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Northern Property REITUNITED 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 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR 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 Common Stock, $0.01 par value (UDR, Inc.) Name of Each Exchange on Which Registered 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 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): UDR, Inc.: Large accelerated filer United Dominion Realty, L.P.: Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Emerging growth company Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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, 2017 was approximately $3.6 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 16, 2018, there were 268,160,029 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. DOCUMENTS INCORPORATED BY REFERENCE 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 2018 Annual Meeting of Stockholders. This Annual Report on Form 10-K includes financial statements required under Rule 3-09 of Regulation S-X for UDR Lighthouse DownREIT L.P. TABLE OF CONTENTS PAGE PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules Item 16. Form 10-K Summary 3 11 24 25 26 26 27 31 34 64 64 64 64 65 66 66 66 66 66 67 74 EXPLANATORY NOTE This Report combines the annual reports on Form 10-K for the fiscal year ended December 31, 2017 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”), both Delaware limited partnerships of which UDR is the sole general partner. 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, 2017, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,126,805 OP Units, representing approximately 95.0% of the total outstanding OP Units in 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 UDR’s role as 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 presented in this report 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 and rental rates, expectations concerning joint ventures with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income. The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements: general economic conditions; unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates; the failure of acquisitions to achieve anticipated results; possible difficulty in selling apartment communities; competitive factors that may limit our ability to lease apartment homes or increase or maintain rents; insufficient cash flow that could affect our debt financing and create refinancing risk; failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders; development and construction risks that may impact our profitability; potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us; risks from extraordinary losses for which we may not have insurance or adequate reserves; risks from cybersecurity breaches of our information technology systems and the information technology systems of our third party vendors and other third parties; 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; 1 potential liability for environmental contamination, which could result in substantial costs to us; the imposition of federal taxes if we fail to qualify as a REIT under the Code in any taxable year; our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and changes in real estate laws, tax laws and other laws affecting our business. A discussion of these and other factors affecting our business and prospects is set forth in Part I, Item 1A. Risk Factors. We encourage investors to review these risk factors. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law. 2 Item 1. BUSINESS General UDR is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, disposes of, 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, 2017, our consolidated real estate portfolio included 127 communities located in 19 markets, with a total of 39,998 completed apartment homes, which are held directly or through our subsidiaries, including the Operating Partnership and the DownREIT Partnership, and consolidated joint ventures. In addition, we have an ownership interest in 29 communities containing 7,286 apartment homes through unconsolidated joint ventures or partnerships. As of December 31, 2017, the Company was developing two wholly-owned communities with 1,101 apartment homes, 300 of which have been completed, and two unconsolidated joint venture communities with 533 apartment homes, none of which have been completed. At December 31, 2017, the Operating Partnership’s consolidated real estate portfolio included 53 communities located in 15 markets, with a total of 16,698 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, 2017, revenues of the Operating Partnership represented approximately 43% 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 2017, we declared total distributions of $1.24 per common share and paid dividends of $1.225 per common share. Dividends Dividends First Quarter Second Quarter Third Quarter Fourth Quarter Total Declared in 2017 0.310 $ 0.310 0.310 0.310 1.240 $ Paid in 2017 0.295 0.310 0.310 0.310 1.225 $ $ 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 16, 2018, we had 1,502 full-time associates and 40 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 represents those communities acquired, developed, and stabilized prior to January 1, 2016, and held as of December 31, 2017. 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 disposition 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 11, 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 liquidity, earnings and dividends. 2017 Highlights In July 2017, the Company marked its 45th year as a REIT and, in October 2017, paid its 180th consecutive quarterly dividend. The Company’s annualized declared 2017 dividend of $1.24 represented a 5.1% increase over the previous year. We achieved Same-Store revenue growth of 3.7% and Same-Store net operating income (“NOI”) growth of 3.8%. We completed two developments held by unconsolidated joint ventures in Irvine, CA and Mountain View, CA with a total of 536 apartment homes. We completed three redevelopment projects in San Francisco, CA, Austin, TX and Dallas, TX. As of December 31, 2017, we were developing two wholly-owned communities and two communities held by unconsolidated joint ventures. We acquired a community in Denver, CO with 218 apartment homes and increased our ownership from 49% to 100% in an operating community located in Seattle, WA with 244 apartment homes for a total of approximately $207.5 million. The acquisition in Denver, CO will be fully or partially funded with tax- deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986. We recognized gains on the sale of real estate of $43.4 million from the sale of two communities in Orange County, CA and Carlsbad, CA with a total of 218 apartment homes and a parcel of land in Richmond, VA. We recognized gains of $7.6 million as a result of the sale of two communities in Seattle, WA and Anaheim, CA by the West Coast Development Joint Venture. We contributed $87.5 million to five unconsolidated investments under our Developer Capital Program, which earn preferred returns ranging between 6.5% to 11.0%. 4 We issued $600 million of 3.50%, 10-year senior unsecured medium-term notes and redeemed $300 million of 4.25% unsecured medium-term notes due June 2018. We prepaid $275.3 million of our secured credit facilities with borrowings under the unsecured commercial paper program and proceeds from the issuance of senior unsecured medium-term notes. We entered into an unsecured commercial paper program under which we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. 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 2017. Our Strategic Vision Our strategic vision is to be the innovative multifamily public REIT of choice. We intend to realize this vision by executing on our strategic objectives, which are: 1. Maintaining a Diversified Portfolio and Allocating Capital to Accretive Investment Opportunities 2. Maintaining a Strong Balance Sheet 3. Consistently Driving Operating Excellence 4. Advancing a Strong Corporate Culture and Ensuring High Resident Satisfaction Maintaining a Diversified Portfolio and Allocating Capital to Accretive Investment Opportunities We believe greater portfolio diversification, as defined by geographic concentration, location within a market (i.e., urban or suburban) and property quality (i.e., A or B), reduces the volatility of our same-store growth throughout the real estate cycle, appeals to a wider renter and investor audience and lessens the market risk associated with owning a homogenous portfolio. Diversified characteristics of our portfolio include: our consolidated apartment portfolio includes 127 communities located in 19 markets throughout the U.S., including both Coastal and Sunbelt locations; and our mix of urban/suburban communities and our mix of A/B quality properties is approximately 50%/50%. 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. Acquisitions and Dispositions When evaluating potential acquisitions, we consider a wide variety of factors, including: whether it is located in a high barrier-to-entry market; 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; ability of the property’s projected cash flows to exceed our cost of capital; potential for capital appreciation of the property; ability to increase the value and profitability of the property through operations and redevelopment; 5 terms of resident leases, including the potential for rent increases; occupancy and demand by residents for properties of a similar type in the vicinity; prospects for liquidity through sale, financing, or refinancing of the property; and competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area. We regularly monitor our assets to increase the quality and performance of our portfolio. Factors we consider in deciding whether to dispose of a property include: current market price for an asset compared to projected economics for that asset; potential increases in new construction in the market area; areas with low job growth prospects; markets where we do not intend to establish a long-term concentration; and operating efficiencies. The following table summarizes our apartment community acquisitions and dispositions and our consolidated year-end ownership position for the past five years (dollars in thousands): 2017 2016 2015 2014 2013 Homes acquired Homes disposed Homes owned at December 31, Total real estate owned, at cost $ 462 218 39,998 — 914 41,250 10,177,206 $ 9,615,753 $ 9,190,276 $ 8,383,259 $ 8,207,977 358 2,500 39,851 3,246 2,735 40,728 508 1,782 39,454 The following table summarizes the Operating Partnership’s apartment community acquisitions and dispositions and year-end ownership position for the past five years (dollars in thousands): 2017 2016 2015 2014 2013 Homes acquired Homes disposed Homes owned at December 31, Total real estate owned, at cost 218 218 16,698 421 4,256 (a) 16,974 $ 3,816,956 $ 3,674,704 $ 3,630,905 — 276 16,698 — 264 20,814 — 914 20,746 $ 4,238,770 $ 4,188,480 (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 and valuations have trended over the long- term generally govern our review process on where to allocate development capital. At December 31, 2017, our development pipeline included two wholly-owned communities located in Huntington Beach, California and Boston, Massachusetts with a total of 1,101 homes and an aggregate budget of $716.5 million, in which we have a total carrying value of $592.5 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 2017, we continued to redevelop properties in primary markets where we concluded there was an opportunity to add value. During the year ended December 31, 2017, we incurred $15.4 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings. At December 31, 2017, the Company was not redeveloping any communities. 6 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. Maintaining a Strong Balance Sheet We maintain a capital structure that we believe allows us to proactively source potential investment opportunities in the marketplace. We have structured our debt maturity schedule to be able to opportunistically access both secured and unsecured debt markets when appropriate. Financing Activities As part of our plan to finance our activities, we utilize proceeds from debt and equity offerings and refinancings to extend maturities, pay down existing debt, fund development and redevelopment activities, and acquire apartment communities. Consistently Driving Operational Excellence 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 has 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. Operating Partnership Strategies and Vision The Operating Partnership’s long-term strategic vision is the same as that of the Company as described above. 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: 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; 7 access to sources of capital; geographic diversification with a presence in 19 markets across the country; and significant presence in many of our major markets that allows us to be a local operating expert. Moving forward, we will continue to optimize lease management, improve expense control, increase resident retention efforts and align employee incentive plans with our bottom line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational upside. Communities At December 31, 2017, our consolidated real estate portfolio included 127 communities with a total of 39,998 completed apartment homes, which included the Operating Partnership’s consolidated real estate portfolio of 53 communities with a total of 16,698 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, 2017, the Company was developing two wholly-owned communities with 1,101 apartment homes, 300 of which have been completed. The communities being developed are not part of the Operating Partnership’s real estate portfolio. At December 31, 2017, the Company was not redeveloping any communities. 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, 2017, our Same-Store NOI increased by $22.0 million compared to the prior year. Our Same-Store Community properties provided 87.0% of our total NOI for the year ended December 31, 2017. The increase in NOI for the 35,471 Same-Store apartment homes, or 88.7% of our portfolio, was primarily driven by an increase in rental rates and fee and reimbursement income, partially offset by an increase in real estate taxes. For the year ended December 31, 2017, the Operating Partnership’s Same-Store NOI increased by $10.7 million compared to the prior year. The Operating Partnership’s Same-Store Community properties provided 87.2% of its total NOI for the year ended December 31, 2017. The increase in NOI for the 14,840 Same-Store apartment homes, or 88.9% of the Operating Partnership’s portfolio, was primarily driven by an increase in rental rates and fee and reimbursement income, partially offset by an increase in real estate taxes. Revenue growth in 2018 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 8 nonqualifying real estate transactions. Our TRS generally is taxable as a regular corporation, and therefore, subject to federal, state and local income taxes. The Operating Partnership intends to qualify as a partnership for federal income tax purposes. As a partnership, the Operating Partnership generally is not a taxable entity and does not incur federal income tax liability. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are incurred at the entity level. Inflation We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 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 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, 2017. 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. 9 Insurance We carry comprehensive general liability coverage on our communities, with limits of liability customary within the multi-family apartment industry to insure against liability claims and related defense costs. We are also insured, with limits of liability customary within the multi-family apartment industry, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Available Information Both UDR and the Operating Partnership file electronically with the Securities and Exchange Commission their respective annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports on the day of filing with the SEC on our website at www.udr.com, or by sending an e-mail message to ir@udr.com. 10 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 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 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 or the market value of our securities. Factors that may affect our occupancy levels, our rental revenues, and/or the value of our properties include the following, among others: downturns in the global, national, regional and local economic conditions, particularly increases in unemployment; declines in mortgage interest rates, making alternative housing more affordable; government or builder incentives with respect to home ownership, 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; 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, or the Terms of Renewals or New Leases May Be Less Favorable Than Current Leases. When our residents decide to leave our apartments, whether because they decide not to renew their leases or they leave prior to their lease expiration date, we may not be able to relet their apartment units. Even if the residents do renew or we can relet the apartment units, the terms of renewal or reletting may be less favorable than current lease terms. Furthermore, because the majority of our apartment leases have initial terms of 12 months or less, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer 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. 11 We Face Certain Risks Related to Our Retail and Commercial Space. Certain of our properties include retail or commercial space that we lease to third parties. The long term nature of our retail and commercial leases (generally five to ten years with market based renewal options) and the characteristics of many of our tenants (generally small and/or local businesses) may subject us to certain risks. The longer term leases could result in below market lease rates over time. We may not be able to lease new space for rents that are consistent with our projections or for market rates. Also, when leases for our retail or commercial space expire, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the prior lease terms. Our properties compete with other properties with retail or commercial space. The presence of competitive alternatives may adversely affect our ability to lease space and the level of rents we can obtain. If our retail or commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations, which could adversely impact our results of operations and financial condition. 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. 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 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, among others: 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, among others: we may be unable to obtain financing for acquisitions on favorable terms, including but not limited to interest rates, term and/or loan-to-value ratios, or at all, all of which could cause us to delay or even abandon potential acquisitions; 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 not complete the acquisition for a variety of reasons after incurring certain acquisition-related costs; 12 we may incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential acquisitions that we are subsequently unable to complete; when we acquire an apartment community, we may invest additional amounts in it with the intention of increasing profitability, and these additional investments may not produce the anticipated improvements in profitability; the expected occupancy rates and rental rates may differ from actual results; and we may be unable to quickly and efficiently integrate acquired apartment communities and new personnel into our existing operations, and the failure to successfully integrate such apartment communities or personnel will result in inefficiencies that could materially 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 acquire attractive investment opportunities on favorable terms, which could materially 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, among others: we may be unable to obtain construction financing for development activities on favorable terms, including but not limited to interest rates, term 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; 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 development opportunities; we may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs; occupancy rates, rents and concessions at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our expected return on our investment and our overall profitability goals; 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. 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 materially adversely affect our business and results of operations. 13 Property Ownership Through Partnerships and 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 partnerships and joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. As of December 31, 2017, we had active joint ventures and partnerships, including our participating loan investment and preferred equity investments, with a total equity investment of $720.8 million. We could become engaged in a dispute with one or more of our partners which might affect our ability to operate a jointly-owned property. Moreover, our 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, our partners may have competing interests in our markets that could create conflicts of interest. Also, our 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 partnership or joint venture (if we are the seller) or of the other partner’s interest in the partnership or 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 other risks in connection with partnerships or joint ventures, including (i) a deadlock if we and our partner are unable to agree upon certain major and other decisions, (ii) the limitation of our ability to liquidate our position in the partnership or joint venture without the consent of the other 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. However, subject to certain conditions, we retain the right to substitute other property or debt to meet these obligations to the sellers. 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 materially and 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 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 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 or replace our insurance policies or increase the cost of insuring properties. Failure to Succeed in New Markets May Limit Our Growth. We have acquired in the past, and we may acquire in the future if appropriate opportunities arise, apartment communities that are outside of our existing markets. Entering into new markets may expose us to a variety of risks, and we may not be able to operate successfully in new markets. These risks include, among others: inability to accurately evaluate local apartment market conditions and local economies; 14 inability to hire and retain key personnel; lack of familiarity with local governmental and permitting procedures; and inability to achieve budgeted financial results. Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property. In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of wastes and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us to liability. Changes in laws could increase the potential costs of compliance with environmental laws, health and safety laws or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise adversely affect our cash flow and results of 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 15 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 and Regulations Could Adversely Affect Our Funds from Operations and Our Ability to Make Distributions to Stockholders. We are subject to federal, state and local laws, regulations, rules and ordinances at locations where we operate regarding a wide variety of matters that could affect, directly or indirectly, our operations. Generally, we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes to tenants under leases. These costs may adversely affect net operating income and the ability to make distributions to stockholders. Similarly, compliance with or changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions or (ii) rent control or rent stabilization laws or other laws and regulations regulating housing, such as the Americans with Disabilities Act and the Fair Housing Amendments Act of 1988, may result in significant unanticipated expenditures or unanticipated reductions in revenue, which could 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. 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 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 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 may 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 or Injury Due to Fire, Natural Disasters or Other Hazards. The accidental death or injury of persons living in our communities due to fire, natural disasters or other hazards could have an 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 an 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 an 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 an adverse effect on our business and results of operations. 16 Mezzanine Loan Assets Involve Greater Risks of Loss than Senior Loans Secured by Income-producing Properties. We may originate 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 a senior mortgage secured by real property, because the security for the loan may lose all or substantially all of its value 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 investment. 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. Risk Related to Preferred Equity Investments. We may make preferred equity investments in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing or managing real property. With preferred equity investments, our interest in a particular entity will be less than a majority of the outstanding ownership interests of that entity. Generally, we will not have the ability to control the daily operations of the entity, and we will not have the ability to select or remove a majority of the members of the board of directors, managers, general partner or partners or similar governing body of the entity or otherwise control its operations. Although we would seek to maintain sufficient influence over the entity to achieve our objectives, our partners may have interests that differ from ours and may be in a position to take actions without our consent or that are inconsistent with our interests. Further, if our partners were to fail to invest capital in the entity, we may have to invest additional capital to protect our investment. Our partners may fail to develop or operate the real property in the manner intended and as a result the entity may not be able to redeem our investment or pay the return expected to us in a timely manner if at all. In addition, we may not be able to dispose of our investment in the entity in a timely manner or at the price at which we would want to divest. In the event that such an entity fails to meet expectations or becomes insolvent, we may lose our entire investment in the entity. We May Experience a Decline in the Fair Value of Our Assets and Be Forced to Recognize Impairment Charges, Which Could Materially and Adversely Impact Our Financial Condition, Liquidity and Results of Operations and the Market Price of UDR’s Common Stock. A decline in the fair value of our assets may require us to recognize an impairment against such assets under generally accepted accounting principles as in effect in the United States (“GAAP”), if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize asset impairment charges in the future, these charges could materially and adversely affect our financial condition, liquidity, results of operations and the per share trading price of UDR’s common stock. Any Material Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on UDR’s Stock Price. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. If we identify one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on the per share trading price of UDR’s common stock. A Breach of Information Technology Systems On Which We Rely Could Materially and Adversely Impact Our Business, Financial Condition, Results of Operations and Reputation. We rely on information technology systems, including the Internet and networks and systems maintained and controlled by third party vendors and other third parties, to process, transmit and store information and to manage or support our business processes. Third party vendors collect and hold personally identifiable information and other confidential information of our tenants, prospective tenants and employees. We also maintain confidential financial and business information regarding us and persons and entities with which we do business on our information technology systems. While we take steps, and generally require third party vendors to take steps, to protect the security of the information maintained in our and third party vendors’ information technology systems, including the use of commercially available systems, software, tools and monitoring to provide 17 security for processing, transmitting and storing of the information, it is possible that our or our third party vendors’ security measures will not be able to prevent the systems’ improper functioning, or the loss, misappropriation, disclosure or corruption of personally identifiable information or other confidential or sensitive information, including information about our tenants and employees. Cybersecurity breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized access to information maintained on our information technology systems or the information technology systems of our third party vendors or other third parties. While we maintain cyber risk insurance to provide some coverage for certain risks arising out of cybersecurity breaches, there is no assurance that such insurance would cover all or a significant portion of the costs or consequences associated with a cybersecurity breach. As the techniques used to obtain unauthorized access to information technology systems become more varied and sophisticated and the occurrence of such breaches becomes more frequent, we and our third party vendors and other third parties may be unable to adequately anticipate these techniques or breaches and implement appropriate preventative measures. Any failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third party vendors’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand, damage our competitive position, make it difficult for us to attract and retain tenants, subject us to liability claims or regulatory penalties and could adversely affect our business, financial condition and results of operations. Our Business and Operations Would Suffer in the Event of Information Technology System Failures. Despite system redundancy and the existence of a disaster recovery plan for our information technology systems, our information technology systems and the information technology systems maintained by our third party vendors are vulnerable to damage arising from any number of sources beyond our or our third party vendors’ control, including energy blackouts, natural disasters, terrorism, war, and telecommunication failures. Any failure to maintain proper function and availability of our or third party vendors’ information technology systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect our business, financial condition and results of operations. Social Media Presents Risks. The use of social media could cause us to suffer brand damage or unintended information disclosure. Negative posts or communications about us on a social networking website could damage our reputation. Further, employees or others may disclose non-public information regarding us or our business or otherwise make negative comments regarding us on social networking or other websites, which could adversely affect our business and results of operations. As social media evolves we will be presented with new risks and challenges. 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. 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 amounts under our line of credit may not be available to us and we may not be able to access the commercial paper market 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 18 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 a material adverse effect on our financial condition and cash flow, and 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 revenue 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 revenue 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. 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 revenue 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. 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, including unsecured commercial paper, at rates that vary with market interest rates. As of December 31, 2017, UDR had approximately $480.5 million of variable rate indebtedness outstanding, which constitutes approximately 13.0% of total outstanding indebtedness as of such date. As of December 31, 2017, the Operating Partnership had approximately $27.0 million of variable rate indebtedness outstanding, which constitutes approximately 16.9% 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, including unsecured commercial paper. 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. 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, construction loans and other forms of secured debt, commercial paper and other forms of 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, including due to regulatory changes directly or indirectly affecting financing markets, for example the changes in terms on construction loans brought about by the Basel III capital requirements and the associated “High Volatility Commercial Real Estate” designation, which has adversely impacted the availability of 19 loans, including construction loans, and the proceeds of and the interest rate thereon. Restricted lending practices could impact our ability to obtain financing or refinancing for our properties. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of UDR’s 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, routinely evaluate our debt and have given us ratings on our senior unsecured debt, commercial paper program 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, including our ability to access the commercial paper market. 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 on, or to refinance, our 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, such as the commercial paper market. 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 or Support Regarding Fannie Mae or Freddie Mac Could Have a Material Adverse Impact on Our Business. While in recent years we have decreased our borrowing from Fannie Mae and Freddie Mac, Fannie Mae and Freddie Mac are a major source of financing to participants in the multifamily housing market including potential purchasers of our properties. Potential options for the future of agency mortgage financing in the U.S. have been suggested, including options that could involve a reduction in the amount of financing Fannie Mae and Freddie Mac are able to provide, limitations on the loans that the agencies may make, which may not include loans secured by properties like our properties, or 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, or if there is reduced government support for multifamily housing generally, it may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily residential real estate and, as a result, may adversely affect our business and results of operations. 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. 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 20 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, for periods prior to 2018, 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. However, under the Tax Cuts and Jobs Act of 2017, with respect to regular dividends (dividends that are themselves neither capital gain dividends nor qualified dividend income) we pay to our U.S. stockholders that are not corporations, 20% of such dividends may generally be included in the calculation of combined qualified business income for purposes of calculating the deduction available under Section 199A of the Code (a provision due to expire after 2025, absent future legislation). UDR May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which are Subject to Certain Tax Risks. We have established taxable REIT subsidiaries. Despite UDR’s qualification as a REIT, its taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected. REIT Distribution Requirements Limit Our Available Cash. As a REIT, UDR is subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make distributions to UDR’s stockholders to comply with the requirements of the Code. However, differences in timing between the 21 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. Changes to the U.S. Federal Income Tax Laws, including the Enactment of Certain Tax Reform Measures, Could Have an Adverse Impact on Our Business and Financial Results. Although the Tax Cuts and Jobs Act of 2017 was recently passed, there can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results. Moreover, the Tax Cuts and Jobs Act of 2017 contained provisions that may reduce the relative competitive advantage of operating as a REIT. For example, the Tax Cuts and Jobs Act of 2017 lowered income tax rates on individuals and corporations, easing the burden of double taxation on corporate dividends and potentially causing the single level of taxation on REIT distributions to be relatively less attractive. The Tax Cuts and Jobs Act of 2017 also contains provisions allowing the expensing of capital expenditures, which could result in the bunching of taxable income and required distributions for REITs, and provisions further limiting the deductibility of interest expense, which could disrupt the real estate market. We cannot predict whether, when or to what extent the Tax Cuts and Jobs Act of 2017 and any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding the effect of the Tax Cuts and Jobs Act of 2017 and potential future changes to the federal tax laws on an investment in our shares. We May Be Adversely Affected by Changes in State and Local Tax Laws and May Become Subject to Tax Audits from Time to Time. 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 local jurisdictions 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, we or our affiliates (including entities through which we own real estate) may also become subject to federal, state or local tax audits. If we (or such entities) become subject to federal, 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 22 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 either the Operating Partnership or the DownREIT Partnership were to be taxed as a corporation, it 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 impossible for us to qualify as a REIT. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes. Risks Related to Our Organization and Ownership of UDR’s Stock Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of UDR’s Common Stock. The stock markets, including the New York Stock Exchange (“NYSE”), on which we list UDR’s common stock, have experienced significant price and volume fluctuations. As a result, the market price of UDR’s common stock could be similarly volatile, and investors in UDR’s common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the price per share of UDR’s common stock, including: general market and economic conditions; actual or anticipated variations in UDR’s quarterly operating results or dividends or UDR’s payment of dividends in shares of UDR’s stock; changes in our funds from operations or earnings estimates; difficulties or inability to access capital or extend or refinance existing debt; decreasing (or uncertainty in) real estate valuations; changes in market valuations of similar companies; publication of research reports about us or the real estate industry; the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate companies); general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of UDR’s stock to demand a higher annual yield from future dividends; a change in analyst ratings; additions or departures of key management personnel; adverse market reaction to any additional debt we incur in the future; speculation in the press or investment community; terrorist activity which may adversely affect the markets in which UDR’s securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending; 23 failure to qualify as a REIT; strategic decisions by us or by our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy; failure to satisfy listing requirements of the NYSE; governmental regulatory action and changes in tax laws; and the issuance of additional shares of UDR’s common stock, or the perception that such sales might occur, including under UDR’s at-the-market equity distribution program. Many of the factors listed above are beyond our control. These factors may cause the market price of shares of UDR’s common stock to decline, regardless of our financial condition, results of operations, business or our prospects. We May Change the Dividend Policy for UDR’s Common Stock in the Future. The decision to declare and pay dividends on UDR’s common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our board of directors considers relevant. Any change in our dividend policy could have a material adverse effect on the market price of UDR’s common stock. Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in UDR’s Stockholders’ Best Interests. Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our Company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in UDR’s stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of UDR’s stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66 2/3 % of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Limitations on Share Ownership and Limitations on the Ability of UDR’s Stockholders to Effect a Change in Control of Our Company Restricts the Transferability of UDR’s Stock and May Prevent Takeovers That are Beneficial to UDR’s Stockholders. One of the requirements for maintenance of our qualification as a REIT for U.S. federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to UDR’s stock primarily to assist us in complying with this and other REIT ownership requirements; however, the restrictions may have the effect of preventing a change of control, which does not threaten REIT status. These restrictions include a provision that generally limits ownership by any person of more than 9.9% of the value of our outstanding equity stock, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our outstanding equity stock. Absent such an exemption from our board of directors, the transfer of UDR’s stock to any person in excess of the applicable ownership limit, or any transfer of shares of such stock in violation of the ownership requirements of the Code for REITs, will be considered null and void, and the intended transferee of such stock will acquire no rights in such shares. These provisions of our charter may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for UDR’s stockholders or might otherwise be in UDR’s stockholders’ best interests. Item 1B. UNRESOLVED STAFF COMMENTS None. 24 Item 2. PROPERTIES At December 31, 2017, our consolidated apartment portfolio included 127 communities located in 19 markets, with a total of 39,998 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, 2017. SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2017 UDR, INC. Number of Number of Apartment Apartment Carrying Communities Homes Value Percentage of Gross Amount (in thousands) (in thousands) Encumbrances Cost per Physical Occupancy Home Average Home Size (in square feet) Average WEST REGION San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR MID-ATLANTIC REGION Metropolitan D.C. Richmond, VA Baltimore, MD NORTHEAST REGION New York, NY Boston, MA SOUTHEAST REGION Orlando, FL Nashville, TN Tampa, FL Other Florida SOUTHWEST REGION Dallas, TX Austin, TX Denver, CO Total Operating Communities Real Estate Under Development (a) Land Other Total Real Estate Owned 11 11 15 4 7 2 2 22 4 3 4 5 9 8 7 1 7 4 1 2,751 4,698 2,837 1,225 1,565 654 476 8,402 1,358 720 1,945 1,548 2,500 2,260 2,287 636 2,345 1,273 218 8.5 % $ 11.4 % 9.7 % 4.4 % 1.7 % 1.0 % 0.5 % 860,823 $ 1,155,124 984,139 451,322 172,856 106,023 48,317 65,495 $ 312,913 245,876 346,894 368,426 110,451 162,115 101,506 — 77,272 67,700 — — — 96.5 % 95.5 % 96.4 % 95.7 % 96.8 % 96.0 % 97.2 % 830 838 900 967 728 960 903 21.2 % 1.4 % 1.5 % 2,160,447 145,969 150,168 247,992 33,850 — 257,135 107,488 208,567 97.0 % 97.6 % 96.6 % 908 1,018 993 12.8 % 5.6 % 1,304,372 566,487 — 76,721 670,628 365,948 97.7 % 96.3 % 742 1,042 2.2 % 2.0 % 2.5 % 0.8 % 219,764 206,572 251,246 84,520 — 39,881 12,450 39,787 87,906 91,404 109,858 132,893 2.7 % 1.6 % 1.4 % 277,303 162,215 139,264 107,734 36,299 — 118,253 127,427 638,826 96.9 % 96.7 % 97.0 % 96.3 % 96.3 % 96.1 % 88.2 % 946 933 982 1,130 862 913 948 127 39,698 92.9 % 9,446,931 805,181 $ 237,970 96.6 % 901 — — — 127 300 — — 39,998 5.8 % 0.7 % 0.6 % 592,490 75,940 61,845 100.0 % $ 10,177,206 $ — — (1,912) 803,269 (a) As of December 31, 2017, the Company was developing two wholly-owned communities with 1,101 apartment homes, 300 of which have been completed. 25 SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2017 UNITED DOMINION REALTY, L.P. Percentage Gross Average Number of Number of Apartment Apartment Carrying Communities Homes Value of Amount (in Encumbrances Cost per thousands) (in thousands) Home Average Home Size (in square feet) Physical Occupancy WEST REGION San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR MID-ATLANTIC REGION Metropolitan D.C. Baltimore, MD NORTHEAST REGION New York, NY Boston, MA SOUTHEAST REGION Nashville, TN Tampa, FL Other Florida SOUTHWEST REGION Denver, CO Total Operating Communities Other Total Real Estate Owned 9 6 5 2 7 1 2 6 2 2 1 6 2 1 1 2,185 3,383 932 344 1,565 414 476 2,068 540 996 387 1,612 942 636 15.6 % $ 596,299 $ 20.2 % 5.9 % 3.0 % 4.5 % 1.9 % 1.3 % 770,308 223,419 113,853 172,856 72,988 48,317 65,495 $ 272,906 227,700 239,720 330,968 110,451 176,300 101,506 — — — — — — 14.5 % 2.7 % 554,100 103,028 31,373 — 267,940 190,793 97.6 % 95.5 % 96.8 % 95.7 % 96.8 % 96.0 % 97.2 % 97.2 % 96.7 % 817 806 874 976 728 996 903 898 968 15.9 % 1.9 % 606,732 71,653 — — 609,169 185,150 97.6 % 96.8 % 690 1,069 3.8 % 2.8 % 2.2 % 144,786 105,505 84,520 23,550 — 39,787 89,818 112,001 132,893 96.4 % 97.5 % 96.3 % 925 1,043 1,130 218 3.6 % 139,264 — 638,826 88.2 % 948 53 — 53 16,698 — 16,698 99.8 % 3,807,628 0.2 % 9,328 100 % $ 3,816,956 $ 160,205 $ 228,029 96.6 % 871 (360) 159,845 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. 26 Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II UDR, Inc.: Common Stock UDR, Inc.’s common stock has been listed on the New York Stock Exchange (“NYSE”) under the symbol “UDR” since May 7, 1990. The following tables set forth the quarterly high and low sale prices per common share reported on the NYSE for each quarter of the last two fiscal years. Distribution information for common stock reflects distributions declared per share for each calendar quarter and paid at the end of the following month. Quarter ended March 31, Quarter ended June 30, Quarter ended September 30, Quarter ended December 31, Low High $ 36.50 $ 34.48 $ $ 40.49 $ 35.97 $ $ 39.79 $ 37.75 $ $ 40.05 $ 37.68 $ 2017 Distributions Declared High 2016 Low 0.310 $ 38.53 $ 33.15 $ 0.310 $ 38.56 $ 33.42 $ 0.310 $ 37.63 $ 34.20 $ 0.310 $ 36.48 $ 33.11 $ Distributions Declared 0.295 0.295 0.295 0.295 On February 16, 2018, the closing sale price of our common stock was $34.61 per share on the NYSE, and there were 3,639 holders of record of the 268,160,029 outstanding shares of our common stock. We have determined that, for federal income tax purposes, approximately 83% of the distributions for 2017 represented ordinary income, 1% represented qualified ordinary income, 11% represented long-term capital gain, and 5% 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, 2017 and 2016 were $1.33 per share or $0.3322 per quarter. The Series E is not listed on any exchange. At December 31, 2017, a total of 2,780,994 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. 27 As of December 31, 2017, a total of 15,852,721 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 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 16, 2018, there were approximately 1,884 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, 2017, there were 183,350,924 OP Units outstanding in the Operating Partnership, of which 174,237,688 OP Units or 95.0% were owned by UDR and affiliated entities and 9,113,236 OP Units or 5.0% 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 2017, we issued a total of 7,604 shares of common stock upon redemption of OP Units. Purchases of Equity Securities In February 2006, UDR’s Board of Directors authorized a 10 million share repurchase program. In January 2008, UDR’s Board of Directors authorized a new 15 million share repurchase program. Under both 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, 2017. Total Number of Average Total Number Maximum Number of Shares that May Yet Be Purchased of Shares Purchased as Part of Publicly Period Beginning Balance October 1, 2017 through October 31, 2017 November 1, 2017 through November 30, 2017 December 1, 2017 through December 31, 2017 Balance as of December 31, 2017 Shares or Programs Purchased per Share 9,967,490 $ 22.00 — — — 9,967,490 $ 22.00 Price Paid Announced Plans Under the Plans or Programs (a) 15,032,510 15,032,510 15,032,510 15,032,510 15,032,510 9,967,490 — — — 9,967,490 — — — (a) This number reflects the amount of shares that were available for purchase under our 10 million share repurchase program authorized in February 2006 and our 15 million share repurchase program authorized in January 2008. During the three months ended December 31, 2017, 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 28 restricted shares of common stock or the exercise of stock options 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, 2017: Period October 1, 2017 through October 31, 2017 November 1, 2017 through November 30, 2017 December 1, 2017 through December 31, 2017 Total Total Number of Shares Average Total Number Maximum Number of Shares that May Yet Be Purchased of Shares Purchased as Part of Publicly Price Paid Announced Plans Under the Plans or Programs or Programs N/A N/A N/A N/A N/A N/A — $ Purchased per Share(a) — 39.10 — 39.10 32,075 — 32,075 $ (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. 29 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, 2012, 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 MSCI U.S. REIT Index S&P 500 Index NAREIT Equity REIT Index 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 192.78 162.72 156.29 208.14 157.14 139.89 130.97 133.60 150.51 133.35 101.98 93.80 102.47 132.39 102.47 176.68 156.88 148.75 170.84 149.33 176.21 152.52 136.97 152.59 137.61 100.00 100.00 100.00 100.00 100.00 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. 30 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, 2017. 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) 2015 2016 2014 2017 2013 OPERATING DATA: Rental income Income/(loss) from continuing operations Income/(loss) from discontinued operations, net of tax Net income/(loss) Distributions to preferred stockholders Net income/(loss) attributable to common stockholders Common stock distributions declared Income/(loss) per weighted average common share — basic: Income/(loss) from continuing operations attributable to common $ 984,309 $ 948,461 $ 871,928 $ 805,002 $ 746,484 2,340 105,482 89,251 43,942 — — 46,282 357,159 132,655 3,724 3,722 3,708 41,088 336,661 117,850 235,721 289,500 331,974 16,260 10 159,842 3,724 150,610 263,503 109,529 — 320,380 3,717 289,001 315,102 stockholders $ 0.44 $ 1.09 $ 1.30 $ 0.60 $ (0.01) 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 — 0.44 $ — 1.09 $ — 1.30 $ — 0.60 $ 0.17 0.16 stockholders $ 0.44 $ 1.08 $ 1.29 $ 0.59 $ (0.01) 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 $ — 0.44 $ — 1.08 $ — 1.29 $ — 0.59 $ 267,024 268,830 265,386 267,311 258,669 263,752 251,528 253,445 296,672 295,469 276,699 265,728 Common stock distributions declared - per share $ 1.24 $ 1.18 $ 1.11 $ 1.04 $ 0.17 0.16 249,969 249,969 263,926 0.94 Balance Sheet Data: Real estate owned, at cost (a) Accumulated depreciation (a) Total real estate owned, net of accumulated depreciation (a) Total assets Secured debt, net (a) Unsecured debt, net Total debt, net Total stockholders’ equity Number of Common Shares outstanding Other Data (a) Total consolidated apartment homes owned (at end of year) Weighted average number of consolidated apartment homes owned during the year Cash Flow Data: Cash provided by/(used in) operating activities Cash provided by/(used in) investing activities Cash provided by/(used in) financing activities Funds from Operations (b): 3,330,166 6,847,040 7,733,273 803,269 2,868,394 3,671,663 $ 10,177,206 $ 9,615,753 $ 9,190,276 $ 8,383,259 $ 8,207,977 2,208,794 5,999,183 6,787,342 1,432,186 2,071,137 3,503,323 $ 2,825,800 $ 3,093,110 $ 2,899,755 $ 2,735,097 $ 2,811,648 250,750 2,923,625 6,692,128 7,679,584 1,130,858 2,270,620 3,401,478 2,434,772 5,948,487 6,828,728 1,354,321 2,210,978 3,565,299 2,646,874 6,543,402 7,663,844 1,376,945 2,193,850 3,570,795 267,259 255,115 261,845 267,822 39,998 39,454 40,728 39,851 41,250 39,692 40,543 39,501 40,644 41,392 $ 519,152 $ 536,929 $ 458,627 $ 397,303 $ 344,373 (127,680) (265,461) (407,441) (198,559) (201,648) (111,785) (112,277) (429,282) (298,603) (113,725) Funds from operations attributable to common stockholders and unitholders — basic $ 538,916 $ 527,096 $ 455,565 $ 411,702 $ 376,778 Funds from operations attributable to common stockholders and unitholders — diluted 542,624 530,813 459,287 415,426 380,502 (a) Includes amounts classified as Held for Disposition, where applicable. (b) Funds from operations (“FFO”) is defined as Net income/(loss) 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 31 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 diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count. 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. See “Funds from Operations” in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of Net income/(loss) attributable to common stockholders to FFO. 32 United Dominion Realty, L.P. Year Ended December 31, (In thousands, except per OP unit data and apartment homes owned) OPERATING DATA: Rental income Income/(loss) from continuing operations Income/(loss) from discontinued operations Net income/(loss) Net income/(loss) attributable to OP unitholders Income/(loss) per weighted average OP Unit - basic and diluted: Income/(loss) from continuing operations 2017 2016 2015 2014 2013 $ 419,377 $ 66,583 — 107,855 106,307 404,415 $ 46,082 — 79,262 77,818 440,408 $ 56,940 — 215,063 213,301 422,634 $ 33,544 — 97,179 96,227 401,853 32,766 45,176 77,942 73,376 attributable to OP unitholder $ 0.58 $ 0.42 $ 1.16 $ 0.53 $ 0.16 Income/(loss) from discontinued operations attributable to OP unitholder Net income/(loss) attributable to OP unitholders $ — 0.58 $ — 0.42 $ — 1.16 $ — 0.53 $ 0.24 0.40 Weighted average number of OP Units outstanding — basic and diluted Balance Sheet Data: Real estate owned, at cost (a) Accumulated depreciation (a) Total real estate owned, net of accumulated depreciation (a) Total assets Secured debt, net (a) Total liabilities Total partners’ capital Advances (to)/from the General Partner Number of OP units outstanding Other Data: Total consolidated apartment homes owned (at end of year) (a) Cash Flow Data: 183,344 183,279 183,279 183,279 184,196 $ 3,816,956 $ 3,674,704 $ 3,630,950 $ 4,238,770 $ 4,188,480 1,241,574 1,408,815 1,281,258 1,403,303 1,543,652 2,273,304 2,395,573 159,845 520,443 1,464,295 2,265,889 2,415,535 433,974 797,036 1,578,202 2,349,647 2,554,808 475,964 833,478 1,713,412 2,835,467 2,873,809 927,484 1,139,758 1,703,001 $ 397,899 $ 183,351 19,659 $ 183,279 (11,270) $ 183,279 13,624 $ 183,279 2,946,906 2,987,393 929,017 1,184,296 1,795,934 (9,916) 183,279 16,698 16,698 16,974 20,814 20,746 Cash provided by/(used in) operating activities $ Cash provided by/(used in) investing activities Cash provided by/(used in) financing activities 234,463 $ (106,080) (128,846) 228,682 $ (9,546) (221,483) 226,765 $ 23,583 (247,747) 208,032 $ (46,650) (162,777) 208,346 (63,954) (145,299) (a) Includes amounts classified as Held for Disposition, where applicable. 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 and rental rates, expectations concerning joint ventures with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income. The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements: general economic conditions; unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates; the failure of acquisitions to achieve anticipated results; possible difficulty in selling apartment communities; competitive factors that may limit our ability to lease apartment homes or increase or maintain rents; insufficient cash flow that could affect our debt financing and create refinancing risk; failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders; development and construction risks that may impact our profitability; potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us; risks from extraordinary losses for which we may not have insurance or adequate reserves; risks from cybersecurity breaches of our information technology systems and the information technology systems of our third party vendors and other third parties; 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; 34 potential liability for environmental contamination, which could result in substantial costs to us; the imposition of federal taxes if we fail to qualify as a REIT under the Code in any taxable year; our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and changes in real estate laws, tax laws and other laws affecting our business. A discussion of these and other factors affecting our business and prospects is set forth in Part I, Item 1A. Risk Factors. We encourage investors to review these risk factors. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law. The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements and the accompanying notes for the years ended December 31, 2017, 2016 and 2015 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, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily 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, 2017, our consolidated real estate portfolio included 127 communities in 11 states plus the District of Columbia totaling 39,998 apartment homes, and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 29 communities with 7,286 apartment homes. At December 31, 2017, the Company was developing two wholly-owned communities with a total of 1,101 apartment homes, 300 of which have been completed, and two unconsolidated joint venture communities with a total of 533 apartment homes, none of which have been completed. The Company was not redeveloping any communities as of December 31, 2017. 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, Inc. Consolidated Financial Statements included in this Report. 35 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 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, 2017, 2016, and 2015 were $27.4 million, $24.4 million, and $22.4 million, respectively. Investment in Unconsolidated Entities 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 36 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. 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, 2017 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, 2017. Same-Store Communities West Region San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR Mid-Atlantic Region Metropolitan D.C. Richmond, VA Baltimore, MD Northeast Region New York, NY Boston, MA Southeast Region Orlando, FL Nashville, TN Tampa, FL Other Florida Southwest Region Dallas, TX Austin, TX As of December 31, 2017 Percentage Number of Number of of Total Apartment Apartment Carrying Communities Homes Value Total Carrying Value (in thousands) Year Ended December 31, 2017 Net Operating Income (in thousands) Monthly Average Income per Physical Occupied Occupancy Home (a) 10 10 10 4 7 2 2 21 4 3 4 5 9 8 7 1 2,558 3,251 2,014 1,225 1,565 654 476 7,551 1,358 720 7.2 % $ 8.5 % 5.5 % 4.4 % 1.7 % 1.0 % 0.5 % 732,102 864,555 557,788 451,322 172,854 106,020 48,317 96.7 % $ 95.9 % 96.7 % 95.7 % 96.8 % 96.0 % 97.2 % 3,414 $ 2,360 2,123 2,709 1,641 1,804 1,542 77,162 67,734 35,808 28,601 22,443 10,089 6,425 19.1 % 1.4 % 1.5 % 1,940,773 145,970 150,168 97.1 % 97.6 % 96.6 % 1,988 1,290 1,691 120,160 15,523 9,944 1,945 1,548 12.8 % 5.5 % 1,302,795 562,967 97.7 % 96.3 % 4,333 2,958 2,500 2,260 2,287 636 2.2 % 2.0 % 2.5 % 0.8 % 219,764 206,572 251,247 84,519 96.9 % 96.7 % 97.0 % 96.3 % 1,260 1,255 1,344 1,517 67,242 39,231 25,822 23,740 23,916 7,248 18,376 8,079 607,543 91,255 698,798 (295) 698,503 Total/Average Same-Store Communities Non-Mature, Commercial Properties & Other Total Real Estate Held for Investment Real Estate Under Development (b) Total Real Estate Owned Total Accumulated Depreciation Total Real Estate Owned, Net of Accumulated Depreciation 6 3 116 2,040 883 35,471 2.0 % 0.9 % 79.5 % 202,393 89,681 8,089,807 96.5 % 97.1 % 96.8 % $ 1,226 1,363 2,064 11 127 — 127 4,227 39,698 300 39,998 14.7 % 94.2 % 5.8 % 1,494,909 9,584,716 592,490 100.0 % 10,177,206 (3,330,166) $ 6,847,040 $ (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, 2017, the Company was developing two wholly-owned communities with a total of 1,101 apartment homes, 300 of which have been completed. We report in two segments: Same-Store Communities and Non-Mature Communities/Other. Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2016 and held as of December 31, 2017. 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 disposition 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 and our unsecured commercial paper program. 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 our credit agreements and our unsecured commercial paper program 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 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 January 23, 2017, the Company entered into an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of the Company’s other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. As of December 31, 2017, we had $300.0 million of unsecured commercial paper outstanding, for one month terms, at a weighted average annualized rate of 1.96%. On June 16, 2017, the Company issued $300 million of 3.50% senior unsecured medium-term notes due July 1, 2027. Interest is payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2018. The notes were priced at 99.764% of the principal amount at issuance. The Company used the net proceeds for general corporate purposes, including the repayment of outstanding indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. On July 31, 2017, the Company entered into an ATM sales agreement 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 and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into in April 2017, which had replaced the prior at-the-market equity offering program entered into in April 38 2012. During the year ended December 31, 2017, the Company did not sell any shares of common stock through the new continuous equity program or the prior ATM program. On December 13, 2017, the Company issued $300 million of 3.50% senior unsecured medium-term notes due January 15, 2028. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The notes were priced at 99.601% of the principal amount at issuance. The Company used the net proceeds for the repayment of debt, including funding the redemption of senior unsecured medium-term notes due in June 2018, and for general corporate purposes. The notes are fully and unconditionally guaranteed by the Operating Partnership. 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 2018, we have approximately $33.7 million of secured debt maturing, inclusive of principal amortization, and $300.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. We anticipate repaying that debt with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program. 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, 2017, 2016, and 2015. Operating Activities For the year ended December 31, 2017, Net cash provided by/(used in) operating activities was $519.2 million compared to $536.9 million for 2016. The decrease in cash flow from operating activities was primarily due to a decrease in cash from return on investment in unconsolidated joint ventures, partially offset by improved net operating income, primarily driven by revenue growth at communities, and changes in operating assets and liabilities. For the year ended December 31, 2016, Net cash provided by/(used in) operating activities was $536.9 million compared to $458.6 million for 2015. The increase in cash flow from operating activities was primarily due to improved net operating income, primarily driven by revenue growth at communities, and an increase in cash from return on investment in unconsolidated joint ventures, partially offset by changes in operating assets and liabilities. Investing Activities For the year ended December 31, 2017, Net cash provided by/(used in) investing activities was $(407.4) million compared to $(112.3) million for 2016. The increase in cash used in investing activities was primarily due to a decrease in proceeds from the sale of real estate assets, an increase in investment in unconsolidated joint ventures, and an increase in spend on consolidated development projects, capital expenditures and major renovations, partially offset by a decrease in the acquisition of real estate assets and an increase in distributions received from unconsolidated joint ventures. For the year ended December 31, 2016, Net cash provided by/(used in) investing activities was $(112.3) million compared to $(265.5) million for 2015. The decrease in cash used in investing activities was primarily due to a decrease in the acquisition of real estate assets, a decrease in investment in unconsolidated joint ventures, an increase in distributions received from unconsolidated joint ventures and a decrease in capital expenditures and major renovations, partially offset by an increase in spend on consolidated development projects and a decrease in proceeds from the sale of real estate assets. Acquisitions In October 2017, the Company acquired an operating community located in Denver, Colorado with a total of 218 apartment homes and 17,000 square feet of retail space for a purchase price of approximately $141.5 million. The 39 Company consolidated the operating community and accounted for the consolidation as a business combination. As a result of the consolidation, the Company increased its real estate assets owned by $139.0 million, recorded approximately $2.5 million of in-place lease intangibles and recorded a gain on consolidation of approximately $14.8 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. The acquisition will be fully or partially funded with tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”). Prior to acquiring the community, the Company had provided $93.5 million as a participating loan investment to the third-party developer and was entitled to receive, in addition to repayment of principal and interest, contingent interest equal to 50% of the sum of the amount the property was sold for less construction and closing costs, which equaled approximately $14.9 million. The Company had previously accounted for its participating loan investment as an unconsolidated joint venture. In January 2017, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture. As a result of the consolidation, the Company increased its real estate owned by approximately $97.0 million, recorded approximately $1.7 million of in-place lease intangibles and recorded a gain on consolidation of $12.2 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. In November 2016, the Company acquired an operating community in Redmond, Washington with 177 apartment homes for approximately $70.5 million, which was funded with tax-deferred Section 1031 exchanges. In October 2016, the Company increased its ownership from 50% to 100% in two operating communities located in Bellevue, Washington with a total of 331 apartment homes for approximately $70.3 million in cash, which was funded with tax-deferred Section 1031 exchanges, and the assumption of an incremental $37.9 million of secured debt with a weighted average interest rate of 3.67%. As a result, the Company consolidated the operating communities. The Company had previously accounted for its 50% ownership interest as an unconsolidated joint venture. We accounted for the consolidation as a business combination resulting in a gain on consolidation of approximately $36.4 million. In August 2016, the Company increased its ownership interest from 5% to 100% in a parcel of land in Dublin, California for a purchase price of approximately $8.5 million. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 5% interest in the parcel of land as an unconsolidated joint venture. We accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $8.9 million. In June 2016, the Company increased its ownership interest from 50% to 100% in a parcel of land in Los Angeles, California for a purchase price of approximately $20.1 million. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 50% interest in the parcel of land as an unconsolidated joint venture. We accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $31.1 million. Subsequent to the acquisition, the Company entered into a triple-net operating ground lease for the parcel of land at market terms with a third-party developer. The lessee plans to construct a multi-family community on the parcel of land. The ground lease provides the ground lessee with options to buy the fee interest in the parcel of land. The lease term is 49 years plus two 25-year extension options, does not transfer ownership to the lessee, and does not include a bargain purchase option. 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 $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. 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. 40 In February 2015, the Company acquired an office building in Highlands Ranch, Colorado, for 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 office building. The building consists of approximately 120,000 square feet. All existing leases were assumed by the Company at the time of the acquisition. Dispositions In December 2017, the Company sold two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in net proceeds of $68.0 million and a gain of $41.3 million. In February 2017, the Company sold a parcel of land in Richmond, Virginia for gross proceeds of $3.5 million, resulting in net proceeds of $3.3 million and a gain of $2.1 million. In November 2016, the Company sold seven operating communities with a total of 1,402 apartment homes in Baltimore, Maryland and an operating community with 380 apartment homes in Dallas, Texas for gross proceeds of $284.6 million, resulting in net proceeds of $280.5 million and a gain, net of tax, of $200.5 million. A portion of the proceeds was designated for tax-deferred Section 1031 exchanges. In May 2016, the Company sold a retail center in Bellevue, Washington for gross proceeds of $45.4 million, resulting in net proceeds of $44.1 million and a gain, net of tax, of $7.3 million. A portion of the proceeds was designated for tax-deferred Section 1031 exchanges. In March 2016, the Company sold its 95% ownership interest in two parcels of land in Santa Monica, California for gross proceeds of $24.0 million, resulting in net proceeds of $22.0 million and a gain, net of tax, of $3.1 million. 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 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. 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. 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, 2017, total capital expenditures of $105.9 million or $2,667 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development and commercial properties, as compared to $112.9 million or $2,786 per stabilized home for the prior year. The decrease in total capital expenditures was primarily due to: a decrease of 27.8%, or $5.9 million, in major renovations, primarily due to lower redevelopment spend; and a decrease of 13.0%, or $1.6 million, in turnover capital expenditures. 41 The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development and commercial properties, for the years ended December 31, 2017 and 2016 (dollars in thousands): Year Ended December 31, 2016 2017 % Change Turnover capital expenditures Asset preservation expenditures Total recurring capital expenditures Revenue-enhancing improvements Major renovations (a) Total capital expenditures Repair and maintenance expense Average home count (b) 35,129 46,034 44,467 15,370 $ 10,905 $ 12,532 34,725 47,257 44,414 21,274 $ 105,871 $ 112,945 $ 33,704 $ 33,859 40,543 39,692 Per Home Year Ended December 31, 2016 2017 309 275 $ (13.0)% $ 856 1.2 % 885 1,166 (2.6)% 1,160 1,095 0.1 % 1,120 (27.8)% 525 387 (6.3)% $ 2,667 $ 2,786 (0.5)% $ 835 (2.1)% % Change (11.0)% 3.4 % (0.5)% 2.3 % (26.2)% (4.3)% 1.7 % 849 $ (a) Major renovations include major structural changes and/or architectural revisions to existing buildings. (b) Average number of homes is calculated based on the number of homes outstanding at the end of each month. The above table includes amounts capitalized during the year. Actual capital spending is impacted by the net change in capital expenditure accruals. We intend to 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. Consolidated Real Estate Under Development and Redevelopment At December 31, 2017, our development pipeline for two wholly-owned communities totaled 1,101 homes, 300 of which have been completed, with a budget of $716.5 million, in which we have a carrying value of $592.5 million. The communities are estimated to be completed during the first quarter of 2018 and the first quarter of 2019. During 2017, we incurred $248.5 million for development costs, an increase of $70.2 million from our 2016 level of $178.3 million. At December 31, 2017, the Company was not redeveloping any communities. During the year ended December 31, 2017, we incurred $15.4 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings, a decrease of $5.9 million from our 2016 level of $21.3 million. Unconsolidated Joint Ventures and Partnerships The Company recognizes income or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net income or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the communities held by the unconsolidated joint ventures and partnerships. The Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year ended December 31, 2017: we made investments totaling $123.8 million in our unconsolidated joint ventures; our proportionate share of the net income/(loss) of the joint ventures and partnerships was $31.3 million; our investment in unconsolidated joint ventures decreased by $140.5 million due to the acquisition of 100% interest in two operating communities previously held as unconsolidated entities, partially offset by capital contributions; and 42 we received distributions of $120.7 million, of which $4.4 million were operating cash flows and $116.3 million were investing cash flows. 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 impairments in the value of its investments in unconsolidated joint ventures or partnerships during the year ended December 31, 2017 and 2016. Financing Activities For the years ended December 31, 2017, 2016 and 2015, Net cash provided by/(used in) financing activities was $(111.8) million, $(429.3) million and $(201.6) million, respectively. The following significant financing activities occurred during the year ended December 31, 2017: issued $300 million of 3.50% senior unsecured medium-term notes due July 1, 2027, for net proceeds of approximately $296.9 million; issued $300 million of 3.50% senior unsecured medium-term notes due January 15, 2028, for net proceeds of approximately $296.9 million; net proceeds of $300.0 million under our unsecured commercial paper program; repaid $326.3 million of secured debt; redeemed $300.0 million of 4.25% unsecured medium-term notes due June 2018 prior to maturity; and paid distributions of $327.8 million to our common stockholders. The following significant financing activities occurred during the year ended December 31, 2016: issued $300 million of 2.95% senior unsecured medium-term notes due September 1, 2026; repaid $375.3 million of secured debt and $11.8 million of unsecured debt; repaid $83.3 million of 5.25% unsecured medium-term notes due January 2016; issued $50.0 million of secured debt; repaid $128.7 million under the Company’s unsecured revolving credit facility, net of borrowings; sold 5,000,000 shares of common stock for aggregate net proceeds of approximately $173.2 million at a price per share of $34.73; and paid distributions of $308.9 million to our common stockholders. 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; 43 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. Credit Facilities and Commercial Paper Program We have two secured credit facilities with Fannie Mae with an aggregate commitment of $314.9 million, all of which was outstanding as of December 31, 2017. The Fannie Mae credit facilities mature at various dates from December 2018 through July 2020 and bear interest at floating and fixed rates. At December 31, 2017, $285.8 million of the outstanding balance was fixed and had a weighted average interest rate of 4.86% and the remaining balance of $29.0 million had a weighted average variable rate of 2.92%. During the year ended December 31, 2017, the Company prepaid $275.3 million of its secured credit facilities with borrowings under the Company’s unsecured commercial paper program and proceeds from the issuance of senior unsecured medium-term notes. The Company has a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan facility (the “Term Loan Facility”). The credit agreement for these facilities 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. 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. As of December 31, 2017, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $3.3 million of letters of credit at December 31, 2017), and $350.0 million of outstanding borrowings under the Term Loan Facility. We have a working capital credit facility, which provides for a $75 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. In February 2018, we amended the working capital credit facility to extend the scheduled maturity date to January 2021. The maximum borrowing capacity and interest rate were unchanged by the amendment. As of December 31, 2017, we had $21.8 million of outstanding borrowings under the Working Capital Credit Facility, leaving $53.2 million of unused capacity. The Fannie Mae credit facilities and the bank revolving credit facilities are subject to customary financial covenants and limitations, all of which were in compliance with at December 31, 2017. On January 23, 2017, we entered into an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of our other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. As of December 31, 2017, we had issued $300.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 1.96%, leaving $200.0 million of unused capacity. 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 44 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 $480.5 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2017. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $5.5 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. This analysis does 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. A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands): Net cash provided by/(used in) operating activities Net cash provided by/(used in) investing activities Net cash provided by/(used in) financing activities Results of Operations Year Ended December 31, 2016 2015 2017 $ 519,152 $ 536,929 $ 458,627 (265,461) (201,648) (407,441) (112,277) (111,785) (429,282) 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, 2017, 2016 and 2015. Net Income/(Loss) Attributable to Common Stockholders 2017 -vs- 2016 Net income/(loss) attributable to common stockholders was $117.9 million ($0.44 per diluted share) for the year ended December 31, 2017, as compared to $289.0 million ($1.08 per diluted share) for the comparable period in the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: gains, net of tax, of $43.4 million on the sale of a parcel of land in Richmond, Virginia and the sale of two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California, during the year ended December 31, 2017, as compared to gains, net of tax, of $210.9 million on the sale of eight operating communities with a total of 1,782 apartment homes, a retail center and the Company’s 95% interest in two land parcels during the year ended December 31, 2016; an increase in depreciation expense of $10.4 million primarily due to homes delivered from our development and redevelopment communities and communities acquired in 2017 and 2016, partially offset by a decrease from sold communities and fully depreciated assets; and a decrease in income from unconsolidated entities of $21.0 million primarily due to: during the year ended December 31, 2017, total gains on consolidation of $27.0 million from the purchase of two previously unconsolidated operating communities in Seattle, Washington from our West Coast Development Joint Venture and Denver, Colorado from our Development Capital Program, and net losses during the lease-up of development joint ventures. As compared to: 45 during the year ended December 31, 2016, the disposition of three operating communities by the UDR/MetLife II joint venture, which resulted in gains of $47.7 million for the Company and a casualty gain of $3.8 million as a result of insurance proceeds related to a 2015 event. This was partially offset by: an increase in total property NOI of $25.4 million primarily due to higher revenue per occupied home and NOI from communities acquired in 2017 and 2016 or redeveloped in 2017 and 2016, partially offset by a decrease from sold communities. 2016 -vs- 2015 Net income/(loss) attributable to common stockholders was $289.0 million ($1.08 per diluted share) for the year ended December 31, 2016 as compared to net income of $336.7 million ($1.29 per diluted share) for the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report: gains, net of tax, of $210.9 million on the sale of eight operating communities with a total of 1,782 apartment homes, a retail center and the Company’s 95% interest in two land parcels during the year ended December 31, 2016, compared to gains, net of tax, of $251.7 million on the sale of 12 operating communities with a total of 2,735 apartment homes during the year ended December 31, 2015; an increase in depreciation expense of $45.0 million due to homes delivered from our development and redevelopment communities and communities acquired in 2016 and 2015, partially offset by a decrease from sold communities and fully depreciated assets; a decrease in joint venture management and other fees of $11.3 million primarily due to the promote and fee income of $10.0 million recognized in connection with the sale of the Texas Joint Venture in 2015; and a decrease in income from unconsolidated entities of $10.1 million primarily due to the sale of three operating communities by the UDR/MetLife II joint venture, which resulted in gains of $47.7 million for the Company, and a casualty gain of $3.8 million, as a result of insurance proceeds related to a September 2015 event received during the year ended December 31, 2016, as compared to the sale of the eight communities held by the Texas Joint Venture, which resulted in a gain of $59.4 million, during the year ended December 31, 2015. This was partially offset by: an increase in total property NOI of $59.2 million primarily due to higher revenue per occupied home, NOI from the homes placed in service related to development and redevelopment projects completed in 2016 and 2015 and communities acquired in 2016 and 2015, partially offset by a decrease from sold communities. 