.3 % 97.2 % 97.1 % 94.1 % 836 804 849 967 728 928 918 834 957 1,018 1,023 1,002 955 961 933 1,130 740 1,097 846 913 887 (a) As of December 31, 2014, the Company was developing one wholly-owned community with 369 apartment homes, which has not been completed. 23 SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2014 UNITED DOMINION REALTY, L.P. Number of Apartment Communities Number of Apartment Homes Percentage of Carrying Value Gross Amount (in thousands) Encumbrances (in thousands) Cost per Home Average Physical Occupancy Average Home Size (in square feet) WEST REGION San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR MID-ATLANTIC REGION Metropolitan D.C. Baltimore, MD SOUTHEAST REGION Tampa, FL Nashville, TN Other Florida NORTHEAST REGION New York, NY Boston, MA SOUTHWEST REGION Dallas, TX Austin, TX Total Operating Communities Other Total Real Estate Owned Item 3. LEGAL PROCEEDINGS 9 9 5 2 7 3 3 8 5 3 6 1 2 2 2 1 68 — 68 2,185 3,899 932 344 1,565 635 716 2,710 994 1,154 1,612 636 1,001 833 1,348 250 20,814 — 20,814 $ 13.2 % $ 19.5 % 5.0 % 2.5 % 3.8 % 2.6 % 1.7 % 16.3 % 3.6 % 2.8 % 3.2 % 1.9 % 14.1 % 4.2 % 4.5 % 0.9 % 560,868 823,931 213,238 108,081 161,633 109,744 73,811 686,019 152,040 117,261 134,852 81,316 598,999 178,607 189,458 39,538 99.8 % 0.2 % 4,229,396 9,374 100.0 % $ 4,238,770 $ $ 256,690 211,319 228,796 314,189 103,280 172,825 103,088 253,144 152,958 101,613 83,655 127,855 598,401 214,414 140,547 158,152 $ 203,200 66,310 193,874 22,957 32,635 — 46,471 35,141 102,643 43,403 — — 39,179 190,462 56,447 102,437 — 931,959 — 931,959 97.2 % 93.8 % 97.3 % 95.6 % 95.8 % 96.1 % 97.6 % 86.4 % 96.3 % 96.8 % 97.5 % 96.5 % 97.4 % 96.5 % 97.0 % 96.2 % 94.9 % 821 764 869 976 728 939 918 901 1,064 1,003 925 1,130 685 1,120 910 883 876 We are subject to various legal proceedings and claims arising in the ordinary course of business. We cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. We believe that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow. Item 4. MINE SAFETY DISCLOSURES Not Applicable. 24 Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II UDR, Inc.: Common Stock UDR, Inc.’s common stock has been listed on the New York Stock Exchange, or “NYSE”, under the symbol “UDR” since May 7, 1990. 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. Quarter ended March 31, Quarter ended June 30, Quarter ended September 30, Quarter ended December 31, 2014 2013 High Low $ $ $ $ 26.63 28.64 30.30 31.74 $ $ $ $ 23.27 25.28 27.18 27.27 $ $ $ $ Distributions Declared High Low Distributions Declared 0.260 0.260 0.260 0.260 $ $ $ $ 25.18 27.04 26.35 25.42 $ $ $ $ 24.83 26.59 26.00 25.03 $ $ $ $ 0.235 0.235 0.235 0.235 On February 19, 2015, the closing sale price of our common stock was $31.83 per share on the NYSE, and there were 4,306 holders of record of the 258,765,713 outstanding shares of our common stock. We have determined that, for federal income tax purposes, approximately 68% of the distributions for 2014 represented ordinary income, 14% represented qualified ordinary income, 10% represented long-term capital gain, and 8% represented unrecaptured section 1250 gain. UDR pays regular quarterly distributions to holders of its common stock. Future distributions will be at the discretion of our Board of Directors and will depend on our actual funds from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code, and other factors. Series E Preferred Stock The Series E Cumulative Convertible Preferred Stock (“Series E”) has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into 1.083 shares of our common stock. The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption. In connection with a special dividend (declared on November 5, 2008), the Company reserved for issuance upon conversion of the Series E additional shares of common stock to which a holder of the Series E would have received if the holder had converted the Series E immediately prior to the record date for this special dividend. Distributions declared on the Series E for the years ended December 31, 2014 and December 31, 2013 were $1.33 per share or $0.3322 per quarter. The Series E is not listed on any exchange. At December 31, 2014, a total of 2,803,812 shares of the Series E were outstanding. Series F Preferred Stock We are authorized to issue up to 20,000,000 shares of our Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of our Operating Partnership Units, or OP Units, described below under “Operating Partnership Units,” at a purchase price of $0.0001 per share. OP Unitholders are entitled to subscribe for and purchase one share of the Series F for each OP Unit held. As of December 31, 2014, a total of 2,464,183 shares of the Series F were outstanding with an aggregate purchase value of $246. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to any other rights, privileges or preferences. Distribution Reinvestment and Stock Purchase Plan 25 We have a Distribution Reinvestment and Stock Purchase Plan under which holders of our common stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of our common stock. Stockholders who do not participate in the plan continue to receive distributions as and when declared. As of February 19, 2015, there were approximately 2,289 participants in the plan. United Dominion Realty, L.P.: Operating Partnership Units There is no established public trading market for United Dominion Realty, L.P.’s Operating Partnership Units. From time to time we issue shares of our common stock in exchange for OP Units tendered to the Operating Partnership for redemption in accordance with the provisions of the Operating Partnership’s limited partnership agreement. At December 31, 2014, there were 183,278,698 OP Units outstanding in the Operating Partnership, of which 174,113,225 OP Units or 95.0% were owned by UDR and 9,165,473 OP Units or 5.0% were owned by limited partners. Under the terms of the Operating Partnership’s limited partnership agreement, the holders of OP Units have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the holder in exchange for a cash payment based on the market value of our common stock at the time of redemption. However, the Operating Partnership’s obligation to pay the cash amount is subject to the prior right of the Company to acquire such OP Units in exchange for either the cash amount or the number of shares of our common stock equal to the number of OP Units being redeemed. During 2014, we issued a total of 153,451 shares of common stock upon redemption of OP Units. On October 20, 2014, we issued 1,998 shares of our common stock upon redemption of OP Units. Because these shares of common stock were issued to accredited investors in transactions not involving a public offering, the transaction is exempt from registration under the Securities Act of 1933 in accordance with Section 4(a)(2) of the Securities Act. We did not issue any other shares of our common stock upon redemption of OP Units during the three months ended December 31, 2014. Purchases of Equity Securities In February 2006, UDR’s Board of Directors authorized a 10,000,000 share repurchase program. In January 2008, UDR’s Board of Directors authorized a new 15,000,000 share repurchase program. Under the two share repurchase programs, UDR may repurchase shares of our common stock in open market purchases, block purchases, privately negotiated transactions or otherwise. As reflected in the table below, no shares of common stock were repurchased under these programs during the quarter ended December 31, 2014. Period Beginning Balance October 1, 2014 through October 31, 2014 November 1, 2014 through November 30, 2014 December 1, 2014 through December 31, 2014 Balance as of December 31, 2014 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 (a) Average Price per Share $ $ 22.00 — — — 22.00 9,967,490 — — — 9,967,490 15,032,510 15,032,510 15,032,510 15,032,510 15,032,510 Total Number of Shares Purchased 9,967,490 — — — 9,967,490 (a) This number reflects the amount of shares that were available for purchase under our 10,000,000 share repurchase program authorized in February 2006 and our 15,000,000 share repurchase program authorized in January 2008. During the three months ended December 31, 2014, certain of our employees surrendered shares of common stock owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our 1999 Long-Term Incentive Plan (the “LTIP”). The following table summarizes all of these repurchases during the three months ended December 31, 2014. 26 Period October 1, 2014 through October 31, 2014 November 1, 2014 through November 30, 2014 December 1, 2014 through December 31, 2014 Total Total Number of Shares Purchased Average Price Paid per Share(a) 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 — — 107,113 107,113 $ $ — — 30.82 30.82 N/A N/A N/A N/A N/A N/A (a) The price paid per share is based on the closing price of our common stock as of the date of the determination of the statutory minimum for federal and state tax obligations. 27 Comparison of Five-year Cumulative Total Returns The following graph compares the five-year cumulative total returns for UDR common stock with the comparable cumulative return of the NAREIT Equity REIT Index, Standard & Poor’s 500 Stock Index, the NAREIT Equity Apartment Index and the MSCI US REIT Index. The graph assumes that $100 was invested on December 31, 2009, in each of our common stock and the indices presented. Historical stock price performance is not necessarily indicative of future stock price performance. The comparison assumes that all dividends are reinvested. Index UDR, Inc. NAREIT Equity Apartment Index US MSCI REITS S&P 500 NAREIT Equity REIT Index 12/31/2009 100.00 100.00 100.00 100.00 100.00 12/31/2010 148.70 147.04 128.48 115.06 127.96 Period Ending 12/31/2011 163.91 169.23 139.65 117.49 138.57 12/31/2012 160.75 180.97 164.46 136.30 163.60 12/31/2013 163.92 169.76 168.52 180.44 167.63 12/31/2014 224.86 237.02 219.72 205.14 218.16 The performance graph and the related chart and text, are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201 (e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 28 Item 6. SELECTED FINANCIAL DATA The following tables set forth selected consolidated financial and other information of UDR, Inc. and of the Operating Partnership as of and for each of the years in the five-year period ended December 31, 2014. The table should be read in conjunction with each of UDR, Inc.’s and the Operating Partnership’s respective consolidated financial statements and the notes thereto, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report. $ $ $ $ $ $ $ OPERATING DATA: Rental income Income/(loss) from continuing operations Income/(loss) from discontinued operations, net of tax Net income/(loss) Distributions to preferred stockholders Net income/(loss) attributable to common stockholders Common distributions declared Income/(loss) per weighted average common share — basic: Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders Income/(loss) per weighted average common share — diluted: Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders Weighted average number of Common Shares outstanding — basic Weighted average number of Common Shares outstanding — diluted Weighted average number of Common Shares outstanding, OP Units and Common Stock equivalents outstanding — diluted Common distributions declared Balance Sheet Data: Real estate owned, at cost (a) Accumulated depreciation (a) Total real estate owned, net of accumulated depreciation (a) Total assets Secured debt (a) Unsecured debt Total debt Total stockholders’ equity Number of Common Shares outstanding UDR, Inc. Year Ended December 31, (In thousands, except per share data and apartment homes owned) 2014 2013 2012 2011 2010 $ 805,002 16,260 10 159,842 3,724 150,610 263,503 $ 746,484 2,340 43,942 46,282 3,724 41,088 235,721 $ 704,701 (46,305) 266,608 220,303 6,010 203,376 215,654 $ 613,689 (126,869) 147,454 20,585 9,311 10,537 165,590 503,097 (121,117) 14,529 (106,588) 9,488 (112,362) 126,086 0.60 $ — 0.60 $ 0.59 $ — 0.59 $ $ $ 251,528 253,445 265,728 1.04 8,383,259 2,434,772 5,948,487 6,846,534 1,361,529 2,221,576 3,583,105 2,735,097 255,115 29 (0.01) $ (0.22) $ (0.65) $ (0.77) 0.17 0.16 $ 1.07 0.85 $ 0.71 0.05 $ 0.09 (0.68) (0.01) $ (0.22) $ (0.65) $ (0.77) 0.17 0.16 $ 1.07 0.85 $ 0.71 0.05 $ $ $ 249,969 249,969 263,926 0.94 8,207,977 2,208,794 5,999,183 6,807,722 1,442,077 2,081,626 3,523,703 2,811,648 250,750 $ $ $ $ 238,851 238,851 252,659 0.88 8,055,828 1,924,682 6,131,146 6,859,103 1,430,135 1,979,198 3,409,333 2,992,916 250,139 201,294 201,294 214,086 0.80 8,074,471 1,831,727 6,242,744 6,692,254 1,891,553 2,026,817 3,918,370 2,314,050 219,650 0.09 (0.68) 165,857 165,857 176,900 0.73 6,881,347 1,638,326 5,243,021 5,500,597 1,963,670 1,603,834 3,567,504 1,606,343 182,496 UDR, Inc. Year Ended December 31, (In thousands, except per share data and apartment homes owned) 2014 2013 2012 2011 2010 OPERATING DATA (continued): Other Data (a) Total consolidated apartment homes owned (at end of year) (a) Weighted average number of consolidated apartment homes owned during the year 39,851 40,644 41,250 41,392 41,571 42,747 47,343 48,531 48,553 47,571 Cash Flow Data: Cash provided by/(used in) operating activities Cash provided by/(used in) investing activities Cash provided by/(used in) financing activities Funds from Operations (b): Funds from operations — basic Funds from operations — diluted $ $ $ 392,360 (293,660) (113,725) $ 339,902 (123,209) (198,559) $ 327,187 (211,582) (115,993) $ 251,411 (1,054,683) 806,289 214,180 (583,754) 373,075 $ 411,702 415,426 $ 376,778 380,502 $ 350,628 354,532 $ 269,856 273,580 189,045 192,771 (a) Includes amounts classified as Held for Sale, where applicable. (b) Funds from operations, or FFO, is defined as net income (computed in accordance with generally accepted accounting principles, or “GAAP”), excluding impairment write-downs of depreciable real estate or of investments in non-consolidated investees that are driven by measurable decreases in the fair value of depreciable real estate held by the investee, gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in April 2002. We consider FFO a useful metric for investors as we use 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 GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs. Activities of our TRS include development and land entitlement. From time to time, we develop and subsequently sell a TRS property which results in a short-term use of funds that produces a profit that differs from the traditional long-term investment in real estate for REITs. We believe that the inclusion of these TRS gains in FFO is consistent with the standards established by NAREIT as the short-term investment is incidental to our main business. TRS gains on sales, net of taxes, are defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. See “Funds from Operations” in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of FFO and Net income/(loss) attributable to UDR, Inc. 30 United Dominion Realty, L.P. Year Ended December 31, (In thousands, except per OP unit data and apartment homes owned) OPERATING DATA: Rental income Income/(loss) from continuing operations Income/(loss) from discontinued operations Net income/(loss) Net income/(loss) attributable to OP unitholders Income/(loss) per weighted average OP Unit - basic and diluted: Income/(loss) from continuing operations attributable to OP unitholder Income/(loss) from discontinued operations attributable to OP unitholder Net income/(loss) attributable to OP unitholders Weighted average number of OP Units outstanding — basic and diluted Balance Sheet Data: Real estate owned, at cost (a) Accumulated depreciation (a) Total real estate owned, net of accumulated depreciation (a) $ $ $ Total assets Secured debt (a) Total liabilities Total partners’ capital Advances to/(from) General Partner Number of OP units outstanding Other Data: 2014 2013 2012 2011 2010 $ 422,634 33,544 — 97,179 96,227 $ 401,853 32,766 45,176 77,942 73,376 $ 384,946 (13,309) 57,643 44,334 43,982 $ 344,937 (40,744) 70,973 30,229 30,159 297,380 (30,937) 10,243 (20,694) (20,735) 0.53 $ 0.16 $ (0.07) $ (0.22) $ (0.18) — 0.53 0.24 0.40 0.31 0.24 0.39 0.17 0.06 (0.12) 183,279 184,196 184,281 182,448 179,909 $ 4,238,770 1,403,303 2,835,467 2,878,284 931,959 1,144,233 1,703,001 (13,624) 183,279 $ 4,188,480 1,241,574 2,946,906 2,993,241 934,865 1,190,144 1,795,934 9,916 183,279 $ 4,182,920 1,097,133 3,085,787 3,136,254 967,239 1,217,498 1,917,299 11,056 184,281 $ 4,205,298 976,358 3,228,940 3,292,167 1,189,645 1,438,798 2,034,792 193,584 184,281 3,706,184 884,083 2,822,101 2,861,395 1,070,061 1,299,772 2,042,241 492,709 179,909 Total consolidated apartment homes owned (at end of year) (a) 20,814 20,746 21,660 23,160 23,351 Cash Flow Data: Cash provided by/(used in) operating activities $ Cash provided by/(used in) investing activities Cash provided by/(used in) financing activities $ 208,032 (46,650) (162,777) $ 208,346 (63,954) (145,299) $ 201,095 4,273 (203,268) $ 156,071 (226,980) 70,693 146,604 (59,458) (86,668) (a) Includes amounts classified as Held for Sale, where applicable. 31 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward- looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning availability of capital and the stabilization of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments, redevelopments and lease-ups on schedule, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels, expectations concerning the joint ventures with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income. The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements: • • • • • • • • • • • • • • • • general economic conditions; unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates; the failure of acquisitions to achieve anticipated results; possible difficulty in selling apartment communities; competitive factors that may limit our ability to lease apartment homes or increase or maintain rents; insufficient cash flow that could affect our debt financing and create refinancing risk; failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders; development and construction risks that may impact our profitability; potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us; risks from extraordinary losses for which we may not have insurance or adequate reserves; uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage; delays in completing developments and lease-ups on schedule; our failure to succeed in new markets; changing interest rates, which could increase interest costs and affect the market price of our securities; potential liability for environmental contamination, which could result in substantial costs to us; the imposition of federal taxes if we fail to qualify as a REIT under the Code in any taxable year; 32 • our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and • changes in real estate laws, tax laws and other laws affecting our business. A discussion of these and other factors affecting our business and prospects is set forth in Part II, Item 1A. Risk Factors. We encourage investors to review these risk factors. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward- looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law. The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements and the accompanying notes for the years ended December 31, 2014, 2013 and 2012 of each of UDR, Inc. and United Domination Realty, L.P. UDR, Inc.: Business Overview We are a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include the Operating Partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc., its subsidiaries and its consolidated joint ventures. At December 31, 2014, our consolidated real estate portfolio included 139 communities in 10 states plus the District of Columbia totaling 39,851 apartment homes, and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 36 communities with 10,055 apartment homes. At December 31, 2014, the Company was developing one wholly-owned community with 369 apartment homes and three unconsolidated joint venture communities with 1,018 apartment homes, none of which have been completed. In addition, the Company was redeveloping 708 apartment homes, 694 of which have been completed, at one wholly-owned community with 739 apartment homes. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to the UDR Consolidated Financial Statements included in this Report. Cost Capitalization In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. 33 In addition, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease- up, the Company ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total Real Estate Owned, Net of Accumulated Depreciation. Amounts capitalized during the years ended December 31, 2014, 2013, and 2012 were $29.2 million, $40.5 million, and $36.4 million, respectively. Investment in Unconsolidated Joint Ventures We may enter into various joint venture agreements and/or partnerships with unrelated third parties to hold or develop real estate assets. We must determine for each of these ventures whether to consolidate the entity or account for our investment under the equity method of accounting. We determine whether to consolidate a joint venture or partnership based on our rights and obligations under the venture agreement, applying the applicable accounting guidance. The application of the rules in evaluating the accounting treatment for each joint venture or partnership is complex and requires substantial management judgment. We evaluate our accounting for investments on a regular basis including when a significant change in the design of an entity occurs. Throughout our financial statements, and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest. We continually evaluate our investments in unconsolidated joint ventures when events or changes in circumstances indicate that there may be an other- than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken as a whole by management in determining the valuation of our investment property. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements. Impairment of Long-Lived Assets We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair market value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs (defined as Level 3 inputs in the fair value hierarchy) related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions. Real Estate Investment Properties We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining average contractual lease period. 34 REIT Status We are a Maryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year ended December 31, 2014 in our Consolidated Statements of Operations, we would have incurred federal and state GAAP income taxes if we had failed to qualify as a REIT. Summary of Real Estate Portfolio by Geographic Market The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2014. Same-Store Communities West Region San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR Mid-Atlantic Region Metropolitan D.C. Baltimore, MD Richmond, VA Norfolk, VA Other Mid-Atlantic Southeast Region Tampa, FL Orlando, FL Nashville, TN Other Florida Northeast Region New York, NY Boston, MA Southwest Region Dallas, TX Austin, TX Total/Average Same-Store Communities Non Matures, Commercial Properties & Other Total Real Estate Held for Investment Real Estate Under Development (b) Total Real Estate Owned Total Accumulated Depreciation Total Real Estate Owned, Net of Accumulated Depreciation As of December 31, 2014 Year Ended December 31, 2014 Number of Apartment Communities Number of Apartment Homes Percentage of Total Carrying Value Total Carrying Value (in thousands) Average Physical Occupancy Monthly Income per Occupied Home (a) Net Operating Income (in thousands) 11 10 9 3 7 4 3 13 11 4 4 1 9 10 8 1 2 4 8 4 126 13 139 — 139 2,436 3,290 1,727 642 1,565 875 716 4,313 2,301 1,358 846 168 2,775 2,796 2,260 636 700 1,179 2,725 1,273 34,581 5,270 39,851 — 39,851 7.9% $ 7.3% 5.4% 3.0% 1.9% 1.7% 0.9% 10.6% 3.7% 1.7% 0.6% 0.2% 3.3% 2.8% 2.3% 1.0% 5.0% 3.9% 3.5% 1.8% 666,210 612,309 449,375 253,448 161,635 141,656 73,811 893,677 309,894 139,538 54,076 12,972 275,354 238,375 191,393 81,316 423,130 323,420 292,847 147,873 97.2% $ 95.5% 97.1% 95.3% 95.8% 96.1% 97.6% 97.1% 96.6% 96.5% 94.6% 95.4% 96.6% 96.7% 97.5% 96.5% 97.8% 96.3% 97.2% 97.1% 68.5% 5,742,309 96.7% $ 29.4% 97.9% 2.1% 100.0% 2,463,318 8,205,627 177,632 8,383,259 (2,434,772) $ 5,948,487 35 2,804 1,752 1,732 2,409 1,216 1,550 1,195 1,818 1,462 1,220 1,047 1,021 1,126 1,045 1,053 1,362 3,711 2,225 1,130 1,274 1,573 $ 60,730 47,990 24,812 12,159 15,326 10,938 6,971 62,261 27,431 14,309 6,520 1,241 23,276 22,839 18,922 6,491 23,280 21,617 22,657 11,068 440,838 115,580 556,418 (97) $ 556,321 (a) Monthly Income per Occupied Home represents total monthly revenues divided by the product of occupancy and the number of mature apartment homes. (b) As of December 31, 2014, the Company was developing one wholly-owned community with 369 apartment homes, which has not been completed. We report in two segments: Same-Store Communities and Non-Mature Communities/Other. Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2013 and held as of December 31, 2014. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for sale at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. Liquidity and Capital Resources Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings under our credit agreements. We routinely use our unsecured revolving credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we repositioned our portfolio. We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under credit agreements will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and dispositions of properties. We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC,” which provides for the issuance of an indeterminate amount of common stock, preferred stock, depositary shares, debt securities, guarantees of debt securities, warrants, subscription rights, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance. During 2014, the Company issued $300 million of 3.750% senior unsecured medium-term notes due July 1, 2024. Interest is payable semi-annually beginning on January 1, 2015. The notes were priced at 99.652% of the principal amount at issuance. We used the net proceeds to pay down borrowings outstanding on our $900 million unsecured credit facility and for general corporate purposes. The notes are fully and unconditionally guaranteed by the Operating Partnership. In April 2012, the Company entered into a new equity distribution agreement, which was amended in July 2014, under which the Company could offer and sell up to 20 million shares of its common stock, from time to time, to or through its sales agents. During the year ended December 31, 2014, the Company sold 3,410,433 shares of common stock through this program for aggregate gross proceeds of approximately $102.1 million at a weighted average price per share of $29.95. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $2.3 million, were approximately $99.8 million, which was primarily used to fund the Company's Steele Creek participating loan investment. As of December 31, 2014, we had 16,518,567 shares of common stock available for sale under the April 2012 program. Future Capital Needs Future development and redevelopment expenditures may be funded through unsecured or secured credit facilities, proceeds from the issuance of equity or debt securities, sales of properties, joint ventures, and, to a lesser extent, from cash flows provided by property operations. Acquisition activity in strategic markets may be funded through joint ventures, by the 36 reinvestment of proceeds from the sale of properties, through the issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt. During 2015, we have approximately $196.6 million of secured debt maturing, inclusive of principal amortization, and $324.3 million of unsecured debt maturing. In January 2015, we paid off $325.2 million of 5.25% medium-term notes due January 2015 with borrowings under the Company’s $900 million unsecured revolving credit facility. We anticipate repaying the remaining debt with cash flow from our operations, proceeds from debt or equity offerings, proceeds from the dispositions of properties, or from borrowings under our credit agreements. Statements of Cash Flow The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012. Operating Activities For the year ended December 31, 2014, Net cash provided by/(used in) operating activities was $392.4 million compared to $339.9 million for 2013. The increase in cash flow from operating activities was primarily due to improved income from continuing operations and changes in operating assets and liabilities. For the year ended December 31, 2013, Net cash provided by/(used in) operating activities was $339.9 million compared to $327.2 million for 2012. The increase in cash flow from operating activities is primarily due to improved income from continuing operations, partially offset by changes in operating assets and operating liabilities. Investing Activities For the year ended December 31, 2014, Net cash provided by/(used in) investing activities was $(293.7) million compared to $(123.2) million for 2013. The increase in cash used in investing activities is primarily related to increased acquisitions of real estate and investments in unconsolidated joint ventures, partially offset by increased proceeds from sales of real estate, lower spend on development and redevelopment, and repayment of notes receivable. For the year ended December 31, 2013, Net cash provided by/(used in) investing activities was $(123.2) million compared to $(211.6) million in 2012. The change in investing activities was due to changes in the level of investment activities, which reflect our strategy as it relates to our investments in unconsolidated joint ventures and partnerships, acquisitions, dispositions, capital expenditures, and development activities, all of which are discussed in further detail throughout this Report. Acquisitions In 2014, the Company acquired a fully-entitled land parcel for future development located in Huntington Beach, California for $77.8 million, two communities located in Seattle, Washington and Kirkland, Washington with a total of 358 apartment homes for $45.5 million and $75.2 million, respectively, and a land parcel for future development located in Boston, Massachusetts for $32.2 million The four acquisitions during the year ended December 31, 2014 were accomplished through tax-deferred exchanges under Section 1031 of the Internal Revenue Code. The Company did not acquire any real estate assets in 2013. During 2012, the Company acquired the remaining 80% ownership interests in two apartment communities (633 homes) located in Austin, Texas for $11.7 million from its joint venture partner. In addition, the Company also acquired two parcels of land for development in San Francisco, California and Boston, Massachusetts for a total purchase price of $77.2 million. Capital Expenditures Total capital expenditures, which in aggregate include recurring capital expenditures and major renovations, of $90.1 million or $2,274 per stabilized home were spent on all of our communities, excluding development and commercial properties, for the year ended December 31, 2014 as compared to $145.2 million or $3,537 per stabilized home for the prior year. The decrease in total capital expenditures was primarily due to a decrease in major renovations of 65.8% or $60.6 million. Major renovations of $31.5 million or $796 per home were spent for the year ended December 31, 2014 as compared to $92.1 million or $2,244 per home for the prior year. The decrease is primarily attributable to our 27 Seventy Five Mesa 37 Verde project in Orange County, which incurred a full year of major renovation costs in 2013. The renovation project was completed in the second quarter of 2014. The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under developments and commercial properties, for the years ended December 31, 2014 and 2013 (dollars in thousands): Year Ended December 31, Per Home Year Ended December 31, 2014 2013 % Change 2014 2013 % Change Turnover capital expenditures $ Asset preservation expenditures Total recurring capital expenditures Revenue-enhancing improvements Major renovations Total capital expenditures Repair and maintenance expense Average stabilized home count (a) $ $ 12,160 $ 31,761 43,921 14,647 31,547 90,115 $ 31,288 $ 39,637 11,850 30,857 42,707 10,364 92,141 145,212 32,692 41,052 2.6 % $ 2.9 % 2.8 % 41.3 % (65.8)% (37.9)% $ (4.3)% $ $ 307 801 1,108 370 796 2,274 789 $ $ 288 752 1,040 253 2,244 3,537 796 6.6 % 6.5 % 6.5 % 46.2 % (64.5)% (35.7)% (0.9)% (a) Average number of homes is calculated based on the number of stabilized homes outstanding at the end of each month. This table reports amounts capitalized during the year. Actual capital spending is impacted by the net change in capital expenditure accruals. We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment in excess of our cost of capital. Our objective in redeveloping a community is twofold: we aim to meaningfully grow rental rates while also achieving cap rate compression through asset quality improvement. Recurring capital expenditures during 2015 are projected to be approximately $1,150 per home. Real Estate Under Development and Redevelopment At December 31, 2014, our development pipeline for one wholly-owned community totaled 369 homes with a budget of $217.7 million, in which we have a carrying value of $177.6 million. The estimated completion date for this community is in the second quarter of 2015. During 2014, we incurred $251.5 million for development costs, a decrease of $29.1 million from our 2013 level of $280.6 million. 38 The following wholly-owned projects were under development or recently completed as of December 31, 2014 (dollars in thousands): Location Number of Apartment Homes Completed Apartment Homes Cost to Date Budgeted Cost Estimated Cost Per Home Expected Completion Date Projects Under Construction: Pier 4 Boston, MA Completed Projects, Non-Stabilized: DelRay Tower (a) (b) Beach & Ocean (c) Los Alisos Alexandria, VA Huntington Beach, CA Mission Viejo, CA Total completed projects Total Projects 369 332 173 320 825 1,194 (a) This project is held by the Operating Partnership. (b) Formerly known as The Calvert. (c) Formerly known as Beach Walk. — $ 177,632 $ 217,700 $ 590 2Q2015 332 173 320 825 825 $ 124,873 132,000 51,038 87,180 263,091 440,723 $ 51,900 87,500 271,400 489,100 $ 398 300 273 329 410 4Q2014 4Q2014 1Q2014 At December 31, 2014, the Company was redeveloping 708 apartment homes, 694 of which have been completed, at one wholly-owned community with 739 total apartment homes. During the year ended December 31, 2014, we incurred $31.5 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings, a decrease of $60.6 million from our 2013 level of $92.1 million. The estimated completion date for this community is the second quarter of 2015. At December 31, 2014, the following community was in redevelopment (dollars in thousands): Number of Apartment Homes Scheduled Redevelopment Homes Completed Apartment Homes Cost to Date Budgeted Cost 739 708 694 $ 83,778 $ 98,000 $ Estimated Cost Per Home 138 Expected Completion Date 2Q2015 View 34 (a) Location New York, NY (a) Formerly known as Rivergate. Consolidated Joint Ventures In December 2013, the Company consolidated its 95%/5% development joint ventures 13th and Market in San Diego, California and Domain College Park in Metropolitan, D.C. The consolidation was due to the Company becoming the managing partner of each of the joint ventures pursuant to amendments to the LLC Agreements. In connection with the amendments, our partner received equity distributions reducing its capital account balances to zero, the Company replaced our partner as the managing partner, and our partner no longer has the ability to substantively participate in the decision-making process, with only protective rights remaining. We accounted for the consolidations as asset acquisitions since the joint ventures were under development and not complete at the time of consolidation resulting in no gain or loss upon consolidation and increasing our real estate owned by $129.4 million and our debt owed by $63.6 million. In addition pursuant to the amendments, the Company paid a non-refundable deposit to our partner in January 2014 of $2.0 million for each joint venture, or $4.0 million in total, for the right to exercise options in 2014 to acquire our partner’s upside participation in the joint ventures. The non-refundable deposits were applied towards the total purchase price of approximately $24.7 million when the Company acquired 100% of the interest in the joint ventures in November 2014. In December 2014, the Company sold a 49% interest in 13th and Market to MetLife for $54.2 million, resulting in a gain, net of tax, of $7.2 million. Additionally, the Company sold a 50% interest in a wholly owned land parcel to MetLife for $8.3 million, resulting in a loss, net of tax, of $2.2 million. As a result, the Company no longer controls these two joint ventures and they were deconsolidated by the Company in December 2014. 39 Unconsolidated Joint Ventures and Partnerships The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net which are accounted for under the equity method of accounting as of December 31, 2014 and 2013 (dollars in thousands): Joint Venture Location of Properties Number of Properties 2014 Number of Apartment Homes Investment at UDR’s Ownership Interest 2014 2014 2013 2014 2013 Operating and development: Various UDR/MetLife I (a) UDR/MetLife II (a) Various Other UDR/MetLife Joint Ventures (a) UDR/MetLife Vitruvian Park® (c) UDR/KFH (d) Various Addison, TX Washington, D.C. Texas (e) Texas 4 land parcels 21 operating communities 1 operating community, 3 development communities (b), 2 land parcels 3 operating communities, 6 land parcels 3 operating communities 8 operating communities — $ 13,306 $ 47,497 15.7 % 4.5 % 4,642 431,277 327,926 50.0 % 50.0 % 1,282 134,939 36,313 50.6 % 35.8 % 1,394 80,302 79,318 50.0 % 50.0 % 660 21,596 25,919 30.0 % 30.0 % 3,359 (25,901 ) (23,591 ) 20.0 % 20.0 % Investment in and advances to unconsolidated joint ventures, net, before participating loan investment 655,519 493,382 Location Participating loan investment: Steele Creek (f) Denver, CO Preferred Return Years To Maturity Investment at 6.5% 2.8 2014 62,707 2013 2014 14,273 $2,350 Income From Participating Loan Investment For The Year Ended 2013 2012 $156 $— Total investment in and advances to unconsolidated joint ventures, net $ 718,226 $ 507,655 (a) In January 2012, the Company formed a joint venture with an unaffiliated third party to acquire 399 Fremont (land for future development) in San Francisco, California, which is included in Other UDR/MetLife Joint Ventures in the table above. At closing, UDR owned a noncontrolling interest of 92.5% in the joint venture. The Company’s total investment was $55.5 million, which consisted of its initial investment of $37.3 million and an option to exercise its right to acquire its partner’s 7.5% ownership interest in the joint venture. In October 2012, the Company exercised its option and paid $13.5 million. In January 2013, the Company subsequently acquired its partner’s 7.5% ownership interest for $4.7 million. In December 2013, the Company sold a 49% ownership interest to MetLife in the fully-entitled 399 Fremont land parcel for approximately $29.9 million. In conjunction with the sale, the Company formed a new unconsolidated real estate joint venture with MetLife, UDR/MetLife 399 Fremont, to develop a $318 million, 447- home, luxury high-rise tower on the site. Construction commenced in the first quarter 2014. As the Company recently acquired the 399 Fremont land parcel, the sale price was equivalent to the cost basis resulting in no gain or loss on the transaction. Under the terms of the partnership, the Company serves as the general partner with significant participating rights held by our partner, and has the ability to earn fees for development management, property management, asset management, and financing transactions. The UDR/MetLife 399 Fremont Joint Venture is accounted for under the equity method of accounting. Our initial investment was approximately $31.1 million. 40 In June 2013 and within UDR/MetLife I, the Company exchanged with MetLife its approximately 10% ownership interest in four operating communities and paid MetLife an additional $15.6 million in cash for an increased ownership interest of approximately 35% in two high-rise operating communities, bringing UDR's ownership interest in the two high-rise operating communities to 50% each. The two high-rise operating communities are located in Denver, Colorado and San Diego, California and were subsequently contributed to UDR/MetLife II. The four operating communities in which UDR exchanged its ownership interest are located in Washington D.C.; San Francisco, California; Dallas, Texas; and Charlotte, North Carolina. UDR continues to fee manage these four operating communities. In March 2014, the Company sold its minority ownership interests in two operating communities located in Los Angeles, California to MetLife for cash proceeds of $3.0 million, which resulted in an immaterial gain. In April 2014, the Company increased its ownership interest in the remaining six operating communities in the UDR/MetLife I Joint Venture from 12% to 50%, and MetLife and the Company contributed the communities to the UDR/MetLife II Joint Venture. The Company paid MetLife $82.5 million for the additional ownership interests. The Company continues to fee manage the operating communities that were contributed to the UDR/MetLife II Joint Venture as well as the two operating communities in which it sold its minority ownership interests. In July 2014, the Company increased the ownership interest in two land sites in UDR/Metlife I to 50.1% and formed individual asset joint ventures, which are included in Other UDR/MetLife Joint Ventures in the table above. The remaining 49.9% continues to be held by our joint venture partner MetLife. The Company paid MetLife approximately $21.5 million for the additional ownership interests. In December 2014, the Company increased its ownership interest in one land site in the UDR/MetLife I Joint Venture to 50%. Additionally, the Company increased its ownership interest in another land site to 50.1%, which MetLife and the Company contributed to a separate joint venture and is included in Other UDR/MetLife Joint Ventures in the table above. The Company paid MetLife approximately $15.3 million for the additional ownership interests. As of December 31, 2014, the remaining assets in the UDR/MetLife I Joint Venture were comprised of three potential development land sites in which the Company has an average ownership interest of approximately 5% and one fully entitled land parcel in which the Company owns 50%. In December 2014, the Company sold a 49% interest in 13th and Market located in San Diego, California to MetLife for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million and a 50% interest in 3033 Wilshire in Los Angeles, California, also to MetLife for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. (b) The number of apartment homes for the communities under development presented in the table above is based on the projected number of total homes. As of December 31, 2014, no apartment homes had been completed in Other UDR/MetLife Joint Ventures. (c) In June 2013, the Company sold a 50% interest in five partnerships (the “UDR/MetLife Vitruvian Park® Partnerships”) to MetLife for approximately $141.3 million. The transaction resulted in a gain of approximately $436,000 which the Company has deferred until the terms of the construction completion guarantee have been met. Under the terms of the UDR/MetLife Vitruvian Park® Partnerships, the Company serves as the general partner with significant participating rights held by our partner, and earns fees for property management, asset management, and financing transactions. The UDR/MetLife Vitruvian Park® Partnerships are accounted for under the equity method of accounting. Our initial investment was approximately $80.2 million, which consisted of approximately $140.0 million (50% of our net book value of the real estate at the time of the transaction) reduced by our share of the net proceeds received upon encumbering the assets of approximately $58.7 million and other operating adjustments. At closing, a total of $118.3 million of secured debt was placed on the two operating communities and the community under development. The debt on the two operating communities carries an interest rate of 4.0% with a term of ten years and the non-recourse construction loan on the community under development carries an interest rate of LIBOR plus 175 basis points with a term of two years and two one-year extension options. The Company has guaranteed the completion of the construction of the development. Proceeds from the construction loan will be used for completion of construction of the development. Upon completion, at its 50% ownership, the Company's pro-rata share of the undepreciated book value of the UDR/MetLife Vitruvian Park® Partnerships' real estate assets and outstanding debt will be approximately $145.0 million and $62.8 million, respectively. 