UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2015
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
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
UDR, Inc.
United Dominion Realty, L.P.
Yes
Yes
No
No
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.
United Dominion Realty, L.P.
Yes
Yes
No
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
UDR, Inc.
United Dominion Realty, L.P.
Yes
Yes
No
No
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
Yes
No
No
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.
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
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting
company)
United Dominion Realty, L.P.:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting
company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
UDR, Inc.
United Dominion Realty, L.P.
Yes
Yes
No
No
The aggregate market value of the shares of common stock of UDR, Inc. held by non-affiliates on June 30, 2015 was approximately $3.7 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 22, 2016, there were 262,132,787 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 2016 Annual Meeting of Stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
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
PAGE
3
10
22
23
24
24
25
29
34
66
66
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
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EXPLANATORY NOTE
This Report combines the annual reports on Form 10-K for the fiscal year ended December 31, 2015 of UDR, Inc., a Maryland
corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR, Inc. is the parent company and sole general
partner. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” the “Company,” “UDR” or “UDR, Inc.” refer
collectively to UDR, Inc., together with its consolidated subsidiaries and joint ventures, including United Dominion Realty, L.P. and UDR
Lighthouse DownREIT L.P. (the “DownREIT Partnership”), a Delaware limited partnership of which UDR is the sole general partner that was
formed in conjunction with certain acquisitions from Home Properties, L.P., a New York limited partnership, by UDR in October 2015. Unless
the context otherwise requires, the references in this Report to the “Operating Partnership” or the “OP” refer to United Dominion Realty, L.P.,
together with its consolidated subsidiaries. “Common stock” refers to the common stock of UDR and “stockholders” means the holders of
shares of UDR’s common stock and preferred stock. The limited partnership interests of the Operating Partnership and the DownREIT
Partnership are referred to as “OP Units” and “DownREIT Units,” respectively, and the holders of the OP Units and DownREIT Units are
referred to as “unitholders.” This combined Form 10-K is being filed separately by UDR and the Operating Partnership.
There are a number of differences between the Company and the Operating Partnership, which are reflected in our 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”). 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, 2015, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and
174,114,516 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 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 the 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;
1
•
•
our internal controls over financial reporting may not be considered effective which could result in a loss of investor confidence in our
financial reports, and in turn have an adverse effect on our stock price; and
changes in real estate laws, tax laws and other laws affecting our business.
A discussion of these and other factors affecting our business and prospects is set forth in Part I, Item 1A. Risk Factors. We encourage
investors to review these risk factors.
Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a
representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.
Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly
disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our
expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to
the extent otherwise required by law.
2
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 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, 2015, our consolidated real estate portfolio included 133 communities
located in 18 markets, with a total of 40,728 completed apartment homes, which are held through our subsidiaries, including the Operating
Partnership and the DownREIT Partnership, and consolidated joint ventures. In addition, we have an ownership interest in 28 communities
containing 6,696 apartment homes through unconsolidated joint ventures or partnerships. As of December 31, 2015, the Company was
developing one wholly-owned community with 516 apartment homes and four unconsolidated joint venture communities with 1,173 apartment
homes, none of which have been completed.
At December 31, 2015, the Operating Partnership’s consolidated real estate portfolio included 57 communities located in 14 markets,
with a total of 16,974 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, 2015, revenues of the Operating Partnership represented approximately 51% 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 2015, we
declared total distributions of $1.11 per common share and paid dividends of $1.0925 per common share.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Dividends
Declared in
Dividends Paid
2015
in 2015
$
0.2775
$
0.2775
0.2775
0.2775
$
1.1100
$
0.2600
0.2775
0.2775
0.2775
1.0925
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 22, 2016, we had 1,569 full-time associates and 42 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, 2014, and held
as of December 31, 2015. 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.
3
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 13, 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.
2015 Highlights
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In July 2015, the Company marked its 43rd year as a REIT and paid its 172nd consecutive quarterly dividend in October. The
Company’s annualized declared 2015 dividend of $1.11 represented a 6.7% increase over the previous year.
We achieved Same-Store revenue growth of 5.6% and same-store net operating income (“NOI”) growth of 6.7%.
We completed one development in Boston, MA containing 369 homes for an aggregate cost of approximately $217.7 million. We also
completed the redevelopment of 708 homes at a community in New York, NY for an aggregate cost of approximately $98.0 million.
As of December 31, 2015, we were developing one wholly-owned community and four communities in unconsolidated joint ventures
and redeveloping three wholly-owned communities.
In October 2015, the Company completed the acquisition of six Washington, D.C. area properties from Home Properties, L.P. (“Home
OP”) for a total contractual purchase price of $900.6 million, which was comprised of $564.8 million of DownREIT Units in the newly
formed DownREIT Partnership, the assumption of $89.3 million of debt, $221.0 million of reverse tax-deferred like-kind exchanges
under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”), and $25.5 million of cash. The Company holds a
50.1% (including a 41.6% interest held indirectly through the Operating Partnership) controlling ownership interest in, and consolidates,
the DownREIT Partnership. For additional information regarding the DownREIT Partnership, see Note 11, Noncontrolling Interests, in
the notes to the UDR Consolidated Financial Statements included in this Report.
We contributed $136.3 million for a preferred equity investment in five west coast communities that are currently under construction.
We recognized gains on the sale of real estate of $251.7 million from the sale of 12 communities with a total of 2,735 apartment homes.
A portion of the sale proceeds was designated for tax-deferred Section 1031 exchanges for a 2014 acquisition and the October 2015
acquisitions described above.
The eight communities held by the Texas joint venture were sold, generating net proceeds to UDR of $44.2 million. The Company
recorded promote and disposition fee income of $10.0 million and a gain of $59.4 million (including $24.2 million of previously
deferred gains).
•
We sold 6,339,636 shares of common stock through public offerings for net proceeds of approximately $210.0 million.
•
We entered into a new $1.1 billion revolving credit facility with a maturity date in January 2020, exclusive of options to extend, which
replaced the prior $900 million revolving credit facility that was scheduled to mature in December 2017,
4
and entered into a $350.0 million senior unsecured term loan facility due January 2021, which replaced the Company’s $250 million term loan
and $100 million term loan that were scheduled to mature in June 2018.
•
We issued $300 million of 4.00%, 10-year senior unsecured medium-term notes in September.
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 2015.
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:
•
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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;
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•
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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:
•
•
•
•
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current market price for an asset compared to projected economics for that asset;
potential increases in new construction in the market area;
areas with low job growth prospects;
markets where we do not intend to establish a long-term concentration; and
operating efficiencies.
5
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
2015
2014
2013
2012
2011
3,246
2,735
358
2,500
—
914
633
6,507
3,161
4,488
Homes owned at December 31,
40,728
39,851
41,250
41,571
47,343
Total real estate owned, at cost
$
9,190,276
$
8,383,259
$
8,207,977
$
8,055,828
$
8,074,471
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):
2015
2014
2013
2012
2011
Homes acquired
Homes disposed (a)
421
4,256
—
264
—
914
Homes owned at December 31,
16,974
20,814
20,746
—
1,314
21,660
1,833
2,024
23,160
Total real estate owned, at cost
$
3,630,905
$
4,238,770
$
4,188,480
$
4,182,920
$
4,205,298
(a) Includes 3,107 homes deconsolidated in 2015 upon contribution of communities by the Operating Partnership to the DownREIT Partnership.
Development Activities
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, 2015, our development pipeline included one wholly-owned community located in Huntington Beach,
California with 516 homes and a budget of $342.0 million, in which we have a carrying value of $124.1 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 2015, we continued to redevelop properties in primary markets where we
concluded there was an opportunity to add value. At December 31, 2015, the Company was redeveloping all 264 apartment homes, 11 of which
have been completed, at two wholly-owned communities located in San Francisco, California and Bellevue, Washington. The Company also
was redeveloping one wholly-owned community in San Francisco, California with renovations to the building exterior, corridors, and common
area amenities, with no impact to individual homes. During the year ended December 31, 2015, we incurred $32.9 million in major
renovations, which include major structural changes and/or architectural revisions to existing buildings.
Joint Venture and Partnership Activities
We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships)
through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint
ventures. Our decision to either hold an apartment community in fee simple or have an indirect interest in the community through a joint
venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by the seller of land or a
community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve
our capital resources to maintain liquidity or balance sheet strength; and (iv) our projections, in some circumstances, that we will achieve
higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Each joint venture agreement is individually
negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the
terms of the joint venture agreement.
Balance Sheet Management
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.
6
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. 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 using our web-based resident internet portal.
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, 2015, approximately 69.5% of our consolidated 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. At December 31, 2015, the Company held
75.4% of its same-store carrying value of its real estate portfolio in our primary markets. For the year ended December 31, 2015, approximately
73.1% of the Operating Partnership’s same-store NOI was generated by communities located in our primary markets and 73.7% of its same-
store carrying value of its real estate portfolio was generated in its primary markets.
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.
Competitive Conditions
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, 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:
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•
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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 18 markets across the country; and
7
•
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, 2015, our consolidated real estate portfolio included 133 communities with a total of 40,728 completed apartment
homes, which included the Operating Partnership’s consolidated real estate portfolio of 57 communities with a total of 16,974 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, 2015, the Company was developing one wholly-owned community with 516 apartment homes, none of which have
been completed. The community being developed is not part of the Operating Partnership’s real estate portfolio.
At December 31, 2015, the Company was redeveloping 264 apartment homes, 11 of which have been completed, at two wholly-owned
communities. The Company was also was redeveloping one wholly-owned community, with renovations to the building exterior, corridors, and
common area amenities, with no impact to individual homes. Two of these communities under redevelopment are held by the Operating
Partnership.
Same-Store Community Comparison
We believe that one pertinent quantitative measurement of the performance of our portfolio is tracking the results of our same-store
communities’ NOI, which is total rental revenue, less rental and other operating expenses excluding property management. Our same-store
community population is comprised of operating communities which we own and have stabilized occupancy, revenues and expenses as of the
beginning of the prior year.
For the year ended December 31, 2015, our same-store NOI increased by $29.5 million compared to the prior year. Our same-store
community properties provided 76.4% of our total NOI for the year ended December 31, 2015. The increase in NOI for the 33,063 same-store
apartment homes, or 81.2% of our portfolio, was driven by an increase in rental rates and fee and reimbursement income, partially offset by an
increase in real estate taxes, utilities expense, and personnel costs.
For the year ended December 31, 2015, the Operating Partnership’s same-store NOI increased by $8.2 million compared to the prior
year. Our same-store community properties provided 81.9% of our total NOI for the year ended December 31, 2015. The increase in NOI for
the 14,760 same-store apartment homes, or 87.0% of the Operating Partnership’s portfolio, was driven by an increase in rental rates, fee and
reimbursement income, increased occupancy, and an decrease in operating expenses.
Revenue growth in 2016 may be impacted by adverse developments affecting the general economy, reduced occupancy rates, increased
rental concessions, new supply, increased bad debt and other factors which may adversely impact our ability to increase rents.
Tax Matters
UDR has elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, UDR must continue to meet certain tests that,
among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate
assets, and that we distribute at least 90% of our REIT taxable income (other than net capital gains) to our stockholders annually. Provided we
maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to
the extent such net income is distributed to our stockholders annually. Even if we continue to qualify as a REIT, we will continue to be subject
to certain federal, state and local taxes on our income and property.
We may utilize our taxable REIT subsidiary (“TRS”) to engage in activities that REITs may be prohibited from performing, including the
provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Our TRS
generally is taxable as a regular corporation, and therefore, subject to federal, state and local income taxes.
The Operating Partnership intends to qualify as a partnership for federal income tax purposes. As a partnership, the Operating Partnership
generally is not a taxable entity and does not incur federal income tax liability. However, any state or
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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, 2015.
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 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.
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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:
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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;
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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
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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:
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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:
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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 debt used to finance 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;
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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;
•
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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:
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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;
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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.
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.
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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 16 active joint ventures and partnerships, including our participating loan investment and preferred equity
investment, with a total equity investment of $938.9 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 may not be permitted to dispose of certain properties or pay down the indebtedness associated with those properties when we might
otherwise desire to do so without incurring additional costs. In connection with certain property acquisitions, we have agreed with the sellers
that we will not dispose of the acquired properties or reduce the mortgage indebtedness on such properties for significant periods of time unless
we pay certain of the resulting tax costs of the sellers, and we may enter into similar agreements in connection with future property
acquisitions. These agreements could result in us retaining properties that we would otherwise sell or not paying down or refinancing
indebtedness that we would otherwise pay down or refinance.
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 multifamily
industry. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain
types of extraordinary losses which may not be adequately covered under our insurance program. In addition, we will sustain losses due to
insurance deductibles, self-insured retention, uninsured claims or casualties, or losses in excess of applicable coverage.
If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a
property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any
mortgage debt or other financial obligations related to the property. Material losses 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.
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:
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inability to accurately evaluate local apartment market conditions and local economies;
inability to hire and retain key personnel;
lack of familiarity with local governmental and permitting procedures; and
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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 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
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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, 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 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
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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 rulemaking by
regulatory authorities; thus, the impact on us may not be known for an extended period of time. The Dodd-Frank Act, including rules
implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals that are 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
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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;
changes in interest rates and the availability of financing;
changes in governmental regulations and the related costs of compliance; and
changes in tax and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing.
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Expenses associated with our investment in an apartment community, such as debt service, real estate taxes, insurance and maintenance
costs, are generally not reduced when circumstances cause a reduction in 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.
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.
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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, 2015,
UDR had approximately $610.4 million of variable rate indebtedness outstanding, which constitutes approximately 17.0% of total outstanding
indebtedness as of such date. As of December 31, 2015, the Operating Partnership had approximately $197.2 million of variable rate
indebtedness outstanding, which constitutes approximately 41.2% 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 the desired beneficial impact on our results of operations or financial condition. Termination of these hedging agreements typically
involves costs, such as transaction fees or breakage costs.
Risks Related to Tax Laws
We Would Incur Adverse Tax Consequences if UDR Failed to Qualify as a REIT. UDR has elected to be taxed as a REIT under the
Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under
highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method
of operation enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In
addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be
amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions
could adversely affect our ability to qualify as a REIT or adversely affect UDR’s stockholders.
If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including 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 REITs under the Code, and are therefore subject to the same risks in the event
that any such subsidiary fails to qualify as a REIT in any taxable year.
Dividends Paid By REITs Generally Do Not Qualify for Reduced Tax Rates. In general, the maximum U.S. federal income tax rate for
dividends paid to individual U.S. stockholders is 20%. Unlike dividends received from a corporation that is not a REIT, our 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
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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 and the DownREIT Partnership Intend to Qualify as Partnerships, But Cannot Guarantee That They Will
Qualify. The Operating Partnership and the DownREIT Partnership intend to qualify as partnerships for federal income tax purposes, and
intend to take that position for all income tax reporting purposes. If classified as partnerships, the Operating Partnership and the DownREIT
Partnership generally will not be taxable entities and will not incur federal income tax liability. However, the Operating Partnership and the
DownREIT Partnership would be treated as corporations for federal income tax purposes if they were “publicly traded partnerships,” unless at
least 90% of their income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership
interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof).
Although neither the Operating Partnership’s nor the DownREIT Partnership’s partnership units are traded on an established securities market,
because of the redemption rights of their limited partners, the Operating Partnership’s and DownREIT Partnership’s units held by limited
partners could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and the Operating Partnership and
the DownREIT Partnership may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90%
test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and
the definition of qualifying income for purposes of this 90% test are similar in most respects. The Operating Partnership and the DownREIT
Partnership may not meet this qualifying income test. If the Operating Partnership or the DownREIT Partnership were to be taxed as a
corporation, they would incur substantial tax liabilities, and UDR would then fail to qualify as a REIT for tax purposes, unless it qualified for
relief under certain statutory savings provisions, and our ability to raise additional capital would be impaired.
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
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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:
•
•
•
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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;
•
•
•
•
•
•
•
•
•
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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;
•
•
•
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strategic decisions by us or by our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or
changes in business strategy;
failure to satisfy listing requirements of the NYSE;
governmental regulatory action and changes in tax laws; and
the issuance of additional shares of UDR’s common stock, or the perception that such sales might occur, including under UDR’s at-
the-market equity distribution program.
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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.
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Item 2. PROPERTIES
At December 31, 2015, our consolidated apartment portfolio included 133 communities located in 18 markets, with a total of 40,728
completed apartment homes.
The tables below set forth a summary of real estate portfolio by geographic market of the Company and of the Operating Partnership at
December 31, 2015.
SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2015
UDR, INC.
Number of
Number of
Percentage of
Apartment
Apartment
Carrying
Communities
Homes
Value
Gross
Amount
(in
thousands)
Average
Average
Home Size
Encumbrances
Cost per
Physical
(in square
(in thousands)
Home
Occupancy
feet)
13
11
11
4
7
3
2
4,814
2,751
2,085
1,225
1,565
756
476
12.3% $
1,132,589
$
177,005 $ 235,270
9.1%
834,068
66,310
303,187
6.3%
583,077
57,525
279,653
4.8%
442,905
110,778
361,555
1.8%
164,948
—
105,398
1.3%
123,486
55,263
163,341
0.5%
46,902
—
98,534
95.3%
96.5%
96.7%
95.5%
97.0%
96.2%
97.5%
837
830
854
967
728
934
903
WEST REGION
Orange County, CA
San Francisco, CA
Seattle, WA
Los Angeles, CA
Monterey Peninsula, CA
Other Southern California
Portland, OR
MID-ATLANTIC REGION
Metropolitan D.C.
22
8,402
22.9%
2,108,521
407,067
250,955
94.6%
908
Baltimore, MD
Richmond, VA
SOUTHEAST REGION
Orlando, FL
Nashville, TN
Tampa, FL
Other Florida
NORTHEAST REGION
New York, NY
Boston, MA
SOUTHWEST REGION
Dallas, TX
Austin, TX
10
4
9
8
7
1
4
5
8
4
2,122
1,358
2,500
2,260
2,287
636
1,945
1,548
2,725
1,273
3.1%
287,435
65,778
135,455
96.7%
952
1.5%
141,228
34,567
103,997
96.1%
1,018
2.3%
211,624
62,383
84,650
2.1%
196,023
38,481
86,736
2.6%
240,220
30,943
105,037
96.9%
97.4%
97.0%
946
933
982
0.8%
82,192
39,179
129,233
96.6%
1,130
14.1%
1,293,394
—
664,984
97.4%
742
6.1%
544,000
77,066
351,421
85.5%
1,042
3.2%
297,126
112,095
109,037
1.6%
150,319
36,299
118,083
96.9%
97.2%
95.7%
851
913
898
Total Operating Communities
133
40,728
96.4%
8,880,057
1,370,739 $ 218,033
Real Estate Under Development
(a)
Land
Held for Disposition
Other
—
—
—
—
—
—
—
1.4%
124,072
1.0%
80,620
0.2%
12,606
—
—
1.0%
92,921
11,755
Total Real Estate Owned
133
40,728
100.0% $
9,190,276
$
1,382,494
(a) As of December 31, 2015, the Company was developing one wholly-owned community with 516 apartment homes, which has not been
completed.
23
SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2015
UNITED DOMINION REALTY, L.P.
Number of
Number of
Percentage of
Apartment
Apartment
Carrying
Communities
Homes
Value
Gross
Amount (in
thousands)
Average
Average
Home Size
Encumbrances
Cost per
Physical
(in square
(in thousands)
Home
Occupancy
feet)
8
9
5
2
7
2
2
6
4
6
2
1
2
1
57
—
57
3,499
2,209
932
344
1,565
516
476
2,068
732
1,612
942
636
996
387
20.7% $
751,329
$
177,005
$
214,727
15.8%
574,853
66,310
260,232
5.9%
215,883
22,591
231,634
3.0%
108,828
43,078
316,360
4.5%
164,948
—
105,398
2.5%
91,262
55,262
176,864
1.3%
46,902
—
98,534
95.6%
96.5%
97.2%
96.4%
97.0%
95.8%
97.5%
806
817
874
976
728
951
903
15.1%
549,110
32,037
265,527
92.7%
898
3.5%
127,840
42,701
174,645
96.3%
1,074
3.8%
137,495
2.8%
102,100
—
—
85,295
108,386
97.5%
925
97.0%
1,043
2.2%
82,192
39,179
129,233
96.6%
1,130
16.6%
601,147
1.9%
68,495
—
—
603,561
176,990
97.9%
690
96.4%
1,069
16,914
99.6%
3,622,384
478,163
$
214,165
96.2%
873
—
16,914
0.4%
8,521
—
100.0% $
3,630,905
$
478,163
WEST REGION
Orange County, CA
San Francisco, CA
Seattle, WA
Los Angeles, CA
Monterey Peninsula, CA
Other Southern California
Portland, OR
MID-ATLANTIC REGION
Metropolitan D.C.
Baltimore, MD
SOUTHEAST REGION
Nashville, TN
Tampa, FL
Other Florida
NORTHEAST REGION
New York, NY
Boston, MA
Total Operating
Communities
Other
Total Real Estate Owned
Item 3. LEGAL PROCEEDINGS
We are subject to various legal proceedings and claims arising in the ordinary course of business. We cannot determine the ultimate
liability with respect to such legal proceedings and claims at this time. We believe that such liability, to the extent not provided for through
insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
24
PART II
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
UDR, Inc.:
Common Stock
UDR, Inc.’s common stock has been listed on the New York Stock Exchange, 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.
2015
2014
Distributions
Distributions
High
Low
Declared
High
Low
Declared
Quarter ended March 31,
Quarter ended June 30,
Quarter ended September 30,
Quarter ended December 31,
$
$
$
$
35.22
$
31.37
34.17
$
31.62
35.67
$
31.14
37.89
$
33.77
$
$
$
$
0.2775
0.2775
0.2775
0.2775
$
$
$
$
26.63
$
23.27
28.64
$
25.28
30.30
$
27.18
31.74
$
27.27
$
$
$
$
0.2600
0.2600
0.2600
0.2600
On February 22, 2016, the closing sale price of our common stock was $34.40 per share on the NYSE, and there were 4,149 holders of
record of the 262,132,787 outstanding shares of our common stock.
We have determined that, for federal income tax purposes, approximately 55% of the distributions for 2015 represented ordinary income,
30% represented long-term capital gain, and 15% 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, 2015 and 2014 were $1.33 per share or $0.3322 per quarter. The
Series E is not listed on any exchange. At December 31, 2015, a total of 2,796,903 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. In connection with the
acquisition of properties from Home OP and the formation of the DownREIT Partnership in October 2015, we issued 13,988,313 Series F
shares at $0.0001 per share to former limited partners of the Home OP, which had the right to subscribe for one share of Series F for each
DownREIT Unit issued in connection with the acquisitions.
As of December 31, 2015, a total of 16,452,496 shares of the Series F were outstanding. Holders of the Series F are entitled to one vote
for each share of the Series F they hold, voting together with the holders of our common stock, on each
25
matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to any other rights,
privileges or preferences.
Distribution Reinvestment and Stock Purchase Plan
We have a Distribution Reinvestment and Stock Purchase Plan under which holders of our common stock may elect to automatically
reinvest their distributions and make additional cash payments to acquire additional shares of our common stock. Stockholders who do not
participate in the plan continue to receive distributions as and when declared. As of February 22, 2016, there were approximately 2,186
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, 2015, there were 183,278,698 OP Units outstanding
in the Operating Partnership, of which 174,225,399 OP Units or 95.1% were owned by UDR and affiliated entities and 9,053,299 OP Units or
4.9% were owned by non-affiliated limited partners. Under the terms of the Operating Partnership’s limited partnership agreement, the holders
of OP Units have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the holder in exchange for a
cash payment based on the market value of our common stock at the time of redemption. However, the Operating Partnership’s obligation to
pay the cash amount is subject to the prior right of the Company to acquire such OP Units in exchange for either the cash amount or the number
of shares of our common stock equal to the number of OP Units being redeemed. During 2015, we issued a total of 112,174 shares of common
stock upon redemption of OP Units.
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, 2015.
Period
Beginning Balance
October 1, 2015 through October 31, 2015
November 1, 2015 through November 30, 2015
December 1, 2015 through December 31, 2015
Total Number of
Shares Purchased
Average Price per
Share
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
Maximum
Number of
Shares that May
Yet Be Purchased
Under the Plans
or Programs (a)
9,967,490
$
22.00
9,967,490
15,032,510
—
—
—
—
—
—
—
—
—
15,032,510
15,032,510
15,032,510
Balance as of December 31, 2015
9,967,490
$
22.00
9,967,490
15,032,510
(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, 2015, 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, 2015.
26
Period
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
October 1, 2015 through October 31, 2015
November 1, 2015 through November 30, 2015
— $
—
December 1, 2015 through December 31, 2015
174,291
Total
174,291
$
—
—
33.73
33.73
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, 2010, in each of our common stock and the indices presented. Historical stock
price performance is not necessarily indicative of future stock price performance. The comparison assumes that all dividends are reinvested.
Period Ending
Index
UDR, Inc.
NAREIT Equity Apartment Index
US MSCI REITS
S&P 500
NAREIT Equity REIT Index
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
100.00
100.00
100.00
100.00
100.00
110.23
115.10
108.69
102.11
108.29
108.10
123.08
128.00
118.45
127.85
110.24
115.45
131.17
156.82
131.01
151.22
161.20
171.01
178.28
170.49
190.48
187.72
175.32
180.75
175.94
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, 2015. The table should be read in conjunction with each of UDR, Inc.’s
and the Operating Partnership’s respective consolidated financial statements and the notes thereto, and Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations, included elsewhere in this Report.
UDR, Inc.
Year Ended December 31,
(In thousands, except per share data
and apartment homes owned)
OPERATING DATA:
Rental income
2015
2014
2013
2012
2011
$
871,928
$
805,002
$
746,484
$
704,701
$
613,689
Income/(loss) from continuing operations
105,482
16,260
Income/(loss) from discontinued operations, net of tax
—
10
Net income/(loss)
357,159
159,842
Distributions to preferred stockholders
3,722
3,724
Net income/(loss) attributable to common stockholders
336,661
150,610
2,340
43,942
46,282
3,724
41,088
(46,305)
(126,869)
266,608
147,454
220,303
20,585
6,010
9,311
203,376
10,537
Common distributions declared
289,500
263,503
235,721
215,654
165,590
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/DownREIT Units and Common Stock equivalents
outstanding — diluted
1.30
$
0.60
$
(0.01) $
(0.22)
$
(0.65)
—
—
0.17
1.07
0.71
1.30
$
0.60
$
0.16
$
0.85
$
0.05
1.29
$
0.59
$
(0.01) $
(0.22)
$
(0.65)
—
—
0.17
1.07
0.71
1.29
$
0.59
$
0.16
$
0.85
$
0.05
258,669
251,528
249,969
238,851
201,294
263,752
253,445
249,969
238,851
201,294
276,699
265,728
263,926
252,659
214,086
Common distributions declared
$
1.11
$
1.04
$
0.94
$
0.88
$
0.80
Balance Sheet Data:
Real estate owned, at cost (a)
$
9,190,276
$
8,383,259
$
8,207,977
$
8,055,828
$
8,074,471
Accumulated depreciation (a)
2,646,874
2,434,772
2,208,794
1,924,682
1,831,727
Total real estate owned, net of accumulated depreciation (a)
6,543,402
5,948,487
5,999,183
6,131,146
6,242,744
Total assets (c)
Secured debt, net (a) (c)
Unsecured debt, net (c)
Total debt, net (c)
7,663,844
6,828,728
6,787,342
6,839,637
6,669,656
1,376,945
1,354,321
1,432,186
1,420,028
1,877,933
2,193,850
2,210,978
2,071,137
1,969,839
2,017,839
3,570,795
3,565,299
3,503,323
3,389,867
3,895,772
Total stockholders’ equity
$
2,899,755
$
2,735,097
$
2,811,648
$
2,992,916
$
2,314,050
Number of Common Shares outstanding
261,845
255,115
250,750
250,139
219,650
29
UDR, Inc.
Year Ended December 31,
(In thousands, except per share data
and apartment homes owned)
2015
2014
2013
2012
2011
OPERATING DATA (continued):
Other Data (a)
Total consolidated apartment homes owned (at end of year)
40,728
39,851
41,250
41,571
47,343
Weighted average number of consolidated apartment homes
owned during the year
39,501
40,644
41,392
42,747
48,531
Cash Flow Data:
Cash provided by/(used in) operating activities
$
431,615
$
392,360
$
339,902
$
327,187
$
251,411
Cash provided by/(used in) investing activities
(238,449)
(293,660)
(123,209)
(211,582)
(1,054,683)
Cash provided by/(used in) financing activities
(201,648)
(113,725)
(198,559)
(115,993)
806,289
Funds from Operations (b):
Funds from operations — basic
$
455,565
$
411,702
$
376,778
$
350,628
$
269,856
Funds from operations — diluted
459,287
415,426
380,502
354,532
273,580
(a)
Includes amounts classified as Held for Sale, where applicable.
(b)
Funds from operations, or FFO, is defined as net income attributable to common stockholders (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 noncontrolling
interests, 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 common stockholders.
30
(c)
The Company elected to early adopt Financial Accounting Standards Board (the “FASB”) Accounting Standards Updates (“ASU”)
2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt
Issuance Costs Associated with Line-of-Credit Arrangements, during the fourth quarter of 2015. See Note 2, Significant Accounting
Policies, in the Notes to the UDR, Inc. Consolidated Financial Statements included in this Report for a complete description of the ASUs
and their impact.
Under the ASUs, deferred financing costs related to debt are treated as offsets to the debt instead of assets while deferred financing
costs related to our credit facilities will continue to be treated as assets. As a result of adopting the ASUs, the following retrospective changes
were made to the above table:
2014
2013
2012
2011
Total assets - as previously reported
$
6,846,534
$
6,807,722
$ 6,859,103
$
6,692,254
Deferred financing costs related to secured debt
(7,208)
(9,891)
(10,107)
(13,620)
Deferred financing costs related to unsecured debt
(10,598)
(10,489)
(9,359)
(8,978)
Total assets - as presented above
$
6,828,728
$
6,787,342
$ 6,839,637
$
6,669,656
Secured debt - as previously reported
$
1,361,529
$
1,442,077
$ 1,430,135
$
1,891,553
Deferred financing costs related to secured debt
(7,208)
(9,891)
(10,107)
(13,620)
Secured debt, net - as presented above
$
1,354,321
$
1,432,186
$ 1,420,028
$
1,877,933
Unsecured debt - as previously reported
$
2,221,576
$
2,081,626
$ 1,979,198
$
2,026,817
Deferred financing costs related to unsecured debt
(10,598)
(10,489)
(9,359)
(8,978)
Unsecured debt, net - as presented above
$
2,210,978
$
2,071,137
$ 1,969,839
$
2,017,839
Total debt - as previously reported
$
3,583,105
$
3,523,703
$ 3,409,333
$
3,918,370
Deferred financing costs related to secured debt
(7,208)
(9,891)
(10,107)
(13,620)
Deferred financing costs related to unsecured debt
(10,598)
(10,489)
(9,359)
(8,978)
Total debt - as presented above
$
3,565,299
$
3,503,323
$ 3,389,867
$
3,895,772
31
United Dominion Realty, L.P.
Year Ended December 31,
(In thousands, except per OP unit data
and apartment homes owned)
OPERATING DATA:
Rental income
$
440,408
$
422,634
$
401,853
$
384,946
$
344,937
2015
2014
2013
2012
2011
Income/(loss) from continuing operations
56,940
33,544
—
215,063
213,301
—
97,179
96,227
32,766
45,176
77,942
73,376
(13,309)
(40,744)
57,643
44,334
43,982
70,973
30,229
30,159
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:
1.16
$
0.53
$
0.16
$
(0.07)
$
(0.22)
—
—
0.24
0.31
1.16
$
0.53
$
0.40
$
0.24
$
0.39
0.17
183,279
183,279
184,196
184,281
182,448
Real estate owned, at cost (a)
$
3,630,905
$
4,238,770
$
4,188,480
$
4,182,920
$
4,205,298
Accumulated depreciation (a)
1,281,258
1,403,303
1,241,574
1,097,133
976,358
Total real estate owned, net of accumulated depreciation
(a)
2,349,647
2,835,467
2,946,906
3,085,787
3,228,940
Total assets (b)
Secured debt, net (a) (b)
Total liabilities (b)
Total partners’ capital
2,554,808
2,873,809
2,987,393
3,130,182
3,283,983
475,964
927,484
929,017
961,167
1,181,461
833,478
1,139,758
1,184,296
1,211,426
1,430,614
1,713,412
1,703,001
1,795,934
1,917,299
2,034,792
Advances to/(from) General Partner
$
11,270
$
(13,624)
$
9,916
$
11,056
$
193,584
Number of OP units outstanding
183,279
183,279
183,279
184,281
184,281
Other Data:
Total consolidated apartment homes owned (at end of
year) (a)
16,974
20,814
20,746
21,660
23,160
Cash Flow Data:
Cash provided by/(used in) operating activities
$
226,765
$
208,032
$
208,346
$
201,095
$
156,071
Cash provided by/(used in) investing activities
23,583
(46,650)
(63,954)
4,273
(226,980)
Cash provided by/(used in) financing activities
(247,747)
(162,777)
(145,299)
(203,268)
70,693
(a)
Includes amounts
classified as Held for
Sale, where applicable.
32
(b) The Operating Partnership elected to early adopt FASB ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU
2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, during the
fourth quarter of 2015. See Note 2, Significant Accounting Policies, in the Notes to the Operating Partnership Consolidated Financial
Statements included in this Report for a complete description of the ASUs and their impact.
Under the ASUs, deferred financing costs related to debt are treated as offsets to the debt instead of assets. As a result of adopting the
ASUs, the following retrospective changes were made to the above table:
2014
2013
2012
2011
Total assets - as previously reported
$
2,878,284
$
2,993,241
$ 3,136,254
$
3,292,167
Deferred financing costs related to secured debt
(4,475)
(5,848)
(6,072)
(8,184)
Total assets - as presented above
$
2,873,809
$
2,987,393
$ 3,130,182
$
3,283,983
Secured debt - as previously reported
$
931,959
$
934,865
$
967,239
$
1,189,645
Deferred financing costs related to secured debt
(4,475)
(5,848)
(6,072)
(8,184)
Secured debt, net - as presented above
$
927,484
$
929,017
$
961,167
$
1,181,461
Total liabilities - as previously reported
$
1,144,233
$
1,190,144
$ 1,217,498
$
1,438,798
Deferred financing costs related to secured debt
(4,475)
(5,848)
(6,072)
(8,184)
Total liabilities - as presented above
$
1,139,758
$
1,184,296
$ 1,211,426
$
1,430,614
33
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 the 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;
34
•
•
our internal controls over financial reporting may not be considered effective which could result in a loss of investor confidence in our
financial reports, and in turn have an adverse effect on our stock price; and
changes in real estate laws, tax laws and other laws affecting our business.
A discussion of these and other factors affecting our business and prospects is set forth in Part I, Item 1A. Risk Factors. We encourage
investors to review these risk factors.
Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a
representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.
Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly
disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our
expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to
the extent otherwise required by law.
The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is
based primarily on the consolidated financial statements and the accompanying notes for the years ended December 31, 2015, 2014 and 2013
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 and the DownREIT Partnership. Unless the context otherwise requires, all
references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc., its subsidiaries and its consolidated
joint ventures.
At December 31, 2015, our consolidated real estate portfolio included 133 communities in 10 states plus the District of Columbia totaling
40,728 apartment homes, and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 28
communities with 6,696 apartment homes.
At December 31, 2015, the Company was developing one wholly-owned community with 516 apartment homes and four unconsolidated
joint venture communities with 1,173 apartment homes, none of which have been completed. In addition, the Company was redeveloping 264
apartment homes, 11 of which have been completed, at two wholly-owned communities and was redeveloping one wholly-owned community
with renovations to the building exterior, corridors, and common area amenities, with no impact to individual 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.
35
In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital
project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead
related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs
meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities
necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the
asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Company ceases
capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total Real Estate Owned, Net of
Accumulated Depreciation. Amounts capitalized during the years ended December 31, 2015, 2014, and 2013 were $22.4 million, $29.2 million,
and $40.5 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.
36
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, 2015 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, 2015.
As of December 31, 2015
Year Ended December 31, 2015
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)
10
8
8
4
7
3
2
14
10
4
9
8
7
1
3,357
1,915
1,656
1,225
1,565
756
476
4,568
2,122
1,358
2,500
2,260
2,287
636
7.6% $
690,699
95.9% $
1,919
$
56,095
5.2%
479,304
96.8%
4.6%
423,373
97.2%
4.8%
442,905
95.5%
1.8%
164,950
97.0%
1.3%
123,482
96.2%
0.5%
46,902
97.5%
10.9%
995,225
96.6%
3.1%
287,435
96.7%
1.5%
141,228
96.1%
2.3%
211,626
96.9%
2.1%
196,024
97.4%
2.7%
240,218
97.0%
0.9%
82,192
96.6%
2,909
1,843
2,486
1,344
1,636
1,303
1,912
1,482
1,241
1,103
1,113
1,201
1,422
50,032
25,547
25,662
17,729
10,339
5,278
68,638
25,419
14,267
21,921
20,472
20,661
6,766
Same-Store Communities
West Region
Orange County, CA
San Francisco, CA
Seattle, WA
Los Angeles, CA
Monterey Peninsula, CA
Other Southern California
Portland, OR
Mid-Atlantic Region
Metropolitan D.C.
Baltimore, MD
Richmond, VA
Southeast Region
Orlando, FL
Nashville, TN
Tampa, FL
Other Florida
Northeast Region
New York, NY
Boston, MA
Southwest Region
Dallas, TX
Austin, TX
Total/Average Same-Store Communities
Non Mature, Commercial Properties &
Other
Total Real Estate Held for Investment
Real Estate Under Development (b)
Real Estate Held for Disposition (c)
Total Real Estate Owned
Total Accumulated Depreciation
Total Real Estate Owned, Net of
Accumulated Depreciation
3
4
8
4
114
19
133
—
—
133
1,205
1,179
2,725
1,273
8.3%
756,733
97.9%
3.8%
352,621
96.7%
3.4%
304,198
96.9%
1.6%
146,107
97.2%
3,820
2,337
1,190
1,345
41,554
22,985
24,038
11,729
33,063
66.4%
6,085,222
96.7% $
1,721
469,132
7,665
32.1%
2,968,377
40,728
98.5%
9,053,599
—
—
1.4%
124,072
0.1%
12,605
123,556
592,688
(114)
21,295
40,728
100.0%
9,190,276
$
613,869
(2,646,874)
$
6,543,402
(a)
Monthly Income per Occupied Home represents total monthly revenues divided by the average physical number of occupied
apartment homes in our same-store portfolio.
37
(b)
As of December 31, 2015, the Company was developing one wholly-owned community with 516 apartment homes, none of which
have been completed.
(c)
The Company had one property located in Los Angeles, CA that met the criteria to be classified as held for disposition at December
31, 2015.
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, 2014 and
held as of December 31, 2015. 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/or dispositions of properties.
We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC,” which provides for the issuance of
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.
On August 24, 2015, the Company sold 2,900,000 shares of its common stock for aggregate gross proceeds of approximately $101.5
million at a price per share of $35.00. Aggregate net proceeds from the sale, after deducting the underwriting discount and offering-related
expenses, were approximately $101.4 million, which were used for working capital and general corporate purposes.
On September 22, 2015, the Company issued $300 million of 4.00% senior unsecured medium-term notes due October 1, 2025. Interest
is payable semi-annually beginning on April 1, 2016. The notes were priced at 99.77% of the principal amount at issuance. We used the net
proceeds to pay down a portion of the borrowings outstanding on our prior $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 may 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, 2015, the Company sold 3,439,636 shares of common stock through this program for aggregate gross proceeds of
approximately $111.0 million at a weighted average price per share of $32.29. Aggregate net proceeds from such sales, after deducting related
expenses, including commissions paid to the sales agents of approximately $2.2 million, were approximately $108.7 million, which were
primarily used to fund the Company's development and
38
redevelopment projects. As of December 31, 2015, we had 13.1 million shares of common stock available for future issuance under the April
2012 program.
On October 20, 2015, the Company entered into a credit agreement that provides for a $1.1 billion senior unsecured revolving credit
facility and a $350.0 million senior unsecured term loan facility. The credit agreement includes an accordion feature that allows the total
commitments under the revolving credit facility and the total borrowings under the term loan facility to be increased to an aggregate maximum
amount of up to $2.0 billion, subject to certain conditions. The revolving credit facility has a scheduled maturity date of January 31, 2020, with
two six-month extension options, subject to certain conditions. The term loan facility has a scheduled maturity date of January 29, 2021. The
credit agreement replaced the Company’s prior $900 million revolving credit facility, scheduled to mature in December 2017, and the
Company’s $250 million and $100 million term loans, both due June 2018 (see Note 6, Secured and Unsecured Debt, Net, in the Notes to the
UDR, Inc. Consolidated Financial Statements included in this Report).
On December 18, 2015, the Company entered into a working capital credit facility, which provides for a $30 million unsecured revolving
credit facility with a scheduled maturity date of January 1, 2019 (see Note 6, Secured and Unsecured Debt, Net, in the Notes to the UDR, Inc.
Consolidated Financial Statements included in this Report).
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 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 2016, we have approximately $149.1 million of secured debt maturing, inclusive of principal amortization, and $95.1 million of
unsecured debt maturing. In January 2016, we paid off $83.3 million of 5.25% medium-term notes due January 2016 with borrowings under
the Company’s $1.1 billion 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, 2015, 2014, and 2013.
Operating Activities
For the year ended December 31, 2015, Net cash provided by/(used in) operating activities was $431.6 million compared to $392.4
million for 2014. The increase in cash flow from operating activities was primarily due to improved income from continuing operations
primarily driven by revenue growth at the communities.
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 is primarily due to improved income from continuing operations and
changes in operating assets and liabilities.
Investing Activities
For the year ended December 31, 2015, Net cash provided by/(used in) investing activities was $(238.4) million compared to $(293.7)
million for 2014. The decrease in cash used in investing activities is primarily related to decreased spend on consolidated development projects,
partially offset by increased acquisitions of real estate, capital expenditures and major improvements, and issuances of notes receivable.
For the year ended December 31, 2014, Net cash provided by/(used in) investing activities was $(293.7) million compared to $(123.2)
million in 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.
39
Acquisitions
In October 2015, the Company completed the acquisition of six Washington, D.C. area properties from Home Properties, L.P., a New
York limited partnership (“Home OP”), for a total contractual purchase price of $900.6 million, which was comprised of $564.8 million of
DownREIT Units in the newly formed DownREIT Partnership issued at $35 per unit (a total of 16.1 million units), the assumption of $89.3
million of debt, $221.0 million of reverse Section 1031 exchanges, and $25.5 million of cash. In addition, the Company issued approximately
14.0 million shares of its Series F Preferred Stock to former limited partners of Home OP, which had the right to subscribe for one share of
Series F Preferred Stock for each DownREIT Unit issued in connection with the acquisitions. For additional information regarding the
DownREIT Partnership, see Note 11, Noncontrolling Interests, in the notes to the UDR Consolidated Financial Statements included in this
report.
Of the six properties acquired from Home OP, four were acquired through the DownREIT Partnership, one was acquired by the Company
through a reverse Section 1031 exchange and one was acquired by the Operating Partnership through a reverse Section 1031 exchange.
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. All existing leases were assumed by the Company at the time of
the acquisition.
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 Section 1031 exchanges.
The Company did not acquire any real estate assets in 2013.
Capital Expenditures
We capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an
existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.
For the year ended December 31, 2015, total capital expenditures of $111.3 million or $2,818 per stabilized home, which in aggregate
include recurring capital expenditures and major renovations, were spent on all of our communities, excluding development and commercial
properties, as compared to $90.1 million or $2,274 per stabilized home for the prior year.
The increase in total capital expenditures was primarily due to an increase in revenue-enhancing improvements of 125.2% or $18.3
million. Revenue-enhancing improvements of $33.0 million or $835 per home were spent for the year ended December 31, 2015 as compared
to $14.6 million or $370 per home for the prior year. The increase is primarily attributable to capital expenditures related to kitchen and bath
remodels and upgrades to common areas.
40
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, 2015 and 2014 (dollars in thousands):
Per Home
Year Ended December 31,
Year Ended December 31,
2015
2014
% Change
2015
2014
% Change
Turnover capital expenditures $
12,108 $
12,160
(0.4)% $
307 $
Asset preservation expenditures
33,359
31,761
5.0%
845
307
801
Total recurring capital
expenditures
Revenue-enhancing
improvements
Major renovations
Total capital expenditures
Repair and maintenance
expense
$
$
Average stabilized home count
(a)
45,467
43,921
3.5%
1,151
1,108
32,979
32,877
14,647
31,547
125.2%
4.2%
835
832
370
796
111,323 $
90,115
23.5% $
2,818 $
2,274
31,636 $
31,288
1.1% $
801 $
789
1.5%
39,501
39,637
—%
5.5%
3.9%
125.7%
4.5%
23.9%
(a) Average number of homes is calculated based on the number of stabilized homes outstanding at the end of each month. A community’s homes
are considered stabilized once 90% occupancy has been achieved for at least three consecutive months.
The above 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.
Real Estate Under Development and Redevelopment
At December 31, 2015, our development pipeline for one wholly-owned community totaled 516 homes with a budget of $342.0 million,
in which we have a carrying value of $124.1 million. The estimated completion date for this community is the first quarter of 2018. During
2015, we incurred $103.2 million for development costs, a decrease of $148.3 million from our 2014 level of $251.5 million.
The following wholly-owned projects were under development or recently completed as of December 31, 2015 (dollars in thousands):
Number of
Completed
Estimated
Expected
Apartment
Apartment
Cost to
Budgeted
Cost
Completion
Location
Homes
Homes
Date
Cost
Per Home
Date
Projects Under Construction:
Pacific City
Huntington Beach,
CA
Completed Projects, Non-Stabilized:
516
—
$
124,072
$
342,000
$
663
1Q2018
N/A
N/A
—
—
—
—
—
Total Projects
516
— $
124,072
$
342,000
$
663
At December 31, 2015, the Company was redeveloping 264 apartment homes, 11 of which have been completed, at two wholly-owned
communities and was redeveloping one wholly-owned community with renovations to the building exterior, corridors, and common area
amenities, with no impact to individual homes. During the year ended December 31, 2015, we incurred $32.9 million in major renovations,
which include major structural changes and/or architectural revisions to existing
41
buildings, an increase of $1.3 million from our 2014 level of $31.5 million. The estimated completion dates for these communities is one in the
first quarter of 2016 and the remaining two in the first quarter 2017.
At December 31, 2015, the following communities were in redevelopment (dollars in thousands):
Number of
Apartment
Location
Homes
Scheduled
Redevelopment
Homes
Completed
Estimated
Expected
Apartment
Cost to
Budgeted
Cost
Completion
Homes
Date
Cost
Per Home
Date
San Francisco,
CA
San Francisco,
CA
Bellevue, WA
2000 Post
Edgewater
Borgata
Apartment
Homes
Total
328
193
71
592
—
$
9,848
$
15,000
$
—
1Q2016
—
245
9,000
47
1Q2017
11
1,209
4,000
11
$
11,302
$
28,000
$
1Q2017
56
49
—
193
71
264
42
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.
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, 2015 and 2014 (dollars in thousands):
Number of
Properties
Number of
Apartment
Homes
Investment at
UDR’s Ownership
Interest
Joint Venture
Location of
Properties
December 31,
2015
December 31,
2015
December
31,
2015
December
31,
2014
December 31,
2015
December
31,
2014
Operating and development:
UDR/MetLife I
Various
4 land parcels
—
$ 15,894 $ 13,306
17.2%
15.7%
UDR/MetLife II
(a)
Various
21 operating
communities
4,642
425,230
431,277
50.0%
50.0%
1 operating
community;
4 development
communities (b);
Various
1 land parcels
1,437
171,659
134,939
50.6%
50.6%
3 operating
communities;
Addison, TX
6 land parcels
1,130
73,469
80,302
50.0%
50.0%
Other
UDR/MetLife
Development Joint
Ventures
UDR/MetLife
Vitruvian Park®
UDR/KFH
Washington,
D.C.
3 operating
communities
Texas (c)
Texas
—
Investment in and advances to unconsolidated joint
ventures, net, before participating loan investment and
preferred equity investment
660
—
17,211
21,596
30.0%
30.0%
— (25,901)
—%
20.0%
703,463
655,519
Investment at
Income from investments
for the years ending
December 31,
Location
Rate
Years To
Maturity
December
31,
2015
December
31,
2014
2015
2014
2013
Participating loan investment:
Steele Creek
Denver, CO
6.5%
1.6
90,747
62,707 $ 5,453 $ 2,350 $ 156
Preferred equity investment:
West Coast
Development Joint
Venture (d)
Various
6.5%
—
144,696
— $ 3,692 $
— $ —
Total investment in and advances to unconsolidated joint ventures, net
$ 938,906 $ 718,226
(a)
In September 2015, the 717 Olympic community, which is held by the UDR/MetLife II joint venture,
experienced extensive water damage due a ruptured water pipe. For the year ended December 31, 2015,
the Company recorded losses of $2.5 million, its proportionate share of the total losses incurred.
43
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, 2015, no apartment homes had been completed in Other UDR/MetLife Development Joint Ventures.
(c)
(d)
In January 2015, the eight communities held by the Texas joint venture were sold, generating net proceeds to UDR of $44.2 million.
The Company recorded promote and fee income of $10.0 million and a gain of $59.4 million (including $24.2 million of previously
deferred gains) in connection with the sale.
In May 2015, the Company entered into a joint venture agreement with real estate private equity firm, The Wolff Company
(“Wolff”), and agreed to pay $136.3 million for a 48 percent ownership interest in a portfolio of five communities that are currently
under construction (the "West Coast Development Joint Venture"). The communities are located in three of the Company’s core,
coastal markets: Metro Seattle, Los Angeles and Orange County, CA. UDR earns a 6.5 percent preferred return on its investment
through each individual community’s date of stabilization, defined as when a community reaches 80 percent occupancy for ninety
consecutive days, while Wolff is allocated all operating income and expense during the pre-stabilization period. Upon stabilization,
income and expense will be shared based on each partner’s ownership percentage. The Company will serve as property manager and
be paid a management fee during the lease-up phase and subsequent operation of each of the communities. Wolff is the general
partner of the joint venture and the developer of the communities.
The Company has a fixed price option to acquire Wolff’s remaining interest in each community beginning one year after completion.
If the options are exercised for all five communities, the Company’s total price will be $597.4 million. In the event the Company does not
exercise its options to purchase at least two communities, Wolff will be entitled to earn a contingent disposition fee equal to 6.5 percent return
on its implied equity in the communities not acquired. Wolff is providing certain guaranties and there are construction loans on all five
communities. Once completed, the five communities will contain 1,533 homes.
The Company has concluded it does not control the joint venture and accounts for it under the equity method of accounting. The
Company's recorded equity investment in the West Coast Development Joint Venture at December 31, 2015 of $144.7 million is inclusive of
outside basis costs and our accrued but unpaid preferred return. During the year ended December 31, 2015, the Company earned a preferred
return of $5.2 million, offset by its share of the West Coast Development Joint Venture transaction expenses of $1.5 million.
Dispositions
During the year ended December 31, 2015, the Company sold 12 communities with a total of 2,735 apartment homes for gross proceeds
of $408.7 million, resulting in net proceeds of $387.7 million and a total gain of $251.7 million. A portion of the sale proceeds was designated
for tax-deferred Section 1031 exchanges for a 2014 acquisition and the October 2015 acquisitions described above.
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 Section 1031 exchanges 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.
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, 2015, 2014 and 2013, Net cash provided by/(used in) financing activities was $(201.6) million, $113.7
million and $(198.6) million, respectively.
44
The following significant financing activities occurred during the year ended December 31, 2015:
repaid $194.0 million of secured debt;
repaid $325.2 million of 5.25% unsecured medium-term notes due January 2015;
entered into a $350.0 million senior unsecured term loan facility due January 2021, which replaced the Company’s $250 million term
loan and $100 million term loan that were scheduled to mature in June 2018;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
entered into a new $1.1 billion revolving credit facility with a maturity date in January 2020, exclusive of options to extend, which
replaced the prior $900 million revolving credit facility that was scheduled to mature in December 2017;
issued $300.0 million of 4.00% senior unsecured medium-term notes due October 1, 2025;
sold 6,339,636 shares of common stock for aggregate net proceeds of approximately $210.0 million after deducting related expenses;
net repayments of $2.5 million under the Company’s $1.1 billion unsecured revolving credit facility; and
paid distributions of $283.2 million to our common stockholders.
The following significant financing activities occurred during the year ended December 31, 2014:
repaid $81.0 million of secured debt;
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 prior $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, 2015, we had secured credit facilities with Fannie Mae with an aggregate commitment of $813.8 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 had $514.5 million of the balance fixed at a weighted average interest rate of 5.23% and the remaining balance
of $299.4 million had a weighted average variable rate of 1.71%.
As of December 31, 2015, the Company had a $1.1 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”)
and a $350.0 million senior unsecured term loan facility (the “Term Loan Facility”). The credit agreement includes an accordion feature that
allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan Facility to be increased to an
aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from any one or more
lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2020, with two six-month extension options, subject to
certain conditions. The Term Loan Facility has a scheduled maturity date of January 29, 2021.
The Credit Agreement replaced (i) the Company’s $900 million revolving credit facility scheduled to mature in December 2017 and (ii)
the Company’s $250 million term loan and the Company’s $100 million term loan, both due June 2018.
45
As of December 31, 2015, based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to
LIBOR plus a margin of 90 basis points and a facility fee of 15 basis points, and the Term Loan Facility has an interest rate equal to LIBOR
plus a margin of 95 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 85 to
155 basis points and the facility fee ranges from 12.5 to 30 basis points, and the margin under the Term Loan Facility ranges from 90 to 175
basis points.
In December 2015, the Company entered into a working capital credit facility, which provides for a $30 million unsecured revolving credit
facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 1, 2019. Based on the Company’s current credit
rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s
credit rating, the margin ranges from 85 to 155 basis points.
The Fannie Mae credit facilities and the bank unsecured revolving credit facilities are subject to customary financial covenants and
limitations. As of December 31, 2015, 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 $610.4 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2015. If market
interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $8.0 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 the UDR Consolidated Financial Statements
included in this Report for additional discussion of derivate instruments.
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 attributable to common stockholders (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 noncontrolling interests, unconsolidated partnerships and joint ventures. This
definition conforms with the National Association of Real Estate Investment Trust’s (“NAREIT”) definition issued in April 2002. 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 FFO, diluted, if OP Units,
DownREIT Units, unvested restricted stock, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they
are included in the diluted share count.
Activities of our taxable REIT subsidiaries (“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.
46
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/(loss) attributable to common stockholders 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 (“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/(loss) attributable to common stockholders is the most directly comparable GAAP financial
measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will
enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for
calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be
considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an
alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to make distributions.
47
The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFO as Adjusted, and
AFFO for the years ended December 31, 2015, 2014, and 2013 (dollars in thousands):
Year Ended December 31,
2015
2014
2013
Net income/(loss) attributable to common stockholders
$
336,661
$
150,610
$
41,088
Real estate depreciation and amortization, including discontinued operations
374,598
358,154
341,490
Noncontrolling interests
Real estate depreciation and amortization on unconsolidated joint ventures
16,776
38,652
5,508
1,470
42,133
33,180
Net (gain)/loss on the sale of unconsolidated depreciable property
(59,445)
—
—
Net (gain)/loss on the sale of depreciable property, excluding TRS
(251,677)
(144,703)
(40,450)
Funds from operations (“FFO”) attributable to common stockholders and unitholders,
basic
$
455,565
$
411,702
$
376,778
Distribution to preferred stockholders — Series E (Convertible)
3,722
3,724
3,724
FFO attributable to common stockholders and unitholders, diluted
FFO per common share and unit, basic
FFO per common share and unit, diluted
$
$
$
459,287
$
415,426
1.68
$
1.66
$
1.58
1.56
$
$
$
380,502
1.45
1.44
Weighted average number of common shares and OP/DownREIT Units outstanding —
basic
271,616
260,775
259,306
Weighted average number of common shares, OP/DownREIT Units, and common stock
equivalents outstanding — diluted
276,699
265,728
263,926
Impact of adjustments to FFO:
Acquisition-related costs/(fees), including joint ventures
$
3,586
$
442
$
(254)
Costs/(benefit) associated with debt extinguishment and other
Texas joint venture promote and disposition fee income
Long-term incentive plan transition costs
(Gain)/loss on sale of land
Net gain on prepayment of note receivable
Legal claims, net of tax
Tax benefit associated with the conversion of certain TRS entities into REITs
Gain on sale of TRS property
—
(10,005)
3,537
—
—
705
—
—
192
—
—
1,056
(8,411)
—
(5,770)
178
—
—
—
—
—
—
(2,651)
Casualty-related (recoveries)/charges, including joint ventures, net
4,809
541
(9,665)
FFO as Adjusted attributable to common stockholders and unitholders, diluted
FFO as Adjusted per common share and unit, diluted
Recurring capital expenditures
AFFO attributable to common stockholders and unitholders
AFFO per common share and unit, diluted
48
$
$
$
$
$
2,632
$
(11,950) $
(12,392)
461,919
$
403,476
$
368,110
1.67
$
1.52
$
1.39
(45,467)
(43,921)
(42,707)
416,452
$
359,555
$
325,403
1.51
$
1.35
$
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, 2015, 2014, and 2013 (shares in thousands):
Year Ended December 31,
2015
2014
2013
Weighted average number of common shares and OP/DownREIT Units outstanding — basic
271,616
260,775
259,306
Weighted average number of OP/DownREIT Units outstanding
(12,947)
(9,247)
(9,337)
Weighted average number of common shares outstanding — basic per the Consolidated
Statements of Operations
258,669
251,528
249,969
Weighted average number of common shares, OP/DownREIT Units, and common stock
equivalents outstanding — diluted
276,699
265,728
263,926
Weighted average number of OP/DownREIT Units outstanding
(12,947)
(9,247)
(9,337)
Weighted average incremental shares from assumed conversion of stock options
Weighted average incremental shares from unvested restricted stock
—
—
—
—
(1,169)
(415)
Weighted average number of Series E preferred shares outstanding
—
(3,036)
(3,036)
Weighted average number of common shares outstanding — diluted per the Consolidated
Statements of Operations
263,752
253,445
249,969
A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):
Year Ended December 31,
2015
2014
2013
Net cash provided by/(used in) operating activities
431,615
392,360
339,902
Net cash provided by/(used in) investing activities
(238,449)
(293,660)
(123,209)
Net cash provided by/(used in) financing activities
(201,648)
(113,725)
(198,559)
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, 2015, 2014 and 2013, and includes the results of both continuing and discontinued operations for the periods
presented.