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. Management considers NOI a useful metric for investors as it is a more meaningful representation of a community’s continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization. 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. 46 The following table summarizes the operating performance of our total property NOI for each of the periods presented (dollars in thousands): Same-Store Communities: Same-Store rental income Same-Store operating expense (c) Same-Store NOI Non-Mature Communities/Other NOI: Stabilized, non-mature communities NOI (d) Acquired communities NOI Redevelopment communities NOI Development communities NOI Non-residential/other NOI Sold and held for disposition communities NOI Total Non-Mature Communities/Other NOI Total property NOI Year Ended December 31, (a) Year Ended December 31, (b) 2017 2016 % Change 2016 2015 % Change $ 850,065 $ 819,962 (242,522) (234,385) 607,543 585,577 3.7 % $ 725,414 $ 686,589 3.5 % (207,857) (200,473) 3.8 % 517,557 486,116 5.7 % 3.7 % 6.5 % 61,002 5,783 4,021 (295) 17,081 47,711 — 4,270 (436) 16,244 27.9 % — % (5.8)% (32.3)% 5.2 % 84,310 2,441 36,743 (436) 16,026 33,367 — 37,682 (114) 15,666 152.7 % — % (2.5)% 282.5 % 2.3 % 3,368 19,719 (82.9)% 16,444 41,152 (60.0)% 90,960 87,508 $ 698,503 $ 673,085 3.9 % 155,528 127,753 3.8 % $ 673,085 $ 613,869 21.7 % 9.6 % (a) Same-Store consists of 35,471 apartment homes. (b) Same-Store consists of 31,930 apartment homes. (c) Excludes depreciation, amortization, and property management expenses. (d) Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities. The following table is our reconciliation of Net income/(loss) attributable to UDR, Inc. to total property NOI for the periods presented (dollars in thousands): Year Ended December 31, 2016 2015 2017 $ 121,558 $ 292,718 $ 340,383 (22,710) 23,978 9,708 374,598 59,690 2,335 6,679 (62,329) 121,875 (1,551) (3,886) (251,677) (11,400) 26,083 7,649 419,615 49,761 732 6,023 (52,234) 123,031 (1,930) (3,774) (210,851) (11,482) 27,068 9,060 430,054 48,566 4,335 6,408 (31,257) 128,711 (1,971) (240) (43,404) 10,933 164 16,773 3 $ 698,503 $ 673,085 $ 613,869 27,282 380 Net income/(loss) attributable to UDR, Inc. Joint venture management and other fees Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related charges/(recoveries), net Other depreciation and amortization (Income)/loss from unconsolidated entities Interest expense Interest income and other (income)/expense, net Tax provision/(benefit), net (Gain)/loss on sale of real estate owned, net of tax Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Net income/(loss) attributable to noncontrolling interests Total property NOI 47 Same-Store Communities 2017 -vs- 2016 Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2016 and held on December 31, 2017) consisted of 35,471 apartment homes and provided 87.0% of our total NOI for the year ended December 31, 2017. NOI for our Same-Store Community properties increased 3.8%, or $22.0 million, for the year ended December 31, 2017 compared to the same period in 2016. The increase in property NOI was attributable to a 3.7%, or $30.1 million, increase in property rental income, which was partially offset by a 3.5%, or $8.1 million, increase in operating expenses. The increase in property income was primarily driven by a 2.5%, or $19.7 million, increase in rental rates and a 11.2%, or $7.4 million, increase in reimbursement and fee income. Physical occupancy increased 0.2% to 96.8% and total monthly income per occupied home increased 3.5% to $2,064. The increase in operating expenses was primarily driven by a 7.1%, or $6.2 million, increase in real estate taxes, which was primarily due to higher assessed valuations. 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 71.5% for the year ended December 31, 2017 as compared to 71.4% for the comparable period in 2016. 2016 -vs- 2015 Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2015 and held on December 31, 2016) consisted of 31,930 apartment homes and provided 76.9% of our total NOI for the year ended December 31, 2016. NOI for our Same-Store Community properties increased 6.5%, or $31.4 million, for the year ended December 31, 2016 compared to the same period in 2015. The increase in property NOI was primarily attributable to a 5.7%, or $38.8 million, increase in property rental income, which was partially offset by a 3.7%, or $7.4 million, increase in operating expenses. The increase in property income was primarily driven by a 5.5%, or $35.9 million, increase in rental rates and a 6.5%, or $3.6 million, increase in reimbursement and fee income. Physical occupancy was unchanged at 96.7% and total monthly income per occupied home increased by 5.6% to $1,958. The increase in operating expenses was primarily driven by a 9.2%, or $6.5 million, increase in real estate taxes, which was primarily due to higher assessed valuations and lower appeal refunds. 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 71.3% for the year ended December 31, 2016 as compared to 70.8% for 2015. Non-Mature Communities/Other UDR’s Non-Mature Communities/Other represent those 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 disposition properties, and non-apartment components of mixed use properties. 2017 -vs- 2016 The remaining 13.0%, or $91.0 million, of our total NOI during the year ended December 31, 2017 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 3.9%, or $3.5 million, for the year ended December 31, 2017 as compared to the same period in 2016. The increase was primarily attributable to a $13.3 million increase in NOI from stabilized, non-mature communities, a $5.8 million increase in NOI from acquired communities and a $0.8 million increase in non-residential/other NOI, partially offset by a $16.4 million decrease in NOI from sold communities. 48 2016 -vs- 2015 The remaining $155.5 million, or 23.1%, of our total NOI for the year ended December 31, 2016 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 21.7%, or $27.8 million, for the year ended December 31, 2016 compared to 2015. The increase was primarily attributable to a $41.0 million increase in NOI from acquired communities and an $11.2 million increase from developed and redeveloped communities completed in 2016 and 2015, which was partially offset by a $24.7 million decrease in NOI of from communities sold or held for disposition in 2016 and 2015. Joint Venture Management and Other Fees For the years ended December 31, 2016 and 2015, we recognized income from joint venture management and other fees of $11.4 million and $22.7 million, respectively. The decreased income in 2016 as compared to 2015 was attributable to the promote and fee income of $10.0 million recognized in connection with the sale of the Texas Joint Venture in 2015. Real Estate Depreciation and Amortization For the year ended December 31, 2017, real estate depreciation and amortization increased 2.5%, or $10.4 million, as compared to 2016. The increase was primarily due to homes delivered from our development and redevelopment communities and communities acquired in 2017 and 2016, partially offset by a decrease from sold communities and fully depreciated assets. For the year ended December 31, 2016, real estate depreciation and amortization increased 12.0%, or $45.0 million, as compared to 2015. The increase was primarily due to homes delivered from our development and redevelopment communities and communities acquired in 2016 and 2015, partially offset by a decrease from sold communities and fully depreciated assets. General and Administrative For the year ended December 31, 2016, general and administrative expense decreased 16.6%, or $9.9 million, from 2015. The decrease was primarily due to a decrease in bonus expense and stock-based compensation expense for awards under the long-term incentive plan of $6.2 million, primarily due to the departure of our prior Chief Financial Officer in 2016 and outperformance in 2015, a decrease in long-term incentive plan transition costs of $2.6 million and a decrease in acquisition costs of $1.9 million, which was partially offset by an increase in salaries and benefits. Income/(Loss) from Unconsolidated Entities For the years ended December 31, 2017 and 2016, we recognized income/(loss) from unconsolidated entities of $31.3 million and $52.2 million, respectively. The decrease of $20.9 million was primarily due to: the sale of two communities out of the West Coast Development joint venture, which resulted in gains of $7.6 million for the Company; and the Company’s purchase of 100% interest in two previously unconsolidated operating communities, which resulted in gains of $27.0 million for the Company during the year ended December 31, 2017. As compared to: the sale of three operating communities by the UDR/MetLife II joint venture during the year ended December 31, 2016, which resulted in gains of $47.7 million for the Company and a casualty gain of $3.8 million as a result of insurance proceeds related to a 2015 event. For the years ended December 31, 2016 and 2015, we recognized income/(loss) from unconsolidated entities of $52.2 million and $62.3 million, respectively. The decrease of $10.1 million was primarily due to: the sale of three operating communities by the UDR/MetLife II joint venture during the year ended December 31, 2016, which resulted in gains of $47.7 million for the Company and a casualty gain of $3.8 million as a result of insurance proceeds related to a 2015 event. 49 As compared to: the sale of the eight communities held by the Texas Joint Venture, which resulted in a gain of $59.4 million, during the year ended December 31, 2015. Interest Expense For the years ended December 31, 2017 and 2016, we recognized interest expense of $128.8 million and $123.0 million, respectively. The increase in 2017 as compared to 2016 of $5.8 million was primarily due to the early pay off of secured debt during 2017, resulting in prepayment costs. Tax (Provision)/Benefit, 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 (provision)/benefit, net of $0.3 million and $3.8 million for the years ended December 31, 2017 and 2016, respectively. The decrease for 2017 as compared to 2016 was primarily attributable to the conversion of certain TRS entities into REITs in 2016 and a one-time tax benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits that became refundable under the Tax Cuts and Jobs Act of 2017. Gain/(Loss) on Sale of Real Estate Owned, Net of Tax During the year ended December 31, 2017, the Company recognized a gain, net of tax, of $43.4 million on the sale of a parcel on land in Richmond, Virginia and two operating communities in Orange County, California and Carlsbad, California. During the year ended December 31, 2016, the Company sold eight operating communities with a total of 1,782 apartment homes, a retail center, and its 95% interest in two land parcels, resulting in a gain, net of tax, of $210.9 million. During the year ended December 31, 2015, the Company sold 12 operating communities with a total of 2,735 apartment homes, resulting in a gain, net of tax, of $251.7 million. Noncontrolling Interest For the years ended December 31, 2017, 2016 and 2015, we recognized net income attributable to redeemable noncontrolling interests in the Operating Partnership and the DownREIT Partnership of $10.9 million, $27.3 million, and $16.8 million, respectively. The decrease in 2017 as compared to 2016 is primarily attributable to the noncontrolling interest’s share of gains on sale associated with the dispositions made in 2016. The increase in 2016 as compared to 2015 is primarily attributable to the number of partnership units held by third-party noncontrolling interest holders as a result of the formation of the DownREIT Partnership in October 2015. Inflation We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in 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, 2017. 50 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, 2017 (dollars in thousands): Payments Due by Period Contractual Obligations Long-term debt obligations Interest on debt obligations (a) Letters of credit Unfunded commitments on: Development projects (b) Unconsolidated joint ventures (b) (c) Operating lease obligations: Operating space Ground leases (d) 2018 $ 333,670 $ 125,885 3,301 2021-2022 Thereafter 2019-2020 836,938 $ 752,274 $ 1,761,489 $ 3,684,371 710,590 223,391 3,301 — 148,227 — 213,087 — Total 18,871 22,076 105,139 — — — — — 124,010 22,076 76 5,629 260 363,352 $ 509,508 $ 1,176,878 $ 911,791 $ 2,309,783 $ 4,907,960 — 335,207 32 11,258 152 11,258 (a) Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2017. (b) Any unfunded costs at December 31, 2017 are shown in the year of estimated completion. (c) Represents UDR’s proportionate share of expected remaining costs to complete the developments. (d) 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. During 2017, we incurred gross interest costs of $147.3 million, of which $18.6 million was capitalized. Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations Funds from Operations Funds from operations (“FFO”) attributable to common stockholders and unitholders is defined as Net income/(loss) 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 diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count. 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 51 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 attributable to common stockholders and unitholders 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 or losses on sales of non-depreciable property and marketable securities, 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”) attributable to common stockholders and unitholders is defined as FFO as Adjusted less recurring capital expenditures on consolidated communities 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/(loss) (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. 52 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, 2017, 2016, and 2015 (dollars in thousands): Net income/(loss) attributable to common stockholders Real estate depreciation and amortization Noncontrolling interests Real estate depreciation and amortization on unconsolidated joint ventures Net gain on the sale of unconsolidated depreciable property Net gain on the sale of depreciable real estate owned Funds from operations (“FFO”) attributable to common stockholders and unitholders, basic Distribution to preferred stockholders — Series E (Convertible) FFO attributable to common stockholders and unitholders, diluted Income/(loss) per weighted average common share - diluted FFO per common share and unit, basic FFO per common share and unit, diluted Weighted average number of common shares and OP/DownREIT Units outstanding — basic Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted Impact of adjustments to FFO: Acquisition-related costs/(fees) Acquisition-related costs/(fees) on unconsolidated joint ventures Costs/(benefit) associated with debt extinguishment and other Texas joint venture promote and disposition fee income Long-term incentive plan transition costs Net gain on the sale of non-depreciable real estate owned Legal claims, net of tax Net loss on sale of unconsolidated land Severance costs and other restructuring expense Tax benefit associated with the conversion of certain TRS entities into REITs Casualty-related (recoveries)/charges, net Casualty-related (recoveries)/charges, on unconsolidated joint ventures, net FFO as Adjusted attributable to common stockholders and unitholders, diluted 2017 2015 Year Ended December 31, 2016 $ 117,850 $ 289,001 $ 336,661 374,598 419,615 430,054 16,776 27,662 11,097 38,652 47,832 57,102 (59,445) (35,363) (47,848) (251,677) (209,166) (41,824) 3,717 3,708 $ 538,916 $ 527,096 $ 455,565 3,722 $ 542,624 $ 530,813 $ 459,287 1.29 $ 1.68 $ 1.66 $ 1.08 $ 1.81 $ 1.80 $ 0.44 $ 1.85 $ 1.83 $ 291,845 290,516 271,616 296,672 295,469 276,699 $ 371 $ — 9,212 — — (1,580) — — 624 — 4,504 (881) $ 12,250 $ 213 $ — 1,729 — 898 (1,685) (480) 1,016 871 (2,436) 732 (3,752) (2,894) $ 2,126 1,460 — (10,005) 3,537 — 705 — — — 2,335 2,474 2,632 $ 554,874 $ 527,919 $ 461,919 FFO as Adjusted per common share and unit, diluted $ 1.87 $ 1.79 $ 1.67 Recurring capital expenditures AFFO attributable to common stockholders and unitholders, diluted (46,034) (45,467) $ 508,840 $ 480,662 $ 416,452 (47,257) AFFO per common share and unit, diluted $ 1.72 $ 1.63 $ 1.51 53 The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the UDR Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 (shares in thousands): Year Ended December 31, 2016 2017 2015 Weighted average number of common shares and OP/DownREIT Units outstanding — basic Weighted average number of OP/DownREIT Units outstanding Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted Weighted average number of OP/DownREIT Units outstanding Weighted average number of Series E preferred shares outstanding Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations 291,845 (24,821) 290,516 (25,130) 271,616 (12,947) 267,024 265,386 258,669 296,672 (24,821) (3,021) 295,469 (25,130) (3,028) 276,699 (12,947) — 268,830 267,311 263,752 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, 2017, the Operating Partnership’s real estate portfolio included 53 communities located in nine states and the District of Columbia with a total of 16,698 apartment homes. As of December 31, 2017, UDR owned 110,883 units of our general partnership interests and 174,126,805 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, and all references in this section to “UDR” or the “General Partner” refer solely to UDR, Inc. 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 June 2003. At December 31, 2017, the General Partner’s consolidated real estate portfolio included 127 communities located in 11 states and the District of Columbia with a total of 39,998 apartment homes. In addition, the General Partner had an ownership interest in 29 communities with 7,286 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. 54 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, 2017, 2016, and 2015, were $0.5 million, $0.8 million, and $0.9 million, respectively. Investment in Unconsolidated Entities 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 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 55 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. 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, 2017. As of December 31, 2017 Percentage Number of Number of of Total Apartment Apartment Carrying Communities Homes Value Total Average Carrying Value (in Physical thousands) Occupancy Year Ended December 31, 2017 Net Operating Income (in thousands) Monthly Income per Occupied Home (a) Same-Store Communities West Region San Francisco, CA Orange County, CA Seattle, WA Los Angeles, CA Monterey Peninsula, CA Other Southern California Portland, OR Mid-Atlantic Region Metropolitan D.C. Baltimore, MD Northeast Region New York, NY Boston, MA Southeast Region Nashville, TN Tampa, FL Other Florida 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 8 5 5 2 7 1 2 6 2 2 1 1,992 1,936 932 344 1,565 414 476 12.3 % $ 12.6 % 5.8 % 3.0 % 4.5 % 1.9 % 1.3 % 470,310 479,922 223,080 113,853 172,854 72,985 48,317 96.8 % $ 96.0 % 96.8 % 95.7 % 96.8 % 96.0 % 97.2 % 3,056 $ 2,317 1,934 2,579 1,641 1,918 1,542 2,068 540 14.5 % 2.7 % 552,822 103,028 97.2 % 96.7 % 2,057 1,502 996 387 15.8 % 1.9 % 606,114 71,653 97.6 % 96.8 % 3,916 1,971 55,258 39,465 14,958 7,254 22,443 6,768 6,425 33,756 6,536 34,202 6,322 6 2 1 50 1,612 942 636 14,840 3 53 1,858 16,698 3.8 % 2.8 % 2.2 % 85.1 % 144,785 105,506 84,519 3,249,748 96.4 % 97.5 % 96.3 % 96.7 % $ 1,231 1,404 1,517 2,114 14.9 % 100.0 % 567,208 3,816,956 (1,543,652) $ 2,273,304 16,521 10,412 7,249 267,569 39,272 $ 306,841 (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. 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, 2016 and held as of December 31, 2017. 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 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, 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 56 cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings owed by 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 owed by 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 owed by 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 owed by us under our General Partner’s credit agreements, and to a lesser extent, from cash flows provided by operating activities. As of December 31, 2017, the Operating Partnership does not have any secured debt maturing in 2018. 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, 2017, 2016, and 2015. Operating Activities For the year ended December 31, 2017, Net cash provided by/(used in) operating activities was $234.5 million compared to $228.7 million for 2016. The increase in cash flow from operating activities was primarily due to improved operating income, primarily driven by revenue growth at communities. For the year ended December 31, 2016, Net cash provided by/(used in) operating activities was $228.7 million compared to $226.8 million for 2015. The increase in cash flow from operating activities was primarily due to improved operating income, primarily driven by revenue growth at communities. Investing Activities For the year ended December 31, 2017, Net cash provided by/(used in) investing activities was $(106.1) million compared to $(9.5) million for 2016. The increase in cash used in investing activities was primarily due to the acquisition of an operating community partially offset by the disposition of two operating communities. For the year ended December 31, 2016, Net cash provided by/(used in) investing activities was $(9.5) million compared to $23.6 million for 2015. The decrease in cash provided by investing activities was primarily due to a decrease in proceeds from dispositions, partially offset by increased distributions received from unconsolidated entities and acquisitions of real estate assets in 2015. Acquisitions During the year ended December 31, 2017, the Operating Partnership acquired an operating community located in Denver, Colorado with a total of 218 apartment homes and 17,000 square feet of retail space for a purchase price of approximately $141.5 million. The acquisition will be fully or partially funded with Section 1031 exchanges. The Operating Partnership did not have any acquisitions during the year ended December 31, 2016. In October 2015, the Operating Partnership acquired one community in Alexandria, Virginia with 421 apartment homes for a purchase price of $142.0 million. 57 Dispositions In December 2017, the Operating Partnership sold two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in net proceeds of $68.0 million and a gain of $41.3 million. During the year ended December 31, 2016, the Operating Partnership sold two operating communities in the Baltimore, Maryland market with a total of 276 apartment homes for gross proceeds of $45.3 million, resulting in net proceeds of $44.6 million and a gain, net of tax, of $33.2 million. 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 gave up 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. 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 gain, net of tax, of $133.5 million. A portion of the sale proceeds was designated for tax-deferred 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. Financing Activities For the year ended December 31, 2017, Net cash provided by/(used in) financing activities was $(128.8) million compared to $(221.5) million for 2016. The decrease in cash used in financing activities was primarily due to an increase in advances from the General Partner, partially offset by the early repayment of debt maturing in December 2018, July 2020, and July 2023. For the year ended December 31, 2016, Net cash provided by/(used in) financing activities was $(221.5) million compared to $(247.7) million for 2015. The decrease in cash used in financing activities was primarily due to a decrease in advances to the General Partner and a decrease in payoffs of secured debt, partially offset by a decrease in proceeds from the issuance of secured debt. Credit Facilities As of December 31, 2017, an aggregate commitment of $133.2 million of the General Partner’s secured credit facilities with Fannie Mae was owed by the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2017. The portions of the Fannie Mae credit facilities owed by the Operating Partnership mature at various dates from October 2019 through December 2019 and bear interest at fixed rates. At December 31, 2017, the entire outstanding balance was fixed and had a weighted average interest rate of 5.28%. The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility with an aggregate borrowing capacity of $1.1 billion, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, $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, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027 and $300 million of medium-term notes due January 2028. As of December 31, 2017 and 2016, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $300.0 million and $0, respectively, outstanding under its unsecured commercial paper program. The credit facilities are subject to customary financial covenants and limitations. Interest Rate Risk We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between 58 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 $27.0 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2017. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $0.3 million based on the average balance at December 31, 2017. 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 owed by the Operating Partnership to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 8, Derivatives and Hedging Activities, in the Notes to the Operating Partnership’s Consolidated Financial Statements for additional discussion of derivative instruments. A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands): Net cash provided by/(used in) operating activities Net cash provided by/(used in) investing activities Net cash provided by/(used in) financing activities Results of Operations $ 2017 234,463 $ (106,080) (128,846) Year Ended December 31, 2016 228,682 $ (9,546) (221,483) 2015 226,765 23,583 (247,747) 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, 2017, 2016, and 2015. Net Income/(Loss) Attributable to OP Unitholders 2017 -vs- 2016 Net income attributable to OP unitholders was $106.3 million ($0.58 per diluted OP Unit) for the year ended December 31, 2017 as compared to net income of $77.8 million ($0.42 per diluted OP Unit) for the comparable period in the prior year. The increase in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report: an increase of $9.7 million in total property NOI primarily due to higher revenue per occupied home; during the year ended December 31, 2017, the Operating Partnership sold two operating communities in Orange County, California and Carlsbad, California with a total of 218 apartment homes, resulting in gains of $41.3 million, as compared to gains on the sale of real estate owned of $33.2 million during the year ended December 31, 2016; and losses from unconsolidated entities of $19.3 million for the year ended December 31, 2017 as compared to $37.4 million for the year ended December 31, 2016, primarily due to a reduction in depreciation and amortization at the DownREIT Partnership. This was partially offset by: an increase in real estate depreciation and amortization expense of $5.4 million primarily due to acquisitions in 2017 and homes delivered from our redevelopment property. 2016 -vs- 2015 Net income/(loss) attributable to OP unitholders was $77.8 million ($0.42 per diluted OP Unit) for the year ended December 31, 2016 as compared to $213.3 million ($1.16 per diluted OP Unit) for the prior year. The decrease in 59 net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report: during the year ended December 31, 2016, the Operating Partnership sold two operating communities in Baltimore, Maryland with a total of 276 apartment homes, resulting in a gain of $33.2 million, as compared to a gain on the sale of real estate owned of $158.1 million during the year ended December 31, 2015; losses from unconsolidated entities of $37.4 million for the year ended December 31, 2016, as compared to $4.7 million for the prior year, as a result of the formation of the DownREIT Partnership in the fourth quarter of 2015; and a decrease in total property NOI of $20.5 million primarily due to fewer consolidated apartment homes as a result of the deconsolidation of communities contributed to the DownREIT Partnership during 2015. This was partially offset by: a decrease in real estate depreciation and amortization expense of $22.7 million primarily due to the deconsolidation of communities contributed to the DownREIT Partnership in the fourth quarter of 2015; a decrease in interest expense of $10.3 million primarily due to the deconsolidation of debt balances related to communities contributed to the DownREIT Partnership; and a decrease in general and administrative expense of $8.2 million due to lower expense allocations by the General Partner, primarily due to a decrease in its bonus expense and stock-based compensation expense for awards under its long-term incentive plan, primarily due to the departure of its prior Chief Financial Officer in 2016, and outperformance in 2015. 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 are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs. Management considers NOI a useful metric for investors as it is a more meaningful representation of a community’s continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization. Although we consider 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 OP unitholders below. 60 The following table summarizes the operating performance of our total portfolio for the years ended December 31, 2017, 2016, and 2015 (dollars in thousands): Same-Store Communities: Same-Store rental income Same-Store operating expense (c) Same-Store NOI Year Ended December 31, (a) 2016 2017 % Change Year Ended December 31, (b) 2015 2016 % Change $ 364,158 $ 349,425 (92,542) 256,883 (96,589) 267,569 4.2 % $ 322,968 $ 303,190 (81,438) 4.4 % (85,436) 221,752 4.2 % 237,532 6.5 % 4.9 % 7.1 % Non-Mature Communities/Other NOI: Stabilized, non-mature communities NOI (d) Acquired communities NOI Redeveloped communities NOI Non-residential/other NOI Sold and held for disposition communities NOI Total Non-Mature Communities/Other NOI Total property NOI 29,566 1,180 — 5,153 3,373 39,272 28,312 — — 6,052 5,874 40,238 $ 306,841 $ 297,121 14,307 59.7 % 22,849 4.4 % — — — % — 28,120 0.7 % — % 28,312 6,844 (14.8)% 5,829 (14.9)% 46,574 (94.4)% (42.6)% 2,599 (2.4)% 59,589 95,845 (37.8)% 3.3 % $ 297,121 $ 317,597 (6.4)% (a) Same-Store consists of 14,840 apartment homes. (b) Same-Store consists of 14,001 apartment homes. (c) Excludes depreciation, amortization, and property management expenses. (d) Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities. The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands): Net income/(loss) attributable to OP unitholders Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related charges/(recoveries), net (Income)/loss from unconsolidated entities Interest expense (Gain)/loss on sale of real estate owned Net income/(loss) attributable to noncontrolling interests Total property NOI Same-Store Communities 2017 -vs- 2016 2017 2015 Year Ended December 31, 2016 $ 106,307 $ 77,818 $ 213,301 12,111 5,923 169,784 27,016 843 4,659 40,321 (158,123) 1,762 $ 306,841 $ 297,121 $ 317,597 11,533 6,833 152,473 17,875 1,922 19,256 30,366 (41,272) 1,548 11,122 6,059 147,074 18,808 484 37,425 30,067 (33,180) 1,444 Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2016 and held as of December 31, 2017) consisted of 14,840 apartment homes and provided 87.2% of our total NOI for the year ended December 31, 2017. NOI for our Same-Store Community properties increased 4.2%, or $10.7 million, for the year ended December 31, 2017 compared to 2016. The increase in property NOI was primarily attributable to a 4.2%, or $14.7 million, increase in property rental income, which was partial offset by a 4.4%, or $4.0 million, increase in operating expenses. The increase in revenues was primarily driven by a 3.0%, or $9.9 million, increase in rental rates and a 11.6%, or $3.3 million, increase in reimbursement and fee income. Physical occupancy increased 0.1% to 96.7% and total income per occupied home increased 4.1% to $2,114 for the year ended December 31, 2017 compared to 2016. 61 The increase in property operating expenses was primarily driven by a 10.0% or $3.1 million increase in real estate taxes, which was primarily due to higher assessed valuations. The operating margin (property net operating income divided by property rental income) was 73.5% for both years ended December 31, 2017 and 2016. 2016 -vs- 2015 Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2015 and held as of December 31, 2016) consisted of 14,001 apartment homes and provided 79.9% of our total NOI for the year ended December 31, 2016. NOI for our Same-Store Community properties increased 7.1% or $15.8 million for the year ended December 31, 2016 compared to 2015. The increase in property NOI was primarily attributable to a 6.5% or $19.8 million increase in property rental income, which was partial offset by a 4.9% or $4.0 million increase in operating expenses. The increase in revenues was primarily driven by a 6.6% or $19.0 million increase in rental rates. Physical occupancy decreased 0.2% to 96.6% and total income per occupied home increased 6.6% to $1,989 for the year ended December 31, 2016 compared to 2015. The increase in property operating expenses was primarily driven by a 10.4% or $2.6 million increase in real estate taxes, which was primarily due to higher assessed valuations and lower appeal refunds. The operating margin (property net operating income divided by property rental income) increased to 73.5% for the year ended December 31, 2016 as compared to 73.1% for 2015. Non-Mature Communities/Other The Operating Partnership’s Non-Mature Communities/Other represent those 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 disposition properties and the non-apartment components of mixed use properties. 2017 -vs- 2016 The remaining 12.8%, or $39.3 million, of our total NOI during the year ended December 31, 2017 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 2.4%, or $1.0 million, for the year ended December 31, 2017 compared to 2016. The decrease was primarily driven by a decrease in NOI of $2.5 million from sold communities, which was partially offset by an increase in NOI of $1.2 million from acquired communities. 2016 -vs- 2015 The remaining 20.1%, or $59.6 million, of our total NOI during the year ended December 31, 2016 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 37.8%, or $36.3 million, for the year ended December 31, 2016 compared to 2015. The decrease was primarily driven by a decrease in NOI of $44.0 million from sold communities, which was partially offset by an increase in NOI of $8.5 million from stabilized, non-mature communities. Real Estate Depreciation and Amortization For the year ended December 31, 2017, real estate depreciation and amortization increased by 3.7% or $5.4 million as compared to 2016. The increase was primarily due to acquisitions during 2017 and homes delivered from our redevelopment property. For the year ended December 31, 2016, real estate depreciation and amortization decreased by 13.4% or $22.7 million as compared to 2015. The decrease was primarily due to the deconsolidation of communities contributed to the DownREIT Partnership in October 2015, partially offset by homes delivered from our development and redevelopment properties. 62 General and Administrative For the year ended December 31, 2016, general and administrative expense decreased by 30.4% or $8.2 million as compared to 2015. The decrease was due to lower general and administrative expense allocations by the General Partner, primarily due to a decrease in its bonus expense and stock-based compensation expense for awards under its long-term incentive plan, primarily due to the departure of its prior Chief Financial Officer in 2016, and outperformance in 2015, as well as lower allocations due to the deconsolidation of communities contributed to the DownREIT Partnership in October 2015. Income/(Loss) in Unconsolidated Entities For the year ended December 31, 2017 and 2016, income/(loss) from unconsolidated entities was $(19.3) million and $(37.4) million, respectively. The decrease in loss from unconsolidated entities as compared to the prior year was primarily attributable to a reduction in depreciation and amortization at the DownREIT Partnership. For the year ended December 31, 2016 and 2015, income/(loss) from unconsolidated entities of $(37.4) million and $(4.7) million, respectively, was attributable to the Operating Partnership’s ownership interest in the DownREIT Partnership, which was formed in October 2015. The change was primarily attributable to depreciation expense for a full year in 2016. Interest Expense For the year ended December 31, 2016, interest expense decreased by 25.4% or $10.3 million as compared to 2015, which was primarily due to lower loan balances as a result of seven communities, and their related debt, being deconsolidated in October 2015 in connection with the formation of the DownREIT Partnership. Gain/(Loss) on the Sale of Real Estate Owned During the year ended December 31, 2017, the Operating Partnership sold two operating communities in Orange County, California and Carlsbad, California with a total of 218 apartment homes, resulting in a gain of $41.3 million. During the year ended December 31, 2016, the Operating Partnership sold two operating communities in Baltimore, Maryland with a total of 276 apartment homes, resulting in a gain of $33.2 million. During the year ended December 31, 2015, the Operating Partnership sold five communities with a total of 1,149 apartment homes, resulting in a gain 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 gave up 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. Inflation We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in 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, 2017. 63 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, 2017 (dollars in thousands): Contractual Obligations Long-term debt obligations Interest on debt obligations (a) Operating lease obligations — ground leases (b) Payments Due by Period 2019-2020 2021-2022 Thereafter 2018 Total $ — $ 133,205 $ 6,722 — $ 27,000 $ 160,205 19,412 4,267 925 363,352 11,258 11,258 335,207 $ 13,127 $ 151,185 $ 12,183 $ 366,474 $ 542,969 7,498 5,629 (a) Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2017. (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, 2017, 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 64 and the Operating Partnership. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company and the Operating Partnership are effective at the reasonable assurance level described above. Management’s Report on Internal Control over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 for the Company and the Operating Partnership. Under the supervision and with the participation of the management, the Chief Executive Officer and Chief Financial Officer of the Company, which is the sole general partner of the Operating Partnership, conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (2013 Framework) (COSO). Based on such evaluation, management concluded that the Company’s and the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2017. 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, 2017. The report of Ernst & Young LLP, which expresses an unqualified opinion on UDR, Inc.’s internal control over financial reporting as of December 31, 2017, 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. 65 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 2018 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 2018 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 “Executive Compensation-Compensation Committee Report” in the definitive proxy statement for UDR’s 2018 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 2018 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, Governance and Nominating Committees,” and “Executive Compensation” in the definitive proxy statement for UDR’s 2018 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. Information regarding related party transactions between UDR and the Operating Partnership is presented in Note 6, Related Party Transactions, of the Consolidated Financial Statements of United Dominion Realty, L.P. referenced in Part IV, Item 15(a) of this Report. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to the information set forth under the headings “Audit Matters-Audit Fees” and “Audit Matters-Pre-Approval Policies and Procedures” in the definitive proxy statement for UDR’s 2018 Annual Meeting of Stockholders. UDR is the sole general partner of the Operating Partnership. 66 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Report: PART IV 1. Financial Statements. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty, L.P. on page F-1 of this Report. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. and United Dominion Realty, L.P. on page S-1 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto. 3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index appearing immediately below, including the financial statements required under Rule 3-09 of Regulation S-X for UDR Lighthouse DownREIT L.P. 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. 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. 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. Exhibit 2(d) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 333-64281) filed with the Commission on September 25, 1998. Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated September 28, 2004 and filed with the Commission on September 29, 2004. Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K dated September 29, 2004 and filed with the Commission on October 5, 2004. 67 Exhibit 2.04 Description 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. 2.06 First Amendment to Agreement of Purchase and Sale dated as of February 14, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC. 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.) 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. 3.01 Articles of Restatement of UDR, Inc. Location 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 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. Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on June 22, 2015. Exhibit 2.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015. 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. 68 Exhibit 3.02 Articles of Amendment to the Articles of Restatement Exhibit 3.2 to UDR, Inc.’s Current Report on Description Location of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on March 14, 2007. 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 August 30, 2011 and filed with the State Department of Assessments and Taxation of the State of Maryland on August 31, 2011. Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated August 29, 2011 and filed with the Commission on September 1, 2011. 3.04 Articles Supplementary relating to UDR, Inc.’s 6.75% Exhibit 3.4 to UDR, Inc.’s Form 8-A 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. Registration Statement dated and filed with the Commission on May 30, 2007. 3.05 Amended and Restated Bylaws of UDR, Inc. (as amended through July 12, 2017). Exhibit 3.16 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. 3.06 Certificate of Limited Partnership of United Dominion Exhibit 3.4 to United Dominion Realty, L.P.’s Realty, L.P. dated as of February 19, 2004. 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. 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 Exhibit 10.6 to UDR, Inc.’s Quarterly Report Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2006. on Form 10-Q for the quarter ended March 31, 2006. 3.10 Third Amendment to the Amended and Restated Exhibit 99.1 to UDR, Inc.’s Quarterly Report Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 2, 2007. 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. 69 Exhibit 3.15 Description Location 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 4.03 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. 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. 4.05 Form of UDR, Inc. Senior Debt Security. 4.06 Form of UDR, Inc. Subordinated Debt Security. 4.07 Form of UDR, Inc. Fixed Rate Medium-Term Note, Series A. 4.08 Form of UDR, Inc. Floating Rate Medium-Term Note, Series A. 4.09 UDR, Inc. 4.25% Medium-Term Note, Series A due June 2018, issued May 23, 2011. 4.10 UDR, Inc. 4.625% Medium-Term Note, Series A due January 2022, issued January 10, 2012. 4.11 UDR, Inc. 3.70% Medium-Term Note, Series A due October 2020, issued September 26, 2013. 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 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. 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. 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. Exhibit 4.16 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. Exhibit 4.17 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. Exhibit 4.18 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013. 70 Exhibit 4.12 Description Location 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. 4.13 Supplemental Indenture dated as of August 20, 2009, by and between UDR, Inc. and U.S. Bank National Association, as trustee, to UDR, Inc.’s Indenture dated as of April 1, 1994. Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated August 20, 2009 and filed with the Commission on August 21, 2009. 4.16 4.17 4.18 4.14 Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of November 1, 1995. 4.15 Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of October 12, 2006. 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 99.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010. Exhibit 99.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010. Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K filed with the Commission on May 4, 2011. 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. UDR, Inc. 4.00% Medium-Term Note, Series A due October 2025, issued September 22, 2015. 4.19 UDR, Inc. 2.950% Medium-Term Note, Series A due September 2026, issued August 23, 2016. 4.20 UDR, Inc. 3.500% Medium-Term Note, Series A due July 2027, issued June 16, 2017. Exhibit 4.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015. Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016. Exhibit 10.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. 4.21 UDR, Inc. 3.500% Medium-Term Note, Series A due January 2028, issued December 13, 2017. Filed herewith. 10.01* UDR, Inc. 1999 Long-Term Incentive Plan (as amended and restated February 2, 2017). 10.02* Form of UDR, Inc. Restricted Stock Award Agreement under the 1999 Long-Term Incentive Plan. Exhibit 10.1 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016. Exhibit 10.2 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016. 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. 71 Exhibit 10.05* Description of UDR, Inc. Shareholder Value Plan. Description 10.06* Description of UDR, Inc. Executive Deferral Plan. Location Exhibit 10(x) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999. Exhibit 10(xi) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999. 10.07* Indemnification Agreement by and between UDR, Inc. and each of its directors and officers listed on Schedule A thereto. Exhibit 10.7 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 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. 10.10* Letter Agreement between UDR, Inc. and Thomas M. Herzog, dated May 12, 2016. Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated May 12, 2016 and filed with the Commission on May 18, 2016. 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 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. 10.13 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. 10.14 10.15 10.16 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. Aircraft Time Sharing Agreement dated as of November 11, 2016, by and between UDR, Inc. and Thomas W. Toomey. Exhibit 10.16 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016. Aircraft Time Sharing Agreement dated as of November 11, 2016, by and between UDR, Inc. and Warren L. Troupe. Exhibit 10.17 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016. 72 Location 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 10.17 Description 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. 10.18 Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P., dated as of October 5, 2015, as amended. Exhibit 10.21 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015. 10.19* Class 1 LTIP Unit Award Agreement 10.20* Notice of Class 2 LTIP Unit Award Exhibit 10.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015. Exhibit 10.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015. 10.21 10.22 12.1 12.2 First Amendment, dated January 20, 2017, to the Credit Agreement, dated as of October 20, 2015, by and among UDR, Inc., as borrower, and the lenders and agents party thereto. Exhibit 10.24 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016. Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated April 27, 2017 and filed with the commission on April 27, 2017. Amendment No. 2, dated April 27, 2017, to the Third Amended and Restated Distribution Agreement, dated September 1, 2011 and as amended July 29, 2014, among the Company and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, and Wells Fargo Securities, LLC, as Agents, 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. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of UDR, Inc. Filed herewith. 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 Filed herewith. Firm for United Dominion Realty, L.P. 73 Exhibit 31.1 Rule 13a-14(a) Certification of the Chief Executive Filed herewith. Description Location Officer of UDR, Inc. 31.2 Rule 13a-14(a) Certification of the Chief Financial Filed herewith. Officer of UDR, Inc. 31.3 Rule 13a-14(a) Certification of the Chief Executive Filed herewith. Officer of United Dominion Realty, L.P. 31.4 Rule 13a-14(a) Certification of the Chief Financial Filed herewith. Officer of United Dominion Realty, L.P. 32.1 Section 1350 Certification of the Chief Executive Filed herewith. Officer of UDR, Inc. 32.2 Section 1350 Certification of the Chief Financial Officer Filed herewith. of UDR, Inc. 32.3 Section 1350 Certification of the Chief Executive Filed herewith. Officer of United Dominion Realty, L.P. 32.4 Section 1350 Certification of the Chief Financial Officer Filed herewith. of United Dominion Realty, L.P. 99.1 UDR Lighthouse DownREIT L.P. financial statements Filed herewith. as required under Rule 3-09 of Regulation S-X. 101 XBRL (Extensible Business Reporting Language). The following materials from this Annual Report on Form 10-K for the period ended December 31, 2017, 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. and (xii) notes to consolidated financial statements of United Dominion Realty, L.P. * Management Contract or Compensatory Plan or Arrangement Item 16. FORM 10-K SUMMARY None. 74 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 20, 2018 UDR, Inc. By: /s/ Thomas W. Toomey Thomas W. Toomey Chairman of the Board, 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 20, 2018 by the following persons on behalf of the registrant and in the capacities indicated. /s/ Thomas W. Toomey Thomas W. Toomey Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer) /s/ Katherine A. Cattanach Katherine A. Cattanach Director /s/ Joseph D. Fisher Joseph D. Fisher Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Mary Ann King Mary Ann King Director /s/ Tracy L. Hofmeister Tracy L. Hofmeister Vice President – Chief Accounting Officer (Interim Principal Accounting Officer) /s/ James D. Klingbeil James D. Klingbeil Lead Independent Director /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 D. McDonnough Clint D. McDonnough Director /s/ Robert A. McNamara Robert A. McNamara Director /s/ Mark R. Patterson Mark R. Patterson Director 75 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 20, 2018 UNITED DOMINION REALTY, L.P. By: UDR, Inc., its sole general partner By: /s/ Thomas W. Toomey Thomas W. Toomey Chairman of the Board, 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 20, 2018 by the following persons on behalf of the registrant and in the capacities indicated. /s/ Thomas W. Toomey Thomas W. Toomey Chairman of the Board, Chief Executive Officer, and President of the General Partner (Principal Executive Officer) /s/ Katherine A. Cattanach Katherine A. Cattanach Director of the General Partner /s/ Joseph D. Fisher Joseph D. Fisher Senior Vice President and Chief Financial Officer of the General Partner (Principal Financial Officer) /s/ Mary Ann King Mary Ann King Director of the General Partner /s/ Tracy L. Hofmeister Tracy L. Hofmeister Vice President – Chief Accounting Officer of the General Partner (Interim Principal Accounting Officer) /s/ Robert P. Freeman Robert P. Freeman Director of the General Partner /s/ James D. Klingbeil James D. Klingbeil Lead Independent Director of the General Partner /s/ Jon A. Grove Jon A. Grove Director of the General Partner /s/ Lynne B. Sagalyn Lynne B. Sagalyn Vice Chair of the Board of the General Partner /s/ Clint D. McDonnough Clint D. McDonnough 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 76 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE PAGE FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT UDR, INC.: Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2017 and 2016 Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 Notes to Consolidated Financial Statements UNITED DOMINION REALTY, L.P.: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2017 and 2016 Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Changes in Capital for the years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 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-2 F-4 F-5 F-6 F-7 F-8 F-9 F-50 F-51 F-52 F-53 F-54 F-55 F-56 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. Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of UDR, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 20, 2018 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since at least 1984, but we are unable to determine the specific year. Denver, Colorado February 20, 2018 F - 2 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of UDR, Inc. Opinion on Internal Control over Financial Reporting We have audited UDR, Inc.’s internal control over financial reporting as of December 31, 2017, 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). In our opinion, UDR, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 20, 2018 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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. /s/ Ernst & Young LLP Denver, Colorado February 20, 2018 F - 3 UDR, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) Real estate owned: Real estate held for investment ASSETS Less: accumulated depreciation Real estate held for investment, net Real estate under development (net of accumulated depreciation of $3,854 and $0, respectively) Real estate held for disposition (net of accumulated depreciation of $0 and $553, respectively) Total real estate owned, net of accumulated depreciation Cash and cash equivalents Restricted cash Notes receivable, net Investment in and advances to unconsolidated joint ventures, net Other assets Total assets Liabilities: LIABILITIES AND EQUITY 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 Total liabilities Commitments and contingencies (Note 14) December 31, 2017 December 31, 2016 $ 9,584,716 $ (3,326,312) 6,258,404 9,271,847 (2,923,072) 6,348,775 588,636 342,282 — 6,847,040 2,038 19,792 19,469 720,830 124,104 7,733,273 $ 1,071 6,692,128 2,112 19,994 19,790 827,025 118,535 7,679,584 $ $ 803,269 $ 2,868,394 18,349 33,432 31,916 91,455 102,956 3,949,771 1,130,858 2,270,620 17,388 29,257 34,238 86,936 103,835 3,673,132 Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership 948,138 909,482 Equity: Preferred stock, no par value; 50,000,000 shares authorized: 8.00% Series E Cumulative Convertible; 2,780,994 and 2,796,903 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively Series F; 15,852,721 and 16,196,889 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively Common stock, $0.01 par value; 350,000,000 shares authorized: 267,822,069 and 267,259,469 shares issued and outstanding at December 31, 2017 and December 31, 2016, 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 46,200 46,457 1 1 2,678 4,651,205 (1,871,603) (2,681) 2,825,800 9,564 2,835,364 7,733,273 $ 2,673 4,635,413 (1,585,825) (5,609) 3,093,110 3,860 3,096,970 7,679,584 $ See accompanying notes to consolidated financial statements. F - 4 UDR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2016 2015 2017 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 Interest expense Interest income and other income/(expense), net Income/(loss) before income taxes and gain/(loss) on sale of real estate owned Tax (provision)/benefit, net Income/(loss) from continuing operations Gain/(loss) on sale of real estate owned, net of tax Net income/(loss) Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to UDR, Inc. Distributions to preferred stockholders — Series E (Convertible) Net income/(loss) attributable to common stockholders $ 984,309 $ 948,461 $ 871,928 22,710 894,638 11,400 959,861 11,482 995,791 164,660 121,146 27,068 9,060 430,054 48,566 4,335 6,408 811,297 184,494 31,257 (128,711) 1,971 89,011 240 89,251 43,404 132,655 159,947 115,429 26,083 7,649 419,615 49,761 732 6,023 785,239 174,622 52,234 (123,031) 1,930 105,755 3,774 109,529 210,851 320,380 155,096 102,963 23,978 9,708 374,598 59,690 2,335 6,679 735,047 159,591 62,329 (121,875) 1,551 101,596 3,886 105,482 251,677 357,159 (10,933) (164) 121,558 (3,708) (16,773) (3) 340,383 (3,722) $ 117,850 $ 289,001 $ 336,661 (27,282) (380) 292,718 (3,717) Income/(loss) per weighted average common share: Basic Diluted Weighted average number of common shares outstanding: Basic Diluted $ $ 0.44 $ 0.44 $ 1.09 $ 1.08 $ 1.30 1.29 267,024 268,830 265,386 267,311 258,669 263,752 See accompanying notes to consolidated financial statements. F - 5 UDR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) Net income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests: Other comprehensive income/(loss) - derivative instruments: Unrealized holding gain/(loss) (Gain)/loss reclassified into earnings from other comprehensive income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests Comprehensive income/(loss) Comprehensive (income)/loss attributable to noncontrolling interests Comprehensive income/(loss) attributable to UDR, Inc. Year Ended December 31, 2016 2015 2017 $ 132,655 $ 320,380 $ 357,159 1,802 3,514 (6,393) 1,407 3,657 2,262 3,209 135,864 (11,378) (4,131) 353,028 (16,468) $ 124,486 $ 299,787 $ 336,560 7,171 327,551 (27,764) See accompanying notes to consolidated financial statements. F - 6 UDR, INC. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In thousands, except per share data) Preferred Common Stock Stock Paid-in Capital Distributions in Excess of Net Income Comprehensive Income/(Loss), Noncontrolling net Interests Total Accumulated Other Balance at December 31, 2014 $ 46,571 $ 2,551 $ 4,223,747 $ (1,528,917) $ 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 Issuance of Series F Preferred Stock Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership Common stock distributions declared ($1.11 per share) Preferred stock distributions declared-Series E ($1.3288 per share) Adjustment to reflect redemption value of redeemable noncontrolling interests Balance at December 31, 2015 Net income/(loss) attributable to UDR, Inc. Net income/(loss) attributable to noncontrolling interests Disposition of noncontrolling interest of consolidated real estate Contribution of noncontrolling interests in consolidated real estate Long Term Incentive Plan Unit grants/(vestings), net 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 and DownREIT Partnership Common stock distributions declared ($1.18 per share) Preferred stock distributions declared-Series E ($1.3288 per share) Adjustment to reflect redemption value of redeemable noncontrolling interests Balance at December 31, 2016 Net income/(loss) attributable to UDR, Inc. Net income/(loss) attributable to noncontrolling interests Contribution of noncontrolling interests in consolidated real estate Long Term Incentive Plan Unit grants/(vestings), net Other comprehensive income/(loss) Issuance/(forfeiture) of common and restricted shares, net Cumulative effect upon adoption of ASU 2016-09 Conversion of Series E Cumulative Convertible shares Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership Common stock distributions declared ($1.24 per share) Preferred stock distributions declared-Series E ($1.3288 per share) Adjustment to reflect redemption value of redeemable noncontrolling interests — — — — — (114) 1 — — — — — — 3 63 — — 1 — — — — — 10,191 209,948 114 — 340,383 — — — — — — 3,816 — — (289,500) — (3,722) — 46,458 — — — 2,618 — — — 4,447,816 — — (102,703) (1,584,459) 292,718 — — — — — — — — — — — — — — 2 50 3 — — — — — — 4,973 173,161 — — — — — — 9,463 — — (315,102) — (3,717) — 46,458 — — — 2,673 — — — 4,635,413 — — 24,735 (1,585,825) 121,558 — — — — — — (257) — — — — — — — 1 — — 4 — — — — — — 437 558 257 — — — — (558) — 14,540 — — (331,974) — — (3,708) (71,096) Balance at December 31, 2017 $ 46,201 $ 2,678 $ 4,651,205 $ (1,871,603) $ (8,855) $ — — (3,823) — — — — — — — — (12,678) — — 853 $ 2,735,950 340,383 — 3 3 (3,823) — 10,194 — 210,011 — — — 1 — — — 3,817 (289,500) — (3,722) — 856 — 322 (102,703) 2,900,611 292,718 322 — (1,155) (1,155) — — 7,069 — — — — — — (5,609) — — — — 2,928 — — — — — — 102 3,735 — — — 102 3,735 7,069 4,975 173,211 — — 9,466 (315,102) — (3,717) — 3,860 — 147 24,735 3,096,970 121,558 147 125 5,432 — — — — 125 5,432 2,928 438 — — — — 14,544 (331,974) — (3,708) — (2,681) $ — (71,096) 9,564 $ 2,835,364 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) Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Year Ended December 31, 2016 2015 2017 $ 132,655 $ 320,380 $ 357,159 Depreciation and amortization (Gain)/loss on sale of real estate owned, net of tax (Income)/loss from unconsolidated entities Return on investment in unconsolidated joint ventures Amortization of share-based compensation Other Changes in operating assets and liabilities: (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Net cash provided by/(used in) operating activities Investing Activities Acquisition of real estate assets Proceeds from sales of real estate investments, net Development of real estate assets Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement Capital expenditures — non-real estate assets Investment in unconsolidated joint ventures Distributions received from unconsolidated joint ventures Repayment/(issuance) of notes receivable, net Net cash provided by/(used in) investing activities Financing Activities Payments on secured debt Proceeds from the issuance of secured debt Payments on unsecured debt Proceeds from the issuance of unsecured debt Net proceeds/(repayment) of revolving bank debt Proceeds from the issuance of common shares through public offering, net Distributions paid to redeemable noncontrolling interests Distributions paid to preferred stockholders Distributions paid to common stockholders Other Net cash provided by/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental Information: Interest paid during the period, net of amounts capitalized Cash paid/(refunds received) for income taxes Non-cash transactions: Transfer of investment in and advances to unconsolidated joint ventures to real estate owned Secured debt assumed in the consolidation of unconsolidated joint ventures Fair value adjustment of secured debt assumed in the consolidation of unconsolidated joint ventures Acquisition of communities in exchange for DownREIT units and assumption of debt Acquisition of real estate Fair value adjustment of debt acquired as part of acquisition of real estate Vesting of LTIP Units Development costs and capital expenditures incurred but not yet paid Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (389,033 shares in 2017; 260,292 shares in 2016; and 112,174 shares in 2015) Dividends declared but not yet paid 436,462 (43,404) (31,257) 4,416 12,862 20,467 (8,771) (4,278) 519,152 (96,791) 71,235 (248,546) (124,763) (1,384) (123,842) 116,329 321 (407,441) (326,346) — (300,000) 898,095 417 — (31,089) (3,708) (327,793) (21,361) (111,785) (74) 2,112 2,038 126,348 1,660 140,549 — — — — — 2,317 43,930 14,544 91,455 $ $ $ 425,638 (210,851) (52,234) 57,578 13,398 24,142 (29,038) (12,084) 536,929 (163,015) 302,354 (178,279) (91,852) (4,439) (40,162) 66,116 (3,000) (112,277) (375,308) 50,000 (95,053) 300,000 (128,650) 173,211 (29,688) (3,717) (308,923) (11,154) (429,282) (4,630) 6,742 2,112 124,635 693 80,583 75,796 4,228 — — — — 46,285 9,466 86,936 $ $ $ 381,277 (251,677) (62,329) 27,012 18,017 3,410 (4,652) (9,590) 458,627 (244,769) 387,650 (103,205) (113,400) (4,049) (217,642) 32,279 (2,325) (265,461) (193,958) 127,600 (325,540) 299,310 (2,500) 210,011 (10,654) (3,722) (283,168) (19,027) (201,648) (8,482) 15,224 6,742 130,240 (1,014) — — — 660,832 24,067 1,363 — 20,375 3,817 80,368 $ $ $ See accompanying notes to consolidated financial statements. F - 8 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017 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, 2017, our consolidated apartment portfolio consisted of 127 consolidated communities located in 19 markets consisting of 39,998 apartment homes. In addition, the Company has an ownership interest in 7,286 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, 2017 and 2016, there were 183,350,924 and 183,278,698 units, respectively, in the Operating Partnership (“OP Units”) outstanding, of which 174,237,688, or 95.0% and 174,230,084, or 95.1%, respectively, were owned by UDR and 9,113,236, or 5.0% and 9,048,614, or 4.9%, respectively, were owned by outside limited partners. As of December 31, 2017 and 2016, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 16,866,443, or 52.1% and 16,485,014, or 50.9%, respectively, were owned by UDR (of which, 13,470,651, or 41.6%, were held by the Operating Partnership for both periods) and 15,500,937, or 47.9% and 15,882,366, or 49.1%, respectively, 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 in Note 3, Real Estate Owned and Note 6, Secured and Unsecured Debt, Net. 2. SIGNIFICANT ACCOUNTING POLICIES Recent Accounting Pronouncements In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard will be effective for the Company on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Company expects to early adopt the guidance on January 1, 2018, but does not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changes the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard will be effective for the Company on January 1, 2018. The ASU will be applied prospectively to any transactions occurring after adoption. The Company expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU addresses the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The F - 9 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 updated standard will be effective for the Company on January 1, 2018 and must be applied retrospectively to all periods presented. The Company does not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the Company on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The ASU aims to simplify the accounting for share-based payments by amending the accounting for forfeitures, statutory tax withholding requirements, classification in the statements of cash flow and income taxes. The updated standard was effective for the Company on January 1, 2017, at which time the Company prospectively began accounting for forfeitures as incurred and began applying the updated rules for statutory withholdings. As a result of adopting the ASU, the Company recorded a one-time adjustment for existing estimated forfeitures of $0.6 million as of January 1, 2017 to Distributions in Excess of Net Income on January 1, 2017. In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the Company on January 1, 2019; however, early adoption of the ASU is permitted. While the Company is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date, at which time we anticipate recognizing right-of-use assets and related lease liabilities on our consolidated balance sheets related to ground leases for any communities where we are the lessee. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The updated standard requires certain equity securities to be measured at fair value on the balance sheet, with changes in fair value recognized in net income. The standard will be effective for the Company on January 1, 2018. The Company holds one investment in equity securities subject to the updated guidance. As the investment does not have a readily determinable fair value, the Company will elect the measurement alternative under which the investment will be measured at cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer. However, the Company does not expect the updated standard to have a material impact on the consolidated financial statements. 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 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry- specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method and will be effective for the Company on January 1, 2018, at which time the Company expects to adopt the updated standard using the modified retrospective approach. However, as the majority of the Company’s revenue is from rental income related to leases, the ASU will not have a material impact on the consolidated financial statements. Related disclosures will be provided and/or updated pursuant to the requirements of the ASU. F - 10 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 Real Estate Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy. UDR purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Company estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are expensed as incurred. Quarterly or when changes in circumstances warrant, UDR will assess our real estate properties for indicators of impairment. In determining whether the Company has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Properties classified as real estate held for disposition generally represent properties that are actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 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, 2017, 2016, and 2015 were $8.8 million, $7.9 million and $6.3 million, respectively. During the years ended December 31, 2017, 2016, and 2015, total interest capitalized was $18.6 million, $16.5 million, and $16.1 million, respectively. As each F - 11 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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. 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 of 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, 2017 and 2016 (dollars in thousands): Note due February 2020 (a) Note due July 2017 (b) Note due October 2020 (c) Note due August 2022 (d) Total notes receivable, net Interest rate at Balance Outstanding December 31, December 31, December 31, 2017 10.00 % $ — % 8.00 % 10.00 % $ 2017 13,669 $ — 2,000 3,800 19,469 $ 2016 12,994 2,500 1,296 3,000 19,790 (a) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $16.4 million. During the year ended December 31, 2017, the Company loaned $0.7 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 eighth anniversary of the date of the note (February 2020). F - 12 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 (b) At December 31, 2016, the Company had a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.5 million. The outstanding balance was paid in full during the year ended December 31, 2017. (c) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.0 million, of which $2.0 million had been funded. During the year ended December 31, 2017, the Company loaned $0.7 million. 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). (d) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $10.0 million, of which $3.8 million has been funded. During the year ended December 31, 2017, the Company loaned $0.8 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 $25.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) August 2022. In September 2017, the terms of this secured note receivable were amended to reduce the aggregate commitment from $15.0 million to $10.0 million and to extend the maturity date of the note from the fifth anniversary of the note (April 2021) to August 2022. During the years ended December 31, 2017, 2016, and 2015, the Company recognized $1.8 million, $1.8 million and $1.5 million, respectively, of interest income from notes receivable, none of which 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, 2017, 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. F - 13 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, subject to certain exceptions. 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/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT 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, 2017 and 2016, UDR’s net deferred tax asset was $0.1 million and $0.6 million, respectively. 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. Second, 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. F - 14 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 UDR had no material unrecognized tax benefit, accrued interest or penalties at December 31, 2017. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2014 through 2016 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 Tax (provision)/benefit, net on the Consolidated Statements of Operations. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company's accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of December 31, 2017, we have completed our accounting for the tax effects of the Act, under which we recognized a one-time tax benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits that became refundable under the Act. Principles of Consolidation The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the consolidation guidance. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. Discontinued Operations In accordance with GAAP, 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. We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations. Stock-Based Employee Compensation Plans The Company measures the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognizes the cost over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. The fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For performance based awards, the Company remeasures the fair value each balance sheet date with adjustments made on a cumulative basis until the award is settled and the final compensation is known. The fair value for market based awards issued by the Company is calculated utilizing a Monte Carlo simulation. For further discussion, see Note 9, Employee Benefit Plans. Advertising Costs All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2017, 2016, and 2015, total advertising expense was $6.2 million, $6.4 million, and $6.4 million, respectively. F - 15 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, 2017, 2016, and 2015, 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 reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 13, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the years ended December 31, 2017, 2016, and 2015 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, 2017, the Company held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California; Metropolitan D.C. and New York, New York markets. 3. REAL ESTATE OWNED Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of December 31, 2017, the Company owned and consolidated 127 communities in 11 states plus the District of Columbia totaling 39,998 apartment F - 16 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2017 and 2016 (dollars in thousands): Land Depreciable property — held and used: Land improvements Building, improvements, and furniture, fixtures and equipment Under development: Land and land improvements Building, improvements, and furniture, fixtures and equipment Real estate held for disposition: Land and land improvements Building, improvements, and furniture, fixtures and equipment Real estate owned Accumulated depreciation Real estate owned, net Acquisitions December 31, December 31, 2017 2016 $ 1,780,229 $ 1,801,576 189,919 7,614,568 178,701 7,291,570 109,468 483,022 111,028 231,254 — — 10,177,206 (3,330,166) 1,104 520 9,615,753 (2,923,625) 6,692,128 $ 6,847,040 $ In October 2017, the Company acquired an operating community located in Denver, Colorado with a total of 218 apartment homes and 17,000 square feet of retail space for a purchase price of approximately $141.5 million. The Company consolidated the operating community and accounted for the consolidation as a business combination. As a result of the consolidation, the Company increased its real estate owned by approximately $139.0 million, recorded approximately $2.5 million of in-place lease intangibles and recorded a gain on consolidation of approximately $14.8 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. The acquisition will be fully or partially funded with tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”). Prior to acquiring the community, the Company had provided $93.5 million as a participating loan investment to the third-party developer and was entitled to receive, in addition to repayment of principal and interest, contingent interest equal to 50% of the sum of the amount the property was sold for less construction and closing costs, which equaled approximately $14.9 million. The Company had previously accounted for its participating loan investment as an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). In January 2017, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). As a result of the consolidation, the Company increased its real estate owned by approximately $97.0 million, recorded approximately $1.7 million of in- place lease intangibles and recorded a gain on consolidation of $12.2 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. In November 2016, the Company acquired an operating community in Redmond, Washington with 177 apartment homes for approximately $70.5 million, which was funded with Section 1031 exchanges. In October 2016, the Company increased its ownership from 50% to 100% in two operating communities located in Bellevue, Washington with a total of 331 apartment homes for approximately $70.3 million in cash, which was funded with tax-deferred Section 1031 exchanges and the assumption of an incremental $37.9 million of secured debt with a weighted average interest rate of 3.67%. As a result, the Company consolidated the operating communities. The Company had previously accounted for its 50% ownership interest as an unconsolidated joint venture. The Company accounted for the acquisition as a business combination resulting in a gain on consolidation of approximately $36.4 million. As a result of the consolidation, the Company increased its real estate owned by $215.0 million and secured debt by $80.0 million. F - 17 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 In August 2016, the Company increased its ownership interest from 5% to 100% in a parcel of land in Dublin, California for a purchase price of approximately $8.5 million. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 5% interest in the parcel of land as an unconsolidated joint venture. The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $8.9 million. In June 2016, the Company increased its ownership interest from 50% to 100% in a parcel of land in Los Angeles, California for a purchase price of approximately $20.1 million. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 50% interest in the parcel of land as an unconsolidated joint venture. The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $31.1 million. Subsequent to the acquisition, the Company entered into a triple-net operating ground lease for the parcel of land at market terms with a third-party developer. The lessee plans to construct a multi-family community on the parcel of land. The ground lease provides the ground lessee with options to buy the fee interest in the parcel of land. The lease term is 49 years plus two 25-year extension options, does not transfer ownership to the lessee, and does not include a bargain purchase option. The Company incurred $0.4 million, $0.2 million and $2.1 million of acquisition-related costs during the years ended December 31, 2017, 2016, and 2015, respectively. These expenses are reported within the line item General and administrative on the Consolidated Statements of Operations. Dispositions In December 2017, the Company sold two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in net proceeds of $68.0 million and a gain of $41.3 million. In February 2017, the Company sold a parcel of land in Richmond, Virginia for gross proceeds of $3.5 million, resulting in net proceeds of $3.3 million and a gain of $2.1 million. In November 2016, the Company sold seven operating communities with a total 1,402 apartment homes in Baltimore, Maryland and an operating community with 380 apartment homes in Dallas, Texas for gross proceeds of $284.6 million, resulting in net proceeds of $280.5 million and a gain, net of tax, of $200.5 million. A portion of the proceeds was designated for tax-deferred Section 1031 exchanges that was used for certain 2016 acquisitions. In May 2016, the Company sold a retail center in Bellevue, Washington for gross proceeds of $45.4 million, resulting in net proceeds of $44.1 million and a gain, net of tax, of $7.3 million. A portion of the proceeds was designated for tax-deferred Section 1031 exchanges. In March 2016, the Company sold its 95% ownership interest in two parcels of land in Santa Monica, California for gross proceeds of $24.0 million, resulting in net proceeds of $22.0 million and a gain, net of tax, of $3.1 million. In February 2018, the Company sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million and an expected GAAP gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange. Other Activity In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, in an exchange under Section 1031 of the Internal Revenue Code. Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions. F - 18 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 4. VARIABLE INTEREST ENTITIES The Company has determined that the Operating Partnership and DownREIT Partnership are VIEs as the limited partners lack substantive kick-out rights and substantive participating rights. The Company has concluded that it is the primary beneficiary of, and therefore consolidates the Operating Partnership and DownREIT Partnership based on its role as the sole general partner of the Operating Partnership and DownREIT Partnership. The Company’s role as community manager and its equity interests give us the power to direct the activities that most significantly impact the economic performance and the obligation to absorb potentially significant losses or the right to receive potentially significant benefits of the Operating Partnership and DownREIT Partnership. See the consolidated financial statements of the Operating Partnership presented within this Report and Note 4, Unconsolidated Entities, to the Operating Partnership’s consolidated financial statements for the results of operations of the DownREIT Partnership. 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. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. 