41 (d) UDR is a partner with an unaffiliated third party, which formed a joint venture for the investment of up to $450 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180 million of which the Company’s maximum equity will be 30% or $54 million when fully invested. (e) In November 2007, UDR and an unaffiliated third party formed a joint venture to own and operate 10 communities located in Texas. UDR contributed cash and property equal to 20% of the fair value of the joint venture. During the year ended December 31, 2012, the Company acquired the remaining 80% ownership interests in two communities in Austin, Texas for $11.7 million. The Company’s investment in the joint venture at December 31, 2014 and 2013 was net of deferred profits on the sale of depreciable properties to the joint venture of $23.9 million and $24.0 million, respectively. In January 2015, the eight communities held by the Texas joint venture were sold, generating proceeds to UDR of $43.5 million. The Company recorded promote and fee income of approximately $9.6 million and a gain of approximately $59.1 million (including $24.2 million of previously deferred gains) in connection with the sale. (f) In October 2013, the Company entered into a participating debt financing arrangement with a third party that is developing a $108 million, 218-home, high-rise luxury community located adjacent to the Cherry Creek Mall in Denver, Colorado. Under the agreement, UDR will finance up to 85%, or approximately $92.0 million, of the development cost at an interest rate of 6.5% per annum on the outstanding debt balance. In addition, the Company has the option to purchase the community upon completion of construction and has a 50% participating interest in the profit upon the acquisition of the community or sale to a third party. The Company accounts for the arrangement consistent with an investment in real estate under the equity method of accounting. As of December 31, 2014, and 2013, our participating loan investment was $62.7 million and $14.3 million, respectively, which was included in Investment in and advances to unconsolidated joint ventures, net on the Consolidated Balance Sheets. We also recognized $2.4 million and $156,000 of income included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations for the years ended December 31, 2014 and 2013, respectively. Dispositions During the year ended December 31, 2014, the Company recognized gains on the sale of real estate, net of tax, of $143.6 million. The Company sold nine communities consisting of a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in net proceeds of $324.4 million and a total gain, net of tax, of $138.6 million. The Company also sold 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million, and 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. A portion of the sale proceeds was designated for tax-deferred exchanges under Section 1031 of the Internal Revenue Code and was used to fund acquisitions of real estate as discussed above. In 2013, UDR sold two apartment communities in the Sacramento market, consisting of 914 apartment homes for gross proceeds of $81.1 million. UDR recognized gains of $41.9 million, which are included in Income/(loss) from discontinued operations, net of tax on the UDR Consolidated Statements of Operations. Proceeds were used primarily to fund development and redevelopment activity and reduce debt. In 2012, UDR sold 21 apartment communities, which had 6,507 apartment homes for gross proceeds of $609.4 million. UDR recognized gains (before tax) of $260.4 million, which are included in Income/(loss) from discontinued operations, net of tax on the UDR Consolidated Statements of Operations. Proceeds were used primarily to fund development and redevelopment activity and reduce debt. We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital to primary locations in markets we believe will provide the best investment returns. Financing Activities For the years ended December 31, 2014, 2013 and 2012, Net cash provided by/(used in) financing activities was $(113.7) million, $(198.6) million and ($116.0) million, respectively. The following significant financing activities occurred during the year ended December 31, 2014: • repaid $81.0 million of secured debt; 42 • • • • • • • • • • repaid $184.0 million of 5.13% unsecured medium-term notes due January 2014; repaid $128.5 million of 5.50% unsecured medium-term notes due April 2014; issued $300.0 million of 3.750% senior unsecured medium-term notes due July 2024; sold 3,410,433 shares of common stock for aggregate net proceeds of approximately $99.8 million after deducting related expenses; net borrowings of $152.5 million under the Company’s $900 million unsecured revolving credit facility; and paid distributions of $256.1 million to our common stockholders. The following significant financing activities occurred during the year ended December 31, 2013: issued $300 million of 3.70% senior unsecured medium-term notes due October 2020; repaid $46.6 million of secured debt. The $46.6 million of secured debt included $42.2 million of mortgage payments and the repayment of $4.4 million of credit facilities; repaid $122.5 million of 6.05% unsecured medium-term notes due June 2013; and re-priced our $100 million and $250 million unsecured term notes from LIBOR plus 142.5 basis points to LIBOR plus 125 basis points, and extended the maturity dates from January 2016 to June 2018. Credit Facilities As of December 31, 2014, we have secured credit facilities with Fannie Mae with an aggregate commitment of $834.3 million, all of which was outstanding. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023, and bear interest at floating and fixed rates. The Company has $568.1 million of the funded balance fixed at a weighted average interest rate of 5.12% and the remaining balance of $266.2 million on these facilities had at a weighted average variable rate of 1.60% at December 31, 2014. As of December 31, 2014, the Company has a $900 million unsecured revolving credit facility that matures in December 2017. The credit facility has a six month extension option and contains an accordion feature that allows us to increase the facility to $1.45 billion. Based on the Company’s current credit rating, the credit facility carries an interest rate equal to LIBOR plus a spread of 100 basis points and a facility fee of 15 basis points. As of December 31, 2014, we had $152.5 million of outstanding borrowings under the credit facility, leaving $747.5 million of unused capacity (excluding $1.9 million of letters of credit at December 31, 2014). The Fannie Mae credit facilities and the bank unsecured revolving credit facility are subject to customary financial covenants and limitations. As of December 31, 2014, we were in compliance with all financial covenants under these credit facilities. Interest Rate Risk We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $579.7 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2014. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $6.9 million based on the average balance outstanding during the year. These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analysis do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure. The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 13, Derivatives and Hedging Activities, in the Notes to Consolidated Financial Statements included in this Report for additional discussion of derivate instruments. 43 Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations Funds from Operations Funds from operations (“FFO”) is defined as net income (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate or of investments in non-consolidated investees that are driven by measurable decreases in the fair value of depreciable real estate held by the investee, gains or losses from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“NAREIT”) definition issued in April 2002 and is comparable to FFO, diluted in the accompanying reconciliation. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating performance. In the computation of diluted FFO, OP Units, unvested restricted stock, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count. Activities of our TRS include development and land entitlement. From time to time, we develop and subsequently sell a TRS property which results in a short-term use of funds that produces a profit that differs from the traditional long-term investment in real estate for REITs. We believe that the inclusion of these TRS gains in FFO is consistent with the standards established by NAREIT as the short-term investment is incidental to our main business. TRS gains on sales, net of taxes, are defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. We consider FFO a useful metric for investors as we use 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 GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs. Funds from Operations as Adjusted FFO as Adjusted is defined as FFO excluding the impact of acquisition-related costs and other non-comparable items including, but not limited to, prepayment costs/benefits associated with early debt retirement, gains on sales of marketable securities and TRS property, deferred tax valuation allowance increases and decreases, casualty-related expenses and recoveries, severance costs and legal costs. Management believes that FFO as Adjusted is useful supplemental information regarding our operating performance as it provides a consistent comparison of our operating performance across time periods and allows investors to more easily compare our operating results with other REITs. FFO as Adjusted is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that net income attributable to UDR, Inc. is the most directly comparable GAAP financial measure to FFO as Adjusted. However, other REITs may use different methodologies for calculating FFO as Adjusted or similar FFO measures and, accordingly, our FFO as Adjusted may not always be comparable to FFO as Adjusted or similar FFO measures calculated by other REITs. FFO as Adjusted should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity. Adjusted Funds from Operations Adjusted FFO, or “AFFO”, is a non-GAAP financial measure that management uses as a supplemental measure of our performance. AFFO is defined as FFO as Adjusted less recurring capital expenditures that are necessary to help preserve the value of and maintain functionality at our communities. Therefore, management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted. AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that net income attributable to UDR, Inc. is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined 44 in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. The following table outlines our reconciliation of Net Income/(Loss) Attributable to UDR, Inc. to FFO, FFO as Adjusted, and AFFO for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Year Ended December 31, Net income/(loss) attributable to UDR, Inc. Distributions to preferred stockholders Real estate depreciation and amortization, including discontinued operations Noncontrolling interests Real estate depreciation and amortization on unconsolidated joint ventures Net (gain)/loss on the sale of depreciable property, excluding TRS Premium on preferred stock redemption or repurchases, net Funds from operations (“FFO”), basic Distribution to preferred stockholders — Series E (Convertible) FFO, diluted FFO per common share, basic FFO per common share, diluted Weighted average number of common shares and OP Units outstanding — basic Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted Impact of adjustments to FFO: Acquisition-related costs/(fees), including joint ventures Costs/(benefit) associated with debt extinguishment and tender offer Redemption of preferred stock (Gain)/loss on sale of land Net gain on prepayment of note receivable Tax benefit associated with the conversion of certain TRS entities into REITs Gain on sale of TRS property/marketable securities Severance costs and other restructuring expense Reversal of deferred tax valuation allowance Casualty-related (recoveries)/charges, net FFO as Adjusted, diluted FFO as Adjusted per common share, diluted Recurring capital expenditures AFFO AFFO per common share, diluted 45 $ $ $ $ $ $ $ $ $ 2014 154,334 $ $ (3,724) 358,154 5,508 42,133 (144,703) — 411,702 3,724 415,426 1.58 1.56 260,775 $ $ $ 2013 2012 $ 44,812 (3,724) 341,490 1,470 33,180 (40,450) — 376,778 3,724 380,502 1.45 1.44 259,306 $ $ $ 212,177 (6,010) 350,400 8,126 32,531 (243,805) (2,791) 350,628 3,724 354,352 1.41 1.40 248,262 265,728 263,926 252,659 $ 442 192 — 1,056 (8,411) (5,770) — — — 541 (11,950) $ (254) $ 178 — — — — (2,651) — — (9,665) (12,392) $ 2,762 (277) 2,791 — — — (7,749) 733 (21,530) 9,262 (14,008) 403,476 $ 368,110 $ 340,344 1.52 $ 1.39 $ 1.35 (43,921) 359,555 $ (42,707) 325,403 $ (42,249) 298,095 1.35 $ 1.23 $ 1.18 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 years ended December 31, 2014, 2013, and 2012 (shares in thousands): Weighted average number of common shares and OP Units outstanding — basic Weighted average number of OP Units outstanding Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations Year Ended December 31, 2014 260,775 (9,247) 2013 2012 259,306 (9,337) 248,262 (9,411) 251,528 249,969 238,851 Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted Weighted average number of OP Units outstanding Weighted average incremental shares from assumed conversion of stock options Weighted average incremental shares from unvested restricted stock Weighted average number of Series E preferred shares outstanding Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations 265,728 263,926 (9,247) — — (3,036) (9,337) (1,169) (415) (3,036) 252,659 (9,411) (1,213) (148) (3,036) 253,445 249,969 238,851 A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands): Net cash provided by/(used in) operating activities Net cash provided by/(used in) investing activities Net cash provided by/(used in) financing activities Results of Operations Year Ended December 31, 2013 2012 2014 $ $ 392,360 (293,660) (113,725) $ 339,902 (123,209) (198,559) 327,187 (211,582) (115,993) The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012, and includes the results of both continuing and discontinued operations for the periods presented. Net Income/(Loss) Attributable to Common Stockholders 2014 -vs- 2013 Net income attributable to common stockholders was $150.6 million ($0.59 per diluted share) for the year ended December 31, 2014 as compared to net income of $41.1 million ($0.16 per diluted share) for the prior year. The increase in net income attributable to common stockholders for the year ended December 31, 2014 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: • gains, net of tax, of $143.6 million on the sale of real estate during the year ended December 31, 2014. These gains consisted of: • • the sale of nine communities with a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in a gain, net of tax, of approximately $138.6 million; and the sale of 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million and 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. 46 • an increase in total property net operating income (“NOI”) primarily due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in service related to development and redevelopment projects completed in 2014 and 2013, partially offset by the disposition of communities in 2014 and 2013. This was partially offset by: • • an increase in depreciation and amortization expense primarily from the homes placed in service related to development and redevelopment projects completed in 2014 and 2013, partially offset by a decrease from sold communities and fully depreciated assets; and casualty-related recoveries in 2013 resulting from the effects of Hurricane Sandy on three of our New York City communities in 2012 (see Note 4, Real Estate Owned, in the Notes to the UDR Consolidated Financial Statements for more details); 2013 -vs- 2012 Net income attributable to common stockholders was $41.1 million ($0.16 per diluted share) for the year ended December 31, 2013 as compared to net income of $203.4 million ($0.85 per diluted share) for the prior year. The decrease in net income attributable to common stockholders for the year ended December 31, 2013 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: • a decrease in net gains of $218.5 million on the sale of depreciable property related to the disposition of two communities in 2013 as compared to 21 communities in 2012; and • a decrease of $23.0 million in tax benefit primarily due to the reversal of our tax valuation allowance during 2012. This was partially offset by: • • • • • an increase in total property NOI primarily due to higher occupancy and higher revenue per occupied home partially offset by the disposition of 21 communities in 2012; casualty-related recoveries in 2013 resulting from the effects of Hurricane Sandy on three of our New York, New York communities in 2012 (see Note 16, Casualty-Related (Recoveries)/Charges, in the Notes to the UDR Consolidated Financial Statements included in this Report for more details); a decrease in depreciation and amortization expense primarily from the disposition of assets in 2012 and intangible assets related to in place leases acquired in 2011 and 2012 becoming fully amortized in 2012, which was partially offset by the depreciation from developed and redeveloped units placed in service in 2012 and 2013; a decrease in loss from unconsolidated entities primarily due to an $8.3 million gain ($5.3 million net of tax expense) on the sale of our 95% interest in the Lodge at Stoughton; and a decrease in interest expense due to lower average debt balances, lower average interest rates, and higher capitalized interest from development and redevelopment activities. Apartment Community Operations Our net income results are primarily from NOI generated from the operation of our apartment communities. The Company defines NOI, which is a non- GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations and land rent. Although the Company considers NOI a useful measure of a operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to UDR, Inc. below. 47 The following table summarizes the operating performance of our total property NOI (which includes discontinued operations) for each of the periods presented (dollars in thousands): Same-Store Communities: Same-store rental income Same-store operating expense (c) Same-store NOI Non-Mature Communities/Other NOI: Acquired communities NOI Sold or held for sale communities NOI Developed communities NOI Redeveloped communities NOI Commercial NOI and other Total non-mature communities/other NOI Year Ended December 31, (a) Year Ended December 31, (b) 2014 2013 % Change 2013 2012 % Change $ $ 630,966 (190,128) 440,838 604,729 (185,512) 419,217 4.3 % $ 2.5 % 5.2 % 613,733 $ (189,224) 424,509 584,999 (184,393) 400,606 4.9 % 2.6 % 6.0 % 17,788 14,108 26,492 45,578 11,517 115,483 14,997 28,662 4,920 36,229 10,016 94,824 18.6 % (50.8)% 438.5 % 25.8 % 15.0 % 21.8 % 19,291 7,932 4,846 44,991 12,472 89,532 16,709 29,941 (334) 42,026 15,252 103,594 15.5 % (73.5)% (1,550.9)% 7.1 % (18.2)% (13.6)% Total Property NOI $ 556,321 $ 514,041 8.2 % $ 514,041 $ 504,200 2.0 % (a) (b) (c) Same-store consists of 34,581 apartment homes. Same-store consists of 35,790 apartment homes. Excludes depreciation, amortization, and property management expenses. The following table is our reconciliation of total property NOI to Net income/(loss) attributable to UDR, Inc. as reflected, for both continuing and discontinued operations, for the periods presented (dollars in thousands): $ Total property NOI Joint venture management and other fees Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related recoveries/(charges), net Other depreciation and amortization Income/(loss) from unconsolidated entities Interest expense Interest and other income/(expense), net Tax benefit/(provision), net Gain/(loss) on sale of real estate owned, net of tax Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to UDR, Inc. $ 48 Year Ended December 31, 2014 2013 2012 $ 556,321 13,044 (22,142) (8,271) (358,154) (47,800) (541) (5,775) (7,006) (130,454) 11,837 15,136 143,647 (5,511) 3 154,334 $ $ 514,041 12,442 (20,780) (7,136) (341,490) (42,238) 12,253 (6,741) (415) (126,083) 4,681 7,299 40,449 (1,530) 60 44,812 $ 504,200 11,911 (20,465) (5,718) (350,401) (43,792) (8,495) (4,105) (8,579) (138,792) 2,703 30,282 251,554 (7,986) (140) 212,177 Same -Store Communities 2014 -vs- 2013 Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2013 and held on December 31, 2014) consisted of 34,581 apartment homes and provided 79.2% of our total NOI for the year ended December 31, 2014. NOI for our same-store community properties increased 5.2% or $21.6 million for the year ended December 31, 2014 compared to 2013. The increase in property NOI was attributable to a 4.3% or $26.2 million increase in property rental income, which was partially offset by a 2.5% or $4.6 million increase in operating expenses. The increase in revenues was primarily driven by a 3.5% or $20.2 million increase in rental rates and a 4.9% or $2.2 million increase in reimbursement and fee income. Physical occupancy increased 0.6% to 96.7% and total monthly income per occupied home increased by 3.8% to $1,573. The increase in operating expenses was primarily driven by a 4.1% or $2.6 million increase in real estate tax caused by higher real estate valuations and a 15.5% or $1.3 million increase in insurance expense primarily caused by a higher volume of small claims. As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 69.9% for the year ended December 31, 2014 as compared to 69.3% for 2013. 2013 -vs- 2012 Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2012 and held on December 31, 2013) consisted of 35,790 apartment homes and provided 82.6% of our total NOI for the year ended December 31, 2013. NOI for our same-store community properties increased 6.0% or $23.9 million for the year ended December 31, 2013 compared to 2012. The increase in property NOI was attributable to a 4.9% or $28.7 million increase in property rental income, which was partially offset by a 2.6% or $4.8 million increase in operating expenses. The increase in revenues was primarily driven by a 4.0% or $22.7 million increase in rental rates and a 7.7% or $3.6 million increase in reimbursement and fee income. Physical occupancy increased 0.2% to 96.0% and total monthly income per occupied home increased by 4.7% to $1,488. The increase in operating expenses was primarily driven by a 6.7% or $3.9 million increase in real estate tax and a 4.6% or $2.0 million increase in personnel costs, which was partially offset by a 4.2% or $1.3 million decrease in repair and maintenance expense. As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 69.2% for the year ended December 31, 2013 as compared to 68.5% for 2012. Non-Mature Communities/Other 2014 -vs- 2013 The remaining $115.5 million or 20.8% of our total NOI for the year ended December 31, 2014 was generated from our non-mature communities/other. UDR’s non-mature communities/other consist of communities that do not meet the criteria to be included in same-store communities, which includes communities developed or acquired, redevelopment properties, sold or held for sale properties, and non-apartment components of mixed use properties. NOI from non-mature communities/other increased by 21.8% or $20.7 million for the year ended December 31, 2014 compared to 2013. The increase was primarily driven by a increase in NOI of 438.5% or $21.6 million from development communities and 25.8% or $9.3 million from redevelopment communities completed in 2014 and 2013, which was partially offset by an decrease in NOI of 50.8% or $14.6 million from communities sold in 2014 and 2013. 2013 -vs- 2012 The remaining $89.5 million of our total NOI for the year ended December 31, 2013 was generated from our non-mature communities/other. NOI from non- mature communities decreased by 13.6% or $14.1 million for the year ended December 31, 2013 compared to 2012. The decrease was primarily driven by a decrease in NOI of 73.5% or $22.0 million from communities 49 sold in 2012, partially offset by an increase in NOI of 1,550.9% or $5.2 million from development communities completed in 2013 and 2012 and an increase in NOI of 7.1% or $3.0 million from redeveloped communities completed in 2013 and 2012. Real Estate Depreciation and Amortization For the year ended December 31, 2014, real estate depreciation and amortization on both continuing and discontinued operations increased 4.9% or $16.7 million as compared to 2013. The increase in depreciation and amortization for the year ended December 31, 2014 was primarily due to homes delivered from our development and redevelopment communities, partially offset by a decrease from sold communities and fully depreciated assets. For the year ended December 31, 2013, real estate depreciation and amortization on both continuing and discontinued operations decreased 2.5% or $8.9 million as compared to 2012. The decrease in depreciation and amortization for the year ended December 31, 2013 was primarily from the disposition of assets in 2012 and intangible assets related to in place leases acquired in 2012 and 2011 becoming fully amortized in 2012. The decrease was partially offset by the depreciation from developed and redeveloped units placed in service in 2013 and 2012. General and Administrative For the year ended December 31, 2014, general and administrative expense increased 13.2% or $5.6 million from 2013. The increase was primarily due to a $3.8 million increase in stock-based compensation expense under the long-term incentive plan and salary and benefit increases. For the year ended December 31, 2013, general and administrative expense decreased 3.5% or $1.6 million from 2012. The decrease was primarily due to acquisition costs incurred in 2012. Interest Expense For the year ended December 31, 2014, interest expense increased by 3.5% or $4.4 million as compared to 2013. The increase in interest expense was primarily due lower capitalized interest from development and redevelopment activities. For the year ended December 31, 2013, interest expense decreased 9.2% or $12.7 million as compared to 2012. The decrease in interest expense was primarily due to lower debt balances and lower interest rates and higher capitalized interest from development and redevelopment activities. Tax Benefit/(Provision), Net Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company recognized a Tax benefit/(provision), net of $15.1 million, $7.3 million and $30.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. The increase from 2013 to 2014 is primarily attributable to a one-time benefit of $5.8 million related to the conversion of certain taxable REIT subsidiaries into REITs in 2014. The decrease from 2012 to 2013 was primarily attributable to the reversal of a $21.5 million net deferred tax asset valuation allowance in 2012. Prior to 2012, our TRS had a history of losses and, as a result, had historically recognized a valuation allowance for net deferred tax assets. Each quarter, the Company evaluates the need to retain all or a portion of the valuation allowance on its net deferred tax assets. In the first quarter of 2012, the Company determined that it is more likely than not that the deferred tax assets, including any remaining net operating losses, will be realized. In making this determination, the Company analyzed, among other things, its recent history of earnings, forecasts of future earnings from sales of depreciable property, and its cumulative earnings for the last twelve quarters. Casualty-Related (Recoveries)/Charges, Net In October 2012, Hurricane Sandy hit the East Coast, affecting three of the Company’s operating communities (1,706 apartment homes) located in New York City. The properties suffered some physical damage, and were closed to residents for a period following the hurricane. The Company has insurance policies that provide coverage for property damage and business interruption, subject to applicable retention. 50 Based on the claims filed and management’s estimates, the Company recognized a $9.0 million impairment charge for the damaged assets’ net book value and incurred $10.4 million of repair and cleanup costs during the year ended December 31, 2012. The impairment charge and the repair and cleanup costs incurred were reduced as of December 31, 2012 by $14.5 million of estimated insurance recovery, and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. During the year ended December 31, 2013, no material adjustments to the impairment charge and the repair and cleanup costs incurred were recognized. With the exception of one of the properties that is under redevelopment at December 31, 2013, the rehabilitation of the remaining two properties was substantially completed as of December 31, 2013 and was completed during 2014. As of December 31, 2013, the Company had settled the Hurricane Sandy claims and received insurance proceeds in excess of the $14.5 million estimated insurance recovery receivable related to the impairment charge and the repair and cleanup costs incurred. As a result, the Company recognized a Casualty- related recovery of approximately $4.8 million and a casualty gain of approximately $654,000 for the year ended December 31, 2013. Both the recovery and casualty gain were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. Based on the claims filed and management’s estimates, the Company recognized $4.4 million of business interruption losses for the year ended December 31, 2012, of which $3.6 million were related to rent concession rebates provided to residents during the period the properties were uninhabitable and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations, and $767,000 were related to rent that was not contractually receivable and were classified as a reduction to Rental income on the Consolidated Statements of Operations. As noted below, the Company recovered from the insurance carrier approximately $4.2 million of the $4.4 million of 2012 business interruption losses. The Company estimates that it incurred an additional $3.4 million of business interruption losses for the year ended December 31, 2013. As noted below, the Company recovered from the insurance carrier approximately $2.6 million of the $3.4 million of 2013 business interruption losses. During the year ended December 31, 2013, the Company received approximately $6.8 million of insurance proceeds for recovery of business interruption losses. Of the $6.8 million of insurance proceeds received in 2013, $4.2 million related to recovery of business interruption losses incurred in 2012 and the remaining $2.6 million related to recovery of business interruption losses incurred in 2013. The $6.8 million of recovery was classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations as of December 31, 2013. During the year ended December 31, 2014, the Company recorded $541,000 of casualty-related losses due to property damage incurred during an earthquake and a storm in California, all of which are included in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. Income/(Loss) from Unconsolidated Entities For the years ended December 31, 2014, 2013 and 2012, we recognized losses from unconsolidated entities of $7.0 million, $415,000, and $8.6 million, respectively. These losses relate to our investments in unconsolidated joint ventures and partnerships and are included in Income/(loss) from unconsolidated entities on the UDR Consolidated Statements of Operations included in this Report. The increase in loss in 2014 as compared to 2013, as well as the decrease in loss in 2013 as compared to 2012, was primarily due to an $8.3 million gain ($5.3 million net of tax expense) on the sale of our 95% interest in the Lodge at Stoughton in 2013. Interest and other income/(expense), net For the years ended December 31, 2014, 2013 and 2012, we recognized Interest and other income/(expense), net of $11.9 million, $4.6 million, and $3.5 million, respectively. The increase in 2014 as compared to 2013 and 2012 was primarily attributable to the net gain of $8.4 million realized on the repayment of a note receivable in 2014. Gain/(Loss) on Sale of Real Estate Owned, Net of Tax During the year ended December 31, 2014, the Company recognized gains on the sale of real estate, net of tax, of $143.6 million. The Company sold nine communities consisting of a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in net proceeds of $324.4 million and a total gain, net of tax, of $138.6 million. The Company also sold 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million; and our 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. A portion of the sale proceeds was designated for tax-deferred exchanges under Section 1031 of the Internal Revenue Code and was used to fund acquisitions of real estate as discussed below. 51 Due to the Company’s adoption ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014, these gains, net of tax, are included in Gain/(loss) on sale of real estate owned, net of tax on the UDR Consolidated Statements of Operations. See Note 2, Significant Accounting Policies, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional information. For the years ended December 31, 2013 and 2012, we recognized gains (before tax) of $41.9 million, and $260.4 million, respectively. These gains are included in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations of UDR included in this Report. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period as well as the extent of gains related to specific properties sold. Inflation We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, utilities and material costs, the majority of our leases are for a term of fourteen months or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in energy and food costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2014. 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, 2014 (dollars in thousands): Contractual Obligations Long-term debt obligations Interest on debt obligations (a) Letters of credit Unfunded commitments on: Development projects (b) Unconsolidated joint ventures (b) (c) Redevelopment projects (b) Participating loan investments (d) Operating lease obligations: Operating space Ground leases (e) 2015 2016-2017 2018-2019 Thereafter Total Payments Due by Period $ 520,934 125,037 1,866 40,068 — 14,222 29,302 644,155 200,454 — — 172,155 — $ $ 1,190,637 135,239 — $ 1,227,379 114,451 — — — — — — — 709 5,412 737,550 $ 200 10,824 1,027,788 $ 152 10,824 1,336,852 $ 109 313,735 1,655,674 $ 3,583,105 575,181 1,866 40,068 172,155 14,222 29,302 1,170 340,795 4,757,864 $ $ (a) Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2014. (b) Any unfunded costs at December 31, 2014 are shown in the year of estimated completion. (c) Represents UDR’s contributed and remaining equity commitment in unconsolidated joint ventures. (d) Represents UDR’s remaining participating loan commitment for Steele Creek. (e) For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. 52 During 2014, we incurred gross interest costs of $150.7 million, of which $20.2 million was capitalized. UNITED DOMINION REALTY, L.P.: Business Overview United Dominion Realty, L.P. (the “Operating Partnership” or “UDR, L.P.”) is a Delaware limited partnership formed in February 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. Our sole general partner is UDR, Inc., a Maryland corporation (“UDR” or the “General Partner”), which conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership. At December 31, 2014, the Operating Partnership’s real estate portfolio included 68 communities located in nine states and the District of Columbia with a total of 20,814 apartment homes. As of December 31, 2014, UDR owned 110,883 units of our general limited partnership interests and 174,002,342 units of our limited partnership interests (the “OP Units”), or approximately 95.0% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to the Operating Partnership or “we,” “us” or “our” refer to UDR, L.P. together with its consolidated subsidiaries. We refer to our General Partner together with its consolidated subsidiaries (including us) and the General Partner’s consolidated joint ventures as “UDR” or the “General Partner.” UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in September 2003. At December 31, 2014, the General Partner’s consolidated real estate portfolio included 139 communities located in 10 states and the District of Columbia with a total of 39,851 apartment homes. In addition, the General Partner had an ownership interest in 36 communities with 10,055 completed apartment homes through unconsolidated operating communities. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report. Cost Capitalization In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. In addition, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease- up, the Operating Partnership ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2014, 2013, and 2012, were $4.9 million, $8.4 million, and $5.8 million, respectively. 53 Impairment of Long-Lived Assets We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair market value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions. Real Estate Investment Properties We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining average contractual lease period. 54 Summary of Real Estate Portfolio by Geographic Market The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2014. Same-Store Communities West Region San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR Mid-Atlantic Region Metropolitan D.C. Baltimore, MD Southeast Region Tampa, FL Nashville, TN Other Florida Northeast Region New York, NY Boston, MA Southwest Region Dallas, TX Austin, TX Total/Average Same- Store Communities Non Matures, Commercial Properties & Other Total Real Estate Owned Total Accumulated Depreciation Total Real Estate Owned, Net of Accumulated Depreciation As of December 31, 2014 Year Ended December 31, 2014 Number of Apartment Communities Number of Apartment Homes Percentage of Total Carrying Value Total Carrying Value (in thousands) Average Physical Occupancy Monthly Income per Occupied Home (a) Net Operating Income (in thousands) 9 8 5 2 7 3 3 7 5 3 6 1 1 2 2 1 65 3 68 2,185 2,935 932 344 1,565 635 716 2,378 994 1,154 1,612 636 493 833 1,348 250 19,010 1,804 20,814 13.3% $ 12.3% 5.0% 2.5% 3.8% 2.6% 1.7% 13.2% 3.6% 2.8% 3.2% 1.9% 6.3% 4.2% 4.5% 1.0% 560,828 522,264 213,135 108,080 161,635 109,741 73,811 561,052 152,041 117,260 134,852 81,316 268,662 178,607 189,458 39,538 96.4% $ 94.8% 97.1% 94.4% 93.7% 94.9% 96.8% 96.4% 87.8% 96.3% 97.0% 95.4% 96.9% 96.3% 95.6% 96.2% 81.9% 3,472,280 95.4% $ 18.1% 766,490 100% 4,238,770 (1,403,303) $ 2,835,467 $ 2,671 1,721 1,540 2,179 1,243 1,658 1,204 1,909 1,558 1,192 1,029 1,378 3,528 1,855 1,410 1,653 1,713 52,012 42,097 11,989 5,646 15,325 8,349 6,970 35,342 11,297 10,336 12,988 6,491 16,193 12,737 14,020 2,801 264,593 35,720 $ 300,313 (a) Monthly Income per Occupied Home represents total revenues divided by the product of occupancy and the number of mature apartment homes. We report in two segments: Same-Store Communities and Non-Mature Communities/Other. Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2013 and held as of December 31, 2014. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for sale at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. 55 Liquidity and Capital Resources Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. The Operating Partnership’s primary source of liquidity is cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings allocated to us under the General Partner’s credit agreements. The General Partner will routinely use its unsecured credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we repositioned our portfolio. We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings allocated to us under the General Partner’s credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities and potential property acquisitions through borrowings and the disposition of properties. We believe that our net cash provided by operations and borrowings will continue to be adequate to meet both operating requirements and the payment of distributions. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, and borrowings allocated to us under the General Partner’s credit agreements. Future Capital Needs Future capital expenditures are expected to be funded with proceeds from the issuance of secured debt or unsecured debt, sales of properties, borrowings allocated to us under our General Partner’s credit agreements, and to a lesser extent, from cash flows provided by operating activities. As of December 31, 2014, the Operating Partnership had approximately $193.0 million of principal payments on secured debt maturing in 2015. We anticipate that we will repay that debt with operating cash flows or proceeds from borrowings allocated to us under our General Partner’s credit agreements. The repayment of debt will be recorded as an offset to the Advances (to)/from General Partner. Statements of Cash Flows The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012. Operating Activities For the year ended December 31, 2014, Net cash provided by/(used in) operating activities was $208.0 million compared to $208.3 million for 2013. The increase in cash flow due to improved income from continuing operations was offset by changes in operating assets and liabilities. For the year ended December 31, 2013, Net cash provided by/(used in) operating activities was $208.3 million compared to $201.1 million for 2012. The increase in net cash flow from operating activities was primarily due to an increase in property net operating income from our apartment community portfolio and changes in operating assets and operating liabilities. Investing Activities For the year ended December 31, 2014, Net cash provided by/(used in) investing activities was $(46.7) million compared to $(64.0) million for 2013. The decrease in cash used in investing activities was primarily related to lower spend on development and redevelopment. For the year ended December 31, 2013, Net cash provided by/(used in) investing activities was $(64.0) million compared to $4.3 million for 2012. Changes in the level of investment activities from period to period reflect our strategy as it relates to acquisitions, dispositions, development, redevelopment, and capital expenditures. Disposition of Investments During the year ended December 31, 2014 the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 56 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred. The total gains of $63.6 million were included in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations. In 2013, the Operating Partnership sold two apartment communities in the Sacramento market, consisting of 914 apartment homes for gross proceeds of $81.1 million. The Operating Partnership recognized a gain of $41.5 million, which is included in Income/(loss) from discontinued operations on the Operating Partnership’s Consolidated Statements of Operations. Proceeds were used primarily to fund development and redevelopment activity and reduce debt. Also in 2013, the Operating Partnership distributed the development property Los Alisos to the General Partner as a capital distribution. Upon the distribution of the property, the Operating Partnership redeemed 1,002,556 limited partnership units owned by UDR and affiliated entities and reduced its receivable from the General Partner by $53.7 million, resulting in a net capital reduction of $77.0 million. In 2012, the Operating Partnership sold four communities with 1,314 apartment homes for a gain of $51.1 million. Financing Activities For the year ended December 31, 2014, Net cash provided by/(used in) financing activities was $(162.8) million compared to $(145.3) million for 2013. The increase in cash used in financing activities was primarily due to increased advances to the General Partner, partially offset by decreased payments on secured debt and proceeds from the issuance of secured debt. For the year ended December 31, 2013, Net cash provided by/(used in) financing activities was $(145.3) million compared to $(203.3) million for 2012. The decrease in cash used in financing activities was primarily due to a decrease in payments on secured debt, a decrease in advances from the General Partner, and a decrease in proceeds from the issuance of secured debt. Credit Facilities As of December 31, 2014, an aggregate commitment of $526.6 million of the General Partner's secured credit facilities with Fannie Mae was allocated to the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2014. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023 and bear interest at floating and fixed rates. At December 31, 2014, $333.8 million of the outstanding balance was fixed at a weighted average interest rate of 4.90% and the remaining balance of $192.8 million on these facilities had a weighted average variable interest rate of 1.83%. During 2013, the General Partner reallocated an additional $13.7 million of the Fannie Mae credit facilities to the Operating Partnership. The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility, with an aggregate borrowing capacity of $900 million, $250 million of term notes due June 2018, $100 million of term notes due June 2018, $300 million of medium-term notes due June 2018, $300 million of medium-term notes due October 2020, $400 million of medium-term notes due January 2022, and $300 million of medium-term notes due July 2024. As of December 31, 2014, there were $152.5 million outstanding borrowings under the unsecured credit facility. As of December 31, 2013, there was no outstanding balance under the unsecured credit facility. The credit facilities are subject to customary financial covenants and limitations. Interest Rate Risk We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $219.8 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2014. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $2.2 million based on the balance at December 31, 2014. 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 57 the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure. The General Partner also utilizes derivative financial instruments allocated to the Operating Partnership to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 8, Derivatives and Hedging Activity, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report for additional discussion of derivative instruments. Results of Operations The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012, and includes the results of both continuing and discontinued operations for the periods presented. Net Income(Loss) Attributable to OP Unitholders 2014 -vs- 2013 Net income/(loss) attributable to OP unitholders was $96.2 million ($0.53 per OP Unit) for the year ended December 31, 2014 as compared to $73.4 million ($0.40 per OP Unit) for the the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: • • the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred; an increase in total property net operating income (“NOI”) primarily due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in service related to development and redevelopment projects completed in 2014 and 2013, partially offset by the disposition of communities in 2014 and 2013. This was partially offset by: • casualty-related recoveries in 2013 resulting from the effects of Hurricane Sandy on two of our New York City communities in 2012 (see Note 13, Casualty-Related (Recoveries)/Charges, in the Notes to the Operating Partnership’s Consolidated Financial Statements for more details). 2013 -vs- 2012 Net income/(loss) attributable to OP unitholders was $73.4 million ($0.40 per OP Unit) for the year ended December 31, 2013 as compared to $44.0 million ($0.24 per OP Unit) for the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: • • • • an increase in total property NOI primarily due to higher occupancy and higher revenue per occupied home, partially offset by a decrease in NOI due to the disposition of four communities in 2012; a decrease in depreciation and amortization expense primarily from the disposition of assets in 2012, partially offset by the depreciation from developed or redeveloped units placed in service in 2013 and 2012; casualty-related recoveries in 2013 resulting from the effects of Hurricane Sandy on two of our New York, New York communities in 2012 (see Note 13, Casualty-Related (Recoveries)/Charges, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report for more details); and a decrease in interest expense due to lower average debt balances, lower average interest rates, and higher capitalized interest from development and redevelopment activities. This was partially offset by: • a decrease in net gains of $9.6 million on the sale of depreciable properties related to the disposition of two communities in 2013 as compared to four communities in 2012. 58 Apartment Community Operations Our net income results primarily from NOI generated from the operation of our apartment communities. The Operating Partnership defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.75% of property revenue to cover regional supervision and accounting costs related to consolidated property operations and land rent. Although the Company considers NOI a useful measure of a operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to OP unitholders below. The following table summarizes the operating performance of our total portfolio (which includes discontinued operations) for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Year Ended December 31, (a) Year Ended December 31, (b) 2014 2013 % Change 2013 2012 % Change Same-Store Communities: Same-store rental income Same-store operating expense (c) Same-store NOI Non-Mature Communities/Other NOI: Acquired communities NOI Sold communities NOI Developed communities NOI Redeveloped communities NOI Commercial NOI and other Total non-mature communities/other NOI $ $ 372,818 (108,225 ) 264,593 355,585 (106,228 ) 249,357 4.8 % $ 1.9 % 6.1 % $ 344,525 (103,252 ) 241,273 327,877 (99,944 ) 227,933 16,417 11 (603 ) 14,245 5,650 35,720 14,998 8,671 (17 ) 10,084 4,442 38,178 9.5 % (99.9 )% 3,447.1 % 41.3 % 27.2 % (6.4 )% 14,997 5,581 (17 ) 18,848 6,853 46,262 14,160 10,296 (2 ) 20,093 9,058 53,605 5.1 % 3.3 % 5.9 % 5.9 % (45.8 )% 750.0 % (6.2 )% (24.3 )% (13.7 )% Total Property NOI $ 300,313 $ 287,535 4.4 % $ 287,535 $ 281,538 2.1 % (a) Same-store consists of 19,010 apartment homes. (b) Same-store consists of 18,616 apartment homes. (c) Excludes depreciation, amortization, and property management expenses. 59 The following table is our reconciliation of total property NOI to Net income/(loss) attributable to OP unitholders as reflected, for both continuing and discontinued operations, for the years ended December 31, 2014, 2013 and 2012 (dollars in thousands): Year Ended December 31, 2014 2013 2012 Total property NOI Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related recoveries/(charges), net Interest expense Gain/(loss) on sale of real estate owned Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to OP unitholders Same-Store Communities 2014 -vs- 2013 $ $ $ 300,313 (11,622 ) (5,172 ) (179,176 ) (28,541 ) (541 ) (41,717 ) 63,635 (952 ) 96,227 $ $ 287,535 (11,298 ) (5,728 ) (181,302 ) (24,808 ) 8,083 (36,058 ) 41,518 (4,566 ) 73,376 $ 281,538 (11,019 ) (5,272 ) (195,051 ) (26,204 ) (5,518 ) (45,234 ) 51,094 (352 ) 43,982 Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2013 and held on December 31, 2014) consisted of 19,010 apartment homes and provided 88.1% of our total NOI for the year ended December 31, 2014. NOI for our same-store community properties increased 6.1% or $15.2 million for the year ended December 31, 2014 compared to 2013. The increase in property NOI was primarily attributable to a 4.8% or $17.2 million increase in property rental income, which was partially offset by a 1.9% or $2.0 million increase in operating expenses. The increase in revenues was primarily driven by a 3.7% or $12.8 million increase in rental rates and a 4.0% or $1.1 million increase in reimbursement and fee income. Physical occupancy increased 0.2% to 95.4% and total monthly income per occupied home increased by 4.6% to $1,713 for the year ended December 31, 2014 compared to 2013. The increase in operating expenses was primarily driven by a 4.2% or $1.5 million increase in real estate tax caused by higher real estate valuations and a 18.7% or $810,000 increase in insurance expense primarily caused by a higher volume of small claims, which was partially offset by a 2.3% or $367,000 decrease in repairs and maintenance costs. As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 71.0% for the year ended December 31, 2014 as compared to 70.0% for 2013. 2013 -vs- 2012 Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2012 and held on December 31, 2013) consisted of 18,616 apartment homes and provided 83.9% of our total NOI for the year ended December 31, 2013. NOI for our same-store community properties increased 5.9% or $13.3 million for the year ended December 31, 2013 compared to 2012. The increase in property NOI was primarily attributable to a 5.1% or $16.6 million increase in property rental income, which was partially offset by a 3.3% or $3.3 million increase in operating expenses. The increase in revenues was primarily driven by a 4.3% or $13.7 million increase in rental rates and a 6.8% or $1.8 million increase in reimbursement and fee income. Physical occupancy increased 0.2% to 95.8% and total monthly income per occupied home increased by 4.8% to $1,609 for the year ended December 31, 2013 compared to 2012. The increase in operating expenses was primarily driven by a 7.0% or $2.3 million increase in real estate tax and a 5.2% or $1.2 million increase in personnel costs, which was partially offset by a 3.1% or $502,000 decrease in repairs and maintenance costs. 60 As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 70.0% for the year ended December 31, 2013 as compared to 69.5% for 2012. Non-Mature Communities/Other 2014 -vs- 2013 The remaining $35.7 million or 11.9% of our total NOI during the year ended December 31, 2014 was generated from our non-mature communities/other. The Operating Partnership’s non-mature communities/other consist of communities that do not meet the criteria to be included in same-store communities, which includes communities developed or acquired, redevelopment properties, sold properties, and non-apartment components of mixed use properties. NOI from non- mature communities/other decreased 6.4% or $2.5 million for the year ended December 31, 2014 compared to 2013. The decrease was primarily driven by a decrease in NOI of 99.9% or $8.7 million from properties sold during 2014 and 2013, which was partially offset by an increase in NOI of 27.2% or $1.2 million from commercial/other properties, and an increase of 41.3% or $4.2 million from redevelopment properties. 2013 -vs- 2012 The remaining $46.3 million or 16.1% of our total NOI during the year ended December 31, 2013 was generated from our non-mature communities/other. The Operating Partnership’s non-mature communities/other consist of communities that do not meet the criteria to be included in same-store communities, which includes communities developed or acquired, redevelopment properties, sold properties, and non-apartment components of mixed use properties. NOI from non- mature communities/other decreased 13.7% or $7.3 million for the year ended December 31, 2013 compared to 2012. The decrease was primarily driven by a decrease in NOI of 45.8% or $4.7 million from properties sold during 2013 and 2012, a decrease in NOI of 24.3% or $2.2 million from commercial/other properties, and a decrease of 6.2% or $1.2 million from redevelopment properties. Real Estate Depreciation and Amortization For the year ended December 31, 2014, real estate depreciation and amortization from continuing and discontinued operations decreased by 1.2% or $2.1 million as compared to 2013. The decrease in depreciation and amortization for the year ended December 31, 2014 was primarily from disposition of assets in 2014 and 2013, partially offset by the depreciation from developed and redeveloped units placed in service in 2014 and 2013. For the year ended December 31, 2013, real estate depreciation and amortization from continuing and discontinued operations decreased by 7.0% or $13.7 million as compared to 2012. The decrease in depreciation and amortization for the year ended December 31, 2013 was primarily from the disposition of assets in 2012. Casualty-Related Recoveries/(Charges), Net In October 2012, Hurricane Sandy hit the East Coast, affecting two of the Operating Partnership’s operating communities (1,001 apartment homes) located in New York City. The properties suffered some physical damage, and were closed to residents for a period following the hurricane. The Operating Partnership has insurance policies that provide coverage for property damage and business interruption, subject to applicable retention. Based on the claims filed and management’s estimates, the Operating Partnership recognized a $7.1 million impairment charge for the damaged assets’ net book value and incurred $7.0 million of repair and cleanup costs during the year ended December 31, 2012. The impairment charge and the repair and cleanup costs incurred were reduced as of December 31, 2012 by $10.8 million of estimated insurance recovery, and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. During the year ended December 31, 2013, no material adjustments to the impairment charge and the repair and cleanup costs incurred were recognized. The rehabilitation of these two properties was substantially completed as of December 31, 2013. As of December 31, 2013, the Operating Partnership had settled the Hurricane Sandy claims and received insurance proceeds in excess of the $10.8 million estimated insurance recovery receivable related to the impairment charge and the repair and cleanup costs incurred. As a result, the Company recognized a Casualty-related recovery of approximately $3.3 million and a casualty gain of approximately $582,000 for the year ended December 31, 2013. Both the recovery and casualty gain were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. 61 Based on the claims filed and management’s estimates, the Operating Partnership recognized $2.2 million of business interruption losses for the year ended December 31, 2012, of which $1.8 million were related to rent concession rebates provided to residents during the period the properties were uninhabitable and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations, and $400,000 were related to rent that was not contractually receivable and were classified as a reduction to Rental income on the Consolidated Statements of Operations. The Company estimates that it incurred an additional $2.1 million of business interruption losses for the year ended December 31, 2013. As noted, the Company settled the Hurricane Sandy claims as of December 31, 2013. During the year ended December 31, 2013, the Operating Partnership received approximately $4.2 million of insurance proceeds for recovery of business interruption losses. Of the $4.2 million of insurance proceeds received during the year ended December 31, 2013, $2.1 million related to recovery of business interruption losses incurred in 2012 and the remaining $2.1 million related to recovery of business interruption losses incurred in 2013. The $4.2 million of recovery was included in Casualty-related (recoveries)/charges, net on the Operating Partnership’s Consolidated Statements of Operations. During the year ended December 31, 2014, the Company recorded $541,000 of casualty-related losses due to property damage incurred during an earthquake and a storm in California, all of which are included in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. Interest Expense For the year ended December 31, 2014, interest expense increased by 15.7% or $5.7 million as compared to 2013, which was primarily due to lower portion of interest capitalized in 2014 as a result of completed developments, partially offset by a decrease in interest expense due to replacement of debt at lower rates. For the year ended December 31, 2013, interest expense decreased by 20.3% or $9.2 million as compared to 2012, which was primarily due to lower portion of interest capitalized in 2013 as a result of completed developments, partially offset by a decrease in interest expense due to replacement of debt at lower rates. Gain/(Loss) on the Sale of Real Estate Owned For the year ended December 31, 2014, the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred. Due to the Company’s adoption ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014, these gains were included in Gain/(loss) on sale of real estate owned on the Operating Partnership’s Consolidated Statements of Operations. See Note 2, Significant Accounting Policies, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report for additional information. For the years ended December 31, 2013, and 2012, we recognized gains on sale of depreciable property of $41.5 million, and $51.1 million, respectively. These gains are included in Income/(loss) from discontinued operations on the Operating Partnership’s Consolidated Statements of Operations included in this Report. 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. Net (Income)/Loss Attributable to Noncontrolling Interests For the year ended December 31, 2014, net income attributable to noncontrolling interests was $952,000 as compared to $4.6 million for 2013. The decrease of $3.6 million was primarily due to the Operating Partnership correcting an error in the General Partner’s ownership interest in one of the consolidated subsidiaries resulting in a cumulative adjustment recorded in 2013 of $3.3 million. Management believes the impact of the cumulative adjustment in 2013 is immaterial to the financial statements taken as a whole. Inflation We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, utilities and material costs, substantially all of our leases are for a term of one year or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment 62 homes. Although an extreme escalation in energy and food costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2014. 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, 2014 (dollars in thousands): Contractual Obligations 2015 2016-2017 2018-2019 Thereafter Total Long-term debt obligations Interest on debt obligations (a) Operating lease obligations — ground leases (b) $ $ 193,003 40,906 5,308 239,217 $ $ 154,455 49,287 10,616 214,358 $ $ 384,992 33,497 10,616 429,105 $ $ 199,509 11,132 313,648 524,289 $ $ 931,959 134,822 340,188 1,406,969 Payments Due by Period (a) Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2014. (b) For purposes of our ground lease contracts, the Operating Partnership uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item is included in and incorporated by reference from Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and related financial information required to be filed are attached to this Report. Reference is made to page F-1 of this Report for the Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty, L.P. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The disclosure controls and procedures of the Company and the Operating Partnership are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. As a result, our disclosure controls and procedures are designed to provide reasonable assurance that such disclosure controls and procedures will meet their objectives. 63 As of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, which is the sole General Partner of the Operating Partnership, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company and the Operating Partnership. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company and the Operating Partnership are effective at the reasonable assurance level described above. Management’s Report on Internal Control over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a- 15(f) under the Securities Exchange Act of 1934 for the Company and the Operating Partnership. Under the supervision and with the participation of the management, the Chief Executive Officer and Chief Financial Officer of the Company, which is the sole General Partner of the Operating Partnership, conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (2013 Framework) (COSO). Based on such evaluation, management concluded that the Company’s and the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2014. Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Report, has audited UDR, Inc.’s internal control over financial reporting as of December 31, 2014. The report of Ernst & Young LLP, which expresses an unqualified opinion on UDR, Inc.’s internal control over financial reporting as of December 31, 2014, is included under the heading “Report of Independent Registered Public Accounting Firm” of UDR, Inc. contained in this Report. Further, an attestation report of the registered public accounting firm of United Dominion Realty, L.P. will not be required as long as United Dominion Realty, L.P. is a non-accelerated filer. Changes in Internal Control Over Financial Reporting There have not been any changes in either the Company’s or the Operating Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fourth fiscal quarter to which this Report relates that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of either the Company or the Operating Partnership. Item 9B. OTHER INFORMATION None. 64 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III The information required by this item is incorporated by reference to the information set forth under the headings “Proposal No. 1 - Election of Directors,” “Corporate Governance Matters,” “Audit Committee Report,” “Corporate Governance Matters-Board Leadership Structure and Committees-Audit Committee Financial Expert,” “Corporate Governance Matters-Identification and Selection of Nominees for Directors,” “Corporate Governance Matters-Board of Directors and Committee Meetings,” “Executive Officers” and “Other Matters - Section 16(a) Beneficial Ownership Reporting Compliance” in UDR, Inc.’s definitive proxy statement (our “definitive proxy statement”) for its 2015 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. We have a code of ethics for senior financial officers that applies to our principal executive officer, all members of our finance staff, including the principal financial officer, the principal accounting officer, the treasurer and the controller, our director of investor relations, our corporate secretary, and all other Company officers. We also have a code of business conduct and ethics that applies to all of our employees. Information regarding our codes is available on our website, www.udr.com, and is incorporated by reference to the information set forth under the heading “Corporate Governance Matters” in our definitive proxy statement for UDR’s 2015 Annual Meeting of Stockholders. 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-Board Leadership Structure and Committees-Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” “Compensation of Directors” and “Compensation Committee Report” in the definitive proxy statement for UDR’s 2015 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management,” “Executive Compensation” and “Executive Compensation - Equity Compensation Plan Information” in the definitive proxy statement for UDR’s 2015 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the information set forth under the heading “Security Ownership of Certain Beneficial Owners and Management,” “Corporate Governance Matters-Corporate Governance Overview,” “Corporate Governance Matters-Director Independence,” “Corporate Governance Matters-Board Leadership Structure and Committees-Independence of the Audit, Compensation and Governance Committees,” and “Executive Compensation” in the definitive proxy statement for UDR’s 2015 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. Information regarding related party transactions between UDR and the Operating Partnership is presented in Note 6, Related Party Transactions, of the Consolidated Financial Statements of United Dominion Realty, L.P. referenced in Part IV, Item 15(a) of this Report. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to the information set forth under the headings “Audit Matters-Audit Fees” and “Audit Matters-Pre-Approval Policies and Procedures” in the definitive proxy statement for UDR’s 2015 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. 65 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 Schedules of UDR, Inc. and United Dominion Realty, L.P. on page F-1 of this Report. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty, L.P. on page S-1 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto. 3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index. 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 Date: February 24, 2015 UDR, Inc. By: /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 24, 2015 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 (Principal Executive Officer) /s/ Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Mark A. Schumacher Mark A. Schumacher Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) /s/ James D. Klingbeil James D. Klingbeil Chairman of the Board /s/ Lynne B. Sagalyn Lynne B. Sagalyn Vice Chair 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/ Robert A. McNamara Robert A. McNamara Director /s/ Mark R. Patterson Mark R. Patterson Director 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 Date: February 24, 2015 UNITED DOMINION REALTY, L.P. By: UDR, Inc., its sole general partner By: /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 24, 2015 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 of the General Partner (Principal Executive Officer) /s/ Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Financial Officer of the General Partner (Principal Financial Officer) /s/ Mark A. Schumacher Mark A. Schumacher Senior Vice President and Chief Accounting Officer of the General Partner (Principal Accounting Officer) /s/ James D. Klingbeil James D. Klingbeil Chairman of the Board of the General Partner /s/ Lynne B. Sagalyn Lynne B. Sagalyn Vice Chair of the Board of the General Partner /s/ Katherine A. Cattanach Katherine A. Cattanach Director of the General Partner /s/ Eric J. Foss Eric J. Foss Director of the General Partner /s/ Robert P. Freeman Robert P. Freeman Director of the General Partner /s/ Jon A. Grove Jon A. Grove Director of the General Partner /s/ Robert A. McNamara Robert A. McNamara Director of the General Partner /s/ Mark R. Patterson Mark R. Patterson Director of the General Partner INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT UDR, INC.: Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2014 and 2013 Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012 Notes to Consolidated Financial Statements UNITED DOMINION REALTY, L.P.: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2014 and 2013 Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Changes in Capital for the years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012 Notes to Consolidated Financial Statements SCHEDULES FILED AS PART OF THIS REPORT UDR, INC.: Schedule III- Summary of Real Estate Owned UNITED DOMINION REALTY, L.P.: Schedule III- Summary of Real Estate Owned PAGE F - 2 F - 4 F - 5 F - 7 F - 8 F - 10 F - 12 F - 51 F - 52 F - 53 F - 54 F - 55 F - 56 F - 57 S - 1 S - 6 All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. The Board of Directors and Stockholders of UDR, Inc. Report of Independent Registered Public Accounting Firm We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. 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, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), UDR, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 24, 2015 expressed an unqualified opinion thereon. As discussed in Notes 2 and 3 to the consolidated financial statements, the Company changed its reporting of discontinued operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. /s/ Ernst & Young LLP Denver, Colorado February 24, 2015 F - 2 The Board of Directors and Stockholders of UDR, Inc. Report of Independent Registered Public Accounting Firm We have audited UDR, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). UDR, Inc.'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 in 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, UDR, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, 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 of UDR, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2014 and our report dated February 24, 2015, expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Denver, Colorado February 24, 2015 F - 3 UDR, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2014 December 31, 2013 Real estate owned: Real estate held for investment Less: accumulated depreciation ASSETS Real estate held for investment, net Real estate under development (net of accumulated depreciation of $0 and $1,411, respectively) Real estate sold or held for disposition (net of accumulated depreciation of $0 and $6,568, respectively) Total real estate owned, net of accumulated depreciation Cash and cash equivalents Restricted cash Deferred financing costs, net Notes receivable, net Investment in and advances to unconsolidated joint ventures, net Other assets Total assets Liabilities: LIABILITIES AND EQUITY Secured debt Unsecured debt Real estate taxes payable Accrued interest payable Security deposits and prepaid rent Distributions payable Accounts payable, accrued expenses, and other liabilities Total liabilities Commitments and contingencies (Note 14) Redeemable noncontrolling interests in the Operating Partnership Equity: Preferred stock, no par value; 50,000,000 shares authorized: 8.00% Series E Cumulative Convertible; 2,803,812 shares issued and outstanding at December 31, 2014 and 2013 Common stock, $0.01 par value; 350,000,000 shares authorized; 255,114,603 and 250,749,665 shares issued and outstanding at December 31, 2014 and 2013, respectively Additional paid-in capital Distributions in excess of net income Accumulated other comprehensive income/(loss), net Total stockholders’ equity Noncontrolling interests Total equity Total liabilities and equity See accompanying notes to consolidated financial statements. F - 4 $ $ $ $ $ 8,205,627 (2,434,772 ) 5,770,855 177,632 — 5,948,487 15,224 22,340 22,686 14,369 718,226 105,202 6,846,534 $ $ 1,361,529 2,221,576 15,978 34,215 34,064 69,460 91,282 3,828,104 7,723,844 (2,200,815 ) 5,523,029 466,002 10,152 5,999,183 30,249 22,796 26,924 83,033 507,655 137,882 6,807,722 1,442,077 2,081,626 13,847 32,279 27,203 61,907 118,682 3,777,621 282,480 217,597 46,571 46,571 2,551 4,223,747 (1,528,917 ) (8,855 ) 2,735,097 853 2,735,950 6,846,534 $ 2,507 4,109,765 (1,342,070 ) (5,125 ) 2,811,648 856 2,812,504 6,807,722 UDR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2014 2013 2012 $ $ 805,002 13,044 818,046 $ 746,484 12,442 758,926 REVENUES: Rental income Joint venture management and other fees Total revenues OPERATING EXPENSES: Property operating and maintenance Real estate taxes and insurance Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related (recoveries)/charges, net Other depreciation and amortization Total operating expenses Operating income Income/(loss) from unconsolidated entities Interest expense Interest and other income/(expense), net Income/(loss) before income taxes, discontinued operations and gain/(loss) on sale of real estate owned Tax benefit/(provision), net Income/(loss) from continuing operations Income/(loss) from discontinued operations, net of tax Income/(loss) before gain/(loss) on sale of real estate owned Gain/(loss) on sale of real estate owned, net of tax Net income/(loss) Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to UDR, Inc. Distributions to preferred stockholders — Series E (Convertible) Distributions to preferred stockholders — Series G Premium on preferred stock redemption or repurchases, net Net income/(loss) attributable to common stockholders Income/(loss) per weighted average common share — basic: Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders $ $ $ F - 5 704,701 11,911 716,612 139,784 86,154 19,378 5,718 341,926 43,792 8,495 4,105 649,352 67,260 (8,579 ) (138,792 ) 3,524 (76,587 ) 30,282 (46,305 ) 266,608 220,303 — 220,303 (7,986 ) (140 ) 212,177 (3,724 ) (2,286 ) (2,791 ) 203,376 (0.22 ) 1.07 0.85 149,428 99,175 22,138 8,271 358,154 47,800 541 5,775 691,282 126,764 (7,006 ) (130,454 ) 11,858 1,162 15,098 16,260 10 16,270 143,572 159,842 (5,511 ) 3 154,334 (3,724 ) — — 150,610 $ 0.60 — 0.60 $ $ 144,319 93,765 20,528 7,136 339,532 42,238 (12,253 ) 6,741 642,006 116,920 (415 ) (126,083 ) 4,619 (4,959 ) 7,299 2,340 43,942 46,282 — 46,282 (1,530 ) 60 44,812 (3,724 ) — — 41,088 $ (0.01 ) $ 0.17 0.16 $ UDR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Income/(loss) per weighted average common share — diluted: Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders $ $ Weighted average number of common shares outstanding — basic Weighted average number of common shares outstanding — diluted Year Ended December 31, 2014 2013 2012 0.59 — 0.59 $ $ 251,528 253,445 (0.01) $ 0.17 0.16 $ 249,969 249,969 (0.22) 1.07 0.85 238,851 238,851 See accompanying notes to consolidated financial statements. F - 6 UDR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) Net income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests: Other comprehensive income/(loss) - derivative instruments: Unrealized holding gain/(loss) (Gain)/loss reclassified into earnings from other comprehensive income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests Comprehensive income/(loss) Comprehensive (income)/loss attributable to noncontrolling interests Comprehensive income/(loss) attributable to UDR, Inc. $ 150,606 $ See accompanying notes to consolidated financial statements. F - 7 Year Ended December 31, 2014 2013 2012 $ 159,842 $ 46,282 $ 220,303 (8,695) 4,834 (3,861) 155,981 (5,375) (469) 6,851 6,382 52,664 (1,720) 50,944 $ (4,924) 7,649 2,725 223,028 (8,206) 214,822 UDR, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands, except share and per share data) Balance at December 31, 2011 Net income/(loss) attributable to UDR, Inc. Net income/(loss) attributable to noncontrolling interests Other comprehensive income/(loss) Issuance/(forfeiture) of common and restricted shares, net Issuance of common shares through public offering Redemption of 3,264,362 shares of 6.75% Series G Cumulative Redeemable Shares Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership Acquisition of noncontrolling interests Increase in noncontrolling interests from business combination, net Common stock distributions declared ($0.88 per share) Preferred stock distributions declared- Series E ($1.3288 per share) Preferred stock distributions declared- Series G ($0.5671875 per share) Adjustment to reflect redemption value of redeemable noncontrolling interests Balance at December 31, 2012 Net income/(loss) attributable to UDR, Inc. Net income/(loss) attributable to noncontrolling interests Other comprehensive income/(loss) Issuance/(forfeiture) of common and restricted shares, net Adjustment for conversion of noncontrolling interest of unitholders in the. Operating Partnership Common stock distributions declared ($0.94 per share) Preferred stock distributions declared- Series E ($1.3288 per share) Adjustment to reflect redemption value of redeemable noncontrolling interests Preferred Stock Common Stock Shares Amount Shares 6,068,174 $ 128,180 219,650,225 Amount $ 2,197 Paid-in Capital $ 3,340,470 Distributions in Excess of Net Income Accumulated Other Comprehensive Income/(Loss), net Noncontrolling Interests Total $ (1,142,895) $ (13,902) $ 4,734 $ 2,318,784 — — — — — — — — — — — — — (22,224) 30,490,969 (3,264,362) (81,609) — — — — — — — — — — — — — 20,438 — — — — — — — — — 305 — (1) — — — — — — — — (742) 755,833 2,791 530 — — — — — 212,177 — — — — (2,791) — — — (215,654) (3,724) (2,286) — — 2,645 — — — — — — — — — — 2,803,812 — 46,571 — 250,139,408 — 2,501 — 4,098,882 11,392 (1,143,781) — (11,257) — — — — — — — — — — — — — — — — — — — 533,966 76,291 — — — — — — 5 1 — — — F - 8 — — — 9,067 1,816 — — — 44,812 — — — — (235,721) (3,724) (3,656) — — 6,132 — — — — — — 140 — — — — 212,177 140 2,645 (742) 756,138 (81,609) — (4,871) 529 (4,871) 913 913 — — — — 916 — (60) — — — — — — (215,654) (3,724) (2,286) 11,392 2,993,832 44,812 (60) 6,132 9,072 1,817 (235,721) (3,724) (3,656) UDR, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) (In thousands, expect share and per share data) Distributions in Excess of Net Income (1,342,070 ) Accumulated Other Comprehensive Income/(Loss), net Balance at December 31, 2013 2,803,812 46,571 250,749,665 2,507 4,109,765 Preferred Stock Common Stock Shares Amount Shares Amount Paid-in Capital Net income/(loss) attributable to UDR, Inc. Net income/(loss) attributable to noncontrolling interests Other comprehensive income/(loss) Issuance/(forfeiture) of common and restricted shares, net Issuance of common shares through public offering Adjustment for conversion of noncontrolling interest of unitholders in Operating Partnership Common stock distributions declared ($1.04 per share) Preferred stock distributions declared- Series E ($1.3288 per share) Adjustment to reflect redemption value of redeemable noncontrolling interests Balance at December 31, 2014 — — — — — — — — — — — — — — — — — — — 801,054 3,410,433 153,451 — — — — — 8 34 2 — — — — — 9,797 99,815 4,370 — — — 2,803,812 $ — 46,571 — 255,114,603 $ — 2,551 — $ 4,223,747 154,334 — — — — — (263,503 ) (3,724 ) (73,954 ) $ (1,528,917 ) $ Noncontrolling Interests Total 856 2,812,504 — 154,334 (3 ) — — — — — — (3 ) (3,730 ) 9,805 99,849 4,372 (263,503 ) (3,724 ) (5,125 ) — — (3,730 ) — — — — — — (8,855 ) $ — 853 (73,954 ) $ 2,735,950 See accompanying notes to consolidated financial statements. F - 9 UDR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except for share data) Operating Activities Net income/(loss) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Year Ended December 31, 2013 2012 2014 $ 159,842 $ 46,282 $ 220,303 Depreciation and amortization Gain/(loss) on sale of real estate owned, net of tax Impairment loss, net of tax Tax benefit/(provision), net Loss from unconsolidated entities Casualty-related (recoveries)/charges, net Other Changes in operating assets and liabilities: (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Net cash provided by/(used in) operating activities Investing Activities Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures Proceeds from sales of real estate investments, net 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 received from unconsolidated joint ventures (Issuance)/repayment of notes receivable Net cash provided by/(used in) investing activities Financing Activities Payments on secured debt Proceeds from the issuance of secured debt Payments on unsecured debt Proceeds from the issuance of unsecured debt Net proceeds/(repayment) of revolving bank debt Proceeds from the issuance of common shares through public offering, net Payments for the repurchase of Series G preferred stock, net Distributions paid to redeemable noncontrolling interests Acquisition of nonredeemable noncontrolling interests Distributions paid to preferred stockholders Distributions paid to common stockholders Other Net cash provided by/(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 $ F - 10 363,929 (143,647 ) — (15,136 ) 7,006 541 26,517 (1,074 ) (5,618 ) 392,360 (228,810 ) 383,886 (251,493 ) (96,679 ) (5,497 ) (222,930 ) 59,199 68,664 (293,660 ) (80,961 ) 5,502 (312,500 ) 298,956 152,500 99,849 — (9,929 ) — (3,724 ) (256,100 ) (7,318 ) (113,725 ) (15,025 ) 30,249 15,224 $ 348,231 (41,919 ) 1,470 (7,299 ) 415 (270 ) 24,826 (15,135 ) (16,699 ) 339,902 — 250,043 (280,603 ) (153,676 ) (7,639 ) (43,291 ) 130,984 (19,027 ) (123,209 ) (46,564 ) — (122,500 ) 299,943 (76,000 ) — — (9,348 ) — (3,724 ) (231,822 ) (8,544 ) (198,559 ) 18,134 12,115 30,249 $ 354,505 (251,554 ) — (30,282 ) 8,579 8,495 26,009 12,647 (21,515 ) 327,187 (108,215 ) 593,167 (246,923 ) (144,877 ) (7,947 ) (283,369 ) 50,580 (63,998 ) (211,582 ) (491,885 ) 250 (100,000 ) 396,400 (345,000 ) 756,138 (81,609 ) (9,033 ) (4,871 ) (6,954 ) (207,470 ) (21,959 ) (115,993 ) (388 ) 12,503 12,115 UDR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands, except for share data) Supplemental Information: Year Ended December 31, 2014 2013 2012 Interest paid during the period, net of amounts capitalized $ 131,815 $ 127,877 $ 133,133 Non-cash transactions: Real estate acquired in asset exchange or upon consolidation of joint ventures Transfer of real estate owned to investment in and advances to unconsolidated ventures Secured debt assumed in the acquisitions of properties, including asset exchange and consolidation of joint ventures Fair market value adjustment of secured debt assumed in acquisitions of properties, including asset exchange Development costs and capital expenditures incurred but not yet paid Contribution of purchase deposit made in 2011 to unconsolidated joint venture Conversion of operating partnership noncontrolling interests to common stock (153,451 shares in 2014, 76,291 shares in 2013; and 20,438 shares in 2012) — 54,938 — — 34,746 — 4,372 129,437 175,951 63,595 — 37,220 — 1,817 — — 34,412 2,617 24,551 80,397 529 See accompanying notes to consolidated financial statements. F - 11 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 1. CONSOLIDATION AND BASIS OF PRESENTATION Organization and Formation UDR, Inc. (“UDR,” the “Company,” “we,” or “our”) is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities generally in high barrier-to-entry markets located in the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. At December 31, 2014, our consolidated apartment portfolio consisted of 139 consolidated communities located in 20 markets consisting of 39,851 apartment homes. In addition, the Company has an ownership interest in 10,055 apartment homes through unconsolidated joint ventures. Basis of Presentation The accompanying consolidated financial statements of UDR include its wholly-owned and/or controlled subsidiaries (see the “Consolidated Joint Ventures” section of Note 5, Joint Ventures and Partnerships, for further discussion). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”). As of December 31, 2014 and 2013, there were 183,278,698 units in the Operating Partnership outstanding, of which 174,113,225 or 95.0% and 173,959,774 or 94.9%, respectively, were owned by UDR and 9,165,473 or 5.0% and 9,318,924 or 5.1%, respectively, were owned by limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership. The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those mentioned in Note 5, Joint Ventures and Partnerships, and Note 8, Stockholders’ Equity. 2. SIGNIFICANT ACCOUNTING POLICIES Recent Accounting Pronouncements In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which incorporates a requirement that a disposition represent a strategic shift in an entity’s operations into the definition of a discontinued operation. In accordance with the ASU, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity. The standard requires prospective application and will be effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted. The early adoption provision excludes components of an entity that were sold or classified as held for sale prior to the adoption of the standard. The Company elected to early adopt this standard effective January 1, 2014, which had a significant impact on the Company’s consolidated financial statements as further discussed in Note 3, Discontinued Operations. Subsequent to the Company’s adoption of ASU 2014-08, the sale of real estate that does not meet the definition of a discontinued operation under the standard is included in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method, and the standard will be effective for the Company on January 1, 2017; early adoption is not permitted. The Company has not yet selected a transition method and we F - 12 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. Real Estate Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy. UDR purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Company estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are expensed as incurred. Quarterly or when changes in circumstances warrant, UDR will assess our real estate properties for indicators of impairment. In determining whether the Company has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Properties classified as real estate held for sale generally represent properties that are actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for sale is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for sale properties are capitalized at cost. Depreciation is not recorded on real estate held for sale. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2014, 2013, and 2012 were $9.0 million, $11.1 million and $10.0 million, respectively. During the years ended December 31, 2014, 2013, and 2012, total interest capitalized was $20.2 million, $29.4 million, and $26.4 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life. F - 13 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Company’s cash and cash equivalents are held at major commercial banks. Restricted Cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits. Revenue and Real Estate Sales Gain Recognition Rental income related to leases is recognized on an accrual basis when due from residents and tenants in accordance with GAAP. Rental payments are generally due on a monthly basis and recognized when earned. The Company recognizes interest income, management and other fees and incentives when earned, and the amounts are fixed and determinable. For sale transactions meeting the requirements for full accrual profit recognition, we remove the related assets and liabilities from our Consolidated Balance Sheets and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting. Unless certain limited criteria are met, non-monetary transactions, including property exchanges, are accounted for at fair value. Sales to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and defer the gain on the interest we retain. The Company recognizes any deferred gain when the property is sold to a third party. In transactions accounted for by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property. Notes Receivable The following table summarizes our notes receivable, net as of December 31, 2014 and 2013 (dollars in thousands): Interest rate at December 31, 2014 December 31, 2014 December 31, 2013 Balance Outstanding Note due June 2014 (a) Note due February 2017 (b) Note due July 2017 (c) Note due June 2022 (net of discount of $0 and $247, respectively) (d) Total notes receivable, net 10.00 % 8.00 % $ $ — $ 11,869 2,500 — 14,369 $ 40,800 14,580 1,400 26,253 83,033 (a) In the fourth quarter of 2013, in conjunction with the sale of its 95% interest in the Lodge at Stoughton, one of its unconsolidated joint ventures, the Company provided the buyer with a $40.8 million loan secured by the property at LIBOR plus a spread of 350 basis points with two three-month extension options at increased rates and a financing fee. In June 2014, the note was paid in full. (b) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $11.9 million, which bears an interest rate of 10.00% per annum. During the year ended December 31, 2014, the Company loaned an additional $1.2 million and received a payment of $3.9 million in the fourth quarter under this note. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (February 2017). F - 14 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 (c) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.5 million, which bears an interest rate of 8.00% per annum. During the year ended December 31, 2014, the Company loaned an additional $1.1 million under the note. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (July 2017). (d) In 2012, the Company purchased a "B" Note secured by a first mortgage on a class A community in West Los Angeles. The $26.5 million loan was purchased at a yield of 7.25% and bore a coupon rate of 7.00%. Interest payments are due monthly and the note is due June 2022. The discount is amortized using the effective interest method. In July 2014, the Company received proceeds of $36.0 million from the repayment of this note, resulting in a net gain of approximately $8.4 million, which is included in Interest and other income/(expense), net on the Consolidated Statements of Operations. During the years ended December 31, 2014, 2013 and 2012, the Company recognized $3.4 million, $4.1 million and $2.7 million, respectively, of interest income from these notes receivable, of which $0, $765,000 and $281,000, respectively, were related party interest income. Interest income is included in Interest and other income/(expense), net on the Consolidated Statements of Operations. Investment in Joint Ventures and Partnerships We use the equity method to account for investments in joint ventures and partnerships that qualify as variable interest entities where we are not the primary beneficiary and entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operating and financial policies of the investee. Throughout these financial statements we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest. The Company also uses the equity method when we function as the managing partner and our venture partner has substantive participating rights or where we can be replaced by our venture partner as managing partner without cause. For a joint venture or partnership accounted for under the equity method, our share of net earnings or losses is reflected as income/loss when earned/incurred and distributions are credited against our investment in the joint venture or partnership as received. In determining whether a joint venture or partnership is a variable interest entity, the Company considers: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including necessity of subordinated debt; estimates of future cash flows; ours and our partner’s ability to participate in the decision making related to acquisitions, disposition, budgeting and financing of the entity; obligation to absorb losses and preferential returns; nature of our partner’s primary operations; and the degree, if any, of disproportionality between the economic and voting interests of the entity. As of December 31, 2014, the Company did not determine any of our joint ventures or partnerships to be variable interest entities. We evaluate our investments in unconsolidated joint ventures for events or changes in circumstances that indicate there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, the fair value of the property of the joint venture, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken into consideration as a whole by management in determining the valuation of our equity method investments. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements. Derivative Financial Instruments The Company utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for cash flow hedges that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings. F - 15 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Redeemable Noncontrolling Interests in the Operating Partnership Interests in the Operating Partnership held by limited partners are represented by Operating Partnership units (“OP Units”). The income is allocated to holders of OP Units based upon net income 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 noncontrolling interests in accordance with the terms of the partnership agreement. Limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount as defined in the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (the “Operating Partnership Agreement”), provided that such OP Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of Common Stock of the Company for each OP Unit), as defined in the Operating Partnership Agreement. Accordingly, the Company records the OP Units outside of permanent equity and reports the OP Units at their redemption value using the Company’s stock price at each balance sheet date. Income Taxes Due to the structure of the Company as a REIT and the nature of the operations for the operating properties, no provision for federal income taxes has been provided for at UDR. Historically, the Company has generally incurred only state and local excise and franchise taxes. UDR has elected for certain consolidated subsidiaries to be treated as taxable REIT subsidiaries (“TRS”), primarily those engaged in development activities. Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets are generally the result of differing depreciable lives on capitalized assets and timing of expense recognition for certain accrued liabilities. As of December 31, 2014 and 2013, UDR’s net deferred tax asset of $7.0 million, which had no valuation allowance, and $32.3 million, net of a valuation allowance of $1.3 million, respectively, was included in Other assets on the Consolidated Balance Sheets. Prior to 2012, our TRS had a history of losses and, as a result, historically recognized a valuation allowance for net deferred tax assets. Each quarter, the Company evaluates the need to retain all or a portion of the valuation allowance on its net deferred tax assets. In 2012, the Company determined that it was more likely than not that the deferred tax assets, including any remaining net operating loss carry forward, would be realized. In making this determination, the Company analyzed, among other things, its recent history of earnings from sales of depreciable property, forecasts of future earnings and its cumulative earnings for the last twelve quarters. The reversal of the valuation allowance resulted in an income tax benefit of $44.4 million during the year ended December 31, 2012, $21.5 million of which is reported in continuing operations and included within Tax benefit/(provision), net in the Consolidated Statements of Operations, and $22.9 million of which is included within Income/(loss) from discontinued operations, net of tax in the Consolidated Statements of Operations. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. UDR had no material unrecognized tax benefit, accrued interest or penalties at December 31, 2014. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2010 through 2013 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense. F - 16 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Discontinued Operations Prior to the adoption of ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, the results of operations for those properties sold during the year or classified as held for sale at the end of the current year are classified as discontinued operations in the current and prior periods. Further, to meet the discontinued operations criteria, the Company will not have any significant continuing involvement in the ownership or operation of the property after the sale or disposition. Once a property is classified as held for sale, depreciation is no longer recorded. However, if the Company determines that the property no longer meets the criteria for held for sale, the Company will recapture any unrecorded depreciation on the property. The assets and liabilities, if any, of properties classified as held for sale are presented separately on the Consolidated Balance Sheets at the lower of their carrying amount or their estimated fair value less the costs to sell the assets. (See Note 3, Discontinued Operations and Assets Held for Sale, for further discussion). Stock-Based Employee Compensation Plans The Company measures the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognizes the cost over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. The fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For performance based awards, the Company remeasures the fair value each balance sheet date with adjustments made on a cumulative basis until the award is settled and the final compensation is known. The fair value for market based awards issued by the Company is calculated utilizing a Monte Carlo simulation. For further discussion, see Note 9, Employee Benefit Plans. Advertising Costs All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item General and administrative. During the years ended December 31, 2014, 2013, and 2012, total advertising expense was $6.0 million, $5.7 million, and $6.2 million, respectively. Cost of Raising Capital Costs incurred in connection with the issuance of equity securities are deducted from stockholders’ equity. Costs incurred in connection with the issuance or renewal of debt are recorded based on the terms of the debt issuance or renewal. Accordingly, if the terms of the renewed or modified debt instrument are deemed to be substantially different (i.e. a 10 percent or greater difference in the cash flows between instruments), all unamortized financing costs associated with the extinguished debt are charged to earnings in the current period and certain costs of new debt issuances are capitalized and amortized over the term of the debt. When the cash flows are not substantially different, the lender costs associated with the renewal or modification are capitalized and amortized into interest expense over the remaining term of the related debt instrument and other related costs are expensed. The balance of any unamortized financing costs associated with retired debt is expensed upon retirement. Deferred financing costs for new debt instruments include fees and costs incurred by the Company to obtain financing. Deferred financing costs are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt. Preferred Share Redemption and Repurchases During the year ended December 31, 2012, the Company completed the redemption of all outstanding shares of its 6.75% Series G Cumulative Redeemable Preferred Stock. A total of 3,264,362 shares of the Series G Preferred Stock was redeemed at a redemption price of $25 per share in cash, plus accrued and unpaid dividends to the redemption date for a total cost of $82.1 million. When redeeming or repurchasing preferred stock, the Company recognizes share issuance costs as a charge to the preferred stock on a pro rata basis to the total costs incurred for the preferred stock as well as any premium or discount on the redemption or repurchase. In connection with the redemption of the Series G Preferred Stock, the Company recognized a (decrease)/increase in net income/(loss) attributable to common stockholders of $(2.8) million for the year ended December 31, 2012, which is reported in Premium on preferred stock redemption or repurchases, net on the Consolidated Statements of Operations. Comprehensive Income/(Loss) F - 17 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2014, 2013, and 2012, the Company's other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments and marketable securities reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to redeemable noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/ (loss) is included in interest expense in the accompanying Consolidated Statements of Operations. See Note 13, Derivatives and Hedging Activity, for further discussion. The (gain)/loss on marketable securities reclassified from other comprehensive income/(loss) is included in Interest and other income/(expense), net on the Consolidated Statements of Operations. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the years ended December 31, 2014, 2013, and 2012 was $(133,000), $250,000, and $80,000, respectively. Use of Estimates The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Market Concentration Risk The Company is subject to increased exposure from economic and other competitive factors specific to markets where the Company holds a significant percentage of the carrying value of its real estate portfolio. At December 31, 2014, the Company held greater than 10% of the carrying value of its real estate portfolio in the Orange County, California; Metropolitan D.C.; and New York, New York markets. 3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE Effective January 1, 2014, UDR prospectively adopted ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, for all communities not previously sold or classified as held for sale. The standard had a material impact on the Company’s consolidated financial statements. As a result of adopting the ASU, during the year ended December 31, 2014, gains, net of tax, of $142.5 million from disposition of real estate, excluding a $1.1 million gain related to the sale of land, are included in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations rather than in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations. Prior to the prospective adoption of ASU 2014-08, FASB Accounting Standards Codification ("ASC") Subtopic 205-20 required, among other things, that the primary assets and liabilities and the results of operations of UDR’s real properties that 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. Consequently, the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition prior to January 1, 2014 are accounted for as discontinued operations for all periods presented. This presentation does not have an impact on net income available to common stockholders; it only results in the reclassification of the operating results within the Consolidated Statements of Operations for the periods ended December 31, 2014, 2013, and 2012. During 2014, the Company sold one operating property that was classified as held for disposition prior to the adoption of ASU 2014-08 and, therefore, met the requirements to be reported as a discontinued operation. The sale of this property resulted in an immaterial gain, net of tax, of $75,000. The gain, net of tax, and operating results of the property for the years ended December 31, 2014, 2013, and 2012, are included in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations. During the year ended December 31, 2013, the Company sold two communities in the Sacramento market with 914 apartment homes for gross proceeds of $81.1 million. During the year ended December 31, 2012, the Company sold 21 communities with 6,507 apartment homes for gross proceeds of $609.4 million. F - 18 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 During the years ended December 31, 2014, 2013, and 2012, UDR recognized net gain/(loss) on the sale of depreciable properties, before tax of $75,000, $41.9 million, and $260.4 million, respectively, which are included in Income/(Loss) from Discontinued Operations, Net of Tax on the Consolidated Statements of Operations. The following is a summary of Income/(loss) from discontinued operations, net of tax for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Rental income Rental expenses Property management Real estate depreciation Interest and other (income)/expense, net Income/(loss) attributable to disposed properties and assets held for sale Net gain/(loss) on the sale of depreciable property Impairment charges Income tax benefit/(expense) Income/(loss) from discontinued operations, net of tax Income/(loss) from discontinued operations attributable to UDR, Inc. 4. REAL ESTATE OWNED $ $ $ Year Ended December 31, 2014 2013 2012 $ 147 225 4 — 21 (103) 75 — 38 10 $ $ 9,152 3,511 252 1,958 (62) 3,493 41,919 (2,355) 885 43,942 $ 39,543 14,106 1,087 8,475 821 15,054 260,404 — (8,850) 266,608 10 $ 42,364 $ 256,533 Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and sold or held for sale properties. As of December 31, 2014, the Company owned and consolidated 139 communities in 10 states plus the District of Columbia totaling 39,851 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2014 and 2013 (dollars in thousands): Land and land improvements Depreciable property — held and used: December 31, 2014 December 31, 2013 1,847,127 $ $ 1,980,221 Building, improvements, and furniture, fixtures and equipment 6,225,406 5,876,717 Under development: Land Building, improvements, and furniture, fixtures and equipment Real estate held for disposition: Land Building, improvements, and furniture, fixtures and equipment Real estate owned Accumulated depreciation Real estate owned, net 24,584 153,048 — — 8,383,259 (2,434,772) 5,948,487 $ 110,769 356,644 10,751 5,969 8,207,977 (2,208,794) 5,999,183 $ During the year ended December 31, 2014, the Company sold nine communities consisting of a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in net proceeds of $324.4 million and a total gain, net of tax, of $138.6 million. A portion of the sale proceeds was designated for tax-deferred exchanges under Section 1031 of the Internal Revenue Code and was used to fund acquisitions of real estate as discussed below. F - 19 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 In December 2014, the Company sold a 49% interest in 13th and Market and a 50% interest in 3033 Wilshire to MetLife for approximately $54.2 million and $8.3 million, respectively, and recognized, net of tax, a gain of $7.2 million and a loss of $2.2 million, respectively. Subsequent to the sale, the two communities are accounted for under the equity method of accounting and are included in Investment in and advances to unconsolidated joint ventures, net on the Consolidated Balance Sheets. See further discussion of this transaction in Note 5, Joint Ventures and Partnerships. The activity of the two communities prior to sale is classified as a component of continuing operations on the Consolidated Statements of Operations. In 2014, the Company acquired a fully-entitled land parcel for future development located in Huntington Beach, California for $77.8 million, two communities, located in Seattle, Washington and Kirkland, Washington, with a total of 358 apartment homes for $45.5 million and $75.2 million, respectively, a land parcel for future development located in Boston, Massachusetts for $32.2 million. The four acquisitions during the year ended December 31, 2014 were accomplished through tax-deferred exchanges under Section 1031 of the Internal Revenue Code. In June 2013, the Company sold a 50% interest in five partnerships (the “UDR/MetLife Vitruvian Park® Partnerships”) to MetLife for approximately $141.3 million, before transaction costs of $936,000. The properties held by the UDR/MetLife Vitruvian Park® Partnerships are located in Addison, Texas and consist of two operating communities with 739 apartment homes, one recently completed development community in lease-up with 391 apartment homes, and 28.4 acres of developable land parcels. The transaction resulted in a gain of approximately $436,000 which the Company has deferred until the terms of the construction completion guarantee have been met. The UDR/MetLife Vitruvian Park® Partnerships are accounted for under the equity method of accounting and are included in Investment In and Advances To Unconsolidated Joint Ventures, Net on the Consolidated Balance Sheets. See further discussion of this transaction in Note 5, Joint Ventures and Partnerships. The operations of the UDR/MetLife Vitruvian Park® Partnerships' assets, prior to the sale of a 50% interest, have been classified as a component of continuing operations on the Consolidated Statements of Operations, as UDR has continuing involvement over the duration of the partnership. In December 2013, the Company sold a 49% interest to MetLife in the Company’s fully-entitled 399 Fremont land parcel located in San Francisco, California for approximately $29.9 million. In conjunction with the sale, the Company formed a new unconsolidated joint venture, UDR/MetLife 399 Fremont, to develop a $318 million, 447-home, luxury high-rise tower on the site. As the Company recently acquired the 399 Fremont land parcel, the sale price was equivalent to the cost basis resulting in no gain or loss on the transaction. For more information on this transaction see Note 5, Joint Ventures and Partnerships. In December 2013, the Company became the managing partner of two joint ventures resulting in consolidation of both and increasing the real estate owned by $129.4 million. See Note 5, Joint Ventures and Partnerships, for further details. The Company incurred $373,000, $59,000 and $2.3 million of acquisition-related costs during the years ended December 31, 2014, 2013, and 2012, respectively. These expenses are reported within the line item General and Administrative on the Consolidated Statements of Operations. In February 2015, the Company acquired an office building in Highlands Ranch, Colorado, for total consideration of approximately $24.0 million, which was comprised of assumed debt. The Company’s corporate offices, as well as other leased office space, are located in the acquired building. The building consists of approximately 120,000 square feet, of which UDR occupies approximately 44,000 square feet. All existing leases were assumed by the Company at the time of the acquisition. 5. JOINT VENTURES AND PARTNERSHIPS UDR has entered into joint ventures and partnerships with unrelated third parties to acquire real estate assets that are either consolidated and included in Real Estate Owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and Advances to Unconsolidated Joint Ventures, Net on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. In addition, the Company consolidates any joint venture or partnership in which we are the general partner or managing partner and the third party does not have the ability to substantively participate in the decision-making process nor the ability to remove us as general partner or managing partner without cause. F - 20 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships. Consolidated Joint Ventures In December 2013, the Company consolidated its 95%/5% development joint ventures 13th and Market in San Diego, California and Domain College Park in Metropolitan, D.C. The consolidation was due to the Company becoming the managing partner of each of the joint ventures pursuant to amendments to the LLC Agreements. In connection with the amendments, our partner received equity distributions reducing its capital account balances to zero, the Company replaced our partner as the managing partner, and our partner no longer has the ability to substantively participate in the decision-making process, with only protective rights remaining. We accounted for the consolidations as asset acquisitions since the joint ventures were under development and not complete at the time of consolidation resulting in no gain or loss upon consolidation and increasing our real estate owned by $129.4 million and our debt owed by $63.6 million. In addition pursuant to the amendments, the Company paid a non-refundable deposit to our partner in January 2014 of $2.0 million for each joint venture, or $4.0 million in total, for the right to exercise options in 2014 to acquire our partner’s upside participation in the joint ventures. The non-refundable deposits were applied towards the total purchase price of approximately $24.7 million when the Company acquired 100% of the interest in the joint ventures in November 2014. In December 2014, the Company sold a 49% interest in 13th and Market to MetLife for $54.2 million, resulting in a gain, net of tax, of $7.2 million. Additionally, the Company sold a 50% interest in a wholly owned land parcel to MetLife for $8.3 million, resulting in a loss, net of tax, of $2.2 million. As a result, the Company no longer controls these two joint ventures and they were deconsolidated by the Company in December 2014. Unconsolidated Joint Ventures and Partnerships The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships. F - 21 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2014 and 2013 (dollars in thousands): Joint Venture Location of Properties Number of Properties 2014 Number of Apartment Homes Investment at UDR’s Ownership Interest 2014 2014 2013 2014 2013 Operating and development: Various UDR/MetLife I (a) UDR/MetLife II (a) Various Other UDR/MetLife Joint Ventures (a) UDR/MetLife Vitruvian Park® (c) UDR/KFH (d) Various Addison, TX Washington, D.C. Texas (e) Texas 4 land parcels 21 operating communities 1 operating community, 3 development communities (b), 2 land parcels 3 operating communities, 6 land parcels 3 operating communities 8 operating communities — $ 13,306 $ 47,497 15.7% 4.5% 4,642 431,277 327,926 50.0% 50.0% 1,282 134,939 36,313 50.6% 35.8% 1,394 80,302 79,318 50.0% 50.0% 660 21,596 25,919 30.0% 30.0% 3,359 (25,901) (23,591) 20.0% 20.0% Investment in and advances to unconsolidated joint ventures, net, before participating loan investment 655,519 493,382 Location Preferred Return Years To Maturity Investment at Participating loan investment: Denver, CO Steele Creek (f) 6.5% 2.8 2014 62,707 2014 2013 14,273 $2,350 Income From Participating Loan Investment For The Year Ended 2013 2012 $156 $— Total investment in and advances to unconsolidated joint ventures, net $ 718,226 $ 507,655 (a) In January 2012, the Company formed a joint venture with an unaffiliated third party to acquire 399 Fremont (land for future development) in San Francisco, California, which is included in Other UDR/MetLife Joint Ventures in the table above. At closing, UDR owned a noncontrolling interest of 92.5% in the joint venture. The Company’s total investment was $55.5 million, which consisted of its initial investment of $37.3 million and an option to exercise its right to acquire its partner’s 7.5% ownership interest in the joint venture. In October 2012, the Company exercised its option and paid $13.5 million. In January 2013, the Company subsequently acquired its partner’s 7.5% ownership interest for $4.7 million. In December 2013, the Company sold a 49% ownership interest to MetLife in the fully-entitled 399 Fremont land parcel for approximately $29.9 million. In conjunction with the sale, the Company formed a new unconsolidated real estate joint venture with MetLife, UDR/MetLife 399 Fremont, to develop a $318 million, 447- home, luxury high-rise tower on the site. Construction commenced in the first quarter 2014. As the Company recently acquired the 399 Fremont land parcel, the sale price was equivalent to the cost basis resulting in no gain or loss on the transaction. Under the terms of the partnership, the Company serves as the general partner with significant participating rights held by our partner, and has the ability to earn fees for development management, property management, asset management, and financing transactions. The UDR/MetLife 399 Fremont Joint Venture is accounted for under the equity method of accounting. Our initial investment was approximately $31.1 million. F - 22 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 In June 2013 and within UDR/MetLife I, the Company exchanged with MetLife its approximately 10% ownership interest in four operating communities and paid MetLife an additional $15.6 million in cash for an increased ownership interest of approximately 35% in two high-rise operating communities, bringing UDR's ownership interest in the two high-rise operating communities to 50% each. The two high-rise operating communities are located in Denver, Colorado and San Diego, California and were subsequently contributed to UDR/MetLife II. The four operating communities in which UDR exchanged its ownership interest are located in Washington D.C.; San Francisco, California; Dallas, Texas; and Charlotte, North Carolina. UDR continues to fee manage these four operating communities. In March 2014, the Company sold its minority ownership interests in two operating communities located in Los Angeles, California to MetLife for cash proceeds of $3.0 million, which resulted in an immaterial gain. In April 2014, the Company increased its ownership interest in the remaining six operating communities in the UDR/MetLife I Joint Venture from 12% to 50%, and MetLife and the Company contributed the communities to the UDR/MetLife II Joint Venture. The Company paid MetLife $82.5 million for the additional ownership interests. The Company continues to fee manage the operating communities that were contributed to the UDR/MetLife II Joint Venture as well as the two operating communities in which it sold its minority ownership interests. In July 2014, the Company increased the ownership interest in two land sites in UDR/Metlife I to 50.1% and formed individual asset joint ventures, which are included in Other UDR/MetLife Joint Ventures in the table above. The remaining 49.9% continues to be held by our joint venture partner MetLife. The Company paid MetLife approximately $21.5 million for the additional ownership interests. In December 2014, the Company increased its ownership interest in one land site in the UDR/MetLife I Joint Venture to 50%. Additionally, the Company increased its ownership interest in another land site to 50.1%, which MetLife and the Company contributed to a separate joint venture and is included in Other UDR/MetLife Joint Ventures in the table above. The Company paid MetLife approximately $15.3 million for the additional ownership interests. As of December 31, 2014, the remaining assets in the UDR/MetLife I Joint Venture were comprised of three potential development land sites in which the Company has an average ownership interest of approximately 5% and one fully entitled land parcel in which the Company owns 50%. In December 2014, the Company sold a 49% interest in 13th and Market located in San Diego, California to MetLife for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million and a 50% interest in 3033 Wilshire in Los Angeles, California, also to MetLife for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. (b) The number of apartment homes for the communities under development presented in the table above is based on the projected number of total homes. As of December 31, 2014, no apartment homes had been completed in Other UDR/MetLife Development Joint Ventures. (c) In June 2013, the Company sold a 50% interest in five partnerships (the “UDR/MetLife Vitruvian Park® Partnerships”) to MetLife for approximately $141.3 million. The transaction resulted in a gain of approximately $436,000 which the Company has deferred until the terms of the construction completion guarantee have been met. Under the terms of the UDR/MetLife Vitruvian Park® Partnerships, the Company serves as the general partner with significant participating rights held by our partner, and earns fees for property management, asset management, and financing transactions. The UDR/MetLife Vitruvian Park® Partnerships are accounted for under the equity method of accounting. Our initial investment was approximately $80.2 million, which consisted of approximately $140.0 million (50% of our net book value of the real estate at the time of the transaction) reduced by our share of the net proceeds received upon encumbering the assets of approximately $58.7 million and other operating adjustments. At closing, a total of $118.3 million of secured debt was placed on the two operating communities and the community under development. The debt on the two operating communities carries an interest rate of 4.0% with a term of ten years and the non-recourse construction loan on the community under development carries an interest rate of LIBOR plus 175 basis points with a term of two years and two one-year extension options. The Company has guaranteed the completion of the construction of the development. Proceeds from the construction loan will be used for completion of construction of the development. Upon completion, at its 50% ownership, the Company's pro-rata share of the undepreciated book value of the UDR/MetLife Vitruvian Park® Partnerships' real estate assets and outstanding debt will be approximately $145.0 million and $62.8 million, respectively. F - 23 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 (d) UDR is a partner with an unaffiliated third party, which formed a joint venture for the investment of up to $450 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180 million of which the Company’s maximum equity will be 30% or $54 million when fully invested. (e) In November 2007, UDR and an unaffiliated third party formed a joint venture to own and operate 10 communities located in Texas. UDR contributed cash and property equal to 20% of the fair value of the joint venture. During the year ended December 31, 2012, the Company acquired the remaining 80% ownership interests in two communities in Austin, Texas for $11.7 million. The Company’s investment in the joint venture at December 31, 2014 and 2013 was net of deferred profits on the sale of depreciable properties to the joint venture of $23.9 million and $24.0 million, respectively. In January 2015, the eight communities held by the Texas joint venture were sold, generating net proceeds to UDR of $43.5 million. The Company recorded promote and fee income of $9.6 million and a gain of $59.1 million (including $24.2 million of previously deferred gains) in connection with the sale. (f) In October 2013, the Company entered into a participating debt financing arrangement with a third party that is developing a $108 million, 218-home, high-rise luxury community located adjacent to the Cherry Creek Mall in Denver, Colorado. Under the agreement, UDR will finance up to 85%, or approximately $92.0 million, of the development cost at an interest rate of 6.5% per annum on the outstanding debt balance. In addition, the Company has the option to purchase the community upon completion of construction and has a 50% participating interest in the profit upon the acquisition of the community or sale to a third party. The Company accounts for the arrangement consistent with an investment in real estate under the equity method of accounting. As of December 31, 2014, and 2013, our participating loan investment was $62.7 million and $14.3 million, respectively, which was included in Investment in and advances to unconsolidated joint ventures, net on the Consolidated Balance Sheets. We also recognized $2.4 million and $156,000 of income included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations for the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014 and 2013, the Company had deferred fees and deferred profit from the sale of properties to joint ventures or partnerships of $24.7 million and $25.4 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations. The Company recognized $11.3 million, $11.2 million, and $11.8 million of management fees during the years ended December 31, 2014, 2013, and 2012, respectively, for our management of the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations. The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations. We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary decrease in the value of its other investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2014, 2013, and 2012. Combined summary financial information relating to all of the unconsolidated joint ventures and partnerships operations (not just our proportionate share), is presented below for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): F - 24 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 As of and For the Year Ended December 31, 2014 Condensed Statements of Operations: Total revenues Property operating expenses Real estate depreciation and amortization Operating income/(loss) Interest expense Other income/(expense) Gain/(loss) on sale of real estate Income/(loss) from discontinued operations UDR/MetLife I UDR/MetLife II UDR/MetLife Vitruvian Park® Texas UDR/KFH Other joint ventures Total $ $ 727 618 2,130 (2,021 ) — — — (31,802 ) $ 152,047 52,150 41,504 58,393 (48,493 ) — — — 9,900 $ 19,376 10,711 7,380 1,285 (4,131 ) — — — (2,846 ) $ $ — — — — — — — (4,229 ) (4,229 ) $ $ 19,724 7,498 14,426 (2,200 ) (5,873 ) — — — (8,073 ) $ $ 1,579 1,122 3,959 (3,502 ) (94 ) — — — (3,596 ) $ 193,453 72,099 69,399 51,955 (58,591 ) — — (36,031 ) (42,667 ) Net income/(loss) $ (33,823 ) $ $ UDR recorded income (loss) from unconsolidated entities $ (2,955 ) $ 2,814 $ (4,068 ) $ (772 ) $ (2,601 ) $ 576 $ (7,006 ) $ Condensed Balance Sheets: Total real estate, net Assets held for sale Cash and cash equivalents Other assets Total assets Amount due/(from) to UDR Third party debt Liabilities held for sale Accounts payable and accrued liabilities Total liabilities Total equity $ UDR’s investment in unconsolidated joint ventures $ $ 89,482 1,978 1,983 (146 ) $ 1,986,237 — 15,245 19,589 2,021,071 93,297 107 — 5,110 749 5,966 87,331 13,306 (444 ) 1,147,109 — 17,573 1,164,238 856,833 431,277 F - 25 $ $ $ $ 278,600 — 6,570 3,933 289,103 1,960 123,649 — 6,766 132,375 156,728 80,302 $ $ $ — 214,218 — — 214,218 — — 224,596 — 224,596 (10,378 ) $ (25,901 ) $ $ 235,623 — 2,507 1,128 239,258 531 165,209 — 1,396 167,136 72,122 21,596 $ 351,861 — 6,239 4,203 362,303 843 68,510 — 17,851 87,204 $ 275,099 $ 197,646 $ $ $ 2,941,803 216,196 32,544 28,707 3,219,250 2,997 1,504,477 229,706 44,335 1,781,515 1,437,735 718,226 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 As of and For the Year Ended December 31, 2013 Condensed Statements of Operations: Total revenues Property operating expenses Real estate depreciation and amortization Operating income/(loss) Interest expense Other income/(expense) Income/(loss) from discontinued operations Net income/(loss) UDR recorded income/(loss) from unconsolidated entities Condensed Balance Sheets: Total real estate, net Assets held for sale Cash and cash equivalents Other assets Total assets Amount due to UDR Third party debt Liabilities held for sale Accounts payable and accrued liabilities Total liabilities Total equity UDR’s investment in unconsolidated joint ventures For the Year Ended December 31, 2012 Condensed Statements of Operations: Total revenues Property operating expenses Real estate depreciation and amortization Operating income/(loss) Interest expense Other income/(expense) Income/(loss) from discontinued operations Net income/(loss) UDR recorded income/(loss) from unconsolidated entities UDR/MetLife I UDR/MetLife II UDR/MetLife Vitruvian Park® Texas UDR/KFH Other joint ventures Total $ $ $ $ $ $ $ 691 621 115 (45) — — (22,388) (22,433) $ $ 109,926 33,809 30,122 45,995 (37,055) 1 — 8,941 $ $ 7,680 4,633 3,830 (783) (1,886) — — (2,669) $ $ — — — — — — (9,584) (9,584) $ $ 19,221 7,035 14,199 (2,013) (5,872) — — (7,885) $ $ 5,324 3,292 3,564 (1,532) (913) — — (2,445) $ 142,842 49,390 51,830 41,622 (45,726) 1 (31,972) (36,075) (4,675) $ 4,471 $ (2,851) $ (1,218) $ (2,366) $ 6,224 $ (415) 90,971 753,427 305 4,782 849,485 4,520 — 346,810 89 351,419 498,066 $ 1,476,588 — 16,454 16,666 1,509,708 2,275 877,799 — 14,508 894,582 615,126 $ $ $ 283,878 — 3,498 1,578 288,954 1,352 120,999 — 7,152 129,503 159,451 $ $ — 231,981 — — 231,981 — — 230,393 — 230,393 1,588 $ $ 249,097 — 2,289 1,474 252,860 420 165,209 — 1,234 166,863 85,997 $ $ 65,133 — — 83 65,216 1,136 — — 2,813 3,949 61,267 $ $ 2,165,667 985,408 22,546 24,583 3,198,204 9,703 1,164,007 577,203 25,796 1,776,709 1,421,495 47,497 $ 327,926 $ 79,318 $ (23,591) $ 25,919 $ 50,586 $ 507,655 UDR/MetLife I UDR/MetLife II UDR/MetLife Vitruvian Park® Texas UDR/KFH Other joint ventures Total $ $ $ 632 252 124 256 — — 8,609 8,865 $ $ $ 87,386 25,737 32,553 29,096 (29,170) (9) — (83) $ — — — — — — — — $ $ $ — — — — — — (1,040) (1,040) $ $ 18,670 6,831 16,546 (4,707) (5,890) — — (10,597) $ $ 2,724 1,368 1,897 (541) (561) — — (1,102) $ 109,412 34,188 51,120 24,104 (35,621) (9) 7,569 (3,957) (1,750) $ 15 $ — $ (2,399) $ (3,221) $ (1,224) $ (8,579) F - 26 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 6. SECURED AND UNSECURED DEBT The following is a summary of our secured and unsecured debt at December 31, 2014 and 2013 (dollars in thousands): Principal Outstanding For the Year Ended December 31, 2014 December 31, 2014 2013 Weighted Average Interest Rate Weighted Average Years to Maturity Number of Communities Encumbered 6 22 28 1 2 7 10 38 Secured Debt: Fixed Rate Debt Mortgage notes payable (a) Fannie Mae credit facilities (b) Total fixed rate secured debt Variable Rate Debt Mortgage notes payable Tax-exempt secured notes payable (c) Fannie Mae credit facilities (b) Total variable rate secured debt Total Secured Debt Unsecured Debt: Commercial Banks Borrowings outstanding under an unsecured credit facility due December 2017 (d) (h) Senior Unsecured Notes 5.13% Medium-Term Notes due January 2014 (e) 5.50% Medium-Term Notes due April 2014 (net of discount of $20) (e) 5.25% Medium-Term Notes due January 2015 (net of discounts of $6 and $134, respectively) (f) 5.25% Medium-Term Notes due January 2016 4.25% Medium-Term Notes due June 2018 (net of discounts of $1,465 and $1,893, respectively) (h) 2.17% Term Notes due June 2018 (h) 1.53% Term Notes due June 2018 (h) 1.31% Term Notes due June 2018 (h) 3.70% Medium-Term Notes due October 2020 (net of discounts of $46 and $54, respectively) (h) 4.63% Medium-Term Notes due January 2022 (net of discounts of $2,523 and $2,882, respectively) (h) 3.75% Medium-Term Notes due July 2024 (net of discount of $990) (g) (h) 8.50% Debentures due September 2024 Other Total Unsecured Debt Total Debt $ $ 401,210 568,086 969,296 445,706 626,667 1,072,373 31,337 94,700 266,196 392,233 1,361,529 63,595 94,700 211,409 369,704 1,442,077 5.46 % 5.12 % 5.26 % 1.94 % 0.83 % 1.60 % 1.44 % 4.16 % 152,500 — 1.09 % — — 325,169 83,260 298,535 215,000 100,000 35,000 184,000 128,480 325,041 83,260 298,107 250,000 65,000 35,000 299,954 299,946 397,477 397,118 299,010 15,644 27 2,221,576 $ 3,583,105 $ — 15,644 30 