Net Income/(Loss) Attributable to Common Stockholders
2015 -vs- 2014
Net income attributable to common stockholders was $336.7 million ($1.29 per diluted share) for the year ended December 31, 2015 as
compared to net income of $150.6 million ($0.59 per diluted share) for the prior year. The increase in net income attributable to common
stockholders for the year ended December 31, 2015 resulted primarily from the following items, all of which are discussed in further detail
elsewhere within this Report:
•
•
•
gains of $251.7 million on the sale of real estate during the year ended December 31, 2015 compared to $143.6 million during the year
ended December 31, 2014. During the year ended December 31, 2015, gains consisted of the sale of 12 communities with a total of
2,735 apartment homes for gross proceeds of $408.7 million, resulting in net proceeds of $387.7 million;
income from unconsolidated entities of $62.3 million, which includes a gain of $59.4 million (including $24.2 million of previously
deferred gains) in connection with the sale of the eight communities held by the Texas joint venture; and
an increase in total property NOI due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in
service related to acquisitions, development and redevelopment projects completed in 2015 and 2014, partially offset by the
disposition of communities in 2015 and 2014.
49
This was partially offset by:
•
a decrease in Interest income and other income/(expense), net of $10.3 million primarily due to a net gain of $8.4 million on the early
settlement of a note receivable in July 2014.
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.
an increase in total property 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;
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 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.
50
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):
Year Ended December 31, (a)
Year Ended December 31, (b)
2015
2014
% Change
2014
2013
% Change
Same-Store Communities:
Same-store rental income
$
660,142
$
625,037
5.6% $
630,966 $
604,729
Same-store operating expense (c)
(191,010)
(185,379)
Same-store NOI
469,132
439,658
3.0%
6.7%
(190,128)
(185,512)
440,838
419,217
4.3%
2.5%
5.2%
Non-Mature Communities/Other NOI:
Acquired communities NOI
Sold or held for sale communities NOI
Development communities NOI
Redevelopment communities NOI
Commercial NOI and other
16,247
21,292
29,677
60,558
16,963
1,370
1,085.9%
17,788
14,997
18.6%
40,380
(47.3)%
14,108
28,662
(50.8)%
10,947
171.1%
26,492
4,920
438.5%
52,450
11,516
15.5%
47.3%
45,578
36,229
11,517
10,016
25.8%
15.0%
21.8%
Total non-mature communities/other NOI
144,737
116,663
24.1%
115,483
94,824
Total Property NOI
$
613,869
$
556,321
10.3% $
556,321 $
514,041
8.2%
(a) Same-store consists of 33,063 apartment homes.
(b) Same-store consists of 34,581 apartment homes.
(c) 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):
Year Ended December 31,
2015
2014
2013
Total property NOI
$
613,869 $
556,321
$
514,041
Joint venture management and other fees
22,710
13,044
12,442
Property management
Other operating expenses
(23,978)
(22,142)
(20,780)
(9,708)
(8,271)
(7,136)
Real estate depreciation and amortization
(374,598)
(358,154)
(341,490)
General and administrative
(59,690)
(47,800)
(42,238)
Casualty-related recoveries/(charges), net
Other depreciation and amortization
Income/(loss) from unconsolidated entities
Interest expense
Interest income and other income/(expense), net
Tax benefit/(provision), net
(2,335)
(6,679)
62,329
(541)
(5,775)
(7,006)
12,253
(6,741)
(415)
(121,875)
(130,454)
(126,083)
1,551
3,886
11,837
15,136
4,681
7,299
Gain/(loss) on sale of real estate owned, net of tax
251,677
143,647
40,449
Net (income)/loss attributable to redeemable noncontrolling interests in the
Operating Partnership and DownREIT Partnership
(16,773)
(5,511)
(1,530)
Net (income)/loss attributable to noncontrolling interests
(3)
3
60
Net income/(loss) attributable to UDR, Inc.
$
340,383 $
154,334
$
44,812
51
Same -Store Communities
2015 -vs- 2014
Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2014 and held on December 31,
2015) consisted of 33,063 apartment homes and provided 76.4% of our total NOI for the year ended December 31, 2015.
NOI for our same-store community properties increased $29.5 million or 6.7% for the year ended December 31, 2015 compared to 2014.
The increase in property NOI was attributable to a 5.6% or $35.1 million increase in property rental income, which was partially offset by a
3.0% or $5.6 million increase in operating expenses. The increase in revenues was primarily driven by a 5.1% or $30.4 million increase in
rental rates and a 6.5% or $2.9 million increase in reimbursement and fee income. Physical occupancy remained the same at 96.7% and total
monthly income per occupied home increased by 5.5% to $1,721.
The increase in operating expenses was primarily driven by a 2.9% or $1.8 million increase in real estate tax, a 4.9% or $1.5 million
increase in utilities expense, and a 3.1% or $1.4 million increase in personnel 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 71.1% for the year ended December 31, 2015 as compared to 70.3% for
2014.
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 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.
Non-Mature Communities/Other
2015 -vs- 2014
The remaining $144.7 million or 23.6% of our total NOI for the year ended December 31, 2015 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 include communities recently 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 24.1% or $28.1 million for the year
ended December 31, 2015 compared to 2014. The increase was primarily driven by an increase in NOI of $18.7 million or 171.1% from
development communities, $14.9 million or 1,085.9% from communities acquired in 2015 and 2014 and $8.1 million or 15.5% from
redevelopment communities completed in 2015 and 2014, which was partially offset by a decrease in NOI of $19.1 million or 47.3% from
communities sold in 2015 and 2014.
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. NOI from non-mature communities increased by 21.8% or $20.7 million for the year ended December 31, 2014 compared
to 2013. The increase was primarily driven by an 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 a decrease in NOI of 50.8% or $14.6
million from communities sold in 2014 and 2013.
52
Joint Venture Management and Other Fees
For the years ended December 31, 2015, 2014 and 2013, we recognized income joint venture management and other fees of $22.7
million, $13.0 million, and $12.4 million, respectively. The increased income in 2015 as compared to 2014 and 2013 was attributable to the
promote and fee income of $10.0 million recognized in connection with the sale of the Texas joint venture.
Real Estate Depreciation and Amortization
For the year ended December 31, 2015, real estate depreciation and amortization increased 4.6% or $16.4 million as compared to 2014.
The increase in depreciation and amortization for the year ended December 31, 2015 was primarily due to newly acquired communities and
homes placed in service related to our development and redevelopment communities completed in 2015 and 2014, partially offset by a decrease
from sold communities and fully depreciated assets.
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.
General and Administrative
For the year ended December 31, 2015, general and administrative expense increased 24.9% or $11.9 million from 2014. The increase
was primarily due to a $5.0 million increase in bonus expense, a $4.6 million increase in stock based compensation expense for awards under
the long-term incentive plan, of which $3.5 million was due to the transition from a one-year to a three-year performance period, a $1.8 million
increase in acquisition-related costs, and salary and benefit increases.
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 for awards under the long-term incentive plan and salary and
benefit increases.
Interest Expense
For the year ended December 31, 2015, interest expense decreased by 6.6% or $8.6 million as compared to 2014. The decrease in
interest expense was primarily due to the repayment of the $325.2 million medium term notes in January 2015 and the replacement of debt at
lower rates.
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 to lower 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 $3.9 million, $15.1 million and $7.3 million for the years ended December 31,
2015, 2014 and 2013, respectively. The decrease from 2014 to 2015, and the increase from 2013 to 2014, was 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 remaining decrease is a
result of the conversion of certain TRS subsidiaries to REITs in 2014, causing a zero rate to be applied to its 2015 income.
53
Casualty-Related (Recoveries)/Charges, Net
During the year ended December 31, 2015, the Company recorded $2.3 million of casualty-related losses due to property damage caused
by the severe snow storms on the east coast in early 2015 and water damage at a community, all of which are included in Casualty-related
charges/(recoveries), net on the Consolidated Statements of Operations.
During the year ended December 31, 2014, the Company recorded $0.5 million 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 charges/(recoveries), net on the
Consolidated Statements of Operations.
During the year ended December 31, 2013, the Company recorded $12.3 million of casualty-related recoveries related to damage caused
by Hurricane Sandy on the east coast in October 2012, all of which are included in Casualty-related charges/(recoveries), net on the
Consolidated Statements of Operations.
Income/(Loss) from Unconsolidated Entities
For the years ended December 31, 2015, 2014 and 2013, we recognized income/(loss) from unconsolidated entities of $62.3 million,
$(7.0) million, and $(0.4) million, respectively. These income/(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. The increase
in income in 2015 as compared to 2014 was primarily due to the sale of eight communities held by the Texas joint venture, generating gains of
$59.4 million. The increased loss in 2014 as compared to 2013 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 Income and Other Income/(Expense), Net
For the years ended December 31, 2015, 2014 and 2013, we recognized Interest income and other income/(expense), net of $1.6 million,
$11.9 million, and $4.6 million, respectively. The decrease in 2015 as compared to 2014, as well as the increase in 2014 as compared to 2013,
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, 2015, the Company sold 12 communities with a total of 2,735 apartment homes for gross proceeds
of $408.7 million, resulting in net proceeds of $387.7 million and a total gain of $251.7 million. A portion of the sale proceeds were designated
for tax-deferred Section 1031 exchanges for acquisitions that occurred in 2014 and 2015.
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 Section 1031 exchanges and was used to fund acquisitions of real estate.
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 year ended December 31, 2013, we recognized gains, net of tax, of $41.9 million on the sale of two communities consisting of
914 apartment homes. These gains are included in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of
Operations of UDR included this Report. Changes in the level of gains recognized from period to period reflect the changing level of our
divestiture activity as well as the extent of gains related to specific property sold.
54
Noncontrolling Interest
For the years ended December 31, 2015, 2014 and 2013, we recognized net income attributable to redeemable noncontrolling interests in
the Operating Partnership and the DownREIT Partnership of $16.8 million, $5.5 million, and $1.5 million, respectively. The increase in 2015
as compared to 2014 is primarily attributable to an increase in the number of shares held by third-party noncontrolling interest holders as a
result of the formation of the DownREIT Partnership as well as increased net income of the Operating Partnership. The increase from 2013 to
2014 is primarily attributable to increased net income of the Operating Partnership.
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, 2015.
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, 2015 (dollars in thousands):
Payments Due by Period
Contractual Obligations
2016
2017-2018
2019-2020
Thereafter
Total
Long-term debt obligations
$
244,111
$
786,591
$
936,160
$
1,616,653
$
3,583,515
Interest on debt obligations (a)
126,316
216,689
157,065
158,878
658,948
Letters of credit
2,312
—
Unfunded commitments on:
Development projects (b)
—
217,928
Unconsolidated joint ventures (b) (c)
Redevelopment projects (b)
Participating loan investments (d)
Operating lease obligations:
Operating space
Ground leases (e)
10,524
5,152
2,711
207
5,444
71,559
11,546
255
10,888
—
—
—
—
—
—
—
—
2,312
217,928
82,083
16,698
2,711
152
9,930
32
646
311,858
338,120
$
396,777
$
1,315,456
$
1,103,307
$
2,087,421
$
4,902,961
(a)
Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at
December 31, 2015.
(b)
Any unfunded costs at December 31, 2015 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.
During 2015, we incurred gross interest costs of $138.0 million, of which $16.1 million was capitalized.
55
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, 2015, the
Operating Partnership’s real estate portfolio included 57 communities located in eight states and the District of Columbia with a total of 16,974
apartment homes.
As of December 31, 2015, UDR owned 110,883 units of our general limited partnership interests and 174,114,516 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, 2015, the General Partner’s consolidated real estate portfolio included 133 communities
located in 10 states and the District of Columbia with a total of 40,728 apartment homes. In addition, the General Partner had an ownership
interest in 28 communities with 6,696 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 to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital
project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead
related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs
meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities
necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the
asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership
ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned,
net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2015, 2014, and 2013, were $0.9 million, $4.9
million, and $8.4 million, respectively.
56
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.
57
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, 2015.
As of December 31, 2015
Year Ended December 31, 2015
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)
7
7
5
2
7
2
2
4
4
6
2
1
2
1
—
—
2,535
1,688
932
344
1,565
516
476
1,315
816
1,612
942
636
996
387
—
—
12.4% $
448,682
95.9% $
1,790
$
39,259
10.6%
384,678
96.7%
5.9%
3.0%
4.5%
2.5%
1.3%
7.8%
3.5%
3.8%
2.8%
2.3%
215,779
97.2%
108,828
96.4%
164,950
97.0%
91,258
46,902
95.8%
97.5%
282,869
96.5%
127,840
96.4%
137,498
97.5%
102,100
97.0%
82,192
96.6%
16.5%
600,588
97.9%
1.9%
68,494
96.4%
—
—
—
—
—
—
2,688
1,673
2,313
1,344
1,751
1,303
3,098
1,426
1,087
1,276
1,423
3,689
3,631
—
—
41,008
13,150
6,527
17,730
7,557
5,278
31,051
9,250
14,105
9,235
6,766
34,339
11,578
10,985
2,191
52
14,760
78.8%
2,862,658
96.8% $
2,103
260,009
Same-Store Communities
West Region
Orange County, CA
San Francisco, CA
Seattle, WA
Los Angeles, CA
Monterey Peninsula, CA
Other Southern California
Portland, OR
Mid-Atlantic Region
Metropolitan D.C.
Baltimore, MD
Southeast Region
Nashville, TN
Tampa, FL
Other Florida
Northeast Region
New York, NY
Boston, MA
Southwestern Region
Dallas, TX
Austin, TX
Total/Average Same-Store
Communities
Non Mature, Commercial
Properties & Other
Total Real Estate Owned
Total Accumulated
Depreciation
Total Real Estate Owned, Net
of Accumulated Depreciation
5
57
2,214
21.2%
768,247
16,974
100%
3,630,905
57,588
$
317,597
(1,281,258)
$
2,349,647
(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, 2014 and
held as of December 31, 2015. 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.
58
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, 2015, the Operating Partnership had approximately $30.5 million of principal payments on secured debt maturing in
2016. 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, 2015, 2014, and 2013.
Operating Activities
For the year ended December 31, 2015, Net cash provided by/(used in) operating activities was $226.8 million compared to $208.0
million for 2014. The increase in cash flow from operating activities was primarily due to improved income from continuing operations
primarily driven by revenue growth at the communities.
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 decrease in cash flow due to improved income from continuing operations was offset by changes in operating assets and
liabilities.
Investing Activities
For the year ended December 31, 2015, Net cash provided by/(used in) investing activities was $23.6 million compared to $(46.7) million
for 2014. The increase in cash provided by investing activities was primarily related to increased proceeds from the sales of real estate
investments, partially offset by increased cash used in the acquisition of real estate assets.
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.
Disposition of Investments
In connection with the formation of the DownREIT Partnership in October 2015, the Operating Partnership contributed seven operating
communities to the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value
and consequently deferred a gain of $296.4 million. As a result of the contribution, the
59
Operating Partnership lost its controlling interest and deconsolidated the seven operating communities. The Operating Partnership accounts for
its investment in the DownREIT Partnership under the equity method of accounting as described in Note 5, Unconsolidated Entities.
During the year ended December 31, 2015, the Operating Partnership sold five communities with a total of 1,149 apartment homes for
gross proceeds of $250.9 million, resulting in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. A portion of the sale
proceeds was designated for tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031
exchanges”) for one of the October 2015 acquisitions from Home OP. Additionally, the Operating Partnership recognized a gain of $24.6
million, which was previously deferred, in connection with the sale of the communities held by the Texas joint venture.
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 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.
Financing Activities
For the year ended December 31, 2015, Net cash provided by/(used in) financing activities was $(247.7) million compared to $(162.8)
million for 2014. The increase in cash used in financing activities was primarily due to increased advances to the General Partner.
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.
Credit Facilities
As of December 31, 2015, an aggregate commitment of $421.0 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, 2015. 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, 2015, $250.8 million of the outstanding balance was fixed at a weighted average interest rate of 5.08% and the
remaining balance of $170.2 million on these facilities had a weighted average variable interest rate of 1.90%. 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 $1.1 billion, $300 million of medium-term notes due June 2018, $300 million of medium-term notes due October 2020, a $350
million term loan facility due January 2021, $400 million of medium-term notes due January 2022, $300 million of medium-term notes due
July 2024, and $300 million of medium-term notes due October 2025. As of December 31, 2015, there were $150.0 million outstanding
borrowings under the unsecured credit facility. As of December 31, 2014, there was $152.5 million outstanding balance under the unsecured
credit facility.
The credit facilities are subject to customary financial covenants and limitations.
60
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 $196.6 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2015. If market
interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $2.0 million based on the balance at
December 31, 2015.
These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not
consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change
of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.
The General Partner also utilizes derivative financial instruments allocated to the Operating Partnership to manage interest rate risk and
generally designates these financial instruments as cash flow hedges. See Note 9, 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, 2015, 2014, and 2013, and includes the results of both continuing and discontinued operations for the periods
presented.
Net Income(Loss) Attributable to OP Unitholders
2015 -vs- 2014
Net income/(loss) attributable to OP unitholders was $213.3 million ($1.16 per OP Unit) for the year ended December 31, 2015 as
compared to $96.2 million ($0.53 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 five communities with a total of 1,149 apartment homes for gross proceeds of $250.9 million, resulting
in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. Additionally, the Operating Partnership recognized a
gain of $24.6 million, which was previously deferred, in connection with the sale of the communities held by the Texas joint venture.
in connection with the formation of the DownREIT Partnership, the Operating Partnership contributed seven operating communities to
the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value and
consequently deferred a gain of $296.4 million. As a result of the contribution, the Operating Partnership lost its controlling interest
and deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT
Partnership under the equity method of accounting as described in Note 5, Unconsolidated Entities.
an increase in total property 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 2015 and 2014.
This was partially offset by:
•
a $4.7 million loss from unconsolidated entities related to the DownREIT Partnership that was formed in 2015.
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:
61
•
•
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 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 14, Casualty-Related (Recoveries)/Charges, in the Notes to the Operating Partnership’s Consolidated Financial Statements
for more details).
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, 2015, 2014, and 2013 (dollars in thousands):
Year Ended December 31, (a)
Year Ended December 31, (b)
2015
2014
% Change
2014
2013
% Change
Same-Store Communities:
Same-store rental income
$
360,404
$
353,686
1.9% $
372,818 $
355,585
Same-store operating expense (c)
(100,395)
(101,911)
(1.5)%
(108,225)
(106,228)
Same-store NOI
260,009
251,775
3.3%
264,593
249,357
4.8%
1.9%
6.1%
Non-Mature Communities/Other NOI:
Acquired communities NOI
1,604
—
N/A
16,417
14,998
9.5%
Sold communities NOI
12,225
13,750
(11.1)%
11
8,671
(99.9)%
Development communities NOI
2,787
(603)
562.2%
(603)
(17)
3,447.1%
Redevelopment communities NOI
34,127
29,742
Commercial NOI and other
6,845
5,649
Total non-mature communities/other NOI
57,588
48,538
14.7%
21.2%
18.6%
14,245
10,084
5,650
4,442
41.3%
27.2%
35,720
38,178
(6.4)%
Total Property NOI
$
317,597
$
300,313
5.8% $
300,313 $
287,535
4.4%
(a)
(b)
(c)
Same-store consists of 14,760 apartment homes.
Same-store consists of 19,101 apartment homes.
Excludes depreciation, amortization, and property management expenses.
62
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, 2015, 2014 and 2013 (dollars in thousands):
Total property NOI
Property management
Other operating expenses
Year Ended December 31,
2015
2014
2013
$
317,597
$
300,313
$
287,535
(12,111)
(5,923)
(11,622)
(11,298)
(5,172)
(5,728)
Real estate depreciation and amortization
(169,784)
(179,176)
(181,302)
General and administrative
(27,016)
(28,541)
(24,808)
Casualty-related recoveries/(charges), net
Income/(loss) from unconsolidated entities
Interest expense
Gain/(loss) on sale of real estate owned
Net (income)/loss attributable to noncontrolling interests
(843)
(4,659)
(541)
—
8,083
—
(40,321)
(41,717)
(36,058)
158,123
(1,762)
63,635
(952)
41,518
(4,566)
Net income/(loss) attributable to OP unitholders
$
213,301
$
96,227
$
73,376
Same-Store Communities
2015 -vs- 2014
Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2014 and held on December 31,
2015) consisted of 14,760 apartment homes and provided 81.9% of our total NOI for the year ended December 31, 2015.
NOI for our same-store community properties increased 3.3% or $8.2 million for the year ended December 31, 2015 compared to 2014.
The increase in property NOI was primarily attributable to a 1.9% or $6.7 million increase in property rental income and by a 1.5% or $1.5
million decrease in operating expenses. The increase in revenues was primarily driven by a 1.5% or $5.2 million increase in rental rates and a
1.9% or $0.5 million increase in reimbursement and fee income. Physical occupancy increased 1.5% to 96.8% for the year ended December 31,
2015 compared to 2014.
The decrease in operating expenses was primarily driven by a 5.1% or $0.8 million decrease in repair and maintenance expense, a 1.4%
or $0.5 million decrease in real estate tax expense and a 5.1% or $0.3 million decrease in marketing and administrative expenses.
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 72.1% for the year ended December 31, 2015 as compared to 71.2% for
2014.
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 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 $0.8 million increase in insurance expense primarily caused by a higher volume of small claims, which was partially
offset by a 2.3% or $0.4 million decrease in repairs and maintenance costs.
63
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.
Non-Mature Communities/Other
2015 -vs- 2014
The remaining $57.6 million or 18.1% of our total NOI during the year ended December 31, 2015 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 recently developed or acquired, redevelopment properties, sold properties,
and non-apartment components of mixed use properties. NOI from non-mature communities/other increased 18.6% or $9.1 million for the year
ended December 31, 2015 compared to 2014. The increase was primarily driven by an increase in NOI of 14.7% or $4.4 million from
redevelopment properties, and an increase of 562.2% or $3.4 million in development properties.
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. 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.
Real Estate Depreciation and Amortization
For the year ended December 31, 2015, real estate depreciation and amortization from continuing and discontinued operations decreased
by 5.2% or $9.4 million as compared to 2014. The decrease in depreciation and amortization for the year ended December 31, 2015 was
primarily due to sold communities and fully depreciated assets partially offset by homes delivered from our development and redevelopment
communities.
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.
Casualty-Related Recoveries/(Charges), Net
During the year ended December 31, 2015, the Company recorded $0.8 million of casualty-related losses due to property damage caused
by the severe snow storms on the east coast in early 2015, all of which is included in Casualty-related charges/(recoveries), net on the
Consolidated Statements of Operations.
During the year ended December 31, 2014, the Company recorded $0.5 million 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 charges/(recoveries), net on the
Consolidated Statements of Operations.
During the year ended December 31, 2013, the Company recorded $8.1 million of casualty-related recoveries due to damage caused by
Hurricane Sandy on the east coast in October 2012, all of which is included in Casualty-related charges/(recoveries), net on the Consolidated
Statements of Operations.
Interest Expense
For the year ended December 31, 2015, interest expense decreased by 3.3% or $1.4 million as compared to 2014, which was primarily
due to lower amounts of outstanding debt during 2015.
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.
64
Gain/(Loss) on the Sale of Real Estate Owned
During the year ended December 31, 2015, the Operating Partnership sold five communities with a total of 1,149 apartment homes for
gross proceeds of $250.9 million, resulting in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. A portion of the sale
proceeds was designated for a Section 1031 exchange for one of the October 2015 acquisitions from Home OP. Additionally, the Operating
Partnership recognized a gain of $24.6 million, which was previously deferred, in connection with the sale of the communities held by the
Texas joint venture.
In connection with the formation of the DownREIT Partnership in October 2015, the Operating Partnership contributed seven operating
communities to the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value
and consequently deferred a gain of $296.4 million. As a result of the contribution, the Operating Partnership lost its controlling interest and
deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT Partnership under
the equity method of accounting as described in Note 5, Unconsolidated Entities.
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 Operating Partnership’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 year ended December 31, 2013, we recognized gains on sale of depreciable property of $41.5 million. 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, 2015, net income attributable to noncontrolling interests was $1.8 million as compared to $1.0 million
for 2014. The increase of $0.8 million was primarily due to increased net income of the communities with noncontrolling interest.
For the year ended December 31, 2014, net income attributable to noncontrolling interests was $1.0 million 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 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, 2015.
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.
65
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2015 (dollars in thousands):
Payments Due by Period
Contractual Obligations
2016
2017-2018
2019-2020
Thereafter
Total
Long-term debt obligations
$
30,517
167,405
185,931
94,310 $
478,163
Interest on debt obligations (a)
17,086
30,854
12,546
5,986
66,472
Operating lease obligations — ground
leases (b)
5,444
10,888
9,930
311,856
338,118
$
53,047
$
209,147
$
208,407
$
412,152 $
882,753
(a)
Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31,
2015.
(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.
As of December 31, 2015, 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.
66
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, 2015.
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, 2015. The report of Ernst & Young LLP, which
expresses an unqualified opinion on UDR, Inc.’s internal control over financial reporting as of December 31, 2015, 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.
67
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the information set forth under the headings “Proposal No. 1 -
Election of Directors,” “Corporate Governance Matters,” “Audit Committee Report,” “Corporate Governance Matters-Board Leadership
Structure and Committees-Audit Committee Financial Expert,” “Corporate Governance Matters-Identification and Selection of Nominees for
Directors,” “Corporate Governance Matters-Board of Directors and Committee Meetings,” “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 2016
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 2016 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 2016 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 2016 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 2016 Annual
Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. Information regarding related party transactions
between UDR and the Operating Partnership is presented in Note 7, Related Party Transactions, of the Consolidated Financial Statements of
United Dominion Realty, L.P. referenced in Part IV, Item 15(a) of this Report.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the information set forth under the headings “Audit Matters-Audit
Fees” and “Audit Matters-Pre-Approval Policies and Procedures” in the definitive proxy statement for UDR’s 2016 Annual Meeting of
Stockholders. UDR is the sole general partner of the Operating Partnership.
68
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
1. Financial Statements. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty,
L.P. on page F-1 of this Report.
2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United
Dominion Realty, L.P. on page S-1 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the
required information is included in the financial statements or notes thereto.
3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index.
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 23, 2016
By:
/s/ Thomas W. Toomey
UDR, Inc.
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 23, 2016 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/ Katherine A. Cattanach
Katherine A. Cattanach
Director
/s/ Mary Ann King
Mary Ann King
Director
/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/ Robert P. Freeman
Robert P. Freeman
Director
/s/ Jon A. Grove
Jon A. Grove
Director
/s/ Clint McDonnough
Clint McDonnough
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 23, 2016
By:
/s/ Thomas W. Toomey
UNITED DOMINION REALTY, L.P.
By: UDR, Inc., its sole general partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 23, 2016 by the following
persons on behalf of the registrant and in the capacities indicated.
Thomas W. Toomey
Chief Executive Officer and President (Principal
Executive Officer)
/s/ Thomas W. Toomey
Thomas W. Toomey
/s/ Katherine A. Cattanach
Katherine A. Cattanach
Chief Executive Officer, President, and
Director of the General Partner
Director of the General Partner (Principal Executive Officer)
/s/ Thomas M. Herzog
Thomas M. Herzog
/s/ Mary Ann King
Mary Ann King
Senior Vice President and Chief Financial
Director of the General Partner
Officer of the General Partner (Principal Financial Officer)
/s/ Mark A. Schumacher
Mark A. Schumacher
/s/ Robert P. Freeman
Robert P. Freeman
Senior Vice President and Chief Accounting
Director of the General Partner
Officer of the General Partner (Principal Accounting Officer)
/s/ James D. Klingbeil
James D. Klingbeil
/s/ Jon A. Grove
Jon A. Grove
Chairman of the Board of the General Partner
Director of the General Partner
/s/ Lynne B. Sagalyn
Lynne B. Sagalyn
/s/ Clint McDonnough
Clint McDonnough
Vice Chair of the Board of the General Partner
Director of the General Partner
/s/ Robert A. McNamara
Robert A. McNamara
Director of the General Partner
/s/ Mark R. Patterson
Mark R. Patterson
Director of the General Partner
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, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013
PAGE
F - 2
F - 4
F - 5
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2015, 2014, and 2013
F - 6
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
F - 7
F - 8
F - 10
UNITED DOMINION REALTY, L.P.:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013
F - 53
F - 54
F - 55
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2015, 2014, and 2013
F - 56
Consolidated Statements of Changes in Capital for the years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013
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
F - 57
F - 58
F - 59
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, 2015 and 2014, 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, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial
statements 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, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its presentation of debt issuance costs related to a
recognized debt liability in the financial statements as a result of the adoption of the amendments to the FASB Accounting Standards Codification
resulting from Accounting Standards Update No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30),” and Accounting Standards Update
No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. Also 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”.
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, 2015, 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 23, 2016
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Denver, Colorado
February 23, 2016
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, 2015, 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, 2015,
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, 2015 and 2014, 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, 2015 and our
report dated February 23, 2016 expressed an unqualified opinion thereon.
Denver, Colorado
February 23, 2016
/s/ Ernst & Young LLP
F - 3
UDR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Real estate owned:
Real estate held for investment
Less: accumulated depreciation
Real estate held for investment, net
December 31,
2015
December 31,
2014
$
9,053,599
$
8,205,627
(2,646,044)
(2,434,772)
6,407,555
5,770,855
Real estate under development (net of accumulated depreciation of $0 and $0, respectively)
124,072
177,632
Real estate held for disposition (net of accumulated depreciation of $830 and $0, respectively)
11,775
—
Total real estate owned, net of accumulated depreciation
6,543,402
5,948,487
Cash and cash equivalents
Restricted cash
Notes receivable, net
Investment in and advances to unconsolidated joint ventures, net
Other assets
Total assets
LIABILITIES AND EQUITY
6,742
20,798
16,694
938,906
137,302
15,224
22,340
14,369
718,226
110,082
$
7,663,844
$
6,828,728
Liabilities:
Secured debt, net
Unsecured debt, net
Real estate taxes payable
Accrued interest payable
Security deposits and prepaid rent
Distributions payable
Accounts payable, accrued expenses, and other liabilities
$
1,376,945
$
1,354,321
2,193,850
2,210,978
18,786
29,162
36,330
80,368
81,356
15,978
34,215
34,064
69,460
91,282
Total liabilities
3,816,797
3,810,298
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
946,436
282,480
Equity:
Preferred stock, no par value; 50,000,000 shares authorized:
8.00% Series E Cumulative Convertible; 2,796,903 and 2,803,812 shares issued and outstanding
at December 31, 2015 and 2014, respectively
46,457
46,571
Series F; 16,452,496 and 2,464,183 shares issued and outstanding at December 31, 2015 and
2014, respectively
1
—
Common stock, $0.01 par value; 350,000,000 shares authorized:
261,844,521 and 255,114,603 shares issued and outstanding at December 31, 2015 and 2014,
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
2,618
2,551
4,447,816
4,223,747
(1,584,459)
(1,528,917)
(12,678)
(8,855)
2,899,755
2,735,097
856
853
2,900,611
2,735,950
$
7,663,844
$
6,828,728
See accompanying notes to consolidated financial statements.
F - 4
UDR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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 charges/(recoveries), net
Other depreciation and amortization
Total operating expenses
Operating income
Income/(loss) from unconsolidated entities
Year Ended December 31,
2015
2014
2013
$
871,928
$
805,002
$
746,484
22,710
894,638
155,096
102,963
23,978
9,708
374,598
59,690
2,335
6,679
735,047
159,591
62,329
13,044
818,046
12,442
758,926
149,428
144,319
99,175
22,138
8,271
358,154
47,800
541
5,775
691,282
126,764
93,765
20,528
7,136
339,532
42,238
(12,253)
6,741
642,006
116,920
(7,006)
(415)
Interest expense
(121,875)
(130,454)
(126,083)
Interest income and other income/(expense), net
1,551
11,858
4,619
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
101,596
3,886
105,482
—
1,162
15,098
16,260
10
(4,959)
7,299
2,340
43,942
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)
105,482
251,677
357,159
16,270
143,572
159,842
46,282
—
46,282
Net (income)/loss attributable to redeemable noncontrolling interests in the
Operating Partnership and DownREIT Partnership
(16,773)
(5,511)
(1,530)
Net (income)/loss attributable to noncontrolling interests
(3)
3
Net income/(loss) attributable to UDR, Inc.
340,383
154,334
Distributions to preferred stockholders — Series E (Convertible)
(3,722)
(3,724)
60
44,812
(3,724)
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
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
$
$
$
$
$
336,661
$
150,610
$
41,088
1.30
$
0.60
$
(0.01)
—
—
1.30
$
0.60
$
0.17
0.16
1.29
$
0.59
$
(0.01)
—
—
1.29
$
0.59
$
258,669
263,752
251,528
253,445
0.17
0.16
249,969
249,969
See accompanying notes to consolidated financial statements.
F - 5
UDR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
Year Ended December 31,
Net income/(loss)
$
357,159 $
159,842
$
46,282
2015
2014
2013
Other comprehensive income/(loss), including portion attributable to
noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)
(6,393)
(8,695)
(469)
(Gain)/loss reclassified into earnings from other comprehensive
income/(loss)
2,262
4,834
6,851
Other comprehensive income/(loss), including portion attributable to
noncontrolling interests
Comprehensive income/(loss)
(4,131)
(3,861)
353,028
155,981
Comprehensive (income)/loss attributable to noncontrolling interests
(16,468)
(5,375)
6,382
52,664
(1,720)
Comprehensive income/(loss) attributable to UDR, Inc.
$
336,560 $
150,606
$
50,944
See accompanying notes to consolidated financial statements.
F - 6
UDR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share data)
Preferred
Stock
Common
Stock
Paid-in
Capital
Distributions in
Excess of Net
Income
Accumulated
Other
Comprehensive
Income/(Loss), net
Noncontrolling
Interests
Total
Balance at December 31, 2012
$
46,571
$
2,501
$
4,098,882
$
(1,143,781) $
(11,257) $
916
$
2,993,832
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
—
—
—
—
—
—
—
5
—
—
—
9,067
44,812
—
—
—
—
—
6,132
—
—
44,812
(60)
(60)
—
—
6,132
9,072
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
—
—
—
—
1
—
—
—
1,816
—
—
—
—
(235,721)
(3,724)
(3,656)
—
—
—
—
—
—
—
—
1,817
(235,721)
(3,724)
(3,656)
Balance at December 31, 2013
46,571
2,507
4,109,765
(1,342,070)
(5,125)
856
2,812,504
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 the 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
—
—
—
—
—
—
—
—
—
—
—
—
8
34
2
—
—
—
—
—
—
9,797
99,815
4,370
—
—
—
154,334
—
—
—
—
—
(263,503)
(3,724)
(73,954)
—
—
(3,730)
—
—
—
—
—
—
—
154,334
(3)
(3)
—
—
—
—
—
—
—
(3,730)
9,805
99,849
4,372
(263,503)
(3,724)
(73,954)
Balance at December 31, 2014
46,571
2,551
4,223,747
(1,528,917)
(8,855)
853
2,735,950
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
—
—
—
—
—
Conversion of Series E Cumulative
Convertible shares
(114 )
Issuance of Series F Preferred Stock
Adjustment for conversion of noncontrolling
interest of unitholders in the Operating
Partnership
Common stock distributions declared ($1.11
per share)
1
—
—
—
—
—
3
63
—
—
1
—
—
—
—
10,191
209,948
114
—
3,816
340,383
—
—
—
—
—
—
—
—
(289,500)
—
—
(3,823)
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
340,383
3
(3,823)
10,194
210,011
—
1
3,817
(289,500)
Preferred stock distributions declared-Series
E ($1.3288 per share)
Adjustment to reflect redemption value of
redeemable noncontrolling interests
—
—
—
—
—
—
(3,722)
(102,703)
—
—
—
—
(3,722)
(102,703)
Balance at December 31, 2015
$
46,458
$
2,618
$
4,447,816
$
(1,584,459) $
(12,678) $
856
$
2,900,611
See accompanying notes to consolidated financial statements.
F - 7
UDR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
Operating Activities
Net income/(loss)
Year Ended December 31,
2015
2014
2013
$
357,159
$
159,842
$
46,282
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization
381,277
363,929
348,231
(Gain)/loss on sale of real estate owned, net of tax
(251,677)
(143,647)
(41,919)
Impairment loss, net of tax
Tax (benefit)/provision, net
(Income)/loss from unconsolidated entities
Amortization of share-based compensation
Other
Changes in operating assets and liabilities:
—
—
1,470
(3,886)
(15,136)
(7,299)
(62,329)
7,006
18,017
6,612
13,954
13,104
415
9,531
15,025
(Increase)/decrease in operating assets
(3,968)
(1,074)
(15,135)
Increase/(decrease) in operating liabilities
(9,590)
(5,618)
(16,699)
Net cash provided by/(used in) operating activities
431,615
392,360
339,902
Investing Activities
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures
(244,769)
(228,810)
—
Proceeds from sales of real estate investments, net
387,650
383,886
250,043
Development of real estate assets
(103,205)
(251,493)
(280,603)
Capital expenditures and other major improvements — real estate assets, net of escrow
reimbursement
(113,400)
(96,679)
(153,676)
Capital expenditures — non-real estate assets
(4,049)
(5,497)
(7,639)
Investment in unconsolidated joint ventures
(217,642)
(222,930)
(43,291)
Distributions received from unconsolidated joint ventures
59,291
59,199
130,984
(Issuance)/repayment of notes receivable
(2,325)
68,664
(19,027)
Net cash provided by/(used in) investing activities
(238,449)
(293,660)
(123,209)
Financing Activities
Payments on secured debt
(193,958)
(80,961)
(46,564)
Proceeds from the issuance of secured debt
127,600
5,502
—
Payments on unsecured debt
(325,540)
(312,500)
(122,500)
Proceeds from the issuance of unsecured debt
299,310
298,956
299,943
Net proceeds/(repayment) of revolving bank debt
(2,500)
152,500
(76,000)
Proceeds from the issuance of common shares through public offering, net
210,011
99,849
Distributions paid to redeemable noncontrolling interests
Distributions paid to preferred stockholders
(10,654)
(9,929)
(3,722)
(3,724)
—
(9,348)
(3,724)
Distributions paid to common stockholders
(283,168)
(256,100)
(231,822)
Other
(19,027)
(7,318)
(8,544)
Net cash provided by/(used in) financing activities
(201,648)
(113,725)
(198,559)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
(8,482)
(15,025)
15,224
30,249
18,134
12,115
Cash and cash equivalents, end of year
$
6,742
$
15,224
$
30,249
F - 8
UDR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands, except for share data)
Supplemental Information:
Interest paid during the period, net of amounts capitalized
$
130,240
$
131,815
$
127,877
Year Ended December 31,
2015
2014
2013
Non-cash transactions:
Acquisition of communities in exchange for DownREIT units and assumption of debt
660,832
Acquisition of office building in Highlands Ranch, Colorado in exchange for the
assumption of debt
24,067
Fair value adjustment of debt acquired as part of acquisition of office building in
Highlands Ranch, Colorado
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
1,363
—
—
—
—
—
—
—
—
—
—
129,437
54,938
175,951
—
63,595
Development costs and capital expenditures incurred but not yet paid
20,375
34,746
37,220
Conversion of operating partnership noncontrolling interests to common stock (112,174
shares in 2015; 153,451 shares in 2014; and 76,291 shares in 2013)
3,817
4,372
1,817
See accompanying notes to consolidated financial statements.
F - 9
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
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, 2015, our consolidated apartment
portfolio consisted of 133 consolidated communities located in 18 markets consisting of 40,728 apartment homes. In addition, the Company
has an ownership interest in 6,696 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”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of December
31, 2015 and 2014, there were 183,278,698 units in the Operating Partnership (“OP Units”) outstanding, of which 174,225,399 or 95.1% and
174,113,225 or 95.0%, respectively, were owned by UDR and 9,053,299 or 4.9% and 9,165,473 or 5.0%, respectively, were owned by outside
limited partners. As of December 31, 2015, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of
which 16,229,407 or 50.1% were owned by UDR (of which, 13,470,651 or 41.6% were held by the Operating Partnership) and 16,137,973 or
49.9% were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the
unitholders in the Operating Partnership and DownREIT Partnership.
The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-
recognized subsequent events were noted other than those mentioned in Note 4, Real Estate Owned and Note 6, Secured and Unsecured Debt,
Net.
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
F - 10
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 are currently evaluating the effect that the updated
standard will have on our consolidated financial statements and related disclosures.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which makes changes to both the variable
interest model and the voting model of consolidation. Under ASU 2015-02, companies will need to re-evaluate whether an entity meets the
criteria to be considered a variable interest entity (“VIE”) or whether the consolidation of an entity should be assessed under the voting model.
The new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or
similar entity unless that presumption can be overcome. The new standard will be effective for the Company beginning on January 1, 2016 and
must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the
period of adoption or retrospectively to each period presented. The Company does not expect the adoption of the new standard to result in the
consolidation of entities not previously consolidated or the deconsolidation of any entities previously consolidated. Upon adopting the new
standard, the Company expects that the Operating Partnership and DownREIT Partnership will become VIEs as the limited partners of both
entities lack substantive kick-out rights and substantive participating rights. The Company expects to be the primary beneficiary of, and
continue to consolidate, both entities.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, to revise the presentation of debt
issuance costs. Under ASU 2015-03, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt
liability rather than as an asset. Amortization of the deferred costs will continue to be included in interest expense. ASU 2015-03 did not
directly address presentation or subsequent measurement of issuance costs related to line-of-credit arrangements. In August 2015, the FASB
issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which
clarifies that such costs may be presented as an asset and subsequently amortized over the term of the line-of-credit arrangement. The
cumulative guidance, which is to be applied retrospectively to all prior periods, is effective for fiscal years beginning after December 15, 2015,
with early adoption permitted for financial statements that have not been previously issued.
The Company elected to early adopt ASU 2015-03 and ASU 2015-15 during the fourth quarter of 2015. As a result, for all periods
presented, deferred financing costs related to secured and unsecured debt are included as reductions to Secured debt, net and Unsecured debt,
net , respectively, on the accompanying Consolidated Balance Sheets and deferred financing costs related to revolving credit facilities are
included within Other assets on the accompanying Consolidated Balance Sheets. At December 31, 2015, $7.9 million, $5.5 million and $12.4
million of deferred financing costs were included within Other assets, Secured debt, net, and Unsecured debt, net, respectively. At December
31, 2014, the following amounts of deferred financing costs were reclassified (in thousands):
Deferred
financing costs
Other assets
Secured debt, net
Unsecured Debt,
net
December 31, 2014
As previously presented
$
22,686
$
105,202
$
1,361,529
$
2,221,576
Reclassification of deferred financing costs
(22,686)
4,880
(7,208)
(10,598)
As presented herein
$
— $
110,082
$
1,354,321
$
2,210,978
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires
that the cumulative impact of a measurement-period adjustment, including impacts on prior periods, be
recognized in the reporting period in which the adjustment amount is determined and, therefore, eliminates the requirement to retrospectively
account for the adjustment in prior periods presented. The new standard will be effective for the Company beginning on January 1, 2016 and
must be applied prospectively to measurement-period adjustments that occur after the effective date. The Company will comply with the new
guidance upon adoption.
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.
F - 11
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015, 2014, and 2013 were $6.3 million, $9.0 million and $11.1
million, respectively. During the years ended December 31, 2015, 2014, and 2013, total interest capitalized was $16.1 million, $20.2 million,
and $29.4 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments.
We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the
Company’s cash and cash equivalents are held at major commercial banks.
F - 12
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015 and 2014 (dollars in thousands):
Note due February 2017 (a)
Note due July 2017 (b)
Note due October 2020 (c)
Total notes receivable, net
Interest rate at
Balance Outstanding
December 31,
2015
December 31,
2015
December 31,
2014
10.00% $
12,994 $
11,869
8.00%
8.00%
2,500
1,200
2,500
—
$
16,694 $
14,369
(a) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $13.0 million, which bears an
interest rate of 10.00% per annum. During the year ended December 31, 2015, the Company loaned an additional $1.1 million. 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).
(b) 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. 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).
(c)
In October 2015, the Company entered into a secured note receivable with an unaffiliated third party with an aggregate commitment
of $2.0 million, which bears an interest rate of 8.00% per annum. During the year ended December 31, 2015, the Company loaned
$1.2 million under the note. Interest payments are due when the loan matures. The note matures at the earliest of the following: (a) the
closing of any private or public capital raising in the amount of $10.0 million or greater; (b) an acquisition; (c) acceleration in the
event of default; or (d) the fifth anniversary of the date of the note (October 2020).
F - 13
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
During the years ended December 31, 2015, 2014, and 2013, the Company recognized $1.5 million, $3.4 million and $4.1 million,
respectively, of interest income from notes receivable, of which $0.0, $0.0 and $0.8 million, respectively, was related party interest income.
Interest income is included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.
Investment in Joint Ventures and Partnerships
We use the equity method to account for investments in joint ventures and partnerships that qualify as variable interest entities where we
are not the primary beneficiary and other entities that we do not control or where we do not own a majority of the economic interest but have
the ability to exercise significant influence over the operating and financial policies of the investee. Throughout these financial statements we
use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest. The
Company also uses the equity method when we function as the managing partner and our venture partner has substantive participating rights or
where we can be replaced by our venture partner as managing partner without cause. For a joint venture or partnership accounted for under the
equity method, our share of net earnings or losses is reflected as income/loss when earned/incurred and distributions are credited against our
investment in the joint venture or partnership as received.
In determining whether a joint venture or partnership is a 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, 2015, 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.
Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership
Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and
DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income available to common
stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT
Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in
accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.
Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a
portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as
defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP
Units/DownREIT Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership and the
DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash
Amount or the REIT Share Amount (generally one share of
F - 14
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Common Stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or
the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units 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”).
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, 2015 and 2014,
UDR’s net deferred tax asset of $11.8 million, net of valuation allowance of $0.1 million, and $7.0 million, which had no valuation allowance,
respectively, was included in Other assets on the Consolidated Balance Sheets.
GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition.
The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is
more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. 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, 2015. UDR and its subsidiaries are subject
to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2011 through 2014 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.
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 were 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.
F - 15
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015, 2014, and 2013, total advertising expense was $6.4 million, $6.0 million, and
$5.7 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.
Comprehensive Income/(Loss)
Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and
circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or
distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended
December 31, 2015, 2014, and 2013, 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 income 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, 2015, 2014, and 2013 was $(0.3) million, $(0.1) million, and $0.3 million,
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, 2015, 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 years ended December 31, 2015 and 2014,
gains, net of tax, of $251.7 million and $142.5 million (excluding a $1.1 million gain related to the sale of land) respectively, 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.
F - 16
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, and 2013.
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 $0.1 million. The gain, net of tax, and operating results of the property for the years ended December 31, 2014, and 2013, 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 years ended December 31, 2015, 2014, and 2013, UDR recognized net gains on the sale of depreciable properties, before tax,
of $0.0, $0.1 million, and $41.9 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, 2015, 2014, and
2013 (dollars in thousands):
Year Ended December 31,
2015
2014
2013
Rental income
Rental expenses
Property management
Real estate depreciation
Interest income 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/(provision)
Income/(loss) from discontinued operations, net of tax
Income/(loss) from discontinued operations attributable to UDR, Inc.
$
—
$
147
$
—
—
—
—
—
—
—
—
225
4
—
21
(103)
75
—
38
9,152
3,511
252
1,958
(62)
3,493
41,919
(2,355)
885
$
$
—
$
10
$
43,942
—
$
10
$
42,364
F - 17
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
4. REAL ESTATE OWNED
Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for
future development, and sold or held for sale properties. As of December 31, 2015, the Company owned and consolidated 133 communities in
10 states plus the District of Columbia totaling 40,728 apartment homes. The following table summarizes the carrying amounts for our real
estate owned (at cost) as of December 31, 2015 and 2014 (dollars in thousands):
Land
Depreciable property — held and used:
Land improvements
December 31,
2015
December 31,
2014
$
1,833,156
$
1,790,281
173,821
189,940
Building, improvements, and furniture, fixtures and equipment
7,046,622
6,225,406
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
Acquisitions
78,085
45,987
9,963
2,642
24,584
153,048
—
—
9,190,276
8,383,259
(2,646,874)
(2,434,772)
$
6,543,402
$
5,948,487
In October 2015, the Company completed the acquisition of six Washington, D.C. area properties from Home Properties, L.P., a New
York limited partnership (“Home OP”), for a total contractual purchase price of $900.6 million, which was comprised of $564.8 million of
newly issued units of limited partnership interest (“DownREIT Units”) in the newly formed DownREIT Partnership issued at $35 per unit (a
total of 16.1 million units), the assumption of $89.3 million of debt, $221.0 million of reverse tax-deferred like-kind exchanges under Section
1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”), and $25.5 million of cash. In addition, the Company issued
approximately 14.0 million shares of its Series F Preferred Stock to former limited partners of Home OP, which had the right to subscribe for
one share of Series F Preferred Stock for each DownREIT Unit issued in connection with the acquisitions.
The Company holds a 50.1% controlling ownership interest in, and consolidates, the DownREIT Partnership. See Note 11,
Noncontrolling Interests, for additional information regarding the DownREIT Partnership formation and the Company’s controlling rights in
the partnership.
Of the six properties acquired from Home OP, four were acquired through the DownREIT Partnership, one was acquired by the Company
through a reverse Section 1031 exchange and one was acquired by the Operating Partnership through a reverse Section 1031 exchange, as
reflected in the following table:
F - 18
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Property
Eleven55 Ripley(a)
Arbor Park of Alexandria(a)
Newport Village(a)
Location
Silver Spring, MD
Alexandria, VA
Alexandria, VA
The Courts at Dulles(a)
1200 East West(b)
Courts at Huntington Station(c)
Herndon, VA
Silver Spring, MD
Alexandria, VA
(a) Acquired through the DownREIT Partnership.
(b) Acquired by the Company through a reverse Section 1031 exchange.
(c) Acquired by the Operating Partnership through a reverse Section 1031 exchange.
The Company has performed a valuation analysis of the fair market value of the assets and liabilities of the properties acquired from
Home OP. The following table summarizes the allocation of the purchase price as of the acquisition date (in thousands):
Assets:
Land
Buildings
Intangible assets
Total assets
Liabilities:
Secured debt
Below-market in-place leases
Total liabilities
$
173,924
708,455
25,455
907,834
(96,486)
(542)
(97,028)
Total assets acquired less liabilities assumed
$
810,806
Substantially all acquired intangible assets will be amortized in 2016 based on the average term of acquired leases of 14 months or less.
The Company’s results of operations include operating revenues of $15.6 million and net loss from continuing operations of $9.2 million
related to the six Washington, D.C. area properties acquired from Home OP from the acquisition date to December 31, 2015.
The unaudited pro forma information below summarizes the Company’s combined results of operations for the years ended December 31,
2015 and 2014 as though the above acquisition was completed on January 1, 2014. The information for the year ended December 31, 2015
includes pro forma results for the portion of the period prior to the acquisition date and actual results from the date of acquisition through the
end of the period. The supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have
been assuming the transaction had been completed as set forth above, nor does it purport to represent the Company’s results of operations for
future periods (in thousands):
Pro forma revenues
Pro forma net income/(loss) attributable to common stockholders
Year Ended December 31,
2015
2014
$
$
943,421
319,385
$
$
877,287
105,875
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
F - 19
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
office space, are located in the acquired building. The building consists of approximately 120,000 square feet. All existing leases were assumed
by the Company at the time of the acquisition.
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 Section 1031 exchanges.
The Company incurred $2.1 million, $0.4 million and $0.1 million of acquisition-related costs during the years ended December 31,
2015, 2014, and 2013, respectively. These expenses are reported within the line item General and Administrative on the Consolidated
Statements of Operations.
Dispositions
During the year ended December 31, 2015, the Company sold 12 communities with a total of 2,735 apartment homes for gross proceeds
of $408.7 million, resulting in net proceeds of $387.7 million and a total gain of $251.7 million. A portion of the sale proceeds was designated
for tax-deferred Section 1031 exchanges for a 2014 acquisition and the October 2015 acquisitions.
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 Section 1031 exchanges that was used to fund
acquisitions of real estate as discussed above.
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 February 2016, the Company sold a parcel of land located in Santa Monica, California for net proceeds of approximately $9.6 million
and a net gain of approximately $2.1 million.
In December 2015, the Company received a nonrefundable deposit on the pending sale of a parcel of land located in Santa Monica,
California. The asset is included in Real estate held for disposition on the Consolidated Balance Sheets as of December 31, 2015. The sale is
expected to close in March 2016 at a gross sales price of $13.5 million.
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.
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.
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 - 20
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015 and 2014 (dollars in thousands):
Joint Venture
Location of
Properties
Number of
Properties
Number of
Apartment
Homes
Investment at
UDR’s Ownership
Interest
December 31,
2015
December 31,
2015
December
31,
2015
December
31,
2014
December 31,
2015
December
31,
2014
Operating and development:
UDR/MetLife I
Various
4 land parcels
—
$ 15,894 $ 13,306
17.2%
15.7%
UDR/MetLife II
(a)
Various
21 operating
communities
4,642
425,230
431,277
50.0%
50.0%
1 operating
community;
4 development
communities (b);
Various
1 land parcels
1,437
171,659
134,939
50.6%
50.6%
3 operating
communities;
Addison, TX
6 land parcels
1,130
73,469
80,302
50.0%
50.0%
Other
UDR/MetLife
Development Joint
Ventures
UDR/MetLife
Vitruvian Park®
UDR/KFH
Washington,
D.C.
3 operating
communities
Texas (c)
Texas
—
Investment in and advances to unconsolidated joint
ventures, net, before participating loan investment and
preferred equity investment
660
—
17,211
21,596
30.0%
30.0%
— (25,901)
—%
20.0%
703,463
655,519
Investment at
Income from investments
for the years ending
December 31,
Location
Rate
Years To
Maturity
December
31,
2015
December
31,
2014
2015
2014
2013
Participating loan investment:
Steele Creek
Denver, CO
6.5%
1.6
90,747
62,707 $ 5,453 $ 2,350 $ 156
Preferred equity investment:
West Coast
Development Joint
Venture (d)
Various
6.5%
—
144,696
— $ 3,692 $ — $ —
Total investment in and advances to unconsolidated joint ventures, net
$ 938,906 $ 718,226
(a)
In September 2015, the 717 Olympic community, which is held by the UDR/MetLife II joint venture,
experienced extensive water damage due a ruptured water pipe. For the year ended December 31, 2015,
the Company recorded losses of $2.5 million, its proportionate share of the total losses incurred.
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, 2015, no apartment homes had been completed in Other UDR/MetLife Development Joint Ventures.
F - 21
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
(c)
(d)
In January 2015, the eight communities held by the Texas joint venture were sold, generating net proceeds to UDR of $44.2 million.
The Company recorded promote and fee income of $10.0 million and a gain of $59.4 million (including $24.2 million of previously
deferred gains) in connection with the sale.
In May 2015, the Company entered into a joint venture agreement with real estate private equity firm, The Wolff Company
(“Wolff”), and agreed to pay $136.3 million for a 48 percent ownership interest in a portfolio of five communities that are currently
under construction (the "West Coast Development Joint Venture"). The communities are located in three of the Company’s core,
coastal markets: Metro Seattle, Los Angeles and Orange County, CA. UDR earns a 6.5 percent preferred return on its investment
through each individual community’s date of stabilization, defined as when a community reaches 80 percent occupancy for ninety
consecutive days, while Wolff is allocated all operating income and expense during the pre-stabilization period. Upon stabilization,
income and expense will be shared based on each partner’s ownership percentage. The Company will serve as property manager and
be paid a management fee during the lease-up phase and subsequent operation of each of the communities. Wolff is the general
partner of the joint venture and the developer of the communities.