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 - 19 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, 2017 and 2016 (dollars in thousands): Joint Venture Operating and development: UDR/MetLife I UDR/MetLife II (b) Other UDR/MetLife Development Joint Ventures UDR/MetLife Vitruvian Park® Location of Properties Number of Properties December 31, 2017 Number of Apartment Homes Investment at December 31, December 31, December 31, December 31, UDR’s Ownership Interest 2017 2017 2016 2017 December 31, 2016 Los Angeles, CA Various Various Addison, TX 1 development community (a) 18 operating communities 4 operating communities; 1 development community (a) 3 operating communities; 1 development community (a); 5 land parcels 150 $ 4,059 1,437 34,653 $ 303,702 135,563 25,209 311,282 160,979 50.0 % 50.0 % 50.6 % 50.0 % 50.0 % 50.6 % 1,513 78,404 72,414 50.0 % 50.0 % UDR/KFH Washington, D.C. 3 operating communities 660 8,958 12,835 30.0 % 30.0 % Investment in and advances to unconsolidated joint ventures, net, before participating loan investment, preferred equity investments and other investments Developer Capital Program (c) Location Years To Rate Maturity $ 561,280 $ 582,719 Investment at UDR Commitment December 31, December 31, 2017 2016 Income from investments Year Ended December 31, 2016 2017 2015 Denver, CO — % — $ — $ — $ 94,003 $ 19,523 $ 6,213 $ 5,453 Participating loan investment: Steele Creek (d) Preferred equity investments: West Coast Development Joint Ventures (e) 1532 Harrison (f) 1200 Broadway (g) Other investments: The Portals (h) Other investment ventures Various San Francisco, CA Nashville, TN 6.5 % 11.0 % 8.0 % Washington, D.C. N/A 11.0 % N/A Total Developer Capital Program Total investment in and advances to unconsolidated joint ventures, net N/A 4.5 4.8 3.4 N/A — 24,645 55,558 102,142 11,346 18,011 150,303 — — 23,557 511 370 4,561 — — 3,692 — — 38,559 15,000 $ $ 26,535 1,516 159,550 720,830 $ — — $ 839 (30) $ — — $ — — 244,306 827,025 (a) The number of apartment homes for the communities under development presented in the table above is based on the projected number of total homes upon completion of development. As of December 31, 2017, 190 apartment homes had been completed in Other UDR/MetLife Development Joint Ventures and no apartment homes had been completed in UDR/MetLife I or in UDR/MetLife Vitruvian Park®. (b) In September 2015, the 717 Olympic community, which is owned by the UDR/MetLife II joint venture, experienced extensive water damage due to a ruptured water pipe. For the years ended December 31, 2017, 2016, and 2015, the Company recorded casualty-related charges/(recoveries) of $(0.9) million, $(3.8) million, and $2.5 million, respectively, representing its proportionate share of the total charges/(recoveries) recognized. (c) The Developer Capital Program is a program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments, that may receive a fixed yield on the investment and that may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options. (d) In October 2017, the Company acquired the Steele Creek community for a purchase price of approximately $141.5 million (see Note 3, Real Estate Owned). (e) In May 2015, the Company entered into a joint venture agreement with an unaffiliated joint venture partner and agreed to pay $136.3 million for a 48% ownership interest in a portfolio of five communities that were under construction. The communities are located in three of the Company’s core, coastal markets: Seattle, Washington, Los Angeles and Orange County, California. UDR earns a 6.5% preferred return on its investment through each individual community’s date of stabilization, defined as when a community reaches 80% occupancy for 90 consecutive days, while the joint venture partner is allocated all operating income and expense during the pre- stabilization period. Upon stabilization, income and expense are shared based on each partner’s ownership percentage and the Company no longer receives a 6.5% preferred return on its investment in the stabilized community. The Company serves as property manager and earns a management fee during the lease-up phase and subsequent operation of each of the communities. The unaffiliated joint venture partner is the general partner of the joint venture and the developer of the communities. F - 20 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 At inception of the agreement, the Company had a fixed-price option to acquire the remaining interest in each community beginning one year after completion. If the options are exercised for all five communities, the Company’s total purchase price will be $597.4 million. In the event the Company does not exercise its options to purchase at least two communities, the unaffiliated joint venture partner will be entitled to earn a contingent disposition fee equal to a 6.5% return on its implied equity in the communities not acquired. The unaffiliated joint venture partner is providing certain guaranties and at the inception of the agreement there are construction loans on all five communities. In January 2017, the Company exercised its fixed-price option to purchase the joint venture partner’s ownership interest in one of the five communities, a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). As a result of the consolidation, the Company recorded a gain on consolidation of $12.2 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. In connection with the purchase, the construction loan on the community was paid in full. In August 2017, the joint venture sold one of the four remaining communities, a 211 home operating community in Seattle, Washington for a sales price of approximately $101.3 million. As a result, the Company recorded a gain on the sale of approximately $2.1 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. In November 2017, the joint venture sold one of the three remaining communities, a 399 home operating community in Anaheim, California for a sales price of approximately $148.0 million. As a result, the Company recorded a gain on the sale of approximately $5.5 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. As of December 31, 2017, construction was completed on one of the two remaining communities. The completed community has achieved stabilization and the Company receives income and expenses based on its ownership percentage. The other community is still under construction and the Company continues to receive a 6.5% preferred return on its investment in that community. In March 2017 and May 2017, the Company entered into two additional joint venture agreements with the unaffiliated joint venture partner and agreed to pay $15.5 million for a 49% ownership interest in a 155 home community that is currently under construction in Seattle, Washington and $16.1 million for a 49% ownership interest in a 276 home community that is currently under construction in Hillsboro, Oregon (together with the May 2015 joint venture described above, the “West Coast Development Joint Ventures”). Consistent with the terms of the May 2015 joint venture agreement, UDR earns a 6.5% preferred return on its investments through the communities’ date of stabilization, as defined above, while our joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization of the communities, income and expense will be shared based on each partner’s ownership percentage and the Company will no longer receive a 6.5% preferred return on its investment. The Company will serve as property manager and will earn a management fee during the lease-up phase and subsequent operation of the stabilized communities. The unaffiliated joint venture partner is the general partner and the developer of the communities. The Company has concluded it does not control the joint ventures and accounts for them under the equity method of accounting. The Company has a fixed-price option to acquire the remaining interest in the communities beginning one year after completion for a total price of $61.3 million and $72.3 million, respectively. The unaffiliated joint venture partner is providing certain guaranties and there are construction loans on the communities. The Company’s recorded equity investment in the West Coast Development Joint Ventures at December 31, 2017 and 2016 of $102.1 million and $150.3 million, respectively, is inclusive of outside basis costs and our accrued but unpaid preferred return. (f) In June 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 136 apartment home community in San Francisco, California. The Company’s preferred equity investment of up to $24.6 million earns a preferred return of 11.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. As of December 31, 2017, the Company had contributed approximately $11.3 million to the joint venture. The Company has concluded it does F - 21 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 not control the joint venture and accounts for it under the equity method of accounting. (g) In September 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 313 apartment home community in Nashville, Tennessee. The Company’s preferred equity investment of up to $55.6 million earns a preferred return of 8.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. As of December 31, 2017, the Company had contributed approximately $18.0 million to the joint venture. The Company has concluded it does not control the joint venture and accounts for it under the equity method of accounting. (h) In May 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner. The joint venture has made a mezzanine loan to a third-party developer of a 373 apartment home community in Washington, D.C. The unaffiliated joint venture partner is the managing member of the joint venture. The mezzanine loan is for up to $71.0 million at an interest rate of 13.5% per annum and carries a term of four years with one, 12-month extension option. The Company’s investment commitment to the joint venture is approximately $38.6 million and earns a weighted average return rate of approximately 11.0% per annum. As of December 31, 2017, the Company had contributed approximately $26.5 million to the joint venture. The Company has concluded it does not control the joint venture and accounts for it under the equity method of accounting. As of December 31, 2017 and 2016, the Company had deferred fees and deferred profit of $10.9 million and $9.5 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 management fees of $11.4 million, $11.3 million, and $11.3 million during each of the years ended December 31, 2017, 2016, and 2015, respectively, for our management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations. The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations. We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2017, 2016, and 2015. F - 22 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the years ended December 31, 2017, 2016, and 2015 (dollars in thousands): As of and For the Year Ended December 31, 2017 Condensed Statements of Operations: Total revenues Property operating expenses Real estate depreciation and amortization Operating income/(loss) Interest expense Gain/(loss) on the sale of real estate Net income attributable to noncontrolling interest Net income/(loss) $ UDR/ UDR/ MetLife I MetLife II Joint Ventures Park® Other UDR/ UDR/MetLife MetLife Development Vitruvian West Coast Development UDR/KFH Joint Ventures Total $ — $ 156,920 $ 93 — (93) — (17) — (110) $ 52,450 45,144 59,326 (50,603) (609) — 8,114 $ 48,032 $ 23,025 $ 20,327 $ 8,159 11,839 21,908 14,480 7,169 32,625 (2,312) 4,017 (6,501) (5,264) (5,030) (13,894) — — — — — — (20,395) $ (1,013) $ (7,576)$ 18,812 $ 267,116 103,969 9,520 106,805 7,387 56,342 1,905 (78,829) (4,038) 71,590 72,216 439 439 48,664 69,644 $ Condensed Balance Sheets: Total real estate, net Cash and cash equivalents Other assets Total assets Amount due to/(from) UDR Third party debt, net Accounts payable and accrued liabilities Total liabilities Total equity As of and For the Year Ended December 31, 2016 Condensed Statements of Operations: Total revenues Property operating expenses Real estate depreciation and amortization Operating income/(loss) Interest expense Income/(loss) from discontinued operations Net income attributable to noncontrolling interest Net income/(loss) $ $ 108,958 $ 1,641,338 $ 514 2 109,474 514 30,555 12,186 43,255 11,947 10,830 1,664,115 (4,207) 1,108,156 19,477 1,123,426 $ 66,219 $ 540,689 $ 687,492 $ 299,420 $ 195,625 $ 829 7,612 8,596 905 1,972 4,290 197,359 309,004 700,378 229 1,311 413 165,801 131,281 443,147 1,516 15,620 14,590 458,150 167,546 148,212 242,228 $ 160,792 $ 29,813 $ 252,352 $ 3,185,185 33,712 4,214 18,978 979 3,237,875 257,545 (1,452) 288 2,005,566 126,626 80,490 17,101 144,015 2,084,604 113,530 $ 1,153,271 UDR/ UDR/ MetLife I MetLife II Joint Ventures Park® Other UDR/ UDR/MetLife MetLife Development Vitruvian West Coast Development UDR/KFH Joint Ventures Total $ 278 $ 552 52 (326) — (375) — (701) $ 169,175 $ 52,322 46,135 70,718 (51,173) 34,201 — 53,746 $ 18,090 $ 22,916 $ 19,997 $ 7,828 11,730 11,655 14,444 6,835 16,353 (2,275) 4,351 (9,918) (5,369) (5,095) (6,164) — — — — — — (744) $ (16,082) $ (7,644) $ 12,174 $ 7,117 6,218 (1,161) (2,166) — (62) (3,265) $ 242,630 91,204 90,037 61,389 (69,967) 33,826 (62) 25,310 698,694 $ 270,770 $ 208,105 $ 1,288 7,012 8,991 1,026 2,266 2,744 210,419 280,048 710,429 429 1,566 3,082 165,687 124,716 375,597 1,397 7,303 32,484 411,163 167,513 133,585 299,266 $ 146,463 $ 42,906 $ 373,449 $ 3,274,516 39,972 7,469 21,293 2,246 3,335,781 383,164 795 274 2,000,904 206,525 77,385 10,994 217,793 2,079,084 165,371 $ 1,256,697 Condensed Balance Sheets: Total real estate, net Cash and cash equivalents Other assets Total assets Amount due to/(from) UDR Third party debt, net Accounts payable and accrued liabilities Total liabilities Total equity $ 50,656 $ 1,672,842 $ 1,940 1,641 54,237 155 — 5,211 5,366 $ 48,871 $ 13,272 11,370 1,697,484 (4,711) 1,128,379 19,996 1,143,664 553,820 $ F - 23 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 Other UDR/ For the Year Ended December 31, 2015 Condensed Statements of Operations: Total revenues Property operating expenses Real estate depreciation and amortization Operating income/(loss) Interest expense Income/(loss) from discontinued operations Net income attributable to noncontrolling interest Net income/(loss) UDR/ UDR/ UDR/MetLife MetLife Development Vitruvian MetLife I MetLife II Joint Ventures Park® West Coast Development UDR/KFH Joint Ventures Texas Total $ 541 $ 170,062 $ 906 63,516 7,634 $ 22,139 $ 19,338 $ 3,826 11,519 7,733 200 $ 4,065 — $ 219,914 91,565 — 818 (1,183) — 46,616 59,930 (52,037) 6,897 (3,089) (2,566) 6,639 3,981 (4,848) 14,522 (2,917) (5,539) 102 (3,967) — — — — 75,594 52,755 (64,990) (20) — — — — $ (1,203) $ — 7,893 $ — (5,655) $ — (867) $ — — (8,456) $ — 184,138 184,118 (1) (1) (3,966) $ 184,138 $ 171,884 — Other than the West Coast Development Joint Ventures, the condensed summary financial information relating to the entities in which we have an interest through the Developer Capital Program is not included in the tables above. As of and for the year ended December 31, 2017, combined total assets, liabilities, equity, revenues, and expenses for such entities were $79.1 million, $0.8 million, $78.3 million, $7.8 million, and $9.5 million, respectively. As of and for the year ended December 31, 2016, combined total assets, liabilities, equity, revenues, and expenses for such entities were $93.8 million, $95.2 million, $(1.4) million, $8.5 million, and $12.2 million, respectively. For the year ended December 31, 2015, combined total revenues and expenses for such entities were $3.6 million and $7.9 million, respectively. F - 24 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 6. SECURED AND UNSECURED DEBT, NET The following is a summary of our secured and unsecured debt at December 31, 2017 and 2016 (dollars in thousands): Principal Outstanding As of December 31, 2017 December 31, December 31, 2017 2016 Rate Weighted Weighted Average Interest Average Number of Years to Communities Maturity Encumbered Secured Debt: Fixed Rate Debt Mortgage notes payable (a) Fannie Mae credit facilities (b) Deferred financing costs Total fixed rate secured debt, net Variable Rate Debt Tax-exempt secured notes payable (c) Fannie Mae credit facilities (b) Deferred financing costs Total variable rate secured debt, net Total Secured Debt, net Unsecured Debt: Variable Rate Debt $ 395,611 $ 285,836 (1,670) 679,777 402,996 355,836 (2,681) 756,151 4.04 % 4.86 % 5.3 2.0 4.39 % 3.9 94,700 29,034 (242) 123,492 803,269 94,700 280,946 (939) 374,707 1,130,858 1.90 % 2.92 % 2.14 % 4.04 % 5.2 0.9 4.2 4.0 7 8 15 2 1 3 18 Borrowings outstanding under unsecured credit facility due January 2020 (d) (k) Borrowings outstanding under unsecured commercial paper program due February 2018 (e) (k) Borrowings outstanding under unsecured working capital credit facility due January 2019 (f) Term Loan Facility due January 2021 (d) (k) — — — % 2.1 300,000 — 1.96 % 0.1 21,767 35,000 21,350 35,000 2.46 % 2.31 % 1.0 3.1 Fixed Rate Debt 4.25% Medium-Term Notes due June 2018 (net of discounts of $0 and $608, respectively) (g) (k) 3.70% Medium-Term Notes due October 2020 (net of discounts of $22 and $30, respectively) (k) 1.98% Term Loan Facility due January 2021 (d) (k) 4.63% Medium-Term Notes due January 2022 (net of discounts of $1,446 and $1,805, respectively) (k) 3.75% Medium-Term Notes due July 2024 (net of discounts of $678 and $782, respectively) (k) 8.50% Debentures due September 2024 4.00% Medium-Term Notes due October 2025 (net of discounts of $534 and $602, respectively) (h) (k) 2.95% Medium-Term Notes due September 2026 (k) 3.50% Medium-Term Notes due July 2027 (net of discounts of $670 and $0, respectively) (i) (k) 3.50% Medium-Term Notes due January 2028 (net of discounts of $1,191 and $0, respectively) (j) (k) Other Deferred financing costs Total Unsecured Debt, net Total Debt, net — 299,392 — % — 299,978 315,000 299,970 315,000 3.70 % 1.98 % 2.8 3.1 398,554 398,195 4.63 % 4.0 299,322 15,644 299,218 15,644 3.75 % 8.50 % 299,466 300,000 299,398 300,000 4.00 % 2.95 % 6.5 6.7 7.8 8.7 299,330 — 3.50 % 9.5 298,809 19 (14,495) 2,868,394 — 21 (12,568) 2,270,620 $ 3,671,663 $ 3,401,478 3.50 % 10.0 3.43 % 3.65 % 5.7 5.3 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, 2017, secured debt encumbered $1.7 billion or F - 25 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 16.8% of UDR’s total real estate owned based upon gross book value ($8.5 billion or 83.2% of UDR’s real estate owned based on gross book value is unencumbered). (a) At December 31, 2017, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from May 2019 through November 2026 and carry interest rates ranging from 3.15% to 5.86%. The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par value to interest expense over the life of the underlying debt instrument. During the years ended December 31, 2017, 2016, and 2015, the Company had $3.0 million, $2.9 million, and $5.3 million, respectively, of amortization of the fair market adjustment of debt assumed in the 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 $8.2 million and $11.2 million at December 31, 2017 and 2016, respectively. (b) UDR had two secured credit facilities with Fannie Mae with an aggregate commitment of $314.9 million at December 31, 2017. The Fannie Mae credit facilities mature at various dates from December 2018 through July 2020 and bear interest at floating and fixed rates. At December 31, 2017, $285.8 million of the outstanding balance was fixed and had a weighted average interest rate of 4.86% and the remaining balance of $29.0 million had a weighted average variable interest rate of 2.92%. During the year ended December 31, 2017, the Company prepaid $275.3 million of its secured credit facilities with borrowings under the Company’s unsecured commercial paper program and proceeds from the issuance of senior unsecured medium-term notes. The Company incurred prepayment costs of $5.8 million during the year ended December 31, 2017, which were included in Interest expense on the Consolidated Statements of Operations. Further information related to these credit facilities is as follows (dollars in thousands): Borrowings outstanding Weighted average borrowings during the period ended Maximum daily borrowings during the period ended Weighted average interest rate during the period ended Weighted average interest rate at the end of the period December 31, December 31, $ 2017 314,870 416,653 636,782 $ 2016 636,782 737,802 813,544 4.3 % 4.7 % 3.9 % 3.8 % (c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature in August 2019 and March 2032. Interest on these notes is payable in monthly installments. The variable rate mortgage notes have interest rates ranging from 1.71% to 1.98% as of December 31, 2017. (d) The Company has a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan facility (the “Term Loan Facility”). The credit agreement for these facilities (the “Credit Agreement”) 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. 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. F - 26 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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 following is a summary of short-term bank borrowings under the Revolving Credit Facility at December 31, 2017 and 2016 (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, December 31, 2017 $ 1,100,000 — 2,274 120,000 2016 $ 1,100,000 — 161,505 340,000 1.6 % — % 1.4 % — % (1) Excludes $3.3 million and $2.9 million of letters of credit at December 31, 2017 and 2016, respectively. (e) On January 23, 2017, the Company entered into an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500.0 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of the Company’s other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. The following is a summary of short-term bank borrowings under the unsecured commercial paper program at December 31, 2017 and 2016 (dollars in thousands): Total unsecured commercial paper program Borrowings outstanding at end of period 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, December 31, 2016 $ $ 2017 500,000 300,000 238,810 390,000 1.4 % 2.0 % — — — — — % — % (f) The Company has a working capital credit facility, which provides for a $75.0 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. In February 2018, the Company amended the working capital credit facility to extend the scheduled maturity date to January 2021. The maximum borrowing capacity and interest rate were unchanged by the amendment. The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at December 31, 2017 and 2016 (dollars in thousands): Total working capital credit facility Borrowings outstanding at end of period 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, December 31, $ 2017 75,000 21,767 26,993 68,207 $ 2016 75,000 21,350 21,936 69,633 2.0 % 2.5 % 1.4 % 1.7 % F - 27 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 (g) During the year ended December 31, 2017, the Company redeemed its $300.0 million 4.25% senior unsecured medium-term notes due June 1, 2018, primarily with borrowings under its $300.0 million 3.50% senior unsecured medium-term notes issued on December 13, 2017. The Company incurred prepayment costs of $3.4 million during the year ended December 31, 2017, which were included in Interest expense on the Consolidated Statement of Operations. (h) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.55%. (i) On June 16, 2017, the Company issued $300.0 million of 3.50% senior unsecured medium-term notes due July 1, 2027. Interest is payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2018. The notes were priced at 99.764% of the principal amount at issuance. The Company used the net proceeds for the repayment of outstanding indebtedness and for general corporate purposes. (j) On December 13, 2017, the Company issued $300.0 million of 3.50% senior unsecured medium-term notes due January 15, 2028. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The notes were priced at 99.601% of the principal amount at issuance. The Company used the net proceeds for the repayment of debt, including funding the redemption of its $300.0 million 4.25% senior unsecured medium-term notes due in June 2018, and for general corporate purposes. (k) The Operating Partnership is a guarantor of this debt. The aggregate maturities, including amortizing principal payments of secured and unsecured debt, of total debt for the next ten years subsequent to December 31, 2017 are as follows (dollars in thousands): Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Thereafter Subtotal Non-cash (a) Total Total Total 4,636 $ Total Fixed Total Variable Secured Debt Secured Debt Secured Debt Unsecured Debt $ Total Debt 333,670 338,862 498,076 351,117 401,157 41,245 315,644 427,600 350,000 300,000 327,000 3,684,371 (12,708) $ 679,777 $ 123,492 $ 803,269 $ 2,868,394 $ 3,671,663 300,000 $ 21,767 300,000 350,000 400,000 — 315,644 300,000 300,000 300,000 300,000 2,887,411 (19,017) 33,670 $ 317,095 198,076 1,117 1,157 41,245 — 127,600 50,000 — 27,000 796,960 6,309 29,034 $ 67,700 — — — — — — — — 27,000 123,734 (242) 249,395 198,076 1,117 1,157 41,245 — 127,600 50,000 — — 673,226 6,551 (a) Includes the unamortized balance of fair market value adjustments, premiums/discounts, and deferred financing costs. For the years ended December 31, 2017 and 2016, the Company amortized $4.3 million and $4.5 million, respectively, of deferred financing costs into Interest expense. We were in compliance with the covenants of our debt instruments at December 31, 2017. F - 28 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, 2016 2015 2017 Numerator for income/(loss) per share: Income/(loss) from continuing operations Gain/(loss) on sale of real estate owned, net of tax Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to UDR, Inc. Distributions to preferred stockholders — Series E (Convertible) Income/(loss) attributable to common stockholders - basic Dilutive distributions to preferred stockholders - Series E (Convertible) Income/(loss) attributable to common stockholders - diluted $ 89,251 $ 43,404 109,529 210,851 $ 105,482 251,677 (10,933) (164) 121,558 (3,708) 117,850 — 117,850 $ (27,282) (380) 292,718 (3,717) 289,001 — 289,001 $ (16,773) (3) 340,383 (3,722) 336,661 3,722 340,383 $ Denominator for income/(loss) per share: Weighted average common shares outstanding Non-vested restricted stock awards Denominator for basic income/(loss) per share Incremental shares issuable from assumed conversion of dilutive preferred stock, stock options, unvested LTIP Units and unvested restricted stock Denominator for diluted income/(loss) per share Income/(loss) per weighted average common share: Basic Diluted 267,567 (543) 267,024 266,211 (825) 265,386 1,806 268,830 1,925 267,311 259,873 (1,204) 258,669 5,083 263,752 $ $ 0.44 $ 0.44 $ 1.09 1.08 $ $ 1.30 1.29 Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units (“LTIP Units”), unvested restricted stock and continuous equity program forward sales agreements. 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 years ended December 31, 2017 and 2016, the effect of the conversion of the OP Units, DownREIT Units, LTIP Units and the Company’s Series E preferred stock was not dilutive, and therefore not included in the above calculations. For the year ended December 31, 2015, 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, 2017, the Company did not enter into any forward purchase agreements under its continuous equity program. 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, 2017, 2016, and 2015 (shares in thousands): Year Ended December 31, 2016 2015 2017 OP/DownREIT Units Convertible preferred stock Stock options, unvested LTIP Units and unvested restricted stock F - 29 24,821 25,130 12,947 3,032 2,051 3,028 1,925 3,021 1,806 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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 had the ability to issue 350,000,000 shares of common stock and 50,000,000 shares of preferred shares as of December 31, 2017. 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, 2017, 2016 and 2015 Common Stock Preferred Stock Series E Series F Balance at December 31, 2014 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 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 Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership Forfeiture of Series F shares Balance at December 31, 2016 Issuance/(forfeiture) of common and restricted shares, net Issuance of common shares upon exercise of stock options Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership Conversion of Series E Cumulative Convertible shares Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership Forfeiture of Series F shares Balance at December 31, 2017 Common Stock 255,114,603 2,803,812 2,464,183 — — 270,628 6,339,636 — — — (6,909) 112,174 7,480 — — — — 13,988,313 261,844,521 2,796,903 16,452,496 — — 154,656 5,000,000 — — 4,685 — — 255,607 — — (255,607) 267,259,469 2,796,903 16,196,889 — — — — 69,788 86,554 7,604 17,225 — (15,909) — 381,429 — — (344,168) 267,822,069 2,780,994 15,852,721 — — 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. In July 2017, the Company updated its equity distribution agreement to also permit the entry into separate forward sales agreements to or through its forward purchasers. As of December 31, 2017, 13,078,931 shares were available for sale under the continuous equity program. During the year ended December 31, 2017, the Company entered into the following equity transactions for our common stock: Issued 322,352 shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”); Converted 7,604 OP Units into Company common stock; Converted 381,429 DownREIT Units into Company common stock, resulting in the forfeiture of 344,168 Series F Preferred Shares; and F - 30 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 Converted 15,909 Series E Cumulative Convertible shares into 17,225 share of 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, 2017, 2016, and 2015 totaled $1.24, $1.18, and $1.11 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 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, 2017, 2016, and 2015 were $1.33 per share. The Series E is not listed on any exchange. At December 31, 2017 and 2016, a total of 2,780,994 and 2,796,903 shares of the Series E were outstanding, respectively. 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 OP Units and DownREIT Units, at a purchase price of $0.0001 per share. OP/DownREIT Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP/DownREIT 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. During the years ended December 31, 2017 and 2016, 344,168 and 255,607 of the Series F shares were forfeited upon the conversion of DownREIT Units into Company common stock, respectively. At December 31, 2017 and 2016, a total of 15,852,721 and 16,196,889 shares, respectively, of the Series F were outstanding with an aggregate purchase value of $1,585 and $1,620, 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, 2017. During the year ended December 31, 2017, 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. LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not F - 31 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 economically equivalent in value to a share of our common stock, but over time can increase in value to one-for-one parity with common stock by operation of special tax rules applicable to profits interests. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock. As of December 31, 2017, 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, 2017, there were 9,003,396 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. A summary of UDR’s stock option and restricted stock activities during the year ended December 31, 2017 is as follows: Option Outstanding Option Exercisable Restricted Stock Weighted Average Exercise Price Number of Options Weighted Average Exercise Price Number of Options Balance, December 31, 2016 2,234,963 $ Granted Exercised Vested Forfeited — (404,291) — — Balance, December 31, 2017 1,830,672 $ 12.65 — 24.38 — — 10.06 2,234,963 $ — (404,291) — — 1,830,672 $ 12.65 — 24.38 — — 10.06 Weighted Average Fair Value Per Restricted Stock Number of shares 645,967 $ 238,821 — (322,457) (49,815) 512,516 $ 35.12 35.76 — 32.85 35.30 36.82 As of December 31, 2017, the Company had issued 5,929,255 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, 2017. During the year ended December 31, 2017, 404,291 stock options were exercised. The weighted average remaining contractual life on all options outstanding as of December 31, 2017 is 1.1 years. The remaining 1,830,672 of share options have exercise prices at $10.06. During the years ended December 31, 2017, 2016, and 2015, 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, 2017, 2016, F - 32 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 and 2015, we recognized $4.0 million, $3.4 million, and $3.2 million of compensation expense, net of capitalization, related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $6.0 million and had a weighted average remaining contractual life of 2.5 years as of December 31, 2017. Long-Term Incentive Compensation In January 2017, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2017 Long-Term Incentive Program (“2017 LTI”). For both restricted stock grants and LTIP Unit grants, thirty percent of the 2017 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. Ten percent of the 2017 LTI award is based upon FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining sixty percent of the 2017 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and on an absolute basis over a three-year period whereby both will vest 100% at the end of the three-year performance periods. 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 or $35.95 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued at $16.18 per unit on the grant date, inclusive of a 10% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued at $16.63 per unit on the grant date, inclusive of a 7.5% discount. The portion of the restricted stock grant based upon TSR was valued at $44.26 per share for the relative component and $31.40 per share for the absolute component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.0%. The portion of the LTIP Unit grant based upon TSR was valued at $20.54 per unit, inclusive of a 7.5% discount, for the relative component and $14.71 per unit, inclusive of a 7.5% discount, for the absolute component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.0%. In January 2016, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2016 Long-Term Incentive Program (“2016 LTI”). For both restricted stock grants and LTIP Unit grants, one-third of the 2016 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. The remaining two- thirds of the 2016 LTI award is based on 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 or $36.97 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon FFO as Adjusted was valued at $16.64 per unit on the grant date, inclusive of a 10% discount. The portion of the restricted stock grant based upon TSR was valued at $41.22 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 21.8%. The portion of the LTIP Unit grant based upon TSR was valued at $19.15 per unit on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.8%. 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. The remaining two-thirds of the 2015 LTI award is based on 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%. 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 F - 33 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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. For the years ended December 31, 2017, 2016, and 2015, we recognized $8.9 million, $10.0 million and $14.8 million, respectively, of compensation expense, net of capitalization, related to the amortization of the awards. The total remaining compensation cost on unvested LTI awards was $7.3 million and had a weighted average remaining contractual life of 2.2 years as of December 31, 2017. 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, 2017, 2016, and 2015, was $1.3 million, $1.3 million, and $1.1 million, respectively. 10. INCOME TAXES For 2017, 2016, and 2015, UDR believes that we have complied with the REIT requirements specified in the Code. As such, the REIT would generally not be subject to federal income taxes. For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. Taxable distributions paid per common share were taxable as follows for the years ended December 31, 2017, 2016, and 2015 (unaudited): Year Ended December 31, 2016 0.708 $ — 0.309 0.145 1.162 $ 2017 1.018 $ 0.011 0.133 0.063 1.225 $ 2015 0.595 — 0.329 0.168 1.092 Ordinary income Qualified ordinary income Long-term capital gain Unrecaptured section 1250 gain Total $ $ F - 34 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, 2017, 2016, and 2015 (dollars in thousands): Year Ended December 31, 2016 2015 2017 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 $ (1,205) $ 69 $ 407 (798) 372 441 29 871 900 9,814 1,319 11,133 (4,173) 568 (613) (10) 558 (4,786) (240) $ 11,574 $ (3,886) (240) $ (3,774) $ (3,886) — 15,348 — $ $ 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, 2017, 2016, and 2015 (dollars in thousands): Year Ended December 31, 2016 2015 2017 Deferred tax assets: Federal and state tax attributes Book/tax depreciation Other Total deferred tax assets Valuation allowance Net deferred tax assets Deferred tax liabilities: Other Total deferred tax liabilities Net deferred tax asset $ 8 $ — 139 147 (9) 138 536 $ 2,227 9,016 707 11,950 (81) 11,869 — 190 726 (6) 720 (67) (67) 71 $ (107) (92) (92) (107) 628 $ 11,762 $ Income tax provision/(benefit), 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, 2017, 2016, and 2015 as follows (dollars in thousands): Year Ended December 31, 2016 2015 2017 Income tax provision/(benefit) U.S. federal income tax provision/(benefit) State income tax provision Other items New tax law benefit Conversion of certain TRS entities to REITs Valuation allowance Total income tax provision/(benefit) $ $ 581 $ 12,577 $ (4,383) 442 1,370 493 (26) 134 (188) — — (1,129) — (2,436) — 81 (71) 3 (240) $ 11,574 $ (3,886) F - 35 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 As of December 31, 2017, the Company had federal net operating loss carryovers (“NOL”) of $24.0 million expiring in 2032 through 2035 and state NOLs of $74.8 million expiring in 2020 through 2032. 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, 2017, Tax benefit/(provision), net decreased $3.5 million as compared to 2016. The decrease was primarily attributable to the conversion of certain TRS entities to REITs in 2016 and a one-time benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits available that became refundable under the Tax Cuts and Jobs Act of 2017. Additionally, Gain/(loss) on sale of real estate owned, net of tax in 2016 included approximately $15.3 million of tax provision. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company evaluates our tax position using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax benefit/(provision), net. As of December 31, 2017 and 2016, 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 2012. The tax years 2014 through 2016 remain open to examination by the major taxing jurisdictions to which the Company is subject. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company's accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of December 31, 2017, we have completed our accounting for the tax effects of the Act, under which we recognized a one-time tax benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits that became refundable under the Act. 11. NONCONTROLLING INTERESTS 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 F - 36 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. 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/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT 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, 2017 and 2016 (dollars in thousands): Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, beginning of year Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Conversion of OP Units/DownREIT Units to Common Stock Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Vesting of Long-Term Incentive Plan Units Allocation of other comprehensive income/(loss) Year Ended December 31, 2017 2016 $ 909,482 $ 946,436 71,096 (14,544) (24,735) (9,526) 10,933 27,282 (31,427) 2,317 281 (30,077) — 102 Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, end of year $ 948,138 $ 909,482 Noncontrolling Interests Noncontrolling interests represent interests of unrelated partners and unvested LTIP Units in certain consolidated affiliates, and is presented as part of equity in the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was $(0.2) million, $(0.4) million, and less than $(0.1) million during the years ended December 31, 2017, 2016, and 2015, respectively. The Company grants LTIP Units to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have vesting terms of between one and three years, specific to the individual grants. Noncontrolling interests related to long-term incentive plan units represent the unvested LTIP Units of these employees and non-employee directors in the Operating Partnership. The net income/(loss) allocated to the unvested LTIP Units is included in Net (income)/loss attributable to noncontrolling interests on the Consolidated Statements of Operations. 