2,081,626 3,523,703 F - 27 — % — % 5.25 % 5.25 % 4.25 % 2.17 % 1.53 % 1.31 % 3.70 % 4.63 % 3.75 % 8.50 % N/A 3.81 % 3.94 % 1.6 4.0 3.0 2.1 8.2 5.2 5.7 3.8 2.9 — — — 1.0 3.4 3.4 3.4 3.4 5.8 7.0 9.5 9.7 N/A 4.6 4.3 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument. As of December 31, 2014, secured debt encumbered $2.2 billion or 26.6% of UDR’s total real estate owned based upon gross book value ($6.2 billion or 73.4% of UDR’s real estate owned based on gross book value is unencumbered). (a) At December 31, 2014, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from December 2015 through May 2019 and carry interest rates ranging from 3.43% to 5.94%. The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. During the years ended December 31, 2014, 2013, and 2012, the Company had $5.1 million, $5.1 million, and $4.9 million, respectively, of amortization expense on the fair market adjustment of debt assumed in acquisition of properties, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $6.7 million and $11.8 million at December 31, 2014 and 2013, respectively. (b) UDR has three secured credit facilities with Fannie Mae with an aggregate commitment of $834.3 million at December 31, 2014. The Fannie Mae credit facilities are for terms of seven to ten years (maturing at various dates from May 2017 through July 2023) and bear interest at floating and fixed rates. At December 31, 2014, we have $568.1 million of the outstanding balance is fixed at a weighted average interest rate of 5.12% and the remaining balance of $266.2 million on these facilities is currently at a weighted average variable interest rate of 1.60%. Further information related to these credit facilities is as follows (dollars in thousands): Borrowings outstanding Weighted average borrowings during the period ended Maximum daily borrowings during the period ended Weighted average interest rate during the period ended Weighted average interest rate at the end of the period December 31, 2014 December 31, 2013 $ $ 834,282 835,873 837,564 4.1 % 4.0 % 838,076 839,597 841,494 4.2 % 4.1 % (c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature on August 2019 and March 2032. Interest on these notes is payable in monthly installments. The variable mortgage notes have interest rates of 0.78% and 0.93%, respectively, as of December 31, 2014. (d) The Company has a $900 million unsecured revolving credit facility with a maturity date to December 2017, a six month extension option, and an accordion feature that allows the Company to increase the facility to $1.45 billion. Based on the Company's current credit rating, the credit facility carries an interest rate equal to LIBOR plus a spread of 100 basis points and a facility fee of 15 basis points. As of December 31, 2014, the Company had a balance of $152.5 million outstanding under the revolving credit facility. F - 28 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following is a summary of short-term bank borrowings under UDR’s bank credit facility at December 31, 2014 and 2013 (dollars in thousands): Total revolving credit facility Borrowings outstanding at end of period (1) Weighted average daily borrowings during the period ended Maximum daily borrowings during the period ended Weighted average interest rate during the period ended Interest rate at end of the period $ December 31, 2014 900,000 152,500 291,761 625,000 $ December 31, 2013 900,000 — 169,844 372,000 1.2 % 1.1 % 1.2 % 1.3 % (1) Excludes $1.9 million and $2.2 million of letters of credit at December 31, 2014 and 2013, respectively. (e) Paid off at maturity with borrowings under the Company’s $900 million unsecured revolving credit facility. (f) In January 2015, we paid off $325.2 million of 5.25% medium-term notes due January 2015 with borrowings under the Company’s $900 million unsecured revolving credit facility. (g) In June 2014, the Company issued $300 million of 3.750% senior unsecured medium-term notes due July 1, 2024. Interest is payable semi-annually beginning on January 1, 2015. These notes were issued at 99.652% of the principal amount and had a discount of $1.0 million at December 31, 2014. The Company used the net proceeds to pay down borrowings outstanding on our $900 million unsecured credit facility and for general corporate purposes. (h) The Operating Partnership is a guarantor at December 31, 2014 and 2013. The aggregate maturities, including amortizing principal payments of secured debt, of total debt for the next five years subsequent to December 31, 2014 are as follows (dollars in thousands): Year Secured Fixed Rate Debt Secured Variable Rate Debt 2015 2016 2017 2018 2019 Thereafter Total $ $ 196,648 135,167 177,774 120,969 248,738 90,000 969,296 $ $ — 31,337 65,000 104,787 67,700 123,409 392,233 $ Total Secured Debt 196,648 166,504 242,774 225,756 316,438 213,409 1,361,529 $ Total Unsecured Debt (a) Total Debt $ $ 324,286 82,377 152,500 648,443 — 1,013,970 2,221,576 $ $ 520,934 248,881 395,274 874,199 316,438 1,227,379 3,583,105 (a) With the exception of the 1.31% Term Notes due June 2018 and revolving credit facility which carry a variable interest rate, all unsecured debt carries fixed interest rates. We were in compliance with the covenants of our debt instruments at December 31, 2014. F - 29 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 7. INCOME/(LOSS) PER SHARE The following table sets forth the computation of basic and diluted income/(loss) per share for the periods presented (dollars and shares in thousands, except per share data): Numerator for income/(loss) per share: Income/(loss) from continuing operations Gain/(loss) on sale of real estate owned, net of tax (Income)/loss from continuing operations attributable to redeemable noncontrolling interests in the Operating Partnership (Income)/loss from continuing operations attributable to noncontrolling interests $ Income/(loss) from continuing operations attributable to UDR, Inc. Distributions to preferred stockholders - Series E (Convertible) Distributions to preferred stockholders - Series G Premium on preferred stock redemption or repurchases, net Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations, net of tax (Income)/loss from discontinued operations attributable to redeemable noncontrolling interests in the Operating Partnership Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders Denominator for income/(loss) per share - basic and diluted: Weighted average common shares outstanding Non-vested restricted stock awards Denominator for income/(loss) per share - basic Incremental shares issuable from assumed conversion of: Stock options and unvested resticted stock Denominator for income/(loss) per share - diluted Income/(loss) per weighted average common share - basic: Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders Income/(loss) per weighted average common share - diluted: Income/(loss) from continuing operations attributable to common stockholders Income/(loss) from discontinued operations attributable to common stockholders Net income/(loss) attributable to common stockholders F - 30 $ $ $ $ $ $ $ $ Year Ended December 31, 2014 2013 2012 $ 16,260 143,572 (5,511 ) 3 154,324 (3,724 ) — — 150,600 $ $ 2,340 — 48 60 2,448 (3,724 ) — — (1,276 ) $ (46,305 ) — 2,089 (140 ) (44,356 ) (3,724 ) (2,286 ) (2,791 ) (53,157 ) 10 $ 43,942 $ 266,608 — 10 $ (1,578 ) 42,364 $ (10,075 ) 256,533 150,610 $ 41,088 $ 203,376 252,707 (1,179 ) 251,528 1,917 253,445 250,684 (715 ) 249,969 — 249,969 0.60 — 0.60 $ $ 0.59 — 0.59 $ $ (0.01 ) $ 0.17 0.16 $ (0.01 ) $ 0.17 0.16 $ 239,482 (631 ) 238,851 — 238,851 (0.22 ) 1.07 0.85 (0.22 ) 1.07 0.85 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per share is computed based upon the common shares issuable from the assumed conversion of the OP Units, convertible preferred stock, stock options, and restricted stock. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods. During the years ended December 31, 2013 and 2012, the effect of the conversion of the OP Units, convertible preferred stock, stock options and restricted stock is not dilutive, and is therefore not included in the above calculations as the Company reported a loss from continuing operations attributable to common stockholders. The following table sets forth the additional shares of common stock outstanding by equity instrument if converted to common stock for each of the years ended December 31, 2014, 2013, and 2012 (shares in thousands): OP Units Preferred Stock Stock options and unvested restricted stock 8. STOCKHOLDERS’ EQUITY Year Ended December 31, 2014 2013 2012 9,247 3,036 1,917 9,337 3,036 1,584 9,411 3,036 1,361 UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as defined in the prospectus. The Company has the ability to issue 350,000,000 shares of common stock and 50,000,000 shares of preferred shares as of December 31, 2014. The company has an equity distribution agreement which allows it from time to time, through its sales agents, to offer and sell up to 20,000,000 shares of its common stock. Sales of such shares will be made by means of ordinary brokers’ transactions on the NYSE at market prices. As of December 31, 2014, 16,518,567 shares were available for sale under the continuous equity program. During the year ended December 31, 2014, the Company entered into the following equity transactions for our common stock: • Sold 3,410,433 shares of common stock through the Company’s equity distribution agreement at a weighted average price per share of $29.95, for aggregate gross proceeds of approximately $102.1 million; Issued 860,811 shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”), net of forfeitures of 12,199; and • • Converted 153,451 OP Units into Company common stock. In 2015, through February 24, 2015, we sold 3,432,936 shares of common stock through the Company’s equity distribution agreement at a weighted average price per share of $32.28, for aggregate gross proceeds of approximately $110.8 million. Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR’s common distributions for the years ended December 31, 2014, 2013, and 2012 totaled $1.04, $0.94, and $0.88 per share, respectively. For taxable years ending on or before December 31, 2014, the Internal Revenue Service (“IRS”) allowed REITs to distribute up to 90% of total distributions in common shares with the residual distributed in cash as a means of enhancing liquidity. Preferred Stock The Series E Cumulative Convertible Preferred Stock (“Series E”) has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into one share of our common stock prior to a “Special Dividend” declared in 2008 (1.083 shares after the Special Dividend). The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other F - 31 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption. Distributions declared on the Series E for the years ended December 31, 2014, 2013, and 2012 were $1.33 per share. The Series E is not listed on any exchange. At December 31, 2014 and 2013, a total of 2,803,812 shares of the Series E were outstanding. UDR is authorized to issue up to 20,000,000 shares of the Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of UDR’s operating partnership units, or OP Units, at a purchase price of $0.0001 per share. OP Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP Unit held. At December 31, 2014 and 2013, a total of 2,464,183 shares of the Series F were outstanding with an aggregate purchase value of $246. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to any other rights, privileges or preferences. In May 2007, UDR issued 5,400,000 shares of the 6.75% Series G Cumulative Redeemable Preferred Stock (“Series G”). On May 31, 2012, the Company completed the redemption of all outstanding shares of its Series G. A total of 3,264,362 shares of the Series G was redeemed at a redemption price of $25 per share in cash, plus accrued and unpaid dividends to the redemption date for a total cost of $82.1 million. As a result of this redemption, the write off of additional paid in capital of $2.8 million related to the issuance of the Series G is recognized as a decrease to our net income/(loss) attributable to common stockholders. Distributions declared on the Series G for the years ended December 31, 2014, 2013, and 2012 were $0.00, $0.00 and $0.57 per share, respectively. At December 31, 2014 and 2013, there were no shares of the Series G outstanding. Distribution Reinvestment and Stock Purchase Plan UDR’s Distribution Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends, additional shares of UDR’s common stock. From inception through December 31, 2008, shareholders have elected to utilize the Stock Purchase Plan to reinvest their distribution for the equivalent of 9,957,233 shares of Company common stock. Shares in the amount of 10,963,730 were reserved for issuance under the Stock Purchase Plan as of December 31, 2014. During the year ended December 31, 2014, UDR acquired all shares issued through the open market. 9. EMPLOYEE BENEFIT PLANS In May 2001, the stockholders of UDR approved the long term incentive plan (“LTIP”), which supersedes the 1985 Stock Option Plan. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, and any other right or interest relating to common stock or cash incentive awards to Company directors, employees and outside trustees to promote the success of the Company by linking individual’s compensation via grants of share based payment. During the year ended December 31, 2014, the stockholders of UDR voted to amend and restate the LTIP to increase the number of shares reserved from 16,000,000 shares to 19,000,000 shares on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2014, there were 10,067,371 common shares available for issuance under the LTIP. The LTIP contains change of control provisions allowing for the immediate vesting of an award upon certain events such as a merger where UDR is not the surviving entity. Upon the death or disability of an award recipient all outstanding instruments will vest and all restrictions will lapse. Unless otherwise specified in the agreement, upon the retirement of an award recipient, all outstanding instruments will vest and all restrictions will lapse. The LTIP specifies that in the event of a capital transaction, which includes but is not limited to stock dividends, stock splits, extraordinary cash dividends and spin-offs, the number of shares available for grant in totality or to a single individual is to be adjusted proportionately. The LTIP specifies that when a capital transaction occurs that would dilute the holder of the stock award, prior grants are to be adjusted such that the recipient is no worse as a result of the capital transaction. A summary of UDR’s stock option and restricted stock activities during the year ended December 31, 2014 is as follows: F - 32 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Option Outstanding Option Exercisable Restricted Stock Number of Options $ 2,430,127 — (164,285 ) — — 2,265,842 $ Weighted Average Exercise Price 12.63 — 10.06 — — 12.82 Weighted Average Exercise Price Number of shares Weighted Average Fair Value Per Restricted Stock 12.63 — 10.06 — — 12.82 $ 758,745 873,010 — (619,578 ) (12,199 ) 999,978 $ 23.89 23.14 — 22.70 23.74 23.98 Number of Options $ 2,430,127 — (164,285 ) — — 2,265,842 $ Balance, December 31, 2013 Granted Exercised Vested Forfeited Balance, December 31, 2014 As of December 31, 2014, the Company had issued 4,517,514 shares of restricted stock under the LTIP. Stock Option Plan UDR has granted stock options to our employees, subject to certain conditions. Each stock option is exercisable into one common share. There is no remaining compensation cost related to unvested stock options as of December 31, 2014. During the year ended December 31, 2014, stock options with a fair value of $4.8 million were exercised. The weighted average remaining contractual life on all options outstanding as of December 31, 2014 is 3.4 years. 1,830,672 of share options had exercise prices at $10.06; 404,291 of share options had exercise prices at $24.38; and 30,879 of share options had exercise prices at $25.10. During the years ended December 31, 2014, 2013, and 2012, respectively, we recognized $0.0, $0.0, and $95,000 of net compensation expense related to outstanding stock options. Restricted Stock Awards Restricted stock awards are granted to Company employees, officers, and directors. The restricted stock awards are valued based upon the closing sales price of UDR common stock on the date of grant. Compensation expense is recorded under the straight-line method over the vesting period, which is generally three to four years. Restricted stock awards earn dividends payable in cash. Some of the restricted stock grants are based on the Company’s performance and are subject to adjustment during the initial one year performance period. For the years ended December 31, 2014, 2013, and 2012, we recognized $4.2 million, $3.6 million, and $3.7 million of compensation expense related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $2.5 million and had a weighted average remaining contractual life of 1.1 years as of December 31, 2014. Long-Term Incentive Compensation In February 2014, certain officers of the Company were awarded a restricted stock grant under the 2014 Long-Term Incentive Program (“2014 LTI”). Fifty percent of the 2014 LTI award is based upon FFO as Adjusted and fifty percent is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs. The actual amount that vests was determined in February 2015 based upon the actual achievement of the metrics. Each award vests pro rata over three years commencing with the establishment of the award and continuing for two years following determination of the amount of the award at the end of the annual performance period. The portion of the restricted stock grant based upon FFO as Adjusted was valued based upon the closing sales price of UDR common stock on the date of grant. The portion of the restricted stock grant based upon TSR was valued at $21.15 per share on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.8%. F - 33 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 In February 2013, certain officers of the Company were awarded a restricted stock grant under the 2013 Long-Term Incentive Program (“2013 LTI”). Fifty percent of the 2013 LTI award is based upon FFO and fifty percent is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs. The actual amount that vests was determined in February 2014 based upon the actual achievement of the metrics. Each award vests pro rata over three years commencing with the establishment of the award and continuing for two years following determination of the amount of the award at the end of the annual performance period. The portion of the restricted stock grant based upon FFO was valued based upon the closing sales price of UDR common stock on the date of grant. The portion of the restricted stock grant based upon TSR was valued at $21.97 per share on the grant date as determined by a lattice-binomial option- pricing model based on a Monte Carlo simulation using a volatility factor of 15.8%. Compensation expense is recorded under the accelerated method over the vesting period for the 2014 LTI and 2013 LTI. For the year ended December 31, 2014 and 2013, we recognized $9.8 million and $5.9 million, respectively, of compensation expense related to the amortization of the awards. The total remaining compensation cost on unvested 2014 LTI and 2013 LTI awards was $5.8 million and had a weighted average remaining contractual life of 1.8 years as of December 31, 2014. During 2010, certain officers of the Company were awarded a restricted stock grant under the 2010-2012 Long-Term Incentive Program (“2010-2012 LTI”). The actual amount of the awards that vested in 2012 was determined based upon the Company’s achievement of the specified performance metrics during the three-year performance period. The grants were valued on the grant date based upon the market price of UDR common stock on the date of grant. Compensation expense was recorded pro rata over the three-year performance period. For the year ended December 31, 2012, we recognized $4.9 million of compensation expense related to the amortization of the awards. Profit Sharing Plan Our profit sharing plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, UDR makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in UDR’s Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012, was $854,000, $919,000, and $631,000, respectively. 10. INCOME TAXES For 2014, 2013, and 2012, UDR believes that we have complied with the REIT requirements specified in the Code. As such, the REIT would generally not be subject to federal income taxes. For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. Taxable distributions paid per common share were taxable as follows for the years ended December 31, 2014, 2013, and 2012: Ordinary income Qualified ordinary income Long-term capital gain Unrecaptured section 1250 gain Total Year Ended December 31, 2014 2013 2012 $ $ 0.695 0.139 0.105 0.076 1.015 $ $ 0.744 — 0.114 0.067 0.925 $ $ 0.174 — 0.186 0.515 0.875 F - 34 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 We have a TRS that is subject to federal and state income taxes. A TRS is a C-corporation which has not elected REIT status and as such is subject to United States federal and state income tax. The components of the provision for income taxes are as follows for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Year Ended December 31, 2014 2013 2012 Income tax (benefit)/expense Current Federal State Total current Deferred Federal State Total deferred Total income tax (benefit)/expense Classification of income tax (benefit)/expense Continuing operations Gain/(loss) on sale of real estate owned Discontinued operations $ $ $ $ 147 550 697 20,138 5,159 25,297 25,994 (1,030 ) $ 846 (184 ) (6,907 ) (1,190 ) (8,097 ) $ (8,281 ) $ (15,098 ) $ 41,087 5 (7,299 ) $ — (982 ) 1,961 1,463 3,424 (21,479 ) (3,021 ) (24,500 ) (21,076 ) (30,717 ) — 9,641 Deferred income taxes are provided for the change in temporary differences between the basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes. The expected future tax rates are based upon enacted tax laws. The components of our TRS deferred tax assets and liabilities are as follows for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Deferred tax assets: Federal and state tax attributes Book/tax depreciation Construction capitalization differences Investment in partnerships Debt and interest deductions Other Total deferred tax assets Valuation allowance Net deferred tax assets Deferred tax liabilities: Construction capitalization differences Investment in partnerships Other Total deferred tax liabilities Net deferred tax asset Year Ended December 31, 2014 2013 2012 $ $ $ — 6,692 75 — — 401 7,168 — 7,168 — — (192 ) (192 ) 6,976 $ $ 13,069 19,354 — — 10,311 — 42,734 (1,310 ) 41,424 (3,766 ) (5,080 ) (305 ) (9,151 ) 32,273 $ 1,464 12,345 6,635 3,112 — 2,009 25,565 (1,390 ) 24,175 — — — — 24,175 F - 35 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Income tax benefit/(expense), net differed from the amounts computed by applying the U.S. statutory rate of 35% to pretax income/(loss) for the years ended December 31, 2014, 2013, and 2012 as follows (dollars in thousands): Year Ended December 31, 2014 2013 2012 Income tax (benefit)/expense U.S. federal income tax (benefit)/expense State income tax provision Other items Conversion of certain TRS entities to REITs Valuation allowance Total income tax (benefit)/expense $ $ $ 28,819 2,678 (137 ) (5,770 ) 404 25,994 $ (8,493 ) $ 46 246 — (80 ) (8,281 ) $ 21,853 2,497 (1,682 ) — (43,744 ) (21,076 ) As of December 31, 2014, the Company, through our TRS, had federal net operating loss carryovers (“NOL”) of $19.5 million expiring in 2032 through 2033. As of December 31, 2014, the TRS had state NOLs of approximately $57.8 million expiring in 2020 through 2031. Prior to the conversion adjustment, as of December 31, 2014, the Company had a valuation allowance of $1.7 million against its state NOL. During the year ended December 31, 2014, the Company had a net change of $400,000 in the valuation allowance. These attributes are still available to the new REITs, but are carried at a zero effective tax rate. For the year ended December 31, 2014, the Tax benefit/(provision), net increased $7.8 million as compared to 2013. The increase was primarily a result of the Company recognizing a one-time tax benefit of $5.8 million in 2014 related to the conversion of certain taxable REIT subsidiary entities into REITs. Additionally, Gain/(loss) on sale of real estate owned, net of tax included approximately $41.1 million of tax. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company evaluates our tax position using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of December 31, 2014 and 2013, UDR has no material unrecognized income tax benefits/(provisions). The Company files income tax returns in federal and various state and local jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local income tax examination by tax authorities for years prior to 2010. The tax years 2010 through 2013 remain open to examination by the major taxing jurisdictions to which the Company is subject. 11. NONCONTROLLING INTERESTS Redeemable Noncontrolling Interests in the Operating Partnership Interests in the Operating Partnership held by limited partners are represented by OP Units. The income is allocated to holders of OP Units based upon net income attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the individual partnership agreements. Limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount as defined in the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (the “Operating Partnership Agreement”), provided that such OP Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership may, in its sole F - 36 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit), as defined in the Operating Partnership Agreement. Accordingly, the Company records the OP Units outside of permanent equity and reports the OP Units at their redemption value using the Company’s stock price at each balance sheet date. The following table sets forth redeemable noncontrolling interests in the Operating Partnership for the years ended December 31, 2014 and 2013 (dollars in thousands): Year Ended December 31, 2014 2013 Redeemable noncontrolling interests in the Operating Partnership, beginning of year $ Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership Conversion of OP Units to Common Stock Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership Distributions to redeemable noncontrolling interests in the Operating Partnership Allocation of other comprehensive income/(loss) $ 217,597 73,954 (4,372 ) 5,511 (10,077 ) (133 ) Redeemable noncontrolling interests in the Operating Partnership, end of year $ 282,480 $ 223,418 3,656 (1,817 ) 1,530 (9,440 ) 250 217,597 The following sets forth net income/(loss) attributable to common stockholders and transfers from redeemable noncontrolling interests in the Operating Partnership for the following periods (dollars in thousands): Net income/(loss) attributable to common stockholders Conversion of OP units to UDR Common Stock Change in equity from net income/(loss) attributable to common stockholders and conversion of OP units to UDR Common Stock Noncontrolling Interests Year Ended December 31, 2014 2013 2012 $ $ $ 150,610 4,372 154,982 $ $ 41,088 1,817 42,905 $ 203,376 529 203,905 Noncontrolling interests represent interests of unrelated partners in certain consolidated affiliates, and is presented as part of equity in the Consolidated Balance Sheets since these interests are not redeemable. During the years ended December 31, 2014, 2013, and 2012, net (income)/loss attributable to noncontrolling interests was $3,000, $60,000, and $(140,000), respectively. During the year ended December 31, 2012, the Company acquired all of the noncontrolling interests in two consolidated affiliates for $4.9 million, one of which owns a 434 apartment home community for $4.0 million and the other is a development project for $900,000. See the “Consolidated Joint Ventures” section of Note 5, Unconsolidated Joint Ventures and Partnerships, for additional information on the consolidated development joint venture. 12. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below: • • Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. F - 37 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2014 and 2013 are summarized as follows (dollars in thousands): Description: Notes receivable (a) Derivatives - Interest rate contracts (b) Total assets Derivatives - Interest rate contracts (b) Secured debt instruments - fixed rate: (c) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments- variable rate: (c) Mortgage notes payable Tax-exempt secured notes payable Fannie Mae credit facilities Unsecured debt instruments (c): Commercial banks Senior unsecured notes Total liabilities Redeemable noncontrolling interests in the Operating Partnership (d) Fair Value at December 31, 2014, Using Total Carrying Amount in Statement of Financial Position at December 31, 2014 Fair Value Estimate at December 31, 2014 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ $ $ $ $ 14,369 88 14,457 $ $ 14,808 88 14,896 $ $ — — — $ $ — 88 88 $ $ 14,808 — 14,808 10,368 $ 10,368 $ — $ 10,368 $ — 401,210 568,086 31,337 94,700 266,196 415,663 606,623 31,337 94,700 266,196 152,500 2,069,076 3,593,473 $ 152,500 2,144,125 3,721,512 $ — — — — — — — — — — — — — 415,663 606,623 31,337 94,700 266,196 — — 10,368 $ 152,500 2,144,125 3,711,144 $ 282,480 $ 282,480 $ — $ 282,480 $ — F - 38 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Fair Value at December 31, 2013, Using Total Carrying Amount in Statement of Financial Position at December 31, 2013 Fair Value Estimate at December 31, 2013 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Description: Notes receivable (a) Total assets Derivatives- Interest rate contracts (b) Secured debt instruments- fixed rate: (c) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments- variable rate: (c) Mortgage notes payable Tax-exempt secured notes payable Fannie Mae credit facilities Unsecured debt instruments: (c) Senior unsecured notes Total liabilities Redeemable noncontrolling interests in the Operating Partnership (d) $ $ $ $ $ (a) See Note 2, Significant Accounting Policies. (b) See Note 13, Derivatives and Hedging Activity. (c) See Note 6, Secured Debt and Unsecured Debt. (d) See Note 11, Noncontrolling Interests. 83,033 83,033 $ $ 83,833 83,833 $ $ 4,965 $ 4,965 $ — — $ $ — $ — — $ 4,965 $ 445,706 626,667 63,595 94,700 211,409 466,375 661,094 63,595 94,700 211,409 2,081,626 3,528,668 $ 2,149,003 3,651,141 $ — — — — — — — — — — — — $ — 4,965 $ 2,149,003 3,646,176 217,597 $ 217,597 $ — $ 217,597 $ — 83,833 83,833 — 466,375 661,094 63,595 94,700 211,409 There were no transfers into or out of each of the levels of the fair value hierarchy. Financial Instruments Carried at Fair Value The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2014 and 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation F - 39 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Redeemable noncontrolling interests in the Operating Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership are classified as Level 2. Financial Instruments Not Carried at Fair Value At December 31, 2014, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. We estimate the fair value of our notes receivable and debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality, where applicable (Level 3). We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. Our estimates of fair value represent our best estimate based upon Level 3 inputs such as industry trends and reference to market rates and transactions. We consider various factors to determine if a decrease in the value of our investment in and advances to unconsolidated joint ventures, net is other-than- temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary decrease in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2014, 2013, and 2012. After determining an other-than-temporary decrease in the value of an equity method investment has occurred, we estimate the fair value of our investment by estimating the proceeds we would receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs reflect management’s best estimate of what market participants would use in pricing the investment giving consideration to the terms of the joint venture agreement and the estimated discounted future cash flows to be generated from the underlying joint venture assets. The inputs and assumptions utilized to estimate the future cash flows of the underlying assets are based upon the Company’s evaluation of the economy, market trends, operating results, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates. 13. DERIVATIVES AND HEDGING ACTIVITY Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core F - 40 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable- rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2014, 2013, and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of fixed-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the year ended December 31, 2014 the Company recorded a gain of approximately $3,000 from ineffectiveness in earnings attributable to a timing mismatch between the derivative and the hedged item. During the years ended December 31, 2013, and 2012, the Company recorded less than $1,000 of loss from ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item, and interest rate swaps with a fair value other than zero at inception of the hedging relationship. Amounts reported in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets relate to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2015, the Company estimates that an additional $5.0 million will be reclassified as an increase to interest expense. As of December 31, 2014, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands): Interest Rate Derivative Interest rate swaps Interest rate caps Number of Instruments 14 3 $ $ Notional 365,000 243,079 Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a gain/(loss) of $(4,000), $271,000, and $290,000 for the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands): Product Interest rate caps Number of Instruments Notional 1 $ 96,409 F - 41 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2014 and 2013 (dollars in thousands): Derivatives designated as hedging instruments: Interest rate products Derivatives not designated as hedging instruments: Interest rate products $ $ Asset Derivatives (included in Other assets) Fair Value at: Liability Derivatives (included in Other liabilities) Fair Value at: December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013 86 $ — $ 10,368 $ 4,965 2 $ — $ — $ — Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Unrealized holding gain/ (loss) Recognized in OCI (Effective Portion) Year ended December 31, Gain/(Loss) Reclassified from Accumulated OCI into Interest expense (Effective Portion) Gain/(Loss) Recognized in Interest expense (Ineffective Portion and Amount Excluded from Effectiveness Testing) Year ended December 31, Year ended December 31, 2014 2013 2012 2014 2013 2012 2014 2013 2012 Derivatives in Cash Flow Hedging Relationships Interest rate products $ (8,695) $ (469) $ (4,924) $ (4,834) $ (6,851) $ (7,649) $ 3 $ — $ — Gain/(Loss) Recognized in Interest and other income/(expense), net Year ended December 31, Derivatives Not Designated as Hedging Instruments 2014 2013 2012 Interest rate products Credit-risk-related Contingent Features $ (4) $ 271 $ 290 The Company has agreements with some of its derivative counterparties that contain a provision where (1) if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations; or (2) the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. Certain of the Company’s agreements with its derivative counterparties contain provisions where if there is a change in the Company’s financial condition that materially changes the Company’s creditworthiness in an adverse manner, the Company may be required to fully collateralize its obligations under the derivative instrument. At December 31, 2014 and 2013, no cash collateral was posted or required to be posted by the Company or by a counterparty. The Company also has an agreement with a derivative counterparty that incorporates the loan and financial covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with these covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement. F - 42 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The Company has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the Company or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative contract, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity's creditworthiness is materially weaker than the original party to the derivative agreement. As of December 31, 2014, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $10.6 million. If the Company had breached any of these provisions at December 31, 2014, it would have been required to settle its obligations under the agreements at their termination value of $10.6 million. The Company has elected not to offset derivative positions in the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of December 31, 2014 and December 31, 2013 (dollars in thousands): Offsetting of Derivative Assets Gross Amounts of Recognized Assets December 31, 2014 $ 88 Gross Amounts Offset in the Consolidated Balance Sheets — $ $ Net Amounts of Assets Presented in the Consolidated Balance Sheets (a) Gross Amounts Not Offset in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received 88 $ (27) $ — $ December 31, 2013 $ — $ — $ — $ — $ — $ Net Amount 61 — (a) Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet” located in this footnote. Offsetting of Derivative Liabilities Gross Amounts of Recognized Liabilities December 31, 2014 $ 10,368 $ Gross Amounts Offset in the Consolidated Balance Sheets — Net Amounts of Liabilities Presented in the Consolidated Balance Sheets (a) Gross Amounts Not Offset in the Consolidated Balance Sheets Financial Instruments Cash Collateral Posted Net Amount $ 10,368 $ (27) $ — $ 10,341 December 31, 2013 $ 4,965 $ — $ 4,965 $ — $ — $ 4,965 (a) Amounts reconcile to the aggregate fair value of derivative liabilities in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet” located in this footnote. F - 43 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 14. COMMITMENTS AND CONTINGENCIES Commitments Real Estate Under Development The following summarizes the Company’s real estate commitments at December 31, 2014 (dollars in thousands): Wholly-owned — under development Wholly-owned — redevelopment Joint ventures: Unconsolidated joint ventures Participating loan investments Total Number of Properties Costs Incurred to Date (a) Expected Costs to Complete (unaudited) Average Ownership Stake 1 1 3 1 $ $ 177,632 (b) 83,778 (b) $ 225,013 62,707 549,130 (d) $ 40,068 14,222 172,155 29,302 255,747 (c) (e) 100% 100% Various 0% (a) Represents 100% of project costs incurred to date. (b) Costs incurred to date include $14.7 million and $1.8 million of accrued fixed assets for development and redevelopment, respectively. (c) Represents UDR’s contributed and remaining equity commitment in unconsolidated joint ventures. (d) Represents the participating loan balance funded as of December 31, 2014. (e) Represents UDR’s remaining participating loan commitment for Steele Creek. Ground and Other Leases UDR owns six communities which are subject to ground leases expiring between 2019 and 2103. In addition, UDR is a lessee to various operating leases related to office space rented by the Company with expiration dates through 2016. Future minimum lease payments as of December 31, 2014 are as follows (dollars in thousands): Thereafter Total Ground Leases (a) Office Space 2015 $ 2016 2017 2018 2019 $ 5,412 5,412 5,412 5,412 5,412 313,735 340,795 $ $ 709 124 76 76 76 109 1,170 (a) For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. UDR incurred $5.4 million, $5.2 million, $5.1 million of ground rent expense for the years ended December 31, 2014, 2013, and 2012, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. The Company incurred $1.3 million, $1.3 million, $1.1 million of rent expense related to office space for the years ended December 31, 2014, 2013, and 2012, respectively. These costs are included in General and Administrative on the Consolidated Statements of Operations. In February 2015, the Company acquired the office building in Highlands F - 44 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Ranch, Colorado, which housed its corporate offices it had previously leased. See Note 4, Real Estate Owned, for additional details. Contingencies Litigation and Legal Matters The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The Company believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow. 15. REPORTABLE SEGMENTS GAAP guidance requires that segment disclosures present the measure(s) used by the chief operating decision maker to decide how to allocate resources and for purposes of assessing such segments’ performance. UDR’s chief operating decision maker is comprised of several members of its executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments. UDR owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures for UDR’s apartment communities are rental income and NOI. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations, and land rent. UDR’s chief operating decision maker utilizes NOI as the key measure of segment profit or loss. UDR’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other: • Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2013 and held as of December 31, 2014. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. • Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. Management evaluates the performance of each of our apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Company’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the chief operating decision maker. All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the years ended December 31, 2014, 2013, and 2012. F - 45 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table details rental income and NOI from continuing and discontinued operations for UDR’s reportable segments for the years ended December 31, 2014, 2013, and 2012, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. in the Consolidated Statements of Operations (dollars in thousands): Reportable apartment home segment rental income Same-Store Communities West Region Mid-Atlantic Region Southeast Region Northeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated rental income Reportable apartment home segment NOI Same-Store Communities West Region Mid-Atlantic Region Southeast Region Northeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated NOI Reconciling items: Joint venture management and other fees Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related recoveries/(charges), net Other depreciation and amortization Income/(loss) from unconsolidated entities Interest expense Interest and other income/(expense), net Tax benefit/(provision), net Gain/(loss) on sale of real estate owned, net of tax Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to UDR, Inc. F - 46 Year Ended December 31, 2014 2013 2012 $ $ $ $ $ $ 245,803 161,566 107,991 60,796 54,810 174,183 805,149 178,926 111,762 71,528 44,897 33,725 115,483 556,321 13,044 (22,142) (8,271) (358,154) (47,800) (541) (5,775) (7,006) (130,454) 11,837 15,136 143,647 $ $ $ 231,156 160,208 102,988 58,075 52,302 150,907 755,636 166,033 111,643 67,264 42,350 31,927 94,824 514,041 12,442 (20,780) (7,136) (341,490) (42,238) 12,253 (6,741) (415) (126,083) 4,681 7,299 40,449 (5,511) 3 154,334 $ $ (1,530) 60 44,812 $ 218,268 155,777 97,699 54,461 46,800 171,239 744,244 154,205 108,490 63,122 39,377 27,878 111,128 504,200 11,911 (20,465) (5,718) (350,401) (43,792) (8,495) (4,105) (8,579) (138,792) 2,703 30,282 251,554 (7,986) (140) 212,177 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table details the assets of UDR’s reportable segments as of December 31, 2014 and 2013 (dollars in thousands): Reportable apartment home segment assets: Same-Store communities: West Region Mid-Atlantic Region Southeast Region Northeast Region Southwest Region Non-mature Communities/Other Total segment assets Accumulated depreciation Total segment assets — net book value Reconciling items: Cash and cash equivalents Restricted cash Deferred financing costs, net Notes receivable, net Investment in and advances to unconsolidated joint ventures, net Other assets Total consolidated assets December 31, 2014 December 31, 2013 $ $ $ 2,358,444 1,410,156 786,438 746,550 440,721 2,640,950 8,383,259 (2,434,772) 5,948,487 15,224 22,340 22,686 14,369 718,226 105,202 6,846,534 $ 2,337,980 1,395,772 785,134 738,805 434,875 2,515,411 8,207,977 (2,208,794) 5,999,183 30,249 22,796 26,924 83,033 507,655 137,882 6,807,722 Capital expenditures related to our Same-Store Communities totaled $55.3 million, $47.5 million, and $46.4 million for the years ended December 31, 2014, 2013, and 2012, respectively. Capital expenditures related to our Non-Mature Communities/Other totaled $8.1 million, $8.3 million, and $8.7 million for the years ended December 31, 2014, 2013, and 2012, respectively. Markets included in the above geographic segments are as follows: i. ii. iii. iv. v. West Region — Orange County, San Francisco, Seattle, Monterey Peninsula, Los Angeles, Other Southern California, and Portland Mid-Atlantic Region — Metropolitan D.C., Baltimore, Richmond, Norfolk, and Other Mid-Atlantic Southeast Region — Tampa, Orlando, Nashville, and Other Florida Northeast Region — New York and Boston Southwest Region — Dallas and Austin 16. CASUALTY-RELATED (RECOVERIES)/CHARGES In October 2012, Hurricane Sandy hit the East Coast, affecting three of the Company’s operating communities (1,706 apartment homes) located in New York City. The properties suffered some physical damage, and were closed to residents for a period following the hurricane. The Company has insurance policies that provide coverage for property damage and business interruption, subject to applicable retention. Based on the claims filed and management’s estimates, the Company recognized a $9.0 million impairment charge for the damaged assets’ net book value and incurred $10.4 million of repair and cleanup costs during the year ended December 31, 2012. The impairment charge and the repair and cleanup costs incurred were reduced as of December 31, 2012 by $14.5 million of estimated insurance recovery, and were classified in Casualty-related (recoveries)/charges, net on the Consolidated F - 47 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Statements of Operations. During the year ended December 31, 2013, no material adjustments to the impairment charge and the repair and cleanup costs incurred were recognized. With the exception of one of the properties that is under redevelopment at December 31, 2013, the rehabilitation of the remaining two properties was substantially completed as of December 31, 2013 and was completed during 2014. As of December 31, 2013, the Company had settled the Hurricane Sandy claims and received insurance proceeds in excess of the $14.5 million estimated insurance recovery receivable related to the impairment charge and the repair and cleanup costs incurred. As a result, the Company recognized a Casualty- related recovery of approximately $4.8 million and a casualty gain of approximately $654,000 for the year ended December 31, 2013. Both the recovery and casualty gain were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. Based on the claims filed and management’s estimates, the Company recognized $4.4 million of business interruption losses for the year ended December 31, 2012, of which $3.6 million were related to rent concession rebates provided to residents during the period the properties were uninhabitable and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations, and $767,000 were related to rent that was not contractually receivable and were classified as a reduction to Rental income on the Consolidated Statements of Operations. As noted below, the Company recovered from the insurance carrier approximately $4.2 million of the $4.4 million of 2012 business interruption losses. The Company estimates that it incurred an additional $3.4 million of business interruption losses for the year ended December 31, 2013. As noted below, the Company recovered from the insurance carrier approximately $2.6 million of the $3.4 million of 2013 business interruption losses. During the year ended December 31, 2013, the Company received approximately $6.8 million of insurance proceeds for recovery of business interruption losses. Of the $6.8 million of insurance proceeds received in 2013, $4.2 million related to recovery of business interruption losses incurred in 2012 and the remaining $2.6 million related to recovery of business interruption losses incurred in 2013. The $6.8 million of recovery was classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations as of December 31, 2013. During the year ended December 31, 2014, the Company recorded $541,000 of casualty-related losses due to property damage incurred during an earthquake and a storm in California, all of which are included in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. F - 48 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 17. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Selected consolidated quarterly financial data for the three and twelve months ended December 31, 2014 and 2013 is summarized in the table below (dollars in thousands, except per share amounts): 2014 Rental income (a) Income/(loss) from continuing operations Income/(loss) from discontinued operations, net of tax Net income/(loss) attributable to common stockholders Income/(loss) attributable to common stockholders per weighted average common share (b): Basic and diluted Weighted average number of shares outstanding Basic Diluted 2013 Rental income (a) Income/(loss) from continuing operations Income/(loss) from discontinued operations, net of tax Net income/(loss) attributable to common stockholders Income/(loss) attributable to common stockholders per weighted average common share (b): Basic and diluted Weighted average number of shares outstanding Basic Diluted $ $ $ $ March 31, June 30, September 30, December 31, Three Months Ended 194,352 $ (5,195) (87) 17,430 $ 200,959 4,359 18 29,076 $ 203,587 10,611 79 39,618 206,104 6,485 — 64,486 0.07 $ 0.12 $ 0.16 $ 0.25 250,177 251,822 250,255 252,191 251,655 253,732 181,961 $ (1,162) 853 (1,199) $ 186,285 4,525 829 4,261 $ 187,917 2,351 884 2,257 253,983 256,000 190,321 (3,374) 41,376 35,769 (0.00) $ 0.02 $ 0.01 $ 0.14 249,917 249,917 249,985 251,406 249,985 251,454 249,987 249,987 (a) Represents rental income from continuing operations, excluding amounts classified as discontinued operations. (b) Quarterly income/(loss) per share amounts may not total to the annual amounts. F - 49 [This page is intentionally left blank.] The Partners United Dominion Realty, L.P. Report of Independent Registered Public Accounting Firm We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the “Partnership”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income/(loss), changes in capital, and cash flows for each of the three years in the period ended December 31, 2014. 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 Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Dominion Realty, L.P. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U. S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein. As discussed in Notes 2 and 3 to the consolidated financial statements, the Partnership changed its reporting of discontinued operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. /s/ Ernst & Young LLP Denver, Colorado February 24, 2015 F - 51 UNITED DOMINION REALTY, L.P. CONSOLIDATED BALANCE SHEETS (In thousands, except for unit data) ASSETS December 31, 2014 December 31, 2013 Real estate owned: Real estate held for investment Less: accumulated depreciation Real estate held for investment, net Real estate under development (net of accumulated depreciation of $0) Total real estate owned, net of accumulated depreciation Cash and cash equivalents Restricted cash Deferred financing costs, net Other assets Total assets LIABILITIES AND CAPITAL Liabilities: Secured debt Notes payable due to General Partner Real estate taxes payable Accrued interest payable Security deposits and prepaid rent Distributions payable Deferred gains on the sale of depreciable property Accounts payable, accrued expenses, and other liabilities Total liabilities Commitments and contingencies (Note 11) Capital: Partners’ capital: General partner: 110,883 OP Units outstanding at December 31, 2014 and 2013 Limited partners: 183,167,815 OP Units outstanding at December 31, 2014 and 2013 Accumulated other comprehensive loss Total partners’ capital Advances (to)/from General Partner Noncontrolling interests Total capital Total liabilities and capital See accompanying notes to the consolidated financial statements. F - 52 $ $ $ $ $ 4,238,770 (1,403,303) 2,835,467 — 2,835,467 502 13,811 4,475 24,029 2,878,284 $ $ 931,959 88,696 7,061 3,284 18,387 47,788 24,622 22,436 1,144,233 4,108,417 (1,241,574) 2,866,843 80,063 2,946,906 1,897 13,526 5,848 25,064 2,993,241 934,865 88,696 6,228 3,323 14,172 43,253 63,838 35,769 1,190,144 1,105 1,702,971 (1,075) 1,703,001 13,624 17,426 1,734,051 2,878,284 $ 1,163 1,797,836 (3,065) 1,795,934 (9,916) 17,079 1,803,097 2,993,241 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per unit data) REVENUES: Rental income OPERATING EXPENSES: Property operating and maintenance Real estate taxes and insurance Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related (recoveries)/charges, net Total operating expenses Operating income Interest expense Interest expense on note payable due to General Partner Income/(loss) from continuing operations Income/(loss) from discontinued operations Income/(loss) before gain/(loss) on sale of real estate owned Gain/(loss) on sale of real estate owned Net income/(loss) Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to OP unitholders Income/(loss) per weighted average OP Unit - basic and diluted: Income/(loss) from continuing operations attributable to OP unitholders Income/(loss) from discontinued operations attributable to OP unitholders Net income/(loss) attributable to OP unitholders Year Ended December 31, 2014 2013 2012 $ 422,634 $ 401,853 $ 384,946 75,211 47,110 11,622 5,172 179,176 28,541 541 347,373 75,261 37,114 4,603 33,544 — 33,544 63,635 97,179 $ $ $ (952) 96,227 $ 0.53 — 0.53 $ $ 75,019 45,139 11,051 5,728 179,367 24,808 (8,083) 333,029 72,843 40,866 10,587 5,272 191,731 26,204 5,518 353,021 68,824 31,925 34,989 1,069 32,766 45,176 77,942 — 77,942 (4,566) 73,376 $ 0.16 0.24 0.40 $ $ 43,277 1,957 (13,309) 57,643 44,334 — 44,334 (352) 43,982 (0.07) 0.31 0.24 Weighted average OP Units outstanding - basic and diluted 183,279 184,196 184,281 See accompanying notes to the consolidated financial statements. F - 53 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) Net income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests: Other comprehensive income/(loss) - derivative instruments: Unrealized holding gain/(loss) (Gain)/loss reclassified into earnings from other comprehensive income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests Comprehensive income/(loss) Comprehensive (income)/loss attributable to noncontrolling interests Comprehensive income/(loss) attributable to OP unitholders $ Year Ended December 31, 2014 2013 2012 $ 97,179 $ 77,942 $ 44,334 (285) 2,275 1,990 99,169 (952) 98,217 $ (348) 2,652 2,304 80,246 (4,566) 75,680 $ (1,898) 3,431 1,533 45,867 (352) 45,515 See accompanying notes to consolidated financial statements. F - 54 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (In thousands) General Partner Accumulated Other Comprehensive Income/(Loss), net Total Partners’ Capital Balance at December 31, 2011 $ Distributions OP Unit redemptions for common shares of UDR OP Unit redemptions for cash Adjustment to reflect limited partners’ capital at redemption value Net income/(loss) Other comprehensive income/(loss) Net change in advances (to)/from General Partner Balance at December 31, 2012 Distributions OP Unit redemptions for common shares of UDR Distribution of community to UDR Adjustment to reflect limited partners’ capital at redemption value Net income/(loss) Other comprehensive income/(loss) Net change in advances (to)/from General Partner Balance at December 31, 2013 Distributions OP Unit redemptions for common shares of UDR Adjustment to reflect limited partners’ capital at redemption value Net income/(loss) Other comprehensive income/(loss) Net change in advances (to)/from General Partner Balance at December 31, 2014 $ UDR, Inc. Limited Partner $ 1,803,926 (153,846) $ Class A Limited Partner $ 43,967 (2,328) — — Limited Partners 192,508 (6,738) (529) (133) (596) (5,166) 529 133 5,762 41,523 — 1,293 $ (96) — — — 26 — 1,820 — — 181,762 (7,118) (1,817) — 852 3,016 — — 176,695 (7,789) (4,371) 60,020 3,938 — 613 — — 41,656 (2,324) — — 702 868 — — 40,902 (2,328) — 14,493 920 — — 53,987 — 1,698,027 (164,170) — 1,223 (104) 1,817 (23,329) (1,554) 69,448 — — — — 44 — — 1,580,239 (180,917) — 1,163 (116) 4,371 (74,513) 91,311 — — — 58 — Advances (to)/from General Partner (193,584) $ — — — — — — 182,528 (11,056) — — (53,712) — — — 54,852 (9,916) — — — — — Noncontrolling Interests 12,161 — — — — 352 — — 12,513 — — — — 4,566 — — 17,079 — — — 952 — Total $ 1,853,369 (163,008) — — — 44,334 1,533 182,528 1,918,756 (173,716) — (77,041) — 77,942 2,304 54,852 1,803,097 (191,150) — — 97,179 1,990 (6,902) $ — — — — — 1,533 — (5,369) — — — — — 2,304 — (3,065) — — — — 1,990 $ 2,034,792 (163,008) — — — 43,982 1,533 — 1,917,299 (173,716) — (23,329) — 73,376 2,304 — 1,795,934 (191,150) — — 96,227 1,990 — 228,493 $ — 1,420,491 $ $ — 1,105 $ — (1,075) $ — 1,703,001 $ 23,540 13,624 $ (605) 17,426 $ 22,935 1,734,051 See accompanying notes to the consolidated financial statements. F - 55 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Operating Activities Net income/(loss) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization Net gain on the sale of depreciable property Casualty-related (recoveries)/charges, net Other Changes in operating assets and liabilities: (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Net cash provided by/(used in) operating activities Investing Activities Proceeds from sales of real estate investments, net Development of real estate assets Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement Net cash provided by/(used in) investing activities Financing Activities Advances (to)/from General Partner, net Proceeds from the issuance of secured debt Payments on secured debt Distributions paid to partnership unitholders Payments of financing costs Net cash provided by/(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 Supplemental Information: Interest paid during the period, net of amounts capitalized Non-cash transactions: Real estate distributed to the General Partner OP Units redeemed by General Partner in partial consideration for real estate distributed Reallocation of credit facilities debt from General Partner Development costs and capital expenditures incurred but not yet paid Year Ended December 31, 2014 2013 2012 $ 97,179 $ 77,942 $ 44,334 179,176 (63,635) 541 1,956 (1,756) (5,429) 208,032 47,922 (47,220) (47,352) (46,650) (153,751) 5,909 (4,995) (9,929) (11) (162,777) (1,395) 1,897 502 $ 181,302 (41,518) (270) 2,097 (11,685) 478 208,346 79,437 (66,407) (76,984) (63,954) (92,537) — (42,237) (9,348) (1,177) (145,299) (907) 2,804 1,897 $ 195,051 (51,094) 5,518 3,624 (1,543) 5,205 201,095 113,175 (36,804) (72,098) 4,273 29,391 26,054 (249,680) (9,033) — (203,268) 2,100 704 2,804 44,629 $ 42,506 $ 48,545 — — — 7,254 74,586 23,329 13,682 6,371 — — — 7,440 $ $ See accompanying notes to the consolidated financial statements. F - 56 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 1. CONSOLIDATION AND BASIS OF PRESENTATION United Dominion Realty, L.P. (“UDR, L.P.,” the “Operating Partnership,” “we” or “our”) is a Delaware limited partnership that owns, acquires, renovates, redevelops, manages, and disposes of multifamily apartment communities generally located in high barrier to entry markets located in the United States. The high barrier to entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. UDR, L.P. is a subsidiary of UDR, Inc. (“UDR” or the “General Partner”), a self-administered real estate investment trust, or REIT, through which UDR conducts a significant portion of its business. During the years ended December 31, 2014, 2013, and 2012, rental revenues of the Operating Partnership represented 52%, 54%, 54%, respectively, of the General Partner’s consolidated rental revenues (including those classified within discontinued operations). At December 31, 2014, the Operating Partnership’s apartment portfolio consisted of 68 communities located in 17 markets consisting of 20,814 apartment homes. Interests in UDR, L.P. are represented by operating partnership units (“OP Units”). The Operating Partnership’s net income is allocated to the partners, which is initially based on their respective distributions made during the year and secondly, their percentage interests. Distributions are made in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. (the “Operating Partnership Agreement”), on a per unit basis that is generally equal to the dividend per share on UDR’s common stock, which is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “UDR.” As of December 31, 2014, there were 183,278,698 OP Units outstanding, of which 174,113,225 or 95.0% were owned by UDR and affiliated entities and 9,165,473 or 5.0% were owned by non-affiliated limited partners. There were 183,278,698 OP Units in the Operating Partnership outstanding as of December 31, 2013, of which 173,959,774 or 94.9% were owned by UDR and affiliated entities and 9,318,924 or 5.1% were owned by non-affiliated limited partners. As sole general partner of the Operating Partnership, UDR owned 110,883 general partnership interest units or 0.06% of the total OP Units outstanding as of December 31, 2014 and 2013. At December 31, 2014 and 2013, there were 183,167,815 OP Units outstanding, of which 1,873,332 were Class A Limited Partnership OP Units. UDR owned 174,002,342 or 95.0% and 173,848,891 or 94.9% at December 31, 2014 and 2013, respectively. The remaining 9,165,473 or 5.0% and 9,318,924 or 5.1% OP Units outstanding of limited partnership interest were held by non-affiliated partners at December 31, 2014 and 2013, respectively, of which 1,751,671 were Class A Limited Partnership units. See Note 9, Capital Structure. The Operating Partnership evaluated subsequent events through the date its financial statements were issued. No recognized or non-recognized subsequent events were noted. 2. SIGNIFICANT ACCOUNTING POLICIES Recent Accounting Pronouncements In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which incorporates a requirement that a disposition represent a strategic shift in an entity’s operations into the definition of a discontinued operation. In accordance with the ASU, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity. The standard requires prospective application and will be effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted. The early adoption provision excludes components of an entity that were sold or classified as held for sale prior to the adoption of the standard. The Operating Partnership elected to early adopt this standard effective January 1, 2014, which had a significant impact on the Operating Partnership’s consolidated financial statements as further discussed in Note 3, Discontinued Operations. Subsequent to the Operating Partnership’s adoption of ASU 2014- 08, the sale of real estate that does not meet the definition of a discontinued operation under the standard is included in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations. F - 57 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method, and the standard will be effective for the Operating Partnership on January 1, 2017; early adoption is not permitted. The Operating Partnership has not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. Real Estate Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy. The Operating Partnership purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Operating Partnership estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are expensed as incurred. Quarterly or when changes in circumstances warrant, the Operating Partnership will assess our real estate properties for indicators of impairment. In determining whether the Operating Partnership has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates and capitalization rates, industry trends and reference to market rates and transactions. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Properties classified as real estate held for sale generally represent properties that are actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for sale is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for sale properties are capitalized at cost. Depreciation is not recorded on real estate held for sale. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Operating Partnership capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities F - 58 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2014, 2013, and 2012 were $2.0 million, $2.5 million, and $2.1 million, respectively. During the years ended December 31, 2014, 2013, and 2012, total interest capitalized was $2.9 million, $5.9 million, $3.7 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion and depreciation commences over the estimated useful life. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Operating Partnership’s cash and cash equivalents are held at major commercial banks. Restricted Cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits. Revenue and Real Estate Sales Gain Recognition Rental income related to leases is recognized on an accrual basis when due from residents and tenants in accordance with GAAP. Rental payments are generally due on a monthly basis and recognized when earned. The Operating Partnership recognizes interest income, management and other fees and incentives when earned, fixed and determinable. For sale transactions meeting the requirements for full accrual profit recognition, we remove the related assets and liabilities from our Consolidated Balance Sheets and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting. Unless certain limited criteria are met, non-monetary transactions, including property exchanges, are accounted for at fair value. Sales to entities in which we or our General Partner retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and defer the gain on the interest we or our General Partner retain. The Operating Partnership recognizes any deferred gain when the property is sold to a third party. In transactions accounted by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property. Derivative Financial Instruments The General Partner utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments associated with the Operating Partnership’s allocation of the General Partner’s debt are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for the General Partner’s cash flow hedges allocated to the Operating Partnership that are deemed effective are reflected in other comprehensive income and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings. Noncontrolling Interests The noncontrolling interests represent the General Partner’s interests in certain consolidated subsidiaries and are presented in the capital section of the Consolidated Balance Sheets since these interests are not convertible or redeemable into any other ownership interests of the Operating Partnership. During the year ended December 31, 2013, the Operating Partnership corrected an error in the General Partner’s ownership interest in one of the consolidated subsidiaries. The correction increased the General Partner’s ownership interest resulting in a cumulative adjustment increasing Net (income)/loss attributable to noncontrolling interests by $3.3 million on the Consolidated Statements of Operations with a corresponding increase to Noncontrolling interests on the Consolidated Balance F - 59 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Sheets. Management believes the impact of the cumulative adjustment in 2013 is immaterial to the financial statements taken as a whole. Income Taxes The taxable income or loss of the Operating Partnership is reported on the tax returns of the partners. Accordingly, no provision has been made in the accompanying financial statements for federal or state income taxes on income that is passed through to the partners. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are recorded at the entity level. The Operating Partnership’s tax returns are subject to examination by federal and state taxing authorities. Net income for financial reporting purposes differs from the net income for income tax reporting purposes primarily due to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets. The Operating Partnership follows the accounting guidance within GAAP, with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. The guidance requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Operating Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management of the Operating Partnership is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Operating Partnership has no examinations in progress and none are expected at this time. Management of the Operating Partnership has reviewed all open tax years (2010 through 2013) and major jurisdictions, and concluded there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns. Discontinued Operations Under GAAP, the results of operations for those properties sold during the year or classified as held for sale at the end of the current year are classified as discontinued operations in the current and prior periods. Further, to meet the discontinued operations criteria, the Operating Partnership or related parties will not have any significant continuing involvement in the ownership or operation of the property after the sale or disposition. Once a property is classified as held for sale, depreciation is no longer recorded. However, if the Operating Partnership determines that the property no longer meets the criteria for held for sale, the Operating Partnership will recapture any unrecorded depreciation on the property. The assets and liabilities, if any, of properties classified as held for sale are presented separately on the Consolidated Balance Sheets at lower of their carrying amount or their estimated fair value less the costs to sell the assets. (See Note 3, Discontinued Operations and Assets Held for Sale, for further discussion). Allocation of General and Administrative Expenses The Operating Partnership is charged directly for general and administrative expenses it incurs. The Operating Partnership is also charged with other general and administrative expenses that have been allocated by the General Partner to each of its subsidiaries, including the Operating Partnership, based on each subsidiary’s pro-rata portion of UDR’s total apartment homes. (See Note 6, Related Party Transactions.) Advertising Costs All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item General and administrative. During the years ended December 31, 2014, 2013, and 2012, total advertising expense from continuing and discontinued operations was $2.5 million, $2.5 million, and $2.4 million, respectively. Comprehensive Income/(Loss) Comprehensive income/(loss), which is defined as the change in capital during each period from transactions and other events and circumstances from nonowner sources, including all changes in capital during a period except for those resulting from investments by or distributions to partners, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2014, 2013, and 2012, the Operating Partnership’s other comprehensive F - 60 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges and (gain)/loss reclassified from other comprehensive income/(loss) into earnings. The (gain)/loss reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 8, Derivatives and Hedging Activity, for further discussion. Use of Estimates The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Market Concentration Risk The Operating Partnership is subject to increased exposure from economic and other competitive factors specific to those markets where it holds a significant percentage of the carrying value of its real estate portfolio at December 31, 2014, the Operating Partnership held greater than 10% of the carrying value of its real estate portfolio in the Orange County, California; San Francisco, California; Metropolitan D.C.; and New York, New York markets. 3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE Effective January 1, 2014, UDR, L.P. prospectively adopted ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, for all communities not previously sold or classified as held for sale. The standard had a material impact on the Operating Partnership’s consolidated financial statements. As a result of adopting the ASU, during the year ended December 31, 2014, gains, net of tax, of $62.5 million from disposition of real estate, excluding a $1.1 million gain related to the sale of land, are included in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations rather than in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations. Prior to the prospective adoption of ASU 2014-08, FASB Accounting Standards Codification ("ASC") Subtopic 205-20 required, among other things, that the primary assets and liabilities and the results of operations of the Operating Partnership’s real properties that have been sold or are held for disposition, be classified as discontinued operations and segregated in UDR, L.P.’s Consolidated Statements of Operations and Consolidated Balance Sheets. Consequently, the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition prior to January 1, 2014 are accounted for as discontinued operations for all periods presented. This presentation does not have an impact on net income available to common stockholders; it only results in the reclassification of the operating results within the Consolidated Statements of Operations for the periods ended December 31, 2014, 2013, and 2012. During the year ended December 31, 2013, the Operating Partnership sold two communities in the Sacramento market with 914 apartment homes for gross proceeds of $81.1 million. During the year ended December 31, 2012, the Operating Partnership sold four communities with 1,314 apartment homes. At December 31, 2014 and 2013, the Operating Partnership had no communities that met the criteria to be classified as held for sale and included in Income/(loss) from discontinued operations on the Consolidated Statements of Operations. During the years ended December 31, 2014, 2013, and 2012, the Operating Partnership recognized net gain/(loss) on the sale of depreciable properties of $0, $41.5 million, and $51.1 million, respectively, in Income/(loss) from discontinued operations on the Consolidated Statements of Operations. F - 61 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following is a summary of income from discontinued operations for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Rental income Rental expenses Property management Real estate depreciation Income/(loss) attributable to disposed properties Net gain/(loss) on the sale of depreciable properties Income/(loss) from discontinued operations 4. REAL ESTATE OWNED Year Ended December 31, 2014 2013 2012 — — — — — — — $ $ 8,989 3,149 247 1,935 3,658 41,518 45,176 $ $ 15,745 5,444 432 3,320 6,549 51,094 57,643 $ $ Real estate assets owned by the Operating Partnership consists of income producing operating properties, properties under development, land held for future development, and sold or held for sale properties. At December 31, 2014, the Operating Partnership owned and consolidated 68 communities in nine states plus the District of Columbia totaling 20,814 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2014 and 2013 (dollars in thousands): Land Depreciable property — held and used: December 31, 2014 December 31, 2013 1,004,447 1,008,014 $ $ Buildings, improvements, and furniture, fixtures and equipment 3,230,756 3,103,970 Under development: Land Construction in progress Real estate owned Accumulated depreciation Real estate owned, net — — 4,238,770 (1,403,303 ) 2,835,467 $ 9,447 70,616 4,188,480 (1,241,574 ) 2,946,906 $ The Operating Partnership had no acquisitions during the years ended December 31, 2014, 2013 and 2012. During the year ended December 31, 2014, the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 million. The Operating Partnership also recorded a gain of $39.2 million in connection with the sale of two communities, one in Tampa, Florida and one in Los Angeles, California, which was previously deferred. The total gains of $63.6 million were included in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations. In November 2013, the Operating Partnership distributed the development property Los Alisos to the General Partner. See Note 6, Related Party Transactions, for more details. F - 62 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 5. DEBT Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Operating Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2014 and 2013 (dollars in thousands): Fixed Rate Debt Mortgage notes payable Fannie Mae credit facilities Total fixed rate secured debt Variable Rate Debt Tax-exempt secured note payable Fannie Mae credit facilities Total variable rate secured debt Total secured debt Principal Outstanding For the Year Ended December 31, 2014 December 31, 2014 2013 Weighted Average Interest Rate Weighted Average Years to Maturity Number of Communities Encumbered $ $ 378,371 333,828 712,199 27,000 192,760 219,760 931,959 $ $ 386,803 379,003 765,806 27,000 142,059 169,059 934,865 5.47 % 4.90 % 5.20 % 0.93 % 1.83 % 1.72 % 4.38 % 1.6 4.6 3.0 17.2 6.0 7.4 4.0 5 10 15 1 5 6 21 As of December 31, 2014, an aggregate commitment of $526.6 million of the General Partner's secured credit facilities with Fannie Mae was allocated to the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2014. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023 and bear interest at floating and fixed rates. At December 31, 2014, $333.8 million of the outstanding balance was fixed at a weighted average interest rate of 4.90% and the remaining balance of $192.8 million on these facilities had a weighted average variable interest rate of 1.83%. During 2013, the General Partner reallocated an additional $13.7 million of the Fannie Mae credit facilities to the Operating Partnership. The following is information related to the credit facilities allocated to the Operating Partnership (dollars in thousands): Borrowings outstanding Weighted average borrowings during the period ended Maximum daily borrowings during the period ended Weighted average interest rate during the period ended Interest rate at the end of the period $ December 31, 2014 526,588 527,592 528,659 $ December 31, 2013 521,062 522,007 523,187 4.1 % 4.0 % 4.2 % 4.1 % The Operating Partnership may from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The unamortized fair value adjustment of the fixed rate debt instruments on the Operating Partnership’s properties was a net premium of $6.2 million and $10.0 million at December 31, 2014 and 2013, respectively. Fixed Rate Debt Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from December 2015 through May 2019 and carry interest rates ranging from 3.43% to 5.94%. F - 63 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Secured credit facilities. At December 31, 2014, the General Partner had borrowings against its fixed rate facilities of $568.1 million, of which $333.8 million was allocated to the Operating Partnership based on the ownership of the assets securing the debt. As of December 31, 2014, the fixed rate Fannie Mae credit facilities allocated to the Operating Partnership had a weighted average fixed interest rate of 4.90%. Variable Rate Debt Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 0.93% as of December 31, 2014. Secured credit facilities. At December 31, 2014, the General Partner had borrowings against its variable rate facilities of $266.2 million, of which $192.8 million was allocated to the Operating Partnership based on the ownership of the assets securing the debt. As of December 31, 2014, the variable rate borrowings under the Fannie Mae credit facilities allocated to the Operating Partnership had a weighted average floating interest rate of 1.83%. The aggregate maturities of the Operating Partnership’s secured debt due during each of the next five calendar years subsequent to December 31, 2014 are as follows (dollars in thousands): Fixed Variable Mortgage Notes Payable Secured Credit Facilities Tax-Exempt Secured Notes Payable Secured Credit Facilities Total $ $ 192,637 130,951 913 968 52,902 — 378,371 $ $ 366 385 15,640 111,052 123,096 83,289 333,828 $ $ — — — — — 27,000 27,000 $ $ — — 6,566 96,974 — 89,220 192,760 $ $ 193,003 131,336 23,119 208,994 175,998 199,509 931,959 2015 2016 2017 2018 2019 Thereafter Total Guarantor on Unsecured Debt The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility, with an aggregate borrowing capacity of $900 million, $250 million of term notes due June 2018, $100 million of term notes due June 2018, $300 million of medium-term notes due June 2018, $300 million of medium-term notes due October 2020, $400 million of medium-term notes due January 2022, and $300 million of medium-term notes due July 2024. As of December 31, 2014, there were $152.5 million outstanding borrowings under the unsecured credit facility. As of December 31, 2013, there was no outstanding balance under the unsecured credit facility. 6. RELATED PARTY TRANSACTIONS Advances (To)/From the General Partner The Operating Partnership participates in the General Partner’s central cash management program, wherein all the Operating Partnership’s cash receipts are remitted to the General Partner and all cash disbursements are funded by the General Partner. In addition, other miscellaneous costs such as administrative expenses are incurred by the General Partner on behalf of the Operating Partnership. As a result of these various transactions between the Operating Partnership and the General Partner, the Operating Partnership had net advances (to)/from the General Partner of $13.6 million and $(9.9) million at December 31, 2014 and 2013, respectively, which is reflected as an increase/(reduction) of capital on the Consolidated Balance Sheets. Allocation of General and Administrative Expenses The General Partner provides various general and administrative and other overhead services for the Operating Partnership including legal assistance, acquisitions analysis, marketing and advertising, and allocates these expenses to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on its pro-rata F - 64 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 portion of UDR’s total apartment homes. During the years ended December 31, 2014, 2013, and 2012, the general and administrative expenses allocated to the Operating Partnership by UDR were $27.4 million, $23.5 million, and $25.2 million, respectively, and are included in General and administrative on the Consolidated Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the Operating Partnership from the General Partner. During the years ended December 31, 2014, 2013, and 2012, the Operating Partnership incurred $12.7 million, $12.3 million, and $11.9 million, respectively, of related party management fees related to a management agreement entered into in 2011 with wholly-owned subsidiaries of our TRS. (See further discussion in paragraph below.) These related party management fees are initially recorded within the line item General and administrative on the Consolidated Statements of Operations, and a portion related to management fees charged by the TRS of the General Partner is reclassified to Property management on the Consolidated Statements of Operations. (See further discussion below.) Management Fee In 2011, the Operating Partnership entered into a management agreement with wholly-owned subsidiaries of our TRS. Under the management agreement, the Operating Partnership is charged a management fee equal to 2.75% of gross rental revenues, which is reported in Property management on the Consolidated Statements of Operations. Guaranties by the General Partner The Operating Partnership provided a “bottom dollar” guaranty to certain limited partners as part of their original contribution to the Operating Partnership. The guaranty protects the tax basis of the underlying contribution and is reflected on the OP unitholder’s Schedule K-1 tax form. The guaranty was made in the form of a note payable issued by the Operating Partnership to the General Partner at an annual interest rate of 5.18% for the years ended December 31, 2014 and 2013, respectively. On December 31, 2013, the note was renewed at an annual interest rate of 5.18%. Interest payments are made monthly and the renewed note is due December 31, 2023. At December 31, 2014 and 2013, the note payable due to the General Partner was $83.2 million, respectively. In 2011, the Operating Partnership also provided a “bottom dollar” guaranty in conjunction with 1,802,239 OP Units issued in partial consideration to the seller for the acquisition of an operating community. The guaranty was made in the form of a note payable issued by the Operating Partnership to the General Partner at an annual interest rate of 5.34%. Interest payments are due monthly and the note matures on August 31, 2021. At December 31, 2014 and 2013, the note payable due to the General Partner was $5.5 million. In November 2013, the Operating Partnership distributed the development property Los Alisos to the General Partner as a capital distribution. Upon the distribution of the property, the Operating Partnership redeemed 1,002,556 limited partnership units owned by UDR and affiliated entities and reduced its receivable from the General Partner by $53.7 million, resulting in a net capital reduction of $77.0 million. 7. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below: • • • Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. F - 65 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2014 and 2013 are summarized as follows (dollars in thousands): Total Carrying Amount in Statement of Financial Position at Fair Value Estimate at December 31, 2014 December 31, 2014 Fair Value at December 31, 2014, Using Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Description: Derivatives- Interest rate contracts (a) Total assets Derivatives - Interest rate contracts (a) Secured debt instruments - fixed rate: (b) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments - variable rate: (b) Tax-exempt secured notes payable Fannie Mae credit facilities Total liabilities $ $ $ $ 39 39 $ $ 39 39 $ $ — — $ $ 39 39 $ $ 918 $ 918 $ — $ 918 $ 378,371 333,828 27,000 192,760 932,877 $ 391,835 355,470 27,000 192,760 967,983 $ — — — — — $ — — — — 918 $ — — — 391,835 355,470 27,000 192,760 967,065 Total Carrying Amount in Statement of Financial Position at Fair Value Estimate at December 31, 2013 December 31, 2013 Fair Value at December 31, 2013, Using Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Description: Derivatives- Interest rate contracts (a) Secured debt instruments - fixed rate: (b) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments - variable rate: (b) Tax-exempt secured notes payable Fannie Mae credit facilities Total liabilities $ $ (a) See Note 8, Derivatives and Hedging Activity. (b) See Note 5, Debt. 2,731 $ 2,731 $ — $ 2,731 $ — 386,803 379,003 27,000 142,059 937,596 $ 403,695 394,239 27,000 142,059 969,724 $ — — — — — $ — — — — 2,731 $ 403,695 394,239 27,000 142,059 966,993 There were no transfers into or out of each of the levels of the fair value hierarchy. F - 66 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Financial Instruments Carried at Fair Value The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Operating Partnership incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Operating Partnership has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Operating Partnership has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2014 and December 31, 2013, the Operating Partnership has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Operating Partnership has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Operating Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Financial Instruments Not Carried at Fair Value At December 31, 2014, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Operating Partnership using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Operating Partnership would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The General Partner estimates the fair value of our debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality (Level 3). The Operating Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Cash flow estimates are based upon historical results adjusted to reflect management’s best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. The General Partner’s estimates of fair value represent management’s estimates based upon Level 3 inputs such as industry trends and reference to market rates and transactions. 