The Company has a fixed price option to acquire Wolff’s remaining interest in each community beginning one year after completion.
If the options are exercised for all five communities, the Company’s total price will be $597.4 million. In the event the Company does not
exercise its options to purchase at least two communities, Wolff will be entitled to earn a contingent disposition fee equal to 6.5 percent return
on its implied equity in the communities not acquired. Wolff is providing certain guaranties and there are construction loans on all five
communities. Once completed, the five communities will contain 1,533 homes.
The Company has concluded it does not control the joint venture and accounts for it under the equity method of accounting. The
Company's recorded equity investment in the West Coast Development Joint Venture at December 31, 2015 of $144.7 million is inclusive of
outside basis costs and our accrued but unpaid preferred return. During the year ended December 31, 2015, the Company earned a preferred
return of $5.2 million, offset by its share of the West Coast Development Joint Venture transaction expenses of $1.5 million.
As of December 31, 2015 and 2014, the Company had deferred fees and deferred profit of $6.8 million and $24.7 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, $11.3 million, and $11.2 million of management fees during the years ended December 31,
2015, 2014, and 2013, 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 development, 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, 2015, 2014, and 2013.
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, 2015, 2014, and 2013 (dollars in thousands):
F - 22
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
As of and For the Year Ended
December 31, 2015
UDR/MetLife
I
UDR/MetLife
II
Other
UDR/MetLife
Development
Joint Ventures
UDR/MetLife
Vitruvian
Park®
UDR/KFH
Texas
Total
Condensed Statements of Operations:
Total revenues
$
541
$
170,062
$
7,634
$
22,139
$
19,338 $
— $
219,714
Property operating expenses
(906)
(63,516)
(3,826)
(11,519)
(7,733)
—
(87,500)
Real estate depreciation and
amortization
(818)
(46,616)
(6,897)
(6,639)
(14,522)
Operating income/(loss)
(1,183)
59,930
(3,089)
3,981
(2,917)
Interest expense
—
(52,037)
(2,566)
(4,848)
(5,539)
—
—
—
(75,492)
56,722
(64,990)
Income/(loss) from discontinued
operations
(20)
—
—
—
—
184,138
184,118
Net income/(loss)
$
(1,203) $
7,893
$
(5,655) $
(867)
$
(8,456) $
184,138
$
175,850
UDR recorded income (loss) from
unconsolidated entities
$
(513) $
3,578
$
6,088
$
(3,711)
$
(2,537) $
59,424
$
62,329
Condensed Balance Sheets:
Total real estate, net
$
92,915
$
1,942,630
$
604,611
$
273,897
$ 221,704 $
— $ 3,135,757
Cash and cash equivalents
Other assets
Total assets
Amount due to/(from) UDR
Third party debt
Accounts payable and accrued
liabilities
Total liabilities
1,202
174
20,767
24,914
5,996
1,921
7,185
2,317
1,320
565
94,291
1,988,311
612,528
283,399
223,589
—
5,929
908
427
1,122,662
201,114
126,388
164,299
10
—
10
—
—
36,480
29,891
3,202,128
7,266
1,614,463
24,244
62,267
7,137
1,480
—
95,523
1,146,906
269,310
134,433
166,206
—
1,717,252
2
—
395
397
Total equity
$
93,894
$
841,405
$
343,218
$
148,966
$
57,383 $
10
$ 1,484,876
UDR’s investment in and advances
to unconsolidated joint ventures
$
15,894
$
425,230
$
407,102
$
73,469
$
17,211 $
—
$
938,906
F - 23
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
As of and For the Year Ended
December 31, 2014
UDR/MetLife
I
UDR/MetLife
II
Other
UDR/MetLife
Development
Joint Ventures
UDR/MetLife
Vitruvian
Park®
UDR/KFH
Texas
Total
Condensed Statements of Operations:
Total revenues
$
727
$
152,047
$
1,579
$
19,376
$
19,724 $
— $
193,453
Property operating expenses
618
52,150
1,122
10,711
7,498
Real estate depreciation and
amortization
2,130
41,504
3,959
7,380
14,426
Operating income/(loss)
(2,021)
58,393
(3,502)
1,285
(2,200)
Interest expense
—
(48,493)
(94)
(4,131)
(5,873)
—
—
—
—
72,099
69,399
51,955
(58,591)
Income/(loss) from discontinued
operations
(31,802)
—
—
—
—
(4,229)
(36,031)
Net income/(loss)
$
(33,823) $
9,900
$
(3,596) $
(2,846)
$
(8,073) $
(4,229) $
(42,667)
UDR recorded income/(loss) from
unconsolidated entities
$
(2,955) $
2,814
$
576
$
(4,068)
$
(2,601) $
(772) $
(7,006)
Condensed Balance Sheets:
Total real estate, net
$
89,482
$
1,986,237
$
351,861
$
278,600
$ 235,623 $
— $ 2,941,803
Assets held for sale
Cash and cash equivalents
1,978
1,983
—
15,245
Other assets (a)
(146)
12,938
—
6,239
1,101
—
6,570
3,248
—
214,218
216,196
2,507
708
—
—
32,544
17,849
Total assets (a)
93,297
2,014,420
359,201
288,418
238,838
214,218
3,208,392
Amount due to/(from) UDR
Third party debt (a)
107
—
(444)
843
1,960
531
1,140,458
65,408
122,964
164,789
—
—
2,997
1,493,619
Liabilities held for sale
5,110
—
—
—
—
224,596
229,706
Accounts payable and accrued
liabilities (a)
749
17,573
17,851
6,766
1,396
—
44,335
Total liabilities (a)
5,966
1,157,587
84,102
131,690
166,716
224,596
1,770,657
Total equity
$
87,331
$
856,833
$
275,099
$
156,728
$
72,122 $
(10,378) $ 1,437,735
UDR’s investment in and advances
to unconsolidated joint ventures
$
13,306
$
431,277
$
197,646
$
80,302
$
21,596 $
(25,901) $
718,226
The Company elected to early adopt FASB ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation
and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, during the fourth quarter of 2015. See
Note 2, Significant Accounting Policies, for a complete description of the ASUs and their impact.
F - 24
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Under the ASUs, deferred financing costs related to debt are treated as offsets to the debt instead of assets. As a result of adopting the ASUs,
the following retrospective changes were made to the above table:
For the Year Ended
December 31, 2014
UDR/MetLife
I
UDR/MetLife
II
Other
UDR/MetLife
Development
Joint Ventures
UDR/MetLife
Vitruvian
Park®
UDR/KFH
Texas
Total
Other assets - as previously reported
$
(146) $
19,589
$
4,203
$
3,933
$
1,128 $
— $
28,707
Deferred financing costs
—
(6,651)
(3,102)
(685)
(420 )
—
(10,858)
Other assets - as presented above
$
(146) $
12,938
$
1,101
$
3,248
$
708 $
— $
17,849
Total assets - as previously reported
$
93,297
$
2,021,071
$
362,303
$
289,103
$ 239,258 $
214,218
$ 3,219,250
Deferred financing costs
—
(6,651)
(3,102)
(685)
(420 )
—
(10,858)
Total assets - as presented above
$
93,297
$
2,014,420
$
359,201
$
288,418
$ 238,838 $
214,218
$ 3,208,392
Third party debt - as previously reported $
—
$
1,147,109
$
68,510
$
123,649
$ 165,209 $
— $ 1,504,477
Deferred financing costs
—
(6,651)
(3,102)
(685)
(420 )
—
(10,858)
Third party debt - as presented above $
—
$
1,140,458
$
65,408
$
122,964
$ 164,789 $
— $ 1,493,619
Accounts payable and accrued liabilities -
as previously reported
$
749
$
17,573
$
17,851
$
6,766
$
1,396 $
—
$
44,335
Deferred financing costs
—
—
—
—
—
—
—
Accounts payable and accrued
liabilities - as presented above
$
749
$
17,573
$
17,851
$
6,766
$
1,396 $
—
$
44,335
Total liabilities - as previously reported
$
5,966
$
1,164,238
$
87,204
$
132,375
$ 167,136 $
224,596
$ 1,781,515
Deferred financing costs
—
(6,651)
(3,102)
(685)
(420 )
—
(10,858)
Total liabilities - as presented above $
5,966
$
1,157,587
$
84,102
$
131,690
$ 166,716 $
224,596
$ 1,770,657
For the Year Ended December 31,
2013
UDR/MetLife
I
UDR/MetLife
II
Condensed Statements of Operations:
Other
UDR/MetLife
Development
Joint Ventures
UDR/MetLife
Vitruvian
Park®
UDR/KFH
Texas
Total
—
—
—
—
—
49,390
51,830
41,622
(45,726)
1
Total revenues
$
691
$
109,926
$
5,324
$
7,680
$
19,221 $
— $
142,842
Property operating expenses
621
33,809
3,292
4,633
7,035
Real estate depreciation and
amortization
115
30,122
3,564
3,830
14,199
Operating income/(loss)
(45)
45,995
(1,532)
(783)
(2,013)
Interest expense
Other income/(expense)
—
—
Income/(loss) from discontinued
operations
(22,388)
(37,055)
(913)
(1,886)
(5,872)
1
—
—
—
—
—
—
—
(9,584)
(31,972)
Net income/(loss)
$
(22,433) $
8,941
$
(2,445) $
(2,669)
$
(7,885) $
(9,584) $
(36,075)
UDR recorded income/(loss) from
unconsolidated entities
$
(4,675) $
4,471
$
6,224
$
(2,851)
$
(2,366) $
(1,218) $
(415)
F - 25
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
6. SECURED AND UNSECURED DEBT, NET
The following is a summary of our secured and unsecured debt at December 31, 2015 and 2014 (dollars in thousands):
Principal Outstanding
For the Year Ended December 31, 2015
December 31,
2015
2014
Weighted
Average
Weighted
Average
Interest
Rate
Years to
Maturity
Number of
Communities
Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)
$
442,617
$
401,210
Fannie Mae credit facilities (b)
514,462
568,086
4.57%
5.23%
4.5
3.1
8
18
Deferred financing costs
(4,278)
(5,583)
Total fixed rate secured debt, net
952,801
963,713
4.93%
3.7
Variable Rate Debt
Mortgage notes payable
31,337
31,337
Tax-exempt secured notes payable (c)
94,700
94,700
Fannie Mae credit facilities (b)
299,378
266,196
2.19%
0.75%
1.71%
Deferred financing costs
(1,271)
(1,625)
Total variable rate secured debt, net
424,144
390,608
1.53%
Total Secured Debt, net
1,376,945
1,354,321
3.88%
1.1
7.2
4.1
4.5
4.0
26
1
2
8
11
37
Unsecured Debt:
Variable Rate Debt
Borrowings outstanding under unsecured credit
facilities due January 2020 and December 2017,
respectively (d) (h)
Borrowings outstanding under unsecured working
capital credit facility due January 2019 (e)
150,000
152,500
1.19%
4.1
—
—
—%
3.0
1.21% Term Loan Facility due January 2021 and June
2018, respectively (d) (h)
35,000
35,000
1.21%
5.1
Fixed Rate Debt
5.25% Medium-Term Notes due January 2015 (net of
discounts of $0 and $6, respectively) (f)
—
325,169
—%
0.0
5.25% Medium-Term Notes due January 2016 (i)
83,260
83,260
5.25%
6.21% Medium-Term Note due July 2016 (j)
12,091
—
6.21%
0.0
0.5
4.25% Medium-Term Notes due June 2018 (net of
discounts of $1,037 and $1,465, respectively) (h)
3.70% Medium-Term Notes due October 2020 (net of
discounts of $38 and $46, respectively) (h)
1.44% Term Loan Facility due January 2021 and June
2018, respectively (d) (h)
4.63% Medium-Term Notes due January 2022 (net of
discounts of $2,164 and $2,523, respectively) (h)
298,963
298,535
4.25%
2.4
299,962
299,954
3.70%
4.8
315,000
315,000
1.44%
5.1
397,836
397,477
4.63%
6.0
3.75% Medium-Term Notes due July 2024 (net of
discounts of $886 and $990, respectively) (h)
299,114
299,010
3.75%
8.50% Debentures due September 2024
15,644
15,644
8.50%
8.5
8.7
F - 26
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
4.00% Medium-Term Notes due October 2025 (net of
discount of $671 and $0, respectively) (g) (h)
Other
299,329
24
—
27
Deferred financing costs
(12,373)
(10,598)
Total Unsecured Debt, net
2,193,850
2,210,978
Total Debt, net
$ 3,570,795
$ 3,565,299
4.00%
9.8
N/A
N/A
3.64%
3.74%
N/A
N/A
5.7
5.0
For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge
is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.
Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon
payments due at maturity. As of December 31, 2015, secured debt encumbered $2.4 billion or 25.9% of UDR’s total real estate owned based
upon gross book value ($6.8 billion or 74.1% of UDR’s real estate owned based on gross book value is unencumbered).
(a) At December 31, 2015, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and
mature at various dates from June 2016 through November 2025 and carry interest rates ranging from 3.43% to 6.16%.
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. In October 2015, the Company assumed debt with a fair market value of $96.5 million as part of our acquisition of
the six communities from Home OP, as described in Note 4, Real Estate Owned.
During the years ended December 31, 2015, 2014, and 2013, the Company had $5.3 million, $5.1 million, and $5.1 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 $10.0 million and $6.7 million at
December 31, 2015 and 2014, respectively.
(b) UDR has three secured credit facilities with Fannie Mae with an aggregate commitment of $813.8 million at December 31, 2015. 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, 2015, $514.5 million of the outstanding balance was fixed at a weighted average interest rate of
5.23% and the remaining balance of $299.4 million on these facilities had a weighted average variable interest rate of 1.71%.
Further information related to these credit facilities is as follows (dollars in thousands):
Borrowings outstanding
December 31,
2015
December 31,
2014
$
813,840
$
834,282
Weighted average borrowings during the period ended
822,521
835,873
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
834,003
837,564
4.0%
3.9%
4.1%
4.0%
(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 0.75% and 0.76%, respectively, as
of December 31, 2015.
(d) On October 20, 2015, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”), which provides for a $1.1
billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million senior unsecured term loan facility (the
“Term Loan Facility”). The Credit Agreement includes an accordion feature that
F - 27
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan Facility to be increased to an
aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from any one or more
lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2020, with two six-month extension options, subject to
certain conditions. The Term Loan Facility has a scheduled maturity date of January 29, 2021.
The Credit Agreement replaced (i) the Company’s previous $900 million revolving credit facility originally scheduled to mature in
December 2017 and (ii) the Company’s $250 million term loan and the Company’s $100 million term loan, both originally due June 2018.
Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis
points and a facility fee of 15 basis points, and the Term Loan Facility has an interest rate equal to LIBOR plus a margin of 95 basis points.
Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 85 to 155 basis points, the facility fee
ranges from 12.5 to 30 basis points, and the margin under the Term Loan Facility ranges from 90 to 175 basis points.
The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The
Credit Agreement also includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event
of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and
unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable.
The Company’s obligations under the Credit Agreement are guaranteed by the Operating Partnership, pursuant to a guaranty dated as of
October 20, 2015.
The following is a summary of short-term bank borrowings under UDR’s revolving credit facility at December 31, 2015 and 2014 (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,
2015
December 31,
2014
$
1,100,000
$
900,000
150,000
353,647
541,500
1.1%
1.2%
152,500
291,761
625,000
1.2%
1.1%
(1) Excludes $2.3 million and $1.9 million of letters of credit at December 31, 2015 and 2014, respectively.
(e) In December 2015, the Company entered into a working capital credit facility, which provides for a $30 million unsecured revolving
credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 1, 2019. Based on the Company’s current
credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the
Company’s credit rating, the margin ranges from 85 to 155 basis points.
(f) Paid off at maturity with borrowings under the Company’s $900 million unsecured revolving credit facility.
(g) On September 22, 2015, the Company issued $300 million of 4.00% senior unsecured medium-term notes due October 1, 2025. Interest
is payable semi-annually beginning on April 1, 2016. The notes were priced at 99.770% of the principal amount at issuance and had a discount
of $0.7 million at December 31, 2015. The Company used the net proceeds to pay down a portion of the borrowings outstanding on its prior
$900 million unsecured credit facility and for general corporate purposes. The Company previously entered into forward starting interest rate
swaps to hedge against interest rate risk on $200 million of this debt issuance. The all-in weighted average interest rate, inclusive of the impact
of these interest rate swaps, was 4.55%.
(h) The Operating Partnership is a guarantor at December 31, 2015 and 2014.
F - 28
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
(i) In January 2016, we paid off $83.3 million of 5.25% medium-term notes due January 2016 with borrowings under the Company’s $1.1
billion unsecured revolving credit facility.
(j) The 6.21% Medium-Term Note due July 2016 was acquired in February 2015 as part of the acquisition of an office building in
Highlands Ranch, Colorado, as described in See Note 4, Real Estate Owned.
The aggregate maturities, including amortizing principal payments of secured debt, of total debt for the next ten years subsequent to
December 31, 2015 are as follows (dollars in thousands):
Year
Total Fixed
Secured Debt
Total Variable
Secured Debt
Total Secured
Debt
Total Unsecured
Debt
Total Debt
$
149,058 $
— $
149,058
$
95,053 $
244,111
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Subtotal
Non-cash (a)
179,189
73,096
247,796
170,664
—
—
—
—
127,600
96,337
137,969
67,700
—
—
—
96,409
—
—
—
27,000
275,526
211,065
315,496
170,664
—
—
96,409
—
127,600
27,000
—
300,000
—
450,000
350,000
400,000
—
315,644
300,000
—
275,526
511,065
315,496
620,664
350,000
400,000
96,409
315,644
427,600
27,000
947,403
425,415
1,372,818
2,210,697
3,583,515
5,398
(1,271)
4,127
(16,847 )
(12,720)
Total
$
952,801 $
424,144
$
1,376,945
$
2,193,850 $
3,570,795
(a) Includes the unamortized balance of fair market value adjustments, premiums/discounts, deferred hedge gains, and deferred financing costs.
For the years ended December 31, 2015 and 2014, the Company amortized $7.0 million and $7.2 million, respectively, of deferred financing
costs into Interest expense.
We were in compliance with the covenants of our debt instruments at December 31, 2015.
F - 29
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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):
Year Ended December 31,
2015
2014
2013
Numerator for income/(loss) per share:
Income/(loss) from continuing operations
$
105,482
$
16,260
$
2,340
Gain/(loss) on sale of real estate owned, net of tax
251,677
143,572
(Income)/loss from continuing operations attributable to redeemable noncontrolling
interests in the Operating Partnership and DownREIT Partnership
(16,773)
(5,511)
(Income)/loss from continuing operations attributable to noncontrolling interests
(3)
3
Income/(loss) from continuing operations attributable to UDR, Inc.
340,383
154,324
Distributions to preferred stockholders - Series E (Convertible)
(3,722)
(3,724)
—
48
60
2,448
(3,724)
Income/(loss) from continuing operations attributable to common stockholders -
basic
336,661
150,600
(1,276)
Dilutive distributions to preferred stockholders - Series E (Convertible)
3,722
—
—
Income/(loss) from continuing operations attributable to common stockholders -
dilutive
Income/(loss) from discontinued operations, net of tax
$
$
340,383
$
150,600
$
(1,276)
—
$
10
$
43,942
(Income)/loss from discontinued operations attributable to redeemable
noncontrolling interests in the Operating Partnership and DownREIT Partnership
—
—
(1,578)
Income/(loss) from discontinued operations attributable to common stockholders
$
—
$
10
$
42,364
Net income/(loss) attributable to common stockholders
$
336,661
$
150,610
$
41,088
Denominator for income/(loss) per share - basic and diluted:
Weighted average common shares outstanding
259,873
252,707
250,684
Non-vested restricted stock awards
(1,204)
(1,179)
(715)
Denominator for income/(loss) per share - basic
258,669
251,528
249,969
Incremental shares issuable from assumed conversion of dilutive preferred stock,
stock options and unvested restricted stock
5,083
1,917
—
Denominator for income/(loss) per share - diluted
263,752
253,445
249,969
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
$
$
$
$
1.30
$
0.60
$
(0.01)
—
—
1.30
$
0.60
$
0.17
0.16
1.29
$
0.59
$
(0.01)
—
—
1.29
$
0.59
$
0.17
0.16
F - 30
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 and DownREIT
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. For the year ended December 31, 2015, the
Company’s Series E preferred stock, stock options, and unvested restricted stock were dilutive. The effect of the conversion of the OP Units
and DownREIT Units was not dilutive, and therefore not included in the above calculations.
For the year ended December 31, 2014, the Company’s stock options and unvested restricted stock were dilutive for purposes of
calculating income/(loss) per share. The effect of the conversion of the OP Units and the Company’s Series E preferred stock were not dilutive,
and therefore not included in the above calculations.
For the year ended December 31, 2013, the effect of the conversion of the OP Units, the Company’s Series E preferred stock, stock
options and restricted stock were 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, 2015, 2014, and 2013 (shares in thousands):
OP Units
DownREIT Units
Preferred Stock
Stock options and unvested restricted stock
Year Ended December 31,
2015
2014
2013
12,947
16,229
3,032
2,051
9,247
—
3,036
1,917
9,337
—
3,036
1,584
F - 31
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
8. STOCKHOLDERS’ EQUITY
UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as
defined in the prospectus. The Company has the ability to issue 350,000,000 shares of common stock and 50,000,000 shares of preferred shares
as of December 31, 2015.
The following table presents the changes in the Company’s issued and outstanding shares of common and preferred stock for the years
ended December 31, 2015, 2014 and 2013:
Preferred Stock
Common Stock
Series E
Series F
Balance at December 31, 2012
250,139,408
2,803,812
2,464,183
Issuance/(forfeiture) of common and restricted shares, net
Adjustment for conversion of noncontrolling interest of unitholders in the
Operating Partnership
533,966
76,291
—
—
—
—
Balance at December 31, 2013
250,749,665
2,803,812
2,464,183
Issuance/(forfeiture) of common and restricted shares, net
801,054
—
—
Issuance of common shares through public offering
Adjustment for conversion of noncontrolling interest of unitholders in the
Operating Partnership
3,410,433
153,451
—
—
—
—
Balance at December 31, 2014
255,114,603
2,803,812
2,464,183
Issuance/(forfeiture) of common and restricted shares, net
Issuance of common shares through public offering
Adjustment for conversion of noncontrolling interest of unitholders in the
Operating Partnership
Conversion of Series E Cumulative Convertible shares
Issuance of Series F shares
Balance at December 31, 2015
Common Stock
270,628
6,339,636
112,174
7,480
—
—
—
—
(6,909)
—
—
—
—
—
13,988,313
261,844,521
2,796,903
16,452,496
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, 2015, 13,078,931 shares were available for sale under the continuous equity program.
During the year ended December 31, 2015, the Company entered into the following equity transactions for our common stock:
•
•
•
•
Sold 3,439,636 shares of common stock through the Company’s equity distribution agreement at a weighted average price per share of
$32.29, for aggregate gross proceeds of approximately $111.0 million;
Sold 2,900,000 shares of common stock through a public offering at a weighted average price per share of $35.00, for aggregate gross
proceeds of approximately $101.5 million.
Issued 551,293 shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”); and
Converted 112,174 OP Units into Company common stock.
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, 2015, 2014, and 2013 totaled $1.11, $1.04, and $0.94 per share,
respectively.
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
F - 32
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 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, 2015, 2014, and 2013 were $1.33 per share. The Series E is not
listed on any exchange. At December 31, 2015 and 2014, a total of 2,796,903 and 2,803,812 shares, respectively, 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. In connection with the acquisition of the six properties from Home OP
and the formation of the DownREIT Partnership in October 2015, the Company issued 13,988,313 Series F shares to former limited partners of
the Home OP, which had the right to subscribe for one share of Series F for each DownREIT Unit issued in connection with the acquisitions.
At December 31, 2015 and 2014, a total of 16,452,496 and 2,464,183 shares, respectively, of the Series F were outstanding with an
aggregate purchase value of $1,645 and $246, respectively. Holders of the Series F are entitled to one vote for each share of the Series F they
hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our
stockholders. The Series F does not entitle its holders to dividends or any other rights, privileges or preferences.
Distribution Reinvestment and Stock Purchase Plan
UDR’s Distribution Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the
opportunity to purchase, through the reinvestment of cash dividends, 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, 2015. During the year ended December 31, 2015, 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, 2015, the LTIP was amended to set forth the terms of new classes of
partnership interests in the Operating Partnership designated as LTIP Units. As of December 31, 2015, 19,000,000 shares were reserved on an
unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2015, there were 9,530,769 common
shares available for issuance under the LTIP.
The LTIP contains change of control provisions allowing for the immediate vesting of an award upon certain events such as a merger
where UDR is not the surviving entity. Upon the death or disability of an award recipient all outstanding instruments will vest and all
restrictions will lapse. The LTIP specifies that in the event of a capital transaction, which includes but is not limited to stock dividends, stock
splits, extraordinary cash dividends and spin-offs, the number of shares available for grant in totality or to a single individual is to be adjusted
proportionately. The LTIP specifies that when a capital transaction occurs that would dilute the holder of the stock award, prior grants are to be
adjusted such that the recipient is no worse as a result of the capital transaction.
F - 33
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
A summary of UDR’s stock option and restricted stock activities during the year ended December 31, 2015 is as follows:
Option Outstanding
Option Exercisable
Restricted Stock
Weighted
Average
Weighted
Average
Number of
Exercise
Number of
Exercise
Number
Options
Price
Options
Price
of shares
Weighted
Average Fair
Value Per
Restricted
Stock
Balance, December 31, 2014
2,265,842
$
12.82
2,265,842
$
12.82
999,978
$
23.98
Granted
Exercised
Vested
Forfeited
—
—
—
—
551,293
(30,879)
25.10
(30,879)
25.10
—
—
—
—
—
—
—
—
—
(736,204)
(14,691)
32.67
—
23.52
23.24
Balance, December 31, 2015
2,234,963
$
12.65
2,234,963
$
12.65
800,376
$
30.40
As of December 31, 2015, the Company had issued 5,083,498 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, 2015.
During the year ended December 31, 2015, stock options with a fair value of $0.3 million were exercised.
The weighted average remaining contractual life on all options outstanding as of December 31, 2015 is 2.9 years. 1,830,672 of share
options had exercise prices at $10.06 and 404,291 of share options had exercise prices at $24.38.
During the years ended December 31, 2015, 2014, and 2013, respectively, we did not recognize any 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, 2015, 2014, and 2013, we recognized $3.2 million, $4.2 million, and $3.6 million of compensation expense related to the
amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $3.0
million and had a weighted average remaining contractual life of 1.6 years as of December 31, 2015.
Long-Term Incentive Compensation
In January 2015, certain officers of the Company were awarded a restricted stock grant under the 2015 Long-Term Incentive Program
(“2015 LTI”). One-third of the 2015 LTI award is based upon FFO as Adjusted over a one-year period and will vest fifty percent on the one-
year anniversary and fifty percent on the two-year anniversary of the end of the performance period. The remaining two-thirds of the 2015 LTI
award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and will
vest 100% at the end of the three-year 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 $34.14 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 16.5%.
F - 34
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
In December 2014, when the LTI program was changed from a one-year to a three-year performance period, a one-time transition
(“Transition LTI”) award opportunity was approved commencing in 2015. One-third of the Transition LTI award is based upon FFO as
Adjusted over a one-year period and will vest at the end of the performance period. The remaining two-thirds of the Transition LTI award is
based on TSR as measured relative to comparable apartment REITs over a two-year period and will vest 100% at the end of the two-year
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 $33.68 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 16.6%. The intent
of the transition award is to ensure consistent reward opportunity during the phase-in period of the three-year awards under the 2015 LTI plan.
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 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%. Compensation expense is recorded under the accelerated method over the vesting period for
the 2014 LTI.
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 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 2013 LTI.
For the years ended December 31, 2015, 2014 and 2013, we recognized $14.8 million, $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 LTI awards was $8.3
million and had a weighted average remaining contractual life of 0.9 years as of December 31, 2015.
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, 2015, 2014, and 2013, was $1.1 million, $0.9 million, and $0.9 million, respectively.
10. INCOME TAXES
For 2015, 2014, and 2013, 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.
F - 35
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015, 2014, and 2013:
Ordinary income
Qualified ordinary income
Long-term capital gain
Unrecaptured section 1250 gain
Total
Year Ended December 31,
2015
2014
2013
$
0.595
$
0.695
$
0.744
—
0.329
0.168
0.139
0.105
0.076
—
0.114
0.067
$
1.092
$
1.015
$
0.925
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, 2015, 2014, and 2013 (dollars in thousands):
Income tax (benefit)/provision
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
Total income tax (benefit)/provision
Classification of income tax (benefit)/provision:
Continuing operations
Gain/(loss) on sale of real estate owned
Discontinued operations
Year Ended December 31,
2015
2014
2013
$
29
$
147
$
(1,030)
871
900
550
697
(4,173)
20,138
(613)
5,159
(4,786)
25,297
846
(184)
(6,907)
(1,190)
(8,097)
(3,886) $
25,994
$
(8,281)
(3,886) $
(15,098) $
(7,299)
—
—
41,087
5
—
(982)
$
$
F - 36
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015, 2014, and 2013 (dollars in thousands):
Deferred tax assets:
Federal and state tax attributes
Year Ended December 31,
2015
2014
2013
$
2,227
$
— $
13,069
Book/tax depreciation
Construction capitalization differences
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
9,016
6,692
19,354
—
—
707
75
—
401
—
10,311
—
11,950
7,168
42,734
(81)
—
(1,310)
11,869
7,168
41,424
—
—
(107)
(107)
—
—
(192)
(192)
(3,766)
(5,080)
(305)
(9,151)
$
11,762
$
6,976
$
32,273
Income tax benefit/(provision), 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, 2015, 2014, and 2013 as follows (dollars in thousands):
Year Ended December 31,
2015
2014
2013
Income tax (benefit)/provision
U.S. federal income tax (benefit)/provision
$
(4,383) $
28,819
$
(8,493)
State income tax provision
Other items
Conversion of certain TRS entities to REITs
Valuation allowance
442
(26)
—
81
2,678
(137)
(5,770)
404
46
246
—
(80)
Total income tax (benefit)/provision
$
(3,886) $
25,994
$
(8,281)
As of December 31, 2015, the Company, had federal net operating loss carryovers (“NOL”) of $27.1 million expiring in 2032 through
2035, of this amount $5.7 million is available to the Company. As of December 31, 2015, the TRS had state NOLs of approximately $64.7
million expiring in 2020 through 2032, of this amount $4.2 million is available to the TRS. As of December 31, 2015, the Company had a
valuation allowance of $0.1 million against its state NOL. During the year ended December 31, 2015, the Company had a net change of $0.1
million in the valuation allowance. A portion of these attributes are still available to the subsidiary REITs, but are carried at a zero effective tax
rate.
For the year ended December 31, 2015, the Tax benefit/(provision), net decreased $11.2 million as compared to 2014. The decrease 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 $0.0 and approximately $41.1 million
of tax for the years ended December 31, 2015 and 2014, respectively. The remaining decrease is a result of the conversion of certain TRS
subsidiaries to REITs in 2014, causing a zero rate to be applied to their 2015 income.
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
F - 37
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015 and 2014, 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 2011. The tax years 2011 through 2014 remain
open to examination by the major taxing jurisdictions to which the Company is subject.
11. NONCONTROLLING INTERESTS
UDR Lighthouse DownREIT L.P. Formation
In October 2015, in connection with the acquisition of the properties from Home OP, described in Note 4, Real Estate Owned, the
Company, as the sole general partner and a limited partner, and the Operating Partnership, as a limited partner, entered into the Agreement of
Limited Partnership (the “DownREIT Partnership Agreement”) of the DownREIT Partnership.
As the sole general partner of the DownREIT Partnership, the Company has full, complete and exclusive discretion to manage and control
the business of the DownREIT Partnership and to make all decisions affecting the business and assets of the DownREIT Partnership, subject to
certain limitations set forth in the DownREIT Partnership Agreement. As of the closing of the transactions, the Company and the Operating
Partnership owned approximately 8.5% and 41.6%, respectively, of the DownREIT Units, which they received in exchange for their
contribution of the following properties to the DownREIT Partnership:
Property
Ridge at Blue Hills(a)
Residences at the Domain(a)
Inwood West(b)
Location
Braintree, MA
Austin, TX
Woburn, MA
Thirty377(b)
Legacy Village(b)
Delancey at Shirlington(b)
Circle Towers(b)
Barton Creek Landing(b)
The Whitmore(b)
(a) Contributed by the Company.
(b) Contributed by the Operating Partnership.
Dallas, TX
Plano, TX
Arlington, VA
Fairfax, VA
Austin, TX
Arlington, VA
The limited partners have no power to remove the Company as general partner of the DownREIT Partnership. The DownREIT
Partnership is structured to make distributions in respect of DownREIT Units that will be equivalent to the distributions made to holders of the
Company’s common stock. Subject to certain terms and conditions set forth in the DownREIT Partnership Agreement, limited partners in the
DownREIT Partnership (other than the Company and its affiliates) have the right, commencing one year after the date of issuance, to tender
their DownREIT Units for redemption for cash or, at the Company’s election, for shares of its common stock on a one-for-one basis (subject to
the anti-dilution adjustments provided in the DownREIT Partnership Agreement).
F - 38
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership
Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and
DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income attributable to
common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP
Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to
noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT
Partnership.
Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a
portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as
defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP
Units/DownREIT Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership and the
DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash
Amount or the REIT Share Amount (generally one share of Common Stock of the Company for each OP Unit/DownREIT Unit), as defined in
the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP
Units 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 and DownREIT Partnership for the years
ended December 31, 2015 and 2014 (dollars in thousands):
Year Ended December 31,
2015
2014
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership,
beginning of year
$
282,480
$
217,597
Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and
DownREIT Partnership
DownREIT Units issued for real estate, net
Conversion of OP Units to Common Stock
102,703
563,836
73,954
—
(3,817)
(4,372)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership
and DownREIT Partnership
16,773
5,511
Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT
Partnership
Allocation of other comprehensive income/(loss)
(15,231)
(10,077)
(308)
(133)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, end of
year
$
946,436
$
282,480
The following sets forth net income/(loss) attributable to common stockholders and transfers from redeemable noncontrolling interests in
the Operating Partnership and DownREIT 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,
2015
2014
2013
336,661
$
150,610
$
41,088
3,817
4,372
1,817
340,478
$
154,982
$
42,905
$
$
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, 2015, 2014, and 2013, Net
(income)/loss attributable to noncontrolling interests was less than $0.1 million.
F - 39
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
12. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS
Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an
orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and
unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
•
•
•
Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or
can be corroborated with observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs.
The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31,
2015 and 2014 are summarized as follows (dollars in thousands):
Fair Value at December 31, 2015, Using
Quoted Prices
in
Active Markets
Significant
Fair Value
Estimate at
December 31,
2015
for Identical
Other
Significant
Assets or
Observable
Unobservable
Liabilities
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total Carrying
Amount in
Statement of
Financial
Position at
December 31,
2015
Description:
Notes receivable (a)
$
16,694
$
16,938
$
Derivatives - Interest rate contracts (b)
13
13
— $
—
— $
16,938
13
—
16,707
$
16,951
$
— $
13
$
16,938
2,112
$
2,112
$
— $
2,112
$
—
$
$
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
442,617
514,462
31,337
94,700
448,019
539,050
31,337
94,700
Fannie Mae credit facilities
299,378
299,378
Unsecured debt instruments (c):
Commercial banks
150,000
150,000
Senior unsecured notes
2,056,223
2,108,687
—
—
—
—
—
—
—
—
—
—
—
—
—
—
448,019
539,050
31,337
94,700
299,378
150,000
2,108,687
Total liabilities
$
3,590,829
$
3,673,283
$
— $
2,112
$
3,671,171
Redeemable noncontrolling interests in the
Operating Partnership and DownREIT
Partnership (d)
$
946,436
$
946,436
$
—
$
946,436
$
—
F - 40
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Fair Value at December 31, 2014, Using
Total Carrying
Amount in
Statement of
Financial
Position at
December 31,
2014
Quoted Prices
in
Active Markets
for Identical
Assets or
Significant
Other
Observable
Inputs (Level
2)
Fair Value
Estimate at
December 31,
2014
Significant
Unobservable
Inputs (Level 3)
Description:
Notes receivable (a)
Derivatives- Interest rate contracts (b)
Total assets
Derivatives- Interest rate contracts (b)
Secured debt instruments- fixed rate: (c)
$
$
$
Liabilities
(Level 1)
14,369
$
14,808
$
88
88
14,457
$
14,896
$
— $
—
— $
— $
14,808
88
—
88
$
14,808
10,368
$
10,368
$
— $
10,368
$
—
Mortgage notes payable
401,210
415,663
Fannie Mae credit facilities
568,086
606,623
Secured debt instruments- variable rate: (c)
Mortgage notes payable
Tax-exempt secured notes payable
31,337
94,700
31,337
94,700
Fannie Mae credit facilities
266,196
266,196
Unsecured debt instruments: (c)
Commercial banks
152,500
152,500
Senior unsecured notes
2,069,076
2,144,125
—
—
—
—
—
—
—
—
—
—
—
—
—
—
415,663
606,623
31,337
94,700
266,196
152,500
2,144,125
Total liabilities
$
3,593,473
$
3,721,512
$
— $
10,368
$
3,711,144
Redeemable noncontrolling interests in the
Operating Partnership (d)
$
282,480
$
282,480
$
—
$
282,480
$
—
(a)
See Note 2, Significant Accounting Policies.
(b)
See Note 13, Derivatives and Hedging Activity.
(c)
See Note 6, Secured Debt and Unsecured Debt, Net.
(d)
See Note 11, Noncontrolling Interests.
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.
F - 41
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015 and 2014, the Company has assessed the
significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the
credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its
derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value
measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that
are subject to master netting agreements on a net basis by counterparty portfolio.
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership have a redemption feature and are marked
to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and
therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on
observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating
Partnership and DownREIT Partnership are classified as Level 2.
Financial Instruments Not Carried at Fair Value
At December 31, 2015, 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, 2015, 2014, and 2013.
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.
F - 42
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 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, 2015, 2014, and 2013, 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, 2015,
the Company recognized a loss of less than $0.1 million reclassified from Accumulated OCI to Interest expense due to the de-designation of a
cash flow hedge and recorded no other ineffectiveness to earnings. During the years ended December 31, 2014 and 2013, the Company
recorded a gain of less than $0.1 million of ineffectiveness in earnings attributable to a timing difference between the derivative and the hedged
item.
Amounts reported in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets relate to deferred
gains/(losses) on designated derivatives that will be reclassified to interest expense as interest payments are made on the Company’s hedged
debt. Through December 31, 2016, the Company estimates that an additional $3.0 million will be reclassified as an increase to interest expense.
As of December 31, 2015, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges
of interest rate risk (dollars in thousands):
Product
Interest rate swaps
Interest rate caps
Number of
Instruments
Notional
5
2
$
$
315,000
203,166
F - 43
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 or the Company has elected to not apply hedge
accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a
loss of less than $0.1 million for the years ended December 31, 2015 and 2014, and a gain of $0.3 million for the year ended December 31,
2013.
As of December 31, 2015, the Company had the following outstanding derivatives that were not designated as hedges in qualifying
hedging relationships (dollars in thousands):
Product
Interest rate caps
Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets
Number of
Instruments
Notional
3
$
133,107
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, 2015 and 2014 (dollars in thousands):
Asset Derivatives
Liability Derivatives
(included in Other assets)
(included in Other liabilities)
Fair Value at:
Fair Value at:
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
9
$
86
$
2,112
$
10,368
4
$
2
$
— $
—
Derivatives designated as hedging instruments:
Interest rate products
Derivatives not designated as hedging instruments:
Interest rate products
$
$
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, 2015, 2014, and 2013 (dollars in thousands):
Gain/(Loss) Reclassified from
Accumulated OCI into
Gain/(Loss) Recognized in Interest
expense
Unrealized holding gain/(loss)
Recognized in OCI
Interest expense
(Effective Portion)
(Effective Portion)
(Ineffective Portion and Amount
Excluded from Effectiveness
Testing)
Derivatives in Cash
Flow Hedging
Relationships
Year ended December 31,
Year ended December 31,
Year ended December 31,
2015
2014
2013
2015
2014
2013
2015
2014
2013
Interest rate products
$ (6,393) $ (8,695) $
(469) $ (2,251) $ (4,834) $ (6,851) $
(11) $
3
$
—
Gain/(Loss) Recognized in
Interest income and other income/(expense), net
Year ended December 31,
Derivatives Not Designated as Hedging Instruments
2015
2014
2013
Interest rate products
$
(23) $
(4)
271
F - 44
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Credit-risk-related Contingent Features
The Company has agreements with some of its derivative counterparties that contain a provision where (1) if the Company defaults on
any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could
also be declared in default on its derivative obligations; or (2) the Company could be declared in default on its derivative obligations if
repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
Certain of the Company’s agreements with its derivative counterparties contain provisions where, if there is a change in the Company’s
financial condition that materially changes the Company’s creditworthiness in an adverse manner, the Company may be required to fully
collateralize its obligations under the derivative instrument. At December 31, 2015 and 2014, 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.
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, 2015, 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 $2.2 million. If the Company had breached any of these provisions at
December 31, 2015, it would have been required to settle its obligations under the agreements at their termination value of $2.2 million.
Tabular Disclosure of Offsetting Derivatives
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, 2015 and December 31, 2014
(dollars in thousands):
Offsetting of Derivative Assets
Gross
Amounts of
Recognized
Assets
Gross Amounts
Offset in the
Consolidated
Balance Sheets
Net Amounts of
Assets Presented in
the Consolidated
Balance Sheets (a)
Financial
Instruments
Cash
Collateral
Received
Net Amount
Gross Amounts Not Offset in the
Consolidated Balance Sheets
December 31, 2015
$
13
$
— $
13
$
—
$
— $
December 31, 2014
$
88
$
— $
88
$
(27) $
— $
13
61
(a) Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments
on the Consolidated Balance Sheets” located in this footnote.
F - 45
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Offsetting of Derivative Liabilities
Gross
Amounts of
Recognized
Liabilities
Gross Amounts
Offset in the
Consolidated
Balance Sheets
Net Amounts of
Liabilities Presented
in the Consolidated
Balance Sheets (a)
Financial
Instruments
Cash
Collateral
Posted
Net Amount
Gross Amounts Not Offset in the
Consolidated Balance Sheets
December 31, 2015
$
2,112
$
— $
2,112
$
—
$
— $
2,112
December 31, 2014
$
10,368
$
— $
10,368
$
(27) $
— $
10,341
(a) Amounts reconcile to the aggregate fair value of derivative liabilities in the “Tabular Disclosure of Fair Values of Derivative
Instruments on the Consolidated Balance Sheets” located in this footnote.
14. COMMITMENTS AND CONTINGENCIES
Commitments
Real Estate Under Development
The following summarizes the Company’s real estate commitments at December 31, 2015 (dollars in thousands):
Wholly-owned — under development
Wholly-owned — redevelopment
Joint ventures:
Unconsolidated joint ventures
Participating loan investments
Preferred equity investments
Number of
Costs
Incurred
Properties
to Date (a)
Expected Costs
to Complete
(unaudited)
Average
Ownership
Stake
1
3
4
1
5
$
124,072 (b) $
217,928
11,302 (b)
16,698
100%
100%
497,350
81,979
(c)
Various
90,747 (d)
2,711
(e)
136,327 (f)
—
0%
48%
Total
$
859,798
$
319,316
(a) Represents 100% of project costs incurred to date.
(b) Costs incurred to date include $12.6 million and $1.2 million of accrued fixed assets for development and redevelopment, respectively.
(c) Represents UDR’s proportionate share of expected remaining costs to complete.
(d) Represents the participating loan balance funded as of December 31, 2015.
(e) Represents UDR’s remaining participating loan commitment for Steele Creek.
(f)
Represents UDR’s share of capital contributed to the West Coast Development Joint Venture as of December 31, 2015.
F - 46
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 2017. Future minimum lease payments as of
December 31, 2015 are as follows (dollars in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
(a)
Ground
Leases (a)
Office Space
$
$
5,444
$
5,444
5,444
5,444
4,486
311,858
338,120
$
207
179
76
76
76
32
646
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 $5.5 million, $5.4 million, and $5.2 million of ground rent expense for the years ended December 31, 2015, 2014, and
2013, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. The
Company incurred $0.3 million, $1.3 million, and $1.3 million of rent expense related to office space for the years ended December 31, 2015,
2014, and 2013, 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 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:
F - 47
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
•
•
Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2014 and held as of
December 31, 2015. 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, 2015, 2014, and 2013.
F - 48
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
The following table details rental income and NOI from continuing and discontinued operations for UDR’s reportable segments for the
years ended December 31, 2015, 2014, and 2013, 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
Year Ended December 31,
2015
2014
2013
$
255,346
$
236,175
$
214,324
157,158
154,491
150,489
103,920
86,048
57,670
98,061
81,500
54,810
93,479
77,299
52,302
Non-Mature Communities/Other
211,786
180,112
167,743
Total segment and consolidated rental income
$
871,928
$
805,149
$
755,636
Reportable apartment home segment NOI
Same-Store Communities
West Region
Mid-Atlantic Region
Southeast Region
Northeast Region
Southwest Region
$
190,682
$
171,973
$
152,108
108,324
107,592
105,300
69,820
64,539
35,767
65,053
61,315
33,725
61,087
57,350
31,925
Non-Mature Communities/Other
144,737
116,663
106,271
Total segment and consolidated NOI
613,869
556,321
514,041
Reconciling items:
Joint venture management and other fees
22,710
13,044
12,442
Property management
Other operating expenses
(23,978)
(22,142)
(20,780)
(9,708)
(8,271)
(7,136)
Real estate depreciation and amortization
(374,598)
(358,154)
(341,490)
General and administrative
(59,690)
(47,800)
(42,238)
Casualty-related recoveries/(charges), net
Other depreciation and amortization
Income/(loss) from unconsolidated entities
Interest expense
Interest income and other income/(expense), net
Tax benefit/(provision), net
(2,335)
(6,679)
62,329
(541)
12,253
(5,775)
(7,006)
(6,741)
(415)
(121,875)
(130,454)
(126,083)
1,551
3,886
11,837
15,136
4,681
7,299
Gain/(loss) on sale of real estate owned, net of tax
251,677
143,647
40,449
Net (income)/loss attributable to redeemable noncontrolling interests in the
Operating Partnership and DownREIT Partnership
(16,773)
(5,511)
(1,530)
Net (income)/loss attributable to noncontrolling interests
(3)
3
60
Net income/(loss) attributable to UDR, Inc.
$
340,383
$
154,334
$
44,812
F - 49
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
The following table details the assets of UDR’s reportable segments as of December 31, 2015 and 2014 (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
December 31,
2015
December 31,
2014
$
2,371,615
$
2,336,271
1,423,888
1,440,561
730,060
727,933
1,109,354
1,076,656
450,305
440,587
3,105,054
2,361,251
9,190,276
8,383,259
Accumulated depreciation
Total segment assets — net book value
Reconciling items:
Cash and cash equivalents
Restricted cash
Notes receivable, net
Investment in and advances to unconsolidated joint ventures, net
Other assets
Total consolidated assets
(2,646,874)
(2,434,772)
6,543,402
5,948,487
6,742
20,798
16,694
938,906
137,302
15,224
22,340
14,369
718,226
110,082
$
7,663,844
$
6,828,728
Capital expenditures related to our Same-Store Communities totaled $72.3 million, $52.5 million, and $43.0 million for the years ended
December 31, 2015, 2014, and 2013, respectively. Capital expenditures related to our Non-Mature Communities/Other totaled $12.9 million,
$10.9 million, and $12.8 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Markets included in the above geographic segments are as follows:
i.
ii.
West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California, and
Portland
Mid-Atlantic Region — Metropolitan D.C., Baltimore, and Richmond
iii.
Southeast Region — Orlando, Nashville, Tampa and Other Florida
iv.
Northeast Region — New York and Boston
v.
Southwest Region — Dallas and Austin
16. CASUALTY-RELATED (RECOVERIES)/CHARGES
During the year ended December 31, 2015, the Company recorded $2.3 million of casualty-related losses due to property damage caused
by the severe snow storms on the east coast in early 2015 and water damage at a community, all of which are included in Casualty-related
charges/(recoveries), net on the Consolidated Statements of Operations.
During the year ended December 31, 2014, the Company recorded $0.5 million 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 charges/(recoveries), net on the
Consolidated Statements of Operations.
F - 50
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
During the year ended December 31, 2013, the Company recorded $12.3 million of casualty-related recoveries related to damage caused
by Hurricane Sandy on the east coast in October 2012, all of which are included in Casualty-related charges/(recoveries), net on the
Consolidated Statements of Operations.
17. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA
Selected consolidated quarterly financial data for the years ended December 31, 2015 and 2014 is summarized in the table below (dollars
in thousands, except per share amounts):
2015
Rental income
Three Months Ended
March 31,
June 30,
September 30,
December 31,
$
207,047
$
212,764
$
217,765
$
234,352
Income/(loss) from continuing operations
76,417
10,842
13,695
4,528
Net income/(loss) attributable to common stockholders
(a)
Income/(loss) attributable to common stockholders per
weighted average common share (a):
72,891
85,924
12,361
161,270
Basic
Diluted
$
$
0.28
0.28
$
$
0.33
0.33
$
$
0.05
0.05
$
$
0.62
0.61
Weighted average number of shares outstanding
Basic
Diluted
256,834
258,662
257,849
262,806
259,114
261,207
260,830
266,108
2014
Rental income (b)
$
194,352
$
200,959
$
203,587
$
206,104
Income/(loss) from continuing operations
Income/(loss) from discontinued operations, net of tax
Net income/(loss) attributable to common stockholders
(a)
Income/(loss) attributable to common stockholders per
weighted average common share (a):
(5,195)
(87)
4,359
18
10,611
79
6,485
—
17,430
29,076
39,618
64,486
Basic and diluted
$
0.07
$
0.12
$
0.16
$
0.25
Weighted average number of shares outstanding
Basic
Diluted
250,177
251,822
250,255
252,191
251,655
253,732
253,983
256,000
(a) Due to the quarterly pro-rata calculation of noncontrolling interest and rounding, the sum of the quarterly per share and/or dollar amounts
may not equal the annual totals.
(b) Represents rental income from continuing operations, excluding amounts classified as discontinued operations.
F - 51
[This page is intentionally left blank.]
Report of Independent Registered Public Accounting Firm
The Partners
United Dominion Realty, L.P.
We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the “Partnership”) as of December 31,
2015 and 2014, 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, 2015. Our audits also included the financial statement schedule listed in the Index at Item
15(a). These financial statements 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.
As discussed in Note 2 to the consolidated financial statements, the Partnership changed its presentation of debt issuance costs related to a
recognized debt liability in the financial statements as a result of the adoption of the amendments to the FASB Accounting Standards Codification
resulting from Accounting Standards Update No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30),” and Accounting Standards Update
No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. Also 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”.
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, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2015, 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.
Denver, Colorado
February 23, 2016
/s/ Ernst & Young LLP
F - 53
UNITED DOMINION REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
ASSETS
Real estate owned:
Real estate held for investment
Less: accumulated depreciation
Total real estate owned, net of accumulated depreciation
Cash and cash equivalents
Restricted cash
Investment in unconsolidated entities
Other assets
Total assets
LIABILITIES AND CAPITAL
Liabilities:
Secured debt, net
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
December 31,
2015
December 31,
2014
$
3,630,905
$
4,238,770
(1,281,258)
(1,403,303)
2,349,647
2,835,467
3,103
11,344
166,186
24,528
502
13,811
—
24,029
$
2,554,808
$
2,873,809
$
475,964
$
927,484
273,334
88,696
2,775
1,550
15,929
50,962
—
12,964
7,061
3,284
18,387
47,788
24,622
22,436
Total liabilities
833,478
1,139,758
Commitments and contingencies (Note 12)
Capital:
Partners’ capital:
General partner:
110,883 OP Units outstanding at December 31, 2015 and December 31, 2014
1,110
1,105
Limited partners:
183,167,815 OP Units outstanding at December 31, 2015 and December 31, 2014
1,712,415
1,702,971
Accumulated other comprehensive loss
Total partners’ capital
Advances (to)/from General Partner
Noncontrolling interests
Total capital
Total liabilities and capital
(113)
(1,075)
1,713,412
1,703,001
(11,270)
19,188
13,624
17,426
1,721,330
1,734,051
$
2,554,808
$
2,873,809
See accompanying notes to the consolidated financial statements.
F - 54
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
Year Ended December 31,
2015
2014
2013
$
440,408 $
422,634
$
401,853
75,373
47,438
12,111
5,923
75,211
47,110
11,622
5,172
75,019
45,139
11,051
5,728
Real estate depreciation and amortization
169,784
179,176
179,367
General and administrative
Casualty-related (recoveries)/charges, net
27,016
28,541
843
541
24,808
(8,083)
Total operating expenses
338,488
347,373
333,029
Operating income
101,920
75,261
68,824
Income/(loss) from unconsolidated entities
(4,659)
—
—
Interest expense
(35,274)
(37,114)
(34,989)
Interest expense on note payable due to General Partner
(5,047)
(4,603)
(1,069)
Income/(loss) from continuing operations
56,940
33,544
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)
—
56,940
158,123
215,063
—
33,544
63,635
97,179
Net (income)/loss attributable to noncontrolling interests
(1,762)
(952)
32,766
45,176
77,942
—
77,942
(4,566)
Net income/(loss) attributable to OP unitholders
Net income/(loss) per weighted average OP Unit - basic and diluted:
Net income/(loss) from continuing operations attributable to OP unitholders
Net income/(loss) from discontinued operations attributable to OP unitholders
Net income/(loss) attributable to OP unitholders
$
$
$
213,301 $
96,227
$
73,376
1.16 $
0.53
$
—
—
1.16 $
0.53
$
0.16
0.24
0.40
Weighted average OP Units outstanding - basic and diluted
183,279
183,279
184,196
See accompanying notes to the consolidated financial statements.
F - 55
UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
Year Ended December 31,
2015
2014
2013
Net income/(loss)
$
215,063 $
97,179
$
77,942
Other comprehensive income/(loss), including portion attributable to
noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)
(82)
(285)
(348)
(Gain)/loss reclassified into earnings from other comprehensive
income/(loss)
1,044
2,275
2,652
Other comprehensive income/(loss), including portion attributable to
noncontrolling interests
Comprehensive income/(loss)
962
1,990
216,025
99,169
Comprehensive (income)/loss attributable to noncontrolling interests
(1,762)
(952)
2,304
80,246
(4,566)
Comprehensive income/(loss) attributable to OP unitholders
$
214,263 $
98,217
$
75,680
See accompanying notes to consolidated financial statements.
F - 56
UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(In thousands)
Class A
Limited
Limited
Partner
Partners
UDR, Inc.
Limited
Partner
General
Partner
Accumulated
Other
Comprehensive
Income/(Loss),
net
Total
Partners’
Capital
Advances
(to)/from
General
Partner
Noncontrolling
Interests
Total
Balance at December 31, 2012
$
41,656
$ 181,762
$ 1,698,027
$
1,223
$
(5,369)
$
1,917,299
$
(11,056)
$
12,513
$
1,918,756
Net income/(loss)
868
3,016
69,448
44
—
73,376
—
4,566
77,942
Distributions
(2,324)
(7,118)
(164,170)
(104)
OP Unit redemptions for common
shares of UDR
Distribution of community to UDR
Adjustment to reflect limited
partners’ capital at redemption
value
Other comprehensive
income/(loss)
Net change in advances (to)/from
General Partner
—
—
(1,817)
1,817
—
(23,329)
702
852
(1,554)
—
—
—
—
—
—
—
—
—
—
—
(173,716)
—
—
—
(23,329)
(53,712)
—
—
—
—
—
2,304
2,304
—
—
—
—
54,852
—
—
—
—
—
—
(173,716)
—
(77,041)
—
2,304
54,852
Balance at December 31, 2013
40,902
176,695
1,580,239
1,163
(3,065)
1,795,934
(9,916)
17,079
1,803,097
Net income/(loss)
920
3,938
91,311
58
Distributions
(2,328)
(7,789)
(180,917)
(116)
OP Unit redemptions for common
shares of UDR
—
(4,371)
4,371
Adjustment to reflect limited
partners’ capital at redemption
value
Other comprehensive
income/(loss)
Net change in advances (to)/from
General Partner
14,493
60,020
(74,513)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
96,227
(191,150)
—
—
1,990
1,990
—
—
Balance at December 31, 2014
53,987
228,493
1,420,491
1,105
(1,075)
1,703,001
Net income/(loss)
2,201
8,515
202,456
129
Distributions
(2,328)
(8,138)
(193,262)
(124)
OP Unit Redemptions for common
shares of UDR
—
(3,816)
3,816
Adjustment to reflect limited
partners’ capital at redemption
value
Unrealized gain on derivative
financial investments
Net change in advances (to)/from
General Partner
10,549
43,427
(53,976)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
962
—
213,301
(203,852)
—
—
962
—
—
—
—
—
—
23,540
13,624
—
—
—
—
—
(24,894)
952
97,179
—
—
—
—
(191,150)
—
—
1,990
(605)
22,935
17,426
1,734,051
1,762
215,063
—
—
—
—
—
(203,852)
—
—
962
(24,894)
Balance at December 31, 2015
$
64,409
$ 268,481
$ 1,379,525
$
1,110
$
(113)
$
1,713,412
$
(11,270)
$
19,188
$
1,721,330
See accompanying notes to the consolidated financial statements.