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. F - 37 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, 2017 and 2016 are summarized as follows (dollars in thousands): Total Carrying Amount in Statement of Financial Position at Fair Value Estimate at December 31, December 31, Fair Value at December 31, 2017, Using Quoted Prices in Active Markets Significant Other for Identical Significant Assets or Observable Unobservable Liabilities (Level 1) Inputs (Level 3) Inputs (Level 2) Description: 2017 2017 Notes receivable (a) Derivatives - Interest rate contracts (b) Total assets $ $ 19,469 $ 5,743 25,212 $ 19,567 $ 5,743 25,310 $ — $ — — $ — $ 5,743 5,743 $ 19,567 — 19,567 Secured debt instruments - fixed rate: (c) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments - variable rate: (c) Tax-exempt secured notes payable Fannie Mae credit facilities Unsecured debt instruments: (c) Working capital credit facility Commercial paper program Unsecured notes Total liabilities Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d) $ 395,611 $ 285,836 397,386 $ 292,227 — $ — — $ — 397,386 292,227 94,700 29,034 94,700 29,034 — — — — 94,700 29,034 21,767 300,000 2,561,122 21,767 300,000 2,611,458 $ 3,688,070 $ 3,746,572 $ — — — — $ — 21,767 — 300,000 — 2,611,458 — $ 3,746,572 $ 948,138 $ 948,138 $ — $ 948,138 $ — F - 38 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 Total Carrying Amount in Statement of Financial Position at Fair Value at December 31, 2016, Using Quoted Prices in Active Markets Significant Other Fair Value Estimate at December 31, December 31, 2016 2016 for Identical Significant Assets or Observable Unobservable Liabilities (Level 1) Inputs (Level 3) Inputs (Level 2) Description: Notes receivable (a) Derivatives - Interest rate contracts (b) Total assets Derivatives - Interest rate contracts (b) Secured debt instruments - fixed rate: (c) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments - variable rate: (c) Tax-exempt secured notes payable Fannie Mae credit facilities Unsecured debt instruments: (c) Working capital credit facility Unsecured notes Total liabilities Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d) $ $ 19,790 $ 4,360 24,150 $ 19,645 $ 4,360 24,005 $ — $ — — $ — $ 4,360 4,360 $ 19,645 — 19,645 $ 413 $ 413 $ — $ 413 $ — 402,996 355,836 396,045 365,693 94,700 280,946 94,700 280,946 — — — — — — — — 396,045 365,693 94,700 280,946 21,350 2,261,838 21,350 2,304,492 $ 3,418,079 $ 3,463,639 $ — — — $ 21,350 — — 2,304,492 413 $ 3,463,226 $ 909,482 $ 909,482 $ — $ 909,482 $ — (a) See Note 2, Significant Accounting Policies. (b) See Note 13, Derivatives and Hedging Activity. (c) See Note 6, Secured and Unsecured Debt, Net. (d) See Note 11, Noncontrolling Interests. There were no transfers into or out of any of the levels of the fair value hierarchy during the year ended December 31, 2017. 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 - 39 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 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, 2017 and 2016, 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, 2017, 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 impairments in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2017, 2016, and 2015. 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 F - 40 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates. 13. DERIVATIVES AND HEDGING ACTIVITY Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core 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, 2017, 2016, and 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the year ended December 31, 2017, the Company recognized a loss of $0.1 million reclassified from Accumulated OCI to Interest expense due to the de-designation of cash flow hedges. During the year ended December 31, 2016, the Company recorded no ineffectiveness to 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. Amounts reported in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2018, the Company estimates that an additional $1.2 million will be reclassified as a decrease to interest expense. As of December 31, 2017, 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 4 1 $ $ Notional 315,000 65,197 Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a loss of less than $0.1 million for the years ended December 31, 2017, 2016, and 2015. F - 41 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 As of December 31, 2017, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands): Product Interest rate caps Number of Instruments 3 Notional 271,076 $ Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheet The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2017 and 2016 (dollars in thousands): Derivatives designated as hedging instruments: Interest rate products Derivatives not designated as hedging instruments: Interest rate products Asset Derivatives (included in Other assets) Fair Value at: Liability Derivatives (included in Other liabilities) Fair Value at: December 31, December 31, December 31, December 31, 2017 2016 2017 2016 $ 5,743 $ 4,359 $ — $ 413 $ — $ 1 $ — $ — 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, 2017, 2016, and 2015 (dollars in thousands): Unrealized holding gain/(loss) Recognized in OCI (Effective Portion) Year Ended December 31, Gain/(Loss) Reclassified from Accumulated OCI into Interest expense (Effective Portion) Year Ended December 31, Gain/(Loss) Recognized in Interest expense (Ineffective Portion and Amount Excluded from Effectiveness Testing) Year Ended December 31, Derivatives in Cash Flow Hedging Relationships Interest rate products 2017 2016 2015 $ 1,802 $ 3,514 $ (6,393) $ (1,271) $ (3,657) $ (2,251) $ (136) $ — $ (11) 2016 2017 2015 2015 2017 2016 Derivatives Not Designated as Hedging Instruments Interest rate products Credit-risk-related Contingent Features Gain/(Loss) Recognized in Interest income and other income/(expense), net 2016 2015 2017 $ (1) $ (3) (23) 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, 2017 and 2016, 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 F - 42 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 comply with these covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the applicable 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 agreement, 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, 2017, the fair value of derivatives was in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, of $5.8 million. As of December 31, 2017, the Company has not posted any collateral related to these agreements. 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, 2017 and 2016 (dollars in thousands): Gross Net Amounts of Gross Amounts Not Offset Offsetting of Derivative Assets December 31, 2017 Amounts Assets Gross Offset in the Presented in the Amounts of Consolidated Consolidated Balance Sheets Balance Recognized (a) Sheets Assets 5,743 $ $ 5,743 $ — $ in the Consolidated Balance Sheet Cash Financial Collateral Instruments Received Net Amount 5,743 — $ — $ December 31, 2016 $ 4,360 $ — $ 4,360 $ (221) $ — $ 4,139 (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 December 31, 2017 Gross Amounts Liabilities Net Amounts of Gross Amounts Not Offset in the Consolidated Balance Sheet Cash Financial Collateral Gross Offset in the Presented in the Amounts of Consolidated Consolidated Balance Recognized Balance Sheets Liabilities Sheets $ — $ — $ (a) Instruments Posted — $ Net Amount — — $ — $ December 31, 2016 $ 413 $ — $ 413 $ (221) $ — $ 192 (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. F - 43 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 14. COMMITMENTS AND CONTINGENCIES Commitments Real Estate Under Development The following summarizes the Company’s real estate commitments at December 31, 2017 (dollars in thousands): Wholly-owned — under development Joint ventures: Unconsolidated joint ventures Preferred equity investments Other investments Total Number Properties 2 $ Costs Incurred to Date (a) Expected Costs to Complete (unaudited) Average Ownership Stake 592,490 (b) $ 124,010 100 % 3 5 1 262,550 87,491 (d) 28,051 970,582 $ $ 22,076 (c) 50,846 (e) 25,508 (g) 222,440 50 % 48 % (f) — % (a) Represents 100% of project costs incurred as of December 31, 2017. (b) Costs incurred as of December 31, 2017 include $38.0 million of accrued fixed assets for development. (c) Represents UDR’s proportionate share of expected remaining costs to complete the developments. (d) Represents UDR’s investment in the West Coast Development Joint Ventures, 1532 Harrison and 1200 Broadway for the properties under development as of December 31, 2017. (e) Represents UDR’s remaining commitment for 1532 Harrison and 1200 Broadway. (f) Represents UDR’s average ownership stake in the West Coast Development Joint Ventures only and does not include UDR’s preferred equity interest in 1532 Harrison and 1200 Broadway. (g) Represents UDR’s remaining commitment for The Portals and other investment ventures. Ground and Other Leases UDR owns six communities which are subject to ground leases expiring between 2025 and 2103, including extension options. In addition, UDR is a lessee to various operating leases related to office space rented by the Company with expiration dates through 2021. Future minimum lease payments as of December 31, 2017 are as follows (dollars in thousands): 2018 2019 2020 2021 2022 Thereafter Total $ $ Ground Leases (a) 5,629 $ 5,629 5,629 5,629 5,629 335,207 363,352 $ Office Space 76 76 76 32 — — 260 (a) For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. F - 44 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 UDR incurred $6.2 million, $5.5 million, and $5.5 million of ground rent expense for the years ended December 31, 2017, 2016, and 2015, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. The Company incurred $0.2 million, $0.3 million, and $0.3 million of rent expense related to office space for the years ended December 31, 2017, 2016, and 2015, respectively. These costs are included in General and Administrative on the Consolidated Statements of Operations. 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 net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations, and land rent. UDR’s chief operating decision maker utilizes NOI as the key measure of segment profit or loss. UDR’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other: Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2016 and held as of December 31, 2017. 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, 2017, 2016, and 2015. F - 45 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 The following table details rental income and NOI for UDR’s reportable segments for the years ended December 31, 2017, 2016, and 2015, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. in the Consolidated Statements of Operations (dollars in thousands): Year Ended December 31, 2016 2015 2017 $ 329,322 $ 315,390 $ 294,048 158,063 204,408 209,548 132,079 147,573 151,736 103,920 111,318 116,467 39,166 41,273 42,992 134,244 144,652 128,499 $ 984,309 $ 948,461 $ 871,928 $ 248,262 $ 237,071 $ 219,282 106,354 140,542 145,627 93,530 106,005 106,473 69,820 76,359 80,726 24,407 25,600 26,455 100,476 87,508 90,960 613,869 673,085 698,503 11,482 (27,068) (9,060) (430,054) (48,566) (4,335) (6,408) 31,257 (128,711) 1,971 240 43,404 11,400 (26,083) (7,649) (419,615) (49,761) (732) (6,023) 52,234 (123,031) 1,930 3,774 210,851 22,710 (23,978) (9,708) (374,598) (59,690) (2,335) (6,679) 62,329 (121,875) 1,551 3,886 251,677 (10,933) (164) (16,773) (3) $ 121,558 $ 292,718 $ 340,383 (27,282) (380) Reportable apartment home segment rental income Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated rental income Reportable apartment home segment NOI Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated NOI Reconciling items: Joint venture management and other fees Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related (charges)/recoveries, net Other depreciation and amortization Income/(loss) from unconsolidated entities Interest expense Interest income and other income/(expense), net Tax (provision)/benefit, net Gain/(loss) on sale of real estate owned, net of tax Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to UDR, Inc. F - 46 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 The following table details the assets of UDR’s reportable segments as of December 31, 2017 and 2016 (dollars in thousands): December 31, December 31, 2017 2016 Reportable apartment home segment assets: Same-Store Communities: West Region Mid-Atlantic Region Northeast Region Southeast Region Southwest Region Non-Mature Communities/Other Total segment assets Accumulated depreciation Total segment assets — net book value Reconciling items: $ 2,932,958 $ 2,236,911 1,865,762 762,102 292,074 2,087,399 10,177,206 (3,330,166) 6,847,040 2,896,589 2,216,067 1,857,193 746,762 283,260 1,615,882 9,615,753 (2,923,625) 6,692,128 Cash and cash equivalents Restricted cash Notes receivable, net Investment in and advances to unconsolidated joint ventures, net Other assets Total consolidated assets 2,038 19,792 19,469 720,830 124,104 7,733,273 $ 2,112 19,994 19,790 827,025 118,535 7,679,584 $ Capital expenditures related to our Same-Store Communities totaled $87.0 million, $86.2 million, and $66.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Capital expenditures related to our Non- Mature Communities/Other totaled $4.9 million, $10.1 million, and $18.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. Markets included in the above geographic segments are as follows: i. West Region — San Francisco, Orange County, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland ii. Mid-Atlantic Region — Metropolitan D.C., Richmond and Baltimore iii. Northeast Region — New York and Boston iv. v. Southeast Region — Orlando, Nashville, Tampa and Other Florida Southwest Region — Dallas, Austin and Denver F - 47 UDR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) DECEMBER 31, 2017 16. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Selected consolidated quarterly financial data for the years ended December 31, 2017 and 2016 is summarized in the table below (dollars in thousands, except per share amounts): March 31, June 30, September 30, December 31, Three Months Ended 2017 Rental income Income/(loss) from continuing operations Net income/(loss) attributable to common stockholders (a) Income/(loss) attributable to common stockholders per weighted average common share (a): Basic Diluted Weighted average number of common shares outstanding: Basic Diluted 2016 Rental income Income/(loss) from continuing operations Net income/(loss) attributable to common stockholders (a) Income/(loss) attributable to common stockholders per weighted average common share (a): Basic Diluted Weighted average number of common shares outstanding: Basic Diluted $ 241,271 $ 244,658 $ 248,264 $ 250,116 34,355 68,356 17,570 15,264 11,062 9,228 26,264 25,038 $ $ 0.09 $ 0.09 $ 0.03 $ 0.03 $ 0.06 $ 0.06 $ 0.26 0.25 266,790 268,688 266,972 268,859 267,056 269,062 267,270 269,221 $ 231,957 $ 236,168 $ 240,255 $ 240,081 59,280 236,687 29,466 26,027 12,249 17,017 8,534 9,464 $ $ 0.04 $ 0.04 $ 0.06 $ 0.06 $ 0.10 $ 0.10 $ 0.89 0.88 262,456 264,285 266,268 268,174 266,301 268,305 266,498 271,551 (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. F - 48 [This page is intentionally left blank.] F - 49 Report of Independent Registered Public Accounting Firm The Partners United Dominion Realty, L.P. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the “Partnership”) as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Partnership’s auditor since 2010. Denver, Colorado February 20, 2018 F - 50 UNITED DOMINION REALTY, L.P. CONSOLIDATED BALANCE SHEETS (In thousands, except for unit data) December 31, December 31, 2017 2016 Real estate owned: Real estate held for investment Less: accumulated depreciation ASSETS Total real estate owned, net of accumulated depreciation Cash and cash equivalents Restricted cash Investment in unconsolidated entities Other assets Total assets Liabilities: LIABILITIES AND CAPITAL Secured debt, net Notes payable due to the General Partner Real estate taxes payable Accrued interest payable Security deposits and prepaid rent Distributions payable Accounts payable, accrued expenses, and other liabilities Total liabilities Commitments and contingencies (Note 10) Capital: Partners’ capital: General partner: $ 3,816,956 $ (1,543,652) 2,273,304 293 12,579 76,907 32,490 2,395,573 $ 3,674,704 (1,408,815) 2,265,889 756 11,694 112,867 24,329 2,415,535 $ $ 159,845 $ 273,334 2,683 629 13,949 57,025 12,978 520,443 433,974 273,334 2,104 1,410 14,593 54,192 17,429 797,036 110,883 OP Units outstanding at December 31, 2017 and December 31, 2016 955 1,026 Limited partners: 183,240,041 and 183,167,815 OP Units outstanding at December 31, 2017 and December 31, 2016, respectively Accumulated other comprehensive income/(loss), net Total partners’ capital Advances (to)/from the General Partner Noncontrolling interests Total capital Total liabilities and capital 1,463,340 — 1,464,295 397,899 12,936 1,875,130 2,395,573 $ 1,577,289 (113) 1,578,202 19,659 20,638 1,618,499 2,415,535 $ See accompanying notes to the consolidated financial statements. F - 51 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per unit data) REVENUES: Rental income OPERATING EXPENSES: Property operating and maintenance Real estate taxes and insurance Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related (recoveries)/charges, net Total operating expenses Operating income Income/(loss) from unconsolidated entities Interest expense Interest expense on note payable due to the General Partner Income/(loss) from continuing operations Gain/(loss) on sale of real estate owned Net income/(loss) Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to OP unitholders Year Ended December 31, 2016 2015 2017 $ 419,377 $ 404,415 $ 440,408 67,493 45,043 11,533 6,833 152,473 17,875 1,922 303,172 65,562 41,732 11,122 6,059 147,074 18,808 484 290,841 75,373 47,438 12,111 5,923 169,784 27,016 843 338,488 116,205 113,574 101,920 (19,256) (18,156) (12,210) 66,583 41,272 107,855 (1,548) $ 106,307 $ (4,659) (37,425) (35,274) (17,855) (5,047) (12,212) 56,940 46,082 158,123 33,180 215,063 79,262 (1,762) (1,444) 77,818 $ 213,301 Net income/(loss) per weighted average OP Unit - basic and diluted $ 0.58 $ 0.42 $ 1.16 Weighted average OP Units outstanding - basic and diluted 183,344 183,279 183,279 See accompanying notes to the consolidated financial statements. F - 52 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) Net income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests: Other comprehensive income/(loss) - derivative instruments: Unrealized holding gain/(loss) (Gain)/loss reclassified into earnings from other comprehensive income/(loss) Other comprehensive income/(loss), including portion attributable to noncontrolling interests Comprehensive income/(loss) Comprehensive (income)/loss attributable to noncontrolling interests Comprehensive income/(loss) attributable to OP unitholders Year Ended December 31, 2016 $ 107,855 $ 79,262 $ 215,063 2015 2017 — 106 (4) 12 (82) 1,044 106 107,961 (1,548) 8 79,270 (1,444) $ 106,413 $ 77,826 962 216,025 (1,762) $ 214,263 See accompanying notes to consolidated financial statements. F - 53 UNITED DOMINION REALTY, L.P. CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL (In thousands) Balance at December 31, 2014 Net income/(loss) Distributions OP Unit redemptions for common shares of UDR Adjustment to reflect limited partners’ capital at redemption value Unrealized gain/(loss) on derivative financial investments Net change in advances (to)/from the General Partner Balance at December 31, 2015 Net income/(loss) Distributions OP Unit redemptions for common shares of UDR Adjustment to reflect limited partners’ capital at redemption value Long-Term Incentive Plan Unit grants Unrealized gain/(loss) on derivative financial investments Net change in advances (to)/from the General Partner Balance at December 31, 2016 Net income/(loss) Distributions OP Unit redemptions for common shares of UDR Adjustment to reflect limited partners’ capital at redemption value Long-Term Incentive Plan Unit grants Unrealized gain/(loss) on derivative financial investments Net change in advances (to)/from the General Partner Balance at December 31, 2017 Limited UDR, Inc Class A Partners Limited and LTIP Limited Partner Partner Units $ 53,987 $ 228,493 $ 1,420,491 $ 1,105 $ 129 (124) 202,456 (193,262) 8,515 (8,138) 2,201 (2,328) Accumulated Other Advances (to)/from Total General Comprehensive Partners’ General Noncontrolling Partner Income/(Loss), net Capital Partner Interests Total (1,075) $ 1,703,001 $ 13,624 $ — 213,301 — (203,852) — — 17,426 $ 1,734,051 215,063 (203,852) 1,762 — — (3,816) 3,816 — — — — 10,549 43,427 (53,976) — — — — — — — — — — — — 962 962 — — 962 — — — 64,409 268,481 1,379,525 1,110 48 (132) 73,928 (205,472) 743 (2,328) 3,099 (8,831) — — — (24,894) (113) 1,713,412 (11,270) — 77,818 — (216,763) — — — (24,894) 19,188 1,721,330 79,262 1,444 (216,763) — — (175) 175 — — — — — — 1,077 — 3,619 3,735 (4,696) — — — — — — 3,735 — — — — — 3,735 — — — — — — — 6 6 — 63,901 1,015 (2,328) — — 269,928 1,243,460 100,957 (215,922) 4,270 (9,704) — 1,026 65 (136) — — (113) 1,578,202 106,307 (228,090) — — 30,929 19,659 — — — 30,929 20,638 1,618,499 107,855 1,548 (228,090) — — (288) 288 — 4,886 — 11,599 7,763 (16,485) — — — — — — — — — 7,763 — — — — — — — 7,763 — — — — 113 113 — (6) 107 — — $ 67,474 $ 283,568 $ 1,112,298 $ — — 955 $ — — 378,240 — $ 1,464,295 $ 397,899 $ (9,244) 368,996 12,936 $ 1,875,130 See accompanying notes to the consolidated financial statements. F - 54 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/(used in) operating activities: Depreciation and amortization (Gain)/loss on sale of real estate owned (Income)/loss from unconsolidated entities Other Changes in operating assets and liabilities: (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Net cash provided by/(used in) operating activities Investing Activities Year Ended December 31, 2016 2015 2017 $ 107,855 $ 79,262 $ 215,063 152,473 (41,272) 19,256 5,642 147,074 (33,180) 37,425 1,769 (4,786) (4,705) 234,463 (3,510) (158) 228,682 169,784 (158,123) 4,659 606 385 (5,609) 226,765 Acquisition of real estate assets Proceeds from sales of real estate investments, net Development of real estate assets Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement Distributions received from unconsolidated entities Net cash provided by/(used in) investing activities (137,332) 67,985 — — 44,553 — (141,424) 232,728 (6,280) (53,437) 16,704 (106,080) (69,993) 15,894 (9,546) (61,441) — 23,583 Financing Activities Advances (to)/from the General Partner, net Proceeds from the issuance of secured debt Payments on secured debt Distributions paid to partnership unitholders Other Net cash provided by/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 163,196 — (275,345) (11,694) (5,003) (128,846) (463) 756 293 $ (180,391) — (30,322) (10,770) — (221,483) (2,347) 3,103 $ 756 $ (232,764) 184,638 (189,244) (10,367) (10) (247,747) 2,601 502 3,103 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 Reallocation of credit facilities debt from the General Partner Development costs and capital expenditures incurred but not yet paid LTIP Unit grants Dividends declared but not yet paid $ 24,331 $ 22,922 $ 44,881 — — — — 2,032 7,763 57,025 — — — 12,292 5,098 3,735 54,192 405,116 174,822 228,390 17,557 3,118 — 50,962 See accompanying notes to the consolidated financial statements. F - 55 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017 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, 2017, 2016, and 2015, rental revenues of the Operating Partnership represented 43%, 43%, and 51%, respectively, of the General Partner’s consolidated rental revenues. As of December 31, 2017, the Operating Partnership’s apartment portfolio consisted of 53 communities located in 15 markets consisting of 16,698 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, 2017, there were 183,350,924 OP Units outstanding, of which 174,237,688, or 95.0%, were owned by UDR and affiliated entities and 9,113,236, or 5.0%, were owned by non-affiliated limited partners. There were 183,278,698 OP Units outstanding as of December 31, 2016, of which 174,230,084, or 95.1%, were owned by UDR and affiliated entities and 9,048,614, or 4.9%, 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, 2017 and 2016. At December 31, 2017 and 2016, there were 183,240,041 and 183,167,815, respectively, of limited partner OP Units outstanding, of which 1,873,332 were Class A Limited Partnership Units as of both periods. Of the limited partner OP Units outstanding, UDR owned 174,126,805, or 95.0%, and 174,119,201, or 95.1%, at December 31, 2017 and 2016, respectively. The remaining 9,113,236, or 5.0%, and 9,048,614, or 4.9%, of the limited partner OP Units outstanding were held by non-affiliated partners at December 31, 2017 and 2016, respectively, of which 1,751,671 were Class A Limited Partnership units as of both periods. See Note 9, Capital Structure. The Operating Partnership evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than that in Note 3, Real Estate Owned. 2. SIGNIFICANT ACCOUNTING POLICIES Recent Accounting Pronouncements In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard will be effective for the Operating Partnership on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Operating Partnership expects to early adopt the guidance on January 1, 2018, but does not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changes the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard will be effective for the Operating Partnership on January 1, 2018. The ASU will be applied prospectively to any transactions occurring after adoption. The Operating Partnership expects that the updated standard will result in fewer F - 56 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU addresses the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard will be effective for the Operating Partnership on January 1, 2018 and must be applied retrospectively to all periods presented. The Operating Partnership does not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the Operating Partnership on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. The Operating Partnership is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the Operating Partnership on January 1, 2019; however, early adoption of the ASU is permitted. While the Operating Partnership is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date, at which time we anticipate recognizing right-of-use assets and related lease liabilities on our consolidated balance sheets related to ground leases for any communities where we are the lessee. 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 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry- specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method and will be effective for the Operating Partnership on January 1, 2018, at which time the Operating Partnership expects to adopt the updated standard using the modified retrospective approach. However, as the majority of the Operating Partnership’s revenue is from rental income related to leases, the ASU will not have a material impact on the consolidated financial statements. Related disclosures will be provided and/or updated pursuant to the requirements of the ASU. Real Estate Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy. The Operating Partnership purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Operating Partnership F - 57 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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 disposition generally represent properties that are actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 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, 2017, 2016, and 2015 were $0.5 million, $0.6 million, and $0.7 million, respectively. During the years ended December 31, 2017, 2016, and 2015, total interest capitalized was less than $0.1 million, $0.2 million, and $0.2 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 - 58 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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, 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/(loss) 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. 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 evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Operating Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more- likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management of the Operating Partnership is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Operating Partnership has no examinations in progress and none are expected at this time. F - 59 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 Management of the Operating Partnership has reviewed all open tax years (2014 through 2016) of tax 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. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company's accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of December 31, 2017, the impact to the Operating Partnership related to the accounting for the tax effects of the Act was not material. Discontinued Operations In accordance with GAAP, 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. We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations. 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 reasonably anticipated benefits to the parties. (See Note 6, Related Party Transactions.) Advertising Costs All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2017, 2016, and 2015, total advertising expense from continuing and discontinued operations was $2.1 million, $2.2 million, and $2.4 million, respectively. Comprehensive Income/(Loss) Comprehensive income/(loss), which is defined as the change in capital during each period from transactions and other events and circumstances from nonowner sources, including all changes in capital during a period except for those resulting from investments by or distributions to unitholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2017, 2016, and 2015, 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 8, Derivatives and Hedging Activity, for further discussion. Use of Estimates The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent F - 60 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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, 2017, the Operating Partnership held greater than 10% of the carrying value of its real estate portfolio in each of the San Francisco, California; Orange County, California; Metropolitan D.C. and New York, New York markets. 3. REAL ESTATE OWNED Real estate assets owned by the Operating Partnership consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. At December 31, 2017, the Operating Partnership owned and consolidated 53 communities in nine states plus the District of Columbia totaling 16,698 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2017 and 2016 (dollars in thousands): Land Depreciable property — held and used: Land improvements Buildings, improvements, and furniture, fixtures and equipment Real estate owned Accumulated depreciation Real estate owned, net Acquisitions December 31, December 31, $ 2017 719,410 $ 2016 751,981 89,331 3,008,215 3,816,956 (1,543,652) 2,273,304 $ 84,663 2,838,060 3,674,704 (1,408,815) 2,265,889 $ In October 2017, the Operating Partnership acquired an operating community located in Denver, Colorado with a total of 218 apartment homes and 17,000 square feet of retail space for a purchase price of approximately $141.5 million. As a result of the acquisition, the Operating Partnership increased its real estate owned by approximately $139.0 million and recorded approximately $2.5 million of in-place lease intangibles. The acquisition will be fully or partially funded with tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”). Dispositions In December 2017, the Operating Partnership sold two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in net proceeds of $68.0 million and a gain of $41.3 million. During the year ended December 31, 2016, the Operating Partnership sold two operating communities in Baltimore, Maryland with a total of 276 apartment homes for gross proceeds of $45.3 million, resulting in net proceeds of $44.6 million and a gain, net of tax, of $33.2 million. In February 2018, the Operating Partnership sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million and an expected GAAP gain of $70.3 million. The proceeds were designated for tax-deferred Section 1031 exchanges. Other Activity In connection with the acquisition of certain properties, the Operating Partnership agreed to pay certain of the tax liabilities of certain contributors if the Operating Partnership sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Operating F - 61 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 Partnership may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, in an exchange under Section 1031 of the Internal Revenue Code. Further, the Operating Partnership has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Operating Partnership, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions. 4. UNCONSOLIDATED ENTITIES 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 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 in accordance with the Partnership Agreement. The DownREIT Partnership is a VIE as the limited partners lack substantive kick-out rights and substantive participating rights. The Operating Partnership is not the primary beneficiary of the DownREIT Partnership as it lacks the power to direct the activities that most significantly impact its economic performance and will continue to account for its interest as an equity method investment. See Note 2, Significant Accounting Policies. As of December 31, 2017, the DownREIT Partnership owned 13 communities with 6,261 apartment homes. The Operating Partnership’s investment in the DownREIT Partnership was $76.9 million and $112.9 million as of December 31, 2017 and 2016, respectively. Financial statements required under Rule 3-09 of Regulation S-X for the DownREIT Partnership are included as Exhibit 99.1 to this report. 5. 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, 2017 and 2016 (dollars in thousands): Principal Outstanding As of December 31, 2017 December 31, December 31, 2017 2016 Average Interest Rate Weighted Weighted Average Years to Communities Maturity Encumbered Fixed Rate Debt Fannie Mae credit facilities Deferred financing costs Total fixed rate secured debt, net Variable Rate Debt Tax-exempt secured note payable Fannie Mae credit facilities Deferred financing costs Total variable rate secured debt, net Total Secured Debt, Net $ 133,205 $ 244,912 (1,070) 243,842 (282) 132,923 5.28 % 1.8 5.28 % 1.8 27,000 — (78) 26,922 27,000 163,637 (505) 190,132 $ 159,845 $ 433,974 1.71 % — % 14.2 — 1.71 % 4.99 % 14.2 3.9 4 4 1 — 1 5 As of December 31, 2017, an aggregate commitment of $133.2 million of the General Partner’s secured credit facilities with Fannie Mae was owed by the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2017. The portions of the Fannie Mae credit facilities owed by the Operating Partnership mature at various dates from October 2019 through December 2019 and bear interest at fixed rates. At December 31, 2017, the entire outstanding balance was fixed and had a weighted average interest rate of 5.28%. F - 62 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 During the year ended December 31, 2017, $275.3 million of funds borrowed under the Fannie Mae credit facilities and owed by the Operating Partnership were prepaid. The Operating Partnership incurred prepayment costs of $5.8 million during the year ended December 31, 2017, which were included in Interest expense on the Consolidated Statements of Operations. The following information relates to the credit facilities owed by 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, December 31, $ 2017 133,205 223,347 408,549 $ 2016 408,549 414,759 421,001 4.6 % 5.3 % 3.9 % 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 Operating Partnership did not have any unamortized fair value adjustments associated with the fixed rate debt instruments on the Operating Partnership’s properties. Fixed Rate Debt At December 31, 2017, the General Partner had borrowings against its fixed rate facilities of $285.8 million, of which $133.2 million was owed by the Operating Partnership based on the ownership of the assets securing the debt. As of December 31, 2017, the funds borrowed under the fixed rate Fannie Mae credit facilities owed by the Operating Partnership had a weighted average fixed interest rate of 5.28%. Variable Rate Debt Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 1.71% as of December 31, 2017. Secured credit facilities. At December 31, 2017, the General Partner had borrowings against its variable rate facilities of $29.0 million, none of which was owed by the Operating Partnership based on the ownership of the assets securing the debt. F - 63 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 The aggregate maturities of the Operating Partnership’s secured debt due during each of the next ten calendar years subsequent to December 31, 2017 are as follows (dollars in thousands): Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Thereafter Subtotal Non-cash (a) Total Fixed Secured Credit Facilities Variable Tax-Exempt Secured Notes Payable $ — $ 133,205 — — — — — — — — — 133,205 (282) 132,923 $ $ — $ — — — — — — — — — 27,000 27,000 (78) 26,922 $ Total — 133,205 — — — — — — — — 27,000 160,205 (360) 159,845 (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, 2017 and 2016, the Operating Partnership amortized $0.3 million and $0.6 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, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, $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, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, and $300 million of medium-term notes due January 2028. As of December 31, 2017 and 2016, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $300.0 million and $0, respectively, outstanding under its unsecured commercial paper program. 6. RELATED PARTY TRANSACTIONS Advances (To)/From the General Partner The Operating Partnership participates in the General Partner’s central cash management program, wherein all the Operating Partnership’s cash receipts are remitted to the General Partner and all cash disbursements are funded by the General Partner. In addition, other miscellaneous costs such as administrative expenses are incurred by the General Partner on behalf of the Operating Partnership. As a result of these various transactions between the Operating Partnership and the General Partner, the Operating Partnership had net Advances (to)/from the General Partner of $397.9 million and $19.7 million at December 31, 2017 and 2016, respectively, which are reflected as increases/(decreases) of capital on the Consolidated Balance Sheets. Allocation of General and Administrative Expenses The General Partner shares various general and administrative costs, employees and other overhead costs with the Operating Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. The general and administrative expenses allocated to the Operating Partnership by UDR were $14.0 million, $15.4 million, and $21.0 F - 64 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 million during the years ended December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015, the Operating Partnership reimbursed the General Partner $15.4 million, $14.5 million, and $17.7 million, respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements and 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 costs is reclassified to Property management on the Consolidated Statements of Operations. (See further discussion below.) Shared Services/Management Fee The Operating Partnership self-manages its own properties and is party to an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the Operating Partnership’s allocable share of costs incurred by the General Partner for (a) shared services of corporate level property management employees and related support functions and costs, and (b) general and administrative costs. As discussed above, the reimbursement for shared services is classified in Property management on the Consolidated Statements of Operations. Notes Payable to the General Partner As of both December 31, 2017 and 2016, the Operating Partnership had $273.3 million of unsecured notes payable to the General Partner at annual interest rates between 4.12% and 5.34%. Certain limited partners of the Operating Partnership have provided guarantees or reimbursement agreements related to these notes payable. The guarantees were provided by the limited partners in conjunction with their contribution of properties to the Operating Partnership. The notes mature on August 31, 2021, December 31, 2023 and April 1, 2026, and interest payments are made monthly. The Operating Partnership recognized interest expense on the notes payable of $12.2 million, $12.2 million and $5.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. 7. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below: Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. F - 65 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2017 and 2016 are summarized as follows (dollars in thousands): Fair Value at December 31, 2017, Using Total Carrying Amount in Statement of Financial Position at Fair Value Estimate at December 31, December 31, 2017 2017 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Description: Secured debt instruments - fixed rate: (a) Fannie Mae credit facilities Secured debt instruments - variable rate: (a) Tax-exempt secured notes payable Total liabilities $ 133,205 $ 137,150 $ — $ — $ 137,150 27,000 27,000 $ 160,205 $ 164,150 $ — — $ — — $ 27,000 164,150 Fair Value at December 31, 2016, Using Total Carrying Amount in Statement of Financial Position at Fair Value Estimate at December 31, December 31, 2016 2016 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Description: Derivatives - Interest rate contracts (b) Total assets $ $ Secured debt instruments - 1 $ 1 $ 1 $ 1 $ — $ — $ 1 $ 1 $ — — fixed rate: (a) Fannie Mae credit facilities Secured debt instruments - variable rate: (a) Tax-exempt secured notes payable Fannie Mae credit facilities Total liabilities $ 244,912 $ 251,664 $ — $ — $ 251,664 27,000 163,637 435,549 $ $ — 27,000 163,637 442,301 $ — — — $ — — — $ 27,000 163,637 442,301 (a) See Note 5, Debt, Net. (b) See Note 8, Derivatives and Hedging Activity. There were no transfers into or out of each of the levels of the fair value hierarchy during the year ended December 31, 2017. 