8. DERIVATIVES AND HEDGING ACTIVITY Risk Management Objective of Using Derivatives The Operating Partnership is exposed to certain risks arising from both its business operations and economic conditions. The General Partner principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The General Partner manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial F - 67 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 instruments. Specifically, the General Partner enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The General Partner’s and the Operating Partnership’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the General Partner’s known or expected cash payments principally related to the General Partner’s borrowings. Cash Flow Hedges of Interest Rate Risk The General Partner’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the General Partner primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the General Partner making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium. A portion of the General Partner’s interest rate derivatives have been allocated to the Operating Partnership based on the General Partner’s underlying debt instruments allocated to the Operating Partnership. (See Note 5, Debt.) The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2014, 2013, and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of fixed-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2014, 2013, and 2012, the Operating Partnership recorded less than $1,000 of ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item. Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is allocated to the Operating Partnership. During the next twelve months through December 31, 2015, we estimate that an additional $946,000 will be reclassified as an increase to interest expense. As of December 31, 2014, the Operating Partnership had the following outstanding interest rate derivatives designated as cash flow hedges of interest rate risk (dollars in thousands): Interest Rate Derivative Interest rate swaps Interest rate caps Number of Instruments 1 2 Notional $ $ 46,272 166,341 Derivatives not designated as hedges are not speculative and are used to manage the Operating Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in losses of $3,000, $9,000, and $9,000 for the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands): Product Interest rate caps Number of Instruments Notional 1 $ 89,220 F - 68 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet The table below presents the fair value of the Operating Partnership’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2014 and 2013 (dollars in thousands): Derivatives designated as hedging instruments: Interest rate products Derivatives not designated as hedging instruments: Interest rate products $ $ Asset Derivatives (included in Other assets) Fair Value at: Liability Derivatives (Included in Other liabilities) Fair Value at: December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013 37 $ — $ 918 $ 2,731 2 $ — $ — $ — Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations The tables below present the effect of the derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands): Unrealized holding gain/(loss) Recognized in OCI (Effective Portion) Gain/(Loss) Reclassified from Accumulated OCI into Interest expense (Effective Portion) Derivatives in Cash Flow Hedging Relationships Year ended December 31, Year ended December 31, 2014 2013 2012 2014 2013 2012 Interest rate products $ (285 ) $ (348 ) $(1,898) $ (2,275 ) $ (2,652 ) $ (3,431 ) Derivatives Not Designated as Hedging Instruments Interest rate products Credit-risk-related Contingent Features Gain/(Loss) Recognized in Interest and other income/(expense), net Year ended December 31, 2014 2013 2012 $ (3 ) $ (9 ) $ (9 ) The General Partner has agreements with some of its derivative counterparties that contain a provision where (1) if the General Partner defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the General Partner could also be declared in default on its derivative obligations; or (2) the General Partner could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the General Partner’s default on the indebtedness. Certain of the General Partner’s agreements with its derivative counterparties contain provisions where if there is a change in the General Partner’s financial condition that materially changes the General Partner’s creditworthiness in an adverse manner, the General Partner may be required to fully collateralize its obligations under the derivative instrument. At December 31, 2014 and 2013, no cash collateral was posted or required to be posted by the General Partner or by a counterparty. The General Partner also has an agreement with a derivative counterparty that incorporates the loan and financial covenant provisions of the General Partner’s indebtedness with a lender affiliate of the derivative counterparty. Failure to F - 69 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 comply with these covenant provisions would result in the General Partner being in default on any derivative instrument obligations covered by the agreement. As of December 31, 2014, the fair value of derivatives in a net liability position that were allocated to the Operating Partnership, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $969,000. If the General Partner had breached any of these provisions at December 31, 2014, it would have been required to settle its obligations under the agreements at their termination value of $969,000. The General Partner has elected not to offset derivative positions in the consolidated financial statements. The table below presents the effect on the Operating Partnership's financial position had the General Partner made the election to offset its derivative positions as of December 31, 2014 and December 31, 2013: Offsetting of Derivative Assets Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets — Gross Amounts Not Offset in the Consolidated Balance Sheets Net Amounts of Assets Presented in the Consolidated Balance Sheets (a) Financial Instruments Cash Collateral Received Net Amount December 31, 2014 $ 39 $ $ 39 $ — $ — $ December 31, 2013 $ — $ — $ — $ — $ — $ (a) Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet” located in this footnote. Offsetting of Derivative Liabilities Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amounts of Recognized Liabilities December 31, 2014 $ 918 Gross Amounts Offset in the Consolidated Balance Sheets — $ Net Amounts of Liabilities Presented in the Consolidated Balance Sheets (b) Financial Instruments Cash Collateral Posted Net Amount $ 918 $ — $ — $ 918 December 31, 2013 $ 2,731 $ — $ 2,731 $ — $ — $ 2,731 (b) Amounts reconcile to the aggregate fair value of derivative liabilities in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet” located in this footnote. 9. CAPITAL STRUCTURE General Partnership Units The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize, issue, sell, redeem or purchase any OP Unit or securities of the Operating Partnership without the approval of the limited partners. The General Partner can also approve, with regard to the issuances of OP Units, the class or one or more series of classes, with designations, preferences, participating, optional or other F - 70 39 — UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 special rights, powers and duties including rights, powers and duties senior to limited partnership interests without approval of any limited partners except holders of Class A Limited Partnership Units. There were 110,883 General Partnership units outstanding at December 31, 2014 and 2013, all of which were held by UDR. Limited Partnership Units At December 31, 2014 and 2013, there were 183,167,815 limited partnership units outstanding, of which 1,873,332 were Class A Limited Partnership Units. UDR owned 174,002,342 limited partnership units or 95.0% and 173,848,891 limited partnership units or 94.9% at December 31, 2014 and 2013, respectively. The remaining 9,165,473 or 5.0% and 9,318,924 or 5.1% OP Units outstanding were held by non-affiliated partners at December 31, 2014 and 2013, respectively, of which 1,751,671 were Class A Limited Partnership Units. Subject to the terms of the Operating Partnership Agreement, the limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the Operating Partnership Agreement), provided that such OP Units have been outstanding for at least one year. UDR, as general partner of the Operating Partnership, may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of UDR for each OP Unit), as defined in the Operating Partnership Agreement. The non-affiliated limited partners’ capital is adjusted to redemption value at the end of each reporting period with the corresponding offset against UDR’s limited partner capital account based on the redemption rights noted above. The aggregate value upon redemption of the then-outstanding OP Units held by limited partners was $282.5 million and $217.6 million as of December 31, 2014 and December 31, 2013, respectively, based on the value of UDR’s common stock at each period end. A limited partner has no right to receive any distributions from the Operating Partnership on or after the date of redemption of its OP Units. Class A Limited Partnership Units Class A Limited Partnership Units have a cumulative, annual, non-compounded preferred return, which is equal to 8% based on a value of $16.61 per Class A Limited Partnership Unit. Holders of the Class A Limited Partnership Units exclusively possess certain voting rights. The Operating Partnership may not do the following without approval of the holders of the Class A Limited Partnership Units: (i) increase the authorized or issued amount of Class A Limited Partnership Units, (ii) reclassify any other partnership interest into Class A Limited Partnership Units, (iii) create, authorize or issue any obligations or security convertible into or the right to purchase any Class of Limited Partnership units, without the approval of the holders of the Class A Limited Partnership Units, (iv) enter into a merger or acquisition, or (v) amend or modify the Agreement of Limited Partnership of the Operating Partnership in a manner that adversely affects the relative rights, preferences or privileges of the Class A Limited Partnership Units. F - 71 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table shows OP Units outstanding and OP Unit activity as of and for the years ended December 31, 2014, 2013, and 2012: Ending balance at December 31, 2011 OP redemptions for cash OP redemptions for UDR stock Ending balance at December 31, 2012 OP Units redeemed for the distribution of real estate to the General partner (a) OP redemptions for UDR stock Ending balance at December 31, 2013 OP redemptions for UDR stock Ending balance at December 31, 2014 Class A Limited Partner Limited Partners Limited Partner General Partner UDR, Inc. 1,751,671 — — 1,751,671 — — 1,751,671 — 1,751,671 7,669,632 (5,646 ) (20,438 ) 7,643,548 — (76,295 ) 7,567,253 (153,451 ) 7,413,802 174,749,068 5,646 20,438 174,775,152 (1,002,556 ) 76,295 173,848,891 153,451 174,002,342 110,883 — — 110,883 — — 110,883 — 110,883 Total 184,281,254 — — 184,281,254 (1,002,556 ) — 183,278,698 — 183,278,698 (a) In November 2013, the Operating Partnership distributed the development property Los Alisos to the General Partner as a capital distribution. Upon the distribution of the property, the Operating Partnership redeemed 1,002,556 limited partnership units owned by UDR and affiliated entities, resulting in a capital reduction of $23.3 million. Allocation of Profits and Losses Profit of the Operating Partnership is allocated in the following order: (i) to the General Partner and the Limited Partners in proportion to and up to the amount of cash distributions made during the year, and (ii) to the General Partner and Limited Partners in accordance with their percentage interests. Losses and depreciation and amortization expenses, non-recourse liabilities are allocated to the General Partner and Limited Partners in accordance with their percentage interests. Losses allocated to the Limited Partners are capped to the extent that such an allocation would not cause a deficit in the Limited Partners capital account. Such losses are, therefore, allocated to the General Partner. If any Partner’s capital balance were to fall into a deficit any income and gains are allocated to each Partner sufficient to eliminate its negative capital balance. 10. INCOME/(LOSS) PER OPERATING PARTNERSHIP UNIT Basic income/(loss) per OP Unit is computed by dividing net income/(loss) attributable to general and limited partner unitholders by the weighted average number of general and limited partner units (including redeemable OP Units) outstanding during the year. Diluted income/(loss) per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the income/(loss) of the Operating Partnership. For the years ended December 31, 2014, 2013, and 2012, there were no dilutive instruments, and therefore, diluted income/(loss) per OP Unit and basic income/(loss) per OP Unit are the same. See Note 9, Capital Structure, for further discussion on redemption rights of OP Units. F - 72 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table sets forth the computation of basic and diluted income/(loss) per OP Unit for the periods presented (dollars in thousands, except per OP Unit data): Year Ended December 31, 2014 2013 2012 Numerator for income/(loss) per OP Unit — basic and diluted: Income/(loss) from continuing operations Gain/(loss) on sale of real estate owned (Income)/loss from continuing operations attributable to noncontrolling interests Income/(loss) from continuing operations attributable to OP unitholders Income/(loss) from discontinued operations (Income)/loss from discontinued operations attributable to noncontrolling interests Income/(loss) from discontinued operations attributable to OP unitholders Net income/(loss) Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to OP unitholders Denominator for income/(loss) per OP Unit — basic and diluted: Weighted average OP Units outstanding — basic and diluted Income/(loss) per weighted average OP Unit — basic and diluted: Income/(loss) from continuing operations attributable to OP unitholders Income/(loss) from discontinued operations attributable to OP unitholders Net income/(loss) attributable to OP unitholders 11. COMMITMENTS AND CONTINGENCIES Commitments Ground Leases $ $ $ $ $ $ $ $ $ 33,544 63,635 (952) 96,227 $ $ 32,766 — (4,114) 28,652 $ — — — $ $ 45,176 $ (452) 44,724 $ 97,179 $ (952) 96,227 $ $ 77,942 (4,566) 73,376 $ (13,309) — (100) (13,409) 57,643 (252) 57,391 44,334 (352) 43,982 183,279 184,196 184,281 0.53 — 0.53 $ $ 0.16 0.24 0.40 $ $ (0.07) 0.31 0.24 The Operating Partnership owns five communities, which are subject to ground leases expiring between 2019 and 2103. Future minimum lease payments as of December 31, 2014 are $5.3 million for each of the years ending December 31, 2014 to 2018, and a total of $313.6 million for years thereafter. For purposes of our ground lease contracts, the Operating Partnership uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term. The Operating Partnership incurred $5.3 million, $5.1 million, and $5.0 million of ground rent expense for the years ended December 31, 2014, 2013, and 2012, respectively. Contingencies Litigation and Legal Matters The Operating Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. The Operating Partnership cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. F - 73 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The General Partner believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the Operating Partnership’s financial condition, results of operations or cash flow. 12. REPORTABLE SEGMENTS GAAP guidance requires that segment disclosures present the measure(s) used by the chief operating decision maker to decide how to allocate resources and for purposes of assessing such segments’ performance. The Operating Partnership has the same chief operating decision maker as that of its parent, the General Partner. The chief operating decision maker consists of several members of UDR’s executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments. The Operating Partnership owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures of the Operating Partnership’s apartment communities are rental income and NOI, and are included in the chief operating decision maker’s assessment of UDR’s performance on a consolidated basis. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as total revenues less direct property operating expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations and land rent. The chief operating decision maker of the General Partner utilizes NOI as the key measure of segment profit or loss. The Operating Partnership’s two reportable segments are Same-Store Communities and Non-Mature/Other communities: • Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2013 and held as of December 31, 2014. 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 communities are not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. • Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. Management of the General Partner evaluates the performance of each of the Operating Partnership's apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Operating Partnership’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the chief operating decision maker. All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Operating Partnership’s total revenues during the years ended December 31, 2014, 2013, and 2012. F - 74 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table details rental income and NOI from continuing and discontinued operations for the Operating Partnership’s reportable segments for the years ended December 31, 2014, 2013, and 2012, and reconciles NOI to Net income/(loss) attributable to OP unitholders in the Consolidated Statements of Operations (dollars in thousands): Year Ended December 31, 2014 2013 2012 Reportable apartment home segment rental income Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated rental income Reportable apartment home segment NOI Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated NOI Reconciling items: Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related recoveries/(charges), net Interest expense Gain/(loss) on sale of real estate owned, net of tax Net income/(loss) attributable to noncontrolling interests Net income/(loss) attributable to OP unitholders $ $ $ $ $ $ 194,105 68,822 38,087 45,224 26,580 49,816 422,634 142,388 46,639 28,930 29,815 16,821 35,720 300,313 (11,622) (5,172) (179,176) (28,541) (541) (41,717) 63,635 (952) $ 96,227 $ F - 75 $ $ $ 181,935 68,205 36,623 43,208 25,614 55,257 410,842 131,276 46,770 27,149 28,105 16,057 38,178 287,535 (11,298) (5,728) (181,302) (24,808) 8,083 (36,058) 41,518 (4,566) 73,376 $ 172,096 66,487 34,579 40,771 23,980 62,778 400,691 122,477 45,801 25,653 26,510 14,738 46,359 281,538 (11,019) (5,272) (195,051) (26,204) (5,518) (45,234) 51,094 (352) 43,982 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 The following table details the assets of the Operating Partnership’s reportable segments as of December 31, 2014 and 2013 (dollars in thousands): Reportable apartment home segment assets Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Southwest Region Non-Mature Communities/Other Total segment assets Accumulated depreciation Total segment assets - net book value Reconciling items: Cash and cash equivalents Restricted cash Deferred financing costs, net Other assets Total consolidated assets December 31, 2014 December 31, 2013 $ $ $ 1,749,494 713,093 447,269 333,428 228,996 766,490 4,238,770 (1,403,303) 2,835,467 502 13,811 4,475 24,029 2,878,284 $ 1,733,144 706,447 443,483 328,150 226,252 751,004 4,188,480 (1,241,574) 2,946,906 1,897 13,526 5,848 25,064 2,993,241 Capital expenditures related to the Operating Partnership’s Same-Store Communities totaled $32.8 million and $25.8 million for the years ended December 31, 2014 and 2013, respectively. Capital expenditures related to the Operating Partnership’s Non-Mature Communities/Other totaled $1.0 million and $2.0 million for the years ended December 31, 2014 and 2013, respectively. Markets included in the above geographic segments are as follows: i. ii. West Region — Orange County, San Francisco, Monterey Peninsula, Los Angeles, Seattle, Inland Empire, Portland, and San Diego Mid-Atlantic Region — Metropolitan, D.C. and Baltimore iii. Northeast Region — New York and Boston iv. Southeast Region — Nashville, Tampa, and Other Florida v. Southwest Region — Dallas 13. CASUALTY-RELATED (RECOVERIES)/CHARGES In October 2012, Hurricane Sandy hit the East Coast, affecting two of the Operating Partnership’s operating communities (1,001 apartment homes) located in New York City. The properties suffered some physical damage, and were closed to residents for a period following the hurricane. The Operating Partnership has insurance policies that provide coverage for property damage and business interruption, subject to applicable retention. Based on the claims filed and management’s estimates, the Operating Partnership recognized a $7.1 million impairment charge for the damaged assets’ net book value and incurred $7.0 million of repair and cleanup costs during the year ended December 31, 2012. The impairment charge and the repair and cleanup costs incurred were reduced as of December 31, 2012 by $10.8 million of estimated insurance recovery, and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. During the year ended December 31, 2013, no material adjustments to the impairment F - 76 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014 charge and the repair and cleanup costs incurred were recognized. The rehabilitation of these two properties was substantially completed as of December 31, 2013. As of December 31, 2013, the Operating Partnership had settled the Hurricane Sandy claims and received insurance proceeds in excess of the $10.8 million estimated insurance recovery receivable related to the impairment charge and the repair and cleanup costs incurred. As a result, the Operating Partnership recognized a Casualty-related recovery of approximately $3.3 million and a casualty gain of approximately $582,000 for the year ended December 31, 2013. Both the recovery and casualty gain were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. Based on the claims filed and management’s estimates, the Operating Partnership recognized $2.2 million of business interruption losses for the year ended December 31, 2012, of which $1.8 million were related to rent concession rebates provided to residents during the period the properties were uninhabitable and were classified in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations, and $400,000 were related to rent that was not contractually receivable and were classified as a reduction to Rental income on the Consolidated Statements of Operations. The Operating Partnership estimates that it incurred an additional $2.1 million of business interruption losses for the year ended December 31, 2013. As noted, the Operating Partnership settled the Hurricane Sandy claims as of December 31, 2013. During the year ended December 31, 2013, the Operating Partnership received approximately $4.2 million of insurance proceeds for recovery of business interruption losses. Of the $4.2 million of insurance proceeds received during the year ended December 31, 2013, $2.1 million related to recovery of business interruption losses incurred in 2012 and the remaining $2.1 million related to recovery of business interruption losses incurred in 2013. The $4.2 million of recovery was included in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. During the year ended December 31, 2014, the Operating Partnership recorded $541,000 of casualty-related losses due to property damage incurred during an earthquake and a storm in California, all of which are included in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations. 14. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Selected consolidated quarterly financial data for the years ended December 31, 2014 and 2013 is summarized in the table blow (dollars in thousands, except per share amounts): 2014 Rental income (a) Income/(loss) from continuing operations Income/(loss) attributable to OP unitholders Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (b) 2013 Rental income (a) Income/(loss) from continuing operations Income/(loss) from discontinued operations Income/(loss) attributable to OP unitholders Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (b) $ $ $ $ March 31, June 30, September 30, December 31, Three Months Ended $ 102,370 6,411 30,533 $ 104,842 8,319 24,426 $ 107,444 8,875 8,637 107,978 9,939 32,631 0.17 $ 0.13 $ 0.05 $ 0.18 $ 97,770 6,870 905 7,729 $ 100,421 9,339 882 10,154 $ 101,558 10,069 982 11,011 102,104 6,488 42,407 44,482 0.04 $ 0.06 $ 0.06 $ 0.24 (a) Represents rental income from continuing operations, excluding amounts classified as discontinued operations. (b) Quarterly income/(loss) per OP Unit amounts may not total to the annual amounts. F - 77 [This page is intentionally left blank.] UDR, INC. SCHEDULE III — REAL ESTATE OWNED DECEMBER 31, 2014 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Costs of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction(a) Date Acquired WEST REGION Harbor at Mesa Verde $ 50,358 $ 20,476 $ 28,538 $ 49,014 $ 12,949 $ 21,058 $ 40,905 $ 61,963 $ 27 Seventy Five Mesa Verde Pacific Shores Huntington Vista Missions at Back Bay Coronado at Newport — North Huntington Villas Vista Del Rey Foxborough Coronado South 1818 Platinum Triangle Beach & Ocean The Residences at Bella Terra Los Alisos at Mission Viejo ORANGE COUNTY, CA 2000 Post Street Birch Creek Highlands Of Marin Marina Playa River Terrace CitySouth Bay Terrace Highlands of Marin Phase II Edgewater Almaden Lake Village 388 Beale Channel @ Mission Bay 2000 Post III SAN FRANCISCO, CA Rosebeach Tierra Del Rey The Westerly Jefferson at Marina del Rey LOS ANGELES, CA Crowne Pointe Hilltop The Hawthorne The Kennedy Hearthstone at Merrill Creek Island Square Borgata elements too 989elements Lightbox Waterscape SEATTLE, WA 30,660 34,112 27,972 — — 50,771 — — — — — — — 193,873 — — — — 39,310 — — — — 27,000 — — — 66,310 — 32,635 67,700 — 100,335 — — 35,500 — 22,957 — — — — — — 58,457 99,329 7,345 8,055 229 62,516 61,535 10,670 12,071 58,785 16,663 12,878 25,000 17,298 412,850 9,861 4,365 5,996 6,224 22,161 14,031 8,545 5,353 30,657 594 14,253 23,625 1,756 147,421 8,414 39,586 48,182 55,651 151,833 2,486 2,174 6,474 6,179 6,848 21,284 6,379 27,468 8,541 6,449 9,693 103,975 110,644 22,624 22,486 14,129 46,082 18,017 7,080 6,187 50,067 51,905 — — — 377,759 44,578 16,696 24,868 23,916 40,137 30,537 14,458 18,559 83,872 42,515 74,104 — 7,753 421,993 17,449 36,679 102,364 — 156,492 6,437 7,408 30,226 22,307 30,922 89,389 24,569 72,036 45,990 38,884 65,176 433,344 209,973 29,969 30,541 14,358 108,598 79,552 17,750 18,258 108,852 68,568 12,878 25,000 17,298 790,609 54,439 21,061 30,864 30,140 62,298 44,568 23,003 23,912 114,529 43,109 88,357 23,625 9,509 569,414 25,863 76,265 150,546 55,651 308,325 8,923 9,582 36,700 28,486 37,770 110,673 30,948 99,504 54,531 45,333 74,869 537,319 91,693 9,150 7,637 2,133 24,693 7,132 2,062 2,749 17,875 470 38,160 125,801 69,882 412,386 8,965 6,544 25,720 9,482 3,315 35,190 4,571 11,059 3,261 4,838 4,511 125,275 3,008 245,739 2,945 3,008 36,334 89,717 132,004 5,074 3,722 3,187 1,742 3,180 4,086 722 14,258 1,592 55 50 37,668 112,333 7,759 8,438 10,802 66,756 62,223 10,830 12,366 59,277 16,693 13,007 25,080 16,386 443,008 10,241 5,068 7,127 6,908 22,359 16,261 11,424 5,753 30,687 741 14,276 23,657 3,291 157,793 8,584 39,647 50,662 61,262 160,155 2,822 2,668 6,575 6,242 6,984 21,413 6,404 30,100 8,552 6,449 9,693 107,902 189,333 31,360 29,740 5,689 66,535 24,461 8,982 8,641 67,450 52,345 38,031 125,721 70,794 759,987 53,163 22,537 49,457 32,714 43,254 63,497 16,150 29,218 87,103 47,206 78,592 125,243 9,226 657,360 20,224 39,626 136,218 84,106 280,174 11,175 10,636 33,312 23,986 33,966 93,346 25,287 83,662 47,571 38,939 65,226 467,106 301,666 39,119 38,178 16,491 133,291 86,684 19,812 21,007 126,727 69,038 51,038 150,801 87,180 1,202,995 63,404 27,605 56,584 39,622 65,613 79,758 27,574 34,971 117,790 47,947 92,868 148,900 12,517 815,153 28,808 79,273 186,880 145,368 440,329 13,997 13,304 39,887 30,228 40,950 114,759 31,691 113,762 56,123 45,388 74,919 575,008 26,242 72,689 19,665 18,655 3,994 41,982 16,061 5,769 5,119 40,783 13,682 347 11,032 4,449 280,469 24,289 12,889 26,904 18,351 23,857 30,810 8,710 13,438 34,141 18,420 16,399 7,463 5,535 241,206 11,880 16,561 35,540 27,682 91,663 7,069 6,431 18,512 12,640 13,370 34,577 11,013 33,927 13,663 854 1,028 153,084 2003 Jun-03 1972/2013 2003 1970 1969 2000 1972 1969 1969 2000 2009 2014 2013 2014 1987 1968 2010 1971 2005 2012 1962 2010 2007 1999 1999 2014 2006 1970 1999 2013 2008 1987 1985 2003 2005 2000 2007 2001 2010 2006 2014 2014 Oct-04 Jun-03 Jun-03 Dec-03 Oct-04 Sep-04 Sep-04 Sep-04 Mar-05 Aug-10 Aug-11 Oct-11 Jun-04 Dec-98 Dec-98 Dec-98 Dec-98 Aug-05 Nov-05 Oct-05 Oct-07 Mar-08 Jul-08 Apr-11 Sep-10 Dec-98 Sep-04 Dec-07 Sep-10 Sep-07 Dec-98 Dec-98 Jul-05 Nov-05 May-08 Jul-08 May-07 Feb-10 Dec-09 Aug-14 Sep-14 Boronda Manor Garden Court — — 1,946 888 8,982 4,188 10,928 5,076 9,398 5,304 S - 1 3,169 1,552 17,136 8,828 20,305 10,380 8,611 4,603 1979 1973 Dec-98 Dec-98 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Costs of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction(a) 3,039 1,304 6,388 2,044 1,329 16,938 13,557 5,810 6,517 5,135 31,019 3,273 2,916 6,014 12,203 876,239 3,311 2,366 11,238 6,418 5,612 297 1,139 13,753 14,357 1,137 32,815 21,606 5,710 13,290 31,393 7,300 12,883 5,115 23,854 8,028 5,334 68,384 3,645 23,450 10,718 12,789 50,602 9,134 16,995 14,870 40,999 1,549,573 13,283 8,387 18,790 13,411 20,086 12,786 49,657 36,059 51,577 103,676 107,051 66,765 97,941 — — — 171,742 599,469 1,565 2,361 2,920 903 2,666 4,145 4,408 4,653 1,620 11,750 4,669 41,660 7,007 9,384 9,099 4,669 10,109 17,150 24,692 23,952 6,791 45,590 40,630 199,073 15,922 6,419 30,242 10,072 6,663 85,322 17,202 29,260 17,235 17,924 81,621 12,407 19,911 20,884 53,202 2,425,812 16,594 10,753 30,028 19,829 25,698 13,083 50,796 49,812 65,934 104,813 139,866 88,371 103,651 13,290 31,393 7,300 771,211 8,572 11,745 12,019 5,572 12,775 21,295 29,100 28,605 8,411 57,340 45,299 240,733 14,266 5,872 25,703 9,582 6,207 76,332 53,385 2,656 2,181 1,817 60,039 6,517 8,174 5,918 20,609 984,777 6,738 6,207 9,111 20,350 8,108 111,790 15,246 17,071 3,173 5,604 10,812 1,770 2,407 69,526 94,301 57,935 5,274 2,139 9,848 3,269 2,154 24,914 10,152 46,097 16,385 10,716 30,188 12,291 55,945 19,654 12,870 27,405 134,228 161,633 23,066 6,100 6,763 5,326 41,255 3,839 3,210 6,364 13,413 950,931 3,823 2,865 11,640 7,493 6,012 9,447 36,028 14,650 14,373 1,373 33,105 21,632 5,721 25,399 31,394 7,306 47,521 25,816 12,653 14,415 100,405 15,085 24,875 20,438 60,398 2,459,658 19,509 14,095 27,499 32,686 27,794 115,426 30,014 52,233 54,669 109,044 117,573 68,509 100,337 57,417 94,300 57,929 70,587 31,916 19,416 19,741 141,660 18,924 28,085 26,802 73,811 3,410,589 23,332 16,960 39,139 40,179 33,806 124,873 66,042 66,883 69,042 110,417 150,678 90,141 106,058 82,816 125,694 65,235 13,065 5,264 23,292 8,761 5,276 68,872 31,638 16,798 7,330 8,442 64,208 9,653 16,127 13,604 39,384 938,886 13,634 9,879 18,907 21,571 19,540 2,382 19,530 32,364 24,673 44,942 45,360 26,624 20,042 20,799 11,374 4,247 440,149 232,261 979,034 1,211,295 335,868 4,199 6,515 23,075 3,941 4,581 5,089 6,766 7,731 1,250 5,433 581 69,161 1,808 2,952 5,306 1,277 2,985 4,577 4,726 5,209 1,646 12,018 4,678 47,182 10,963 15,308 29,788 8,236 14,371 21,807 31,140 31,127 8,015 50,755 41,202 262,712 12,771 18,260 35,094 9,513 17,356 26,384 35,866 36,336 9,661 62,773 45,880 309,894 8,117 11,890 22,140 5,965 10,818 14,882 19,763 20,296 5,090 21,218 10,343 150,522 1974 1977 1986 1979 1975 Date Acquired Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 2006 Oct-02 2001 1966 1965 1989 1989 1985 1990 1987 1938 2008 1988 2014 1971 2008 2004 2007 1972 Nov-02 Oct-04 Oct-04 Dec-98 Sep-04 Sep-04 Jun-96 Feb-96 May-02 Apr-02 Aug-02 Jan-08 Dec-03 Sep-05 Mar-07 Dec-07 Mar-08 2006/2007 Mar-08 2009 2010 2013 2014 1983 1984 2008 1990 1989 1990 1988 1992 1997 2003 2009 Jun-11 Mar-07 Sep-07 Jun-11 Dec-92 Dec-92 Jul-94 May-95 Dec-99 Nov-02 Mar-04 Mar-04 Mar-04 Mar-08 Aug-10 Cambridge Court Laurel Tree The Pointe At Harden Ranch The Pointe At Northridge The Pointe At Westlake MONTEREY PENINSULA, CA Verano at Rancho Cucamonga Town Square Windemere at Sycamore Highland Villas at Carlsbad Ocean Villas OTHER SOUTHERN, CA Tualatin Heights Andover Park Hunt Club PORTLAND, OR TOTAL WEST REGION MID-ATLANTIC REGION Dominion Middle Ridge Dominion Lake Ridge Presidential Greens The Whitmore Ridgewood DelRay Tower Waterside Towers Wellington Place at Olde Town Andover House Sullivan Place Circle Towers Delancey at Shirlington View 14 Signal Hill Capitol View on 14th Domain College Park METROPOLITAN, D.C. Dominion Kings Place Dominion At Eden Brook Ellicott Grove Dominion Constant Freindship Lakeside Mill Tamar Meadow Calvert’s Walk Arborview Apartments Liriope Apartments 20 Lambourne Domain Brewers Hill BALTIMORE, MD Encumbrances — — — — — — 46,471 — — — 46,471 — 16,818 18,323 35,141 500,587 29,820 20,372 — — — — — 32,037 — — 70,606 — — — — 31,337 184,172 14,525 — — 8,783 12,569 — — — — 30,834 — 66,711 Dominion English Hills Gayton Pointe Townhomes Waterside At Ironbridge Carriage Homes at Wyndham — — — — 1,979 826 1,844 474 11,524 5,148 13,239 30,997 13,503 5,974 15,083 31,471 8,224 29,434 7,335 7,560 S - 2 2,873 3,420 2,299 3,801 18,854 31,988 20,119 35,230 21,727 35,408 22,418 39,031 11,134 25,999 13,123 23,205 1969/1976 Dec-91 2007 1987 1998 Sep-95 Sep-97 Nov-03 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Costs of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction(a) Date Acquired 34,567 34,567 — — — — — — — — 5,123 155 1,824 617 1,089 3,685 710 710 — 60,908 5,317 4,107 3,400 8,582 21,406 6,118 6,118 — 66,031 5,472 5,931 4,017 9,671 25,091 6,828 6,828 20,954 73,507 6,374 6,369 10,120 6,123 28,986 6,143 6,143 1,975 14,368 659 2,337 1,205 1,594 5,795 1,043 1,043 18,979 125,170 11,187 9,963 12,932 14,200 48,282 11,928 11,928 20,954 139,538 11,846 12,300 14,137 15,794 54,077 12,971 12,971 2007 Dec-91 1970 Apr-88 1966 Aug-96 1972/1974 Mar-80 1987 Dec-97 1988 May-95 18,906 92,367 9,145 7,634 12,126 9,290 38,195 8,541 8,541 285,450 222,920 886,974 1,109,894 617,946 300,649 1,427,126 1,727,775 625,493 — — 18,526 — 12,713 — — — — 31,239 — — — — 18,064 21,942 — — 23,388 — 63,394 — — — — — 16,677 22,157 — 38,834 39,179 39,179 172,646 — 22,839 56,447 2,176 1,780 1,395 2,893 1,791 2,242 7,702 10,869 6,611 37,459 1,846 2,895 1,533 757 1,653 2,804 2,185 1,282 3,872 6,692 25,519 1,148 1,469 2,117 708 766 1,460 3,182 4,583 15,433 15,968 15,968 94,379 5,591 6,039 20,778 4,710 2,458 10,647 9,254 7,166 7,553 23,150 36,858 37,663 139,459 4,155 6,456 11,076 6,608 9,042 12,349 8,639 6,498 17,538 12,860 95,221 5,867 11,584 — 5,461 7,714 16,015 24,674 16,293 87,608 56,401 56,401 378,689 91,027 34,869 88,096 6,886 4,238 12,042 12,147 8,957 9,795 30,852 47,727 44,274 176,918 6,001 9,351 12,609 7,365 10,695 15,153 10,824 7,780 21,410 19,552 120,740 7,015 13,053 2,117 6,169 8,480 17,475 27,856 20,876 103,041 72,369 72,369 473,068 96,618 40,908 108,874 8,513 17,167 8,972 10,416 8,655 6,846 14,657 7,384 15,827 98,437 8,052 21,457 20,241 15,549 8,911 10,494 9,569 6,722 4,049 12,591 117,635 8,636 9,761 33,846 4,500 4,357 4,934 6,276 16,042 88,352 8,947 8,947 3,236 3,346 2,329 4,277 2,613 2,734 9,211 11,408 15,120 54,274 2,681 5,470 3,450 2,018 2,522 4,020 2,841 1,705 4,179 7,220 36,106 1,762 2,139 4,462 1,143 1,258 1,946 3,508 5,643 21,861 16,536 16,536 313,371 128,777 6,048 1,238 3,034 5,631 6,102 19,309 12,163 18,059 18,685 18,286 14,999 13,907 36,298 43,703 44,981 221,081 11,372 25,338 29,400 20,896 17,084 21,627 17,552 12,797 21,280 24,923 202,269 13,889 20,675 31,501 9,526 11,579 20,463 30,624 31,275 169,532 64,780 64,780 657,662 97,035 36,044 92,599 15,399 21,405 21,014 22,563 17,612 16,641 45,509 55,111 60,101 275,355 14,053 30,808 32,850 22,914 19,606 25,647 20,393 14,502 25,459 32,143 238,375 15,651 22,814 35,963 10,669 12,837 22,409 34,132 36,918 191,393 81,316 81,316 786,439 102,666 42,146 111,908 10,443 16,232 13,790 13,550 10,681 8,998 25,585 27,162 19,020 145,461 9,077 22,904 24,329 16,423 12,624 14,273 11,184 8,546 12,963 18,328 150,651 10,830 13,482 20,064 6,641 7,704 11,461 19,951 20,471 110,604 38,317 38,317 445,033 23,767 9,052 20,102 1972 2007 1986 2004 1985 1988 Dec-92 Sep-93 Mar-94 Dec-96 Jun-97 Dec-98 1988/1989 Jun-03 2001 2009 2004 2008 2007 2007 2006 2004 2006 2004 2000 2007 1977 1989 1999 1986 1986 1998 1998 2008 Dec-04 Jul-09 Feb-96 Mar-93 Apr-94 Jun-94 Oct-94 Oct-96 Jul-97 Oct-97 May-98 Aug-06 Nov-95 Dec-95 Dec-95 Mar-96 Mar-97 Jan-99 Jun-04 May-06 1999/2001 Dec-04 1887/1990 2007 2006 Sep-10 Sep-10 Apr-11 Legacy at Mayland RICHMOND, VA Eastwind Dominion Waterside At Lynnhaven Heather Lake Dominion Yorkshire Downs NORFOLK, VA Greens At Schumaker Pond OTHER MID- ATLANTIC TOTAL MID-ATLANTIC REGION SOUTHEAST REGION Summit West The Breyley Lakewood Place Bay Meadow Cambridge Woods Sugar Mill Creek Inlet Bay MacAlpine Place The Vintage Lofts at West End TAMPA, FL Seabrook The Canopy Apartment Villas Altamira Place Regatta Shore Alafaya Woods Los Altos Lotus Landing Seville On The Green Ashton @ Waterford Arbors at Lee Vista ORLANDO, FL Legacy Hill Hickory Run Carrington Hills Brookridge Breckenridge Colonnade The Preserve at Brentwood Polo Park NASHVILLE, TN The Reserve and Park at Riverbridge OTHER FLORIDA TOTAL SOUTHEAST REGION NORTHEAST REGION Garrison Square Ridge at Blue Hills Inwood West 14 North BOSTON, MA — 79,286 10,961 43,369 51,175 265,167 62,136 308,536 4,563 14,883 S - 3 10,999 42,041 55,700 281,378 66,699 323,419 12,750 65,671 2005 Apr-11 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Costs of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements 190,462 — — — 190,462 269,748 30,023 72,415 — — — — — — 102,438 — 30,661 — — 30,661 133,099 41,432 36,399 114,410 57,637 249,878 293,247 24,036 16,882 2,132 7,903 10,440 6,688 13,221 2,151 83,453 3,151 4,034 5,084 4,148 16,417 99,870 218,983 107,154 324,920 266,255 917,312 260,415 143,553 439,330 323,892 1,167,190 1,182,479 1,475,726 32,951 100,102 5,367 554 634 3,354 2,507 8,168 153,637 14,269 55,256 17,646 16,869 104,040 257,677 56,987 116,984 7,499 8,457 11,074 10,042 15,728 10,319 237,090 17,420 59,290 22,730 21,017 120,457 357,547 8,396 10,915 85,635 6,296 111,242 126,125 8,162 7,325 1,631 1,897 1,917 1,289 2,398 31,139 55,758 22,118 2,608 1,625 1,065 27,416 83,174 41,481 36,399 115,024 57,736 250,640 292,681 24,311 17,280 6,936 8,159 10,841 8,350 14,948 5,989 96,814 4,807 4,200 5,115 4,159 18,281 115,095 227,330 118,069 409,941 272,452 1,027,792 Total Carrying Value 268,811 154,468 524,965 330,188 1,278,432 1,309,170 1,601,851 40,838 107,029 2,194 2,195 2,150 2,981 3,178 35,469 196,034 34,731 57,698 19,240 17,923 129,592 325,626 65,149 124,309 9,130 10,354 12,991 11,331 18,126 41,458 292,848 39,538 61,898 24,355 22,082 147,873 440,721 Accumulated Depreciation Date of Construction(a) 2005 2001 Date Acquired Apr-11 Aug-11 1985/2013 Jul-11 2008 Aug-11 2007 6/7/2005 1979 1970 1975 1977 1978 2008 2010 2007 2000 2004 Aug-06 Mar-08 Mar-07 May-07 May-07 Apr-07 May-07 Mar-98 Mar-02 Aug-08 Apr-12 Apr-12 42,678 20,910 72,318 54,973 190,879 256,550 21,663 44,321 1,842 1,366 1,836 2,231 2,618 24,269 100,146 20,260 21,988 3,687 3,370 49,305 149,451 1,361,530 1,586,655 4,255,392 5,842,047 2,125,393 1,788,133 6,179,242 7,967,375 2,415,413 — — — — — — — — — — — — — — — — — — 24,584 24,584 884 4,325 78,085 32,938 9,963 6,773 11,862 144,830 1,624 1,407 4,943 24,377 32,351 — — 32,351 — — — 1,360 — — 788 527 93 2,768 — 4,498 7,093 7,517 19,108 — — 19,108 24,584 24,584 884 5,685 78,085 32,938 10,751 7,300 11,955 147,598 1,624 5,905 12,036 31,894 51,459 — — 51,459 153,048 153,048 4,734 7,965 7,962 283 1,642 880 189 23,655 — 1,516 9,537 306 11,359 4,181 4,181 15,540 24,584 24,584 804 11,244 78,085 32,938 9,963 6,773 12,084 151,891 1,104 1,380 7,793 29,920 40,197 — — 40,197 153,048 153,048 4,814 2,406 7,962 283 2,430 1,407 60 19,362 520 6,041 13,780 2,280 22,621 4,181 4,181 26,802 177,632 177,632 5,618 13,650 86,047 33,221 12,393 8,180 12,144 171,253 1,624 7,421 21,573 32,200 62,818 4,181 4,181 66,999 — — 614 2,023 — — 788 527 263 4,215 553 2,232 11,676 636 15,097 47 47 15,144 $ 1,361,530 $ 1,788,420 $ 4,277,268 $ 6,065,688 $ 2,317,636 $ 2,004,805 $ 6,378,454 $ 8,383,259 $ 2,434,772 10 Hanover Square 21 Chelsea View 34 95 Wall Street NEW YORK, NY TOTAL NORTHEAST REGION SOUTHWEST REGION THIRTY377 Legacy Village Garden Oaks Glenwood Talisker of Addison Springhaven Clipper Pointe Highlands of Preston DALLAS, TX Barton Creek Landing Residences at the Domain Red Stone Ranch Lakeline Villas AUSTIN, TX TOTAL SOUTHWEST REGION TOTAL OPERATING COMMUNITIES REAL ESTATE UNDER DEVELOPMENT Pier 4 TOTAL REAL ESTATE UNDER DEVELOPMENT LAND 7 Harcourt Vitruvian Pacific City Graybar 3032 Wilshire 2919 Wilshire Waterside TOTAL LAND COMMERCIAL Hanover Village Circle Towers Office Bldg Brookhaven Shopping Center Bellevue Plaza retail TOTAL COMMERCIAL Other (b) TOTAL CORPORATE TOTAL COMMERCIAL & CORPORATE TOTAL REAL ESTATE OWNED (a) Date of construction or date of last major renovation. (b) Includes unallocated accruals and capital expenditures. The aggregate cost for federal income tax purposes was approximately $7.7 billion at December 31, 2014. The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 35 to 55 years. S - 4 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) 3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands): Balance at beginning of the year Real estate acquired Capital expenditures and development Real estate sold Real estate contributed to joint ventures Consolidation of joint venture assets Retirement of fully depreciated assets Impairment of assets, including casualty-related impairments Real estate acquired through JV consolidation Balance at end of the year $ 2014 8,207,977 231,225 326,461 (269,681) (112,344) — — (379) — 8,383,259 $ $ $ The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands): Balance at beginning of the year Depreciation expense for the year Accumulated depreciation on sales Accumulated depreciation on real estate contributed to joint ventures Accumulated depreciation on assets of consolidated joint ventures Accumulated depreciation on retirements of fully depreciated assets Write off of accumulated depreciation on casualty-related impaired assets Balance at end of year S - 5 $ $ 2014 2,208,794 356,673 (126,151) (4,228) — — (316) $ 2,434,772 $ $ 2013 8,055,828 — 452,057 (70,687) (356,303) 129,437 — (2,355) — 8,207,977 $ $ 2013 1,924,682 339,326 (34,794) (20,662) 1,374 (1,132) — 2,208,794 $ 2012 8,074,471 141,648 422,480 (559,154) — — (13,945) (9,672) — 8,055,828 2012 1,831,727 340,800 (233,207) — — (13,945) (693) 1,924,682 UNITED DOMINION REALTY, L.P. SCHEDULE III — REAL ESTATE OWNED DECEMBER 31, 2014 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Building and Improvements Total Initial Acquisition Costs Cost of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction (a) Date Acquired WEST REGION Harbor at Mesa Verde 27 Seventy Five Mesa Verde Pacific Shores Huntington Vista Missions at Back Bay Coronado at Newport — North Huntington Villas Vista Del Rey Coronado South ORANGE COUNTY, CA 2000 Post Street Birch Creek Highlands Of Marin Marina Playa River Terrace CitySouth Bay Terrace Highlands of Marin Phase II Edgewater Almaden Lake Village SAN FRANCISCO, CA Rosebeach Tierra Del Rey LOS ANGELES, CA Crowne Pointe Hilltop The Kennedy Hearthstone at Merrill Creek Island Square SEATTLE, WA Boronda Manor Garden Court Cambridge Court Laurel Tree The Pointe At Harden Ranch The Pointe At Northridge The Pointe At Westlake MONTEREY PENINSULA, CA Verano at Rancho Cucamonga Town Square Villas at Carlsbad Ocean Villas OTHER SOUTHERN, CA Tualatin Heights Andover Park Hunt Club PORTLAND, OR $ 50,358 $ 20,476 $ 28,538 $ 49,014 $ 12,949 $ 21,058 $ 40,905 $ 61,963 $ 30,660 34,112 27,972 — — 50,771 — — 193,873 — — — — 39,310 — — — — 27,000 66,310 — 32,635 32,635 — — — 22,957 — 22,957 — — — — — — — — 46,471 — — 46,471 — 16,818 18,323 35,141 99,329 7,345 8,055 229 62,516 61,535 10,670 58,785 328,940 9,861 4,365 5,996 6,224 22,161 14,031 8,545 5,353 30,657 594 107,787 8,414 39,586 48,000 2,486 2,174 6,179 6,848 21,284 38,971 1,946 888 3,039 1,304 6,388 2,044 1,329 16,938 13,557 6,517 5,135 25,209 3,273 2,916 6,014 12,203 110,644 22,624 22,486 14,129 46,082 18,017 7,080 50,067 319,667 44,578 16,696 24,868 23,916 40,137 30,537 14,458 18,559 83,872 42,515 340,136 17,449 36,679 54,128 6,437 7,408 22,307 30,922 89,389 156,463 8,982 4,188 12,883 5,115 23,854 8,028 5,334 68,384 3,645 10,718 12,789 27,152 9,134 16,995 14,870 40,999 209,973 29,969 30,541 14,358 108,598 79,552 17,750 108,852 648,607 54,439 21,061 30,864 30,140 62,298 44,568 23,003 23,912 114,529 43,109 447,923 25,863 76,265 102,128 8,923 9,582 28,486 37,770 110,673 195,434 10,928 5,076 15,922 6,419 30,242 10,072 6,663 85,322 17,202 17,235 17,924 52,361 12,407 19,911 20,884 53,202 91,693 9,150 7,637 2,133 24,693 7,132 2,062 17,875 175,324 8,965 6,544 25,720 9,482 3,315 35,190 4,571 11,059 3,261 4,838 112,945 2,945 3,008 5,953 5,074 3,722 1,742 3,180 4,086 17,804 9,377 5,304 14,266 5,872 25,703 9,582 6,207 76,311 53,385 2,181 1,817 57,383 6,517 8,174 5,918 20,609 112,333 7,759 8,438 10,802 66,756 62,223 10,830 59,277 359,476 10,241 5,068 7,127 6,908 22,359 16,261 11,424 5,753 30,687 741 116,569 8,584 39,647 48,231 2,822 2,668 6,242 6,984 21,413 40,129 3,169 1,552 5,274 2,139 9,848 3,269 2,154 189,333 31,360 29,740 5,689 66,535 24,461 8,982 67,450 464,455 53,163 22,537 49,457 32,714 43,254 63,497 16,150 29,218 87,103 47,206 444,299 20,224 39,626 59,850 11,175 10,636 23,986 33,966 93,346 173,109 17,136 8,828 24,914 10,152 46,097 16,385 10,716 301,666 39,119 38,178 16,491 133,291 86,684 19,812 126,727 823,931 63,404 27,605 56,584 39,622 65,613 79,758 27,574 34,971 117,790 47,947 560,868 28,808 79,273 108,081 13,997 13,304 30,228 40,950 114,759 213,238 20,305 10,380 30,188 12,291 55,945 19,654 12,870 27,405 134,228 161,633 23,066 6,763 5,326 35,155 3,839 3,210 6,364 13,413 47,521 12,653 14,415 74,589 15,085 24,875 20,438 60,398 70,587 19,416 19,741 109,744 18,924 28,085 26,802 73,811 26,242 72,689 19,665 18,655 3,994 41,982 16,061 5,769 40,783 245,840 24,289 12,889 26,904 18,351 23,857 30,810 8,710 13,438 34,141 18,420 211,809 11,880 16,561 28,441 7,069 6,431 12,640 13,370 34,577 74,087 8,611 4,603 13,065 5,264 23,292 8,761 5,276 68,872 31,638 7,330 8,442 47,410 9,653 16,127 13,604 39,384 2003 Jun-03 1972/2013 2003 1970 1969 2000 1972 1969 2000 1987 1968 2010 1971 2005 2012 1962 2010 2007 1999 1970 1999 1987 1985 2005 2000 2007 1979 1973 1974 1977 1986 1979 1975 2006 1966 1965 1989 1989 1985 Oct-04 Jun-03 Jun-03 Dec-03 Oct-04 Sep-04 Sep-04 Mar-05 Dec-98 Dec-98 Dec-98 Dec-98 Aug-05 Nov-05 Oct-05 Oct-07 Mar-08 Jul-08 Sep-04 Dec-07 Dec-98 Dec-98 Nov-05 May-08 Jul-08 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Oct-02 Oct-04 Oct-04 Dec-98 Sep-04 Sep-04 TOTAL WEST REGION 397,387 578,048 1,006,929 1,584,977 466,329 640,378 1,410,928 2,051,306 715,843 S - 6 UNITED DOMINION REALTY, L.P. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Building and Improvements Total Initial Acquisition Costs Cost of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction (a) Date Acquired — — — 32,037 — — 70,606 — 102,643 12,569 — — — 30,834 43,403 146,046 — — — — — — — — — — — 39,179 39,179 39,179 56,447 — 56,447 190,462 — 190,462 246,909 30,023 72,415 102,438 — — 102,438 931,959 6,418 5,612 297 13,753 14,357 1,137 32,815 21,606 95,995 2,666 4,145 4,408 1,620 11,750 24,589 120,584 2,242 7,702 10,869 20,813 1,148 1,469 2,117 708 766 4,583 10,791 15,968 15,968 47,572 20,778 10,961 31,739 41,432 57,637 99,069 130,808 24,036 16,882 40,918 3,151 3,151 44,069 13,411 20,086 12,786 36,059 51,577 103,676 107,051 66,765 411,411 10,109 17,150 24,692 6,791 45,590 104,332 515,743 7,553 23,150 36,858 67,561 5,867 11,584 — 5,461 7,714 16,293 46,919 56,401 56,401 19,829 25,698 13,083 49,812 65,934 104,813 139,866 88,371 507,406 12,775 21,295 29,100 8,411 57,340 128,921 636,327 9,795 30,852 47,727 88,374 7,015 13,053 2,117 6,169 8,480 20,876 57,710 72,369 72,369 20,350 8,108 111,790 17,071 3,108 5,604 10,812 1,770 178,613 4,581 5,089 6,766 1,250 5,433 23,119 201,732 6,846 14,657 7,384 28,887 8,636 9,761 33,846 4,500 4,357 16,042 77,142 8,947 8,947 170,881 218,453 114,976 88,096 51,175 139,271 218,983 266,255 485,238 624,509 32,951 100,102 133,053 14,269 14,269 147,322 108,874 62,136 171,010 260,415 323,892 584,307 755,317 56,987 116,984 173,971 17,420 17,420 191,391 3,034 4,563 7,597 8,396 6,296 14,692 22,289 8,162 7,325 15,487 22,118 22,118 37,605 7,493 6,012 9,447 14,650 14,373 1,373 33,105 21,632 108,085 2,985 4,577 4,726 1,646 12,018 25,952 134,037 2,734 9,211 11,408 23,353 1,762 2,139 4,462 1,143 1,258 5,643 16,407 16,536 16,536 56,296 19,309 10,999 30,308 41,481 57,736 99,217 129,525 24,311 17,280 41,591 4,807 4,807 46,398 32,686 27,794 115,426 52,233 54,669 109,044 117,573 68,509 577,934 14,371 21,807 31,140 8,015 50,755 126,088 704,022 13,907 36,298 43,703 93,908 13,889 20,675 31,501 9,526 11,579 31,275 118,445 64,780 64,780 277,133 92,599 55,700 148,299 227,330 272,452 499,782 648,081 40,838 107,029 147,867 34,731 34,731 182,598 40,179 33,806 124,873 66,883 69,042 110,417 150,678 90,141 686,019 17,356 26,384 35,866 9,661 62,773 152,040 838,059 16,641 45,509 55,111 117,261 15,651 22,814 35,963 10,669 12,837 36,918 134,852 81,316 81,316 333,429 111,908 66,699 178,607 268,811 330,188 598,999 777,606 65,149 124,309 189,458 39,538 39,538 228,996 2008 1988 2014 2008 2004 2007 1972 Apr-02 Aug-02 Jan-08 Sep-05 Mar-07 Dec-07 Mar-08 2006/2007 Mar-08 1989 1990 1988 1997 2003 Dec-99 Nov-02 Mar-04 Mar-04 Mar-08 1988 Dec-98 1988/1989 Jun-03 2001 Dec-04 1977 1989 1999 1986 1986 2008 Nov-95 Dec-95 Dec-95 Mar-96 Mar-97 May-06 1999/2001 Dec-04 2006 2005 2005 2008 Apr-11 Apr-11 Apr-11 Aug-11 2007 6/7/2005 Aug-06 Mar-08 2010 Mar-02 21,571 19,540 2,382 32,364 24,673 44,942 45,360 26,624 217,456 10,818 14,882 19,763 5,090 21,218 71,771 289,227 8,998 25,585 27,162 61,745 10,830 13,482 20,064 6,641 7,704 20,471 79,192 38,317 38,317 179,254 20,102 12,750 32,852 42,678 54,973 97,651 130,503 21,663 44,321 65,984 20,260 20,260 86,244 921,081 2,465,384 3,386,465 842,931 1,006,634 3,222,762 4,229,396 1,401,071 — 1,407 4,498 5,905 1,516 1,380 6,041 7,421 2,232 MID-ATLANTIC REGION The Whitmore Ridgewood DelRey Tower Wellington Place at Olde Town Andover House Sullivan Place Circle Towers Delancey at Shirlington METROPOLITAN D.C. Lakeside Mill Tamar Meadow Calvert’s Walk Liriope Apartments 20 Lambourne BALTIMORE, MD TOTAL MID-ATLANTIC REGION SOUTHEAST REGION Sugar Mill Creek Inlet Bay MacAlpine Place TAMPA, FL Legacy Hill Hickory Run Carrington Hills Brookridge Breckenridge Polo Park NASHVILLE, TN The Reserve and Park at Riverbridge OTHER FLORIDA TOTAL SOUTHEAST REGION NORTHEAST REGION Inwood West 14 North BOSTON, MA 10 Hanover Square 95 Wall Street NEW YORK, NY TOTAL NORTHEAST REGION SOUTHWEST REGION THIRTY377 Legacy Village DALLAS, TX Barton Creek Landing AUSTIN, TX TOTAL SOUTHWEST REGION TOTAL OPERATING COMMUNITIES COMMERCIAL Circle Towers Office Bldg TOTAL COMMERCIAL Other (b) TOTAL CORPORATE TOTAL COMMERCIAL & CORPORATE TOTAL REAL ESTATE OWNED — — — — 1,407 — — 1,407 4,498 — — 4,498 5,905 — — 5,905 1,516 1,953 1,953 3,469 1,380 — — 1,380 6,041 1,953 1,953 7,994 7,421 1,953 1,953 9,374 2,232 — — 2,232 $ 931,959 $ 922,488 $ 2,469,882 $ 3,392,370 $ 846,400 $ 1,008,014 $ 3,230,756 $ 4,238,770 $ 1,403,303 S - 7 UNITED DOMINION REALTY, L.P. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) (a) Date of construction or date of last major renovation. (b) Includes unallocated accruals and capital expenditures. The aggregate cost for federal income tax purpose was approximately $3.6 billion at December 31, 2011. The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 35 to 55 years. S - 8 UNITED DOMINION REALTY, L.P. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2014 (In thousands) 3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands): Balance at beginning of the year Capital expenditures and development Real estate sold Real estate transferred to the General Partner Retirement of fully depreciated asset Casualty-related impairment of assets Balance at end of year $ 2014 4,188,480 91,682 (41,013) $ — — (379) $ 4,238,770 $ The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands): Balance at beginning of the year Depreciation expense for the year Accumulated depreciation on sales Accumulated depreciation on retirements of fully depreciated asset Accumulated depreciation on property transferred to the General Partner Write off of accumulated depreciation on casualty-related impaired assets Balance at end of year $ 2014 1,241,574 178,719 (16,674) $ — — (316) $ 1,403,303 $ S - 9 $ 2013 4,182,920 151,002 (70,687) (74,755) — — 4,188,480 $ $ 2013 1,097,133 179,404 (34,794) — (169) — 1,241,574 $ 2012 4,205,298 115,355 (116,166) — (13,945) (7,622) 4,182,920 2012 976,358 189,362 (54,085) (13,945) — (557) 1,097,133 EXHIBIT INDEX The exhibits listed below are filed as part of this Report. References under the caption “Location” to exhibits or other filings indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. Management contracts and compensatory plans or arrangements filed as exhibits to this Report are identified by an asterisk. The Commission file number for UDR, Inc.’s Exchange Act filings referenced below is 1-10524. The Commission file number for United Dominion Realty, L.P.’s Exchange Act filings is 333- 156002-01. Exhibit 2.01 2.02 2.03 2.04 Description Location Partnership Interest Purchase and Exchange Agreement dated as of September 10, 1998, by and between UDR, Inc., United Dominion Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. 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. Second Amendment to Agreement of Purchase and Sale dated as of October 26, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein. Exhibit 2(d) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 333-64281) filed with the Commission on September 25, 1998. Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated September 28, 2004 and filed with the Commission on September 29, 2004. Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K dated September 29, 2004 and filed with the Commission on October 5, 2004. Exhibit 2.3 to UDR, Inc.’s Current Report on Form 8-K/A dated September 29, 2004 and filed with the Commission on November 1, 2004. Exhibit 2.05 Description Location Agreement of Purchase and Sale dated as of January 23, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC. Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated January 23, 2008 and filed with the Commission on January 29, 2008. 2.06 First Amendment to Agreement of Purchase and Sale dated as of February 14, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC. Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K/A dated March 3, 2008 and filed with the Commission on May 2, 2008. 3.01 Articles of Restatement of UDR, Inc. Exhibit 3.09 to UDR, Inc.’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005. 3.02 Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on March 14, 2007. Exhibit 3.2 to UDR, Inc.’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007. 3.03 Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on August 30, 2011. Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 1, 2011. 3.04 Articles Supplementary relating to UDR, Inc.’s 6.75% Series G Cumulative Redeemable Preferred Stock dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 30, 2007. Exhibit 3.4 to UDR, Inc.’s Form 8-A Registration Statement dated and filed with the Commission on May 30, 2007. 3.05 Amended and Restated Bylaws of UDR, Inc. (as amended through May 12, 2011). Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated May 12, 2011 and filed with the Commission on May 13, 2011. 3.06 Certificate of Limited Partnership of United Dominion Realty, L.P. dated as of February 19, 2004. Exhibit 3.4 to United Dominion Realty, L.P.’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3 dated and filed with the Commission on October 15, 2010. Exhibit Description Location 3.07 Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2004. Exhibit 10.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003. 3.08 First Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of June 24, 2005. Exhibit 10.06 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. 3.09 Second Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2006. Exhibit 10.6 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. 3.10 Third Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 2, 2007. Exhibit 99.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. 3.11 Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 27, 2007. Exhibit 10.25 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007. 3.12 Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of March 7, 2008. Exhibit 10.53 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008. 3.13 Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 9, 2008. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 9, 2008 and filed with the Commission on December 10, 2008. 3.14 Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of March 13, 2009. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated March 18, 2009 and filed with the Commission on March 19, 2009. 3.15 Eighth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of November 17, 2010. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on November 18, 2010. 4.01 Form of UDR, Inc. Common Stock Certificate. Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007. 4.02 Senior Indenture dated as of November 1, 1995, by and between UDR, Inc. and First Union National Bank of Virginia, N.A., as trustee. Exhibit 4(ii)(h)(1) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 4.03 Supplemental Indenture dated as of June 11, 2003, by and between UDR, Inc. and Wachovia Bank, National Association, as trustee. Exhibit 4.03 to UDR, Inc.’s Current Report on Form 8-K dated June 17, 2004 and filed with the Commission on June 18, 2004. 4.04 Subordinated Indenture dated as of August 1, 1994 by and between UDR, Inc. and Crestar Bank, as trustee. Exhibit 4(i)(m) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995. Exhibit Description Location 4.05 Form UDR, Inc. of Senior Debt Security. 4.06 Form of UDR, Inc. Subordinated Debt Security. Exhibit 4(i)(n) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995. Exhibit 4(i)(p) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-55159) filed with the Commission on August 19, 1994. 4.07 Form of UDR, Inc. Fixed Rate Medium-Term Note, Series A. Exhibit 4.01 to UDR, Inc.’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007. 4.08 Form of UDR, Inc. Floating Rate Medium-Term Note, Series A. Exhibit 4.02 to UDR, Inc.’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007. 4.09 UDR, Inc. 5.13% Medium-Term Notes due January 2014, issued October 3, 2003, January 15, 2004 and March 18, 2004 Exhibit 4.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, and Exhibits 4.1 and 4.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. 4.10 UDR, Inc. 5.25% Medium-Term Note due January 2015, issued November 1, 2004. Exhibit 4.21 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004. 4.11 UDR, Inc. 5.25% Medium-Term Note due January 2015, issued February 14, 2005. Exhibit 4.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004. 4.12 4.13 UDR, Inc. 5.25% Medium-Term Note due January 2015, issued March 8, 2005. Exhibit 4.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004. UDR, Inc. 5.25% Medium-Term Note due January 2015, issued May 3, 2005. Exhibit 4.3 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. 4.14 UDR, Inc. 5.25% Medium-Term Note due January 2016, issued September 7, 2005. Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. 4.15 UDR, Inc. 5.50% Medium-Term Note, Series A due April 2014, issued March 27, 2007. Exhibit 4.5 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007. 4.16 UDR, Inc. 4.25% Medium-Term Note, Series A due June 2018, issued May 23, 2011. Exhibit 4.16 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. 4.17 UDR, Inc. 4.625% Medium-Term Note, Series A due January 2022, issued January 10, 2012. Exhibit 4.17 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. Exhibit Description Location 4.18 UDR, Inc. 3.70% Medium-Term Note, Series A due October 2020, issued September 26, 2013. Exhibit 4.18 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. 4.19 Indenture dated as of April 1, 1994, by and between UDR, Inc. and Nationsbank of Virginia, N.A., as trustee. Exhibit 4(ii)(f)(1) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 4.20 Supplemental Indenture dated as of August 20, 2009, by and between UDR, Inc. and U.S. Bank National Association, as trustee, to UDR, Inc.’s Indenture dated as of April 1, 1994. Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated August 20, 2009 and filed with the Commission on August 21, 2009. 4.21 Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of November 1, 1995. Exhibit 99.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010. 4.22 Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of October 12, 2006. Exhibit 99.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010. 4.23 First Supplemental Indenture among UDR, Inc., United Dominion Realty, L.P. and U.S. Bank National Association, as Trustee, dated as of May 3, 2011, relating to UDR, Inc.’s Medium-Term Notes, Series A, due Nine Months or More from Date of Issue. Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K filed with the Commission on May 4, 2011. 4.24 UDR, Inc. 3.75% Medium-Term Note, Series A due October 2024, issued June 26, 2014. Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. 10.01* UDR, Inc. 1999 Long-Term Incentive Plan (as amended and restated February 6, 2014). Exhibit 10.1 to UDR, Inc.'s Current Report on Form 8-K filed with the Commission on May 28, 2014. 10.02* Form of UDR, Inc. Restricted Stock Award Agreement under the 1999 Long- Term Incentive Plan. Exhibit 10.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. 10.03* Form of UDR, Inc. Restricted Stock Award Agreement for awards outside of the 1999 Long-Term Incentive Plan. Exhibit 99.3 to UDR, Inc.’s Current Report on Form 8-K dated March 19, 2007 and filed with the Commission on March 19, 2007. 10.04* Form of UDR, Inc. Notice of Performance Contingent Restricted Stock Award. Exhibit 10.2 to UDR, Inc.’s Current Report on Form 8-K dated May 2, 2006 and filed with the Commission on May 8, 2006. 10.05* Description of UDR, Inc. Shareholder Value Plan. Exhibit 10(x) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999. 10.06* Description of UDR, Inc. Executive Deferral Plan. Exhibit 10(xi) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999. Exhibit Description Location 10.07* Form of UDR, Inc. Indemnification Agreement. Exhibit 10.3 to UDR, Inc.’s Current Report on Form 8-K dated May 2, 2006 and filed with the Commission on May 8, 2006. 10.08 Amended and Restated Master Credit Facility Agreement dated as of June 24, 2002 by and between UDR, Inc. and Green Park Financial Limited Partnership, as amended through February 14, 2007. Exhibit 10.41 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006. 10.09 Limited Liability Company Agreement of UDR Texas Ventures LLC, a Delaware limited liability company, dated as of November 5, 2007. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated November 5, 2007 and filed with the Commission on November 9, 2007. 10.10* Letter Agreement dated as of February 18, 2008, by and between UDR, Inc. and Warren L. Troupe. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated February 22, 2008 and filed with the Commission on February 27, 2008. 10.11* Termination of Letter Agreement dated as of February 18, 2008 by and between UDR, Inc. and Warren L. Troupe, dated as of February 7, 2013 and effective as of December 31, 2012. Exhibit 10.44 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012. 10.12* Indemnification Agreement dated as of March 3, 2008, by and between UDR, Inc. and Warren L. Troupe. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated February 22, 2008 and filed with the Commission on February 27, 2008. 10.13* Letter Agreement, dated December 12, 2012, by and between UDR, Inc. and Thomas M. Herzog. Exhibit 10.43 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012. 10.14 Subordination Agreement dated as of April 16, 1998, by and between UDR, Inc. and United Dominion Realty, L.P. Exhibit 10(vi)(a) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. 10.15 Term Loan Agreement dated as of December 14, 2009, by and among UDR, Inc., Regions Capital Markets, PNC Capital Markets LLC, Regions Bank, PNC Bank, National Association, U.S. Bank National Association and the other signatories thereto. Exhibit 99.1 to UDR, Inc.’s Current Report on Form 8-K dated December 14, 2009 and filed with the Commission on December 17, 2009. 10.16 Amendment to the UDR, Inc. $250 Million Term Loan Agreement. Exhibit 10.2 to UDR, Inc.’s Current Report on Form 8-K dated June 6, 2013 and filed with the Commission on June 10, 2013. 10.17 Amendment to the UDR, Inc. $100 Million Term Loan Agreement. Exhibit 10.3 to UDR, Inc.’s Current Report on Form 8-K dated June 6, 2013 and filed with the Commission on June 10, 2013. 10.18 Underwriting Agreement among UDR, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Representatives of the several underwriters, dated June 4, 2012. Exhibit 1.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on June 4, 2012. Exhibit 10.19 10.20 10.21 Description Location ATM Equity OfferingSM Sales Agreement among UDR, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, dated April 4, 2012. Exhibit 1.1 to UDR, Inc.’s Current Report on Form 8-K dated April 4, 2012 and filed with the SEC on April 5, 2012. Third Amended and Restated Distribution Agreement among UDR, Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as Agents, dated September 1, 2011, with respect to the issue and sale by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. Credit Agreement dated as of October 25, 2011 (the “Credit Agreement”) by and among UDR, Inc., as Borrower, The Financial Institutions party Hereto and Their Assignees under Section 12.5, as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Lead Bookrunners, JPMorgan Chase Bank, N.A., as Syndication Agent, and Bank of America, N.A., PNC Bank, National Association and US Bank National Association, as Documentation Agents. Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 1, 2011. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on October 26, 2011. 10.22 First Amendment to the Credit Agreement, dated as of March 1, 2013. Exhibit 10.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. 10.23 Second Amendment to the Credit Agreement, dated as of June 6, 2013. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated June 6, 2013 and filed with the Commission on June 10, 2013. 10.24 Amendment to the UDR, Inc. Term Loan Agreement. Exhibit 10.24 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. 10.25 Aircraft Time Sharing Agreement dated as of December 15, 2011, by and between UDR, Inc. and Thomas W. Toomey. Exhibit 10.42 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. 10.26 Aircraft Time Sharing Agreement dated as of December 15, 2011, by and between UDR, Inc. and Warren L. Troupe. Exhibit 10.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012. 10.27 Amendment No.1, dated July 29, 2014, to the ATM Equity OfferingSM Sales Agreement among UDR, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, dated April 4, 2012. Exhibit 1.1 to UDR, Inc.’s Current Report on Form 8-K filed with the Commission on July 31, 2014. Exhibit 10.28 Description Location Amendment No. 1, dated July 29, 2014, to the Third Amended and Restated Distribution Agreement among UDR, Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as Agents, dated September 1, 2011, with respect to the issue and sale by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K filed with the Commission on July 31, 2014. 12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of UDR, Inc. Filed herewith. 12.2 Computation of Ratio of Earnings to Fixed Charges of United Dominion Realty, L.P. Filed herewith. 21 Subsidiaries of UDR, Inc. and United Dominion Realty, L.P. Filed herewith. 23.1 Consent of Independent Registered Public Accounting Firm for UDR, Inc. Filed herewith. 23.2 Consent of Independent Registered Public Accounting Firm for United Dominion Realty, L.P. Filed herewith. 31.1 Rule 13a-14(a) Certification of the Chief Executive Officer of UDR, Inc. Filed herewith. 31.2 Rule 13a-14(a) Certification of the Chief Financial Officer of UDR, Inc. Filed herewith. 31.3 Rule 13a-14(a) Certification of the Chief Executive Officer of United Dominion Realty, L.P. Filed herewith. 31.4 Rule 13a-14(a) Certification of the Chief Financial Officer of United Dominion Realty, L.P. Filed herewith. 32.1 Section 1350 Certification of the Chief Executive Officer of UDR, Inc. Filed herewith. 32.2 Section 1350 Certification of the Chief Financial Officer of UDR, Inc. Filed herewith. 32.3 Section 1350 Certification of the Chief Executive Officer of United Dominion Realty, L.P. Filed herewith. 32.4 Section 1350 Certification of the Chief Financial Officer of United Dominion Realty, L.P. Filed herewith. Exhibit 101 Description Location Filed herewith. XBRL (Extensible Business Reporting Language). The following materials from this Annual Report on Form 10-K for the period ended December 31, 2014, formatted in XBRL: (i) consolidated balance sheets of UDR, Inc., (ii) consolidated statements of operations of UDR, Inc., (iii) consolidated statements of comprehensive income/(loss) of UDR, Inc., (iv) consolidated statements of changes in equity of UDR, Inc., (v) consolidated statements of cash flows of UDR, Inc., (vi) notes to consolidated financial statements of UDR, Inc., (vii) consolidated balance sheets of United Dominion Realty, L.P., (viii) consolidated statements of operations of United Dominion Realty, L.P., (ix) consolidated statements of comprehensive income/(loss) of United Dominion Realty, L.P.; (x) consolidated statements of changes in capital of United Dominion Realty, L.P., (xi) consolidated statements of cash flows of United Dominion Realty, L.P., (xi) notes to consolidated financial statements of United Dominion Realty, L.P. * Management Contract or Compensatory Plan or Arrangement (Back To Top) Section 2: EX-12.1 (EXHIBIT 12.1) EXHIBIT 12.1 UDR, Inc. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Dollars in thousands) 2014 2013 2012 2011 2010 Year Ended December 31, Earnings: Income/(loss) from continuing operations Add (from continuing operations): Interest on indebtedness (a) Portion of rents representative of the interest factor Amortization of capitalized interest Total earnings Fixed charges and preferred stock dividends (from continuing operations): Interest on indebtedness (a) Interest capitalized Portion of rents representative of the interest factor Fixed charges $ 16,260 130,262 2,224 3,711 152,457 130,262 20,249 2,224 152,735 $ $ $ $ $ $ $ 2,340 $ (46,305) $ (126,869) $ (121,117) 125,905 2,163 3,374 133,782 125,905 29,384 2,163 157,452 139,069 2,073 2,883 97,720 139,069 26,368 2,073 167,510 $ $ $ 151,764 2,039 2,187 29,121 151,764 12,979 2,039 166,782 $ $ $ 142,254 1,969 1,962 25,068 142,254 12,505 1,969 156,728 $ $ $ Add: Preferred stock dividends Premium/(discount) on preferred stock redemption or repurchase, net Combined fixed charges and preferred stock dividends $ $ 3,724 — 156,459 $ $ 3,724 — 161,176 $ $ 6,010 2,791 176,311 $ $ 9,311 175 176,268 $ $ 9,488 (25) 166,191 Ratio of earnings to fixed charges Ratio of earnings to combined fixed charges and preferred stock dividends — (b) — (c) — (b) — (c) — (b) — (c) — (b) — (c) — (b) — (c) (a) Includes interest expense of consolidated subsidiaries, amortization of deferred loan costs, realized losses related to hedging activities and amortization of premiums and discounts related to indebtedness. (b) The ratio was less than 1:1 for the years ended December 31, 2014, 2013, 2012, 2011, and 2010 as earnings were inadequate to cover fixed charges by deficiencies of approximately $0.3 million, $23.7 million, $69.8 million, $137.7 million, and $131.7 million, respectively. (c) The ratio was less than 1:1 for the years ended December 31, 2014, 2013, 2012, 2011, and 2010 as earnings were inadequate to cover combined fixed charges and preferred stock dividends by deficiencies of approximately $4.0 million, $27.4 million, $78.6 million, $147.1 million and $141.1 million, respectively. (Back To Top) Section 3: EX-12.2 (EXHIBIT 12.2) EXHIBIT 12.2 United Dominion Realty, L.P. Computation of Ratio of Earnings to Fixed Charges (Dollars in thousands) Earnings: Income/(loss) from continuing operations Add from continuing operations: Interest on indebtedness (a) Portion of rents representative of the interest factor Amortization of capitalized interest Total earnings Fixed charges from continuing operations: Interest on indebtedness (a) Interest capitalized Portion of rents representative of the interest factor Fixed charges 2014 2013 2012 2011 2010 Year Ended December 31, $ 33,544 $ 32,766 $ (13,309) $ (40,744) $ (30,937) 41,717 1,751 725 77,737 41,717 2,890 1,751 46,358 $ $ $ 36,058 1,705 580 71,109 36,058 5,870 1,705 43,633 $ $ $ 45,234 1,665 398 33,988 45,234 3,679 1,665 50,578 $ $ $ 52,817 1,627 291 13,991 52,817 1,752 1,627 56,196 $ $ $ 49,140 1,564 258 20,025 49,140 1,340 1,564 52,044 $ $ $ Ratio of earnings to fixed charges 1.68 1.63 — (b) — (b) — (b) (a) Includes interest expense of consolidated subsidiaries, amortization of deferred loan costs, realized losses related to hedging activities and amortization of premiums and discounts related to indebtedness. (b) The ratio was less than 1:1 for the years ended December 31, 2012, 2011, and 2010 as earnings were inadequate to cover fixed charges by deficiencies of approximately $16.6 million, $42.2 million, and $32.0 million, respectively. (Back To Top) Section 4: EX-21 (EXHIBIT 21) The Company has the following subsidiaries. Joint Venture entities are shown with an asterisk. United Dominion Realty, L.P. is a limited partnership with outside limited partners holding minimal percentage interests. The Company owns general and limited partnership interests in United Dominion Realty, L.P. constituting approximately 95% of the aggregate partnership interest. Entities marked with double asterisks are those entities in which United Dominion Realty, L.P. is either a member or a partner. All other entities are wholly-owned. EXHIBIT 21 Subsidiary 1001 Properties, LLC* 101 Colorado High-Rise, LP* 101 Colorado Master Condominium Association, Inc.* 1020 Tower, GP LLC* 1020 Tower, LP* 13th And Market Properties LLC* 1745 LLC 20 Lambourne LLC 24 Hundred Properties LLC* 2000 Post Owners Association 399 Fremont LLC* 6104 Hollywood, LLC* AAC Funding II, Inc. AAC Funding III LLC** AAC Funding IV LLC** AAC Funding IV, Inc. AAC Funding Partnership II** AAC Seattle I, Inc. AAC/FSC Crown Pointe Investors, LLC AAC/FSC Hilltop Investors, LLC AAC/FSC Seattle Properties, LLC** Acoma High-Rise, LP* Andover House LLC Andover Member 1 LLC Andover Member 2 LLC Apartments on Chestnut Limited Partnership* Ashton at Dublin Station, LLC* Ashwood Commons, L.L.C. Ashwood Commons North LLC ASR Investments Corporation Bella Terra Villas LLC Bellevue Plaza Development LLC Block R Master Condominium Association, Inc* CMP-1, LLC Calvert’s Walk LLC Cambridge Woods LLC Cedar Street High-Rise, L.P.* Circle Towers LLC** State of Incorporation or Organization Delaware Delaware Texas Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware California Delaware Delaware Delaware Washington Washington Delaware Delaware Delaware Delaware Delaware Delaware Delaware Washington Washington Maryland Delaware Delaware Texas Delaware Delaware Delaware Delaware Delaware Subsidiary Coastal Monterey Properties LLC** College Park Holding LLC Columbus Square 775 LLC* Columbus Square 795 LLC* Columbus Square 801 LLC* Columbus Square 805 LLC* Columbus Square 808 LLC* Consolidated-Hampton, LLC Coronado South Apartments, L.P** DCO 2400 14th Street LLC DCO 2919 Wilshire LLC DCO 3032 Wilshire LLC DCO 3033 Wilshire LLC* DCO Addison at Brookhaven LP DCO Arbors at Lee Vista LLC DCO Beach Walk LLC DCO Borgata LLC DCO Brookhaven Center LP DCO Caroline Development LLC DCO Clipper Pointe LP DCO College Park LLC DCO/CWP 2919 Wilshire LLC* DCO/CWP 3032 Wilshire LLC* DCO Fiori LLC DCO Garden Oaks LP DCO Glenwood Apartments LP DCO Highlands LLC DCO Market LLC DCO Mission Bay LP DCO Option 2 LLC DCO Pacific City LLC DCO Pine Avenue LP DCO Realty, Inc. DCO Realty LP LLC DCO Savoye LLC DCO Savoye 2 LLC DCO Springhaven LP DCO Talisker LP Domain Mountain View LLC Dominion Constant Friendship LLC Dominion Eden Brook LLC Dominion Kings Place LLC Domus SPE General Partner, LLC* State of Incorporation or Organization Delaware Delaware Delaware Delaware Delaware Delaware Delaware Maryland Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Subsidiary Domus SPE General Partner, LLC* Eastern Residential, Inc. Easton Partners I, LP* FMP Member, Inc. Fiori LLC* Foxborough Lodge Limited Partnership* Garrison Harcourt Square LLC Governour’s Square of Columbus Co. Ltd** HPI 2161 Sutter LP HPI Option 2 LLC Hanover Square SPE LLC** Harding Park LP LLC Hawthorne Apartments LLC Heritage Communities LLC Icon Tower, LP* Inlet Bay at Gateway, LLC Inwood Development LLC** Jamestown of St. Matthews Limited Partnership** Jefferson at Marina del Rey, L.P. K/UDR Venture LLC* Kelvin and Jamboree Properties, LLC* Kelvin and Jamboree LLC L.A. Southpark High Rise, LP* La Jolla Wilshire, LLC* Lakeside Mill LLC Lenox Farms Limited Partnership* Lightbox LLC Lincoln TC II, L.P. LJW LLC Lodge at Ames Pond Limited Partnership* Lofts at Charles River Landing, LLC* LPC Millenia Place Apartments LLC MacAlpine Place Apartment Partners, Ltd** Management Company Services, Inc. Ninety Five Wall Street LLC** Northbay Properties II, L.P** Olive Way High-Rise LP* Pacific Los Alisos LLC Parker’s Landing Condominiums LLC Parker’s Landing Townhomes LLC Pier 4 LLC Polo Park Apartments LLC** Portico Properties, LLC* State of Incorporation or Organization Delaware Delaware Delaware Delaware Delaware Delaware Delaware Ohio Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Ohio Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Florida Delaware Delaware California Delaware Delaware Delaware Delaware Delaware Delaware Delaware Subsidiary RE3, Inc. Rancho Cucamonga Town Square Owners Association* Savoye LLC* Saveoye 2 LLC* Strata Properties, LLC* Tennessee Colonnade LLC** THC/UDR Domain College Park LLC The Commons of Columbia, Inc. The Domain Condominium Association, Inc.* Thomas Circle Properties LLC* Town Square Commons, LLC Towson Holdings, LLC* Towson Promenade, LLC* Trilon Townhouses, LLC TSTW LLC UDR 10 Hanover LLC** UDR 1818 Platinum LLC UDR Altamira Place LLC UDR Arborview Associates LLC UDR Aspen Creek, LLC UDR California GP, LLC** UDR California GP II, LLC UDR California Properties, LLC UDR Calvert, LLC** UDR Calvert’s Walk Associates Limited Partnership UDR Calverts Walk GP, LLC UDR Carlsbad Apartments, L.P** UDR Carriage Homes, LLC UDR Chelsea LLC UDR Crane Brook LLC** UDR Developers, Inc. UDR Domain Brewers Hill LLC UDR EAS LLC UDR Foxglove Associates L.L.C** UDR Garrison Square LLC UDR Harbor Greens, L.P** UDR Holdings, LLC** UDR Huntington Vista, L.P** UDR Inwood LLC** UDR, Inc. UDR/K Venture Member LLC UDR Lakeline Villas LLC UDR Lakeside Mill, LLC** UDR Legacy at Mayland LLC State of Incorporation or Organization Delaware California Delaware Delaware Delaware Delaware Delaware Virginia Texas Delaware District of Columbia Delaware Delaware District of Columbia Delaware Delaware Delaware Delaware Delaware Virginia Delaware Delaware Virginia Delaware Maryland Delaware Delaware Delaware Delaware Delaware Virginia Delaware Delaware Maryland Delaware Delaware Virginia Delaware Delaware Maryland Delaware Delaware Virginia Delaware Subsidiary UDR Lincoln at Towne Square LLC* UDR Lincoln at Towne Square II LLC* UDR Marina Pointe LLC UDR Maryland Properties, LLC** UDR/MetLife G.P. LLC* UDR/MetLife GP II LLC* UDR/MetLife Master Limited Partnership* UDR/MetLife Master Limited Partnership II* UDR/ML Venture LLC UDR/ML Venture 2 LLC UDR Midlands Acquisition, LLC** UDR Newport Beach North, L.P** UDR Ocean Villa Apartments, L.P** UDR of Tennessee, L.P** UDR Okeeheelee LLC* UDR Pinebrook, L.P** UDR Presidential Greens, L.L.C. UDR Rancho Cucamonga, L.P. UDR Red Stone Ranch LLC UDR Ridgewood (II) Garden, LLC** UDR Ridge at Blue Hills LLC UDR River Terrace LLC UDR Rivergate LLC UDR Stone Canyon LLC* UDR Texas Properties LLC UDR Texas Ventures LLC* UDR The Bradford LLC* UDR The Cliffs LLC* UDR The Legend at Park Ten LLC* UDR The Mandolin LLC* UDR The Meridian LLC* UDR Towers By The Bay LLC UDR TX Fund LLC UDR Villa Venetia Apartments, L.P** UDR Virginia Properties, LLC UDR Wellington Place LLC UDR Windjammer, L.P.** UDR Woodland Apartments II, L.P. UDR Woodland GP, LLC UDRLP EAS LLC** UDRT of Delaware 4 LLC** United Dominion Realty, L.P. View 14 Investments LLC VPDEV 1 LLC* State of Incorporation or Organization Delaware Delaware Delaware Virginia Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Virginia Delaware Delaware Delaware Delaware Delaware Virginia Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Virginia Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Subsidiary VPDEV 2 LLC* Washington Vue, LP* Waterscape Village LLC Waterside Towers, L.L.C. WCH LLC West El Camino Real, LLC* Western Residential, Inc. Wilshire Crescent Heights, LLC* Windemere at Sycamore Highlands, LLC Winterland San Francisco Partners** (Back To Top) Section 5: EX-23.1 (EXHIBIT 23.1) State of Incorporation or Organization Delaware Delaware Delaware Delaware Delaware Delaware Virginia Delaware Delaware California Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements of UDR, Inc. and in the related Prospectuses of our reports dated February 24, 2015, with respect to the consolidated financial statements and schedule of UDR, Inc., and the effectiveness of internal control over financial reporting of UDR, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2014: EXHIBIT 23.1 Registration Statement Number Description Form S-3, pertaining to the registration of 11,000,000 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock, issuable under the Company’s Dividend Reinvestment and Stock Purchase Plan. Form S-3, Shelf Registration Statement, pertaining to the registration of an indeterminate amount of Common Stock, Preferred Stock, Depositary Shares, Debt Securities, Guarantees of Debt Securities, Warrants, Subscription Rights, Purchase Contracts and Purchase Units. Form S-3, pertaining to the registration of 3,882,187 shares of Common Stock. Form S-3, pertaining to the registration of 2,569,606 shares of Common Stock. Form S-3, pertaining to the registration of 1,802,239 shares of Common Stock. Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan. Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan. Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan. /s/ Ernst & Young LLP 333-129743 333-197710 333-167270 333-180553 333-183510 333-160180 333-201192 333-75897 Denver, Colorado February 24, 2015 (Back To Top) Section 6: EX-23.2 (EXHIBIT 23.2) Consent of Independent Registered Public Accounting Firm EXHIBIT 23.2 We consent to the incorporation by reference in the following Registration Statements of UDR, Inc. and related Prospectuses of our report dated February 24, 2015, with respect to the consolidated financial statements and schedule of United Dominion Realty, L.P., included in this Annual Report (Form 10-K) for the year ended December 31, 2014: Registration Statement Number Description Form S-3, pertaining to the registration of 11,000,000 shares of Common Stock, including rights to purchase Series C Junior Participating Redeemable Preferred Stock, issuable under the Company’s Dividend Reinvestment and Stock Purchase Plan. Form S-3, Shelf Registration Statement, pertaining to the registration of an indeterminate amount of Common Stock, Preferred Stock, Depositary Shares, Debt Securities, Guarantees of Debt Securities, Warrants, Subscription Rights, Purchase Contracts and Purchase Units. Form S-3, pertaining to the registration of 3,882,187 shares of Common Stock Form S-3, pertaining to the registration of 2,569,606 shares of Common Stock. Form S-3, pertaining to the registration of 1,802,239 shares of Common Stock. Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan. Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan. Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan. /s/ Ernst & Young LLP 333-129743 333-197710 333-167270 333-180553 333-183510 333-160180 333-201192 333-75897 Denver, Colorado February 24, 2015 (Back To Top) Section 7: EX-31.1 (EXHIBIT 31.1) I, Thomas W. Toomey, certify that: 1. I have reviewed this Annual Report on Form 10-K of UDR, Inc.; CERTIFICATION EXHIBIT 31.1 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and (d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2015 /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President (Principal Executive Officer) (Back To Top) Section 8: EX-31.2 (EXHIBIT 31.2) I, Thomas M. Herzog, certify that: 1. I have reviewed this Annual Report on Form 10-K of UDR, Inc.; CERTIFICATION EXHIBIT 31.2 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report, based on such evaluation; and (d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2015 /s/ Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Financial Officer (Principal Financial Officer) (Back To Top) Section 9: EX-31.3 (EXHIBIT 31.3) I, Thomas W. Toomey, certify that: 1. I have reviewed this Annual Report on Form 10-K of United Dominion Realty, L.P.; CERTIFICATION EXHIBIT 31.3 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and (d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2015 /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President of UDR, Inc. (Principal Executive Officer), general partner of United Dominion Realty, L.P. (Back To Top) Section 10: EX-31.4 (EXHIBIT 31.4) I, Thomas M. Herzog, certify that: 1. I have reviewed this Annual Report on Form 10-K of United Dominion Realty, L.P.; CERTIFICATION EXHIBIT 31.4 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report, based on such evaluation; and (d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2015 /s/ Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Financial Officer of UDR, Inc. (Principal Financial Officer), general partner of United Dominion Realty, L.P. (Back To Top) Section 11: EX-32.1 (EXHIBIT 32.1) CERTIFICATION EXHIBIT 32.1 In connection with the periodic report of UDR, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas W. Toomey, Chief Executive Officer and President of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. Date: February 24, 2015 /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President (Principal Executive Officer) (Back To Top) Section 12: EX-32.2 (EXHIBIT 32.2) CERTIFICATION EXHIBIT 32.2 In connection with the periodic report of UDR, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas M. Herzog, Senior Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. Date: February 24, 2015 /s/ Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Financial Officer (Principal Financial Officer) (Back To Top) Section 13: EX-32.3 (EXHIBIT 32.3) EXHIBIT 32.3 CERTIFICATION In connection with the periodic report of United Dominion Realty, L.P. (the “Operating Partnership”) on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas W. Toomey, Chief Executive Officer and President of UDR, Inc., the general partner of the Operating Partnership, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership at the dates and for the periods indicated. Date: February 24, 2015 /s/ Thomas W. Toomey Thomas W. Toomey Chief Executive Officer and President of UDR, Inc. (Principal Executive Officer), general partner of United Dominion Realty, L.P. (Back To Top) Section 14: EX-32.4 (EXHIBIT 32.4) CERTIFICATION EXHIBIT 32.4 In connection with the periodic report of United Dominion Realty, L.P. (the “Operating Partnership”) on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Tomas M. Herzog, Senior Vice President and Chief Financial Officer of UDR, Inc., the general partner of the Operating Partnership, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership at the dates and for the periods indicated. Date: February 24, 2015 /s/ Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Financial Officer of UDR, Inc. (Principal Financial Officer), general partner of United Dominion Realty, L.P. 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