F - 57
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:
Year Ended December 31,
2015
2014
2013
215,063
97,179
$
77,942
Depreciation and amortization
169,784
179,176
181,302
Net gain on the sale of depreciable property
(158,123)
(63,635)
(41,518)
(Income)/loss from unconsolidated entities
Other
Changes in operating assets and liabilities:
4,659
606
—
2,497
—
1,827
(Increase)/decrease in operating assets
385
(1,756)
(11,685)
Increase/(decrease) in operating liabilities
(5,609)
(5,429)
478
Net cash provided by/(used in) operating activities
226,765
208,032
208,346
Investing Activities
Acquisition of real estate assets
(141,424)
—
—
Proceeds from sales of real estate investments, net
232,728
47,922
79,437
Development of real estate assets
(6,280)
(47,220)
(66,407)
Capital expenditures and other major improvements — real estate assets, net of
escrow reimbursement
(61,441)
(47,352)
(76,984)
Net cash provided by/(used in) investing activities
23,583
(46,650)
(63,954)
Financing Activities
Advances (to)/from General Partner, net
(232,764)
(153,751)
(92,537)
Proceeds from the issuance of secured debt
184,638
5,909
—
Payments on secured debt
Distributions paid to partnership unitholders
Payments of financing costs
(189,244)
(4,995)
(42,237)
(10,367)
(9,929)
(10)
(11)
(9,348)
(1,177)
Net cash provided by/(used in) financing activities
(247,747)
(162,777)
(145,299)
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:
Non-cash transactions associated with contribution to DownREIT Partnership:
Real estate owned, net of accumulated depreciation
Investment in DownREIT Partnership
Secured debt, net
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
$
$
2,601
502
(1,395)
1,897
3,103
$
502
$
(907)
2,804
1,897
44,881
$
44,629
$
42,506
405,116
174,822
228,390
—
—
17,557
3,118
—
—
—
—
—
—
7,254
—
—
—
74,586
23,329
13,682
6,371
See accompanying notes to the consolidated financial statements.
F - 58
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
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, 2015, 2014, and 2013, rental revenues of the Operating Partnership
represented 51%, 52%, and 54%, respectively, of the General Partner’s consolidated rental revenues (including those classified within
discontinued operations). At December 31, 2015, the Operating Partnership’s apartment portfolio consisted of 57 communities located in 14
markets consisting of 16,974 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, 2015, there were 183,278,698 OP Units outstanding, of which 174,225,399 or 95.1% were owned by UDR and
affiliated entities and 9,053,299 or 4.9% were owned by non-affiliated limited partners. There were 183,278,698 OP Units outstanding as of
December 31, 2014, 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.
As sole general partner of the Operating Partnership, UDR owned all 110,883 general partner OP units or 0.1% of the total OP Units
outstanding as of December 31, 2015 and 2014. At December 31, 2015 and 2014, there were 183,167,815 limited partner OP Units
outstanding, of which 1,873,332 were Class A Limited Partnership Units. Of the limited partner OP Units outstanding, UDR owned
174,114,516 or 95.1% and 174,002,342 or 95.0% at December 31, 2015 and 2014, respectively. The remaining 9,053,299 or 4.9% and
9,165,473 or 5.0% of the limited partner OP Units outstanding were held by non-affiliated partners at December 31, 2015 and 2014,
respectively, of which 1,751,671 were Class A Limited Partnership units. See Note 10, 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 - 59
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which makes changes to both the variable
interest model and the voting model of consolidation. Under ASU 2015-02, companies will need to re-evaluate whether an entity meets the
criteria to be considered a variable interest entity (“VIE”) or whether the consolidation of an entity should be assessed under the voting model.
The new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or
similar entity unless that presumption can be overcome. The new standard will be effective for the Operating Partnership beginning on January
1, 2016 and must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning
of the period of adoption or retrospectively to each period presented. The Operating Partnership does not expect the adoption of the new
standard to result in the consolidation of entities not previously consolidated or the deconsolidation of any entities previously consolidated.
Upon adopting the new standard, the Operating Partnership expects that the DownREIT Partnership will become a VIE as the limited partners
lack substantive kick-out rights and substantive participating rights. The Operating Partnership does not expect to be the primary beneficiary of
the DownREIT Partnership and will continue to record its interest as an equity method investment.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, to revise the presentation of debt
issuance costs. Under ASU 2015-03, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt
liability rather than as an asset. Amortization of the deferred costs will continue to be included in interest expense. ASU 2015-03 does not
directly address presentation or subsequent measurement of issuance costs related to line-of-credit arrangements. In August 2015, the FASB
issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which
clarifies that such costs may be presented as an asset and subsequently amortized over the term of the line-of-credit arrangement. The
cumulative guidance, which is to be applied retrospectively to all prior periods, is effective for fiscal years beginning after December 15, 2015,
with early adoption permitted for financial statements that have not been previously issued.
The Operating Partnership elected to early adopt ASU 2015-03 and ASU 2015-15 during the fourth quarter of 2015. As a result, at
December 31, 2015 and 2014, deferred financing costs of $2.2 million and $4.5 million, respectively, are included as a reduction to Secured
debt, net on the accompanying Consolidated Balance Sheets. At December 31, 2014, Secured debt, net previously disclosed as $932.0 million
has been adjusted to $927.5 million in the accompanying Consolidated Balance Sheets.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires
that the cumulative impact of a measurement-period adjustment, including impacts on prior periods, be
recognized in the reporting period in which the adjustment amount is determined and, therefore, eliminates the requirement to retrospectively
account for the adjustment in prior periods presented. The new standard will be effective for the Operating Partnership beginning on January 1,
2016 and must be applied prospectively to measurement-period adjustments that occur after the effective date. The Operating Partnership will
comply with the new guidance upon adoption.
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.
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UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 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, 2015, 2014, and 2013 were $0.7 million, $2.0
million, and $2.5 million, respectively. During the years ended December 31, 2015, 2014, and 2013, total interest capitalized was $0.2 million,
$2.9 million, and $5.9 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.
F - 61
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 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
F - 62
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 (2011 through 2014) 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
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 were 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 7, Related Party Transactions.)
Advertising Costs
All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item General
and administrative. During the years ended December 31, 2015, 2014, and 2013, total advertising expense from continuing and discontinued
operations was $2.4 million, $2.5 million, and $2.5 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, 2015, 2014, and 2013, the Operating Partnership’s other comprehensive income/(loss) consisted of the gain/(loss) (effective
portion) on derivative instruments that are designated as and qualify as cash flow hedges and (gain)/loss reclassified from other comprehensive
income/(loss) into earnings. The (gain)/loss reclassified from other comprehensive income/(loss) is included in Interest expense on the
Consolidated Statements of Operations. See Note 9, Derivatives and Hedging Activity, for further discussion.
Use of Estimates
The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the
amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates.
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, 2015, the
F - 63
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Operating Partnership held greater than 10% of the carrying value of its real estate portfolio in the Orange County, California; San Francisco,
California; 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 on the Consolidated Statements of Operations rather than in Income/(loss) from discontinued
operations 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, 2015, 2014, and 2013.
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. At December 31, 2015 and 2014, 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, 2015, 2014, and 2013, the Operating Partnership recognized net gain/(loss) on the sale of
depreciable properties of $0.0, $0.0, and $41.5 million, respectively, in Income/(loss) from discontinued operations on the Consolidated
Statements of Operations.
The following is a summary of income from discontinued operations for the years ended December 31, 2015, 2014, and 2013 (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
Year Ended December 31,
2015
2014
2013
$
— $
— $
—
—
—
—
—
—
—
—
—
—
8,989
3,149
247
1,935
3,658
41,518
Income/(loss) from discontinued operations
$
— $
— $
45,176
F - 64
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
4. REAL ESTATE OWNED
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, 2015, the Operating Partnership owned and
consolidated 57 communities in eight states plus the District of Columbia totaling 16,974 apartment homes. The following table summarizes
the carrying amounts for our real estate owned (at cost) as of December 31, 2015 and 2014 (dollars in thousands):
Land
Depreciable property — held and used:
Buildings, improvements, and furniture, fixtures and equipment
Real estate owned
Accumulated depreciation
Real estate owned, net
Acquisitions
December 31,
2015
December 31,
2014
$
833,300
$
1,008,014
2,797,605
3,230,756
3,630,905
4,238,770
(1,281,258)
(1,403,303)
$
2,349,647
$
2,835,467
In October 2015, the Operating Partnership acquired one community in Alexandria, Virginia with 421 apartment homes for a purchase
price of $142.0 million, which was funded through reverse tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code
of 1986 (“Section 1031 exchanges”). The Operating Partnership performed a valuation analysis of the fair market value of the assets and
liabilities of the acquired community as of the acquisition date. The following table summarizes the allocation of the purchase price (in
thousands):
Land
Buildings
Intangible assets
Total assets acquired
$
$
27,749
111,878
2,373
142,000
Substantially all acquired intangible assets will be amortized in 2016 based on the average term of acquired leases of 14 months or less.
The Operating Partnership did not have any acquisitions during the year ended December 31, 2014.
Dispositions
In connection with the formation of the DownREIT Partnership in October 2015, the Operating Partnership contributed seven operating
communities to the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value
and consequently deferred a gain of $296.4 million. As a result of the contribution, the Operating Partnership lost its controlling interest and
deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT Partnership under
the equity method of accounting as described in Note 5, Unconsolidated Entities.
F - 65
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
The following table summarizes the impact of the deconsolidation of the contributed assets on the Consolidated Balance Sheet at
December 31, 2015 (in thousands):
Assets
Real estate held for investment
Accumulated depreciation
$
(628,479)
223,363
Real estate held for investment, net
Cash and cash equivalents
Other assets
Total assets
Liabilities
Secured debt, net
Real estate taxes payable
Accounts payable, accrued expenses, and other liabilities
Total liabilities
(405,116)
(140)
(1,680)
(406,936)
(228,390)
(4,123)
(5,781)
(238,294)
$
$
$
As described in Note 5, Unconsolidated Entities, the Operating Partnership accounts for its interest in the DownREIT Partnership,
including the seven contributed properties, as an equity method investment.
During the year ended December 31, 2015, the Operating Partnership sold five communities with a total of 1,149 apartment homes for
gross proceeds of $250.9 million, resulting in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. A portion of the sale
proceeds were designated for Section 1031 exchanges for the October 2015 acquisition described above. Additionally, the Operating
Partnership recognized a gain of $24.6 million, which was previously deferred, in connection with the sale of the communities held by the
Texas joint venture in January 2015.
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.
5. UNCONSOLIDATED ENTITIES
UDR Lighthouse DownREIT L.P. Formation
In October 2015, in connection with the acquisition of four properties from Home Properties, L.P., UDR, Inc., as the sole general partner
and a limited partner, and the Operating Partnership, as limited partner, entered into the Agreement of Limited Partnership (the “Partnership
Agreement”) of the DownREIT Partnership.
As the sole general partner of the DownREIT Partnership, UDR, Inc. has full, complete and exclusive discretion to manage and control
the business of the DownREIT Partnership and to make all decisions affecting the business and assets of the DownREIT Partnership, subject to
certain protective limitations set forth in the Partnership Agreement. As of the closing of the transactions, UDR, Inc. and the Operating
Partnership owned approximately 8.5% and 41.6%, respectively, of the units of limited partnership interest in the DownREIT Partnership
(“DownREIT Units”), which they received in exchange for their contribution of the following properties to the DownREIT Partnership and
cash of $25.5 million:
F - 66
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Property
Ridge at Blue Hills(a)
Residences at the Domain(a)
Inwood West(b)
Thirty377(b)
Legacy Village(b)
Delancey at Shirlington(b)
Circle Towers(b)
Barton Creek Landing(b)
The Whitmore(b)
Location
Braintree, MA
Austin, TX
Woburn, MA
Dallas, TX
Plano, TX
Arlington, VA
Fairfax, VA
Austin, TX
Arlington, VA
(a) Contributed by UDR, Inc.
(b) Contributed by the Operating Partnership.
The limited partners have no power to remove UDR, Inc. as general partner of the DownREIT Partnership. The DownREIT Partnership is
structured to make distributions in respect of DownREIT Units that will be equivalent to the distributions made to holders of UDR, Inc.’s
common stock. Subject to certain terms and conditions set forth in the Partnership Agreement, limited partners in the DownREIT Partnership
(other than UDR, Inc. and its affiliates) have the right, commencing one year after the date of issuance, to tender their DownREIT Units for
redemption for cash or, at UDR Inc.’s election, for shares of its common stock on a one-for-one basis (subject to the anti-dilution adjustments
provided in the Partnership Agreement).
The DownREIT Partnership is accounted for by the Operating Partnership under the equity method of accounting, and is included in
Investment in unconsolidated entities on the Consolidated Balance Sheets. The communities listed above that were contributed to the
DownREIT Partnership by the Operating Partnership were deconsolidated by the Operating Partnership upon contribution. See Note 4, Real
Estate Owned, for the impact of the deconsolidation on the Consolidated Balance Sheets.
The Operating Partnership recognizes earnings or losses from its investments in unconsolidated entities consisting of our proportionate
share of the net earnings or losses of the partnership.
The following table summarizes the Operating Partnership’s investment in the DownREIT Partnership as of December 31, 2015 (dollars
in thousands):
Entity
Location of
Properties
Number of
Properties
Number of
Apartment
Homes
Investment at
UDR’s Ownership
Interest
December 31,
2015
December 31,
2015
December
31,
2015
December
31,
2014
December
31,
2015
December
31,
2014
Operating and development:
DownREIT
Partnership
Various
13 operating
communities
6,261
$ 166,186 $
—
41.6%
—%
F - 67
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Combined summary financial information relating to all of the DownREIT Partnership’s operations (not just our proportionate share), is
presented below for the year ended December 31, 2015 (dollars in thousands):
As of and For the Year Ended
December 31, 2015
Condensed Consolidated Statement of Operations:
Rental income
Property operating and maintenance
Real estate depreciation and amortization
Operating income/(loss)
Interest expense
Other income/(expense)
Net income/(loss)
OP recorded income (loss) from unconsolidated entities
Condensed Consolidated Balance Sheet:
Total real estate, net
Cash and cash equivalents
Other assets
Note receivable from affiliate
Amount due from UDR
DownREIT Partnership
$
$
$
29,933
(9,991)
(28,934)
(8,992)
(3,632)
(3,180)
(15,804)
(4,659)
$
1,457,244
89
37,228
126,500
35,293
Total assets
Secured debt, net
Accounts payable, accrued expenses and other liabilities
Total liabilities
Total equity
Total liabilities and equity
OP’s investment in and advances to unconsolidated joint ventures
1,656,354
524,052
25,487
549,539
1,106,815
1,656,354
166,186
$
$
The Operating Partnership’s results of operations include loss from unconsolidated entities of $4.7 million related to the acquisition of
interest in the DownREIT Partnership from the acquisition date to December 31, 2015.
The unaudited pro forma information below summarizes the Operating Partnership’s combined results of operations for the years ended
December 31, 2015, and 2014 as though the above acquisition was completed on January 1, 2014. The information for the year ended
December 31, 2015 includes pro forma results for the portion of the period prior to the acquisition date and actual results from the date of
acquisition through the end of the period. The supplemental pro forma operating data is not necessarily indicative of what the actual results of
operations would have been assuming the transaction had been completed as set forth above, nor does it purport to represent the Operating
Partnership’s results of operations for future periods (in thousands):
Pro forma net income/(loss) from unconsolidated entities
Pro forma net income/(loss) attributable to OP unitholders
Year Ended December 31,
2015
2014
$
$
(12,006) $
(26,511)
205,954
$
69,716
F - 68
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
6. SECURED DEBT, NET
Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon
payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument
designated as a cash flow hedge is deemed as fixed rate debt due to the Operating Partnership having effectively established the fixed interest
rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2015 and 2014 (dollars in thousands):
Principal Outstanding
For the Year Ended December 31, 2015
December 31,
Weighted
Average
2015
2014
Interest Rate
Weighted
Average
Years to
Maturity
Number of
Communities
Encumbered
Fixed Rate Debt
Mortgage notes payable
$
30,132
$
378,371
Fannie Mae credit facilities
250,828
333,828
3.43%
5.08%
Deferred financing costs
(1,627)
(3,665)
Total fixed rate secured debt, net
279,333
708,534
4.90%
Variable Rate Debt
Tax-exempt secured note payable
27,000
27,000
Fannie Mae credit facilities
170,203
192,760
Deferred financing costs
(572)
(810)
Total variable rate secured debt, net
196,631
218,950
Total secured debt, net
$
475,964
$
927,484
0.76%
1.90%
1.74%
3.76%
0.6
3.7
3.3
16.2
4.7
6.3
4.5
1
8
9
1
6
7
16
As of December 31, 2015, an aggregate commitment of $421.0 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, 2015. 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, 2015, $250.8 million of the outstanding balance was fixed at a weighted average interest rate of 5.08% and the
remaining balance of $170.2 million on these facilities had a weighted average variable interest rate of 1.90%. 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,
2015
December 31, 2014
$
421,031
$
526,588
425,522
431,462
3.8%
3.8%
527,592
528,659
4.1%
4.0%
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 $0.0 and $6.2 million at December 31, 2015 and 2014, respectively.
Fixed Rate Debt
Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and
mature in August 2016 and carry an interest rate of 3.43%.
F - 69
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Secured credit facilities. At December 31, 2015, the General Partner had borrowings against its fixed rate facilities of $514.5 million, of
which $250.8 million was allocated to the Operating Partnership based on the ownership of the assets securing the debt. As of December 31,
2015, the fixed rate Fannie Mae credit facilities allocated to the Operating Partnership had a weighted average fixed interest rate of 5.08%.
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 0.76% as of December
31, 2015.
Secured credit facilities. At December 31, 2015, the General Partner had borrowings against its variable rate facilities of $299.4 million,
of which $170.2 million was allocated to the Operating Partnership based on the ownership of the assets securing the debt. As of December 31,
2015, the variable rate borrowings under the Fannie Mae credit facilities allocated to the Operating Partnership had a weighted average floating
interest rate of 1.90%.
The aggregate maturities of the Operating Partnership’s secured debt due during each of the next ten calendar years subsequent to
December 31, 2015 are as follows (dollars in thousands):
Fixed
Variable
Mortgage
Secured Credit
Notes Payable
Facilities
Tax-Exempt
Secured Notes
Payable
Secured Credit
Facilities
Total
$
30,132
$
385
$
— $
— $
—
—
—
—
—
—
15,640
48,872
123,095
62,836
—
—
—
—
—
—
—
—
6,566
96,327
—
—
—
—
30,517
22,206
145,199
123,095
62,836
—
—
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Subtotal
Non-cash (a)
Total
—
—
—
—
—
—
—
—
30,132
250,828
—
—
—
27,000
27,000
67,310
67,310
—
—
—
170,203
—
—
27,000
478,163
(97)
(1,530)
(93)
(479)
(2,199)
$
30,035
$
249,298
$
26,907
$
169,724
$
475,964
(a)
Includes the unamortized balance of fair market value adjustments, premiums/discounts, deferred hedge gains, and deferred financing
costs. For the years ended December 31, 2015 and 2014, the Operating Partnership amortized $1.3 million and $1.4 million,
respectively, of deferred financing costs into Interest expense.
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 $1.1 billion, $300 million of medium-term notes due June 2018, $300 million of medium-term notes due October 2020, a $350
million term loan facility due January 2021, $400 million of medium-term notes due January 2022, $300 million of medium-term notes due
July 2024, and $300 million of medium-term notes due October 2025. As of December 31, 2015 and 2014, there were outstanding borrowings
of $150.0 million and $152.5 million, respectively, under the unsecured credit facility.
F - 70
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
7. 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 $(11.3) million and $13.6 million at December 31, 2015 and 2014, 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 portion of UDR’s total apartment homes. During the years
ended December 31, 2015, 2014, and 2013, the general and administrative expenses allocated to the Operating Partnership by UDR were $21.0
million, $27.4 million, and $23.5 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, 2015, 2014, and 2013, the Operating Partnership incurred $17.7 million, $12.7 million, and $12.3
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, 2015 and 2014, 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, 2015 and 2014,
the note payable due to the General Partner was $83.2 million.
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, 2015 and 2014, the note payable due to the General Partner was $5.5 million.
In December 2015, the Operating Partnership provided a “bottom dollar” guaranty on three promissory notes with an aggregate value of
$184.6 million. 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 4.12%. Interest payments are due monthly and the notes mature on April 1, 2026.
F - 71
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
8. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS
Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an
orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and
unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
•
Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
•
•
Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or
can be corroborated with observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs.
The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of
December 31, 2015 and 2014 are summarized as follows (dollars in thousands):
Fair Value at December 31, 2015, Using
Quoted Prices
in
Active Markets
for Identical
Significant
Other
Significant
Fair Value
Estimate at
December 31,
2015
Assets or
Observable
Unobservable
Liabilities
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total Carrying
Amount in
Statement of
Financial
Position at
December 31,
2015
Description:
Derivatives- Interest rate contracts (a)
Total assets
$
$
8
8
$
$
8
8
$
$
—
$
—
$
8
8
$
$
—
—
Secured debt instruments - fixed rate: (b)
Mortgage notes payable
30,132
30,308
Fannie Mae credit facilities
250,828
263,070
Secured debt instruments - variable rate: (b)
Tax-exempt secured notes payable
27,000
27,000
Fannie Mae credit facilities
170,203
170,203
—
—
—
—
—
—
—
—
30,308
263,070
27,000
170,203
Total liabilities
$
478,163
$
490,581
$
—
$
— $
490,581
F - 72
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Fair Value at December 31, 2014, Using
Quoted Prices
in
Active Markets
for Identical
Significant
Other
Significant
Fair Value
Estimate at
December 31,
2014
Assets or
Observable
Unobservable
Liabilities
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total Carrying
Amount in
Statement of
Financial
Position at
December 31,
2014
Description:
Derivatives - Interest rate contracts (b)
Total assets
Derivatives- Interest rate contracts (a)
Secured debt instruments - fixed rate: (b)
$
$
$
39
39
$
$
39
39
$
$
—
$
—
$
39
39
$
$
918
$
918
$
—
$
918
$
Mortgage notes payable
Fannie Mae credit facilities
378,371
333,828
391,835
355,470
Secured debt instruments - variable rate: (b)
Tax-exempt secured notes payable
27,000
27,000
Fannie Mae credit facilities
192,760
192,760
—
—
—
—
—
—
—
—
—
—
—
391,835
355,470
27,000
192,760
Total liabilities
$
932,877
$
967,983
$
—
$
918
$
967,065
(a)
See Note 9, Derivatives and Hedging Activity.
(b)
See Note 6, Secured Debt, Net.
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 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, 2015 and December 31, 2014, 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.
F - 73
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
Financial Instruments Not Carried at Fair Value
At December 31, 2015, 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.
9. DERIVATIVES AND HEDGING ACTIVITY
Risk Management Objective of Using Derivatives
The Operating Partnership is exposed to certain risks arising from both its business operations and economic conditions. The General
Partner principally manages its exposures to a wide variety of business and operational risks through management of its core business
activities. The General Partner manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the General Partner enters into
derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known
and uncertain cash amounts, the value of which are determined by interest rates. The General Partner’s and the Operating Partnership’s
derivative financial instruments are used to manage differences in the amount, timing, and duration of the General Partner’s known or expected
cash payments principally related to the General Partner’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The General Partner’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to
interest rate movements. To accomplish this objective, the General Partner primarily uses interest rate swaps and caps as part of its interest rate
risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty
in exchange for the General Partner making fixed-rate payments over the life of the agreements without exchange of the underlying notional
amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise
above the strike rate on the contract in exchange for an up front premium.
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 6, Secured Debt, Net.)
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, 2015, 2014, and 2013, 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, 2015, the Operating
Partnership recognized a loss of less than $0.1 million
F - 74
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
reclassified from Accumulated OCI to Interest expense due to the de-designation of a cash flow hedge and recorded no other ineffectiveness to
earnings. During the years ended December 31, 2014, and 2013, the Operating Partnership recorded less than $0.1 million 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 deferred gains/(losses) on designated derivatives will be
reclassified to interest expense as interest payments are made on the General Partner’s hedged debt that is allocated to the Operating
Partnership. During the next twelve months through December 31, 2016, we estimate that less than $0.1 million will be reclassified as an
increase to interest expense.
As of December 31, 2015, the Operating Partnership had the following outstanding interest rate derivatives designated as cash flow
hedges of interest rate risk (dollars in thousands):
Product
Interest rate caps
Number of
Instruments
Notional
1
$
96,327
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 or the General Partner has elected to
not apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings
and resulted in losses of less than $0.1 million for the years ended December 31, 2015, 2014, and 2013.
As of December 31, 2015, 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
3
$
98,932
Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets
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, 2015 and 2014 (dollars in thousands):
Asset Derivatives
Liability Derivatives
(included in Other assets)
(Included in Other liabilities)
Fair Value at:
Fair Value at:
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
4
$
37
$
— $
918
4
$
2
$
— $
—
Derivatives designated as hedging instruments:
Interest rate products
Derivatives not designated as hedging instruments:
Interest rate products
$
$
F - 75
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015, 2014, and 2013 (dollars in thousands):
Unrealized holding gain/(loss)
Recognized in OCI
Gain/(Loss) Reclassified from
Accumulated OCI into
Interest expense
(Effective Portion)
(Effective Portion)
Gain/(Loss) Recognized
in Interest expense (ineffective
Portion and Amount Excluded
from Effectiveness Testing)
Derivatives in Cash
Flow Hedging
Relationships
Year ended December 31,
Year ended December 31,
Year ended December 31,
2015
2014
2013
2015
2014
2013
2015
2014
2013
Interest rate products
$
(82) $
(285)
$(348)
$ (1,044) $ (2,275) $ (3,431) $
(11) $
— $
—
Gain/(Loss) Recognized in
Interest income and other income/(expense), net
Year ended December 31,
Derivatives Not Designated as Hedging Instruments
2015
2014
2013
Interest rate products
Credit-risk-related Contingent Features
$
(23) $
(3) $
(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, 2015 and 2014, 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 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, 2015, 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 $0.0.
F - 76
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015 and December 31, 2014:
Offsetting of Derivative Assets
Gross Amounts
of Recognized
Assets
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
Net Amount
December 31, 2015
$
8
$
— $
8
$
—
$
— $
December 31, 2014
$
39
$
— $
39
$
—
$
— $
8
39
(a) Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments on the
Consolidated Balance Sheets” located in this footnote.
Offsetting of Derivative Liabilities
Gross Amounts
of Recognized
Liabilities
Gross
Amounts
Offset in the
Consolidated
Balance Sheets
Net Amounts of
Liabilities Presented
in the Consolidated
Balance Sheets (b)
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Financial
Instruments
Cash
Collateral
Posted
Net Amount
December 31, 2015
$
—
$
— $
— $
—
$
— $
—
December 31, 2014
$
918
$
— $
918
$
—
$
— $
918
(b) Amounts reconcile to the aggregate fair value of derivative liabilities in the “Tabular Disclosure of Fair Values of Derivative
Instruments on the Consolidated Balance Sheets” located in this footnote.
10. CAPITAL STRUCTURE
General Partnership Units
The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which
includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and
the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize,
issue, sell, redeem or purchase any OP Unit or securities of the Operating Partnership without the approval of the limited partners. The General
Partner can also approve, with regard to the issuances of OP Units, the class or one or more series of classes, with designations, preferences,
participating, optional or other special rights, powers and duties including rights, powers and duties senior to limited partnership interests
without approval of any limited partners except holders of Class A Limited Partnership Units. There were 110,883 General Partnership units
outstanding at December 31, 2015 and 2014, all of which were held by UDR.
Limited Partnership Units
At December 31, 2015 and 2014, there were 183,167,815 limited partnership units outstanding, of which 1,873,332 were Class A
Limited Partnership Units. UDR owned 174,114,516 limited partnership units or 95.1% and 174,002,342 limited partnership units or 95.0% at
December 31, 2015 and 2014, respectively. The remaining 9,053,299 or 4.9% and 9,165,473 or 5.0% limited partnership units outstanding
were held by non-affiliated partners at December 31, 2015 and 2014, respectively, of which 1,751,671 were Class A Limited Partnership Units.
F - 77
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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 $340.1 million and $282.5 million as of December 31, 2015 and 2014, 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 Operating Partnership Agreement in a
manner that adversely affects the relative rights, preferences or privileges of the Class A Limited Partnership Units.
The following table shows OP Units outstanding and OP Unit activity as of and for the years ended December 31, 2015, 2014, and 2013:
Class A
Limited
Limited
Limited
Partner
Partners
Partner
General
Partner
Total
UDR, Inc.
Ending balance at December 31, 2012
1,751,671
7,643,548
174,775,152
110,883
184,281,254
OP Units redeemed for the distribution of real estate
to the General partner (a)
—
—
(1,002,556)
—
(1,002,556)
OP redemptions for UDR stock
—
(76,295)
76,295
—
—
Ending balance at December 31, 2013
1,751,671
7,567,253
173,848,891
110,883
183,278,698
OP redemptions for UDR stock
—
(153,451)
153,451
—
—
Ending balance at December 31, 2014
1,751,671
7,413,802
174,002,342
110,883
183,278,698
OP redemptions for UDR stock
—
(112,174)
112,174
—
—
Ending balance at December 31, 2015
1,751,671
7,301,628
174,114,516
110,883
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.
F - 78
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
11. 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, 2015, 2014, and 2013, 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 10, Capital Structure, for further discussion on redemption rights of OP Units.
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,
Numerator for income/(loss) per OP Unit — basic and diluted:
Income/(loss) from continuing operations
$
56,940
$
33,544
$
32,766
Gain/(loss) on sale of real estate owned
158,123
63,635
—
(Income)/loss from continuing operations attributable to noncontrolling interests
(1,762)
(952)
(4,114)
2015
2014
2013
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
$
$
$
$
$
$
$
213,301
$
96,227
$
28,652
—
$
— $
45,176
—
—
(452)
—
$
— $
44,724
215,063
$
97,179
$
77,942
(1,762)
(952)
(4,566)
213,301
$
96,227
$
73,376
183,279
183,279
184,196
1.16
$
0.53
$
—
—
1.16
$
0.53
$
0.16
0.24
0.40
F - 79
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
12. COMMITMENTS AND CONTINGENCIES
Commitments
Real Estate Under Development
The following summarizes the Operating Partnership’s real estate commitments at December 31, 2015 (dollars in thousands):
Real estate communities — redevelopment
2
$
10,093
$
13,907
Number of
Costs Incurred
Properties
to Date (a)
Expected Costs
to Complete
(unaudited)
(a)
Ground Leases
Costs incurred to date include
$0.7 million of accrued fixed
assets for redevelopment.
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, 2015 are $5.4 million for each of the years ending December 31, 2016 to 2019, $4.5 million for the year
ending December 31, 2020, and a total of $311.9 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 $5.4 million, $5.3 million, and $5.1 million of ground rent expense for the years ended December 31,
2015, 2014, and 2013, respectively.
Contingencies
Litigation and Legal Matters
The Operating Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. The Operating
Partnership cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The General Partner believes
that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the Operating
Partnership’s financial condition, results of operations or cash flow.
13. 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:
F - 80
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
•
•
Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2014 and held as of
December 31, 2015. 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, 2015, 2014, and 2013.
F - 81
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
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, 2015, 2014, and 2013, and reconciles NOI to Net income/(loss) attributable to OP
unitholders 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
Year Ended December 31,
2015
2014
2013
$
174,414
$
160,185
$
150,137
60,602
44,981
59,444
20,963
80,004
65,565
42,568
58,788
26,580
68,948
64,923
40,730
55,850
25,614
73,588
Total segment and consolidated rental income
$
440,408
$
422,634
$
410,842
Reportable apartment home segment NOI
Same-Store Communities
West Region
Mid-Atlantic Region
Southeast Region
Northeast Region
Southwest Region
Non-Mature Communities/Other
$
130,509
$
117,130
$
107,866
40,301
30,106
45,917
13,176
57,588
44,366
28,111
45,347
16,821
48,538
44,442
26,590
42,146
16,057
50,434
Total segment and consolidated NOI
317,597
300,313
287,535
Reconciling items:
Property management
Other operating expenses
(12,111)
(11,622)
(11,298)
(5,923)
(5,172)
(5,728)
Real estate depreciation and amortization
(169,784)
(179,176)
(181,302)
General and administrative
(27,016)
(28,541)
(24,808)
Casualty-related recoveries/(charges), net
Income/(loss) from unconsolidated entities
Interest expense
(843)
(4,659)
(541)
—
8,083
—
(40,321)
(41,717)
(36,058)
Gain/(loss) on sale of real estate owned, net of tax
158,123
63,635
41,518
Net income/(loss) attributable to noncontrolling interests
(1,762)
(952)
(4,566)
Net income/(loss) attributable to OP unitholders
$
213,301
$
96,227
$
73,376
F - 82
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
The following table details the assets of the Operating Partnership’s reportable segments as of December 31, 2015 and 2014 (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
Investment in unconsolidated entities
Other assets
Total consolidated assets
December 31,
2015
December 31,
2014
$
1,461,078
$
1,433,827
410,710
321,787
669,082
—
768,248
686,708
316,788
777,375
228,997
795,075
3,630,905
4,238,770
(1,281,258)
(1,403,303)
2,349,647
2,835,467
3,103
11,344
166,186
24,528
502
13,811
—
24,029
$
2,554,808
$
2,873,809
Capital expenditures related to the Operating Partnership’s Same-Store Communities totaled $40.0 million and $30.6 million for the years
ended December 31, 2015 and 2014, respectively. Capital expenditures related to the Operating Partnership’s Non-Mature Communities/Other
totaled $5.0 million and $3.2 million for the years ended December 31, 2015 and 2014, respectively.
Markets included in the above geographic segments are as follows:
i.
ii.
West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California, and
Portland
Mid-Atlantic Region — Metropolitan, D.C. and Baltimore
iii.
Northeast Region — New York and Boston
iv.
v.
Southeast Region — Nashville, Tampa, and Other Florida
Southwest Region — Dallas and Austin
In October 2015, all communities within the Southwest Region were contributed to the DownREIT Partnership and deconsolidated. See
Note 5, Unconsolidated Entities.
14. CASUALTY-RELATED (RECOVERIES)/CHARGES
During the year ended December 31, 2015, the Operating Partnership recorded $0.8 million of casualty-related losses due to property
damage caused by the severe snow storms on the east coast in early 2015, all of which is included in Casualty-related charges/(recoveries), net
on the Consolidated Statements of Operations.
During the year ended December 31, 2014, the Operating Partnership recorded $0.5 million of casualty-related losses due to property
damage incurred during an earthquake and a storm in California, all of which is included in Casualty-related charges/(recoveries), net on the
Consolidated Statements of Operations.
F - 83
UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2015
During the year ended December 31, 2013, the Operating Partnership recorded $8.1 million of casualty-related recoveries due to damage
caused by Hurricane Sandy on the east coast in October 2012, all of which is included in Casualty-related charges/(recoveries), net on the
Consolidated Statements of Operations.
15. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA
Selected consolidated quarterly financial data for the years ended December 31, 2015 and 2014 is summarized in the table blow (dollars
in thousands, except per share amounts):
2015
Rental income
Three Months Ended
March 31,
June 30,
September 30,
December 31,
$
110,095
$
113,158 $
115,173
$
101,982
Income/(loss) from continuing operations
Income/(loss) attributable to OP unitholders
12,117
36,346
15,355
47,383
14,952
14,617
14,516
114,955
Income/(loss) attributable to OP unitholders per weighted
average OP Unit — basic and diluted (a)
2014
Rental income
$
$
0.20
$
0.26
$
0.08
$
0.62
102,370
$
104,842 $
107,444
$
107,978
Income/(loss) from continuing operations
Income/(loss) attributable to OP unitholders
6,411
30,533
8,319
24,426
8,875
8,637
9,939
32,631
Income/(loss) attributable to OP unitholders per weighted
average OP Unit — basic and diluted (a)
$
0.17
$
0.13
$
0.05
$
0.18
(a)
Quarterly income/(loss) per OP Unit amounts may not total to the annual amounts.
F - 84
[This page is intentionally left blank.]
UDR, INC.
SCHEDULE III — REAL ESTATE OWNED
DECEMBER 31, 2015
(In thousands)
Initial Costs
Gross Amount at Which Carried at
Close of Period
Land and
Buildings
Total Initial
Costs of
Improvements
Capitalized
Land and
Buildings &
Total
Land
and
Acquisition
Subsequent
Land
Buildings
Carrying
Accumulated
Date of
Date
Encumbrances
Improvements
Improvements
Costs
to Acquisition Costs
Improvements
Improvements
Value
Depreciation
Construction(a)
Acquired
61,050
$
20,476
$
28,538
$
49,014
$
14,641
$
21,314
$
42,341
$
63,655
$
27,697
2003
Jun-03
99,329
110,644
209,973
92,673
112,650
189,996
302,646
22,624
29,969
9,913
7,913
31,969
39,882
87,007
20,771
1972/2013
Oct-04
2003
Jun-03
22,486
30,541
11,612
8,713
33,440
42,153
19,810
1970
Jun-03
229
14,129
14,358
2,526
10,874
6,010
16,884
4,229
1969
Dec-03
46,082
108,598
29,014
66,770
70,842
137,612
44,814
2000
Oct-04
7,080
6,187
50,067
17,750
2,502
10,988
9,264
18,258
2,897
12,404
8,751
20,252
21,155
6,117
5,432
1969
Sep-04
1969
Sep-04
108,852
19,393
59,278
68,967
128,245
43,476
2000
Mar-05
51,905
68,568
1,488
16,822
53,234
12,878
38,710
13,007
38,581
70,056
51,588
16,975
2,841
2009
Aug-10
2014
Aug-11
25,000
125,818
25,058
125,760
150,818
19,253
2013
Oct-11
17,298
70,345
16,398
71,245
87,643
9,016
2014
Jun-04
—
—
—
WEST REGION
Harbor at Mesa
Verde
$
27 Seventy Five
Mesa Verde
Pacific Shores
Huntington
Vista
Missions at
Back Bay
Coronado at
Newport —
North
Vista Del Rey
Foxborough
Coronado South
1818 Platinum
Triangle
Beach & Ocean
The Residences
at Bella Terra
Los Alisos at
Mission Viejo
36,423
42,552
36,980
—
—
—
—
—
—
—
—
—
7,345
8,055
62,516
10,670
12,071
58,785
16,663
12,878
25,000
17,298
ORANGE
COUNTY, CA
177,005
351,315
359,742
711,057
421,532
382,189
750,400
1,132,589
307,438
2000 Post Street
Birch Creek
Highlands Of
Marin
Marina Playa
—
—
—
—
9,861
4,365
5,996
6,224
River Terrace
39,310
22,161
44,578
16,696
24,868
23,916
40,137
54,439
30,040
13,541
70,938
21,061
7,536
5,139
23,458
30,864
26,063
7,257
49,670
30,140
10,032
6,938
33,234
62,298
4,307
22,428
44,177
84,479
28,597
56,927
40,172
66,605
31,789
13,756
29,237
19,547
25,943
1987/2006
Dec-98
1968
Dec-98
2010
Dec-98
1971
Dec-98
2005
Aug-05
CitySouth
—
14,031
30,537
44,568
35,627
16,290
63,905
80,195
36,437
2012
Nov-05
Bay Terrace
Highlands of
Marin Phase II
Edgewater
—
—
—
Almaden Lake
Village
27,000
—
—
8,545
5,353
30,657
594
14,253
23,625
14,458
18,559
83,872
42,515
74,104
23,003
5,046
11,458
16,591
28,049
9,622
1962
Oct-05
23,912
11,088
5,758
29,242
35,000
114,529
3,689
30,690
87,528
43,109
6,031
773
48,367
88,357
6,271
14,316
80,312
118,218
49,140
94,628
15,221
39,217
21,469
21,255
2010
Oct-07
2007
Mar-08
1999
Jul-08
1999
Apr-11
—
23,625
128,433
23,662
128,396
152,058
15,675
2014
Sep-10
66,310
145,665
414,240
559,905
274,163
158,250
675,818
834,068
279,168
—
—
34,934
—
22,591
—
—
—
—
—
—
2,486
2,174
6,474
6,179
6,848
21,284
6,379
27,468
8,541
6,449
9,693
6,437
7,408
30,226
22,307
30,922
89,389
34,569
72,036
45,990
38,884
65,176
8,923
5,666
2,868
11,721
9,582
4,328
2,724
11,186
36,700
4,621
6,644
34,677
28,486
1,931
6,272
24,145
14,589
13,910
41,321
30,417
37,770
3,829
6,975
34,624
41,599
110,673
4,695
21,428
93,940
40,948
(7,991)
6,404
26,553
99,504
15,676
30,244
84,936
54,531
1,968
8,578
47,921
45,333
74,869
422
613
6,449
39,306
9,694
65,788
115,368
32,957
115,180
56,499
45,755
75,482
7,585
6,895
20,306
13,947
15,574
40,021
12,502
39,911
16,491
3,374
4,924
1987
Dec-98
1985
Dec-98
2003
Jul-05
2005
Nov-05
2000
May-08
2007
Jul-08
2001
May-07
2010
Feb-10
2006
Dec-09
2014
Aug-14
2014
Sep-14
388 Beale
Channel @
Mission Bay
SAN FRANCISCO,
CA
Crowne Pointe
Hilltop
The Hawthorne
The Kennedy
Hearthstone at
Merrill Creek
Island Square
Borgata
elements too
989elements
Lightbox
Waterscape
SEATTLE, WA
57,525
103,975
443,344
547,319
35,758
108,280
474,797
583,077
181,530
Rosebeach
Tierra Del Rey
The Westerly
Jefferson at
Marina del Rey
—
43,078
67,700
8,414
39,586
17,449
36,679
48,182
102,364
25,863
3,450
8,760
20,553
76,265
3,250
39,674
39,841
150,546
37,220
50,722
137,044
29,313
79,515
187,766
12,675
18,883
46,474
1970
Sep-04
1999
Dec-07
2013
Sep-10
—
55,651
—
55,651
90,660
61,455
84,856
146,311
32,288
2008
Sep-07
LOS ANGELES,
CA
110,778
151,833
156,492
308,325
134,580
160,611
282,294
442,905
110,320
Boronda Manor
Garden Court
Cambridge
Court
Laurel Tree
—
—
—
—
1,946
888
3,039
1,304
8,982
4,188
10,928
9,534
3,195
17,267
5,076
5,435
1,559
8,952
12,883
15,922
14,767
5,302
25,387
5,115
6,419
6,080
2,188
10,311
20,462
10,511
30,689
12,499
9,244
4,981
13,958
5,627
1979
Dec-98
1973
Dec-98
1974
Dec-98
1977
Dec-98
S - 1
UDR, INC.
SCHEDULE III — REAL ESTATE OWNED - (Continued)
DECEMBER 31, 2015
(In thousands)
Initial Costs
Gross Amount at Which Carried at
Close of Period
Land and
Buildings
Total Initial
Costs of
Improvements
Capitalized
Land and
Buildings &
Total
Encumbrances
—
—
—
—
Land
and
Acquisition
Subsequent
Land
Buildings
Carrying
Accumulated
Date of
Date
Improvements
Improvements
Costs
to Acquisition Costs
Improvements
Improvements
Value
Depreciation
Construction(a)
Acquired
6,388
2,044
1,329
23,854
30,242
27,357
10,021
47,578
57,599
24,926
1986
Dec-98
8,028
5,334
10,072
10,089
6,663
6,364
3,295
2,181
16,866
20,161
10,846
13,027
9,293
5,700
1979
Dec-98
1975
Dec-98
16,938
68,384
85,322
79,626
27,741
137,207
164,948
73,729
55,263
13,557
3,645
17,202
53,949
23,255
47,896
71,151
34,875
2006
Oct-02
—
—
5,810
6,517
23,450
29,260
10,718
17,235
2,964
2,876
6,129
6,780
26,095
32,224
17,614
2001
Nov-02
13,331
20,111
7,826
1966
Oct-04
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
OTHER
SOUTHERN CA
55,263
25,884
Tualatin Heights
Hunt Club
PORTLAND, OR
—
—
—
3,273
6,014
9,287
37,813
9,134
14,870
24,004
63,697
59,789
36,164
87,322
123,486
12,407
6,745
3,841
15,311
20,884
6,866
6,395
21,355
33,291
13,611
10,236
36,666
19,152
27,750
46,902
60,315
10,231
14,364
24,595
1989
Dec-98
1985
Sep-04
TOTAL WEST
REGION
MID-ATLANTIC
REGION
466,881
804,897
1,504,019
2,308,916
1,019,059
883,471
2,444,504
3,327,975
1,037,095
Dominion
Middle Ridge
Dominion Lake
Ridge
Presidential
Greens
The Whitmore
Ridgewood
DelRay Tower
29,344
20,047
—
—
—
—
3,311
2,366
11,238
6,418
5,612
297
6,816
7,490
9,883
13,283
16,594
8,387
10,753
3,850
2,866
19,560
23,410
14,076
1990
Jun-96
15,377
18,243
10,431
1987
Feb-96
18,790
13,411
20,086
12,786
30,028
11,680
28,231
19,829
20,734
7,495
33,068
25,698
8,522
6,014
28,206
13,083
113,357
9,461
116,979
39,911
40,563
34,220
126,440
19,977
22,988
20,340
9,914
1938
May-02
2008
Apr-02
1988
Aug-02
2014
Jan-08
Waterside
Towers
Wellington
Place at Olde
Town
Andover House
Sullivan Place
Delancey at
Shirlington
View 14
Signal Hill
Capitol View on
14th
—
—
—
—
Domain College
Park
31,337
—
—
—
1200 East West
Courts at
Huntington
Station
Eleven55 Ripley
Arbor Park of
Alexandria
Courts at Dulles
35,000
27,837
51,643
53,022
30,609
25,845
25,243
2008
Sep-05
2004
Mar-07
2007
Dec-07
1972
Mar-08
2006/2007
Mar-08
2009
Jun-11
2010
Mar-07
8,008
878
1,682
1,402
2,428
1,277
2,704
2014
Jun-11
2010
Oct-15
2011
Oct-15
2014
Oct-15
1969/2015
Oct-15
2000
Oct-15
1968
Oct-15
—
1,139
49,657
50,796
18,261
36,233
32,824
69,057
20,975
1971
Dec-03
32,037
—
—
13,753
14,357
36,059
51,577
1,137
103,676
49,812
17,416
14,740
52,488
65,934
3,769
14,379
55,324
104,813
7,066
1,364
110,515
Circle Towers
70,884
32,815
107,051
139,866
13,056
33,357
119,565
67,228
69,703
111,879
152,922
21,606
5,710
13,290
31,393
7,300
9,748
66,765
97,941
—
—
—
68,022
88,371
2,195
21,632
68,934
90,566
103,651
2,888
5,721
100,818
13,290
69,769
25,510
57,549
106,539
83,059
7,300
58,032
7,307
58,025
77,770
85
9,749
68,106
65,332
77,855
31,393
94,714
31,395
94,712
126,107
17,603
2013
Sep-07
27,749
111,878
139,627
15,566
107,539
123,105
95,818
—
50,881
14,697
159,728
210,609
83,834
98,531
78
76
99
150
475
27,749
111,956
139,705
15,566
107,615
123,181
50,881
159,827
210,708
14,700
83,981
55,285
177,927
98,681
233,212
Newport Village
127,600
55,283
177,454
232,737
METROPOLITAN,
D.C.
407,067
345,666
1,307,924
1,653,590
454,931
406,934
1,701,587
2,108,521
403,882
Dominion Kings
Place
14,294
Dominion At
Eden Brook
Ellicott Grove
Dominion
Constant
Freindship
Lakeside Mill
Calvert’s Walk
Arborview
Apartments
Liriope
Apartments
—
—
8,783
12,569
—
—
—
1,565
2,361
2,920
903
2,666
4,408
4,653
1,620
11,166
13,056
8,506
1983
Dec-92
7,007
9,384
9,099
4,669
10,109
24,692
8,572
11,745
4,484
6,787
1,890
2,977
15,555
12,019
23,363
5,379
30,003
5,572
4,117
1,320
8,369
12,775
5,038
2,997
14,816
29,100
7,396
4,817
31,679
18,532
35,382
9,689
17,813
36,496
12,406
23,332
6,274
11,336
20,827
1984
Dec-92
2008
Jul-94
1990
May-95
1989
Dec-99
1988
Mar-04
23,952
28,605
6,791
8,411
8,090
1,374
5,249
1,653
31,446
36,695
21,388
1992
Mar-04
8,132
9,785
5,352
1997
Mar-04
20 Lambourne
30,132
11,750
45,590
57,340
6,406
12,106
51,640
63,746
24,313
2003
Mar-08
Domain
Brewers Hill
—
4,669
40,630
45,299
942
4,700
41,541
46,241
12,690
2009
Aug-10
BALTIMORE, MD
65,778
37,515
181,923
219,438
67,997
43,088
244,347
287,435
146,424
Gayton Pointe
Townhomes
—
826
5,148
5,974
29,738
3,463
32,249
35,712
27,255
2007
Sep-95
Waterside At
Ironbridge
—
1,844
13,239
15,083
7,614
2,328
20,369
22,697
13,860
1987
Sep-97
S - 2
UDR, INC.
SCHEDULE III — REAL ESTATE OWNED - (Continued)
DECEMBER 31, 2015
(In thousands)
Initial Costs
Gross Amount at Which Carried at
Close of Period
Land and
Buildings
Total Initial
Costs of
Improvements
Capitalized
Land and
Buildings &
Total
Land
and
Acquisition
Subsequent
Land
Buildings
Carrying
Accumulated
Date of
Date
Encumbrances
Improvements
Improvements
Costs
to Acquisition Costs
Improvements
Improvements
Value
Depreciation
Construction(a)
Acquired
Carriage Homes
at Wyndham
Legacy at
Mayland
RICHMOND, VA
TOTAL MID-
ATLANTIC REGION
SOUTHEAST REGION
—
474
30,997
31,471
7,959
35,529
39,430
24,260
1998
Nov-03
34,567
34,567
1,979
5,123
11,524
60,908
13,503
29,886
38,443
43,389
66,031
75,197
14,638
126,590
141,228
1969/2007
Dec-91
32,042
97,417
3,901
4,946
507,412
388,304
1,550,755
1,939,059
598,125
464,660
2,072,524
2,537,184
647,723
Seabrook
Altamira Place
Regatta Shore
Alafaya Woods
Los Altos
Lotus Landing
Seville On The
Green
Ashton @
Waterford
Arbors at Lee
Vista
—
—
—
17,776
21,592
—
—
23,015
—
1,846
1,533
757
1,653
2,804
2,185
1,282
3,872
6,692
ORLANDO, FL
62,383
22,624
Legacy Hill
Hickory Run
Carrington Hills
—
—
—
1,148
1,469
2,117
4,155
11,076
6,608
9,042
12,349
8,639
6,498
12,860
88,765
5,867
11,584
6,001
8,427
2,763
11,665
12,609
20,724
3,539
29,794
7,365
16,031
2,060
21,336
10,695
9,245
2,555
17,385
15,153
10,994
4,058
22,089
10,824
10,108
2,873
18,059
14,428
33,333
23,396
19,940
26,147
20,932
9,531
25,586
17,330
13,299
15,263
11,987
2004
Feb-96
2007
Apr-94
2007
Jun-94
2006
Oct-94
2004
Oct-96
2006
Jul-97
7,780
17,538
21,410
7,249
4,563
19,552
12,894
1,738
4,273
7,264
13,291
15,029
9,051
2004
Oct-97
21,700
25,973
13,830
2000
May-98
25,182
32,446
19,618
2007
Aug-06
111,389
100,235
31,123
180,501
211,624
135,495
7,015
8,807
1,764
14,058
13,053
10,459
21,357
2,155
4,506
15,822
23,512
11,246
14,244
1977
Nov-95
1989
Dec-95
—
2,117
34,535
32,146
36,652
21,305
1999
Dec-95
5,461
7,714
16,015
24,674
16,293
87,608
4,710
2,458
10,647
7,166
23,150
6,169
4,830
1,162
9,837
8,480
4,646
1,285
11,841
17,475
5,766
1,952
21,289
27,856
7,431
3,641
31,646
20,876
16,508
5,741
31,643
10,999
13,126
23,241
35,287
37,384
7,007
8,155
12,268
21,056
22,411
1986
Mar-96
1986
Mar-97
1998
Jan-99
1998
Jun-04
2008
May-06
103,041
92,982
22,206
173,817
196,023
117,692
6,886
9,314
3,552
12,648
4,238
17,606
3,457
18,387
12,042
9,654
2,709
18,987
8,957
9,042
2,687
15,312
30,852
15,659
9,304
37,207
16,200
21,844
21,696
17,999
46,511
11,005
16,978
14,531
11,297
27,055
1972
Dec-92
2007
Sep-93
1986
Mar-94
1985
Jun-97
1988/1989
Jun-03
Brookridge
Breckenridge
Colonnade
The Preserve at
Brentwood
Polo Park
—
—
16,677
21,804
—
708
766
1,460
3,182
4,583
NASHVILLE, TN
38,481
15,433
2,176
1,780
1,395
1,791
7,702
Summit West
The Breyley
Lakewood Place
Cambridge
Woods
Inlet Bay
MacAlpine
Place
The Vintage
Lofts at West
End
—
—
18,230
12,713
—
—
—
10,869
36,858
47,727
7,862
11,545
44,044
55,589
28,780
2001
Dec-04
6,611
37,663
44,274
16,107
15,119
45,262
60,381
22,082
2009
Jul-09
TAMPA, FL
30,943
32,324
122,652
154,976
85,244
48,373
191,847
240,220
131,728
The Reserve
and Park at
Riverbridge
OTHER FLORIDA
TOTAL SOUTHEAST
REGION
NORTHEAST REGION
39,179
39,179
15,968
15,968
56,401
56,401
72,369
9,823
16,602
65,590
72,369
9,823
16,602
65,590
82,192
82,192
40,676
40,676
1999/2001
Dec-04
170,986
86,349
355,426
441,775
288,284
118,304
611,755
730,059
425,591
10 Hanover
Square
21 Chelsea
View 34
95 Wall Street
NEW YORK, NY
Garrison Square
Ridge at Blue
Hills
Inwood West
14 North
100 Pier 4
—
—
—
—
—
—
22,147
54,919
—
—
BOSTON, MA
77,066
41,432
218,983
260,415
9,730
41,496
228,649
270,145
36,399
107,154
114,410
324,920
57,637
266,255
143,553
12,592
36,414
119,731
439,330
96,772
115,026
421,076
323,892
7,110
57,810
273,192
156,145
536,102
331,002
54,457
28,031
99,652
71,769
2005
Apr-11
2001
Aug-11
1985/2013
Jul-11
2008
Aug-11
249,878
917,312
1,167,190
126,204
250,746
1,042,648
1,293,394
253,909
5,591
6,039
20,778
10,961
24,584
67,953
91,027
34,869
88,096
51,175
—
265,167
96,618
7,226
5,635
98,209
103,844
29,629
1887/1990
Sep-10
40,908
1,479
6,113
36,274
42,387
108,874
5,121
19,324
94,671
62,136
6,359
11,077
57,418
24,584
190,695
24,584
190,695
333,120
210,880
66,733
477,267
113,995
68,495
215,279
544,000
11,196
26,028
16,632
7,259
90,744
2007
Sep-10
2006
Apr-11
2005
Apr-11
2015
Dec-15
TOTAL NORTHEAST
REGION
SOUTHWEST REGION
77,066
317,831
1,182,479
1,500,310
337,084
317,479
1,519,915
1,837,394
344,653
THIRTY377
Legacy Village
Garden Oaks
Glenwood
29,361
82,734
—
—
24,036
32,951
16,882
100,102
2,132
7,903
5,367
554
56,987
9,332
24,382
41,937
116,984
8,827
17,407
108,404
7,499
1,812
6,947
2,364
8,457
2,105
8,159
2,403
66,319
125,811
9,311
10,562
24,256
50,919
1,996
1,583
2007
Aug-06
6/7/2005
Mar-08
1979
Mar-07
1970
May-07
S - 3
UDR, INC.