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 F - 66 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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 General Partner, on behalf of 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 General Partner, on behalf of 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, 2017 and 2016, the Operating Partnership has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Operating Partnership has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Operating Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Financial Instruments Not Carried at Fair Value At December 31, 2017, 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 General Partner 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. The Operating Partnership did not incur any other-than-temporary impairments in the value of its investments in unconsolidated entities during the years ended December 31, 2017 and 2016. 8. DERIVATIVES AND HEDGING ACTIVITY Risk Management Objective of Using Derivatives The Operating Partnership is exposed to certain risks arising from both its business operations and economic conditions. The General Partner principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The General Partner manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial 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 F - 67 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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 are owed by the Operating Partnership based on the General Partner’s underlying debt instruments owed by the Operating Partnership. (See Note 5, 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 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, 2017, 2016, and 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the year ended December 31, 2017, the Operating Partnership recognized a loss of $0.1 million reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de- designation of a cash flow hedge. During the year ended December 31, 2016, the Operating Partnership recorded no gain or loss from ineffectiveness. During the year ended December 31, 2015, the Operating Partnership recognized a loss of less than $0.1 million reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. Amounts reported in Accumulated other comprehensive income/(loss), net related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is owed by the Operating Partnership. As of December 31, 2017, no derivatives designated as cash flow hedges were held by the Operating Partnership. As a result, through December 31, 2018, we estimate that no amounts will be reclassified as an increase to interest expense. Derivatives not designated as hedges are not speculative and are used to manage the Operating Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in an a loss of less than $0.1 million for the years ended December 31, 2017, 2016, and 2015. As of December 31, 2017, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands): Product Interest rate caps Number of Instruments Notional 1 $ 19,880 F - 68 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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, 2017 and 2016 (dollars in thousands): Derivatives not designated as hedging instruments: Interest rate products Asset Derivatives (included in Other assets) Fair Value at: Liability Derivatives (Included in Other liabilities) Fair Value at: December 31, December 31, December 31, December 31, 2017 2016 2017 2016 $ — $ 1 $ — $ — 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, 2017, 2016, and 2015 (dollars in thousands): Unrealized holding gain/(loss) Recognized in OCI (Effective Portion) Gain/(Loss) Reclassified from Accumulated OCI into Interest expense (Effective Portion) Gain/(Loss) Recognized in Interest expense (Ineffective Portion and Amount Excluded from Effectiveness Testing) Derivatives in Cash Flow Hedging Relationships Interest rate products 2017 $ — $ 2016 2015 (4) $ (82) $ 2017 2016 2015 — $ (12) $ (1,044) $ (106) $ 2017 2016 — $ (11) 2015 Derivatives Not Designated as Hedging Instruments Interest rate products Credit-risk-related Contingent Features Gain/(Loss) Recognized in Interest income and other income/(expense), net 2016 2017 2015 $ (1) $ (3) $ (23) 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, 2017 and 2016, 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. The General Partner has certain agreements with some of its derivative counterparties that contain a provision where in the event of default by the General Partner 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 agreement, 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. F - 69 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 As of December 31, 2017, the fair value of derivatives was in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements, of less than $0.1 million. As of December 31, 2017, the General Partner has not posted any collateral related to these agreements. 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, 2017 and December 31, 2016: Offsetting of Derivative Assets Gross Amounts Offset in the Net Amounts of Gross Amounts of Consolidated Presented in the Recognized Assets $ Balance Sheets — — Assets Cash Consolidated Collateral Balance Sheets (a) Instruments Received Financial — $ — $ Gross Amounts Not Offset in the Consolidated Balance Sheets Net Amount — — $ December 31, 2017 December 31, 2016 $ 1 $ — $ 1 $ — $ — $ 1 (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 Gross Amounts Offset in the Net Amounts of Liabilities Amounts of Consolidated Presented in the Recognized Liabilities $ Balance Sheets Consolidated — $ — $ Gross Amounts Not Offset in the Consolidated Balance Sheets Financial Collateral Cash Balance Sheets (a) Instruments — $ — $ Posted Net Amount — — $ December 31, 2017 December 31, 2016 $ — $ — $ — $ — $ — $ — (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. 9. CAPITAL STRUCTURE General Partnership Units The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize, issue, sell, redeem or purchase any OP Unit or securities of the Operating Partnership without the approval of the limited partners. The General Partner can also approve, with regard to the issuances of OP Units, the class or one or more series of classes, with designations, preferences, participating, optional or other 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, 2017 and 2016, all of which were held by UDR. Limited Partnership Units At December 31, 2017 and 2016, there were 183,240,041 and 183,167,815, respectively, of limited partnership units outstanding, of which 1,873,332 were Class A Limited Partnership Units for both periods. UDR owned 174,126,805, or 95.0%, and 174,119,201, or 95.1%, of OP Units outstanding at December 31, 2017 and 2016, F - 70 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 respectively, of which 121,661 were Class A Limited Partnership Units for both periods. The remaining 9,113,236, or 5.0%, and 9,048,614, or 4.9%, of OP Units outstanding were held by non-affiliated partners at December 31, 2017 and 2016, respectively, of which 1,751,671 were Class A Limited Partnership Units for both periods. 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 $351.0 million and $330.1 million as of December 31, 2017 and 2016, 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 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, 2017, 2016, and 2015: Ending balance at December 31, 2014 OP redemptions for UDR stock Ending balance at December 31, 2015 OP redemptions for UDR stock Ending balance at December 31, 2016 Vesting of LTIP Units OP redemptions for UDR stock Ending balance at December 31, 2017 LTIP Units Class A Limited Partners Limited Partners 1,751,671 — 1,751,671 — 1,751,671 — — 1,751,671 7,413,802 (112,174) 7,301,628 (4,685) 7,296,943 72,226 (7,604) 7,361,565 UDR, Inc. Class A Limited Partner 121,661 Limited Partner 173,880,681 112,174 173,992,855 4,685 173,997,540 — 7,604 174,005,144 General Partner — 110,883 — 121,661 110,883 — 110,883 — — 121,661 110,883 — 121,661 — — Total 183,278,698 — 183,278,698 — 183,278,698 72,226 — 183,350,924 UDR grants long-term incentive plan units (“LTIP Units”) to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have voting and distribution rights consistent with OP Units. The LTIP Units are subject to the terms of UDR’s long-term incentive plan. Two classes of LTIP Units are granted, Class 1 LTIP Units and Class 2 LTIP Units. Class 1 LTIP Units are granted to non-employee directors and vest after one year. Class 2 LTIP Units are granted to certain employees and vest over a period from one to three years subject to certain performance and market conditions being achieved. Vested LTIP F - 71 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 Units may be converted into OP Units provided that such LTIP Units have been outstanding for at least two years from the date of grant. Allocation of Profits and Losses Profit of the Operating Partnership is allocated in the following order: (i) to the General Partner and the Limited Partners in proportion to and up to the amount of cash distributions made during the year, and (ii) to the General Partner and Limited Partners in accordance with their percentage interests. Losses and depreciation and amortization expenses, non-recourse liabilities are allocated to the General Partner and Limited Partners in accordance with their percentage interests. Losses allocated to the Limited Partners are capped to the extent that such an allocation would not cause a deficit in the Limited Partners’ capital account. Such losses are, therefore, allocated to the General Partner. If any Partner’s capital balance were to fall into a deficit, any income and gains are allocated to each Partner sufficient to eliminate its negative capital balance. 10. COMMITMENTS AND CONTINGENCIES Commitments Ground Leases The Operating Partnership owns six communities which are subject to ground leases expiring between 2025 and 2103, including extension options. Future minimum lease payments as of December 31, 2017 are $5.6 million for each of the years ending December 31, 2018 to 2022 and a total of $335.2 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 $6.2 million, $5.5 million, and $5.4 million of ground rent expense for the years ended December 31, 2017, 2016, and 2015, respectively. Contingencies Litigation and Legal Matters The Operating Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. The Operating Partnership cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The General Partner believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the Operating Partnership’s financial condition, results of operations or cash flow. 11. REPORTABLE SEGMENTS 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 net operating income (“NOI”), and are included in the chief operating decision maker’s assessment of the Operating Partnership’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 are property management costs, which are the Operating Partnership’s allocable share of costs F - 72 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs. 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 Communities/Other: Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2016 and held as of December 31, 2017. 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 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, 2017, 2016, and 2015. F - 73 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 The following table details rental income and NOI for the Operating Partnership’s reportable segments for the years ended December 31, 2017, 2016, and 2015, and reconciles NOI to Net income/(loss) attributable to OP unitholders in the Consolidated Statements of Operations (dollars in thousands): Year Ended December 31, 2016 2015 2017 $ 201,036 $ 191,034 $ 177,197 45,701 51,086 44,981 121,443 404,415 $ 440,408 59,006 54,530 49,586 55,219 $ 419,377 57,563 53,036 47,792 54,990 $ 152,571 $ 144,949 $ 133,406 29,519 39,765 30,106 84,801 317,597 40,292 40,524 34,182 39,272 306,841 38,711 40,704 32,519 40,238 297,121 (11,533) (6,833) (152,473) (17,875) (1,922) (19,256) (30,366) 41,272 (1,548) $ 106,307 $ (12,111) (11,122) (5,923) (6,059) (169,784) (147,074) (27,016) (18,808) (843) (484) (4,659) (37,425) (40,321) (30,067) 158,123 33,180 (1,444) (1,762) 77,818 $ 213,301 Reportable apartment home segment rental income Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Non-Mature Communities/Other Total segment and consolidated rental income Reportable apartment home segment NOI Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast Region Non-Mature Communities/Other Total segment and consolidated NOI Reconciling items: Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related recoveries/(charges), net Income/(loss) from unconsolidated entities Interest expense Gain/(loss) on sale of real estate owned Net (income)/loss attributable to noncontrolling interests Net income/(loss) attributable to OP unitholders F - 74 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 The following table details the assets of the Operating Partnership’s reportable segments as of December 31, 2017 and 2016 (dollars in thousands): December 31, December 31, 2017 2016 Reportable apartment home segment assets Same-Store Communities West Region Mid-Atlantic Region Northeast Region Southeast 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 $ 1,581,321 $ 655,850 677,767 334,811 567,207 3,816,956 (1,543,652) 2,273,304 1,555,331 655,693 674,928 328,729 460,023 3,674,704 (1,408,815) 2,265,889 293 12,579 76,907 32,490 2,395,573 $ 756 11,694 112,867 24,329 2,415,535 $ Capital expenditures related to the Operating Partnership’s Same-Store Communities totaled $41.1 million, $41.2 million and $30.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Capital expenditures related to the Operating Partnership’s Non-Mature Communities/Other totaled $2.5 million, $2.9 million, and $14.3 million for the years ended December 31, 2017, 2016, and 2015, respectively. Markets included in the above geographic segments are as follows: i. West Region — San Francisco, Orange County, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland ii. 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 — Denver F - 75 UNITED DOMINION REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 12. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA Selected consolidated quarterly financial data for the years ended December 31, 2017 and 2016 is summarized in the table below (dollars in thousands, except per share amounts): 2017 Rental income Income/(loss) from continuing operations Income/(loss) attributable to OP unitholders Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (a) 2016 Rental income Income/(loss) from continuing operations Income/(loss) attributable to OP unitholders Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (a) March 31, June 30, September 30, December 31, Three Months Ended $ 102,605 $ 104,088 $ 14,007 13,657 11,192 10,849 105,253 $ 107,431 20,274 21,110 61,065 20,736 $ 0.07 $ 0.06 $ 0.11 $ 0.33 $ 98,786 $ 100,892 $ 5,131 4,787 11,394 11,044 102,595 $ 102,142 17,672 50,470 11,885 11,517 $ 0.03 $ 0.06 $ 0.06 $ 0.27 (a) Quarterly net income/(loss) per weighted average OP Unit amounts may not total to the annual amounts. F - 76 [This page is intentionally left blank.] UDR, INC. SCHEDULE III — REAL ESTATE OWNED DECEMBER 31, 2017 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Costs of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction(a) WEST REGION 2000 Post Street Birch Creek Highlands Of Marin Marina Playa River Terrace CitySouth Bay Terrace Highlands of Marin Phase II Edgewater Almaden Lake Village 388 Beale Channel @ Mission Bay SAN FRANCISCO, CA Harbor at Mesa Verde 27 Seventy Five Mesa Verde Pacific Shores Huntington Vista Missions at Back Bay Eight 80 Newport Beach — North Eight 80 Newport Beach — South Foxborough 1818 Platinum Triangle Beach & Ocean The Residences at Bella Terra Los Alisos at Mission Viejo ORANGE COUNTY, CA Crowne Pointe Hilltop The Hawthorne The Kennedy Hearthstone at Merrill Creek Island Square Borgata elements too 989elements Lightbox Waterscape Ashton Bellevue TEN20 Milehouse CityLine SEATTLE, WA Rosebeach Tierra Del Rey The Westerly Jefferson at Marina del Rey LOS ANGELES, CA Boronda Manor Garden Court Cambridge Court Laurel Tree The Pointe At Harden Ranch The Pointe At Northridge The Pointe At Westlake $ $ — — — — 38,495 — — — — 27,000 — — 65,495 — — — — — — — — — — — — — — — — — — — — — — — — 48,707 28,565 — — 77,272 — — 67,700 — 67,700 — — — — — — — $ 9,861 4,365 5,996 6,224 22,161 14,031 8,545 5,353 30,657 594 14,253 23,625 145,665 20,476 99,329 7,345 8,055 229 62,516 58,785 12,071 16,663 12,878 25,000 17,298 340,645 2,486 2,174 6,474 6,179 6,848 21,284 6,379 27,468 8,541 6,449 9,693 8,287 5,247 5,976 11,220 134,705 8,414 39,586 48,182 55,651 151,833 1,946 888 3,039 1,304 6,388 2,044 1,329 $ 44,578 16,696 24,868 23,916 40,137 30,537 14,458 18,559 83,872 42,515 74,104 — 414,240 28,538 110,644 22,624 22,486 14,129 46,082 50,067 6,187 51,905 — — — 352,662 6,437 7,408 30,226 22,307 30,922 89,389 24,569 72,036 45,990 38,884 65,176 124,939 76,587 63,041 85,787 783,698 17,449 36,679 102,364 — 156,492 8,982 4,188 12,883 5,115 23,854 8,028 5,334 $ 54,439 21,061 30,864 30,140 62,298 44,568 23,003 23,912 114,529 43,109 88,357 23,625 559,905 49,014 209,973 29,969 30,541 14,358 108,598 108,852 18,258 68,568 12,878 25,000 17,298 693,307 8,923 9,582 36,700 28,486 37,770 110,673 30,948 99,504 54,531 45,333 74,869 133,226 81,834 69,017 97,007 918,403 25,863 76,265 150,546 55,651 308,325 10,928 5,076 15,922 6,419 30,242 10,072 6,663 S - 1 $ 34,115 8,122 27,788 12,235 5,847 36,702 5,824 11,200 11,436 7,651 10,176 129,822 300,918 19,346 97,401 11,742 14,187 3,391 40,460 32,476 4,013 2,514 39,019 126,645 70,623 461,817 8,421 5,594 6,613 2,727 4,923 6,320 5,172 17,566 3,571 897 1,073 1,316 1,315 169 59 65,736 4,758 6,967 38,878 92,394 142,997 10,320 5,941 16,609 6,654 29,912 10,886 7,212 $ 14,315 1,045 7,823 1,141 22,751 16,388 11,579 5,758 30,720 907 14,482 23,744 150,653 21,995 113,691 8,024 9,215 10,987 68,217 60,812 12,460 16,961 13,087 25,157 16,522 377,128 3,083 2,997 6,996 6,280 7,032 21,631 6,427 30,232 8,607 6,470 9,708 8,358 5,292 5,976 11,220 140,309 8,792 39,769 50,850 61,568 160,979 3,250 1,600 5,548 2,287 10,241 3,384 2,300 $ $ 74,239 28,138 50,829 41,234 45,394 64,882 17,248 29,354 95,245 49,853 84,051 129,703 710,170 46,365 193,683 33,687 35,513 6,762 80,841 80,516 9,811 54,121 38,810 126,488 71,399 777,996 14,261 12,179 36,317 24,933 35,661 95,362 29,693 86,838 49,495 39,760 66,234 126,184 77,857 63,210 85,846 843,830 21,829 43,463 138,574 86,477 290,343 17,998 9,417 26,983 10,786 49,913 17,574 11,575 88,554 29,183 58,652 42,375 68,145 81,270 28,827 35,112 125,965 50,760 98,533 153,447 860,823 68,360 307,374 41,711 44,728 17,749 149,058 141,328 22,271 71,082 51,897 151,645 87,921 1,155,124 17,344 15,176 43,313 31,213 42,693 116,993 36,120 117,070 58,102 46,230 75,942 134,542 83,149 69,186 97,066 984,139 30,621 83,232 189,424 148,045 451,322 21,248 11,017 32,531 13,073 60,154 20,958 13,875 37,550 15,732 33,322 21,855 28,808 43,163 10,906 18,309 49,873 27,685 31,707 32,544 351,454 31,256 115,829 23,146 22,752 4,809 51,642 48,986 6,267 23,649 7,842 35,583 18,130 389,891 9,003 7,965 23,177 15,434 20,118 51,102 16,104 52,083 22,087 8,538 12,820 8,672 5,366 4,653 5,152 262,274 14,644 23,843 68,118 41,830 148,435 10,504 5,679 15,939 6,396 28,586 10,479 6,585 1987/2016 1968 1991/2010 1971 2005 1972/2012 1962 1968/2010 2007 1999 1999 2014 1965/2003 1979/2013 1971/2003 1970 1969 1968/2000/2016 1968/2000/2016 1969 2009 2014 2013 2014 1987 1985 2003 2005 2000 2007 2001/2016 2010 2006 2014 2014 2009 2009 2016 2016 1970 1998 1993/2013 2008 1979 1973 1974 1977 1986 1979 1975 Date Acquired Dec‑98 Dec‑98 Dec‑98 Dec‑98 Aug‑05 Nov‑05 Oct‑05 Oct‑07 Mar‑08 Jul‑08 Apr‑11 Sep‑10 Jun-03 Oct-04 Jun-03 Jun-03 Dec-03 Oct-04 Mar-05 Sep-04 Aug-10 Aug-11 Oct-11 Jun-04 Dec-98 Dec-98 Jul-05 Nov-05 May-08 Jul-08 May-07 Feb-10 Dec-09 Aug-14 Sep-14 Oct-16 Oct-16 Nov-16 Jan-17 Sep-04 Dec-07 Sep-10 Sep-07 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2017 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period MONTEREY PENINSULA, CA Verano at Rancho Cucamonga Town Square Windemere at Sycamore Highland OTHER SOUTHERN CA Tualatin Heights Hunt Club PORTLAND, OR TOTAL WEST REGION MID-ATLANTIC REGION Encumbrances — — — — — — — 210,467 Land and Land Improvements 16,938 13,557 5,810 19,367 3,273 6,014 9,287 818,440 Buildings and Improvements 68,384 3,645 23,450 27,095 9,134 14,870 24,004 1,826,575 Dominion Middle Ridge Dominion Lake Ridge Presidential Greens The Whitmore Ridgewood DelRay Tower Waterside Towers Wellington Place at Olde Town Andover House Sullivan Place Circle Towers Delancey at Shirlington View 14 Signal Hill Capitol View on 14th Domain College Park 1200 East West Courts at Huntington Station Eleven55 Ripley Arbor Park of Alexandria Courts at Dulles Newport Village METROPOLITAN, D.C. Gayton Pointe Townhomes Waterside At Ironbridge Carriage Homes at Wyndham Legacy at Mayland RICHMOND, VA Calvert's Walk 20 Lambourne Domain Brewers Hill BALTIMORE, MD TOTAL MID-ATLANTIC REGION NORTHEAST REGION 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 BOSTON, MA TOTAL NORTHEAST REGION — — — — — — — 31,373 — — — — — — — — — — — 89,019 — 127,600 247,992 — — — 33,850 33,850 — — — — 281,842 — — — — — — 25,000 51,721 — — 76,721 76,721 3,311 2,366 11,238 6,418 5,612 297 1,139 13,753 183 1,137 32,815 21,606 5,710 13,290 31,393 7,300 9,748 27,749 15,566 50,881 14,697 55,283 331,492 826 1,844 474 1,979 5,123 4,408 11,750 4,669 20,827 357,442 41,432 36,399 114,410 57,637 249,878 5,591 6,039 20,778 10,961 24,584 67,953 317,831 13,283 8,387 18,790 13,411 20,086 12,786 49,657 36,059 59,948 103,676 107,051 66,765 97,941 — — — 68,022 111,878 107,539 159,728 83,834 177,454 1,316,295 5,148 13,239 30,997 11,524 60,908 24,692 45,590 40,630 110,912 1,488,115 218,983 107,154 324,920 266,255 917,312 91,027 34,869 88,096 51,175 — 265,167 1,182,479 Costs of Improvements Capitalized Subsequent to Acquisition Costs 87,534 55,786 3,775 59,561 7,638 7,388 15,026 1,133,589 Land and Land Improvements 28,610 23,534 6,213 29,747 3,906 6,493 10,399 897,825 Buildings & Buildings Improvements 144,246 49,454 26,822 76,276 16,139 21,779 37,918 2,880,779 7,622 8,232 11,279 22,432 10,322 114,031 25,268 19,205 5,002 9,387 19,198 4,115 4,371 70,901 95,020 58,754 1,872 3,054 1,803 1,765 7,091 11,936 512,660 30,490 8,730 9,229 31,489 79,938 8,029 8,559 1,841 18,429 611,027 12,957 13,714 101,043 9,468 137,182 9,632 3,072 9,753 9,517 201,393 233,367 370,549 3,982 2,933 11,756 7,511 6,255 9,559 37,049 14,788 263 1,641 33,476 21,638 5,753 25,518 31,412 7,345 9,786 27,852 15,585 50,886 14,714 55,405 395,107 3,524 2,433 3,920 5,140 15,017 4,900 12,298 4,783 21,981 432,105 41,658 36,494 115,062 58,014 251,228 5,687 6,272 19,569 11,180 24,607 67,315 318,543 20,234 16,052 29,551 34,750 29,765 117,555 39,015 54,229 64,870 112,559 125,588 70,848 102,269 58,673 95,001 58,709 69,856 114,829 109,323 161,488 90,908 189,268 1,765,340 32,940 21,380 36,780 39,852 130,952 32,229 53,601 42,357 128,187 2,024,479 231,714 120,773 425,311 275,346 1,053,144 100,563 37,708 99,058 60,473 201,370 499,172 1,552,316 Total Carrying Value 172,856 72,988 33,035 106,023 20,045 28,272 48,317 3,778,604 24,216 18,985 41,307 42,261 36,020 127,114 76,064 69,017 65,133 114,200 159,064 92,486 108,022 84,191 126,413 66,054 79,642 142,681 124,908 212,374 105,622 244,673 2,160,447 36,464 23,813 40,700 44,992 145,969 37,129 65,899 47,140 150,168 2,456,584 273,372 157,267 540,373 333,360 1,304,372 106,250 43,980 118,627 71,653 225,977 566,487 1,870,859 Total Initial Acquisition Costs 85,322 17,202 29,260 46,462 12,407 20,884 33,291 2,645,015 16,594 10,753 30,028 19,829 25,698 13,083 50,796 49,812 60,131 104,813 139,866 88,371 103,651 13,290 31,393 7,300 77,770 139,627 123,105 210,609 98,531 232,737 1,647,787 5,974 15,083 31,471 13,503 66,031 29,100 57,340 45,299 131,739 1,845,557 260,415 143,553 439,330 323,892 1,167,190 96,618 40,908 108,874 62,136 24,584 333,120 1,500,310 S - 2 Accumulated Depreciation Date of Construction(a) 84,168 38,366 19,302 57,668 11,379 16,008 27,387 1,321,277 15,280 11,572 22,213 25,988 22,262 25,219 24,373 38,698 35,751 65,130 69,419 38,906 37,669 33,128 29,971 15,613 8,631 16,483 13,584 23,191 13,280 27,607 613,968 29,536 15,249 26,329 34,884 105,998 22,913 30,791 17,665 71,369 791,335 78,792 42,537 153,669 105,886 380,884 41,736 15,893 38,730 24,942 29,077 150,378 531,262 2006 2001 1989 1985 1990 1987 1938 1962/2008 1988 2014 1971 1987/2008 2004 2007 1972 2006/2007 2009 2010 2013 2014 2010 2011 2014 1969/2015 2000 1968 1973/2007 1987 1998 1973/2007 1988 2003 2009 2005 2001 1985/2013 2008 1887/1990 2007 2006 2005 2015 Date Acquired Oct-02 Nov-02 Dec-98 Sep-04 Jun-96 Feb-96 May-02 Apr-02 Aug-02 Jan-08 Dec-03 Sep-05 Mar-07 Dec-07 Mar-08 Mar-08 Jun-11 Mar-07 Sep-07 Jun-11 Oct-15 Oct-15 Oct-15 Oct-15 Oct-15 Oct-15 Sep-95 Sep-97 Nov-03 Dec-91 Mar-04 Mar-08 Aug-10 Apr-11 Aug-11 Jul-11 Aug-11 Sep-10 Sep-10 Apr-11 Apr-11 Dec-15 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2017 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Encumbrances Land and Land Improvements Buildings and Improvements Total Initial Acquisition Costs Costs of Improvements Capitalized Subsequent to Acquisition Costs Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction(a) SOUTHEAST REGION Seabrook Altamira Place Regatta Shore Alafaya Woods Los Altos Lotus Landing Seville On The Green Ashton @ Waterford Arbors at Lee Vista ORLANDO, FL Legacy Hill Hickory Run Carrington Hills Brookridge Breckenridge Colonnade The Preserve at Brentwood Polo Park NASHVILLE, TN Summit West The Breyley Lakewood Place Cambridge Woods Inlet Bay MacAlpine Place The Vintage Lofts at West End TAMPA, FL The Reserve and Park at Riverbridge OTHER FLORIDA TOTAL SOUTHEAST REGION SOUTHWEST REGION Thirty377 Legacy Village Addison Apts at The Park Addison Apts at The Park II Addison Apts at The Park I DALLAS, TX Barton Creek Landing Residences at the Domain Red Stone Ranch Lakeline Villas AUSTIN, TX Steele Creek DENVER, CO TOTAL SOUTHWEST REGION TOTAL OPERATING COMMUNITIES REAL ESTATE UNDER DEVELOPMENT The Residences at Pacific City 345 Harrison — — — — — — — — — — — — — — — 16,331 — 23,550 39,881 — — — 12,450 — — — 12,450 39,787 39,787 92,118 25,000 82,734 — — — 107,734 — 36,299 — — 36,299 — — 144,033 805,181 TOTAL REAL ESTATE UNDER DEVELOPMENT — LAND Waterside 7 Harcourt Vitruvian Park® 1,846 1,533 757 1,653 2,804 2,185 1,282 3,872 6,692 22,624 1,148 1,469 2,117 708 766 1,460 3,182 4,583 15,433 2,176 1,780 1,395 1,791 7,702 10,869 6,611 32,324 15,968 15,968 86,349 24,036 16,882 22,041 7,903 10,440 81,302 3,151 4,034 5,084 4,148 16,417 8,586 8,586 106,305 1,686,367 78,085 32,938 111,023 11,862 884 4,325 4,155 11,076 6,608 9,042 12,349 8,639 6,498 17,538 12,860 88,765 5,867 11,584 — 5,461 7,714 16,015 24,674 16,293 87,608 4,710 2,458 10,647 7,166 23,150 36,858 37,663 122,652 56,401 56,401 355,426 32,951 100,102 11,228 554 634 145,469 14,269 55,256 17,646 16,869 104,040 130,400 130,400 379,909 5,232,504 — — — — — — 9,343 21,395 16,863 10,384 12,334 10,935 7,756 5,181 14,184 108,375 9,844 10,771 36,910 6,490 5,871 7,375 9,080 17,190 103,531 10,657 18,228 11,529 10,548 17,391 9,535 18,382 96,270 12,151 12,151 320,327 17,923 17,155 8,616 3,275 3,563 50,532 23,443 13,245 2,983 2,087 41,758 278 278 92,568 2,528,060 253,044 228,423 481,467 222 5,792 9,291 6,001 12,609 7,365 10,695 15,153 10,824 7,780 21,410 19,552 111,389 7,015 13,053 2,117 6,169 8,480 17,475 27,856 20,876 103,041 6,886 4,238 12,042 8,957 30,852 47,727 44,274 154,976 72,369 72,369 441,775 56,987 116,984 33,269 8,457 11,074 226,771 17,420 59,290 22,730 21,017 120,457 138,986 138,986 486,214 6,918,871 78,085 32,938 111,023 11,862 884 4,325 S - 3 2,912 3,637 2,151 2,608 4,222 2,963 1,766 4,338 7,493 32,090 1,887 2,322 4,710 1,371 1,435 2,050 3,755 5,856 23,386 3,651 3,721 2,922 3,164 10,092 11,742 15,199 50,491 16,746 16,746 122,713 24,383 19,752 30,698 8,415 11,009 94,257 5,119 4,512 5,467 4,448 19,546 8,592 8,592 122,395 1,893,581 78,085 31,383 109,468 12,084 804 11,347 12,432 30,367 22,077 18,471 23,265 18,796 13,770 22,253 26,243 187,674 14,972 21,502 34,317 11,288 12,916 22,800 33,181 32,210 183,186 13,892 18,745 20,649 16,341 38,151 45,520 47,457 200,755 67,774 67,774 639,389 50,527 114,387 11,187 3,317 3,628 183,046 35,744 68,023 20,246 18,656 142,669 130,672 130,672 456,387 7,553,350 253,044 229,978 483,022 — 5,872 2,269 15,344 34,004 24,228 21,079 27,487 21,759 15,536 26,591 33,736 219,764 16,859 23,824 39,027 12,659 14,351 24,850 36,936 38,066 206,572 17,543 22,466 23,571 19,505 48,243 57,262 62,656 251,246 84,520 84,520 762,102 74,910 134,139 41,885 11,732 14,637 277,303 40,863 72,535 25,713 23,104 162,215 139,264 139,264 578,782 9,446,931 331,129 261,361 592,490 12,084 6,676 13,616 10,472 27,378 18,908 14,697 17,325 13,550 10,134 15,488 20,933 148,885 12,130 15,164 23,982 7,975 9,110 14,130 23,549 25,178 131,218 12,275 18,225 16,090 12,630 30,024 31,960 28,293 149,497 45,310 45,310 474,910 28,099 65,000 8,859 2,064 2,549 106,571 26,542 34,285 8,505 7,590 76,922 1,721 1,721 185,214 3,303,998 3,854 — 3,854 333 14 2,273 Date Acquired Feb-96 Apr-94 Jun-94 Oct-94 Oct-96 Jul-97 Oct-97 May-98 Aug-06 Nov-95 Dec-95 Dec-95 Mar-96 Mar-97 Jan-99 Jun-04 May-06 Dec-92 Sep-93 Mar-94 Jun-97 Jun-03 Dec-04 Jul-09 1984/2004 1984/2007 1988/2007 1989/2006 1990/2004 1985/2006 1986/2004 2000 1992/2007 1977 1989 1999 1986 1986 1998 1998 1987/2008 1972 1977/2007 1986 1985 1988/1989 2001 2009 1999/2001 Dec-04 1999/2007 2005/06/07 1977/78/79 1970 1975 1986/2012 2007 2000 2002 2015 Aug-06 Mar-08 May-07 May-07 May-07 Mar-02 Aug-08 Apr-12 Apr-12 Oct-17 UDR, INC. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2017 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period Land and Land Improvements 31,105 8,922 57,098 Buildings and Improvements — — — — — — — 3,034 3,034 3,034 — — — — 20,534 20,534 20,534 Costs of Improvements Capitalized Subsequent to Acquisition Costs Total Initial Acquisition Costs 31,105 8,922 57,098 — — — — 23,568 23,568 23,568 97 3,440 18,842 7,679 23,079 30,758 6,265 1,254 7,519 38,277 Land and Land Improvements 31,202 8,922 64,359 Buildings & Buildings Improvements — 3,440 11,581 1,380 7,793 9,173 — 3,035 3,035 12,208 6,299 15,286 21,585 6,265 21,787 28,052 49,637 Total Carrying Value 31,202 12,362 75,940 7,679 23,079 30,758 6,265 24,822 31,087 61,845 Accumulated Depreciation Date of Construction(a) Date Acquired — — 2,620 3,570 13,920 17,490 72 2,132 2,204 19,694 $ 1,857,522 $ 5,253,038 $ 7,110,560 $ 3,066,646 $ 2,079,616 $ 8,097,590 $ 10,177,206 $ 3,330,166 Encumbrances Wilshire at LaJolla Dublin Land TOTAL LAND COMMERCIAL Circle Towers Office Bldg Brookhaven Shopping Center TOTAL COMMERCIAL Other (b) 1745 Shea Center I TOTAL CORPORATE TOTAL COMMERCIAL & CORPORATE Deferred Financing Costs TOTAL REAL ESTATE OWNED $ — — — — — — — — (1,912) 803,269 (a) Date of original construction/date of last major renovation, if applicable. (b) Includes unallocated accruals and capital expenditures. The aggregate cost for federal income tax purposes was approximately $9.1 billion at December 31, 2017 (unaudited). 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, 2017 (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): 2017 2016 2015 Balance at beginning of the year Real estate acquired Capital expenditures and development Real estate sold Impairment of assets, including casualty-related impairments Balance at end of the year $ 9,615,753 $ 9,190,276 $ 8,383,259 906,446 203,183 (301,920) (692) $ 10,177,206 $ 9,615,753 $ 9,190,276 324,104 339,813 (238,440) — 235,993 369,029 (43,569) — The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in 2017 2016 2015 $ 2,923,625 $ 2,646,874 $ 2,434,772 364,622 (152,520) $ 3,330,166 $ 2,923,625 $ 2,646,874 398,904 (122,153) 424,772 (18,231) thousands): Balance at beginning of the year Depreciation expense for the year Accumulated depreciation on sales Balance at end of year S - 5 UNITED DOMINION REALTY, L.P. SCHEDULE III — REAL ESTATE OWNED DECEMBER 31, 2017 (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 2000 Post Street Birch Creek Highlands Of Marin Marina Playa River Terrace CitySouth Bay Terrace Highlands of Marin Phase II Edgewater Almaden Lake Village SAN FRANCISCO, CA Harbor at Mesa Verde 27 Seventy Five Mesa Verde Pacific Shores Huntington Vista Missions at Back Bay Eight 80 Newport Beach - North Eight 80 Newport Beach - South ORANGE COUNTY, CA Crowne Pointe Hilltop The Kennedy Hearthstone at Merrill Creek Island Square SEATTLE, WA Rosebeach Tierra Del Rey LOS ANGELES, CA 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 OTHER SOUTHERN CA Tualatin Heights Hunt Club PORTLAND, OR TOTAL WEST REGION MID-ATLANTIC REGION Ridgewood DelRey Tower Wellington Place at Olde Town Andover House Sullivan Place Courts at Huntington Station METROPOLITAN D.C. Calvert’s Walk 20 Lambourne BALTIMORE, MD TOTAL MID-ATLANTIC REGION $ — — — — 38,495 — — — — 27,000 65,495 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 65,495 — — 31,373 — — — 31,373 — — — 31,373 $ 9,861 4,365 5,996 6,224 22,161 14,031 8,545 5,353 30,657 594 107,787 20,476 99,329 7,345 8,055 229 62,516 58,785 256,735 2,486 2,174 6,179 6,848 21,284 38,971 8,414 39,586 48,000 1,946 888 3,039 1,304 6,388 2,044 1,329 16,938 13,557 13,557 3,273 6,014 9,287 491,275 5,612 297 13,753 183 1,137 27,749 48,731 4,408 11,750 16,158 64,889 $ 44,578 16,696 24,868 23,916 40,137 30,537 14,458 18,559 83,872 42,515 340,136 28,538 110,644 22,624 22,486 14,129 46,082 50,067 294,570 6,437 7,408 22,307 30,922 89,389 156,463 17,449 36,679 54,128 8,982 4,188 12,883 5,115 23,854 8,028 5,334 68,384 3,645 3,645 9,134 14,870 24,004 941,330 20,086 12,786 36,059 59,948 103,676 111,878 344,433 24,692 45,590 70,282 414,715 $ 11,020 1,045 7,823 1,141 22,751 16,388 11,579 5,758 30,720 907 109,132 21,995 113,691 8,024 9,215 10,987 68,217 60,812 292,941 3,083 2,997 6,280 7,032 21,631 41,023 8,792 39,769 48,561 3,250 1,600 5,548 2,287 10,241 3,384 2,300 28,610 23,534 23,534 3,906 6,493 10,399 554,200 6,255 9,559 14,788 263 1,641 27,852 60,358 4,900 12,298 17,198 77,556 $ 64,990 28,138 50,829 41,234 45,394 64,882 17,248 29,354 95,245 49,853 487,167 46,365 193,683 33,687 35,513 6,762 80,841 80,516 477,367 14,261 12,179 24,933 35,661 95,362 182,396 21,829 43,463 65,292 17,998 9,417 26,983 10,786 49,913 17,574 11,575 144,246 49,454 49,454 16,139 21,779 37,918 1,443,840 29,765 117,555 54,229 64,870 112,494 114,829 493,742 32,229 53,601 85,830 579,572 $ 76,010 29,183 58,652 42,375 68,145 81,270 28,827 35,112 125,965 50,760 596,299 68,360 307,374 41,711 44,728 17,749 149,058 141,328 770,308 17,344 15,176 31,213 42,693 116,993 223,419 30,621 83,232 113,853 21,248 11,017 32,531 13,073 60,154 20,958 13,875 172,856 72,988 72,988 20,045 28,272 48,317 1,998,040 36,020 127,114 69,017 65,133 114,135 142,681 554,100 37,129 65,899 103,028 657,128 1987/2016 1968 1991/2010 1971 2005 1972/2012 1962 1968/2010 2007 1999 1965/2003 1979/2013 1971/2003 1970 1969 1968/2000/2016 1968/2000/2016 1987 1985 2005 2000 2007 1970 1998 1979 1973 1974 1977 1986 1979 1975 2006 1989 1985 1988 2014 1987/2008 2004 2007 2011 1988 2003 30,623 15,732 33,322 21,855 28,808 43,163 10,906 18,309 49,873 27,685 280,276 31,256 115,829 23,146 22,752 4,809 51,642 48,986 298,420 9,003 7,965 15,434 20,118 51,102 103,622 14,644 23,843 38,487 10,504 5,679 15,939 6,396 28,586 10,479 6,585 84,168 38,366 38,366 11,379 16,008 27,387 870,726 22,262 25,219 38,698 35,751 65,065 16,483 203,478 22,913 30,791 53,704 257,182 Dec-98 Dec-98 Dec-98 Dec-98 Aug-05 Nov-05 Oct-05 Oct-07 Mar-08 Jul-08 Jun-03 Oct-04 Jun-03 Jun-03 Dec-03 Oct-04 Mar-05 Dec-98 Dec-98 Nov-05 May-08 Jul-08 Sep-04 Dec-07 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Dec-98 Oct-02 Dec-98 Sep-04 Aug-02 Jan-08 Sep-05 Mar-07 Dec-07 Oct-15 Mar-04 Mar-08 21,571 8,122 27,788 12,235 5,847 36,702 5,824 11,200 11,436 7,651 148,376 19,346 97,401 11,742 14,187 3,391 40,460 32,476 219,003 8,421 5,594 2,727 4,923 6,320 27,985 4,758 6,967 11,725 10,320 5,941 16,609 6,654 29,912 10,886 7,212 87,534 55,786 55,786 7,638 7,388 15,026 565,435 10,322 114,031 19,205 5,002 9,322 3,054 160,936 8,029 8,559 16,588 177,524 $ — $ 54,439 21,061 30,864 30,140 62,298 44,568 23,003 23,912 114,529 43,109 447,923 49,014 209,973 29,969 30,541 14,358 108,598 108,852 551,305 8,923 9,582 28,486 37,770 110,673 195,434 25,863 76,265 102,128 10,928 5,076 15,922 6,419 30,242 10,072 6,663 85,322 17,202 17,202 12,407 20,884 33,291 1,432,605 25,698 13,083 49,812 60,131 104,813 139,627 393,164 29,100 57,340 86,440 479,604 S - 6 UNITED DOMINION REALTY, L.P. SCHEDULE III — REAL ESTATE OWNED - (Continued) DECEMBER 31, 2017 (In thousands) Initial Costs Gross Amount at Which Carried at Close of Period NORTHEAST REGION 10 Hanover Square 95 Wall Street NEW YORK, NY 14 North BOSTON, MA TOTAL NORTHEAST REGION SOUTHEAST REGION Legacy Hill Hickory Run Carrington Hills Brookridge Breckenridge Polo Park NASHVILLE, TN Inlet Bay MacAlpine Place TAMPA, FL The Reserve and Park at Riverbridge OTHER FLORIDA TOTAL SOUTHEAST REGION SOUTHWEST REGION Steele Creek DENVER, CO TOTAL SOUTHWEST REGION TOTAL OPERATING COMMUNITIES COMMERCIAL Circle Towers Office Bldg TOTAL COMMERCIAL Other (b) TOTAL CORPORATE TOTAL COMMERCIAL & CORPORATE Deferred Financing Costs TOTAL REAL ESTATE OWNED $ — — — — — — — — — — — 23,550 23,550 — — — 39,787 39,787 63,337 — — — 160,205 — — — — — (360) 159,845 Encumbrances Land and Land Improvements Building and Improvements Total Initial Acquisition Costs Cost of Improvements Capitalized Subsequent to Acquisition Costs 12,957 9,468 22,425 9,517 9,517 31,942 9,844 10,771 36,910 6,490 5,871 17,190 87,076 17,391 9,535 26,926 12,151 12,151 126,153 278 278 278 901,332 6,221 6,221 1,700 1,700 7,921 Land and Land Improvements Buildings & Buildings Improvements Total Carrying Value Accumulated Depreciation Date of Construction (a) Date Acquired 41,658 58,014 99,672 11,180 11,180 110,852 1,887 2,322 4,710 1,371 1,435 5,856 17,581 10,092 11,742 21,834 16,746 16,746 56,161 8,592 8,592 8,592 807,361 1,380 1,380 — — 1,380 231,714 275,346 507,060 60,473 60,473 567,533 14,972 21,502 34,317 11,288 12,916 32,210 127,205 38,151 45,520 83,671 67,774 67,774 278,650 130,672 130,672 130,672 3,000,267 6,248 6,248 1,700 1,700 7,948 273,372 333,360 606,732 71,653 71,653 678,385 16,859 23,824 39,027 12,659 14,351 38,066 144,786 48,243 57,262 105,505 84,520 84,520 334,811 139,264 139,264 139,264 3,807,628 7,628 7,628 1,700 1,700 9,328 — 78,792 105,886 184,678 24,942 24,942 209,620 12,130 15,164 23,982 7,975 9,110 25,178 93,539 30,024 31,960 61,984 45,310 45,310 200,833 1,721 1,721 1,721 1,540,082 3,570 3,570 — — 3,570 2005 2008 2005 1977 1989 1999 1986 1986 1987/2008 1988/1989 2001 Apr-11 Aug-11 Apr-11 Nov-95 Dec-95 Dec-95 Mar-96 Mar-97 May-06 Jun-03 Dec-04 1999/2001 Dec-04 2015 43009 41,432 57,637 99,069 10,961 10,961 110,030 1,148 1,469 2,117 708 766 4,583 10,791 7,702 10,869 18,571 15,968 15,968 45,330 8,586 8,586 8,586 720,110 1,407 1,407 — — 1,407 218,983 266,255 485,238 51,175 51,175 536,413 5,867 11,584 — 5,461 7,714 16,293 46,919 23,150 36,858 60,008 56,401 56,401 163,328 130,400 130,400 130,400 2,186,186 — — — — — 260,415 323,892 584,307 62,136 62,136 646,443 7,015 13,053 2,117 6,169 8,480 20,876 57,710 30,852 47,727 78,579 72,369 72,369 208,658 138,986 138,986 138,986 2,906,296 1,407 1,407 — — 1,407 $ 721,517 $ 2,186,186 $ 2,907,703 $ 909,253 $ 808,741 $ 3,008,215 $ 3,816,956 $ 1,543,652 (a) Date of original construction/date of last major renovation, if applicable. (b) Includes unallocated accruals and capital expenditures. The aggregate cost for federal income tax purpose was approximately $3.1 billion at December 31, 2017 (unaudited). 