SCHEDULE III — REAL ESTATE OWNED - (Continued)
DECEMBER 31, 2015
(In thousands)
Initial Costs
Gross Amount at Which Carried at
Close of Period
Land and
Buildings
Total Initial
Costs of
Improvements
Capitalized
Land and
Buildings &
Total
Land
and
Acquisition
Subsequent
Land
Buildings
Carrying
Accumulated
Date of
Date
Encumbrances
Improvements
Improvements
Costs
to Acquisition Costs
Improvements
Improvements
Value
Depreciation
Construction(a)
Acquired
Talisker of
Addison
Springhaven
Clipper Pointe
Highlands of
Preston
—
—
—
—
10,440
6,688
13,221
2,151
634
3,354
2,507
8,168
11,074
2,259
10,845
2,488
10,042
1,543
8,359
3,226
15,728
2,615
15,001
3,342
13,333
11,585
18,343
2,026
2,465
2,897
1975
May-07
1977
Apr-07
1978
May-07
10,319
31,543
6,044
35,818
41,862
26,252
2008
Mar-98
DALLAS, TX
112,095
83,453
153,637
237,090
60,036
97,144
199,982
297,126
112,394
Barton Creek
Landing
Residences at
the Domain
Red Stone
Ranch
Lakeline Villas
—
36,299
—
—
3,151
4,034
5,084
4,148
17,646
16,869
14,269
17,420
22,588
55,256
59,290
3,668
2,111
4,913
4,281
5,272
22,730
19,569
21,017
1,495
4,296
18,216
35,095
40,008
22,924
2010
Mar-02
58,677
62,958
25,547
2007
Aug-08
24,841
22,512
5,243
4,744
2000
Apr-12
2004
Apr-12
AUSTIN, TX
36,299
16,417
104,040
120,457
29,862
18,762
131,557
150,319
58,458
TOTAL SOUTHWEST
REGION
TOTAL OPERATING
COMMUNITIES
148,394
99,870
257,677
357,547
89,898
115,906
331,539
447,445
170,852
1,370,739
1,697,251
4,850,356
6,547,607
2,332,450
1,899,820
6,980,237
8,880,057
2,625,914
REAL ESTATE UNDER
DEVELOPMENT
Pacific City
TOTAL REAL
ESTATE UNDER
DEVELOPMENT
LAND
Waterside
345 Harrison
Street
7 Harcourt
2919 Wilshire
Vitruvian Park®
TOTAL LAND
HELD FOR
DISPOSITION
3032 Wilshire
TOTAL HELD FOR
DISPOSITION
COMMERCIAL
Hanover Village
Circle Towers
Office Bldg
Brookhaven
Shopping
Center
Bellevue Plaza
retail
TOTAL
COMMERCIAL
Other (b)
1745 Shea
Center I
TOTAL CORPORATE
TOTAL
COMMERCIAL &
CORPORATE
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,755
11,755
78,085
78,085
11,862
32,938
884
6,773
4,325
56,782
9,963
9,963
1,624
1,407
4,943
24,377
32,351
—
3,034
3,034
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
20,534
20,534
78,085
45,987
78,085
45,987
124,072
78,085
45,987
78,085
45,987
124,072
11,862
283
12,084
61
12,145
32,938
7,437
32,943
7,432
40,375
884
5,045
804
5,125
6,773
1,563
6,773
1,563
4,325
9,510
11,319
2,516
56,782
23,838
63,923
16,697
9,963
2,643
9,963
2,643
5,929
8,336
13,835
80,620
12,606
9,963
2,643
9,963
2,643
12,606
1,624
—
1,104
520
1,407
6,021
1,380
6,048
1,624
7,428
—
—
284
—
—
553
2,098
2,935
830
830
553
2,683
4,943
16,785
7,793
13,935
21,728
12,496
24,377
8,103
29,920
2,560
32,480
772
32,351
30,909
40,197
23,063
—
5,356
—
5,356
23,568
737
3,034
21,271
23,568
6,093
3,034
26,627
63,260
5,356
24,305
29,661
16,504
62
629
691
11,755
35,385
20,534
55,919
37,002
43,231
49,690
92,921
17,195
Deferred Financing Costs
$
(5,549)
TOTAL REAL ESTATE
OWNED
$ 1,376,945
$ 1,877,466
$ 4,870,890
$ 6,748,356
2,441,920
$
2,095,022
$
7,095,254
$
9,190,276
$ 2,646,874
$
(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 $8.3 billion at December 31, 2015.
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, 2015
(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
2015
2014
2013
$
8,383,259
$ 8,207,977
$
8,055,828
906,446
231,225
—
203,183
326,461
452,057
(301,920)
(269,681)
(70,687)
—
—
(112,344)
(356,303)
—
129,437
Impairment of assets, including casualty-related impairments
(692)
(379)
(2,355)
Balance at end of the year
$
9,190,276
$ 8,383,259
$
8,207,977
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
2015
2014
2013
$
2,434,772
$ 2,208,794
$
1,924,682
364,622
356,673
339,326
(152,520)
(126,151)
(34,794)
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
—
—
—
—
(4,228)
(20,662)
—
—
1,374
(1,132)
(316)
—
Balance at end of year
$
2,646,874
$ 2,434,772
$
2,208,794
S - 5
UNITED DOMINION REALTY, L.P.
SCHEDULE III — REAL ESTATE OWNED
DECEMBER 31, 2015
(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
Vista Del Rey
Coronado South
ORANGE
COUNTY, CA
$
61,050
$
20,476
$
28,538
$
49,014
$
14,641
$
21,314
$
42,341
$
63,655
$
27,697
2003
Jun-03
36,423
42,552
36,980
—
—
—
—
99,329
110,644
209,973
92,673
112,650
189,996
302,646
87,007
1972/2013
Oct-04
7,345
8,055
22,624
22,486
29,969
9,913
7,913
31,969
30,541
11,612
8,713
33,440
39,882
42,153
20,771
2003
Jun-03
19,810
1970
Jun-03
229
14,129
14,358
2,526
10,874
6,010
16,884
4,229
1969
Dec-03
62,516
10,670
58,785
46,082
108,598
29,014
66,770
70,842
137,612
44,814
2000
Oct-04
7,080
50,067
17,750
2,502
10,988
9,264
108,852
19,393
59,278
68,967
20,252
128,245
6,117
1969
Sep-04
43,476
2000
Mar-05
177,005
267,405
301,650
569,055
182,274
298,500
452,829
751,329
253,921
2000 Post Street
—
9,861
44,578
54,439
30,040
10,249
61,701
71,950
25,684
1987/2006
Dec-98
Birch Creek
Highlands Of
Marin
Marina Playa
—
—
—
River Terrace
39,310
—
—
—
—
27,000
66,310
—
43,078
43,078
—
—
—
22,591
—
22,591
—
—
—
—
—
—
—
—
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
4,365
5,996
6,224
22,161
14,031
8,545
5,353
30,657
16,696
24,868
23,916
40,137
30,537
14,458
18,559
83,872
21,061
7,536
5,139
23,458
30,864
26,063
7,257
49,670
30,140
10,032
6,938
33,234
62,298
4,307
22,428
44,177
44,568
35,627
16,290
63,905
23,003
5,046
11,458
16,591
28,597
56,927
40,172
66,605
80,195
28,049
13,756
1968
Dec-98
29,237
2010
Dec-98
19,547
1971
Dec-98
25,943
2005
Aug-05
36,437
2012
Nov-05
9,622
1962
Oct-05
23,912
11,088
5,758
29,242
35,000
15,221
2010
Oct-07
114,529
3,689
30,690
87,528
118,218
39,217
2007
Mar-08
594
42,515
43,109
6,031
773
48,367
49,140
21,469
1999
Jul-08
107,787
340,136
447,923
139,459
116,980
457,873
574,853
236,133
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
17,449
36,679
25,863
3,450
8,760
20,553
76,265
3,250
39,674
39,841
29,313
79,515
12,675
1970
Sep-04
18,883
1999
Dec-07
54,128
102,128
6,700
48,434
60,394
108,828
31,558
6,437
7,408
22,307
30,922
89,389
156,463
8,982
4,188
12,883
5,115
8,923
5,666
2,868
11,721
9,582
4,328
2,724
11,186
28,486
1,931
6,272
24,145
14,589
13,910
30,417
7,585
1987
Dec-98
6,895
1985
Dec-98
13,947
2005
Nov-05
37,770
3,829
6,975
34,624
41,599
15,574
2000
May-08
110,673
4,695
21,428
93,940
195,434
20,449
40,267
175,616
10,928
9,534
3,195
17,267
5,076
5,435
1,559
8,952
15,922
14,767
5,302
25,387
6,419
6,080
2,188
10,311
115,368
215,883
20,462
10,511
30,689
12,499
40,021
2007
Jul-08
84,022
9,244
1979
Dec-98
4,981
1973
Dec-98
13,958
1974
Dec-98
5,627
1977
Dec-98
23,854
30,242
27,357
10,021
47,578
57,599
24,926
1986
Dec-98
8,028
5,334
10,072
10,089
6,663
6,364
3,295
2,181
16,866
20,161
10,846
13,027
9,293
5,700
1979
Dec-98
1975
Dec-98
16,938
68,384
85,322
79,626
27,741
137,207
164,948
73,729
55,262
13,557
3,645
17,202
53,949
23,255
47,896
Villas at Carlsbad
—
6,517
10,718
17,235
2,876
6,780
13,331
OTHER
SOUTHERN CA
55,262
20,074
14,363
34,437
56,825
30,035
61,227
71,151
20,111
91,262
34,875
2006
Oct-02
7,826
1966
Oct-04
42,701
Tualatin Heights
Hunt Club
PORTLAND, OR
—
—
—
3,273
6,014
9,287
9,134
14,870
24,004
12,407
6,745
3,841
15,311
20,884
6,866
6,395
21,355
33,291
13,611
10,236
36,666
19,152
27,750
46,902
10,231
1989
Dec-98
14,364
1985
Sep-04
24,595
TOTAL WEST
REGION
364,246
508,462
959,128
1,467,590
498,944
572,193
1,381,812
1,954,005
746,659
MID-ATLANTIC REGION
Ridgewood
DelRey Tower
—
—
5,612
297
20,086
12,786
25,698
8,522
6,014
28,206
13,083
113,357
9,461
116,979
34,220
126,440
20,340
1988
Aug-02
9,914
2014
Jan-08
S - 6
UNITED DOMINION REALTY, L.P.
SCHEDULE III — REAL ESTATE OWNED - (Continued)
DECEMBER 31, 2015
(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
Wellington Place
at Olde Town
32,037
Andover House
Sullivan Place
Courts at
Huntington Station
METROPOLITAN
D.C.
Lakeside Mill
Calvert’s Walk
Liriope
Apartments
20 Lambourne
BALTIMORE, MD
TOTAL MID-
ATLANTIC REGION
SOUTHEAST REGION
—
—
—
32,037
12,569
—
—
30,132
42,701
74,738
13,753
14,357
36,059
51,577
1,137
103,676
49,812
17,416
14,740
52,488
65,934
3,769
14,379
55,324
104,813
7,066
1,364
110,450
67,228
69,703
111,814
35,000
2008
Sep-05
27,837
2004
Mar-07
51,578
2007
Dec-07
27,749
111,878
139,627
78
27,749
111,956
139,705
1,682
2011
Oct-15
62,905
336,062
398,967
150,208
73,707
475,403
549,110
146,351
2,666
4,408
1,620
11,750
20,444
10,109
24,692
6,791
45,590
87,182
12,775
5,038
2,997
14,816
29,100
7,396
4,817
31,679
8,411
1,374
1,653
8,132
57,340
6,406
12,106
51,640
17,813
36,496
9,785
63,746
11,336
1989
Dec-99
20,827
1988
Mar-04
5,352
1997
Mar-04
24,313
2003
Mar-08
107,626
20,214
21,573
106,267
127,840
61,828
83,349
423,244
506,593
170,422
95,280
581,670
676,950
208,179
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
14 North
BOSTON, MA
10 Hanover Square
95 Wall Street
NEW YORK, NY
TOTAL NORTHEAST
REGION
TOTAL OPERATING
COMMUNITIES
COMMERCIAL
Circle Towers
Office Bldg
TOTAL
COMMERCIAL
Other (b)
TOTAL
CORPORATE
TOTAL COMMERCIAL
& CORPORATE
—
—
—
—
—
—
—
—
—
—
39,179
39,179
39,179
—
—
—
—
—
—
7,702
10,869
18,571
1,148
1,469
2,117
708
766
4,583
10,791
15,968
15,968
23,150
36,858
60,008
5,867
11,584
—
5,461
7,714
16,293
46,919
56,401
56,401
30,852
15,659
9,304
37,207
47,727
7,862
11,545
44,044
46,511
55,589
27,055
1988/1989
Jun-03
28,780
2001
Dec-04
78,579
23,521
20,849
81,251
102,100
55,835
7,015
8,807
1,764
14,058
13,053
10,459
2,155
21,357
2,117
34,535
4,506
32,146
6,169
4,830
1,162
9,837
8,480
4,646
1,285
11,841
20,876
16,508
5,741
31,643
15,822
23,512
36,652
10,999
13,126
37,384
11,246
1977
Nov-95
14,244
1989
Dec-95
21,305
1999
Dec-95
7,007
1986
Mar-96
8,155
1986
Mar-97
22,411
2008
May-06
57,710
79,785
16,613
120,882
137,495
84,368
72,369
9,823
16,602
65,590
72,369
9,823
16,602
65,590
82,192
82,192
40,676
40,676
1999/2001
Dec-04
45,330
163,328
208,658
113,129
54,064
267,723
321,787
180,879
10,961
10,961
51,175
51,175
41,432
218,983
57,637
99,069
266,255
485,238
62,136
6,359
11,077
57,418
62,136
6,359
11,077
57,418
260,415
9,730
41,496
228,649
323,892
7,110
57,810
273,192
584,307
16,840
99,306
501,841
68,495
68,495
270,145
331,002
601,147
16,632
2005
Apr-11
16,632
54,457
2005
Apr-11
71,769
2008
Aug-11
126,226
110,030
536,413
646,443
23,199
110,383
559,259
669,642
142,858
478,163
747,171
2,082,113
2,829,284
805,694
831,920
2,790,464
3,622,384
1,278,575
—
—
—
—
—
1,407
1,407
—
—
1,407
—
—
—
—
—
1,407
1,407
—
—
1,407
6,021
6,021
1,093
1,093
7,114
1,380
1,380
—
—
1,380
6,048
6,048
1,093
1,093
7,141
7,428
7,428
1,093
1,093
8,521
2,683
2,683
—
—
2,683
Deferred Financing Costs
$
(2,199)
TOTAL REAL
ESTATE OWNED $
475,964
$
748,578
$ 2,082,113
$ 2,830,691
812,808
833,300
2,797,605
$
$
$
3,630,905
$ 1,281,258
$
(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 $3.0 billion at December 31, 2015.
The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 35 to 55 years.
S - 7
UNITED DOMINION REALTY, L.P.
SCHEDULE III — REAL ESTATE OWNED - (Continued)
DECEMBER 31, 2015
(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 transferred to the General Partner
Real estate deconsolidated
Casualty-related impairment of assets
Balance at end of year
2015
2014
2013
$
4,238,770
$ 4,188,480
$
4,182,920
139,627
—
—
61,196
91,682
151,002
(180,069)
(41,013)
(70,687)
—
(628,479)
—
—
(140)
(379)
(74,755)
—
—
$
3,630,905
$ 4,238,770
$
4,188,480
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
2015
2014
2013
$
1,403,303
$ 1,241,574
$
1,097,133
168,495
178,719
179,404
(67,177)
(16,674)
(34,794)
Accumulated depreciation on property transferred to the General Partner
Accumulated depreciation on property deconsolidated
—
(223,363)
—
—
Write off of accumulated depreciation on casualty-related impaired assets
—
(316)
(169)
—
—
Balance at end of year
$
1,281,258
$ 1,403,303
$
1,241,574
S - 8
EXHIBIT INDEX
The exhibits listed below are filed as part of this Report. References under the caption “Location” to exhibits or other filings indicate that
the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference. Management contracts and compensatory plans or arrangements filed as exhibits to this Report are identified by an
asterisk. The Commission file number for UDR, Inc.’s Exchange Act filings referenced below is 1-10524. The Commission file number for
United Dominion Realty, L.P.’s Exchange Act filings is 333-156002-01.
Exhibit
Description
Location
2.01
Partnership Interest Purchase and Exchange Agreement dated as of
September 10, 1998, by and between UDR, Inc., United Dominion
Realty, L.P., American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment
Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit
thereto the proposed form of the Third Amended and Restated
Limited Partnership Agreement of United Dominion Realty, L.P.
Exhibit 2(d) to UDR, Inc.’s Form S-3 Registration
Statement (Registration No. 333-64281) filed with the
Commission on September 25, 1998.
2.02
Agreement of Purchase and Sale dated as of August 13, 2004, by and
between United Dominion Realty, L.P., a Delaware limited
partnership, as Buyer, and Essex The Crest, L.P., a California limited
partnership, Essex El Encanto Apartments, L.P., a California limited
partnership, Essex Hunt Club Apartments, L.P., a California limited
partnership, and the other signatories named as Sellers therein.
Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K
dated September 28, 2004 and filed with the Commission
on September 29, 2004.
2.03
First Amendment to Agreement of Purchase and Sale dated as of
September 29, 2004, by and between United Dominion Realty, L.P.,
a Delaware limited partnership, as Buyer, and Essex The Crest, L.P.,
a California limited partnership, Essex El Encanto Apartments, L.P.,
a California limited partnership, Essex Hunt Club Apartments, L.P., a
California limited partnership, and the other signatories named as
Sellers therein.
2.04
Second Amendment to Agreement of Purchase and Sale dated as of
October 26, 2004, by and between United Dominion Realty, L.P., a
Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a
California limited partnership, Essex El Encanto Apartments, L.P., a
California limited partnership, Essex Hunt Club Apartments, L.P., a
California limited partnership, and the other signatories named as
Sellers therein.
2.05 Agreement of Purchase and Sale dated as of January 23, 2008, by
and between UDR, Inc., United Dominion Realty, L.P., UDR Texas
Properties LLC, UDR Western Residential, Inc., UDR South
Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P.,
UDR of NC, Limited Partnership, Heritage Communities L.P.,
Governour’s Square of Columbus Co., Fountainhead Apartments
Limited Partnership, AAC Vancouver I, L.P., AAC Funding
Partnership III, AAC Funding Partnership II and DRA Fund VI LLC.
Exhibit 2.2 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 2.1 to UDR, Inc.’s Current Report on Form 8-K
dated January 23, 2008 and filed with the Commission on
January 29, 2008.
Exhibit
Description
Location
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,
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.
L.P., AAC Funding Partnership III, AAC Funding Partnership II and
DRA Fund VI LLC.
2.07
Contribution Agreement by and among Home Properties, L.P., UDR,
Inc., United Dominion Realty, L.P. and LSREF 4 Lighthouse
Acquisitions, LLC, dated June 22, 2015 (UDR, Inc. and United
Dominion Realty, L.P. have omitted certain schedules and exhibits
pursuant to Item 601(b)(2) of Regulation S-K and shall furnish
supplementally to the Commission copies of any of the omitted
schedules and exhibits upon request by the Commission.)
Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K
dated and filed with the Commission on June 22, 2015.
2.08
Amendment Agreement, dated as of August 27, 2015, by and among
UDR, Inc., United Dominion Realty, L.P., Home Properties, Inc.,
Home Properties, L.P., LSREF4 Lighthouse Acquisitions, LLC
LSREF4 Lighthouse Corporate Acquisitions, LLC and LSREF4
Lighthouse Operating Acquisitions, LLC.
Exhibit 2.1 to UDR, Inc.’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2015.
3.01
Articles of Restatement of UDR, Inc.
Exhibit 3.09 to UDR, Inc.’s Current Report on Form 8-K
dated July 27, 2005 and filed with the Commission on
August 1, 2005.
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
November 6, 2015).
Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K
dated November 6, 2015 and filed with the Commission
on November 13, 2015.
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.
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.
Exhibit
Description
Location
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.
3.16
Ninth Amendment to the Amended and Restated Agreement of
Limited Partnership of United Dominion Realty, L.P., dated as of
December 4, 2015.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K
dated December 4, 2015 and filed with the Commission
on December 10, 2015.
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 of UDR, Inc. 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. 5.25% 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.
4.10
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.
4.11
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.
4.12
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.
4.13
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.
4.14
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.
4.15
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.
4.16
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.
4.17
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.
4.18
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.
Exhibit
Description
Location
4.19
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.
4.20
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.
4.21
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.
4.22
UDR, Inc. 3.75% Medium-Term Note, Series A due October 2024,
issued June 26, 2014.
Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-
Q for the quarter ended June 30, 2014.
4.23
UDR, Inc.’s 4.00% Medium-Term Note, Series A due October 2025,
issued September 22, 2015.
Filed herewith.
10.01*
UDR, Inc. 1999 Long-Term Incentive Plan (as amended and restated
December 4, 2015).
Exhibit 10.1 to UDR, Inc.'s Current Report on Form 8-K
dated December 4, 2015 and filed with the Commission
on December 10, 2015.
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, 2015.
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.
10.07*
Form of UDR, Inc. Indemnification Agreement.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K
dated February 4, 2016 and filed with the Commission on
February 10, 2016.
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.
Exhibit
Description
Location
10.10*
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.
10.11
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.
10.12
ATM Equity OfferingSM Sales Agreement among UDR, Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global
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.
Markets Inc., Credit Suisse Securities (USA) LLC, J.P. Morgan
Securities LLC and Morgan Stanley & Co. LLC, dated April 4, 2012.
10.13
Third Amended and Restated Distribution Agreement among UDR,
Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global
Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities
LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as
Agents, dated September 1, 2011, with respect to the issue and sale
by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months
or More From Date of Issue.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K
dated and filed with the Commission on September 1,
2011.
10.14
Credit Agreement, dated as of October 20, 2015, by and among
UDR, Inc., as borrower, and the lenders and agents party thereto.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K
dated October 20, 2015 and filed with the Commission on
October 26, 2015.
10.15 Guaranty of United Dominion Realty, L.P., dated as of October 20,
2015, with respect to the Credit Agreement, dated as of October 20,
2015.
Exhibit 10.2 to UDR, Inc.’s Current Report on Form 8-K
dated October 20, 2015 and filed with the Commission on
October 26, 2015.
10.16
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.
10.17
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.
10.18
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
dated July 29, 2014 and filed with the Commission on
July 31, 2014.
10.19
Amendment No. 1, dated July 29, 2014, to the Third Amended and
Restated Distribution Agreement among UDR, Inc., United
Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc.,
Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated and Wells Fargo Securities, LLC, as Agents, dated
September 1, 2011, with respect to the issue and sale by UDR, Inc. of
its Medium-Term Notes, Series A Due Nine Months or More From
Date of Issue.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K
dated July 29, 2014 and filed with the Commission on
July 31, 2014.
Exhibit
Description
Location
10.20
Underwriting Agreement between UDR, Inc. and Credit Suisse
Securities (USA) LLC dated August 19, 2015.
Exhibit 1.1 to UDR, Inc.’s Current Report on Form 8-K
dated August 19, 2015 and filed with the Commission on
August 24, 2015.
10.21
Agreement of Limited Partnership of UDR Lighthouse DownREIT
L.P., dated as of October 5, 2015, as amended.
Filed herewith.
10.22* Class 1 LTIP Unit Award Agreement
Filed herewith.
10.23* Notice of Class 2 LTIP Unit Award
Filed herewith.
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,
Filed herewith.
Inc.
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
Description
Location
101
XBRL (Extensible Business Reporting Language). The following
materials from this Annual Report on Form 10-K for the period
ended December 31, 2015, 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-4.23 (EXHIBIT 4.23)
Exhibit 4.23
UDR, INC.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (THE “DEPOSITARY”) (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER HEREOF OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR
BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.
REGISTERED
No.
CUSIP No.:
90265EAK6
PRINCIPAL AMOUNT:
$300,000,000
UDR, INC.
MEDIUM-TERM NOTE
SERIES A
DUE NINE MONTHS OR
MORE FROM DATE OF ISSUE,
FULLY AND
UNCONDITIONALLY
GUARANTEED BY UNITED
DOMINION REALTY, L.P.
(Fixed Rate)
ORIGINAL ISSUE DATE:
INTEREST RATE: 4.000%
STATED MATURITY
September 22, 2015
DATE: October 1, 2025
INTEREST PAYMENT DATE(S)
[ ] CHECK IF DISCOUNT NOTE
[X] April 1 and October 1, commencing April
1, 2016
Issue Price: 99.770% plus accrued interest
from September 22, 2015
[ ] Other:
INITIAL REDEMPTION
INITIAL REDEMPTION
ANNUAL REDEMPTION
DATE: See Addendum
PERCENTAGE: See Addendum
PERCENTAGE
REDUCTION: See Addendum
OPTIONAL REPAYMENT
DATE(S): See Addendum
SPECIFIED CURRENCY:
AUTHORIZED DENOMINATION:
EXCHANGE RATE
[X] United States dollars
[X] $1,000 and integral
AGENT: N/A
[ ] Other:
multiples thereof
[ ] Other:
ADDENDUM ATTACHED
DEFAULT INTEREST RATE: N/A
OTHER/ADDITIONAL
PROVISIONS: N/A
[X] Yes
[ ] No
2
UDR, INC., a Maryland corporation (the “Company”, which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., as nominee for The Depository Trust
Company, or registered assigns, the Principal Amount of THREE HUNDRED MILLION DOLLARS ($300,000,000), on the
Stated Maturity Date specified above (or any Redemption Date or Repayment Date, each as defined on the reverse hereof, or any
earlier date of acceleration of maturity) (each such date being hereinafter referred to as the “Maturity Date” with respect to the
principal repayable on such date) and to pay interest thereon (and on any overdue principal, premium and/or interest to the extent
legally enforceable) at the Interest Rate per annum specified above, until the principal hereof is paid or duly made available for
payment. The Company will pay interest in arrears on each Interest Payment Date, if any, specified above (each, an “Interest
Payment Date”), commencing with the first Interest Payment Date next succeeding the Original Issue Date specified above, and
on the Maturity Date; provided, however, that if the Original Issue Date occurs between a Record Date (as defined below) and the
next succeeding Interest Payment Date, interest payment will commence on the Interest Payment Date immediately following the
next succeeding Record Date to the registered holder (the “Holder”) of this Note on the next succeeding Record Date. Interest on
this Note will be computed on the basis of a 360-day year of twelve 30-day months.
United Dominion Realty, L.P., a Delaware limited partnership (the “Operating Partnership”), as primary obligor and not
merely as surety, hereby irrevocably and unconditionally guarantees to the Holder and to the Trustee and their successors and
assigns (a) the full and punctual payment when due, whether at the Maturity Date, by acceleration or otherwise, of all obligations
of the Company now or hereafter existing under the Indenture whether for principal of or interest on the Notes (and premium and
Make-Whole Amount, if applicable) and all other monetary obligations of the Company under the Indenture and the Notes and (b)
the full and punctual performance within the applicable grace periods of all other obligations of the Company under the Indenture
and the Notes (all such obligations guaranteed hereby by the Operating Partnership being the “Guarantee”). The Holder of this
Note may enforce its rights under the Guarantee directly against the Operating Partnership without first making a demand or
taking action against the Company or any other person or entity. The Operating Partnership may, without the consent of the
Holder of this Note, assume all of the Company’s rights and obligations under this Note and, upon such assumption, the Company
will be released from its liabilities under the Indenture and this Note.
Interest on this Note will accrue from, and including, the immediately preceding Interest Payment Date to which interest
has been paid or duly provided for (or from, and including, the Original Issue Date if no interest has been paid or duly provided
for) to, but excluding, the applicable Interest Payment Date or the Maturity Date, as the case may be (each, an “Interest Period”).
The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions
described herein, be paid to the person in whose name this Note (or one or more predecessor Notes, as defined on the reverse
hereof) is registered at the close of business on the March 15 or September 15 (whether or not a Business Day, as defined below)
immediately preceding such Interest Payment Date (the “Record Date”); provided, however, that interest payable on the Maturity
Date will be payable to the person to whom the principal hereof and premium, if any, hereon shall be payable. Any such interest
not so punctually paid or duly provided for on any Interest Payment Date other than the Maturity Date (“Defaulted Interest”) shall
forthwith cease to be payable to the Holder on the close of business on any Record Date and, instead, shall be paid to the person in
whose name this Note is registered at the close of business on a special record date (the “Special Record Date”) for the payment of
such Defaulted Interest to be fixed by the Trustee hereinafter referred to, notice whereof shall be given to the Holder of this Note
by the Trustee not less than 10 calendar days prior to such Special Record Date or may be paid at any time in any other lawful
manner, all as more fully provided for in the Indenture.
3
Payment of principal, premium, if any, and interest in respect of this Note due on the Maturity Date will be made in
immediately available funds upon presentation and surrender of this Note (and, with respect to any applicable repayment of this
Note, upon delivery of instructions as contemplated on the reverse hereof) at the office or agency maintained by the Company for
that purpose in the Borough of Manhattan, The City of New York, currently the corporate trust office of the Trustee located at 40
Broad Street, 5th Floor, New York, New York 10004, or at such other paying agency in the Borough of Manhattan, The City of
New York, as the Company may determine; provided, however, that if the Specified Currency (as defined below) is other than
United States dollars and such payment is to be made in the Specified Currency in accordance with the provisions set forth below,
such payment will be made by wire transfer of immediately available funds to an account with a bank designated by the Holder
hereof at least 15 calendar days prior to the Maturity Date, provided that such bank has appropriate facilities therefor and that this
Note is presented and surrendered and, if applicable, instructions are delivered at the aforementioned office or agency maintained
by the Company in time for the Trustee to make such payment in such funds in accordance with its normal procedures. Payment
of interest due on any Interest Payment Date other than the Maturity Date will be made at the aforementioned office or agency
maintained by the Company or, at the option of the Company, by check mailed to the address of the person entitled thereto as such
address shall appear in the Security Register maintained by the Trustee; provided, however, that a Holder of U.S.$10,000,000 (or,
if the Specified Currency is other than United States dollars, the equivalent thereof in the Specified Currency) or more in
aggregate principal amount of Notes (whether having identical or different terms and provisions) will be entitled to receive
interest payments on such Interest Payment Date by wire transfer of immediately available funds if such Holder has delivered
appropriate wire transfer instructions in writing to the Trustee not less than 15 calendar days prior to such Interest Payment Date.
Any such wire transfer instructions received by the Trustee shall remain in effect until revoked by such Holder.
If any Interest Payment Date or the Maturity Date falls on a day that is not a Business Day, the required payment of
principal, premium, if any, and/or interest shall be made on the next succeeding Business Day with the same force and effect as if
made on the date such payment was due, and no interest shall accrue with respect to such payment for the period from and after
such Interest Payment Date or the Maturity Date, as the case may be, to the date of such payment on the next succeeding Business
Day.
As used herein, “Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day
on which commercial banks are authorized or required by law, regulation or executive order to close in The City of New York;
provided, however, that if the Specified Currency is other than United States dollars, such day must also not be a day on which
commercial banks are authorized or required by law, regulation or executive order to close in the Principal Financial Center (as
defined below) of the country issuing the Specified Currency (or, if the Specified Currency is Euro, such day must also be a day
on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is open). “Principal
Financial Center” means the capital city of the country issuing the Specified Currency, except that with respect to United States
dollars, Australian dollars, Canadian dollars, Euros, South African rands and Swiss francs, the “Principal Financial Center” shall
be The City of New York, Sydney, Toronto, Johannesburg and Zurich, respectively.
The Company is obligated to make payment of principal, premium, if any, and interest in respect of this Note in the
currency in which this Note is denominated above (or, if such currency is not at the time of such payment legal tender for the
payment of public and private debts in the country issuing such currency or, if such currency is Euro, in the member states of the
European Union that have adopted the single currency in accordance with the Treaty establishing the European Community, as
amended by the Treaty on European Union, then the currency which is at the time of such payment legal tender in the
4
related country or in the adopting member states of the European Union, as the case may be) (the “Specified Currency”). If the
Specified Currency is other than United States dollars, except as otherwise provided below, any such amounts so payable by the
Company will be converted by the Exchange Rate Agent specified above into United States dollars for payment to the Holder of
this Note.
Any United States dollar amount to be received by the Holder of this Note will be based on the highest bid quotation in
The City of New York received by the Exchange Rate Agent at approximately 11:00 A.M., New York City time, on the second
Business Day preceding the applicable payment date from three recognized foreign exchange dealers (one of whom may be the
Exchange Rate Agent) selected by the Exchange Rate Agent and approved by the Company for the purchase by the quoting dealer
of the Specified Currency for United States dollars for settlement on such payment date in the aggregate amount of the Specified
Currency payable to all Holders of Notes scheduled to receive United States dollar payments and at which the applicable dealer
commits to execute a contract. All currency exchange costs will be borne by the Holder of this Note by deductions from such
payments. If three such bid quotations are not available, payments on this Note will be made in the Specified Currency.
If the Specified Currency is other than United States dollars, the Holder of this Note may elect to receive all or a specified
portion of any payment of principal, premium, if any, and/or interest, if any, in respect of this Note in the Specified Currency by
submitting a written request for such payment to the Trustee at its corporate trust office in The City of New York on or prior to the
applicable Record Date or at least 15 calendar days prior to the Maturity Date, as the case may be. Such written request may be
mailed or hand delivered or sent by cable, telex or other form of facsimile transmission. The Holder of this Note may elect to
receive all or a specified portion of all future payments in the Specified Currency in respect of such principal, premium, if any,
and/or interest, if any, and need not file a separate election for each payment. Such election will remain in effect until revoked by
written notice delivered to the Trustee, but written notice of any such revocation must be received by the Trustee on or prior to the
applicable Record Date or at least 15 calendar days prior to the Maturity Date, as the case may be.
If the Specified Currency is other than United States dollars and the Holder of this Note shall have duly made an election
to receive all or a specified portion of any payment of principal, premium, if any, and/or interest, if any, in respect of this Note in
the Specified Currency, but the Specified Currency is not available due to the imposition of exchange controls or other
circumstances beyond the control of the Company, the Company will be entitled to satisfy its obligations to the Holder of this
Note by making such payment in United States dollars on the basis of the Market Exchange Rate (as defined below) determined
by the Exchange Rate Agent on the second Business Day prior to such payment date or, if such Market Exchange Rate is not then
available, on the basis of the most recently available Market Exchange Rate. The “Market Exchange Rate” for the Specified
Currency other than United States dollars means the noon dollar buying rate in The City of New York for cable transfers for the
Specified Currency as certified for customs purposes (or, if not so certified, as otherwise determined) by the Federal Reserve Bank
of New York. Any payment made in United States dollars under such circumstances shall not constitute an Event of Default (as
defined in the Indenture).
All determinations referred to above made by the Exchange Rate Agent shall be at its sole discretion and shall, in the
absence of manifest error, be conclusive for all purposes and binding on the Holder of this Note.
The Company agrees to indemnify the Holder of any Note against any loss incurred by such Holder as a result of any
judgment or order being given or made against the Company for any amount due hereunder and such judgment or order requiring
payment in a currency (the “Judgment Currency”) other than the Specified Currency, and as a result of any variation between (i)
the rate of exchange at which the
5
Specified Currency amount is converted into the Judgment Currency for the purpose of such judgment or order, and (ii) the rate of
exchange at which such Holder, on the date of payment of such judgment or order, is able to purchase the Specified Currency with
the amount of the Judgment Currency actually received by such Holder, as the case may be. The foregoing indemnity constitutes a
separate and independent obligation of the Company and continues in full force and effect notwithstanding any such judgment or
order as aforesaid. The term “rate of exchange” includes any premiums and costs of exchange payable in connection with the
purchase of, or conversion into, the relevant currency.
Reference is hereby made to the further provisions of this Note set forth on the reverse hereof and, if so specified on the
face hereof, in an Addendum hereto, which further provisions shall have the same force and effect as if set forth on the face
hereof.
Notwithstanding the foregoing, if an Addendum is attached hereto or “Other/Additional Provisions” apply to this Note as
specified above, this Note shall be subject to the terms set forth in such Addendum or such “Other/Additional Provisions”.
Unless the Certificate of Authentication hereon has been executed by the Trustee by manual signature, this Note shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
6
IN WITNESS WHEREOF, UDR, Inc. has caused this Note to be duly executed by one of its duly authorized officers.
UDR, INC.
By:
/s/ Warren L. Troupe
Name: Warren L. Troupe
Title:
Senior Executive Vice President and Secretary
ATTEST:
By:
/s/ Deborah J. Shannon
Name: Deborah J. Shannon
Title:
Assistant Secretary
Date:
September 22, 2015
TRUSTEE'S CERTIFICATION OF AUTHENTICATION:
This is one of the Debt Securities of
the series designated therein referred
to in the within-mentioned Indenture.
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
/s/ K. Wendy Kumar
Authentication Date: September 22, 2015
Authorized Signatory
7
[REVERSE OF NOTE]
UDR, INC.
MEDIUM-TERM NOTE, SERIES A
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE, FULLY
AND UNCONDITIONALLY GUARANTEED BY UNITED DOMINION REALTY, L.P.
(Fixed Rate)
This Note is one of a duly authorized series of Debt Securities (the “Debt Securities”) of the Company issued and to be
issued under an Indenture, dated as of November 1, 1995, as supplemented by the first supplemental indenture thereto, dated as of
May 3, 2011, as further amended, modified or supplemented from time to time (the “Indenture”), between the Company
(successor by merger to United Dominion Realty Trust, Inc., a Virginia corporation) and U.S. Bank National Association,
successor trustee to Wachovia Bank, National Association (formerly known as First Union National Bank of Virginia), as trustee
(the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Debt Securities, and of the terms upon which the Debt Securities
are, and are to be, authenticated and delivered. This Note is one of the series of Debt Securities designated as “Medium-Term
Notes, Series A Due Nine Months or More From Date of Issue, Fully and Unconditionally Guaranteed by United Dominion
Realty, L.P.” (the “Notes”). All terms used but not defined in this Note or in an Addendum hereto shall have the meanings
assigned to such terms in the Indenture or on the face hereof, as the case may be.
United Dominion Realty, L.P., a Delaware limited partnership (the “Operating Partnership”), as primary obligor and not
merely as surety, hereby irrevocably and unconditionally guarantees to the Holder and to the Trustee and their successors and
assigns (a) the full and punctual payment when due, whether at the Maturity Date, by acceleration or otherwise, of all obligations
of the Company now or hereafter existing under the Indenture whether for principal of or interest on the Notes (and premium and
Make-Whole Amount, if applicable) and all other monetary obligations of the Company under the Indenture and the Notes and (b)
the full and punctual performance within the applicable grace periods of all other obligations of the Company under the Indenture
and the Notes (all such obligations guaranteed hereby by the Operating Partnership being the “Guarantee”). The Holder of this
Note may enforce its rights under the Guarantee directly against the Operating Partnership without first making a demand or
taking action against the Company or any other person or entity. The Operating Partnership may, without the consent of the
Holder of this Note, assume all of the Company’s rights and obligations under this Note and, upon such assumption, the Company
will be released from its liabilities under the Indenture and this Note.
This Note is issuable only in registered form without coupons in minimum denominations of U.S. $1,000 and integral
multiples thereof or other Authorized Denomination specified on the face hereof.
This Note will not be subject to any sinking fund and, unless otherwise specified on the face hereof in accordance with the
provisions of the following two paragraphs, will not be redeemable or repayable prior to the Stated Maturity Date.
This Note will be subject to redemption at the option of the Company on any date on or after the Initial Redemption Date,
if any, specified on the face hereof, in whole or from time to time in part in increments of U.S. $1,000 or other integral multiple of
an Authorized Denomination (provided that any
8
remaining principal amount hereof shall be at least U.S. $1,000 or such other minimum Authorized Denomination), at the
Redemption Price (as defined below), together with unpaid interest accrued thereon to the date fixed for redemption (the
“Redemption Date”), on written notice given to the Holder hereof (in accordance with the provisions of the Indenture) not more
than 60 nor less than 30 calendar days prior to the Redemption Date. The “Redemption Price” shall be an amount equal to the
Initial Redemption Percentage specified on the face hereof (as adjusted by the Annual Redemption Percentage Reduction, if any,
specified on the face hereof) multiplied by the unpaid principal amount of this Note to be redeemed. The Initial Redemption
Percentage, if any, shall decline at each anniversary of the Initial Redemption Date by the Annual Redemption Percentage
Reduction, if any, until the Redemption Price is 100% of unpaid principal amount to be redeemed. In the event of redemption of
this Note in part only, a new Note of like tenor for the unredeemed portion hereof and otherwise having the same terms and
provisions as this Note shall be issued by the Company in the name of the Holder hereof upon the presentation and surrender
hereof.
This Note will be subject to repayment by the Company at the option of the Holder hereof on the Optional Repayment
Date(s), if any, specified on the face hereof, in whole or in part in increments of U.S. $1,000 or other integral multiple of an
Authorized Denomination (provided that any remaining principal amount hereof shall be at least U.S. $1,000 or such other
minimum Authorized Denomination), at a repayment price equal to 100% of the unpaid principal amount to be repaid, together
with unpaid interest accrued thereon to the date fixed for repayment (the “Repayment Date”). For this Note to be repaid, the
Trustee must receive at its corporate trust office in the Borough of Manhattan, The City of New York, not more than 60 nor less
than 30 calendar days prior to the Repayment Date, such Note and instructions to such effect forwarded by the Holder hereof.
Exercise of such repayment option by the Holder hereof shall be irrevocable. In the event of repayment of this Note in part only, a
new Note of like tenor for the unrepaid portion hereof and otherwise having the same terms and provisions as this Note shall be
issued by the Company in the name of the Holder hereof upon the presentation and surrender hereof.
If this Note is specified on the face hereof to be a Discount Note, the amount payable to the Holder of this Note in the
event of redemption, repayment or acceleration of maturity will be equal to the sum of (1) the Issue Price specified on the face
hereof (increased by any accruals of the Discount, as defined below) and, in the event of any redemption of this Note (if
applicable), multiplied by the Initial Redemption Percentage (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) and (2) any unpaid interest accrued thereon to the Redemption Date, Repayment Date or date of acceleration of
maturity, as the case may be. The difference between the Issue Price and 100% of the principal amount of this Note is referred to
herein as the “Discount”.
For purposes of determining the amount of Discount that has accrued as of any Redemption Date, Repayment Date or date
of acceleration of maturity of this Note, such Discount will be accrued so as to cause the yield on the Note to be constant. The
constant yield will be calculated using a 30-day month, 360-day year convention, a compounding period that, except for the Initial
Period (as defined below), corresponds to the shortest period between Interest Payment Dates (with ratable accruals within a
compounding period) and an assumption that the maturity of this Note will not be accelerated. If the period from the Original
Issue Date to the initial Interest Payment Date (the “Initial Period”) is shorter than the compounding period for this Note, a
proportionate amount of the yield for an entire compounding period will be accrued. If the Initial Period is longer than the
compounding period, then such period will be divided into a regular compounding period and a short period, with the short period
being treated as provided in the preceding sentence.
9
The covenants set forth in Section 1004(a) and Section 1007 of the Indenture shall not apply to this Note, and the
following covenants shall instead apply to this Note in place of the covenants set forth in Section 1004(a) and Section 1007 of the
Indenture:
“The Trust will, and will cause the Subsidiaries to, have at all times Total Unencumbered Assets of not less than 150% of the
aggregate principal amount of all of the Trust’s outstanding Unsecured Debt and the outstanding Unsecured Debt of the
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
The Trust will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of
such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the
Trust and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 65% of the sum of (without
duplication) (i) the Trust’s Total Assets as of the end of the calendar quarter covered in the Trust’s Annual Report on Form 10-K
or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to the incurrence of such additional Debt and (ii) the purchase price of any real
estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent such
proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Trust or any
Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such
additional Debt.
‘Total Unencumbered Assets’ means the sum of, without duplication, those Undepreciated Real Estate Assets which are not
subject to a lien securing Debt and all other assets, excluding accounts receivable and intangibles, of the Trust and the Subsidiaries
not subject to a lien securing Debt, all determined on a consolidated basis in accordance with GAAP; provided, however, that all
investments by the Trust and the Subsidiaries in unconsolidated joint ventures, unconsolidated limited partnerships,
unconsolidated limited liability companies and other unconsolidated entities shall be excluded from Total Unencumbered Assets
to the extent that such investments would have otherwise been included.”
If an Event of Default shall occur and be continuing, the principal of the Notes may, and in certain cases shall, be
accelerated in the manner and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance of (i) the entire indebtedness of the Notes or (ii) certain covenants and
Events of Default with respect to the Notes, in each case upon compliance with certain conditions set forth therein, which
provisions apply to the Notes.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the Holders of the Debt Securities at any time by the Company and the
Trustee with the consent of the Holders of a majority of the aggregate principal amount of all Debt Securities at the time
outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority of the aggregate
principal amount of the outstanding Debt Securities of any series, on behalf of the Holders of all such Debt Securities, to waive
compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders
of a majority of the aggregate principal amount of the outstanding Debt Securities of any series, in certain instances, to waive, on
behalf of all of the Holders of Debt Securities of
10
such series, certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and other Notes issued upon the
registration of transfer hereof or in exchange heretofore or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Note.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay principal, premium, if any, and interest in respect of this Note at the
times, places and rate or formula, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein and herein set forth, the transfer of this Note is
registrable in the Security Register of the Company upon surrender of this Note for registration of transfer at the office or agency
of the Company in any place where the principal hereof and any premium or interest hereon are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or by his attorney duly authorized in writing, and thereupon one or more new Notes having the same terms and
provisions, of Authorized Denominations and for the same aggregate principal amount, will be issued by the Company to the
designated transferee or transferees.
As provided in the Indenture and subject to certain limitations therein and herein set forth, this Note is exchangeable for a
like aggregate principal amount of Notes of different Authorized Denominations but otherwise having the same terms and
provisions, as requested by the Holder hereof surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Holder as the owner hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the contrary, except as required by law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
11
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this Note, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN
COM
- as tenants in common
UNIF GIFT MIN
- ________ Custodian ______
ACT
TEN ENT
- as tenants by the entireties
(Cust) (Minor)
JT TEN
- as joint tenants with right of
survivorship and not as tenants
in common
under Uniform Gifts to Minors Act
____________________
(State)
Additional abbreviations may also be used though not in the above list.
__________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of assignee)
_____________________________________________________________________________________________________
this Note and all rights thereunder hereby irrevocably constituting and appointing
_____________________________________________________________________________________________________
Attorney to transfer this Note on the books of the Company, with full power of substitution in the premises.
12
UDR, INC.
ADDENDUM TO MEDIUM-TERM NOTE
(Fixed Rate)
The Company may redeem all or part of this Note at any time at its option at a redemption price equal to the greater of (1)
the principal amount of this Note being redeemed plus accrued and unpaid interest to the redemption date or (2) the Make-Whole
Amount for the principal amount of this Note being redeemed. If this Note is redeemed on or after July 1, 2025 (three months
prior to the maturity date), the redemption price will equal the principal amount of this Note being redeemed plus accrued and
unpaid interest to the redemption date.
“Make-Whole Amount” means, as determined by the Quotation Agent, the sum of the present values of the principal
amount of this Note to be redeemed, together with the scheduled payments of interest (exclusive of interest to the redemption
date) from the redemption date to the maturity date of this Note being redeemed, in each case discounted to the redemption date
on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Adjusted Treasury Rate, plus accrued
and unpaid interest on the principal amount of this Note being redeemed to the redemption date.
“Adjusted Treasury Rate” means, with respect to any redemption date, the sum of (x) either (1) the yield for the maturity
corresponding to the Comparable Treasury Issue, under the heading that represents the average for the immediately preceding
week, appearing in the most recent published statistical release designated “H.15 (519)” or any successor publication that is
published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities” (provided, if no maturity
is within three months before or after the remaining term of this Note, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or
extrapolated from such yields on a straight line basis, rounded to the nearest month) or (2) if such release (or any successor
release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption
date, in each case calculated on the third business day preceding the redemption date, and (y) 0.30%.
“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the remaining term from the redemption date to the maturity date of this Note that would be utilized, at the
time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of this Note.
“Comparable Treasury Price” means, with respect to any redemption date, (x) the average of three Reference Treasury
Dealer Quotations for such redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations so
obtained, or (y) if fewer than five Reference Treasury Dealer Quotations are so obtained, the average of all such Reference
Treasury Dealer Quotations so obtained.
“Quotation Agent” means the Reference Treasury Dealer selected by the indenture trustee after consultation with the
Company.
“Reference Treasury Dealer” means any of J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, a nationally recognized investment banking firm selected by Wells Fargo Securities, LLC
that is a primary U.S. Government Securities dealer, their respective successors and assigns and one other nationally recognized
investment banking firm selected by the Company that is a primary U.S. Government securities dealers.
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date,
the average, as determined by the indenture trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in
each case as a percentage of its principal amount) quoted in writing to the indenture trustee by such Reference Treasury Dealer at
5:00 p.m., New York City time, on the third business day preceding such redemption date.
(Back To Top)
Section 3: EX-10.21 (EXHIBIT 10.21)
2
Exhibit 10.21
AGREEMENT OF LIMITED PARTNERSHIP
OF
UDR LIGHTHOUSE DOWNREIT L.P.
Dated as of October 5, 2015
TABLE OF CONTENTS
ARTICLE I DEFINED TERMS
1.01 Defined Terms
ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
2.01 Formation
2.02 Name, Office and Registered Agent
2.03 Partners
2.04 Term and Dissolution
2.05 Filing of Certificate and Perfection of Limited Partnership
2.06 Certificates Describing Partnership Units
ARTICLE III
BUSINESS OF THE PARTNERSHIP
3.01 Business of the Partnership
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 Capital Contributions
4.02 Additional Capital Contributions and Issuances of Additional Partnership Interests
4.03 Loans to the Partnership
4.04 Capital Accounts
4.05 Percentage Interests
4.06 No Interest on Contributions
Page
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2
10
10
10
11
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12
12
12
12
13
13
13
14
15
15
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4.07 Return of Capital Contributions
4.08 No Third Party Beneficiary
ARTICLE V ALLOCATIONS AND DISTRIBUTIONS
5.01 Allocation of Current Profit and Residual Profit and Loss
5.02 Distribution of Cash
5.03 REIT Distribution Requirements
5.04 No Right to Distributions in Kind
5.05 Limitations on Return of Capital Contributions
5.06 Distributions Upon Liquidation
5.07 Substantial Economic Effect
5.08 Restriction on Distributions to UDR Partners
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
i
TABLE OF CONTENTS
(Continued)
6.01 Management of the Partnership
6.02 Delegation of Authority
6.03 Indemnification and Exculpation of Indemnitees
6.04 Liability of the General Partner
6.05 Partnership Expenses
6.06 Outside Activities
6.07 Employment or Retention of Affiliates
6.08 Title to Partnership Assets
ARTICLE VII
CHANGES IN GENERAL PARTNER AND THE COMPANY
7.01 Transfer of a General Partner’s Partnership Interest; Transactions Involving the Company
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19
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23
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26
26
28
29
29
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30
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7.02 Admission of a Substitute or Additional General Partner
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner
7.04 Removal of a General Partner
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.01 Management of the Partnership
8.02 Power of Attorney
8.03 Limitation on Liability of Limited Partners
8.04 Ownership by Limited Partner of Corporate General Partner or Affiliate
8.05 Redemption Right
Requirement that REIT Shares be Publicly Traded; Securities Act Registration of REIT
Shares
8.06
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 Purchase for Investment
9.02 Restrictions on Transfer of Limited Partnership Interests
9.03 Admission of Substitute Limited Partner
9.04 Rights of Assignees of Partnership Interests
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner
9.06 Joint Ownership of Interests
ii
TABLE OF CONTENTS
(Continued)
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 Books and Records
10.02 Custody of Partnership Funds; Bank Accounts
10.03 Fiscal and Taxable Year
10.04 Annual Tax Information and Report
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34
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38
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10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments
10.06 Reports to Limited Partners
ARTICLE XI AMENDMENT OF AGREEMENT; MERGER; NOTICE
11.01 Amendment of Agreement; Merger
11.02 Notice to Limited Partners
ARTICLE XII GENERAL PROVISIONS
12.01 Notices
12.02 Survival of Rights
12.03 Additional Documents
12.04 Severability
12.05 Entire Agreement
12.06 Rules of Construction
12.07 Headings
12.08 Counterparts
12.09 Governing Law
iii
AGREEMENT OF LIMITED PARTNERSHIP
OF
UDR LIGHTHOUSE DOWNREIT L.P.
Dated as of October 5, 2015
THIS AGREEMENT OF LIMITED PARTNERSHIP (this “Agreement”) is made as of this 5th day of October, 2015,
between UDR, Inc., a Maryland corporation, as the general partner and a limited partner, United Dominion Realty, L.P., a
Delaware limited partnership, as a limited partner, UDR Texas Properties LLC, a Delaware limited liability company, as a limited
partner, and the other limited partners from time to time party hereto.
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
ARTICLE I
DEFINED TERMS
1.01 Defined Terms. The following defined terms used in this Agreement shall have the meanings specified below:
“Act” means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time.
“Additional Funds” is defined in Section 4.03.
“Additional Limited Partner” means a Person admitted to this Partnership as a Limited Partner pursuant to Section 4.02.
“Affiliate” means, (i) any Person that, directly or indirectly, controls or is controlled by or is under common control with
such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares
or equity interests of such Person, or (iii) any officer, director, employee, partner or trustee of such Person or any Person controlling,
controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition, “control” (including the correlative meanings of the terms
“controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of
voting securities or partnership interests or otherwise.
“Agreed Value” means the fair market value of a Partner’s non-cash Capital Contribution as of the date of contribution as
agreed to by such Partner and the General Partner. The name and address of each Partner, number of Partnership Units issued to
such Partner, and the Agreed Value of such Partner’s non-cash Capital Contributions as of the date of contribution thereof is set
forth on Exhibit A.
“Agreement” means this Agreement of Limited Partnership, as amended from time to time.
“Aggregate Unpaid Dividend Equivalent Amount” means, with respect to any Partner, an amount determined as of any
date equal to the cumulative amount of any shortfall in paying the full Dividend Equivalent Amount to such Partner pursuant to
Section 5.02(a)(iii) or Section 5.02(a)(iv) during any period prior to the Current Period beginning on the date on which Partnership
Units are issued to Outside Partners under the Contribution Agreement.
“Available Cash” means, for any period, the excess, if any, of (i) the cash receipts of the Partnership or any of its
Subsidiaries (other than Capital Receipts), including amounts withdrawn from reserves, over (ii) the disbursements of cash by the
Partnership and its Subsidiaries (other than distributions to Partners and amounts paid with Capital Receipts), including amounts
2
deposited in reserves. Available Cash for any period shall be determined by the General Partner in its reasonable discretion.
“Capital Account” is defined in Section 4.04.
“Capital Contribution” means the total amount of capital contributed to the Partnership by each Partner. Any reference to
the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest
of such Partner. The paid-in Capital Contribution shall mean the cash amount or the Agreed Value of other assets actually contributed
by each Partner to the capital of the Partnership.
“Capital Receipts” means cash receipts of the Partnership or any of its Subsidiaries from the sale, exchange or other
disposition of any assets of the Partnership or any Subsidiary thereof, including the issuance of any equity interest by the Partnership
or any Subsidiary thereof, or from the incurrence of any Indebtedness by the Partnership or any Subsidiary thereof.
“Cash Amount” means an amount of cash per Partnership Unit equal to the Value of the REIT Shares Amount on the date
of receipt by the General Partner of a Notice of Redemption; provided that, if, during the Restricted Period, the General Partner is
not entitled to satisfy the exercise of the Redemption Right by delivery of REIT Shares pursuant to Section 8.06, the Cash Amount
will equal (i) if there ceased to be Publicly Traded REIT Shares as a result of a Transaction in which the holders of the Common
Stock received cash and other property, the sum of the highest amount of cash and the fair market value of other property (determined
in good faith by the General Partner) received by the holder of one REIT Share in such Transaction, but only if the Specified
Redemption Date with respect to such Partnership Unit is a date that occurs within six (6) months following the date on which the
Transaction has been consummated; or (ii) in all other circumstances, the Value of one Partnership Unit.
“Certificate” means any instrument or document that is required under the laws of the State of Delaware, or any other
jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by
themselves or pursuant to the power-or-attorney granted to the General Partner in Section 8.02) and filed for recording in the
appropriate public offices within the State of Delaware or such other jurisdiction to perfect or maintain the Partnership as a limited
partnership, to effect the admission, withdrawal, or substitution of any Partner of the Partnership, or to protect the limited liability
of the Limited Partners as limited partners under the laws of the State of Delaware or such other jurisdiction.
“Charter” means the Articles of Incorporation of the Company, as amended from time to time.
“Code” means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to
any particular provision of the Code shall mean that provision in the Code at the date hereof and any successor provision of the
Code.
“Commission” means the Securities and Exchange Commission.
“Company” means UDR, Inc., a Maryland corporation.
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“Contribution Agreement” means the Contribution Agreement dated as of June 22, 2015, by and among the United
Dominion Realty, L.P., the Company, Home Properties, L.P., and LSREF4 Lighthouse Acquisitions, LLC.
“Conversion Factor” means 1.0, as adjusted pursuant to Section 8.05(f).
“Current Period” means as of any date the calendar quarter ended most recently prior to such date.
“Current Profit” is defined in Section 5.01(h).
“Dividend Equivalent” for any calendar quarter as to any Partner means the amount of distributions such Partner would
have received for the quarter from REIT Shares if such Partner owned the number of REIT Shares equal to the product to such
Partner’s Partnership Units and the Conversion Factor for the Partnership Record Date pertaining to such quarter; provided, however,
that for purposes of determining any Partner’s Dividend Equivalent for any period for which the General Partner Entity pays a
dividend with respect to REIT Shares in which holders of REIT Shares have an option to elect to receive such dividend in cash or
additional REIT Shares (other than pursuant to a dividend reinvestment program), the amount of distributions such Partner shall be
deemed to have received with respect to such dividend (if such Partner owned the specified number of REIT Shares) shall be equal
to the product of (i) the specified number of REIT Shares deemed to be owned by such Partner, and (ii) the quotient obtained by
dividing (a) the aggregate amount of cash paid by the General Partner Entity in such dividend to all holders of REIT Shares, by (b)
the aggregate number of REIT Shares outstanding as of the close of business on the record date for such dividend, and the Conversion
Factor shall be adjusted in connection with such dividend in the manner provided in Section 8.05(f).
“Event of Bankruptcy” as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt
under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such
Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding;
filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such
Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other
reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or
hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person
indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person
and has not been finally dismissed within 90 days.
“Family Member” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by
blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors,
descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“GAAP” means generally accepted accounting principles in the United States of America that are applicable to the
circumstances as of the date of determination.
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“General Partner” means the Company and any Person who becomes a substitute or additional General Partner as provided
herein, and any of their successors as General Partner. At any time at which the Partnership has two or more General Partners, all
such General Partners shall designate one of such General Partners as managing General Partner and may from time to time designate
a successor managing General Partner and, unless the context otherwise requires, references to the General Partner shall mean the
General Partner at the time so designated as managing General Partner.
“General Partner Entity” means the General Partner; provided that if (i) the common shares (or other comparable equity
interests) of the General Partner are at any time not Publicly Traded and (ii) the common shares (or other comparable equity interests)
of an entity that owns, directly or indirectly, fifty percent (50%) or more of the common shares (or other comparable equity interests)
of the General Partner are Publicly Traded, the term “General Partner Entity” shall refer to such entity whose common shares of
beneficial interest (or other comparable equity securities) are Publicly Traded. If both requirements set forth in clauses (i) and (ii)
above are not satisfied, then the term “General Partner Entity” shall mean the General Partner.
“General Partnership Interest” means a Partnership Interest held by the General Partner that is a general partnership
interest.
“Gross Asset Value” means, as of any date of determination, the aggregate value that would be ascribed to all of the assets
of the Partnership and its Subsidiaries (assuming that such assets were treated as assets of the Company and its consolidated
subsidiaries) determined by the General Partner from time to time in its good faith discretion using principles and methodology
comparable to those used by it in connection with its valuation of the assets of the Company and its subsidiaries.
“Indebtedness” means, as to any Person as of any date of determination, all of the following (without duplication): (a) all
obligations of such Person in respect of money borrowed or the deferred purchase price of property or services (other than trade
debt incurred in the ordinary course of business); (b) all obligations of such Person (other than trade debt incurred in the ordinary
course of business), whether or not for money borrowed (i) represented by notes payable, or drafts accepted, in each case
representing extensions of credit, (ii) evidenced by bonds, debentures, notes or similar instruments, or (iii) constituting purchase
money indebtedness, conditional sales contracts, title retention debt instruments or other similar instruments, upon which interest
charges are customarily paid or that are issued or assumed as full or partial payment for property or services rendered; (c) lease
obligations of such Person that are required to be capitalized and reported as a liability under GAAP; (d) all Indebtedness of other
Persons that such Person has guaranteed or is otherwise recourse to such Person (except for guaranties of customary exceptions for
fraud, misapplication of funds, environmental indemnities, voluntary bankruptcy, collusive involuntary bankruptcy, and other
similar exceptions to non-recourse liability); and (e) all Indebtedness of another Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property or assets owned by such Person,
even though such Person has not assumed or become liable for the payment of such Indebtedness or other payment obligation.
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“Indemnitee” means (i) any Person made a party to a proceeding by reason of such Person’s status as the General Partner
or a director, officer or employee of the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion.
“Limited Partner” means any Person named as a Limited Partner on Exhibit A attached hereto, and any Person who
becomes a Substitute or Additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership.
“Limited Partnership Interest” means the ownership interest of a Limited Partner in the Partnership at any particular time,
including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this
Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement
and of such Act.
“Limited Transferee” shall mean, (i) in the case of a Limited Partner which is a partnership, limited liability company,
joint venture, corporation or other business entity, its partners, owners, shareholders or affiliates thereof, as the case may be, or the
Persons owning the beneficial interests in any of its partners, owners or shareholders or affiliates thereof or (ii) a charitable
organization.
“Minimum Limited Partnership Interest” means the lesser of (i) 1% or (ii) if the total Capital Contributions to the
Partnership exceed $50 million, 1% divided by the ratio of the total Capital Contributions to the Partnership to $50 million; provided,
however, that the Minimum Limited Partnership Interest shall not be less than 0.2% at any time.
“Net Asset Value Ratio” means, as of any date of determination, an amount equal to (i)(A)the Gross Asset Value of the
Partnership and its Subsidiaries as of such date minus (B) the sum of (I) the aggregate principal balance of all outstanding
Indebtedness of the Partnership and its Subsidiaries as of such date, plus (II) the aggregate liquidation preference of all Partnership
Interests issued by the Partnership that have a preference over the Partnership Units issued to the Outside Partners under the
Contribution Agreement, plus (III) the aggregate liquidation preference of all equity interests issued by any Subsidiary of the
Partnership that have a preference over the interests in such Subsidiary held by the Partnership (directly or indirectly), divided by
(ii)(A) if the Redemption Right at such time could be satisfied by delivery of REIT Shares, the aggregate Value, as of such date, of
the number of REIT Shares for which all outstanding Partnership Units held by Limited Partners, excluding any Partnership Units
held by a Limited Partner that is a UDR Partner, could then be redeemed, or (B) if the Redemption Right at such time could not be
satisfied by delivery of REIT Shares, the aggregate Value of all outstanding Partnership Units held by Limited Partners, excluding
any Partnership Units held by a Limited Partner that is a UDR Partner.
“Notice of Redemption” means the Notice of Exercise of Redemption Right substantially in the form attached as Exhibit
B hereto.
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“NYSE” means the New York Stock Exchange and includes any other national securities exchange on which the REIT
Shares are listed at the determination date.
“Offer” is defined in Section 7.01(c).
“Outside Partner” means any Partner other than a UDR Partner.
“Partner” means any General Partner or Limited Partner.
“Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(i). A Partner’s
share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5).
“Partnership” means UDR Lighthouse DownREIT L.P., a Delaware limited partnership.
“Partnership Interest” means an ownership interest in the Partnership held by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.
“Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(d). In accordance with
Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration
other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner’s share of Partnership
Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(l).
“Partnership Record Date” means the record date established by the General Partner for the distribution of cash pursuant
to Section 5.02, which record date shall be the same as the REIT Record Date.
“Partnership Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder. The
allocation of Partnership Units among the Partners shall be as set forth on Exhibit A, as may be amended from time to time.
“Percentage Interest” means at any time the percentage ownership interest in the Partnership of each Partner, as determined
by dividing the Partnership Units owned by such Partner by the total number of Partnership Units outstanding at such time. The
Percentage Interest of each Partner shall be as set forth on Exhibit A, as may be amended from time to time.
“Percentage Interest Adjustment Date” means the effective date of an adjustment of the Partners’ Percentage Interests
pursuant to Section 4.05.
“Person” means any individual, partnership, corporation, joint venture, trust or other entity.
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“Property” means any apartment property or other investment in which the Partnership holds an ownership interest.
“Publicly Traded” means listed or admitted to trading on the NYSE, the NASDAQ Stock Market, any nationally or
internationally recognized stock exchange or any successor to any of the foregoing.
“Redeeming Partner” is defined in Section 8.05(a).
“Redemption Right” is defined in Section 8.05(a).
“Regulations” means the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended
from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date
hereof and any successor provision of the Regulations.
“REIT” means a real estate investment trust under Sections 856 through 860 of the Code.
“REIT Expenses” means (i) costs and expenses relating to the continuity of existence of the Company and its Subsidiaries
(all such entities shall, for purposes of this section, be included within the definition of Company), including, without limitation,
taxes, fees and assessments associated therewith and any costs, expenses or fees payable to any director, officer or employee of the
Company (including, without limitation, any costs of indemnification), (ii) costs and expenses relating to any offer or registration
of REIT Shares or other securities by the Company and all statements, reports, fees and expenses incidental thereto, including,
without limitation, underwriting discounts and selling commissions applicable to any such offer of securities and any costs and
expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof, (iii)
costs and expenses incurred in connection with the repurchase of any securities by the Company, (iv) costs and expenses associated
with the preparation and filing of any periodic or other reports and communications by the Company under federal, state or local
laws or regulations, including filings with the Commission, (v) costs and expenses associated with compliance by the Company
with laws, rules and regulations promulgated by any regulatory body, including the Commission and any securities exchange, (vi)
costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing for compensation for the
employees of the Company, (vii) costs and expenses incurred by the Company relating to any issuance or redemption of Partnership
Interests, and (viii) all other operating or administrative costs incurred by the Company in connection with the ordinary course of
the Company’s or the Partnership’s business (including the business of any Subsidiary thereof).
“REIT Record Date” means the record date established by the General Partner for a distribution to the holders of the REIT
Shares.
“REIT Share” means (i) for so long as the Company’s common stock is Publicly Traded, a share of common stock of the
Company, $.01 par value per share; and (ii) if the Company engages in a Transaction and its common stock ceases to be publicly
traded but
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another real estate investment trust whose common stock is Publicly Traded becomes a General Partner Entity, a share of the
common stock of such real estate investment trust.
“REIT Shares Amount” shall mean a whole number of REIT Shares equal to the product of the number of Partnership
Units offered for redemption by a Redeeming Partner, multiplied by the Conversion Factor as adjusted to and including the Specified
Redemption Date plus cash in lieu of any fractional REIT Shares based on the Value of a REIT Share as of the date of receipt by
the General Partner of a Notice of Redemption; provided that in the event the Company issues to all holders of REIT Shares rights,
options, warrants or convertible or exchangeable securities entitling the stockholders to subscribe for or purchase REIT Shares, or
any other securities or property (collectively, the “rights”), and the rights have not expired at the Specified Redemption Date, then
the REIT Shares Amount shall also include the rights issuable to a holder of the REIT Shares Amount of REIT Shares on the record
date fixed for purposes of determining the holders of REIT Shares entitled to rights.
“Residual Loss” is defined in Section 5.01(h).
“Residual Profit” is defined in Section 5.01(h).
“Restricted Period” shall mean the period commencing on the date Partnership Units are issued to Outside Partners under
the Contribution Agreement and ending on the date which is six (6) months after the earlier to occur of (i) the tenth anniversary
thereof or (ii) the date on which the “Restricted Period” (as such term is defined in the Tax Protection Agreement referenced in the
Contribution Agreement, in each case as amended from time to time) terminates as to all “CIPs” as defined in such Tax Protection
Agreement.
“Securities Act” means the Securities Act of 1933, as amended.
“Service” means the Internal Revenue Service.
“Specified Redemption Date” means (i) with respect to Partnership Units to be redeemed for a Cash Amount, the first
Business Day of the month that is at least 20 business days after the receipt by the General Partner of the Notice of Redemption, as
the same may be extended pursuant to Section 8.05(d) and (ii) with respect to Partnership Units to be redeemed for a REIT Shares
Amount, the fifth Business Day following the date of the General Partner’s notice of its election to purchase such Partnership Units
pursuant to Section 8.05(b).
“Subsidiary” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power
of the voting equity securities (including general partners’ interests) or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
“Substitute Limited Partner” means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03.
“Transaction” is defined in Section 7.01(c).
“Transfer” is defined in Section 9.02(a).
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“UDR Partner” means the Company and any Partner that is an Affiliate of the Company.
“Unit Purchasing UDR Partner” means any UDR Partner that has acquired Partnership Units through the purchase thereof
from a Partner that is not a UDR Partner, to the extent of such Partnership Units held by it.
“Value” means, with respect to any security, the average of the daily market price of such security for the twenty (20)
consecutive trading days immediately preceding the date of such valuation. The market price for each such trading day shall be: (i)
if such security is listed or admitted to trading on any securities exchange or The Nasdaq National Market, the closing price, regular
way, on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, (ii) if such
security is not listed or admitted to trading on any securities exchange or The Nasdaq National Market, the last reported sale price
on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a
recognized quotation source designated by the Company, or (iii) if such security is not listed or admitted to trading on any securities
exchange or The Nasdaq National Market and no such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported by a recognized quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than twenty (20) days prior to the date in question) for which prices have been so reported;
provided, that if there are no bid and asked prices reported during the twenty (20) days prior to the date in question or if the security
consists of Partnership Units during any period in which the REIT Shares are not Publicly Traded, the value of such security shall
be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in
its reasonable judgment, appropriate. In the event that any security includes any additional rights the value of which is not included
within such price, then the value of such rights shall be determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment, appropriate, and included in determining the “Value”
of such security.
ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
2.01 Formation. The Partnership was formed by filing a Certificate of Limited Partnership with the Delaware Secretary of
State on June 26, 2015.
2.02 Name, Office and Registered Agent. The name of the Partnership shall be UDR Lighthouse DownREIT L.P. The
specified office and place of business of the Partnership shall be 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado
80129. The General Partner may at any time change the location of such office, provided the General Partner gives notice to the
Partners of any such change. The name and address of the Partnership’s registered agent is The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801, County of New Castle. The sole duty of the registered agent as such is to forward to
the Partnership any notice that is served on it as registered agent.
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2.03 Partners.
(a)The General Partner of the Partnership is the Company. Its principal place of business shall be the same as that
of the Partnership.
(b)The Limited Partners shall be those Persons identified as Limited Partners on Exhibit A hereto, as amended from
time to time.
2.04 Term and Dissolution.
(a)The term of the Partnership shall continue in full force and effect until the Partnership is dissolved as provided
by law or upon the first to occur of any of the following events:
(i)The occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, death or withdrawal of a General
Partner unless the Partnership is continued pursuant to Section 2.04(c); provided, that if a General Partner is on the date of such
occurrence a partnership, the dissolution of such General Partner as a result of the dissolution, death, withdrawal, removal or Event
of Bankruptcy of a partner in such partnership shall not be an event of dissolution of the Partnership if the business of such General
Partner is continued by the remaining partner or partners, either alone or with additional partners, and such General Partner and such
partners comply with any other applicable requirements of this Agreement;
(ii)The passage of 90 days after the sale or other disposition of all or substantially all of the assets of the Partnership
(provided that if the Partnership receives one or more obligations as consideration for such sale or other disposition, the Partnership
shall continue, unless sooner dissolved under the provisions of this Agreement, until such time as all of such obligations are paid or
satisfied in full);
(iii)The redemption of all Limited Partnership Interests (other than any of such interests held by the Company or any
Subsidiary thereof); or
(iv)The election by the General Partner that the Partnership should be dissolved, which election shall not be made prior to
the expiration of the Restricted Period.
(b)Upon dissolution of the Partnership (unless the Partnership is continued pursuant to Section 2.04(c)) the General
Partner (or its trustee, receiver, successor or legal representative) shall amend or cancel the Certificate and liquidate the Partnership’s
assets and apply and distribute the proceeds thereof in accordance with Section 5.06. Notwithstanding the foregoing, the liquidating
General Partner may either (i) defer liquidation of, or withhold from distribution for a reasonable time, any assets of the Partnership
(including those necessary to satisfy the Partnership’s debts and obligations), or (ii) distribute the assets to the Partners in kind.
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(c)Notwithstanding Section 2.04(a)(i), upon the occurrence of an Event of Bankruptcy as to a General Partner or
the dissolution, death or withdrawal of a General Partner, the Limited Partners, within 90 days after such occurrence, may elect to
continue the Partnership for the balance of the term specified in Section 2.04(a) by selecting, subject to Section 7.02 and any other
provisions of this Agreement, a substitute General Partner by consent of a majority in interest of the Limited Partners. If the Limited
Partners elect to continue the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person
who has acquired an interest of a Partner in the Partnership shall be governed by this Agreement.
(d)The General Partner shall provide written notice to the Limited Partners of an anticipated liquidation and
dissolution of the Partnership at least thirty (30) days prior to the anticipated time at which such liquidation and dissolution will
occur, with the understanding that the Limited Partners shall have the opportunity to exercise their rights of Redemption pursuant
to Section 8.05 prior to such liquidation and dissolution, subject to the restrictions on redemption set forth herein (other than Sections
8.05(c), (d), and (e)) and with the Specified Redemption Date to be not later than the date on which the first liquidating distribution
would be made by the Partnership, notwithstanding any other provision of this Agreement. Such notice shall include a notification
to the effect that a Limited Partner may receive an amount on the liquidation and dissolution that is different, perhaps by a material
amount, from the amount that it would receive upon the Redemption of its Units pursuant to Section 8.05.
2.05 Filing of Certificate and Perfection of Limited Partnership. The General Partner shall execute, acknowledge, record
and file at the expense of the Partnership, the Certificate and any and all amendments thereto and all requisite fictitious name
statements and notices in such places and jurisdictions as may be necessary to cause the Partnership to be treated as a limited
partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts
business.
2.06 Certificates Describing Partnership Units. At the request of a Limited Partner, the General Partner, at its option,
may issue a certificate summarizing the terms of such Limited Partner’s interest in the Partnership, including the number of
Partnership Units owned and the Percentage Interest represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in form and substance as approved by the General Partner, (ii) shall not be negotiable and (iii) shall bear
the following legend:
This certificate is not negotiable. The Partnership Units represented by this certificate are governed by and transferable only
in accordance with the provisions of the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P., as amended from
time to time.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
3.01 Business of the Partnership. The purpose and nature of the business to be conducted by the Partnership is (i) to
conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, provided, however,
that such business shall be limited to and conducted in such a manner as to permit the Company at all times to qualify as a
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REIT, unless the Company otherwise ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii)
to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the Company’s right
in its sole and absolute discretion to cease qualifying as a REIT, the Partners acknowledge that the Company’s current status as a
REIT and the avoidance of income and excise taxes on the Company inures to the benefit of all the Partners and not solely to the
Company. Notwithstanding the foregoing, the Limited Partners acknowledge that the Company may terminate its status as a REIT
under the Code at any time to the full extent permitted by the Charter. Subject to Article XI hereof, the General Partner shall also
be empowered (but shall not be required), at its sole option and election, to do any and all acts and things necessary or prudent to
ensure that the Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 Capital Contributions. The General Partner and the Limited Partners have contributed to the capital of the Partnership
cash or property in an amount or having an Agreed Value set forth opposite their names on Exhibit A, as amended from time to
time.
4.02 Additional Capital Contributions and Issuances of Additional Partnership Interests. Except as provided in this
Section 4.02 or in Section 4.03, the Partners shall have no right or obligation to make any additional Capital Contributions or loans
to the Partnership. The Partners, with the consent of the General Partner, which consent may be withheld in its sole and absolute
discretion, may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests in
respect thereof, in the manner contemplated in this Section 4.02.
(a)Issuances of Additional Partnership Interests. The General Partner is hereby authorized to cause the Partnership
to issue such additional Partnership Interests in the form of Partnership Units for any Partnership purpose at any time or from time
to time, to the Partners (including the General Partner) or to other Persons for such consideration and on such terms and conditions
as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners.
Any additional Partnership Interests issued thereby may be issued in one or more classes, or one or more series of any of such
classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall be determined by the General Partner in its sole and
absolute discretion and without the approval of any Limited Partner, subject to Delaware law, including, without limitation, (i) the
allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to share in Partnership distributions; and (iii) the rights of each such
class or series of Partnership Interests upon dissolution and liquidation of the Partnership. Without limiting the foregoing, the
General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value (as
determined in good faith by the General Partner) to any Person
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other than the General Partner or an Affiliate of the General Partner, so long as the General Partner concludes in good faith that such
issuance is in the best interests of the Company and the Partnership. Upon each issuance of Partnership Units hereunder, the General
Partner shall amend Exhibit A attached hereto to reflect such issuance. Notwithstanding anything to the contrary contained in this
Section 4.02(a), additional Partnership Interests issued to the General Partner or any Affiliate of the General Partner shall be in the
same class and have the same rights as the Partnership Units issued to the UDR Partners pursuant to the Contribution Agreement
and no Subsidiary of the Partnership shall issue any equity interest to the General Partner or any Affiliate of the General Partner
(other than the Partnership).
(b)Certain Deemed Contributions of Proceeds of Issuance of Company Securities. If (i) the Company issues
securities and contributes some or all the proceeds raised in connection with such issuance to the Partnership and (ii) the proceeds
actually received and contributed by the Company to the Partnership are less than the Partnership’s share (as determined by the
General Partner, in its sole and absolute discretion) of the gross proceeds of such issuance as a result of any underwriter’s discount
or other expenses paid or incurred in connection with such issuance, then the Company shall be deemed to have made Capital
Contributions to the Partnership in the aggregate amount of the Partnership’s share of the gross proceeds of such issuance that are
contributed to the Partnership and the Partnership shall be deemed simultaneously to have paid such offering expenses in connection
with the issuance of additional Partnership Units to the Company for such Capital Contributions pursuant to Section 4.02(a). In any
case in which the Company contributes less than all of the proceeds of such issuance to the Partnership, it shall be deemed to have
contributed the gross proceeds of issuance of the number of units of the issued security (or the number of dollars of principal in the
case of debt securities) equal to the quotient of the division of the amount of proceeds contributed by the net proceeds per unit (or
per dollar), and the Partnership shall be deemed to have paid offering expenses equal to the product of such number of units (or
dollars) times the per unit (or per dollar) offering expenses.
(c)Minimum Limited Partnership Interest. In the event that either a redemption pursuant to Section 8.05 or
additional Capital Contributions by the General Partner and any UDR Partners would result in the Limited Partners (other than the
UDR Partners), in the aggregate, owning less than the Minimum Limited Partnership Interest, the General Partner and the Limited
Partners (other than the UDR Partners) shall form another partnership and contribute sufficient Limited Partnership Interests together
with such other Limited Partners so that the Limited Partners (other than the UDR Partners), in the aggregate, own at least the
Minimum Limited Partnership Interest.
4.03 Loans to the Partnership. If the General Partner determines that it is in the best interests of the Company and the
Partnership to provide for additional Partnership funds (“Additional Funds”) for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings or (ii) elect to have the Company or a Subsidiary or
Subsidiaries of the Company loan such Additional Funds to the Partnership. The loans to the Partnership shall be in exchange for
such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion,
all without the approval of any Limited Partners. Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue debt securities for less than fair
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market value (as determined in good faith by the General Partner) to any Person other than the General Partner or an Affiliate of the
General Partner, so long as the General Partner concludes in good faith that such issuance is in the best interests of the Company
and the Partnership.
4.04 Capital Accounts. A separate capital account (a “Capital Account”) shall be established and maintained for each
Partner in accordance with Regulations Section 1.704-l(b)(2)(iv). If (i) a new or existing Partner acquires an additional Partnership
Interest in exchange for more than a de minimis Capital Contribution, (ii) the Partnership distributes to a Partner more than a de
minimis amount of Partnership property as consideration for a Partnership Interest, or (iii) the Partnership is liquidated within the
meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the property of the Partnership to its fair
market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of
the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership’s property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Sections 1.704-l(b)(2)(iv)(f) and (g),
which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in
such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Partners pursuant to
Section 5.01 if there were a taxable disposition of such property for its fair market value (as determined by the General Partner, in
its sole and absolute discretion, and taking into account Section 7701 (g) of the Code) on the date of the revaluation.
4.05 Percentage Interests. If the number of outstanding Partnership Units increases or decreases during a taxable year,
each Partner’s Percentage Interest shall be adjusted by the General Partner effective as of the effective date of each such increase or
decrease to a percentage equal to the number of Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease. If the Partners’ Percentage Interests are adjusted
pursuant to this Section 4.05, the Current Profits and Residual Profits and Losses for the taxable year in which the adjustment occurs
shall be allocated between the several parts of the year (a) beginning on the first day of the year and ending on the next following
Percentage Interest Adjustment Date, (b) beginning on the day following a Percentage Interest Adjustment Date and ending on the
next following Percentage Interest Adjustment Date, and/or (c) beginning on the first day following the last Percentage Interest
Adjustment Date occurring during the year and ending on the last day of the year, as may be appropriate, either (i) as if the taxable
year had ended on the last day of each part or (ii) based on the number of days in each part. The General Partner, in its sole and
absolute discretion, shall determine which method shall be used to allocate Current Profits and Residual Profits and Losses for the
taxable year in which the adjustment occurs. The allocation among the Partners of Current Profits and Residual Profits and Losses
allocated to any part of the year shall be based on the Percentage Interests determined as of the first day of such part.
4.06 No Interest on Contributions. No Partner shall be entitled to interest on its Capital Contribution.
4.07 Return of Capital Contributions. No Partner shall be entitled to withdraw any part of its Capital Contribution or its
Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement. Except as
otherwise provided
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herein, there shall be no obligation to return to any Partner or withdrawn Partner any part of such Partner’s Capital Contribution for
so long as the Partnership continues in existence.
4.08 No Third Party Beneficiary. No creditor or other third party having dealings with the Partnership shall have the right
to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy
hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations
of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership
for any purpose by any creditor or other third party; nor may such rights or obligations be sold, transferred or assigned by the
Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the
Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of
money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the
provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital
Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.01 Allocation of Current Profit and Residual Profit and Loss.
(a)Allocations of Current and Residual Profits. Current and Residual Profits for any fiscal year of the Partnership
shall be allocated in the following order of priority:
(i)First, Current Profits shall be allocated to the Partners in proportion to the amount of cash distributed to each such Partner
pursuant to Section 5.02(a), until such Partners have received cumulative allocations of Current Profits pursuant to this Section
5.01(a)(i) equal to the cumulative cash distributed to such Partners pursuant to Section 5.02(a);
(ii)Second, Residual Profits shall be allocated to the Partners in proportion to, and in the reverse order of, allocations of
Residual Losses pursuant to Section 5.01(b)(i), (ii) and (iii), until the cumulative Residual Profits allocated to such Partners pursuant
to this Section 5.01(a)(ii) equals the cumulative Residual Losses allocated to such Partners pursuant to Section 5.01(b)(i), (ii) and
(iii); and
(iii)Thereafter, Residual Profits shall be allocated to the Partners (i) one percent (1%) to the Outside Partners in proportion
to their respective Percentage Interests and (ii) ninety-nine percent (99%) to the UDR Partners in proportion to their respective
Percentage Interests.
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(b)Allocation of Residual Losses. Residual Losses for any fiscal year of the Partnership shall be allocated in the
following order of priority:
(i)First, to the Partners (i) one percent (1%) to the Outside Partners in proportion to their respective Percentage Interests and
(ii) ninety-nine percent (99%) to the UDR Partners in proportion to their positive Capital Account balances, until the positive Capital
Account balances of the UDR Partners have been eliminated;
(ii)Second, to the Outside Partners in proportion to their positive Capital Account balances, until the positive Capital
Account balances of the Outside Partners have been eliminated; and
Thereafter, to the General Partner.
(c)Minimum Gain Chargeback. Notwithstanding any provision to the contrary, (i) any expense of the Partnership
that is a “nonrecourse deduction” within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in a manner reasonably
determined by the General Partner, (ii) any expense of the Partnership that is a “partner nonrecourse deduction” within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net
decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year,
items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering
rules contained in Regulations Section 1.7042(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section
1.704-2(j). A Partner’s “interest in partnership profits” for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be determined by the General Partner in its reasonable
discretion.
(d)Qualified Income Offset. If a Limited Partner receives in any taxable year an adjustment, allocation, or
distribution described in subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a negative
balance in such Partner’s Capital Account that exceeds the sum of such Partner’s shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner
shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and
manner sufficient to eliminate such negative Capital Account balance as quickly as possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Limited Partner in accordance with this Section
5.01(d), to the extent permitted by Regulations Section 1.704-l(b) and Section 5.01(e), items of expense or loss shall be allocated to
such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(d).
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(e)Capital Account Deficits. Residual Loss shall not be allocated to a Limited Partner to the extent that such
allocation would cause a deficit in such Partner’s Capital Account (after reduction to reflect the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner’s shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain. Any Residual Loss in excess of that limitation shall be allocated to the General Partner. After
the occurrence of an allocation of Residual Loss to the General Partner in accordance with this Section 5.01(e), to the extent
permitted by Regulations Section 1.704-1(b), Current and Residual Profit shall be allocated to such Partner in an amount necessary
to offset the Residual Loss previously allocated to such Partner under this Section 5.01(e).
(f)Curative Allocations. The allocations set forth in Sections 5.01(c), (d) and (e) hereof (the “Regulatory
Allocations”) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections
1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 5.01, the Regulatory Allocations shall be taken into account in
allocating other items of income, gain, loss and deduction among the Partners so that, to the extent possible without violating the
requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory
Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory
Allocations had not occurred.
(g)Allocations Between Transferor and Transferee. If a Partner transfers any part or all of its Partnership Interest,
the distributive shares of the various items of Current Profit and Residual Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the transferee Partner either (i) as if the Partnership’s
fiscal year had ended on the date of the transfer, or (ii) based on the number of days of such fiscal year that each was a Partner
without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the
transferee were Partners. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to
allocate the distributive shares of the various items of Current Profit and Residual Profit and Loss between the transferor and the
transferee Partner.
(h)Definition of Current Profit and Residual Profit and Loss.
(i) “Current Profit” shall mean, for any fiscal year, the net taxable income of the Partnership for such fiscal year, as
determined for federal income tax purposes, as modified by Regulations Section 1.704-1(b)(2)(iv), except that “Current Profit”:
(A)shall not include:
(1)Items of income, gain and expense that are specially allocated pursuant to Section 5.01(c), 5.01(d), 5.01(e) and 5.01(f);
(2)Depreciation and amortization;
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(3)Items of loss from the disposition of Partnership assets; and
(4)Deemed items of gain or loss described in the last sentence of Section 4.04;
(B)shall not exceed the amount necessary to match allocations under Section 5.01(a)(i) with distributions of cash under
Section 5.02(a) and Section 5.03; and
(C)shall not be less than zero.
(ii) “Residual Profit” and “Residual Loss” shall mean, for any fiscal year, the net taxable income or loss, as the case may
be, of the Partnership for such fiscal year, as determined for federal income tax purposes, as modified by Regulations Section 1.704-
1(b)(2)(iv), except that Residual Profit and Residual Loss shall not include:
(A)Items of income, gain and expense that are specially allocated pursuant to Section 5.01(c), 5.01(d), 5.01(e) and 5.01(f);
and
(B)Any items included within the definition of Current Profit for such fiscal year.
(i)Allocations of Tax Items. All allocations of items income, gain, loss, and expense (and all items contained therein)
for federal income tax purposes shall be identical to all allocations of such items set forth in Section 5.01(a) through (g), except as
otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). Except as otherwise provided in the Tax
Protection Agreement being entered into in connection with the Contribution Agreement, the General Partner shall have the authority
to elect the method to be used by the Partnership for allocating items of income, gain, and expense as required by Section 704(c) of
the Code (including a method that may result in a Partner receiving a disproportionately larger share of the Partnership’s tax
depreciation deductions) and such election shall be binding on all Partners.
(j)Timing, Etc. Current Profit, Residual Profit and Residual Loss of the Partnership shall be determined and
allocated with respect to each fiscal year of the Partnership as of the end of each such year. Except as otherwise provided in this
Agreement, an allocation to a Partner of a share of Current Profit, Residual Profit or Residual Loss shall be treated as an allocation
of the same share of each item of income, gain, loss or deduction that is taken into account in computing Current Profit, Residual
Profit or Residual Loss.
5.02 Distribution of Cash.
(a)Except as provided in Section 5.06, the General Partner shall be required to make distributions of Available Cash
pursuant to Sections 5.02(a)(i) through (iv) on a quarterly basis to the Partners who are Partners on the Partnership Record Date
with respect to such quarter. The amount and frequency of the distributions of Available Cash pursuant to
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Section 5.02(a)(v) shall be determined by the General Partner in its sole discretion. Available Cash shall be distributed to the Partners
in the following order of priority:
(i)First, if any Aggregate Unpaid Dividend Equivalent Amounts exists with respect to any Outside Partner, then, such
Aggregate Unpaid Dividend Equivalent Amount shall be calculated separately with respect to each previous calendar quarter, and
the amounts thereof shall distributed to the applicable Outside Partners, in the order in which such Aggregate Unpaid Dividend
Equivalent Amounts have accrued (with the amounts attributable to the earliest calendar quarter being paid first and the amounts
attributable to the most recent calendar quarter being paid last), in proportion to the Partners’ respective Percentage Interests of the
Aggregate Unpaid Divided Equivalent Amounts attributable to each such calendar quarter;
(ii)Second, if any Aggregate Unpaid Dividend Equivalent Amounts exists with respect to any UDR Partner, then, such
Aggregate Unpaid Dividend Equivalent Amount shall be calculated separately with respect to each previous calendar quarter, and
the amounts thereof shall distributed to the applicable UDR Partner, in the order in which such Aggregate Unpaid Dividend
Equivalent Amounts have accrued (with the amounts attributable to the earliest calendar quarter being paid first and the amounts
attributable to the most recent calendar quarter being paid last), in proportion to the Partners’ respective Percentage Interests of the
Aggregate Unpaid Divided Equivalent Amounts attributable to each such calendar quarter;
(iii)Third, for so long as the REIT Shares are Publicly Traded, to the Outside Partners in proportion to their respective
Percentage Interests on the Partnership Record Date for the Current Period, until each Outside Partner has received an amount equal
to its Dividend Equivalent for such Current Period;
(iv)Fourth, for so long as the REIT Shares are Publicly Traded, to the UDR Partners, in proportion to their respective
Percentage Interests on the Partnership Record Date for the Current Period, until each UDR Partner has received an amount equal
to its Dividend Equivalent for such Current Period;
(v)Fifth, (A) for so long as the REIT Shares are Publicly Traded, the remaining Available Cash, to the Partners as follows,
pari passu: (i) one percent (1%) to the Outside Partners in proportion to their respective Percentage Interests on the Partnership
Record Date, and (ii) ninety-nine percent (99%) to the UDR Partners in proportion to their respective Percentage Interests on the
Partnership Record Date; and (B) at such time as the REIT Shares are not Publicly Traded, the remaining Available Cash, to the
Partners in proportion to their respective Percentage Interests on the Partnership Record Date.
The amount and frequency of distributions of any cash other than Available Cash (including, without limitation, Capital
Receipts) shall be determined by the General Partner in its sole discretion and, if distributed, such cash shall be distributed to the
Partners in accordance
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with the provisions of clauses (i) through (v) of this Section 5.02(a) provided that distributions pursuant to clause (v) shall be made
to the Partners in proportion to their respective Percentage Interests on the applicable record date for such distribution regardless of
whether the REIT Shares are then Publicly Traded. If a new or existing Partner acquires an additional Partnership Interest in
exchange for a Capital Contribution on any date other than a REIT Record Date, the cash distribution attributable to such additional
Partnership Interest for the Partnership Record Date following the issuance of such additional Partnership Interest shall be reduced
in the proportion that the number of days that such additional Partnership Interest is held by such Partner bears to the number of
days between such Partnership Record Date and the immediately preceding REIT Record Date.
(b)Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that
it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under
the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445, and 1446 of
the Code. If the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation
or distribution of income to a Partner or its assignee (including by reason of Section 1446 of the Code) and if the amount to be
distributed to the Partner (the “Distributable Amount”) equals or exceeds the amount required to be withheld by the Partnership
(the “Withheld Amount”), the Withheld Amount shall be treated as a distribution of cash to such Partner. If, however, the
Distributable Amount is less than the Withheld Amount, no amount shall be distributed to the Partner, the Distributable Amount
shall be treated as a distribution of cash to such Partner, and the excess of the Withheld Amount over the Distributable Amount shall
be treated as a loan (a “Partnership Loan”) from the Partnership to the Partner on the day the Partnership pays over such excess to
a taxing authority. A Partnership Loan may be repaid, at the election of the General Partner in its sole and absolute discretion, either
(i) through withholding by the Partnership with respect to subsequent distributions to the applicable Partner or assignee, or (ii) at
any time more than twelve (12) months after a Partnership Loan arises, by cancellation of Partnership Units with a value equal to
the unpaid balance of the Partnership Loan (including accrued interest). Any amounts treated as a Partnership Loan pursuant to this
Section 5.02(b) shall bear interest at the lesser of (i) the base rate on corporate loans at large United States money center commercial
banks, as published from time to time in The Wall Street Journal (or an equivalent successor publication), or (ii) the maximum
lawful rate of interest on such obligation, such interest to accrue from the date the Partnership is deemed to extend the loan until
such loan is repaid in full.
(c)In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is
entitled to receive a cash dividend as the holder of record of a REIT Share for which all or part of such Partnership Unit has been or
will be exchanged.
5.03 REIT Distribution Requirements. Notwithstanding anything to the contrary in this Agreement, the General Partner,
if it is not able to borrow money from the Partnership, may cause the Partnership to distribute amounts sufficient to enable the
Company to pay stockholder dividends that will allow the Company to (i) meet its distribution requirement for qualification as a
REIT as set forth in Section 857(a)(1) of the Code and (ii) avoid any federal income or excise tax liability imposed by the Code;
provided, however, that the amounts distributed by the Partnership to the Company pursuant to this Section 5.03 with respect to any
quarterly or annual
21
period shall not be disproportionately greater, in relation to the Company’s Gross Asset Value, than amounts distributed by United
Dominion Realty, L.P. to the Company pursuant to substantially similar provisions of the limited partnership agreement of United
Dominion Realty, L.P. in relation to its gross asset value. For the avoidance of doubt, such distributions may be paid to the Company
and its Subsidiaries, to the extent necessary, prior to distributions being paid pursuant to Section 5.02(a), in which case such
distributions, to the extent so paid, shall correspondingly (subject to this Section 5.03) be treated as advances against future
distributions otherwise payable to the Company and its Subsidiaries pursuant to Section 5.02(a).
5.04 No Right to Distributions in Kind. No Partner shall be entitled to demand property other than cash in connection
with any distributions by the Partnership.
5.05 Limitations on Return of Capital Contributions. Notwithstanding any of the provisions of this Article V, no Partner
shall have the right to receive and the General Partner shall not have the right to make, a distribution that includes a return of all or
part of a Partner’s Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership
liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of
the Partnership’s assets. The provisions of this Section 5.05 shall not be deemed to restrict the ability of the Partnership to pay the
Cash Amount upon any exercise of the Redemption Right.
5.06 Distributions Upon Liquidation.
(a)Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the
Partnership, including any Partner loans, any remaining assets of the Partnership shall be distributed to all Partners with positive
Capital Accounts in accordance with their respective positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made in accordance with Sections 5.01 and 5.02 resulting
from Partnership operations and from all sales and dispositions of all or any part of the Partnership’s assets. Any distributions
pursuant to this Section 5.06 shall be made by the end of the Partnership’s taxable year in which the liquidation occurs (or, if later,
within 90 days after the date of the liquidation). To the extent deemed advisable by the General Partner, appropriate arrangements
(including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or
obligations.
(b)If the General Partner has a negative balance in its Capital Account following a liquidation of the Partnership, as
determined after taking into account all Capital Account adjustments in accordance with Sections 5.01 and 5.02 resulting from
Partnership operations and from all sales and dispositions of all or any part of the Partnership’s assets, the General Partner shall
contribute to the Partnership an amount of cash equal to the negative balance in its Capital Account and such cash shall be paid or
distributed by the Partnership to creditors, if any, and then to the Limited Partners in accordance with Section 5.06(a). Such
contribution by the General Partner shall be made by the end of the Partnership’s taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
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(c)Except as expressly provided in Section 5.06(b), no Partner shall in any event have any obligation to restore to
the Partnership a negative balance in its Capital Account following a liquidation of the Partnership.
5.07 Substantial Economic Effect. It is the intent of the Partners that the allocations of Current Profit and Residual Profit
and Loss under the Agreement have substantial economic effect (or be consistent with the Partners’ interests in the Partnership in
the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted
by the Regulations promulgated pursuant thereto. Article V and other relevant provisions of this Agreement shall be interpreted in
a manner consistent with such intent.
5.08 Restriction on Distributions to UDR Partners. Subject to the provisions of Section 5.03, during the Restricted Period,
the Partnership shall not make any distribution of cash derived from Capital Receipts, or any in-kind distribution of any other assets
of the Partnership to any UDR Partner or redeem any Partnership Interest held by a UDR Partner using Capital Receipts, and neither
the Partnership nor any of its Subsidiaries shall purchase or otherwise acquire any Partnership Interest held by a UDR Partner during
the Restricted Period using Capital Receipts, if and to the extent that, after giving effect to such distribution, redemption or
acquisition, the Net Asset Value Ratio would be less than 2.0. Nothing contained in this Section 5.08 shall limit the funding by the
Partnership of loans or other advances to a UDR Partner.
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
6.01 Management of the Partnership.
(a)Except as otherwise expressly provided in this Agreement, the General Partner shall have full, complete and
exclusive discretion to manage and control the business of the Partnership for the purposes herein stated, and shall make all decisions
affecting the business and assets of the Partnership. Subject to the restrictions specifically contained in this Agreement (including,
without limitation, Sections 5.08 and 6.07), the powers of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i)to acquire, purchase, own, operate, lease and dispose of any real property and any other property or assets, including,
without limitation, equity interests in other REITs, mortgage loans and participations therein, that the General Partner determines
are necessary or appropriate or in the best interests of the business of the Company and the Partnership;
(ii)to construct buildings and make’ other improvements on the properties owned or leased by the Partnership;
(iii)to authorize, issue, sell, redeem or otherwise purchase any Partnership Interests or any securities (including secured and
unsecured debt
23
obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Interests, or
options, rights, warrants or appreciation rights relating to any Partnership Interests) of the Partnership;
(iv)to borrow or lend money, issue or receive evidences of indebtedness in connection therewith, refinance, increase the
amount of, modify, amend or change the terms of, or extend the time for the payment of, any such indebtedness, and secure such
indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership’s assets; without limiting the foregoing, the General
Partner shall be authorized on behalf of the Partnership to lend money to the Company or any Subsidiary thereof, on such terms,
and with or without security, and to refinance, increase the amount of, modify, amend or change the terms of, or extend the time for
the payment of, any such indebtedness, all as the General Partner may determine to be necessary or appropriate or in the best interests
of the business of the Company and the Partnership; provided that, during the Restricted Period, the General Partner shall not have
authority to cause the Partnership nor any Subsidiary thereof to, and none of the Partnership nor any of its Subsidiaries shall, increase
the Indebtedness of the Partnership or its Subsidiaries, issue any Partnership Interests of the Partnership having a preference over
the Partnership Units issued to the Outside Partners under the Contribution Agreement or any equity interests of a Subsidiary of the
Partnership that have a preference over the interests in such Subsidiary held by the Partnership (directly or indirectly), if, after giving
effect to the incurrence of such Indebtedness or the issuance of such preferred Partnership Interests or preferred equity interests, the
Net Asset Value Ratio would be less than 2.0, it being understood that nothing contained in this proviso shall limit the authority of
the General Partner to cause the Partnership or any Subsidiary thereof to incur Indebtedness in an amount necessary to repay or
prepay any then-existing Indebtedness of the Partnership or any Subsidiary thereof or to comply with the obligations of the
Partnership under the Tax Protection Agreement (as defined in the Contribution Agreement);
(v)to guarantee or become a co-maker of indebtedness of the Company or any Subsidiary thereof, refinance, increase the
amount of, modify, amend or change the terms of, or extend the time for the payment of, any such guarantee or indebtedness, and
secure such guarantee or indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership’s assets;
(vi)to use assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with this
Agreement, including, without limitation, payment, either directly or by reimbursement, of all operating costs and general
administrative expenses of the Company, the Partnership, or any Subsidiary of either to third parties or to the Company as set forth
in this Agreement;
(vii)to lease all or any portion of any of the Partnership’s assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion of the Partnership’s assets so leased
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are to be occupied by the lessee, or, in turn, subleased in whole or in part to others, for such consideration and on such terms as the
General Partner may determine;
(viii)to prosecute, defend, arbitrate, or compromise any and all claims or liabilities in favor of or against the Partnership, on
such terms and in such manner as the General Partner may reasonably determine, and similarly to prosecute, settle or defend
litigation with respect to the Partners, the Partnership, or the Partnership’s assets;
(ix)to file applications, communicate, and otherwise deal with any and all governmental agencies having jurisdiction over,
or in any way affecting, the Partnership’s assets or any other aspect of the Partnership business;
(x)to make or revoke any election permitted or required of the Partnership by any taxing authority;
(xi)to maintain such insurance coverage for public liability, fire and casualty, and any and all other insurance for the
protection of the Partnership, for the conservation of Partnership assets, or for any other purpose convenient or beneficial to the
Partnership, in such amounts and such types, as it shall determine from time to time;
(xii)to determine whether or not to apply any insurance proceeds for any property to the restoration of such property or to
distribute the same;
(xiii)to establish one or more divisions of the Partnership, to hire and dismiss employees of the Partnership or any division
of the Partnership, and to engage legal counsel, accountants, consultants, real estate brokers, and other professionals, as the General
Partner may deem necessary or appropriate in connection with the Partnership business, on such terms (including provisions for
compensation and eligibility to participate in employee benefit plans, stock option plans and similar plans funded by the Partnership)
as the General Partner may deem reasonable and proper;
(xiv)to retain other services of any kind or nature in connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xv)to negotiate and conclude agreements on behalf of the Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xvi)to maintain accurate accounting records and to file promptly all federal, state and local income tax returns on behalf of
the Partnership;
(xvii)to distribute Partnership cash or other Partnership assets in accordance with this Agreement;
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(xviii)to form or acquire an interest in, and contribute property to, any further limited or general partnerships, joint ventures
or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of
property to, its Subsidiaries and any other Person in which it has an equity interest from time to time);
(xix)to establish Partnership reserves for working capital, capital expenditures, contingent liabilities, or any other valid
Partnership purpose;
(xx)subject to Article XI, to merge, consolidate or combine the Partnership with or into another Person;
(xxi)subject to Article XI, at the sole option and election of the General Partner, to do any and all acts and things necessary
or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the
Code; and
(xxii)to take such other action, execute, acknowledge, swear to or deliver such other documents and instruments, and
perform any and all other acts that the General Partner deems necessary or appropriate for the formation, continuation and conduct
of the business and affairs of the Partnership (including, without limitation, all actions consistent with allowing the General Partner
at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status) and to possess and enjoy all of
the rights and powers of a general partner as provided by the Act.
(b)Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds
to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds
are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
6.02 Delegation of Authority. The General Partner may delegate any or all of its powers, rights and obligations hereunder,
and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which
Person may, under supervision of the General Partner, perform any acts or services for the Partnership as the General Partner may
approve.
6.03 Indemnification and Exculpation of Indemnitees.
(a)The Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities,
joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising
from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the
operations of the Partnership as set forth in this Agreement in which any Indemnitee may
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be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active
and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. The
termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 6.03(a). The termination of any proceeding by conviction or upon a plea of
nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the
Indemnitee acted in a manner contrary to that specified in this Section 6.03(a). Any indemnification pursuant to this Section 6.03
shall be made only out of the assets of the Partnership.
(b)The Partnership may reimburse an Indemnitee for reasonable expenses incurred by an Indemnitee who is a party
to a proceeding in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by
the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership
as authorized in this Section 6.03 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount
if it shall ultimately be determined that the standard of conduct has not been met.
(c)The indemnification provided by this Section 6.03 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and
shall continue as to an Indemnitee who has ceased to serve in such capacity.
(d)The Partnership may purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as
the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such
Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify
such Person against such liability under the provisions of this Agreement.
(e)For purposes of this Section 6.03, the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or
otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with
respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 6.03; and
actions taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
(f)In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
(g)An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.03 because the
Indemnitee had an interest in the transaction with respect to
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which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(h)The provisions of this Section 6.03 are for the benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit of any other Persons.
6.04 Liability of the General Partner.
(a)Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for
monetary damages to the Partnership or any Partners for losses sustained or liabilities incurred as a result of errors in judgment or
of any act or omission if the General Partner acted in good faith. The General Partner shall not be in breach of any duty that the
General Partner may owe to the Limited Partners or the Partnership or any other Persons under this Agreement or of any duty stated
or implied by law or equity provided the General Partner, acting in good faith, abides by the terms of this Agreement.
(b)The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership, the
Company and the Company’s stockholders collectively, that the General Partner is under no obligation to consider the separate
interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or the tax consequences of
some, but not all, of the Limited Partners) in deciding whether to cause the Partnership to take (or decline to take) any actions. In
any case in which the General Partner determines in good faith that the interests of the Limited Partners and the General Partner’s
stockholders may conflict, the Limited Partners further acknowledge and agree that the General Partner shall be deemed to have
discharged its fiduciary duties to the Limited Partners by discharging such duties to the General Partner’s stockholders. The General
Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners
in connection with any such decisions, provided that the General Partner has acted in good faith.
(c)Subject to its obligations and duties as General Partner set forth in Section 6.01, the General Partner may exercise
any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by
or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent
appointed by it in good faith.
(d)Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf
of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good
faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Company to continue to
qualify as a REIT or (ii) subject to the limitations set forth in Section 5.03, to prevent the Company from incurring any taxes under
Section 857, Section 4981, or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.
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(e)Any amendment, modification or repeal of this Section 6.04 or any provision hereof shall be prospective only
and shall not in any way affect the limitations on the General Partner’s liability to the Partnership and the Limited Partners under
this Section 6.04 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or
be asserted.
6.05 Partnership Expenses. In addition to the expenses that are directly attributable to the Partnership, the Partnership shall
pay the REIT Expenses that are allocable to the Partnership. The General Partner, in its sole and absolute discretion, shall determine
what portion of the REIT Expenses are allocable to the Partnership. If any REIT Expenses determined by the General Partner to be
allocable to the Partnership are paid by the General Partner, the General Partner shall be reimbursed by the Partnership therefor.
6.06 Outside Activities. The Partners and any officer, director, employee, agent, trustee, Affiliate, Subsidiary, or
stockholder of any Partner shall be entitled to and may have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities substantially similar or identical to those of the Partnership.
Neither the Partnership nor any of the Partners nor any other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any such business ventures, interests or activities, and the Partners shall have no
obligation pursuant to this Agreement to offer any interest in any such business ventures, interests and activities to the Partnership
or any Partner, even if such opportunity is of a character which, if presented to the Partnership or any Partner, could be taken by
such Person.
6.07 Employment or Retention of Affiliates.
(a)Any Affiliate of the General Partner may be employed or retained by the Partnership or any of its Subsidiaries
and may otherwise deal with the Partnership or any of its Subsidiaries (whether as a buyer, lessor, lessee, manager, furnisher of
goods or services, broker, agent, lender or otherwise) and may receive from the Partnership or any of its Subsidiaries any
compensation, price, or other payment therefor, and the Partnership and its Subsidiaries may make loans to, incur Indebtedness to,
guarantee the Indebtedness or other obligations of, or enter into any other transaction with the General Partner and its Affiliates,
upon terms that the General Partner determines in good faith to be fair and reasonable.
(b)The Partnership may lend or contribute to its Subsidiaries or other Persons in which it has an equity investment,
and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of
the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person.
(c)The Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities
in which it is or thereby becomes a participant upon such terms and subject to such conditions as the General Partner deems are
consistent with this Agreement and applicable law.
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6.08 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or
intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the
name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates
of the General Partner.
ARTICLE VII
CHANGES IN GENERAL PARTNER AND THE COMPANY
7.01 Transfer of a General Partner’s Partnership Interest; Transactions Involving the Company.
(a)Except as provided in Section 7.01(c), 7.01(d) or 7.03(a), a General Partner shall not transfer all or any portion
of its General Partnership Interest or withdraw as General Partner.
(b)Except as provided in Section 7.01(c) or 7.01(d), the General Partner (or all General Partners if at any time there
are two or more General Partners) and the UDR Partners will at all times own in the aggregate at least a 1% Percentage Interest.
(c)Except as otherwise provided in Section 7.01(d), the Company shall not merge, consolidate or otherwise combine
with or into another Person or sell all or substantially all of its assets (other than in connection with a change in the Company’s state
of incorporation or organizational form) (a “Transaction”), unless one of the following conditions is met:
(i)the consent of Limited Partners (other than the Company or any Subsidiary of the Company) holding more than 50% of
the Percentage Interests of the Limited Partners (other than those held by the Company or any Subsidiary of the Company) is
obtained;
(ii)the Transaction also includes a merger, consolidation or combination of the Partnership or sale of substantially all of the
assets of the Partnership or other transaction as a result of which all Limited Partners (other than the Company or any Subsidiary)
will receive for each Partnership Unit an amount of cash, securities, or other property (or a partnership interest or other security
readily convertible into such cash, securities, or other property) no less than the product of the Conversion Factor and the greatest
amount of cash, securities or other property (expressed as an amount per REIT Share) paid in the Transaction in consideration for
REIT Shares, provided that if, in connection with the Transaction, a purchase, tender or exchange offer (“Offer”) shall have been
made to and accepted by the holders of more than 50 percent of the outstanding REIT Shares, all Limited Partners (other than the
Company or any Subsidiary) will receive no less than the amount of cash and the fair market value of securities or other consideration
that they would have received had they (A) exercised their Redemption Right and (B) sold, tendered or exchanged pursuant to the
Offer the
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REIT Shares received upon exercise of the Redemption Right immediately prior to the expiration of the Offer;
(iii)the Company is the surviving entity in the Transaction and either (A) the holders of REIT Shares do not receive cash,
securities, or other property in the Transaction or (B) all Limited Partners (other than the Company or any Subsidiary) receive an
amount of cash, securities, or other property (expressed as an amount per Partnership Unit) that is no less than the product of the
Conversion Factor and the greatest amount of cash, securities, or other property (expressed as an amount per REIT Share) received
in the Transaction by any holder of REIT Shares; or
(iv)the Company merges, consolidates, or combines with or into another entity and, immediately after such merger, (A)
substantially all of the assets of the surviving entity, other than Partnership Units and the ownership interests in any wholly-owned
Subsidiaries held by the Company, are contributed to the Partnership as a Capital Contribution in exchange for Partnership units
with a fair market value equal to the value of the assets so contributed as determined pursuant to Section 704(b) of the Code, (B)
any successor or surviving entity expressly agrees to assume all obligations of the Company hereunder, and (C) the Conversion
Factor is adjusted appropriately to reflect the ratio at which REIT Shares are converted into shares of the surviving entity.
The General Partner shall give the Limited Partners notice of any Transaction at least 20 business days prior to the effective date of
such Transaction, provided, however, that the General Partner need not give any such notice prior to the date on which the holders
of REIT Shares are first notified of such Transaction by the Company.
(d)Notwithstanding Sections 7.01(a), 7.01(b) and 7.01(c),
(i)a General Partner may transfer all or any portion of its General Partnership Interest to (A) a wholly-owned Subsidiary of
such General Partner or (B) the owner of all of the ownership interests of such General Partner, and following a transfer of all of its
General Partnership Interest, may withdraw as General Partner; and
(ii)the Company may engage in a Transaction not required by law or by the rules of any national securities exchange on
which the REIT Shares are listed to be submitted to the vote of the holders of the REIT Shares and the General Partner shall not be
required to give notice to the Limited Partners of any such Transaction as provided by Section 7.01(c).
(e)Notwithstanding Sections 7.01(a), 7.01(b), 7.01(c), and 7.01(d), the Company shall not engage in any transaction,
other than a Transaction that complies with the requirements of Section 7.01(c), that results in the Company no longer being the
General Partner Entity.
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7.02 Admission of a Substitute or Additional General Partner. A Person shall be admitted as a substitute or additional General
Partner of the Partnership only if the following terms and conditions are satisfied:
(a)the Person to be admitted as a substitute or additional General Partner shall have accepted and agreed to be bound
by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as
may be required or appropriate in order to effect the admission of such Person as a General Partner, and a certificate evidencing the
admission of such Person as a General Partner shall have been filed for recordation and all other actions required by Section 2.05 in
connection with such admission shall have been performed;
(b)if the Person to be admitted as a substitute or additional General Partner is a corporation, a partnership, a limited
liability company or other entity it shall have provided the Partnership with evidence satisfactory to counsel for the Partnership of
such Person’s authority to become a General Partner and to be bound by the terms and provisions of this Agreement; and
(c)counsel for the Partnership shall have rendered an opinion (relying on such opinions from other counsel in any
state or any other jurisdiction as may be necessary) that the admission of the person to be admitted as a substitute or additional
General Partner is in conformity with the Act, and that none of the actions taken in connection with the admission of such Person
as a substitute or additional General Partner will cause (i) the Partnership to be classified other than as a partnership for federal
income tax purposes, or (ii) the loss of any Limited Partner’s limited liability.
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner.
(a)Upon the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section
7.04(a) hereof) or the withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of
such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by
the remaining partner or partners), the Partnership shall be dissolved and terminated unless the Partnership is continued pursuant to
Section 7.03(b) hereof. The merger of the General Partner with or into any entity that is admitted as a substitute or successor General
Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner.
(b)Following the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section
7.04(a) hereof) or the withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of
such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by
the remaining partner or partners), the Limited Partners, within 90 days after such occurrence, may elect to continue the business of
the Partnership for the balance of the term specified in Section 2.04 hereof by selecting, subject
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to Section 7.02 hereof and any other provisions of this Agreement, a substitute General Partner by consent of the Limited Partners
holding more than 50% of the Percentage Interests of the Limited Partners. If the Limited Partners elect to continue the business of
the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person who has acquired an
interest of a Partner in the Partnership shall be governed by this Agreement.
7.04 Removal of a General Partner.
(a)Upon the occurrence of an Event of Bankruptcy as to, or the dissolution of, a General Partner, such General
Partner shall be deemed to be removed automatically; provided, however, that if a General Partner is on the date of such occurrence
a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnership shall be
deemed not to be a dissolution of the General Partner if the business of such General Partner is continued by the remaining partner
or partners. The Limited Partners may not remove the General Partner, with or without cause.
(b)If a General Partner has been removed pursuant to this Section 7.04 and the Partnership is continued pursuant to
Section 7.03 hereof, such General Partner shall promptly transfer and assign its General Partnership Interest in the Partnership (i) to
the substitute General Partner approved by the Limited Partners in accordance with Section 7.03(b) hereof and otherwise admitted
to the Partnership in accordance with Section 7.02 hereof. At the time of assignment, the removed General Partner shall be entitled
to receive from the substitute General Partner the fair market value of the General Partnership Interest of such removed General
Partner as reduced by any damages caused to the Partnership by such General Partner. Such fair market value shall be determined
by an appraiser mutually agreed upon by the General Partner and a majority in interest of the Limited Partners within 10 days
following the removal of the General Partner. In the event that the parties are unable to agree upon an appraiser, the General Partner
and a majority in interest of the Limited Partners each shall select an appraiser, each of which appraisers shall complete an appraisal
of the fair market value of the General Partner’s General Partnership Interest within 30 days of the General Partner’s removal, and
the fair market value of the General Partner’s General Partnership Interest shall be the average of the two appraisals; provided,
however, that if the higher appraisal exceeds the lower appraisal by more than 20% of the amount of the lower appraisal, the two
appraisers, no later than 40 days after the removal of the General Partner, shall select a third appraiser who shall complete an
appraisal of the fair market value of the General Partner’s General Partnership Interest no later than 60 days after the removal of the
General Partner. In such case, the fair market value of the General Partner’s General Partnership Interest shall be the average of the
two appraisals closest in value.
(c)The General Partnership Interest of a removed General Partner, during the time after default until transfer under
Section 7.04(b), shall be converted to that of a special Limited Partner, providing, however, such removed General Partner shall not
have any rights to participate in the management and affairs of the Partnership, and shall not be entitled to any portion of the income,
expenses, gains, losses, distributions or allocations, as the case may be, payable or allocable to the Limited Partners as such. Instead,
such removed General Partner shall receive and be entitled to retain only distributions or allocations of such items which it would
have been entitled to receive in its capacity as General Partner, until the transfer is effective pursuant to Section 7.04(b).
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(d)All Partners shall have given and hereby do give such consents, shall take such actions and shall execute such
documents as shall be legally necessary and sufficient to effect all the foregoing provisions of this Section 7.04.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.01 Management of the Partnership. The Limited Partners shall not participate in the management or control of
Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the
Partnership, such powers being vested solely and exclusively in the General Partner.
8.02 Power of Attorney. Each Limited Partner hereby irrevocably appoints the General Partner its true and lawful attorney-
in-fact, who may act for each Limited Partner and in its name, place and stead, and for its use and benefit, to sign, acknowledge,
swear to, deliver, file and record, at the appropriate public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement and the Act in accordance
with their terms, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of
the Limited Partner, or the transfer by the Limited Partner of any part or all of its Partnership Interest.
8.03 Limitation on Liability of Limited Partners. No Limited Partner shall be liable for any debts, liabilities, contracts or
obligations of the Partnership. A Limited Partner shall be liable to the Partnership only to make payments of its Capital Contribution,
if any, as and when due hereunder. After its Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required
by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership.
Notwithstanding the foregoing provisions of this Section 8.03, a Limited Partner shall be liable to the Partnership or to its lenders
to the extent set forth in any guarantee of Partnership debt or in any agreement to contribute capital to the Partnership in connection
with any Partnership debt, in each case only to the extent so agreed by such Limited Partner in such guarantee or contribution
agreement and consented to by the General Partner.
8.04 Ownership by Limited Partner of Corporate General Partner or Affiliate. No Limited Partner shall at any time,
either directly or indirectly, own any stock or other interest in the General Partner or in any Affiliate thereof, if such ownership by
itself or in conjunction with other stock or other interests owned by other Limited Partners would, in the opinion of counsel for the
Partnership, jeopardize the classification of the Partnership as a partnership for federal income tax purposes. The General Partner
shall be entitled to make such reasonable inquiry of the Limited Partners as is required to establish compliance by the Limited
Partners with the provisions of this Section.
8.05 Redemption Right.
(a)Subject to Sections 8.05(b), 8.05(c), 8.05(d), and 8.05(e), and the provisions of any agreement between the
Partnership and any Limited Partner with respect to
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Partnership Units held by such Limited Partners, such Limited Partner, but not any UDR Partner other than a Unit Purchasing UDR
Partner, shall have the right (the “Redemption Right”) to require the Partnership to redeem on a Specified Redemption Date, all or
a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in the form of the Cash Amount
to be paid by the Partnership, provided, that such Partnership Units (other than the Partnership Units acquired from a decedent) shall
have been outstanding for at least one year. The Redemption Right shall be exercised pursuant to a Notice of Redemption delivered
to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Redemption Right (the
“Redeeming Partner”); provided, however, that the Partnership shall not be obligated to satisfy such Redemption Right if the
General Partner elects to purchase the Partnership Units subject to the Notice of Redemption pursuant to Section 8.05(b); and
provided, further, that no Limited Partner may deliver more than two Notices of Redemption during each calendar year. A Limited
Partner may not exercise the Redemption Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than
1,000 Partnership Units, all of the Partnership Units held by such Partner. Except as otherwise provided in Section 8.05(h), the
Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with
respect to Partnership Units if the record date for such distribution is on or after the Specified Redemption Date.
(b)Notwithstanding the provisions of Section 8.05(a) and subject to Section 8.06, a Limited Partner that exercises
the Redemption Right shall be deemed to have offered to sell the Partnership Units described in the Notice of Redemption to the
General Partner, and the General Partner may, in its sole and absolute discretion but subject to the last sentence of this subsection
(b), elect to purchase directly and acquire such Partnership Units by paying to the Redeeming Partner either the Cash Amount or
the REIT Shares Amount, as elected by the General Partner (in its sole and absolute discretion), on the Specified Redemption Date,
whereupon the General Partner shall acquire the Partnership Units offered for redemption by the Redeeming Partner and shall be
treated for all purposes of this Agreement as the owner of such Partnership Units. If, unless prohibited by the provisions of Section
8.06, the General Partner shall elect to exercise its right to purchase Partnership Units under this Section 8.05(b) with respect to a
Notice of Redemption, it shall so notify the Redeeming Partner within five Business Days after the receipt by the General Partner
of such Notice of Redemption. Such notice shall indicate whether the General Partner will pay the Cash Amount or the REIT Shares
Amount. Unless the General Partner (in its sole and absolute discretion) shall exercise its right to purchase Partnership Units from
the Redeeming Partner pursuant to this Section 8.05(b), the General Partner shall not have any obligation to the Redeeming Partner
or the Partnership with respect to the Redeeming Partner’s exercise of the Redemption Right. In the event the General Partner shall
exercise its right to purchase Partnership Units with respect to the exercise of a Redemption Right in the manner described in the
first sentence of this Section 8.05(b), the Partnership shall have no obligation to pay any amount to the Redeeming Partner with
respect to such Redeeming Partner’s exercise of such Redemption Right (unless the General Partner shall default in its obligation
to deliver the REIT Shares Amount), and each of the Redeeming Partner, the Partnership, and the General Partner shall treat the
transaction between the General Partner and the Redeeming Partner for federal income tax purposes as a sale of the Redeeming
Partner’s Partnership Units to the General Partner. Each Redeeming Partner agrees to execute such
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documents as the Partnership may reasonably require in connection with the issuance of REIT Shares upon exercise of the
Redemption Right.
(c)Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a Limited Partner shall not be entitled to exercise
the Redemption Right if the delivery of REIT Shares to such Partner on the Specified Redemption Date by the Company pursuant
to Section 8.05(b) (regardless of whether or not the Company would in fact exercise its rights under Section 8.05(b)) would (i) result
in REIT Shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), (ii) result in the
Company being “closely held” within the meaning of Section 856(h) of the Code, (iii) cause the Company to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the Company’s, the Partnership’s or a Subsidiary’s real
property, within the meaning of Section 856(d)(2)(B) of the Code, (iv) in the good faith opinion of the Board of Directors of the
Company, otherwise disqualify the Company as a REIT, or (v) in the opinion of counsel for the Company, constitute or result in a
violation of Section 5 of the Securities Act, or cause the acquisition of REIT Shares by such Partner to be “integrated” with any
other distribution of REIT Shares for purposes of complying with the registration provisions of the Securities Act. The Company,
in its sole and absolute discretion, may waive the restriction on redemption set forth in this Section 8.05(c); provided, however, that
in the event such restriction is waived, the Redeeming Partner shall be paid the Cash Amount by the Partnership.
(d)Any Cash Amount to be paid by the Partnership to a Redeeming Partner pursuant to Section 8.05(a), and any
Cash Amount or REIT Shares Amount to be paid by the General Partner to a Redeeming Partner pursuant to Section 8.05(b), shall
be paid within 20 Business Days after the initial date of receipt by the General Partner of the Notice of Redemption relating to the
Partnership Units to be redeemed; provided, however, that such 20 Business Day period may be extended for up to an additional
180-day period to the extent required for the Company to issue and sell securities the proceeds of which will be contributed to the
Partnership to provide cash for payment of the Cash Amount. Notwithstanding the foregoing, the General Partner agrees to use its
best efforts to cause the closing of the acquisition of redeemed Partnership Units hereunder to occur as quickly as reasonably
possible.
(e)Notwithstanding any other provision of this Agreement, the General Partner may place appropriate restrictions
on the ability of the Limited Partners to exercise their Redemption Rights as and if deemed necessary, at the sole option and election
of the General Partner, to ensure that the Partnership does not constitute a “publicly traded partnership” under Section 7704 of the
Code. If and when the General Partner determines that imposing such restrictions is necessary, the General Partner shall give prompt
written notice thereof to each of the Limited Partners, which notice shall be accompanied by a copy of an opinion of counsel to the
Partnership which states that, in the opinion of such counsel, such restrictions are necessary in order to avoid the Partnership being
treated as a “publicly traded partnership” under Section 7704 of the Code.
(f)The Conversion Factor shall be adjusted from time to time as follows:
(i)In the event that the Company (A) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes
a distribution to all holders
36
of its outstanding REIT Shares in REIT Shares, (B) subdivides its outstanding REIT Shares, or (C) combines its outstanding REIT
Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend,
distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination
has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the
above assumption) issued and outstanding on such date; provided, however, that notwithstanding the foregoing, if the Company
declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding
REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares (including a dividend in which
stockholders may elect to receive all or a portion of such dividend in cash (other than pursuant to a dividend reinvestment program)),
no adjustment shall be made if, promptly thereafter, with respect to any dividend or distribution with respect to REIT Shares, the
Partnership pays a distribution with respect to each Partnership Unit consisting of a number of Partnership Units (or fraction thereof)
equal to the product of (i) the quotient obtained by dividing (a) the aggregate number of REIT Shares paid by the Company as a
dividend to all stockholders, by (b) the aggregate number of REIT Shares outstanding as of the close of business on the record date
for such dividend, and (ii) the number of REIT Shares for which such Partnership Unit is then redeemable pursuant to Section 8.05.
(ii)In the event that the Company declares or pays a dividend or other distribution on its outstanding REIT Shares (other
than (a) ordinary cash dividends or (b) dividends payable in REIT Shares that give rise to an adjustment in the Conversion Factor
under subsection (i) hereof) and the Value of the REIT Shares on the first (1st) trading day following the record date (“Record Date”)
for such dividend or distribution (the “Post-Distribution Value”) is less than the Value of the REIT Shares on the Business Day
immediately preceding such Record Date (the “Pre-Distribution Value”), then the Conversion Factor in effect after the Record
Date shall be adjusted by multiplying the Conversion Factor in effect prior to the Record Date by a fraction, the numerator of which
is the Pre-Distribution Value and the denominator of which is the Post-Distribution Value, provided. however, that no adjustment
shall be made if (a) with respect to any cash dividend or distribution with respect to REIT shares, the Partnership distributes with
respect to each Partnership Unit an amount equal to the amount of such dividend or distribution multiplied by the Conversion Factor
or (b) with respect to any dividend or distribution of securities or property other than cash, the Partnership distributes with respect
to each Partnership Unit an amount of securities or other property equal to the amount distributed with respect to each REIT share
multiplied by the Conversion Ratio or a partnership interest or other security readily convertible into such securities or other
property.
37
(iii)Any adjustment to the Conversion Factor shall become effective immediately after the effective date of any of the events
described in subsections (i) and (ii), retroactive to the record date, if any, for such event, provided, however, that if the Partnership
receives Notice of Redemption after the record date, but prior to the payment date or effective date, of any dividend, distribution,
subdivision or combination referred to in subsection (i) or (ii), the Conversion Factor shall be determined as if the Company had
received the Notice of Exchange immediately prior to the record date for such dividend, distribution, subdivision or combination.
(iv)If the Company or any other entity shall cease to be the General Partner Entity (the “Predecessor Entity”) in a
Transaction that complies with the requirements of Section 7.01(c) and another entity that is a real estate investment trust whose
common stock is Publicly Traded shall become the General Partner Entity (the “Successor Entity”), the Conversion Factor shall
be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which is the Value of one share of common stock
of the Predecessor Entity, determined as of the date when the Successor Entity becomes the General Partner Entity, and the
denominator of which is the Value of one share of common stock of the Successor Entity, determined as of that same date, except
in any case where substantially concurrently with the consummation of such Transaction the Partnership shall merge with a successor
entity that is affiliated with the Successor Entity in accordance with the provisions of Section 7.01(c) and the Outside Partners shall
be entitled to receive in connection with such merger interests or units in such successor entity with respect to which the Outside
Partners have rights of redemption in which the value of each such interest or unit to be redeemed shall be determined in a manner
that is calculated by reference to the value of one share of the Publicly Traded common stock of the Successor Entity, in which case
the Conversion Factor shall thereafter be 1.0 until such time as it may be adjusted pursuant to this Section 8.05(f). If any shareholders
of the Predecessor Entity will receive consideration in connection with the Transaction in which the Successor Entity becomes the
General Partner Entity, the numerator in the fraction described above for determining the adjustment to the Conversion Factor (that
is, the Value of one share of common stock of the Predecessor Entity) shall be the sum of the greatest amount of cash and the fair
market value (as determined in good faith by the General Partner) of any securities and other consideration that the holder of one
share of common stock of the Predecessor Entity could have received in such Transaction (determined without regard to any
provisions governing fractional shares).
8.06 Requirement that REIT Shares be Publicly Traded; Securities Act Registration of REIT Shares. The General
Partner shall not be entitled to acquire a Redeeming Partner’s Partnership Units by paying to such Partner the REIT Shares Amount
unless there are REIT Shares, as defined, that are Publicly Traded. The REIT Shares issued to the Redeeming Partner if and to the
extent provided in the Registration Rights Agreement (if any) applicable to such Redeeming Partner shall be registered under the
Securities Act and/or entitled to rights to Securities Act registration.
38
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 Purchase for Investment.
(a)Each Limited Partner hereby represents and warrants to the General Partner and to the Partnership that the
acquisition of his Partnership Interest is made as a principal for his account for investment purposes only and not with a view to the
resale or distribution of such Partnership Interest.
(b)Each Limited Partner agrees that such Limited Partner will not sell, assign or otherwise transfer such Limited
Partner’s Partnership Interest or any fraction thereof, whether voluntarily or by operation of law or at judicial sale or otherwise, to
any Person who does not make the representations and warranties to the General Partner set forth in Section 9.01(a) above and
similarly agree not to sell, assign or transfer such Partnership Interest or fraction thereof to any Person who does not similarly
represent, warrant and agree.
9.02 Restrictions on Transfer of Limited Partnership Interests.
(a)Except as otherwise provided in this Article IX, no Limited Partner may offer, sell, assign, hypothecate, pledge
or otherwise transfer his Limited Partnership Interest, in whole or in part, whether voluntarily or by operation of law or at judicial
sale or otherwise (collectively, a “Transfer”) without the written consent of the General Partner, which consent may be withheld in
the sole and absolute discretion of the General Partner, provided that the General Partner shall not unreasonably withhold its consent
to a Transfer by a Limited Partner to a Limited Transferee. The General Partner may require, as a condition of any Transfer, that the
transferor assume all costs incurred by the Partnership in connection therewith.
(b)No Limited Partner may effect a Transfer of its Limited Partnership Interest, in whole or in part, if, in the opinion
of legal counsel for the Partnership, such proposed Transfer would require the registration of the Limited Partnership Interest under
the Securities Act or would otherwise violate any applicable federal or state securities or blue sky law (including investment
suitability standards).
(c)No Transfer by a Limited Partner of its Partnership Units, in whole or in part, may be made to any Person if (i)
in the opinion of counsel for the Partnership, the Transfer would result in the Partnership’s being treated as an association taxable
as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the opinion of
counsel for the Partnership, the Transfer would adversely affect the ability of the Company to continue to qualify as a REIT or
subject the Company to any additional taxes under Section 857 or Section 4981 of the Code, or (iii) such Transfer is effectuated
through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of
Section 7704 of the Code, or such Transfer otherwise would create, in the opinion of counsel to the Partnership, a material risk that
the Partnership would be treated as a “publicly traded partnership” under Section 7704 of the Code.
39
(d)No transfer of any Partnership Units may be made to a lender to the Partnership or any Person who is related
(within the meaning of Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a nonrecourse
liability (within the meaning of Regulations Section 1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to such consent the lender will be required to enter into an
arrangement with the Partnership and the General Partner to exchange or redeem for the Cash Amount any Partnership Units in
which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the Code.
(e)Section 9.02(a) shall not apply to any Transfer by a Limited Partner pursuant to the exercise of its Redemption
Right under Section 8.05 hereof.
(f)Any Transfer in contravention of any of the provisions of this Article IX shall be void and ineffectual and shall
not be binding upon, or recognized by, the Partnership.
(g)Notwithstanding Section 9.02(a), but subject to Sections 9.02(b), (c), and (d), a Limited Partner may transfer,
with or without the consent of the General Partner, all or a portion of its Limited Partnership Interest (i) in the case of a Limited
Partner who is an individual, to a member of his Immediate Family, any trust formed for the benefit of himself and/or members of
his Immediate Family, or any partnership, limited liability company, joint venture, corporation or other business entity comprised
only of himself and/or members of his Immediate Family and entities the ownership interests in which are owned by or for the
benefit of himself and/or members of his Immediate Family, (ii) in the case of a Limited Partner which is a trust, to the beneficiaries
of such trust, (iii) pursuant to applicable laws of descent or distribution, (iv) to another Limited Partner, and (v) pursuant to a grant
of security interest or other encumbrance thereof effectuated in a bona fide pledge transaction with a bona fide financial institution
as a result of the exercise of remedies related thereto, subject to the provisions of Section 9.02(d) hereof. . A trust or other entity
will be considered formed “for the benefit” of a Limited Partner’s Immediate Family even though some other Person has a remainder
interest under or with respect to such trust or other entity. As used herein, the term “Immediate Family” means with respect to any
natural Person, such natural Person’s spouse, parents, descendants, nephews, nieces, brothers, and sisters.
9.03 Admission of Substitute Limited Partner.
(a)Subject to the other provisions of this Article IX, an assignee of the Limited Partnership Interest of a Limited
Partner (which shall be understood to include any purchaser, transferee, donee, or other recipient of any disposition of such Limited
Partnership Interest) shall be deemed admitted as a Limited Partner of the Partnership only upon the satisfactory completion of the
following:
(i)The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a
counterpart or an amendment thereof, including a revised Exhibit A, and such other documents or
40
instruments as the General Partner may require in order to effect the admission of such Person as a Limited Partner.
(ii)To the extent required, an amended Certificate evidencing the admission of such Person as a Limited Partner shall have
been signed, acknowledged and filed for record in accordance with the Act.
(iii)The assignee shall have delivered a letter containing the representation set forth in Section 9.01(a) and the agreement
set forth in Section 9.01(b).
(iv)If the assignee is a corporation, partnership, limited liability company or other entity, or a trust, the assignee shall have
provided the General Partner with evidence satisfactory to counsel for the Partnership of the assignee’s authority to become a
Limited Partner under the terms and provisions of this Agreement.
(v)The assignee shall have executed a power of attorney containing the terms and provisions set forth in Section 8.02.
(vi)The assignee shall have paid all reasonable legal fees of the Partnership and the General Partner and filing and
publication costs in connection with its substitution as a Limited Partner.
(vii)The assignee has obtained the prior written consent of the General Partner to its admission as a Substitute Limited
Partner, which consent may be given or denied in the exercise of the General Partner’s sole and absolute discretion, unless under
Section 9.02(g) the consent of the General Partner is not required under Section 9.02(a), in which case the consent of the General
Partner under this Section 9.03(a)(vii) shall not be required provided that the other applicable conditions to such transfer have been
satisfied.
(b)For the purpose of allocating Current Profits and Residual Profits and Losses and distributing cash received by
the Partnership, a Substitute Limited Partner shall be treated as having become, and appearing in the records of the Partnership as,
a Partner upon the filing of the Certificate described in Section 9.03(a)(ii) or, if no such filing is required, the later of the date
specified in the transfer documents or the date on which the General Partner has received all necessary instruments of transfer and
substitution.
(c)The General Partner shall cooperate with the Person seeking to become a Substitute Limited Partner by preparing
the documentation required by this Section and making all official filings and publications. The Partnership shall take all such action
as promptly as practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
41
9.04 Rights of Assignees of Partnership Interests.
(a)Subject to the provisions of Sections 9.01 and 9.02, except as required by operation of law, the Partnership shall
not be obligated for any purposes whatsoever to recognize the assignment by any Limited Partner of its Partnership Interest until
the Partnership has received notice thereof.
(b)Any Person who is the assignee of all or any portion of a Limited Partner’s Limited Partnership Interest, but does
not become a Substitute Limited Partner and desires to make a further assignment of such Limited Partnership Interest, shall be
subject to all the provisions of this Article IX to the same extent and in the same manner as any Limited Partner desiring to make
an assignment of its Limited Partnership Interest.
(c)The General Partner shall have the right, in its sole and absolute discretion, to redeem the Limited Partnership
Interest assigned by any Limited Partner (an “Assigning Limited Partner”) to any person who does not, within 20 business days
following the date of such assignment, become a Substitute Limited Partner (an “Assignee”). In such case, the Assigning Limited
Partner and the Assignee shall be deemed to have tendered irrevocably to the General Partner a Notice of Redemption with respect
to all of the Limited Partnership Interest assigned.
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner. The occurrence of an Event of
Bankruptcy as to a Limited Partner, the death of a Limited Partner or a final adjudication that a Limited Partner is incompetent
(which term shall include, but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the
business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the
trustee or receiver of his estate or, if he dies, his executor, administrator or trustee, or, if he is finally adjudicated incompetent, his
committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing his estate
property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of his
Partnership Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute
Limited Partner.
9.06 Joint Ownership of Interests. A Partnership Interest may be acquired by two individuals as joint tenants with right
of survivorship, provided that such individuals either are married or are related and share the same home as tenants in common. The
written consent or vote of both owners of any such jointly held Partnership Interest shall be required to constitute the action of the
owners of such Partnership Interest; provided, however, that the written consent of only one joint owner will be required if the
Partnership has been provided with evidence satisfactory to the counsel for the Partnership that the actions of a single joint owner
can bind both owners under the applicable laws of the state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the Partnership Interest shall become owned solely by the
survivor as a Limited Partner and not as an assignee. The Partnership need not recognize the death of one of the owners of a jointly-
held Partnership Interest until it shall have received notice of such death. Upon notice to the General Partner from either owner, the
General Partner shall cause the Partnership Interest to be
42
divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 Books and Records. At all times during the continuance of the Partnership, the General Partner shall keep or cause
to be kept at the Partnership’s specified office true and complete books of account in accordance with generally accepted accounting
principles, including: (a) a current list of the full name and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of the Partnership’s federal, state and local income tax
returns and reports, (d) copies of the Agreement and any financial statements of the Partnership for the three most recent years and
(e) all documents and information required under the Act. Any Partner or its duly authorized representative, upon paying the costs
of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours.
10.02 Custody of Partnership Funds; Bank Accounts.
(a)All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in
such banking or brokerage institutions as the General Partner shall determine, and withdrawals shall be made only on such signature
or signatures as the General Partner may, from time to time, determine.
(b)All deposits and other funds not needed in the operation of the business of the Partnership may be invested by
the General Partner in investment grade instruments (or investment companies whose portfolio consists primarily thereof),
government obligations, certificates of deposit, bankers’ acceptances and municipal notes and bonds. The funds of the Partnership
shall not be commingled with the funds of any other Person except for such commingling as may necessarily result from an
investment in those investment companies permitted by this Section 10.02(b).
10.03 Fiscal and Taxable Year. The fiscal and taxable year of the Partnership shall be the calendar year.
10.04 Annual Tax Information and Report. Within 90 days after the end of each fiscal year of the Partnership, the General
Partner shall furnish to each person who was a Limited Partner at any time during such year the tax information necessary to file
such Limited Partner’s individual tax returns as shall be reasonably required by law.
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.
(a)The General Partner shall be the Tax Matters Partner of the Partnership within the meaning of Section 6231(a)(7)
of the Code. As Tax Matters Partner, the General Partner shall have the right and obligation to take all actions authorized and
required, respectively, by the Code for the Tax Matters Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
43
out-of-pocket expenses and fees incurred by the General Partner on behalf of the Partnership as Tax Matters Partner shall constitute
Partnership expenses. In the event the General Partner receives notice of a final Partnership adjustment under Section 6223(a)(2) of
the Code, the General Partner shall either (i) file a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition
is filed, or (ii) mail a written notice to all Limited Partners, within such period, that describes the General Partner’s reasons for
determining not to file such a petition.
(b)All elections required or permitted to be made by the Partnership under the Code or any applicable state or local
tax law shall be made by the General Partner in its sole and absolute discretion, subject to any restrictions thereon set forth in the
Tax Protection Agreement being entered into in connection with the Contribution Agreement.
(c)In the event of a transfer of all or any part of the Partnership Interest of any Partner, the Partnership, at the option
of the General Partner, may elect pursuant to Section 754 of the Code to adjust the basis of the Properties, subject to the restrictions
thereon set forth in Section 5.2 of the Tax Protection Agreement being entered into in connection with the Contribution Agreement.
Notwithstanding anything contained in Article V of this Agreement, any adjustments made pursuant to Section 754 shall affect only
the successor in interest to the transferring Partner and in no event shall be taken into account in establishing, maintaining or
computing Capital Accounts for the other Partners for any purpose under this Agreement. Each Partner will furnish the Partnership
with all information necessary to give effect to such election.
10.06 Reports to Limited Partners.
(a)As soon as practicable after the close of each fiscal quarter (other than the last quarter of the fiscal year), the
General Partner shall cause to be mailed to each Limited Partner consolidated financial statements of the Company, containing the
condensed income statement and balance sheet of the Partnership, for such fiscal quarter, presented in accordance with GAAP,
provided that such financial statements shall not contain footnotes and other presentation items with respect to the Partnership and
will be subject to normal year-end adjustments.
(b)As soon as practicable after the close of each fiscal year, the General Partner shall cause to be mailed to each
Limited Partner (i) the audited consolidated financial statements of the Company for such fiscal year, presented in accordance with
GAAP containing the condensed income statement and balance sheet of the Partnership, (ii) a schedule with property-level
information specifying with respect to each property owned by the Partnership the type of community, location, number of units,
gross value, debt, equity, loan-to-value ratio, occupancy and average monthly revenue per unit, and (iii) a certificate of the General
Partner certifying that the Net Asset Value Ratio has not been less than 2.0 in breach of Sections 5.08 or 6.01(a)(iv).
(c)Any Partner shall further have the right to a private audit of the books and records of the Partnership, provided
such audit is made for Partnership purposes, at the expense
44
of the Partner desiring it and is made during normal business hours and on at least 10 business days’ prior written notice.
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER; NOTICE
11.01 Amendment of Agreement; Merger. The General Partner’s consent shall be required for any amendment to the
Agreement or any merger, consolidation or combination of the Partnership. The General Partner, without the consent of the Limited
Partners, may amend this Agreement in any respect or cause the Partnership to merge, consolidate or combine with or into any other
partnership, limited partnership, limited liability company or corporation as contemplated in Section 7.01(c) or (d) hereof; provided,
however, that the following amendments (including any amendment effected in connection with a merger of the Partnership
regardless of whether the Partnership is the surviving entity in such merger) and any other such merger, consolidation or combination
of the Partnership (a “Merger”) shall require the consent of Limited Partners (other than the Company or any Subsidiary of the
Company) holding more than 50% of the Percentage Interests of the Limited Partners (other than the Company or any Subsidiary
of the Company):
(a)any amendment affecting the operation of the Conversion Factor or the Redemption Right (except as provided
in Sections 7.01(c) or 8.05(e)) in a manner adverse to the Limited Partners;
(b)any amendment that would adversely affect the rights of the Limited Partners to receive the distributions payable
to them hereunder, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02;
(c)any amendment that would alter the Partnership’s allocations of Current Profit and Residual Profit and Loss to
the Limited Partners, other than (i) with respect to the issuance of additional Partnership Units pursuant to Section 4.02 or (ii) if the
General Partner determines it necessary or advisable to amend such provisions to conform to the intended economic or tax
consequences of such provisions; or
(d)any amendment to, or that would adversely affect the rights of the Outside Partners under, Section 4.02(a),
5.02(a), 5.03, 5.08 (including the defined terms used therein), the proviso at the end of Section 6.01(a)(iv) (including the defined
terms used therein), 6.07(a), or 7.01, or this Article XI.
The consent of each Limited Partner shall be required for any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
11.02 Notice to Limited Partners. The General Partner shall notify the Limited Partners of the substance of any amendment
or Merger requiring the consent of the Limited Partners pursuant to Section 11.01 at least 20 business days prior to the effective
date of such amendment or Merger.
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ARTICLE XII
GENERAL PROVISIONS
12.01 Notices. All communications required or permitted under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or upon deposit in the United States mail, registered, postage prepaid return receipt
requested, to the Partners at the addresses set forth in Exhibit A attached hereto; provided, however, that any Partner may specify a
different address by notifying the General Partner in writing of such different address. Notices to the Partnership shall be delivered
at or mailed to its specified office.
12.02 Survival of Rights. Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and
inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns.
12.03 Additional Documents. Each Partner agrees to perform all further acts and execute, swear to, acknowledge and
deliver all further documents which may be reasonable, necessary, appropriate or desirable to carry out the provisions of this
Agreement or the Act.
12.04 Severability. If any provision of this Agreement shall be declared illegal, invalid, or unenforceable in any jurisdiction,
then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such
illegality, invalidity or unenforceability shall not affect the remainder hereof.
12.05 Entire Agreement. This Agreement and exhibits attached hereto constitute the entire Agreement of the Partners and
supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect
to the subject matter hereof.
12.06 Rules of Construction. When the context in which words are used in the Agreement indicates that such is the intent,
words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the
context may require. Unless the context otherwise indicates, references to particular Articles and Sections are references to Articles
and Sections of this Agreement.
12.07 Headings. The Article headings or sections in this Agreement are for convenience only and shall not be used in
construing the scope of this Agreement or any particular Article.
12.08 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an
original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding
that all parties shall not have signed the same counterpart.
12.09 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of
Delaware.
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IN WITNESS WHEREOF, the General Partner and Limited Partners identified below have affixed their signatures to this
Agreement of Limited Partnership, as of October 5, 2015 to witness and evidence its adoption pursuant to the provisions of Section
17-211(g) of the Act.
GERNERAL PARTNER:
UDR, INC. a Maryland corporation
By: /s/ Warren L. Troupe
Warren L. Troupe,
Senior Executive Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
LIMITED PARTNERS:
UDR, INC.
a Maryland corporation
By: /s/ Warren L. Troupe
Warren L. Troupe,
Senior Executive Vice President
UNITED DOMINION REALTY, L.P.,
a Delaware limited partnership
By: UDR, INC.,
a Maryland corporation,
its General Partner
By: /s/ Warren L. Troupe
Warren L. Troupe
Senior Executive Vice President
UDR TEXAS PROPERTIES LLC,
a Delaware limited liability company
By: UDR, INC.,
a Maryland corporation,
its General Partner
By: /s/ Warren L. Troupe
Warren L. Troupe
Senior Executive Vice President
2
A-1
EXHIBIT A
EXHIBIT B
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Agreement of Limited Partnership (the “Agreement”) of UDR Lighthouse
DownREIT L.P., the undersigned hereby irrevocably (i) presents for redemption _____________ Partnership Units in UDR
Lighthouse DownREIT L.P., in accordance with the terms of the Agreement and the Redemption Right referred to in Section 8.05
thereof, (ii) surrenders such Partnership Units and all right, title and interest therein, and (iii) directs that the Cash Amount or REIT
Shares Amount (as defined in the Agreement) as determined by the General Partner deliverable upon exercise of the Redemption
Right be delivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT
Shares be registered or placed in the name(s) and at the address(es) specified below.
Dated: _________________, ____
Name of Limited Partner:
(Signature of Limited Partner)
(Mailing Address)
(City) (State) (Zip Code)
Signature Guaranteed by:
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
B-1
FIRST AMENDMENT TO THE
AGREEMENT OF
LIMITED PARTNERSHIP OF UDR LIGHTHOUSE DOWNREIT L.P.
This First Amendment to the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P. dated as of October
6, 2015 (this “Amendment”), is being executed by UDR, Inc., a Maryland corporation (the “Company”), as the general partner of
UDR Lighthouse DownREIT L.P., a Delaware limited partnership (the “Partnership”), pursuant to the authority conferred upon
the General Partner by Section 11.01 of the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P., dated as of
October 5, 2015, as amended and/or supplemented from time to time (the “Agreement”). Capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the Agreement.
WHEREAS, Home Properties, L.P. has contributed certain property to the Partnership in exchange for Partnership Units,
and the General Partner desires to enter into this Amendment to memorialize the Partnership Units issued to Home Properties,
L.P.
NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
(1)The Agreement is hereby amended by deleting in its entirety Exhibit A attached to the Agreement and replacing
and substituting in lieu thereof Exhibit A attached hereto, which shall be attached to and made a part of the Agreement.
(2)Except as specifically amended hereby, the terms, covenants, provisions and conditions of the Agreement shall
remain unmodified and continue in full force and effect and, except as amended hereby, all of the terms, covenants, provisions and
conditions of the Agreement are hereby ratified and confirmed in all respects.
(3)This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware.
[Signature appears on next page.]
IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.
UDR, INC.,
a Maryland corporation
By: /s/ Warren L. Troupe
Warren L. Troupe
Senior Executive Vice President
SECOND AMENDMENT TO THE
AGREEMENT OF
LIMITED PARTNERSHIP OF UDR LIGHTHOUSE DOWNREIT L.P.
This Second Amendment to the Agreement of Limited Partnership of UDR Lighthouse DownREIT, L.P. dated as of
October 6, 2015 (this “Amendment”), is being executed by UDR, Inc., a Maryland corporation (the “Company”), as the general
partner of UDR Lighthouse DownREIT L.P., a Delaware limited partnership (the “Partnership”), pursuant to the authority
conferred upon the General Partner by Section 11.01 of the Agreement of Limited Partnership of UDR Lighthouse DownREIT,
L.P., dated as of October 5, 2015, as amended by the First Amendment thereto, dated as of October 6, 2015, and as further
amended and/or supplemented from time to time (the “Agreement”). Capitalized terms used, but not otherwise defined herein,
shall have the respective meanings ascribed thereto in the Agreement.
WHEREAS, Home Properties, L.P., a Limited Partner, has transferred and assigned certain Partnership Units previously
issued to it to the Redeeming Partnership Unitholders (as defined in the Contribution Agreement) and has delivered notice of such
assignment to the Partnership; and
WHEREAS, the General Partner desires to enter into this Amendment to memorialize the transfer and assignment of
the Partnership Units by Home Properties, L.P. to the Redeeming Partnership Unitholders.
NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
(1)The Agreement is hereby amended by deleting in its entirety Exhibit A attached to the Agreement and replacing
and substituting in lieu thereof Exhibit A attached hereto, which shall be attached and made a part of the Agreement.
(2)The General Partner hereby waives any and all requirements of Section 9.02 of the Agreement in connection with
the transfer of the Partnership Units by Home Properties, L.P. to the Redeeming Partnership Unitholders listed on Schedule 1
attached to the replacement Exhibit A attached hereto. The General Partner further agrees that each Redeeming Partnership
Unitholder to whom Home Properties, L.P. has transferred Partnership Units as listed on Schedule 1 attached to replacement
Exhibit A attached hereto is admitted as a Limited Partner, in substitution for Home Properties, L.P. with respect to those
Partnership Units.
(3)Except as specifically amended hereby, the terms, covenants, provisions and conditions of the Agreement shall
remain unmodified and continue in full force and effect and, except as amended hereby, all of the terms, covenants, provisions and
conditions of the Agreement are hereby ratified and confirmed in all respects.
(4)This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.
UDR, INC. a Maryland corporation
By: /s/ Warren L. Troupe
Warren L. Troupe
Senior Executive Vice President
THIRD AMENDMENT TO THE
AGREEMENT OF
LIMITED PARTNERSHIP OF UDR LIGHTHOUSE DOWNREIT L.P.
This Third Amendment to the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P. dated as of October
8, 2015 (this “Amendment”), is being executed by UDR, Inc., a Maryland corporation (the “Company”), as the general partner of
UDR Lighthouse DownREIT L.P., a Delaware limited partnership (the “Partnership”), pursuant to the authority conferred upon
the General Partner by Section 11.01 of the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P., dated as of
October 5, 2015, as amended by the First Amendment thereto, dated as of October 6, 2015 (the “First Amendment”), and the
Second Amendment thereto, dated as of October 6, 2015 (the “Second Amendment”), and as further amended and/or
supplemented from time to time (the “Agreement”). Capitalized terms used, but not otherwise defined herein, shall have the
respective meanings ascribed thereto in the Agreement.
WHEREAS, the Partnership has issued certain Partnership Units to Home Properties, L.P. as memorialized in the First
Amendment, and Home Properties, L.P. has transferred and assigned certain of such Partnership Units to the Redeeming
Partnership Unitholders (as defined in the Contribution Agreement) as memorialized in the Second Amendment; and
WHEREAS, the Company has acquired from Home Properties, L.P. all of the remaining Partnership Units held in the
name of Home Properties, L.P.; and
WHEREAS, the General Partner desires to enter into this Amendment to memorialize the acquisition by the Company
of such Partnership Units from Home Properties, L.P.
NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
(1)The Agreement is hereby amended by deleting in its entirety Exhibit A attached to the Agreement and replacing
and substituting in lieu thereof Exhibit A attached hereto, which shall be attached to and made a part of the Agreement.
(2)The General Partner hereby waives any and all requirements of Section 9.02 in connection with the transfer of the
Partnership Units by Home Properties, L.P. to the Company. The General Partner further agrees that the Company is admitted as a
Limited Partner, in substitution for Home Properties, L.P., with respect to those Partnership Units.
(3)Except as specifically amended hereby, the terms, covenants, provisions and conditions of the Agreement shall
remain unmodified and continue in full force and effect and, except as amended hereby, all of the terms, covenants, provisions and
conditions of the Agreement are hereby ratified and confirmed in all respects.
(4)This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware.
[Signatures appear on next page.]
IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.
UDR, INC.,
a Maryland corporation
By: /s/ Warren L. Troupe
Warren L. Troupe
Senior Executive Vice President
(Back To Top)
Section 4: EX-10.22 (EXHIBIT 10.22)
Exhibit 10.22
CLASS 1 LTIP UNIT AWARD AGREEMENT
under the
UDR, INC.
1999 LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED DECEMBER 4, 2015)
Grantee:
[Name]
Number of Class 1 LTIP
Units:
Date of Grant:
Vesting Commencement
Date:
[Units]
[Date]
[Date]
1.Grant of Class 1 LTIP Units. Pursuant to the UDR, Inc. 1999 Long-Term Incentive Plan, as amended (the “Plan”), in
consideration of the agreement by the Grantee named above (the “Grantee”) to provide services to or for the benefit of United
Dominion Realty, L.P. (the “Partnership”), the Partnership hereby (a) grants to the Grantee, as additional compensation for such
services, and subject to the restrictions and the other terms and conditions set forth in the Plan and in this Class 1 LTIP Unit Award
Agreement (this “Agreement”), the number of Class 1 LTIP Units indicated above (the “Class 1 LTIP Units”), and (b) if not already
a Partner, admits the Grantee as a Partner of the Partnership on the terms and conditions set forth herein, in the Plan and in the
Partnership Agreement. The Partnership and the Grantee acknowledge and agree that the Class 1 LTIP Units are hereby issued to
the Grantee for the performance of services to or for the benefit of the Partnership in his or her capacity as a Partner or in anticipation
of the Grantee becoming a Partner. To the extent not an existing Partner, the Grantee shall be admitted to the Partnership as an
additional Limited Partner with respect to the Class 1 LTIP Units only upon the satisfactory completion of the applicable
requirements set forth in the Partnership Agreement, including the requirements set forth in Section 4 of Exhibit H to the Partnership
Agreement. At the request of the Partnership, the Grantee shall execute the Partnership Agreement or a joinder or counterpart
signature page thereto. The Grantee acknowledges that the Partnership may from time to time issue or cancel (or otherwise modify)
LTIP Units in accordance with the terms of the Partnership Agreement. The Class 1 LTIP Units shall have the rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and conversion set forth herein, in
the Plan and in the Partnership Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned
such terms in the Plan and/or the Partnership Agreement, as applicable.
2.Vesting of Class 1 LTIP Units. Subject to Section 3 below, unless the vesting under this Agreement is accelerated in
accordance with Article 14 of the Plan, 100% of the Class 1 LTIP Units subject to this Agreement shall vest and cease to be subject
to the restrictions set forth in Section 3 on the first anniversary of the Vesting Commencement Date set forth above.
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3.Restrictions. The Class 1 LTIP Units are subject to each of the following restrictions. “Restricted Units” means those Class
1 LTIP Units that are subject to the restrictions imposed hereunder which restrictions have not then expired or terminated. Without
the consent of the Committee (which it may give or withhold in its sole discretion), Restricted Units may not be sold, transferred,
exchanged, redeemed, assigned, pledged, hypothecated or otherwise encumbered (collectively, “Transferred”). If the Grantee’s
service with UDR, Inc. (the “Company”) or any Parent or Subsidiary terminates for any reason other than as set forth in paragraph
(a) or (b) of Section 4 hereof, all Restricted Units will automatically and without any further action thereupon be cancelled and
forfeited without payment of any consideration therefor, and the Grantee shall have no further right, title or interest in and to the
Restricted Units. No Class 1 LTIP Units which have not vested as of the date of the Grantee’s termination of service shall thereafter
become vested unless otherwise determined by the Committee, in its sole discretion.
The restrictions imposed under this Section 3 shall apply to all securities issued with respect to Restricted Units hereunder
in connection with any merger, reorganization, consolidation, re-capitalization, stock dividend, unit distribution or other change in
corporate structure affecting the common stock of the Company or the Partnership Units of the Partnership.
4.Expiration and Termination of Restrictions. The restrictions imposed under Section 3 will expire on the earliest to occur of
the following:
(a) On the date of termination of the Grantee’s service with the Company or any Parent or Subsidiary because of his or her death
or Disability; or
(b) On the date specified by the Committee or as otherwise established in the Plan in the event of an acceleration of vesting
under Article 14 of the Plan (including, without limitation, upon retirement or the occurrence of a Change of Control, as defined in
the Plan).
5.Delivery of Units. The Class 1 LTIP Units will be registered in the name of the Grantee as Restricted Units and may be held
by the Company or the Partnership prior to the lapse of the restrictions thereon as provided in Section 2 or 4 hereof (the “Restricted
Period”). Any certificate for Class 1 LTIP Units issued during the Restricted Period shall be registered in the name of the Grantee
and shall bear a legend in substantially the following form:
THIS CERTIFICATE AND THE UNITS REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS
(INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN A CLASS 1 LTIP UNIT
AWARD AGREEMENT DATED [DATE] BETWEEN THE REGISTERED OWNER OF THE UNITS REPRESENTED
HEREBY, UDR, INC. AND UNITED DOMINION REALTY, L.P. RELEASE FROM SUCH TERMS AND CONDITIONS
SHALL BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF SUCH AGREEMENT, COPIES OF WHICH ARE
ON FILE IN THE OFFICE OF UDR, INC.
2
At the Company’s or the Partnership’s request, the Grantee hereby agrees to promptly execute, deliver and return to the
Partnership any and all documents or certificates that the Company or the Partnership deems necessary or desirable to effectuate the
cancellation and forfeiture of the Restricted Units, or to effectuate the transfer or surrender of such Restricted Units to the
Partnership. In addition, if requested, the Grantee shall deposit with the Company or the Partnership, a stock/unit power, or powers,
executed in blank and sufficient to re-convey the Restricted Units to the Company or the Partnership upon termination of the
Grantee’s service during the Restricted Period, in accordance with the provisions of this Agreement.
6.Covenants, Representations and Warranties. The Grantee hereby represents, warrants, covenants, acknowledges and agrees
on behalf of the Grantee and his or her spouse, if applicable, that:
(a) Investment. The Grantee is holding the Class 1 LTIP Units for the Grantee’s own account, and not for the
account of any other person or entity. The Grantee is holding the Class 1 LTIP Units for investment and not with a view to
distribution or resale thereof except in compliance with applicable laws regulating securities.
(b) Relation to the Partnership. The Grantee is presently a director of the Company, which is the sole general
partner of the Partnership, or is otherwise providing services to or for the benefit of the Partnership, and in such capacity has
become personally familiar with the business of the Partnership.
(c) Access to Information. The Grantee has had the opportunity to ask questions of, and to receive answers from,
the Partnership with respect to the terms and conditions of the transactions contemplated hereby and with respect to the business,
affairs, financial conditions, and results of operations of the Partnership.
(d) Registration. The Grantee understands that the Class 1 LTIP Units have not been registered under the 1933
Act, and the Class 1 LTIP Units cannot be transferred by the Grantee unless such transfer is registered under the 1933 Act or an
exemption from such registration is available. The Partnership has made no agreements, covenants or undertakings whatsoever to
register the transfer of the Class 1 LTIP Units under the 1933 Act. The Partnership has made no representations, warranties, or
covenants whatsoever as to whether any exemption from the 1933 Act, including, without limitation, any exemption for limited
sales in routine brokers’ transactions pursuant to Rule 144 of the 1933 Act, will be available. If an exemption under Rule 144 is
available at all, it will not be available until at least six (6) months after the grant of the Class 1 LTIP Units and then not unless the
terms and conditions of Rule 144 have been satisfied.
(e) Public Trading. None of the Partnership’s securities are presently publicly traded, and the Partnership has
made no representations, covenants or agreements as to whether there will be a public market for any of its securities.
(f) Tax Advice. The Partnership has made no warranties or representations to the Grantee with respect to the
income tax consequences of the transactions contemplated by this Agreement (including, without limitation, with respect to the
decision of whether to make an
3
election under Section 83(b) of the Code), and the Grantee is in no manner relying on the Partnership or its representatives for an
assessment of such tax consequences. Grantee hereby recognizes that the Internal Revenue Service has proposed regulations under
Sections 83 and 704 of the Code that may affect the proper treatment of the LTIP Units for federal income tax purposes. In the
event that those proposed regulations or similar regulations become final or temporary regulations, the Grantee hereby agrees to
cooperate with the Partnership in amending this Agreement and the Partnership Agreement, and to take such other action as may
be required, to conform to such regulations. Grantee hereby further recognizes that the U.S. Congress is considering legislation
that would change the federal tax consequences of acquiring, owning and disposing of LTIP Units. The Grantee is advised to
consult with his or her own tax advisor with respect to such tax consequences and his or her ownership of the Class 1 LTIP Units.
7.Class 1 LTIP Units Subject to Partnership Agreement; Restrictions on Transfer. The Class 1 LTIP Units are subject to the
terms of the Plan and the terms of the Partnership Agreement, including, without limitation, the restrictions on transfer of Units
(including, without limitation, Class 1 LTIP Units) set forth in Article 9 of the Partnership Agreement. Any permitted transferee of
the Class 1 LTIP Units shall take such Class 1 LTIP Units subject to the terms of the Plan, this Agreement, and the Partnership
Agreement. Any such permitted transferee must, upon the request of the Partnership, agree to be bound by the Plan, the Partnership
Agreement, and this Agreement, and shall execute the same on request, and must agree to such other waivers, limitations, and
restrictions as the Partnership or the Company may reasonably require. Any Transfer of the Class 1 LTIP Units which is not made
in compliance with the Plan, the Partnership Agreement and this Agreement shall be null and void and of no effect. Notwithstanding
any other provision of this Agreement, without the consent of the Committee (which it may give or withhold in its sole discretion),
the Grantee shall not convert the Class 1 LTIP Units into Partnership Common Units, or Transfer the Class 1 LTIP Units (whether
vested or unvested), including by means of a redemption of such Class 1 LTIP Units by the Partnership, until the earlier of (i) the
occurrence of, and in connection with, a Change of Control (or such earlier time as is necessary in order for the Grantee to participate
in such Change of Control transaction with respect to the Class 1 LTIP Units and receive the consideration payable with respect
thereto in connection with such Change of Control) and (ii) the expiration of the two (2) year period following the Date of Grant set
forth above, other than by will or the laws of descent and distribution.
8.Capital Account. The Grantee shall make no contribution of capital to the Partnership in connection with the issuance of the
Class 1 LTIP Units and, as a result, the Grantee’s Capital Account balance in the Partnership immediately after his or her receipt of
the Class 1 LTIP Units shall be equal to zero, unless the Grantee was a Partner in the Partnership prior to such issuance, in which
case the Grantee’s Capital Account balance shall not be increased as a result of his or her receipt of the Class 1 LTIP Units.
9.Stop Transfer Notices. In order to ensure compliance with the restrictions on transfer set forth in this Agreement, the Plan or
the Partnership Agreement, the Company and the Partnership may issue appropriate “stop transfer” instructions to its transfer agent,
if any, and, if the Company or the Partnership transfers its own securities, it may make appropriate notations to the same effect in
its own records.
4
10.Refusal to Transfer. The Partnership shall not be required (a) to transfer on its books any Restricted Units that have been
sold or otherwise transferred in violation of any of the provisions of this Agreement or (b) to treat as owner of such Restricted Units
or to accord the right to vote or make distributions to any purchaser or other transferee to whom such Restricted Units shall have
been so transferred.
11.Restrictions on Public Sale by the Grantee. To the extent not inconsistent with applicable law, the Grantee agrees not to
effect any sale or distribution of the Class 1 LTIP Units or any similar security of the Company or the Partnership, or any securities
convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the 1933 Act, during
the fourteen (14) days prior to, and for a period of up to 180 days beginning on, the date of the pricing of any public or private debt
or equity securities offering by the Company or the Partnership (except as part of such offering), if and to the extent requested in
writing by the Partnership or the Company in the case of a non-underwritten public or private offering or if and to the extent
requested in writing by the managing underwriter or underwriters (or initial purchaser or initial purchasers, as the case may be) and
consented to by the Partnership or the Company, which consent may be given or withheld in the Partnership’s or the Company’s
sole and absolute discretion, in the case of an underwritten public or private offering (such agreement to be in the form of a lock-up
agreement provided by the Company, the Partnership, managing underwriter or underwriters, or initial purchaser or purchasers as
the case may be).
12.Conformity to Securities Laws. The Grantee acknowledges that the Plan and this Agreement are intended to conform to the
extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not limited to, the
1933 Act and the 1934 Act and any and all regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation the applicable exemptive conditions of Rule 16b-3 of the 1934 Act) and to such approvals
by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Partnership or the Company, be
necessary or advisable in connection therewith. Notwithstanding anything herein to the contrary, the Plan shall be administered, and
the award of Class 1 LTIP Units is made, only in such a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan, this Agreement and this award of Class 1 LTIP Units shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
13.No Right of Continued Service. Nothing in this Agreement shall interfere with or limit in any way the right of the Company
or any Parent or Subsidiary to terminate the Grantee’s service at any time, nor confer upon the Grantee any right to continue in the
service of the Company or any Parent or Subsidiary.
14.Payment of Taxes.
(a) The Grantee covenants that the Grantee shall make a timely election under Section 83(b) of the Code (and any
comparable election in the state of the Grantee’s residence) with respect to the Class 1 LTIP Units, and the Partnership hereby
consents to the making of such election(s). In connection with such election, the Grantee and the Grantee’s spouse, if applicable,
shall promptly provide a copy of such election to the Partnership. A form of election under Section 83(b) of the Code is attached
hereto as Exhibit A. The Grantee represents that the Grantee has
5
consulted any tax advisor(s) that the Grantee deems advisable in connection with the filing of an election under Section 83(b) of the
Code and similar state tax provisions. The Grantee acknowledges that it is the Grantee’s sole responsibility and not the Company’s
or the Partnership’s to timely file an election under Section 83(b) of the Code (and any comparable state election), even if the
Grantee requests that the Company, the Partnership or any representative thereof make such filing on the Grantee’s behalf. The
Grantee should consult his or her tax advisor to determine if there is a comparable election to file in the state of his or her residence.
(b) The Grantee will, no later than the date as of which any amount related to the Class 1 LTIP Units first becomes
includable in the Grantee’s gross income for federal income tax purposes, pay to the Company, or make other arrangements
satisfactory to the Committee regarding payment of, any federal, state and local taxes of any kind required by law to be withheld
with respect to such amount. For the avoidance of doubt, the Grantee may satisfy such payment by permitting the Company or the
Partnership to reduce the number of Class 1 LTIP Units by an amount sufficient to satisfy the minimum amount (and not any greater
amount) required to be withheld for tax purposes. The obligations of the Company and the Partnership under this Agreement will
be conditional on such payment or arrangements, and the Company, and, where applicable, its Subsidiaries will, to the extent
permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Grantee.
15.Profits Interests. The Partnership and the Grantee intend that (i) the Class 1 LTIP Units be treated as “profits interests” as
defined in Internal Revenue Service Revenue Procedure 93-27, as clarified by Revenue Procedure 2001-43, (ii) the issuance of such
units not be a taxable event to the Partnership or the Grantee as provided in such revenue procedures, and (iii) the Partnership
Agreement, the Plan and this Agreement be interpreted consistently with such intent. In furtherance of such intent, effective
immediately prior to the issuance of the Class 1 LTIP Units, the Partnership may revalue all Partnership assets to their respective
gross fair market values, and make the resulting adjustments to the Capital Accounts of the Partners, in each case, as set forth in the
Partnership Agreement.
16.Ownership Information. The Grantee hereby covenants that so long as the Grantee holds any Class 1 LTIP Units, at the
request of the Partnership, the Grantee shall disclose to the Partnership in writing such information relating to the Grantee’s
ownership of the Class 1 LTIP Units as the Partnership reasonably believes to be necessary or desirable to ascertain in order to
comply with the Code or the requirements of any other appropriate taxing authority.
17.Grantee’s Covenant. The Grantee hereby agrees to use his best efforts to provide services to the Company in a workmanlike
manner and to promote the Company’s interests.
18.Amendment. The Committee may amend, modify or terminate this Agreement without approval of the Grantee; provided,
however, that such amendment, modification or termination shall not, without the Grantee’s consent, reduce or diminish the value
of this award determined as if it had been fully vested on the date of such amendment or termination.
6
19.Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Agreement and this Agreement
shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions
of the Plan and the provisions of this Agreement, the provisions of the Plan shall be controlling and determinative.
20.Successors. This Agreement shall be binding upon any successor of the Company or the Partnership, in accordance with the
terms of this Agreement and the Plan.
21.Severability. If any one or more of the provisions contained in this Agreement is invalid, illegal or unenforceable, the other
provisions of this Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been
included.
22.Notice. Notices and communications under this Agreement must be in writing and either personally delivered or sent by
registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Company or the Partnership must
be addressed to:
UDR, Inc.
1745 Shea Center Dr., Suite 200
Highlands Ranch, Colorado 80129
Attn: Corporate Secretary
or any other address designated by the Company or the Partnership in a written notice to the Grantee. Notices to the Grantee will be
directed to the address of the Grantee then currently on file with the Company, or at any other address given by the Grantee in a
written notice to the Company.
23.Dispute Resolution. The provisions of this Section 23 shall be the exclusive means of resolving disputes arising out of or
relating to the Plan and this Agreement. The Company, the Grantee, and the Grantee’s assignees (the “parties”) shall attempt in
good faith to resolve any disputes arising out of or relating to the Plan and this Agreement by negotiation between individuals who
have authority to settle the controversy. Negotiations shall be commenced by either party by notice of a written statement of the
party’s position and the name and title of the individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary,
to resolve the dispute. If the dispute has not been resolved by negotiation, the parties agree that any suit, action, or proceeding arising
out of or relating to the Plan or this Agreement shall be brought in the United States District Court for the District of Colorado (or
should such court lack jurisdiction to hear such action, suit or proceeding, in a state court in Colorado) and that the parties shall
submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party
may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY
WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING.
If any one or more provisions of this Section 23 shall for any reason be held invalid or unenforceable, it is the specific intent of the
parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.
7
IN WITNESS WHEREOF, the Company, the Partnership and the Grantee have executed this Agreement and agree that the
Class 1 LTIP Units are to be governed by the terms and conditions of this Agreement, the Partnership Agreement and the Plan.
UDR, INC.
By:
Name:
Title:
UNITED DOMINION REALTY, L.P.,
a Delaware limited partnership
By:
UDR, Inc.,
a Maryland corporation, its General Partner
By:
Name: Warren L. Troupe
Title: Senior Executive Vice President
The Grantee acknowledges receipt of a copy of the Plan, the Partnership Agreement and this Agreement and represents that he or
she is familiar with the terms and provisions thereof, and hereby accepts the Class 1 LTIP Units subject to all of the terms and
provisions hereof and thereof. The Grantee has reviewed this Agreement, the Partnership Agreement and the Plan in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this
Agreement, the Partnership Agreement and the Plan. The Grantee hereby agrees that all disputes arising out of or relating to this
Agreement and the Plan shall be resolved in accordance with Section 23 of this Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Agreement.
GRANTEE:
[Name]
8
Exhibit A
FORM OF SECTION 83(b) ELECTION
[Attached]
ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE
The undersigned hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in
the undersigned’s gross income for the taxable year in which the property was transferred the excess (if any) of the fair market value
of the property described below, over the amount the undersigned paid for such property, if any, and supplies herewith the following
information in accordance with the Treasury regulations promulgated under Section 83(b):
1. The name, taxpayer identification number and address of the undersigned, and the taxable year for which this election is
being made, are:
TAXPAYER’S NAME: ________________________________________________
TAXPAYER’S SOCIAL SECURITY NUMBER: ___________________________
ADDRESS: _________________________________________________________
TAXABLE YEAR: ___________________________________________________
The name, taxpayer identification number and address of the undersigned’s spouse are (complete if applicable):
SPOUSE’S NAME: __________________________________________________
SPOUSE’S SOCIAL SECURITY NUMBER: ______________________________
ADDRESS: _________________________________________________________
2. The property which is the subject of this election is Class 1 LTIP Units (the “Units”) of United
Dominion Realty, L.P. (the “Company”), representing an interest in the future profits, losses and distributions of the Company.
3. The date on which the above property was transferred to the undersigned was .
4. The above property is subject to the following restrictions: The Units are subject to forfeiture to the extent unvested upon
a termination of service with the Company under certain circumstances. These restrictions lapse upon the satisfaction of certain
conditions as set forth in an agreement between the taxpayer and the Company. In addition, the Units are subject to certain transfer
restrictions pursuant to such agreement and the Amended and Restated Agreement of Limited Partnership of United Dominion
Realty, L.P., as amended (or amended and restated) from time to time, should the taxpayer wish to transfer the Units.
A-1
5. The fair market value of the above property at the time of transfer (determined without regard to any restriction other
than a nonlapse restriction as defined in § 1.83-3(h) of the Income Tax Regulations) was $0.
6. The amount paid for the above property by the undersigned was $0.
7. The amount to include in gross income is $0.
The undersigned taxpayer will file this election with the Internal Revenue Service office with which taxpayer files his or
her annual income tax return not later than 30 days after the date of transfer of the property. A copy of this election will be furnished
to the person for whom the services were performed. Additionally, the undersigned will include a copy of the election with his or
her income tax return for the taxable year in which the property is transferred. The undersigned is the person performing the services
in connection with which the property was transferred.
Dated: _________________
____________________________________
Dated: _________________
____________________________________
(Back To Top)
Section 5: EX-10.23 (EXHIBIT 10.23)
A-2
Exhibit 10.23
UDR, INC.
1999 LONG-TERM INCENTIVE PLAN
NOTICE OF CLASS 2 LTIP UNIT AWARD
Grantee's Name and Address:
In consideration of the agreement by the Grantee named above (the “Grantee”) to provide services to or for the benefit of
United Dominion Realty, L.P. (the “Partnership”), the Partnership hereby grants to the Grantee an award of Class 2 LTIP Units (the
“Award”), subject to the terms and conditions of this Notice of Class 2 LTIP Unit Award (the “Notice”), the UDR, Inc. 1999 Long-
Term Incentive Plan, as amended from time to time (the “Plan”), the Amended and Restated Agreement of Limited Partnership of
United Dominion Realty, L.P., as amended from time to time (the “Partnership Agreement”) and the Class 2 LTIP Unit Agreement
(including Appendix A thereto) attached hereto (the “Agreement”). Unless otherwise provided herein, the capitalized terms in this
Notice shall have the same meaning as those defined in the Plan, the Partnership Agreement and/or the Agreement, as applicable.
Award Number
Date of Award
Total Number of Class 2 LTIP Units
Awarded (the “Class 2 LTIP Units”)
Vesting Schedule:
Subject to the Grantee’s continuing employment, except as set forth below, and other limitations set forth in this Notice, the
Agreement, the Partnership Agreement and the Plan, the Class 2 LTIP Units will vest only to the extent the established metrics set
forth in the Agreement are met for the applicable performance periods set forth in the Agreement. If the Grantee would become
vested in a fraction of a Class 2 LTIP Unit, such Class 2 LTIP Unit shall not vest until the Grantee becomes vested in the entire
Class 2 LTIP Unit.
Except as otherwise set forth in the Plan, except Section 14.9 thereof, the Agreement or as determined by the Committee,
in its sole discretion, vesting shall cease upon the date the Grantee’s employment is terminated for any reason, and no Unvested
Units shall thereafter become vested. In the event the Grantee’s employment is terminated for any reason, and the Class 2 LTIP
Units do not otherwise vest, then all Unvested Units held by the Grantee immediately upon such termination of the Grantee’s
employment shall automatically and without any further action thereupon be cancelled and forfeited without payment of any
consideration therefor, and the Grantee shall have no further right, title or interest in or to the Unvested Units.
1
IN WITNESS WHEREOF, the Company, the Partnership and the Grantee have executed this Notice and agree that the
Award is to be governed by the terms and conditions of this Notice, the Plan, the Partnership Agreement and the Agreement.
UDR, Inc.,
a Maryland corporation
Warren L. Troupe
Senior Executive Vice President
By:
Date:
United Dominion Realty, L.P.,
a Delaware limited partnership
By:
UDR, Inc., a Maryland corporation
Warren L. Troupe
Senior Executive Vice President
By:
Date:
THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE CLASS 2 LTIP UNITS SHALL VEST, IF AT ALL, ONLY
DURING THE PERIOD OF THE GRANTEE’S EMPLOYMENT OR AS OTHERWISE SPECIFICALLY PROVIDED HEREIN
(NOT THROUGH THE ACT OF BEING HIRED OR BEING GRANTED THIS AWARD). THE GRANTEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE AGREEMENT, THE PARTNERSHIP
AGREEMENT NOR IN THE PLAN SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF THE GRANTEE’S EMPLOYMENT, NOR SHALL IT INTERFERE IN ANY WAY WITH THE
GRANTEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE GRANTEE’S EMPLOYMENT AT ANY TIME,
WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE
GRANTEE’S STATUS IS AT WILL.
GRANTEE:
[Name]
2
Award Number: __________________
UDR, INC.
1999 LONG-TERM INCENTIVE PLAN
CLASS 2 LTIP UNIT AGREEMENT
1.Issuance of Class 2 LTIP Units. In consideration of the agreement by the Grantee to provide services to or for the benefit
of the Partnership, the Partnership hereby (a) issues to the Grantee an award (the “Award”) of the Total Number of Class 2 LTIP
Units set forth in the Notice of Class 2 LTIP Unit Award (the “Notice”) to which this Class 2 LTIP Unit Agreement (this
“Agreement”) is attached (the “Class 2 LTIP Units”), subject to the terms and provisions of the Notice, this Agreement, the
Partnership Agreement and the Plan, and (b) if not already a Partner, admits the Grantee as a Partner of the Partnership on the terms
and conditions set forth in the Notice, this Agreement, the Partnership Agreement and the Plan. The Partnership and the Grantee
acknowledge and agree that the Class 2 LTIP Units are hereby issued to the Grantee for the performance of services to or for the
benefit of the Partnership in his or her capacity as a Partner or in anticipation of the Grantee becoming a Partner. To the extent not
an existing Partner, the Grantee shall be admitted to the Partnership as an additional Limited Partner with respect to the Class 2
LTIP Units only upon the satisfactory completion of the applicable requirements set forth in the Partnership Agreement, including
the requirements set forth in Section 4 of Exhibit H to the Partnership Agreement. At the request of the Partnership, the Grantee
shall execute the Partnership Agreement or a joinder or counterpart signature page thereto. The Grantee acknowledges that the
Partnership may from time to time issue or cancel (or otherwise modify) LTIP Units in accordance with the terms of the Partnership
Agreement. The Class 2 LTIP Units shall have the rights, voting powers, restrictions, limitations as to distributions, qualifications
and terms and conditions of redemption and conversion set forth in the Notice, this Agreement, the Plan and the Partnership
Agreement.
2.Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below. Certain
capitalized terms used herein shall have the meanings set forth on Appendix A attached hereto. All capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to such terms in the Notice, the Plan and/or the Partnership Agreement,
as applicable.
(a)“Apartment Peer Group” shall have the meaning set forth on Appendix A attached hereto.
(b)“Apartment Peer Group Median TSR” means the median TSR of the companies constituting the Apartment
Peer Group for the Relative TSR Performance Period.
(c)“Base Units” means the number of Class 2 LTIP Units designated as Base Units on Appendix A attached hereto.
(d)“Company FFO as Adjusted” means the Company’s “FFO as Adjusted” as reported in the Company’s quarterly
earnings release(s).
(e)“FFO as Adjusted Base Units” means the number of Base Units designated as FFO as Adjusted Base Units on
Appendix A attached hereto.
(f)“FFO as Adjusted Distribution Equivalent Units” means, with respect to the FFO as Adjusted Performance
Period, a number of Class 2 LTIP Units equal to the number of additional shares
1
of Stock implied by an assumed reinvestment since the Date of Award of all dividends that would have been payable on that number
of shares of Stock equal to the number of Class 2 LTIP Units that become FFO as Adjusted Vested Base Units as of the completion
of the FFO as Adjusted Performance Period, net of the amount of any distributions made by the Partnership pursuant to Section 5.02
of the Partnership Agreement and Section 7(a) of Exhibit H to the Partnership Agreement to the Grantee during the corresponding
period in respect of one-third (⅓) of the Total Number of Class 2 LTIP Units set forth in the Notice (such net amount to be calculated
on a quarterly basis).
(g)“FFO as Adjusted Performance Period” means the FFO as Adjusted Performance Period set forth on Appendix
A attached hereto.
(h)“FFO as Adjusted Performance Vested Units” means (x) the FFO as Adjusted Performance Vested Base
Units, plus (y) the FFO as Adjusted Distribution Equivalent Units.
(i)“FFO as Adjusted Performance Vesting Percentage” means the percentage determined as set forth on
Appendix A attached hereto, which is a function of the Company FFO as Adjusted during the FFO as Adjusted Performance Period.
(j)“FFO as Adjusted Vested Base Units” means the product of (i) the total number of FFO as Adjusted Base Units,
and (ii) the applicable FFO as Adjusted Performance Vesting Percentage.
(k)“Relative TSR Base Units” means the number of Base Units designated as Relative TSR Base Units on
Appendix A attached hereto.
(l)“Relative TSR Distribution Equivalent Units” means, with respect to the Relative TSR Performance Period, a
number of Class 2 LTIP Units equal to the number of additional shares of Stock implied by an assumed reinvestment since the Date
of Award of all dividends that would have been payable on that number of shares of Stock equal to the number of Class 2 LTIP
Units that become Relative TSR Vested Base Units as of the completion of the Relative TSR Performance Period, net of the amount
of any distributions made by the Partnership pursuant to Section 5.02 of the Partnership Agreement and Section 7(a) of Exhibit H
to the Partnership Agreement to the Grantee during the corresponding period in respect of two-thirds (⅔) of the Total Number of
Class 2 LTIP Units set forth in the Notice (such net amount to be calculated on a quarterly basis).
(m)“Relative TSR Performance Period” means the Relative TSR Performance Period set forth on Appendix A
attached hereto.
(n)“Relative TSR Performance Vested Units” means (x) the Relative TSR Vested Base Units, plus (y) the
Relative TSR Distribution Equivalent Units.
(o)“Relative TSR Performance Vesting Percentage” means the percentage determined as set forth on Appendix
A attached hereto, which is a function of the Company’s achievement of the TSR Metric during the Relative TSR Performance
Period.
(p)“Relative TSR Vested Base Units” means the product of (i) the total number of Relative TSR Base Units, and
(ii) the applicable Relative TSR Performance Vesting Percentage.
(q)“Restrictions” means the exposure to forfeiture set forth in the Notice and Sections 4(a) and (b) hereof, and the
restrictions on sale or other transfer set forth in Section 3 hereof.
(r)“TSR” shall have the meaning set forth on Appendix A attached hereto.
2
(s)“TSR Metric” means the measurement of the Company’s relative TSR versus the TSR of the Apartment Peer
Group, calculated as set forth on Appendix A attached hereto.
(t)“Unvested Unit” means any Class 2 LTIP Unit that has not become fully vested pursuant to Section 4 hereof and
remains subject to the Restrictions.
3.Class 2 LTIP Units Subject to Partnership Agreement; Transfer Restrictions. The Class 2 LTIP Units are subject to the
terms of the Plan and the terms of the Partnership Agreement, including, without limitation, the restrictions on transfer of Units
(including, without limitation, Class 2 LTIP Units) set forth in Article 9 of the Partnership Agreement. Any permitted transferee of
the Class 2 LTIP Units shall take such Class 2 LTIP Units subject to the terms of the Plan, this Agreement, the Notice and the
Partnership Agreement. Any such permitted transferee must, upon the request of the Partnership, agree to be bound by the Plan, the
Partnership Agreement, the Notice and this Agreement, and shall execute the same on request, and must agree to such other waivers,
limitations, and restrictions as the Partnership or the Company may reasonably require. Any sale, transfer, exchange, redemption,
assignment, pledge, hypothecation or other encumbrance (each, a “Transfer”) of the Class 2 LTIP Units which is not made in
compliance with the Plan, the Partnership Agreement, the Notice and this Agreement shall be null and void and of no effect.
Notwithstanding any other provision of this Agreement, without the consent of the Committee (which it may give or withhold in its
sole discretion), the Grantee shall not convert the Class 2 LTIP Units into Partnership Common Units, or Transfer the Class 2 LTIP
Units (whether vested or unvested), including by means of a redemption of such Class 2 LTIP Units by the Partnership, until the
earlier of (i) the occurrence of, and in connection with, a Change of Control (or such earlier time as is necessary in order for the
Grantee to participate in such Change of Control transaction with respect to the Class 2 LTIP Units and receive the consideration
payable with respect thereto in connection with such Change of Control) and (ii) the expiration of the two (2) year period following
the Date of Award set forth in the Notice, other than by will or the laws of descent and distribution.
4.Performance Vesting.
(a)FFO as Adjusted Units. As soon as reasonably practicable (but in no event more than 60 days) following the
completion of the FFO as Adjusted Performance Period, the Committee shall determine the Company FFO as Adjusted, the FFO as
Adjusted Performance Vesting Percentage, the number of FFO as Adjusted Distribution Equivalent Units, and the number of Class
2 LTIP Units granted hereby that have become FFO as Adjusted Vested Base Units and FFO as Adjusted Performance Vested Units,
in each case as of the completion of the FFO as Adjusted Performance Period. Upon such determination by the Committee (the
“FFO Determination Date”), the Restrictions set forth in the Notice and Section 3 above shall lapse with respect to fifty-percent
(50%) of the FFO as Adjusted Performance Vested Units and such FFO as Adjusted Performance Vested Units shall become fully
vested subject to Grantee’s continued status as a Service Provider through the Determination Date, except as provided in the Plan,
except Section 14.9 thereof, this Agreement or as otherwise determined by the Committee, in its sole discretion. The Restrictions
set forth in the Notice and Section 3 above shall lapse with respect to the remaining fifty-percent (50%) of the FFO as Adjusted
Performance Vested Units and such FFO as Adjusted Performance Vested Units shall become fully vested on the first anniversary
of the FFO Determination Date, subject to Grantee’s continued employment through such date, except as provided in the Plan,
except Section 14.9 thereof, this Agreement or as otherwise determined by the Committee, in its sole discretion. Any FFO as
Adjusted Base Units granted hereby which have not become FFO as Adjusted Performance Vested Base Units as of the FFO
Determination Date will automatically be cancelled and forfeited without payment of any consideration therefor, and the Grantee
shall have no further right to or interest in such FFO as Adjusted Base Units.
3
(b)Relative TSR Units. As soon as reasonably practicable (but in no event more than 60 days) following the
completion of the Relative TSR Performance Period, the Committee shall determine the Company’s TSR, the Apartment Peer Group
Median TSR, the extent to which the TSR Metric has been achieved, the Relative TSR Performance Vesting Percentage, the number
of Relative TSR Distribution Equivalent Units, and the number of Class 2 LTIP Units granted hereby that have become Relative
TSR Vested Base Units and Relative TSR Performance Vested Units, in each case as of the completion of the Relative TSR
Performance Period. Upon such determination by the Committee (the “TSR Determination Date”), the Restrictions set forth in the
Notice and Section 3 above shall lapse with respect to the Relative TSR Performance Vested Units and such Relative TSR
Performance Vested Units shall become fully vested, subject to Grantee’s continued employment through such vesting date, except
as provided in the Plan, except Section 14.9 thereof, this Agreement or as otherwise determined by the Committee, in its sole
discretion. Any Relative TSR Base Units granted hereby which have not become Relative TSR Performance Vested Units as of the
[TSR Determination Date], and any Class 2 LTIP Units granted hereby which have not become FFO as Adjusted Performance
Vested Units or Relative TSR Performance Vested Units as of the [TSR Determination Date], will automatically be cancelled and
forfeited without payment of any consideration therefor, and the Grantee shall have no further right to or interest in such Relative
TSR Base Units or other Class 2 LTIP Units.
5.Delivery of Units. The Class 2 LTIP Units will be registered in the name of the Grantee and may be held by the Company
or the Partnership prior to the vesting of such Class 2 LTIP Units as provided in the Notice and this Agreement (the “Restricted
Period”). Any certificate for Class 2 LTIP Units issued during the Restricted Period shall be registered in the name of the Grantee
and shall bear a legend in substantially the following form:
THIS CERTIFICATE AND THE CLASS 2 LTIP UNITS REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN A NOTICE OF
CLASS 2 LTIP UNIT AWARD AND CLASS 2 LTIP UNIT AGREEMENT DATED [DATE] BETWEEN THE REGISTERED
OWNER OF THE CLASS 2 LTIP UNITS REPRESENTED HEREBY, UDR, INC. AND UNITED DOMINION REALTY, L.P.
RELEASE FROM SUCH TERMS AND CONDITIONS SHALL BE MADE ONLY IN ACCORDANCE WITH THE
PROVISIONS OF SUCH AGREEMENTS, COPIES OF WHICH ARE ON FILE IN THE OFFICE OF UDR, INC.
At the Company’s or the Partnership’s request, the Grantee hereby agrees to promptly execute, deliver and return to the
Partnership any and all documents or certificates that the Company or the Partnership deems necessary or desirable to effectuate the
cancellation and forfeiture of the Unvested Units, or to effectuate the transfer or surrender of such Unvested Units to the Partnership.
In addition, if requested, the Grantee shall deposit with the Company or the Partnership, a stock/unit power, or powers, executed in
blank and sufficient to re-convey the Unvested Units to the Company or the Partnership upon termination of the Grantee’s service
during the Restricted Period, in accordance with the provisions of the Notice and this Agreement.
6.Determinations by Committee. Notwithstanding anything contained herein, all determinations, interpretations and
assumptions relating to the vesting of the Award (including, without limitation, determinations, interpretations and assumptions
with respect to the Company’s TSR, Company FFO as Adjusted and Apartment Peer Group Median TSR) shall be made by the
Committee and shall be applied consistently and uniformly to all similar Awards granted under the Plan (including, without
limitation, similar awards which provide for payment in the form of cash or shares of Stock). In making such determinations, the
Committee may employ attorneys, consultants, accountants, appraisers, brokers, or other
4
persons, and the Committee, the Board, the Company, the Partnership and their officers and directors shall be entitled to rely upon
the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the
Committee in good faith and absent manifest error shall be final and binding upon the Grantee, the Company and all other interested
persons. In addition, the Committee, in its discretion, may adjust or modify the methodology for calculations relating to the vesting
of the Award (including, without limitation, the methodology for calculating the Company’s TSR, Company FFO as Adjusted and
Apartment Peer Group Median TSR), other than the FFO as Adjusted Performance Vesting Percentage and Relative TSR
Performance Vesting Percentage, as necessary or desirable to account for events affecting the value of the Stock or Company FFO
as Adjusted which, in the discretion of the Committee, are not considered indicative of Company performance, which may include
events such as the issuance of new Stock, stock repurchases, stock splits, issuances and/or exercises of stock grants or stock options,
and similar events, all in order to properly reflect the Company’s intent with respect to the performance objectives underlying the
Award or to prevent dilution or enlargement of the benefits or potential benefits intended to be made available with respect to the
Award.
7.Covenants, Representations and Warranties. The Grantee hereby represents, warrants, covenants, acknowledges and
agrees on behalf of the Grantee and his or her spouse, if applicable, that:
(a)Investment. The Grantee is holding the Class 2 LTIP Units for the Grantee’s own account, and not for the account
of any other person or entity. The Grantee is holding the Class 2 LTIP Units for investment and not with a view to distribution or
resale thereof except in compliance with applicable laws regulating securities.
(b) Relation to the Partnership. The Grantee is presently an [executive officer and]1 employee of the Company,
which is the sole general partner of the Partnership, or is otherwise providing services to or for the benefit of the Partnership, and in
such capacity has become personally familiar with the business of the Partnership.
(c) Access to Information. The Grantee has had the opportunity to ask questions of, and to receive answers from,
the Partnership with respect to the terms and conditions of the transactions contemplated hereby and with respect to the business,
affairs, financial conditions, and results of operations of the Partnership.
(d) Registration. The Grantee understands that the Class 2 LTIP Units have not been registered under the 1933 Act,
and the Class 2 LTIP Units cannot be transferred by the Grantee unless such transfer is registered under the 1933 Act or an exemption
from such registration is available. The Partnership has made no agreements, covenants or undertakings whatsoever to register the
transfer of the Class 2 LTIP Units under the 1933 Act. The Partnership has made no representations, warranties, or covenants
whatsoever as to whether any exemption from the 1933 Act, including, without limitation, any exemption for limited sales in routine
brokers’ transactions pursuant to Rule 144 of the 1933 Act, will be available. If an exemption under Rule 144 is available at all, it
will not be available until at least six (6) months after the grant of the Class 2 LTIP Units and then not unless the terms and conditions
of Rule 144 have been satisfied.
(e) Public Trading. None of the Partnership’s securities are presently publicly traded, and the Partnership has made
no representations, covenants or agreements as to whether there will be a public market for any of its securities.
1 NTD: Include if applicable.
5
(f) Tax Advice. The Partnership has made no warranties or representations to the Grantee with respect to the income
tax consequences of the transactions contemplated by this Agreement (including, without limitation, with respect to the decision of
whether to make an election under Section 83(b) of the Code), and the Grantee is in no manner relying on the Partnership or its
representatives for an assessment of such tax consequences. Grantee hereby recognizes that the Internal Revenue Service has
proposed regulations under Sections 83 and 704 of the Code that may affect the proper treatment of the LTIP Units for federal
income tax purposes. In the event that those proposed regulations or similar regulations become final or temporary regulations, the
Grantee hereby agrees to cooperate with the Partnership in amending this Agreement and the Partnership Agreement, and to take
such other action as may be required, to conform to such regulations. Grantee hereby further recognizes that the U.S. Congress is
considering legislation that would change the federal tax consequences of acquiring, owning and disposing of LTIP Units. The
Grantee is advised to consult with his or her own tax advisor with respect to such tax consequences and his or her ownership of the
Class 2 LTIP Units.
8.Capital Account. The Grantee shall make no contribution of capital to the Partnership in connection with the issuance of
the Class 2 LTIP Units and, as a result, the Grantee’s Capital Account balance in the Partnership immediately after his or her receipt
of the Class 2 LTIP Units shall be equal to zero, unless the Grantee was a Partner in the Partnership prior to such issuance, in which
case the Grantee’s Capital Account balance shall not be increased as a result of his or her receipt of the Class 2 LTIP Units.
9.Restrictions on Public Sale by the Grantee. To the extent not inconsistent with applicable law, the Grantee agrees not to
effect any sale or distribution of the Class 2 LTIP Units or any similar security of the Company or the Partnership, or any securities
convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the 1933 Act, during
the fourteen (14) days prior to, and for a period of up to 180-days beginning on, the date of the pricing of any public or private debt
or equity securities offering by the Company or the Partnership (except as part of such offering), if and to the extent requested in
writing by the Partnership or the Company in the case of a non-underwritten public or private offering or if and to the extent
requested in writing by the managing underwriter or underwriters (or initial purchaser or initial purchasers, as the case may be) and
consented to by the Partnership or the Company, which consent may be given or withheld in the Partnership’s or the Company’s
sole and absolute discretion, in the case of an underwritten public or private offering (such agreement to be in the form of a lock-up
agreement provided by the Company, the Partnership, managing underwriter or underwriters, or initial purchaser or purchasers as
the case may be).
10.Conformity to Securities Laws. The Grantee acknowledges that the Plan, the Notice and this Agreement are intended to
conform to the extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not
limited to, the 1933 Act and the 1934 Act and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation the applicable exemptive conditions of Rule 16b-3 of the 1934 Act) and to
such approvals by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Partnership or
the Company, be necessary or advisable in connection therewith. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the award of Class 2 LTIP Units is made, only in such a manner as to conform to such laws, rules and regulations.
To the extent permitted by applicable law, the Plan, this Agreement and this award of Class 2 LTIP Units shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
6
11.Taxes.
(a)Tax Liability. The Grantee is ultimately liable and responsible for all taxes owed by the Grantee in connection
with the Award, regardless of any action the Company or any Related Entity takes with respect to any tax withholding obligations
that arise in connection with the Award. Neither the Company nor any Related Entity makes any representation or undertaking
regarding the treatment of any tax withholding in connection with any aspect of the Award, including the grant, vesting, assignment,
release or cancellation of the Class 2 LTIP Units, the subsequent sale of any Class 2 LTIP Units and the receipt of any Partnership
distributions. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate the Grantee’s
tax liability. For purposes of this Award, “Related Entity” shall mean a Parent or Subsidiary.
(b)Payment of Withholding Taxes. Prior to any event in connection with the Award that the Company determines
may result in any tax withholding obligation, whether United States federal, state, local or non-U.S., including any social insurance,
employment tax, payment on account or other tax-related obligation (the “Tax Withholding Obligation”), the Grantee must arrange
for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company.
(c)Section 83(b) Election. The Grantee covenants that the Grantee shall make a timely election under Section 83(b)
of the Code (and any comparable election in the state of the Grantee’s residence) with respect to the Class 2 LTIP Units, and the
Partnership hereby consents to the making of such election(s). In connection with such election, the Grantee and the Grantee’s
spouse, if applicable, shall promptly provide a copy of such election to the Partnership. A form of election under Section 83(b) of
the Code is attached hereto as Appendix B. The Grantee represents that the Grantee has consulted any tax advisor(s) that the Grantee
deems advisable in connection with the filing of an election under Section 83(b) of the Code and similar state tax provisions. The
Grantee acknowledges that it is the Grantee’s sole responsibility and not the Company’s or the Partnership’s to timely file an election
under Section 83(b) of the Code (and any comparable state election), even if the Grantee requests that the Company, the Partnership
or any representative thereof make such filing on the Grantee’s behalf. The Grantee should consult his or her tax advisor to determine
if there is a comparable election to file in the state of his or her residence.
12.Profits Interests. The Partnership and the Grantee intend that (i) the Class 2 LTIP Units be treated as “profits interests”
as defined in Internal Revenue Service Revenue Procedure 93-27, as clarified by Revenue Procedure 2001-43, (ii) the issuance of
such units not be a taxable event to the Partnership or the Grantee as provided in such revenue procedures, and (iii) the Partnership
Agreement, the Plan, the Notice and this Agreement be interpreted consistently with such intent. In furtherance of such intent,
effective immediately prior to the issuance of the Class 2 LTIP Units, the Partnership may revalue all Partnership assets to their
respective gross fair market values, and make the resulting adjustments to the Capital Accounts of the Partners, in each case, as set
forth in the Partnership Agreement.
13.Ownership Information. The Grantee hereby covenants that so long as the Grantee holds any Class 2 LTIP Units, at the
request of the Partnership, the Grantee shall disclose to the Partnership in writing such information relating to the Grantee’s
ownership of the Class 2 LTIP Units as the Partnership reasonably believes to be necessary or desirable to ascertain in order to
comply with the Code or the requirements of any other appropriate taxing authority.
14.Entire Agreement; Governing Law. The Notice, the Plan, the Partnership Agreement and this Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company, the Partnership and the Grantee with
7
respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed
by the Company, the Partnership and the Grantee. These agreements are to be construed in accordance with and governed by the
internal laws of the State of Maryland without giving effect to any choice of law rule that would cause the application of the laws
of any jurisdiction other than the internal laws of the State of Maryland to the rights and duties of the parties. Should any provision
of the Notice or this Agreement be determined to be illegal or unenforceable, the other provisions shall nevertheless remain effective
and shall remain enforceable.
15.Construction. The captions used in the Notice and this Agreement are inserted for convenience and shall not be deemed
a part of the Award for construction or interpretation. Except when otherwise indicated by the context, the singular shall include the
plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires
otherwise.
16.Administration and Interpretation. Any question or dispute regarding the administration or interpretation of the Notice,
the Plan, the Partnership Agreement or this Agreement shall be submitted by the Grantee, the Partnership or the Company to the
Committee. The resolution of such question or dispute by the Committee shall be final and binding on all persons.
17.Venue and Jurisdiction. The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the
Plan, the Partnership Agreement or this Agreement shall be brought exclusively in the United States District Court for Colorado (or
should such court lack jurisdiction to hear such action, suit or proceeding, in a Colorado state court) and that the parties shall submit
to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may
have to the laying of venue for any such suit, action or proceeding brought in such court.
18.Plan Controls. The terms contained in the Plan are incorporated into and made a part of the Notice and this Agreement,
and the Notice and this Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or
alleged conflict between the provisions of the Plan and the provisions of the Notice and this Agreement, the provisions of the Plan
shall be controlling and determinative.
19.Successors. The Notice and this Agreement shall be binding upon any successor of the Company or the Partnership, in
accordance with the terms of the Notice, this Agreement and the Plan.
20.Severability. If any one or more of the provisions contained in the Notice or this Agreement is invalid, illegal or
unenforceable, the other provisions of the Notice and this Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
21.Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon
personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the
United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other
party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time
to the other party.
22.Amendment. The Committee may amend, modify or terminate this Agreement without approval of the Grantee;
provided, however, that such amendment, modification or termination shall not, without the Grantee’s consent, reduce or diminish
the value of this award determined as if it had been fully vested on the date of such amendment or termination.
8
23.Amendment and Delay to Meet the Requirements of Section 409A. The Grantee acknowledges that the Company, in the
exercise of its sole discretion and without the consent of the Grantee, may amend or modify this Agreement in any manner to the
minimum extent necessary to meet the requirements of Section 409A of the Code as amplified by any Treasury regulations or
guidance from the Internal Revenue Service as the Company deems appropriate or advisable. In addition, the Company makes no
representation that the Award will comply with Section 409A of the Code and makes no undertaking to prevent Section 409A of
the Code from applying to the Award or to mitigate its effects on any deferrals or payments made in respect of the Units. The
Grantee is encouraged to consult a tax adviser regarding the potential impact of Section 409A of the Code.
END OF AGREEMENT
9
Definitions
APPENDIX A
Capitalized terms not defined herein shall have the meanings set forth in the Class 2 LTIP Unit Agreement to which this
Appendix is attached.
“Apartment Peer Group” means the following companies:
Aimco
AvalonBay Communities, Inc.
Camden Property Trust
Equity Residential
Essex Property Trust, Inc.
Mid-America Apartment Communities, Inc.
Monogram Residential Trust
Post Properties, Inc.
To the extent a member of the Apartment Peer Group ceases to be a separate publicly traded company during the Relative TSR
Performance Period, such member shall not be used in calculating the Apartment Peer Group Median TSR. To the extent during the
Relative TSR Performance Period a member of the Apartment Peer Group is the subject of an acquisition proposal or publicly
reported speculation regarding acquisition, a going private transaction, subject of an activist campaign or other similar event or
events and such event(s) has an impact (positive or negative) on the member’s TSR, such member shall similarly not be used in
calculating the Apartment Peer Group Median TSR.
“Base Units” means [_______] Class 2 LTIP Units. 2
“FFO as Adjusted Base Units” means [_______] Base Units.3
“FFO as Adjusted Performance Period” means the period commencing on January 1, 2016 and ending on December 31, 2016.
“FFO as Adjusted Performance Vesting Percentage” means the percentage determined as set forth below based on the Company
FFO as Adjusted during the FFO as Adjusted Performance Period:
Performance of FFO as Adjusted
Below Threshold
Threshold
100% (target)
Company FFO as
Adjusted
Less than $1.74
$1.74
$1.78
FFO as Adjusted
Performance Vesting
Percentage
0%
25%
50%
2 Total number of Base Units will represent total base units (Relative TSR Base Units + FFO as Adjusted Base Units) at maximum performance, and will exclude
the estimated number of units attributable to dividend value.
3 FFO as Adjusted Base Units will represent 1/3 of the total Base Units.
High (maximum)
$1.82 or greater
100%
*If achievement is greater than the Threshold and falls between any two points on the chart above, the FFO as Adjusted
Performance Vesting Percentage will be determined by linear interpolation.
A-1
“Relative TSR Base Units” means [_______] Base Units.4 Relative TSR Base Units will represent 2/3 of the total Base Units.
“Relative TSR Performance Period” means the period commencing on January 1, 2016 and ending on December 31, 2018.
“Relative TSR Performance Vesting Percentage” means the percentage determined as set forth below based upon the Company’s
TSR performance during the Relative TSR Performance Period against the Apartment Peer Group Median TSR:
TSR Performance
Below Threshold
Threshold
Target
Company TSR Relative to
Apartment Peer Group Median
TSR/bps
Relative TSR
Performance Vesting
Percentage
Lower than -250 bps
-250 bps
Median
0%
25%
50%
High
+400 bps
100%
*If achievement is greater than the Threshold and falls between any two points on the chart above, the Relative TSR
Performance Vesting Percentage will be determined by linear interpolation.
TSR Calculation
For purposes of the 2016 LTI, the TSR Metric shall be calculated by using the twenty (20)-day trailing average TSR, as calculated
by management and by using the daily YTD TSR as calculated by Thomson Reuters for the measurement of TSR.
The relative index shall be calculated as in the same manner as described above and the difference between the absolute total
shareholder return and the relative comparison, expressed in terms of the amount of basis points, shall be applied to the matrix set
forth above under Performance Criteria.
To the extent a member of the Apartment Peer Group ceases to be a separate publicly traded company during the performance
period, such member shall not be used in calculating the Apartment Peer Group Average. To the extent during the performance
period a member of the Apartment Peer Group is the subject of an acquisition proposal or publicly reported speculation regarding
acquisition, a going private transaction or other event and such event has an impact (positive or negative) on the member’s TSR,
such member shall similarly not be used in calculating the Apartment Peer Group Average.
Each 3-year award will vest on the date the Committee determines performance (the "Determination Date") in January or February
2019. The Committee retains the discretion to adjust awards upwards or downwards based on external factors. Employment
though the applicable vesting date is generally required except as otherwise provided in the Plan, except for Section 14.9 thereof,
the applicable award agreement or as determined by the Committee, in its sole discretion.
4 Relative TSR Base Units will represent 2/3 of the total Base Units
A-2
APPENDIX B
FORM OF SECTION 83(b) ELECTION
[Attached]
B-1
ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE
The undersigned hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in
the undersigned’s gross income for the taxable year in which the property was transferred the excess (if any) of the fair market value
of the property described below, over the amount the undersigned paid for such property, if any, and supplies herewith the following
information in accordance with the Treasury regulations promulgated under Section 83(b):
1. The name, taxpayer identification number and address of the undersigned, and the taxable year for which this election is
being made, are:
TAXPAYER’S NAME: __________________________________________________
TAXPAYER’S SOCIAL SECURITY NUMBER: _____________________________
ADDRESS: ___________________________________________________________
TAXABLE YEAR: _____________________________________________________
The name, taxpayer identification number and address of the undersigned’s spouse are (complete if applicable):
SPOUSE’S NAME: _____________________________________________________
SPOUSE’S SOCIAL SECURITY NUMBER: ________________________________
ADDRESS: ___________________________________________________________
2. The property which is the subject of this election is Class 2 LTIP Units (the “Units”) of United
Dominion Realty, L.P. (the “Company”), representing an interest in the future profits, losses and distributions of the Company.
3. The date on which the above property was transferred to the undersigned was .
4. The above property is subject to the following restrictions: The Units are subject to forfeiture to the extent unvested upon
a termination of service with the Company under certain circumstances and/or to the extent that certain performance conditions are
not satisfied. These restrictions lapse upon the satisfaction of certain conditions as set forth in an agreement between the taxpayer
and the Company. In addition, the Units are subject to certain transfer restrictions pursuant to such agreement and the Amended and
Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended (or amended and restated) from time to
time, should the taxpayer wish to transfer the Units.
5. The fair market value of the above property at the time of transfer (determined without regard to any restriction other
than a nonlapse restriction as defined in § 1.83-3(h) of the Income Tax Regulations) was $0.
6. The amount paid for the above property by the undersigned was $0.
B-2
7. The amount to include in gross income is $0.
The undersigned taxpayer will file this election with the Internal Revenue Service office with which taxpayer files his or
her annual income tax return not later than 30 days after the date of transfer of the property. A copy of this election will be furnished
to the person for whom the services were performed. Additionally, the undersigned will include a copy of the election with his or
her income tax return for the taxable year in which the property is transferred. The undersigned is the person performing the services
in connection with which the property was transferred.
Dated: _________________
____________________________________
Dated: _________________
____________________________________
(Back To Top)
Section 6: EX-12.1 (EXHIBIT 12.1)
B-3
UDR, Inc.
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(Dollars in thousands)
EXHIBIT 12.1
Year Ended December 31,
2015
2014
2013
2012
2011
Earnings:
Income/(loss) from continuing operations
$ 105,482
$
16,260
$
2,340
$ (46,305)
(126,869)
Add (from continuing operations):
Interest on indebtedness (a)
121,875
130,262
125,905
139,069
151,764
Portion of rents representative of the interest factor
1,922
Amortization of capitalized interest
4,112
2,224
3,711
2,163
3,374
2,073
2,883
2,039
2,187
Total earnings
$ 233,391
$ 152,457
$ 133,782
$
97,720
$
29,121
Fixed charges and preferred stock dividends (from
continuing operations):
Interest on indebtedness (a)
$ 121,875
$ 130,262
$ 125,905
$ 139,069
$ 151,764
Interest capitalized
16,105
20,249
29,384
26,368
12,979
Portion of rents representative of the interest factor
1,922
2,224
2,163
2,073
2,039
Fixed charges
$ 139,902
$ 152,735
$ 157,452
$ 167,510
$ 166,782
Add:
Preferred stock dividends
$
3,722
$
3,724
$
3,724
$
6,010
$
9,311
Premium/(discount) on preferred stock redemption
or repurchase, net
Combined fixed charges and preferred stock
dividends
—
—
—
2,791
175
$ 143,624
$ 156,459
$ 161,176
$ 176,311
$ 176,268
Ratio of earnings to fixed charges
Ratio of earnings to combined fixed charges and
preferred stock dividends
1.67
1.63
— (b)
— (b)
— (b)
— (b)
— (c)
— (c)
— (c)
— (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, and 2011 as earnings were inadequate to cover fixed charges
by deficiencies of approximately $0.3 million, $23.7 million, $69.8 million, and $137.7 million, respectively.
(c) The ratio was less than 1:1 for the years ended December 31, 2014, 2013, 2012, and 2011 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, and $147.1 million,
respectively.
(Back To Top)
Section 7: 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)
Year Ended December 31,
2015
2014
2013
2012
2011
Earnings:
Income/(loss) from continuing operations
$
56,940
$
33,544
$
32,766
$ (13,309)
$ (40,744)
Add from continuing operations:
Interest on indebtedness (a)
40,321
41,717
36,058
45,234
52,817
Portion of rents representative of the interest factor
1,868
Amortization of capitalized interest
734
1,751
725
1,705
1,665
580
398
1,627
291
Total earnings
$
99,863
$
77,737
$
71,109
$
33,988
$
13,991
Fixed charges from continuing operations:
Interest on indebtedness (a)
$
40,321
$
41,717
$
36,058
$
45,234
$
52,817
Interest capitalized
182
Portion of rents representative of the interest factor
1,868
2,890
1,751
5,870
1,705
3,679
1,665
1,752
1,627
Fixed charges
$
42,371
$
46,358
$
43,633
$
50,578
$
56,196
Ratio of earnings to fixed charges
2.36
1.68
1.63
— (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, and 2011 as earnings were inadequate to cover fixed charges by
deficiencies of approximately $16.6 million, and $42.2 million, respectively.
(Back To Top)
Section 8: EX-21 (EXHIBIT 21)
EXHIBIT 21
The Company has the following subsidiaries. Joint Venture entities are shown in red italics. 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 95% of the aggregate partnership interest. Entities marked with an asterisk are those entities in which
United Dominion Realty, L.P. is either a member or a partner. UDR Lighthouse DownREIT L.P. is also a limited partnership with outside limited
partners. The Company owns general and limited partnership interests in UDR Lighthouse DownREIT L.P. constituting 50.1% of the aggregate
partnership interest. Entities marked with a double asterisk are those entities in which UDR Lighthouse DownREIT L.P. owns an interest. All
other entities are wholly owned.
State of Incorporation
Subsidiary or Organization
1001 Properties, LLC Delaware
101 Colorado High-Rise, LP Delaware
101 Colorado Master Condominium Association, Inc. Texas
1020 Tower GP LLC Delaware
1020 Tower, LP Delaware
1211 S. Olive REIT GP LLC Delaware
1211 & Olive REIT LP Delaware
1211 S. Olive Street Development, L.P. California
1211 S. Olive GP LLC Delaware
13th And Market Properties LLC Delaware
1745 LLC Delaware
20 Lambourne LLC Delaware
24 Hundred Properties LLC Delaware
2000 Post Owners Association Delaware
345 Harrison LLC Delaware
399 Fremont LLC Delaware
6104 Hollywood, LLC Delaware
8th & Republican REIT LP Delaware
8th And Republican, LLC Washington
AAC Funding II, Inc. Delaware
AAC Funding III LLC** Delaware
AAC Funding IV LLC* California
AAC Funding IV, Inc. Delaware
AAC Funding Partnership II* Delaware
AAC Seattle I, Inc. Delaware
AAC/FSC Crown Pointe Investors, LLC Washington
AAC/FSC Hilltop Investors, LLC Washington
AAC/FSC Seattle Properties, LLC* Delaware
Acoma High-Rise, LP Delaware
Andover House LLC Delaware
Andover Member 1 LLC Delaware
Andover Member 2 LLC Delaware
Apartments on Chestnut Limited Partnership Delaware
Ashton at Dublin Station, LLC Delaware
Ashwood Commons, L.L.C. Washington
Ashwood Commons North LLC Washington
ASR Investments Corporation Maryland
Bella Terra Villas LLC Delaware
Bellevue Plaza Development LLC Delaware
Block R Master Condominium Association, Inc. Texas
CMP-1, LLC Delaware
Calvert’s Walk LLC Delaware
Cambridge Woods LLC Delaware
Cedar Street High-Rise, L.P. Delaware
Circle Towers LLC** Delaware
CityLine Development Phase I LLC Washington
Coastal Monterey Properties, LLC* Delaware
College Park Holding LLC Delaware
Columbia City Apartments REIT LP Delaware
Columbia City Apartments REIT GP LLC Delaware
Columbus Square 775 LLC Delaware
Columbus Square 795 LLC Delaware
Columbus Square 801 LLC Delaware
Columbus Square 805 LLC Delaware
Columbus Square 808 LLC Delaware
Consolidated-Hampton, LLC Maryland
Coronado South Apartments, L.P.* Delaware
DCO 2400 14th Street LLC Delaware
DCO 2919 Wilshire LLC Delaware
DCO 3032 Wilshire LLC Delaware
DCO 3033 Wilshire LLC Delaware
DCO Addison at Brookhaven LP Delaware
DCO Arbors at Lee Vista LLC Delaware
DCO Beach Walk LLC Delaware
DCO Borgata LLC Delaware
DCO Brookhaven Center LP Delaware
DCO Caroline Development LLC Delaware
DCO Clipper Pointe LP Delaware
DCO College Park LLC Delaware
DCO/CWP 2919 Wilshire LLC Delaware
DCO/CWP 3032 Wilshire LLC Delaware
DCO Fiori LLC Delaware
DCO Garden Oaks LP Delaware
DCO Glenwood Apartments LP Delaware
DCO Highlands LLC Delaware
DCO Market LLC Delaware
DCO Mission Bay LP Delaware
DCO Option 2 LLC Delaware
DCO Pacific City LLC Delaware
DCO Pine Avenue LP Delaware
DCO Realty, Inc. Delaware
DCO Realty LP LLC Delaware
DCO Savoye LLC Delaware
DCO Savoye 2 LLC Delaware
DCO Springhaven LP Delaware
DCO Talisker LP Delaware
Domain Mountain View LLC Delaware
Dominion Constant Friendship LLC Delaware
Dominion Eden Brook LLC Delaware
Dominion Kings Place LLC Delaware
Domus SPE General Partner, LLC Delaware
Eastern Residential, Inc. Delaware
Easton Partners I, LP Delaware
FMP Member, Inc. Delaware
Fiori LLC Delaware
Foxborough Lodge Limited Partnership Delaware
Garrison Harcourt Square LLC Delaware
Governour’s Square of Columbus Co. Ltd.* Ohio
HPI 2161 Sutter LP Delaware
HPI Option 2 LLC Delaware
Hanover Square SPE LLC* Delaware
Harding Park LP LLC Delaware
Hawthorne Apartments LLC Delaware
Heritage Communities LLC** Delaware
Icon Tower, LP Delaware
Inlet Bay at Gateway, LLC Delaware
Inwood Development LLC* Delaware
Jamestown of St. Matthews Limited Partnership* Ohio
Jefferson at Marina del Rey, L.P. Delaware
K/UDR Venture LLC Delaware
Katella Grand GP LLC Delaware
Katella Grand II GP LLC Delaware
Katella Grand II REIT LP Delaware
Katella Grand II REIT GP LLC Delaware
Katella Grand REIT GP LLC Delaware
Katella Grand REIT LP Delaware
Kelvin and Jamboree Properties, LLC Delaware
Kelvin Jamboree LLC Delaware
L.A. Southpark High Rise, LP Delaware
La Jolla Wilshire, LLC Delaware
Lakeside Mill LLC Delaware
Lenox Farms Limited Partnership Delaware
Lightbox LLC Delaware
Lincoln TC II, L.P. Delaware
LJW LLC Delaware
Lodge at Ames Pond Limited Partnership Delaware
Lofts at Charles River Landing, LLC Delaware
LPC Millenia Place Apartments LLC Delaware
MacAlpine Place Apartment Partners, Ltd.* Florida
Management Company Services, Inc. Delaware
Ninety Five Wall Street LLC* Delaware
Northbay Properties II, L.P.* California
Olive Way High-Rise LP Delaware
Pacific Los Alisos LLC Delaware
Parker’s Landing Condominiums LLC Delaware
Parker’s Landing Townhomes LLC Delaware
Pier 4 LLC Delaware
Platinum Gateway Development Company, LP California
Platinum Vista Apartments, LP California
Polo Park Apartments LLC* Delaware
Portico Properties, LLC Delaware
RE3, Inc. Delaware
Rancho Cucamonga Town Square Owners Association California
Savoye LLC Delaware
Savoye 2 LLC Delaware
Strata Properties, LLC Delaware
Tennessee Colonnade LLC* Delaware
THC/UDR Domain College Park LLC Delaware
The Commons of Columbia, Inc. Virginia
The Domain Condominium Association, Inc. Texas
Thomas Circle Properties LLC Delaware
Town Square Commons, LLC District of Columbia
Towson Holdings, LLC Delaware
Towson Promenade, LLC Delaware
Trilon Townhouses, LLC District of Columbia
TSTW LLC Delaware
UDR 10 Hanover LLC* Delaware
UDR 1818 Platinum LLC Delaware
UDR 1200 East West LLC Delaware
UDR Altamira Place LLC Delaware
UDR Arbor Park LLC** Delaware
UDR Arborview Associates LLC Delaware
UDR Aspen Creek, LLC Virginia
UDR Barton Creek LLC** Delaware
UDR California GP, LLC* Delaware
UDR California GP II, LLC Delaware
UDR California Properties, LLC Virginia
UDR Calvert, LLC* Delaware
UDR Calvert’s Walk Associates Limited Partnership Maryland
UDR Calverts Walk GP, LLC Delaware
UDR Carlsbad Apartments, L.P.* Delaware
UDR Carriage Homes, LLC Delaware
UDR Chelsea LLC Delaware
UDR Courts at Dulles LLC** Delaware
UDR Courts at Huntington LLC* Delaware
UDR Crane Brook LLC* Delaware
UDR Delancey at Shirlington LLC** Delaware
UDR Developers, Inc. Virginia
UDR Domain Brewers Hill LLC Delaware
UDR EAS LLC Delaware
UDR Eleven55 Ripley LLC** Delaware
UDR Foxglove Associates L.L.C.* Maryland
UDR Garrison Square LLC Delaware
UDR Harbor Greens, L.P.* Delaware
UDR Holdings, LLC* Virginia
UDR Huntington Vista, L.P.* Delaware
UDR Inwood LLC** Delaware
UDR, Inc. Maryland
UDR/K Venture Member LLC Delaware
UDR Lakeline Villas LLC Delaware
UDR Lakeside Mill, LLC* Virginia
UDR Legacy at Mayland LLC Delaware
UDR Legacy Village LLC** Delaware
UDR Lincoln at Towne Square LLC Delaware
UDR Lincoln at Towne Square II LLC Delaware
UDR Lighthouse DownREIT L.P.* Delaware
UDR Lighthouse EAS LLC** Delaware
UDR Marina Pointe LLC Delaware
UDR Maryland Properties, LLC* Virginia
UDR/MetLife G.P. LLC Delaware
UDR/MetLife GP II LLC Delaware
UDR/MetLife Master Limited Partnership Delaware
UDR/MetLife Master Limited Partnership II Delaware
UDR/ML Venture LLC Delaware
UDR/ML Venture 2 LLC Delaware
UDR Midlands Acquisition, LLC* Delaware
UDR Newport Beach North, L.P.* Delaware
UDR Newport Village LLC** Delaware
UDR Ocean Villa Apartments, L.P.* Delaware
UDR of Tennessee, L.P.* Virginia
UDR Okeeheelee LLC* Delaware
UDR Pinebrook, L.P.* Delaware
UDR Presidential Greens, L.L.C. Delaware
UDR Rancho Cucamonga, L.P. Delaware
UDR Red Stone Ranch LLC Delaware
UDR Ridgewood (II) Garden, LLC* Virginia
UDR Ridge at Blue Hills LLC** Delaware
UDR River Terrace LLC Delaware
UDR Rivergate LLC Delaware
UDR Stone Canyon LLC Delaware
UDR Texas Properties LLC Delaware
UDR Texas Ventures LLC Delaware
UDR The Bradford LLC Delaware
UDR The Cliffs LLC Delaware
UDR The Legend at Park Ten LLC Delaware
UDR The Mandolin LLC Delaware
UDR The Meridian LLC Delaware
UDR Towers By The Bay LLC Delaware
UDR TX Fund LLC Delaware
UDR Villa Venetia Apartments, L.P.* Delaware
UDR Virginia Properties, LLC Virginia
UDR Wellington Place LLC Delaware
UDR Whitmore LLC** Delaware
UDR Windjammer, L.P.* Delaware
UDR WJV Member LLC Delaware
UDR Woodland Apartments II, L.P. Delaware
UDR Woodland GP, LLC Delaware
UDRLP EAS LLC* Delaware
UDRT of Delaware 4 LLC* Delaware
United Dominion Realty, L.P. Delaware
View 14 Investments LLC Delaware
VPDEV 1 LLC Delaware
VPDEV 2 LLC Delaware
Washington Vue, LP Delaware
Waterscape Village LLC Delaware
Waterside Towers, L.L.C. Delaware
WCH LLC Delaware
West El Camino Real, LLC Delaware
Western Residential, Inc. Virginia
Wilshire Crescent Heights, LLC Delaware
Windemere at Sycamore Highlands, LLC Delaware
Winterland San Francisco Partners* California
WREP II Non-REIT Investments, L.P. Delaware
(Back To Top)
Section 9: EX-23.1 (EXHIBIT 23.1)
EXHIBIT 23.1
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 23, 2016, 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, 2015:
Registration
Statement Number
Description
333-129743
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.
333-197710
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.
333-167270
Form S-3, pertaining to the registration of 3,882,187 shares of Common Stock.
333-180553
Form S-3, pertaining to the registration of 2,569,606 shares of Common Stock.
333-183510
Form S-3, pertaining to the registration of 1,802,239 shares of Common Stock.
333-160180
Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan.
333-201192
Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan.
333-75897
Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan.
/s/ Ernst & Young LLP
Denver, Colorado
February 23, 2016
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Section 10: EX-23.2 (EXHIBIT 23.2)
EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements of UDR, Inc. and related Prospectuses of our report dated
February 23, 2016, 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, 2015:
Registration
Statement Number
Description
333-129743
333-197710
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.
333-167270
Form S-3, pertaining to the registration of 3,882,187 shares of Common Stock
333-180553
Form S-3, pertaining to the registration of 2,569,606 shares of Common Stock.
333-183510
Form S-3, pertaining to the registration of 1,802,239 shares of Common Stock.
333-160180
Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan.
333-201192
Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan.
333-75897
Form S-8, pertaining to the Company’s 1999 Long-Term Incentive Plan.
Denver, Colorado
February 23, 2016
/s/ Ernst & Young LLP
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Section 11: EX-31.1 (EXHIBIT 31.1)
CERTIFICATION
I, Thomas W. Toomey, certify that:
1. I have reviewed this Annual Report on Form 10-K of UDR, Inc.;
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 23, 2016
/s/ Thomas W. Toomey
Thomas W. Toomey
Chief Executive Officer and President (Principal
Executive Officer)
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Section 12: EX-31.2 (EXHIBIT 31.2)
CERTIFICATION
I, Thomas M. Herzog, certify that:
EXHIBIT 31.2
1. I have reviewed this Annual Report on Form 10-K of UDR, Inc.;
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 23, 2016
/s/ Thomas M. Herzog
Thomas M. Herzog
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
(Back To Top)
Section 13: EX-31.3 (EXHIBIT 31.3)
CERTIFICATION
I, Thomas W. Toomey, certify that:
1. I have reviewed this Annual Report on Form 10-K of United Dominion Realty, L.P.;
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 23, 2016
/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-31.4 (EXHIBIT 31.4)
EXHIBIT 31.4
CERTIFICATION
I, Thomas M. Herzog, certify that:
1. I have reviewed this Annual Report on Form 10-K of United Dominion Realty, L.P.;
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 23, 2016
/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 15: EX-32.1 (EXHIBIT 32.1)
EXHIBIT 32.1
CERTIFICATION
In connection with the periodic report of UDR, Inc. (the “Company”) on Form 10-K for the year ended 2015, 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 23, 2016
/s/ Thomas W. Toomey
Thomas W. Toomey
Chief Executive Officer and President (Principal
Executive Officer)
(Back To Top)
Section 16: EX-32.2 (EXHIBIT 32.2)
EXHIBIT 32.2
CERTIFICATION
In connection with the periodic report of UDR, Inc. (the “Company”) on Form 10-K for the year ended 2015, 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 23, 2016
/s/ Thomas M. Herzog
Thomas M. Herzog
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
(Back To Top)
Section 17: 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
2015, 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 23, 2016
/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 18: EX-32.4 (EXHIBIT 32.4)
EXHIBIT 32.4
CERTIFICATION
In connection with the periodic report of United Dominion Realty, L.P. (the “Operating Partnership”) on Form 10-K for the year ended
2015, 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 23, 2016
/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)