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, 2017 (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 deconsolidated Casualty-related impairment of assets Balance at end of year 2017 2016 2017 $ 3,674,704 $ 3,630,905 $ 4,238,770 139,627 61,196 (180,069) (628,479) (140) $ 3,816,956 $ 3,674,704 $ 3,630,905 138,986 45,211 (41,945) — — — 71,720 (27,921) — — The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands): 2017 2016 2015 Balance at beginning of the year Depreciation expense for the year Accumulated depreciation on sales Accumulated depreciation on property deconsolidated Balance at end of year $ 1,408,815 $ 1,281,258 $ 1,403,303 168,495 (67,177) (223,363) $ 1,543,652 $ 1,408,815 $ 1,281,258 153,068 (18,231) — 144,942 (17,385) — UDR, Inc. EXHIBIT 12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Earnings: Income/(loss) from continuing operations Add (from continuing operations): Interest on indebtedness (a) Portion of rents representative of the interest factor Amortization of capitalized interest Total earnings Fixed charges and preferred stock dividends (from continuing operations): Interest on indebtedness (a) Interest capitalized Portion of rents representative of the interest factor Fixed charges Add: (Dollars in thousands) 2017 2016 2015 2014 2013 $ 89,251 $ 109,529 $ 105,482 $ 16,260 $ 2,340 128,711 123,031 121,875 130,262 125,905 2,154 5,343 2,224 3,711 $ 225,459 $ 239,082 $ 233,391 $ 152,457 1,922 4,112 1,923 4,599 $ 128,711 $ 123,031 $ 121,875 $ 130,262 20,249 16,482 16,105 18,635 2,154 2,224 $ 149,500 $ 141,436 $ 139,902 $ 152,735 1,922 1,923 2,163 3,374 $ 133,782 $ 125,905 29,384 2,163 $ 157,452 Preferred stock dividends 3,708 3,717 3,722 3,724 3,724 Combined fixed charges and preferred stock dividends $ 153,208 $ 145,153 $ 143,624 $ 156,459 $ 161,176 Ratio of earnings to fixed charges Ratio of earnings to combined fixed charges and preferred stock dividends 1.51 1.69 1.67 — (b) — (b) 1.47 1.65 1.63 — (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 and 2013 as earnings were inadequate to cover fixed charges by deficiencies of approximately $0.3 million and $23.7 million, respectively. (c) The ratio was less than 1:1 for the years ended December 31, 2014 and 2013 as earnings were inadequate to cover combined fixed charges and preferred stock dividends by deficiencies of approximately $4.0 million and $27.4 million, respectively. EXHIBIT 12.2 United Dominion Realty, L.P. Computation of Ratio of Earnings to Fixed Charges (Dollars in thousands) Earnings: Income/(loss) from continuing operations Add (from continuing operations): Interest on indebtedness (a) Portion of rents representative of the interest factor Amortization of capitalized interest Total earnings Fixed charges from continuing operations: Interest on indebtedness (a) Interest capitalized Portion of rents representative of the interest factor Fixed charges 2017 2016 2015 2014 2013 $ 66,583 $ 46,082 $ 56,940 $ 33,544 $ 32,766 30,366 30,067 40,321 41,717 36,058 2,071 745 99,765 $ 1,826 744 78,719 $ 1,868 734 99,863 $ 1,751 725 77,737 $ 1,705 580 71,109 $ $ 30,366 $ 21 30,067 $ 206 40,321 $ 182 41,717 $ 2,890 36,058 5,870 2,071 32,458 $ 1,826 32,099 $ 1,868 42,371 $ 1,751 46,358 $ 1,705 43,633 $ Ratio of earnings to fixed charges 3.07 2.45 2.36 1.68 1.63 (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. UDR LIGHTHOUSE DOWNREIT L.P. Financial Statements as of December 31, 2017 (unaudited) and 2016 (audited) and for the years ended December 31, 2017 (unaudited), 2016 (audited), and for the period from October 5, 2015 through December 31, 2015 (unaudited) and Independent Auditors’ Report Exhibit 99.1 1 UDR LIGHTHOUSE DOWNREIT L.P. INDEX Combined Financial Statements Combined Balance Sheets as of December 31, 2017 (unaudited) and 2016 (audited) Combined Statements of Operations for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited) Combined Statements of Comprehensive Income/(Loss) for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited) Combined Statement of Changes in Capital for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited) Combined Statements of Cash Flows for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited) Notes to Combined Financial Statements PAGE 4 5 6 7 8 9 2 The Partners UDR Lighthouse DownREIT L.P. Report of Independent Auditors We have audited the accompanying combined financial statements of UDR Lighthouse DownREIT L.P., which comprise the combined balance sheet as of December 31, 2016, and the related combined statements of operations, comprehensive income/(loss), changes in capital, and cash flows for the year then ended, and the related notes to the combined financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of UDR Lighthouse DownREIT L.P. at December 31, 2016, and the combined results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. Report on summarized comparative information We have not audited, reviewed or compiled the summarized combined comparative information presented herein as of December 31, 2017 or for the year then ended or as of December 31, 2015 or for the period from October 5, 2015 to December 31, 2015, and, accordingly, we express no opinion on it. /s/ Ernst & Young LLP Denver, Colorado February 21, 2017 3 UDR LIGHTHOUSE DOWNREIT L.P. COMBINED 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 Note receivable from the General Partner Other assets Total assets LIABILITIES AND CAPITAL Liabilities: Secured debt, net Real estate taxes payable Accrued interest payable Security deposits and prepaid rent Distributions payable Accounts payable, accrued expenses, and other liabilities Total liabilities Commitments and contingencies (Note 9) Capital: Limited partners: 32,367,380 DownREIT Units outstanding at December 31, 2017 and December 31, 2016 Accumulated other comprehensive income/(loss), net Total partners’ capital Advances (to)/from the General Partner Total capital Total liabilities and capital December 31, December 31, 2017 (unaudited) 2016 (audited) $ 1,540,781 $ 1,511,627 (97,644) 1,413,983 66 334 126,500 4,509 $ 1,490,646 $ 1,545,392 (181,611) 1,359,170 39 316 126,500 4,621 $ 437,510 $ 7,347 1,470 3,151 10,034 5,572 465,084 443,607 6,832 1,443 3,565 9,548 6,183 471,178 968,175 (1) 968,174 57,388 1,025,562 1,022,890 (46) 1,022,844 51,370 1,074,214 $ 1,490,646 $ 1,545,392 See accompanying notes to the combined financial statements. 4 UDR LIGHTHOUSE DOWNREIT L.P. COMBINED STATEMENTS OF OPERATIONS (In thousands, except per unit data) Period From October 5, 2015 to December 31, 2017 December 31, 2016 December 31, 2015 Year Ended Year Ended REVENUES: Rental income OPERATING EXPENSES: Property operating and maintenance Real estate taxes and insurance Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related charges/(recoveries), net Total operating expenses (unaudited) (audited) (unaudited) $ 134,669 $ 130,121 $ 29,933 24,666 19,353 3,703 251 84,000 7,305 209 139,487 24,849 18,603 3,578 195 111,453 7,503 271 166,452 5,640 3,943 823 62 28,934 3,750 84 43,236 Operating income/(loss) (4,818) (36,331) (13,303) Interest expense Interest income on note receivable from the General Partner Net income/(loss) attributable to DownREIT unitholders (14,483) 4,718 (14,583) $ (14,208) 4,743 (45,796) $ (3,632) 1,131 (15,804) $ Net income/(loss) per weighted average DownREIT Unit - basic and diluted: $ (0.45) $ (1.41) $ (0.49) Weighted average DownREIT Units outstanding - basic and diluted 32,367 32,367 32,367 See accompanying notes to the combined financial statements. 5 UDR LIGHTHOUSE DOWNREIT L.P. COMBINED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) Net income/(loss) attributable to DownREIT unitholders $ (14,583) $ (45,796) $ (15,804) (unaudited) (audited) (unaudited) Period From October 5, 2015 to December 31, 2017 December 31, 2016 December 31, 2015 Year Ended Year Ended Other comprehensive income/(loss), including portion attributable to noncontrolling interests: Other comprehensive income/(loss) - derivative instruments: Unrealized holding gain/(loss) (Gain)/loss reclassified into earnings from other comprehensive income/(loss) Other comprehensive income/(loss) Comprehensive income/(loss) attributable to DownREIT unitholders — 46 46 (2) 5 3 (52) 3 (49) $ (14,537) $ (45,793) $ (15,853) 6 UDR LIGHTHOUSE DOWNREIT L.P. COMBINED STATEMENTS OF CHANGES IN CAPITAL (In thousands) Limited Partners UDR, Inc Accumulated Other Limited Partner Comprehensive Income/(Loss), net Total Partners’ Capital Advances (to)/from the General Partner Total $ Beginning balance at October 5, 2015 Units issued in exchange for Real Estate Net income/(loss) Distributions Adjustment to reflect limited partners’ capital at redemption value Unrealized gain on derivative financial investments Net change in advances (to)/from the General Partner Balance at December 31, 2015 Net income/(loss) Distributions DownREIT Unit redemptions for common shares of UDR Adjustment to reflect limited partners’ capital at redemption value Unrealized gain on derivative financial investments Net change in advances (to)/from the General Partner Balance at December 31, 2016 Net income/(loss) Distributions DownREIT Unit redemptions for common shares of UDR Adjustment to reflect limited partners’ capital at redemption value Unrealized gain on derivative financial investments Net change in advances (to)/from the General Partner Balance at December 31, 2017 $ — $ — $ — $ — $ — $ — 564,514 4,514 (4,768) 567,713 (20,318) (4,791) 42,044 (42,044) — — — 606,304 18,081 (18,921) — 500,560 (63,877) (19,257) (8,939) 8,939 (17,136) 17,136 — — — 579,389 18,854 (19,401) — 443,501 (33,437) (20,731) (14,255) 14,255 32,509 (32,509) — — — — — — (49) — (49) — — — — 3 — (46) — — — — 45 1,132,227 (15,804) (9,559) — (49) — 1,106,815 (45,796) (38,178) — — 3 — — — — — 1,132,227 (15,804) (9,559) — (49) (35,293) (35,293) — — (35,293) 1,071,522 (45,796) (38,178) — — — — — 3 — 1,022,844 (14,583) (40,132) 86,663 51,370 — — 86,663 1,074,214 (14,583) (40,132) — — 45 — — — — — 45 — 597,096 $ — 371,079 $ — (1) $ — 968,174 $ 6,018 57,388 $ 6,018 1,025,562 See accompanying notes to the combined financial statements. 7 UDR LIGHTHOUSE DOWNREIT L.P. COMBINED STATEMENTS OF CASH FLOWS (In thousands) Period From October 5, 2015 to December 31, 2017 December 31, 2016 December 31, 2015 Year Ended Year Ended Operating Activities Net income/(loss) attributable to DownREIT unitholders Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Depreciation and amortization Other Changes in operating assets and liabilities: (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Net cash provided by/(used in) operating activities Investing Activities Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement Issuance of note receivable from the General Partner Net cash provided by/(used in) investing activities Financing Activities Advances (to)/from the General Partner, net Proceeds from the issuance of secured debt Payments on secured debt Distributions paid to partnership unitholders Payments of financing costs Net cash provided by/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental Information: Interest paid during the period, net of amounts capitalized Non-cash transactions: Contribution of real estate in exchange for DownREIT Units Secured debt assumed in the contribution of real estate in exchange for DownREIT Units Fair value adjustment of secured debt assumed in the contribution of real estate in exchange for DownREIT Units Reallocation of credit facilities debt from the General Partner Development costs and capital expenditures incurred but not yet paid Dividends declared but not yet paid (unaudited) (audited) (unaudited) $ (14,583) $ (45,796) $ (15,804) 84,000 (2,825) (190) (394) 66,008 111,453 (5,578) (475) 1,549 61,153 28,934 (2,232) (1,709) 4,467 13,656 (29,458) — (29,458) (35,190) — (35,190) (2,927) (126,500) (129,427) (14,227) — (2,949) (19,401) — (36,577) (27) 66 39 $ 67,972 50,000 (124,998) (18,921) (39) (25,986) (23) 89 66 $ (5,414) 127,600 (796) (4,768) (762) 115,860 89 — 89 $ $ 17,603 $ 19,480 $ 4,694 — — — — 1,217 10,034 — 1,132,227 — 366,069 — — 1,535 9,548 16,912 16,798 504 8,982 See accompanying notes to the combined financial statements. 8 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2017 1. CONSOLIDATION AND BASIS OF PRESENTATION Basis of Presentation UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership," "we" or "our"), a Delaware limited partnership, was formed on October 5, 2015 ("inception") to own, acquire, renovate, redevelop, manage and dispose of multifamily apartment communities. The DownREIT Partnership is a subsidiary of UDR, Inc. (“UDR” or the “General Partner”), a self-administered real estate investment trust, or REIT. At December 31, 2017, the DownREIT Partnership’s apartment portfolio consisted of 13 communities located in four markets consisting of 6,261 apartment homes. Interests in the DownREIT Partnership are represented by units of limited partnership interest (“DownREIT Units”). The DownREIT Partnership’s net income (or individual items thereof) is allocated to the partners in accordance with the terms of the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership Agreement”), which is generally first based on their respective distributions made during the year and secondly, 99% to UDR and 1% to the outside partners. Distributions are made in accordance with the terms of the DownREIT Partnership Agreement first 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” and secondly, 99% to UDR and 1% to the outside partners. UDR is the sole general partner and a limited partner of the DownREIT Partnership. As the sole general partner of the DownREIT Partnership, UDR 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. United Dominion Realty, L.P., a Delaware limited partnership (the “Operating Partnership”), a subsidiary of UDR, is also a limited partner in the DownREIT Partnership. UDR and the Operating Partnership received their limited partnership interests in exchange for their contribution of the properties to the DownREIT Partnership. As of December 31, 2017, UDR and the Operating Partnership owned approximately 10.5% and 41.6%, respectively, of the DownREIT Units. The Operating Partnership accounts for its ownership interest in the DownREIT Partnership as an equity method investment. These financial statements are being presented pursuant to Rule 3-09 of Regulation S-X as the DownREIT Partnership was a significant subsidiary of the Operating Partnership for the year ended December 31, 2016. The DownREIT Partnership was not a significant subsidiary of the Operating Partnership for the year ended December 31, 2017 or the period from inception through December 31, 2015. As of December 31, 2017, there were 32,367,380 DownREIT Units outstanding, of which 16,866,443, or 52.1%, were owned by UDR and affiliated entities, of which 13,470,651, or 41.6%, were held by the Operating Partnership, and 15,500,937 or 47.9% were owned by non-affiliated limited partners. See Note 8, Capital Structure. The DownREIT Partnership evaluated subsequent events through the date its financial statements were issued. No recognized or non-recognized subsequent events were noted. 2. SIGNIFICANT ACCOUNT POLICIES Recent Accounting Pronouncements In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard will be effective for the DownREIT Partnership on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The DownREIT Partnership expects to early adopt the guidance on January 1, 2018, but does not expect the updated standard to have a material 9 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changes the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard will be effective for the DownREIT Partnership on January 1, 2018. The ASU will be applied prospectively to any transactions occurring after adoption. The DownREIT Partnership expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU addresses the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard will be effective for the DownREIT Partnership on January 1, 2018 and must be applied retrospectively to all periods presented. The DownREIT Partnership does not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the DownREIT Partnership on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. The DownREIT Partnership is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the DownREIT Partnership on January 1, 2019, however, early adoption of the ASU is permitted. While the DownREIT is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date, at which time we do not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU. 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 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry- specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method and will be effective for the DownREIT Partnership on January 1, 2018, at which time the DownREIT Partnership expects to adopt the updated standard using the modified retrospective approach. However, as the majority of the DownREIT Partnership’s revenue is from rental income related to leases, the ASU will not have a material impact on the consolidated financial statements. Related disclosures will be provided and/or updated pursuant to the requirements of the ASU. 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 10 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy. The DownREIT 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 DownREIT 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 DownREIT Partnership will assess our real estate properties for indicators of impairment. In determining whether the DownREIT 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 disposition generally represent properties that are actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 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 Combined Balance Sheets as Total real estate owned, net of accumulated depreciation. The DownREIT 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 redevelopment and capitalized interest, for the years ended December 31, 2017, 2016 and period from inception through December 31, 2015 were $0.4 million (unaudited), $0.3 million (audited), and less than $0.1 million (unaudited), respectively. During the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, total interest capitalized was less than $0.1 million (unaudited), $0.1 million (audited), and $0.0 (unaudited), respectively. As each home in a capital project is completed and becomes available for lease-up, the DownREIT 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 11 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 purchased to be cash equivalents. The majority of the DownREIT Partnership’s cash and cash equivalents are held at major commercial banks. Restricted Cash Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits. Revenue and Real Estate Sales Gain Recognition Rental income related to leases is recognized on an accrual basis when due from residents and tenants in accordance with GAAP. Rental payments are generally due on a monthly basis and recognized when earned. The DownREIT Partnership recognizes interest income 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 Combined 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 DownREIT 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 DownREIT Partnership’s allocation of the General Partner’s debt are recorded on our Combined 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 DownREIT Partnership 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. Income Taxes The taxable income or loss of the DownREIT 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 DownREIT Partnership are recorded at the entity level. The DownREIT 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 DownREIT Partnership evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the DownREIT Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more- likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management of the DownREIT Partnership is required to analyze all open tax years, as defined by the statute of limitations, for all major 12 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 jurisdictions, which include federal and certain states. The DownREIT Partnership has no examinations in progress and none are expected at this time. Management of the DownREIT Partnership has reviewed all open tax years (2015 through 2016) of tax 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. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company's accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of December 31, 2017, the impact to the DownREIT Partnership related to the accounting for the tax effects of the Act was not material. Allocation of General and Administrative Expenses The DownREIT Partnership is charged directly for general and administrative expenses it incurs. The DownREIT 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 DownREIT Partnership, based on reasonably anticipated benefits to the parties. (See Note 5, Related Party Transactions.) Advertising Costs All advertising costs are expensed as incurred and reported on the Combined Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, total advertising expense was $1.1 million (unaudited), $1.3 million (audited), and $0.3 million (unaudited), 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 Combined Statements of Comprehensive Income/(Loss). For the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, the DownREIT 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 Combined Statements of Operations. See Note 7, 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 DownREIT 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, 2017, the DownREIT Partnership held greater than 10% of the carrying value of its real estate portfolio in the Metropolitan D.C., Boston, Massachusetts and Dallas, Texas markets. 13 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 3. REAL ESTATE OWNED Real estate assets owned by the DownREIT Partnership consist of income producing operating properties. At December 31, 2017, the DownREIT Partnership owned and combined 13 operating communities in two states plus the District of Columbia totaling 6,261 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2017 and 2016 (dollars in thousands): Land Depreciable property — held and used: Land improvements Buildings, improvements, and furniture, fixtures and equipment Real estate owned Accumulated depreciation Real estate owned, net December 31, December 31, 2017 (unaudited) 2016 (audited) $ 265,520 $ 265,520 3,664 1,271,597 1,540,781 (181,611) 1,359,170 $ 1,347 1,244,760 1,511,627 (97,644) 1,413,983 $ During the years ended December 31, 2017 and 2016, the DownREIT Partnership did not have any acquisitions or dispositions. At inception, the DownREIT Partnership received the 13 operating communities noted above in exchange for DownREIT Units with a value of $1.1 billion and the assumption of $366.1 million of secured debt. Nine of the communities were contributed by the General Partner and the remaining four were contributed by outside limited partnership holders. 4. 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 DownREIT Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2017 and 2016 (dollars in thousands): Fixed Rate Debt Mortgage notes payable Fannie Mae credit facilities Deferred financing costs Total fixed rate secured debt, net Variable Rate Debt Fannie Mae credit facilities Deferred financing costs Total variable rate secured debt, net Total secured debt, net Principal Outstanding December 31, 2017 (unaudited) 2016 (audited) For the Year Ended December 31, 2017 Weighted Number of Weighted Average Communities Interest Rate Maturity Encumbered Average Years to $ 319,671 $ 325,991 48,292 (1,236) 373,047 90,000 (1,192) 408,479 29,034 (3) 29,031 70,741 (181) 70,560 $ 437,510 $ 443,607 4.13 % 3.95 % 5.6 2.5 4.09 % 4.9 2.92 % 0.9 2.92 % 3.25 % 0.9 4.6 5 1 6 1 1 7 As of December 31, 2017, an aggregate commitment of $119.0 million of the General Partner’s secured credit facilities with Fannie Mae was allocated to the DownREIT Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2017. The portion of the Fannie Mae credit facilities allocated to the DownREIT Partnership mature at various dates from December 2018 through July 2020 and bear interest at floating and fixed rates. At December 31, 2017, $90.0 million of the outstanding balance was fixed and had a weighted average interest rate of 3.95% and the remaining balance of $29.0 million on these facilities had a weighted 14 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 average variable interest rate of 2.92%. The following information relates to the credit facilities owed by the DownREIT 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, December 31, 2017 (unaudited) $ 119,034 119,034 119,034 2016 (audited) $ 119,033 119,033 119,033 3.6 % 3.7 % 3.2 % 3.3 % Upon the contribution of communities to the DownREIT Partnership, contributed secured debt was recorded at its estimated fair value and the difference between the fair value and par is amortized to interest expense over the life of the underlying debt instrument. As of December 31, 2017 and 2016, the DownREIT Partnership had $6.4 million (unaudited) and $9.7 million (audited), respectively, of unamortized fair value adjustments associated with the fixed rate debt instruments on the DownREIT Partnership’s properties. Fixed Rate Debt At December 31, 2017, the General Partner had borrowings against its fixed rate facilities of $285.8 million, of which $90.0 million was owed by the DownREIT Partnership based on the ownership of the assets securing the debt. As of December 31, 2017, the fixed rate Fannie Mae credit facilities allocated to the DownREIT Partnership had a weighted average fixed interest rate of 3.95%. Variable Rate Debt At December 31, 2017, the General Partner had borrowings against its variable rate facilities of $29.0 million, of which $29.0 million was owed by the DownREIT Partnership based on the ownership of the assets securing the debt. As of December 31, 2017, the variable rate borrowings under the Fannie Mae credit facilities allocated to the DownREIT Partnership had a weighted average floating interest rate of 2.92%. The aggregate maturities of the DownREIT Partnership’s secured debt due during each of the next ten calendar years subsequent to December 31, 2017 are as follows (dollars in thousands): 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Thereafter Subtotal Non-cash (a) Total Fixed Secured Credit Facilities Variable Secured Credit Facilities Total Mortgage Notes Payable $ 3,096 $ 51,960 80,664 — — — — 127,600 50,000 — — 313,320 5,496 — $ — 90,000 — — — — — — — — 90,000 (337) 89,663 $ — — — — — — — — — — 29,034 (3) 29,034 $ 32,130 51,960 170,664 — — — — 127,600 50,000 — — 432,354 5,156 29,031 $ 437,510 $ 318,816 $ (a) Includes the unamortized balance of fair market value adjustments, premiums/discounts and deferred financing costs. During the years ended December 31, 2017 and 2016, the DownREIT Partnership amortized $0.3 million (unaudited) and less than $0.1 million (audited) of deferred financing costs into Interest expense. 15 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 5. RELATED PARTY TRANSACTIONS Advances (To)/From the General Partner The DownREIT Partnership participates in the General Partner’s central cash management program, wherein all the DownREIT 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 DownREIT Partnership. As a result of these various transactions between the DownREIT Partnership and the General Partner, the DownREIT Partnership had net Advances (to)/from the General Partner of $57.4 million (unaudited) and $51.4 million (audited) at December 31, 2017 and 2016, respectively, which is reflected as increases/(decreases) of capital on the Combined Balance Sheets. Note Receivable from the General Partner On October 6, 2015, the DownREIT Partnership entered into a note receivable with the General Partner with an aggregate commitment of $126.5 million. As of December 31, 2017 and 2016, the note had a balance of $126.5 million. Interest is incurred at a rate of 3.75% per annum and is paid monthly. The note matures on October 6, 2025. For the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, the DownREIT Partnership recognized $4.7 million (unaudited), $4.7 million (audited)and $1.1 million (unaudited), respectively, of interest income from the note. Allocation of General and Administrative Expenses The General Partner shares various general and administrative costs, employees and other overhead costs with the DownREIT Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the DownREIT Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. During the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, the general and administrative expenses allocated to the DownREIT Partnership by UDR were $5.3 million (unaudited), $5.7 million (audited) and $1.7 million (unaudited), respectively, and are included in General and administrative on the Combined Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the DownREIT Partnership from the General Partner. During the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, the DownREIT Partnership reimbursed the General Partner $5.8 million (unaudited), $5.4 million (audited) and $1.5 million (unaudited), respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements and related party management fees are initially recorded within the line item General and administrative on the Combined Statements of Operations, and a portion related to management costs is reclassified to Property management on the Combined Statements of Operations. (See further discussion below.) Shared Services/Management Fee At inception, the DownREIT Partnership self-managed its own properties and entered into an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the DownREIT Partnership’s allocable share of costs incurred by the General Partner for (a) Shared Services of corporate level property management employees and related support functions and costs, and (b) general and administrative costs. As discussed above, the reimbursement for shared services is classified in Property management on the Combined Statements of Operations. 6. 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 16 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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 DownREIT Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2017 and 2016 are summarized as follows (dollars in thousands): Fair Value at December 31, 2017, Using (unaudited) Total Carrying Amount in Statement of Financial Position at December 31, 2017 Quoted Prices in Active Markets for Identical Fair Value Estimate at Assets or December 31, Liabilities 2017 (Level 1) Significant Other Significant Observable Unobservable Inputs (Level 2) Inputs (Level 3) Description: Secured debt instruments - fixed rate: (a) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments - variable rate: (a) Fannie Mae credit facilities Total liabilities $ 319,671 $ 315,348 $ 90,000 90,591 — $ — — $ 315,348 90,591 — 29,034 29,034 $ 438,705 $ 434,973 $ — — $ — 29,034 — $ 434,973 Fair Value at December 31, 2016, Using (audited) Total Carrying Amount in Statement of Financial Position at December 31, 2016 Quoted Prices in Active Markets for Identical Fair Value Estimate at Assets or December 31, Liabilities (Level 1) 2016 Significant Other Significant Observable Unobservable Inputs (Level 2) Inputs (Level 3) Description: Secured debt instruments - fixed rate: (a) Mortgage notes payable Fannie Mae credit facilities Secured debt instruments - variable rate: (a) Fannie Mae credit facilities Total liabilities (a) See Note 4, Debt, Net. $ 325,991 $ 310,553 $ 48,292 49,080 — $ — — $ 310,553 49,080 — 70,741 70,741 $ 445,024 $ 430,374 $ — — $ — 70,741 — $ 430,374 There were no transfers into or out of each of the levels of the fair value hierarchy. 17 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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 General Partner, on behalf of the DownREIT 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 DownREIT Partnership has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the General Partner, on behalf of the DownREIT 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, 2017 and December 31, 2016, the DownREIT 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 DownREIT 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 DownREIT Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Financial Instruments Not Carried at Fair Value At December 31, 2017, 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 DownREIT 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 DownREIT 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 DownREIT 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. 18 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 7. DERIVATIVES AND HEDGING ACTIVITY Risk Management Objective of Using Derivatives The DownREIT 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 DownREIT 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 has been allocated to the DownREIT Partnership based on the General Partner’s underlying debt instruments owed by the DownREIT Partnership. (See Note 4, 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 income/(loss), net in the Combined Balance Sheets, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the year ended December 31, 2017 the DownREIT Partnership recognized a loss of $0.1 million (unaudited) reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. During the year ended December 31, 2016, the DownREIT Partnership recorded no gain or loss (audited) from ineffectiveness. For the period from inception through December 31, 2015, the DownREIT Partnership recognized a loss of less than $0.1 million (unaudited) reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge and recorded no other ineffectiveness to earnings. Amounts reported in Accumulated other comprehensive income/(loss), net related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is allocated to the DownREIT Partnership. Through December 31, 2018, we estimate that no amounts will be reclassified as an increase to interest expense. Derivatives not designated as hedges are not speculative and are used to manage the DownREIT Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in an adjustment to earnings of less than $0.1 million for the years ended December 31, 2017, 2016, and period from inception through December 31, 2015. 19 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 As of December 31, 2017, 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 2 $ Notional 251,196 Tabular Disclosure of Fair Values of Derivative Instruments on the Combined Balance Sheets The fair value of the DownREIT Partnership’s derivative financial instruments as of December 31, 2017 and 2016 was zero and had no impact on the combined balance sheets. Tabular Disclosure of the Effect of Derivative Instruments on the Combined Statements of Operations The tables below present the effect of the derivative financial instruments on the Combined Statements of Operations for the years ended December 31, 2017, 2016, and period from inception through December 31, 2015 (dollars in thousands): Derivatives in Cash Flow Hedging Relationships Unrealized holding gain/(loss) Recognized in OCI (Effective Portion) Gain/(Loss) Reclassified from Accumulated OCI into Interest expense (Effective Portion) Gain/(Loss) Recognized in Interest expense (Ineffective Portion and Amount Excluded from Effectiveness Testing) Period From October 5, 2015 to Period From October 5, 2015 to Period From October 5, 2015 to Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, Year Ended Year Ended Year Ended Year Ended 2017 (unaudited) 2016 (audited) 2015 (unaudited) 2017 (unaudited) 2016 (audited) 2015 (unaudited) 2017 (unaudited) 2016 (audited) 2015 (unaudited) Interest rate products $ — $ (2) $ (52) $ — $ (5) $ (3) $ (46) $ — $ (3) Derivatives Not Designated as Hedging Instruments Gain/(Loss) Recognized in Interest income and other income/(expense), net Year Ended December 31, 2017 (unaudited) Year Ended December 31, 2016 (audited) Period From October 5, 2015 to December 31, 2015 (unaudited) Interest rate products $ — $ (1) $ (1) Credit-risk-related Contingent Features The General Partner has agreements with some of its derivative counterparties that contain a provision where (1) if the General Partner defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the General Partner could also be declared in default on its derivative obligations; or (2) the General Partner could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the General Partner’s default on the indebtedness. Certain of the General Partner’s agreements with its derivative counterparties contain provisions where if there is a change in the General Partner’s financial condition that materially changes the General Partner’s creditworthiness in an adverse manner, the General Partner may be required to fully collateralize its obligations under the derivative instrument. At December 31, 2017 and 2016, no cash collateral was posted or required to be posted by the General Partner or by a counterparty. 20 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 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. The General Partner has certain agreements with some of its derivative counterparties that contain a provision where in the event of default by the General Partner 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 agreement, 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, 2017, the fair value of derivatives that were allocated to the DownREIT Partnership, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was zero. The General Partner has elected not to offset derivative positions in the combined financial statements. As the fair value of the derivatives that were allocated to the DownREIT Partnership was zero as of December 31, 2017 and December 31, 2016, an election by the General Partner to offset its derivative positions would not have had an impact the DownREIT Partnership’s financial position. 8. CAPITAL STRUCTURE General Partner 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 DownREIT Unit or securities of the DownREIT Partnership without the approval of the limited partners. The General Partner can also approve, with regard to the issuances of DownREIT 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. UDR, Inc. is the sole general partner of the DownREIT Partnership. Limited partners have no power to remove the general partner. No general partner DownREIT Units have been issued. Limited Partnership Units At December 31, 2017 and 2016, there were 32,367,380 limited partnership units outstanding. UDR owned 16,866,433 limited partnership units, or 52.1%, and 16,485,014 limited partnership units, or 50.9%, at December 31, 2017 and 2016, respectively, of which, 13,470,651 limited partnership units, or 41.6%, of all units outstanding were held by the Operating Partnership at December 31, 2017 and 2016. The remaining 15,500,937, or 47.9%, and 15,882,366, or 49.1%, limited partnership units outstanding were held by non-affiliated partners at December 31, 2017 and 2016, respectively. Subject to the terms of the DownREIT Partnership Agreement, the limited partners have the right to require the DownREIT Partnership to redeem all or a portion of the 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 DownREIT Partnership Agreement), provided that such DownREIT Units have been outstanding for at least one year. UDR, as the general partner of the DownREIT Partnership, may, in its sole discretion, purchase the DownREIT 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 DownREIT Unit), as defined in the DownREIT 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. 21 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 The aggregate value upon redemption of the then-outstanding DownREIT Units held by limited partners was $597.1 million and $579.4 million as of December 31, 2017 and 2016, 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 DownREIT Partnership on or after the date of redemption of its DownREIT Units. The following table shows DownREIT Units outstanding and DownREIT Unit activity as of and for the years ended December 31, 2017, 2016, and period from inception through December 31, 2015: Inception, October 5, 2015 (unaudited) Ending balance at December 31, 2015 (unaudited) DownREIT redemptions for UDR stock Ending balance at December 31, 2016 (audited) DownREIT redemptions for UDR stock Ending balance at December 31, 2017 (unaudited) Allocation of Profits and Losses UDR, Inc. UDR, L.P. Limited Partners 16,137,973 16,137,973 (255,607) 15,882,366 (381,429) 15,500,937 Limited Partner 2,758,756 2,758,756 255,607 3,014,363 381,429 3,395,792 Limited Partner 13,470,651 13,470,651 — 13,470,651 — 13,470,651 Total 32,367,380 32,367,380 — 32,367,380 — 32,367,380 The DownREIT Partnership’s net income is allocated to the partners in accordance with the terms of the DownREIT Partnership Agreement, which is generally first based on their respective distributions made during the year and secondly, 99% to UDR and 1% to the Outside Partners. Distributions are made in accordance with the terms of the DownREIT Partnership Agreement first 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” and secondly, 99% to UDR and 1% to the Outside Partners. 9. COMMITMENTS AND CONTINGENCIES Contingencies Litigation and Legal Matters The DownREIT Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. The DownREIT 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 DownREIT Partnership’s financial condition, results of operations or cash flow. 10. 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 DownREIT 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 DownREIT 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 DownREIT Partnership’s apartment communities are rental income and net operating income (“NOI”), and are included in the chief operating decision maker’s assessment of UDR’s performance on a consolidated basis. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as total revenues less direct property operating expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the DownREIT Partnership’s allocable share of costs incurred by 22 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 the General Partner for shared services of corporate level property management employees and related support functions and costs. The chief operating decision maker of the General Partner utilizes NOI as the key measure of segment profit or loss. The DownREIT Partnership’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other: Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2016 and held as of December 31, 2017. 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 DownREIT 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. All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the DownREIT Partnership’s total revenues during the years ended December 31, 2017, 2016, and period from inception through December 31, 2015. The following table details rental income and NOI for the DownREIT Partnership’s reportable segments during the years ended December 31, 2017, 2016, and period from inception through December 31, 2015, and reconciles NOI to 23 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 Net income/(loss) attributable to DownREIT unitholders in the Combined Statements of Operations (dollars in thousands): Period From October 5, 2016 to December 31, 2017 December 31, 2016 December 31, 2016 Year Ended Year Ended Reportable apartment home segment rental income Same-Store Communities Mid-Atlantic Region Northeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated rental income Reportable apartment home segment NOI Same-Store Communities Mid-Atlantic Region Northeast Region Southwest Region Non-Mature Communities/Other Total segment and consolidated NOI Reconciling items: Property management Other operating expenses Real estate depreciation and amortization General and administrative Casualty-related recoveries/(charges), net Interest expense Interest income on note receivable from the General Partner Net income/(loss) attributable to DownREIT unitholders (unaudited) (audited) (unaudited) $ $ $ $ 62,994 $ 16,605 21,942 33,128 134,669 $ 61,088 $ 16,262 21,341 31,430 130,121 $ 42,985 $ 12,298 13,709 21,658 90,650 (3,703) (251) (84,000) (7,305) (209) (14,483) 4,718 (14,583) $ 40,807 $ 12,062 13,440 20,360 86,669 (3,578) (195) (111,453) (7,503) (271) (14,208) 4,743 (45,796) $ 13,969 3,772 4,860 7,332 29,933 9,252 2,856 3,126 5,116 20,350 (823) (62) (28,934) (3,750) (84) (3,632) 1,131 (15,804) The following table details the assets of the DownREIT Partnership’s reportable segments as of December 31, 2017 and 2016 (dollars in thousands): Reportable apartment home segment assets Same-Store Communities Mid-Atlantic Region Northeast Region Southwest Region Non-Mature Communities/Other Total Segments assets Accumulated depreciation Total segment assets - net book value Reconciling items: Cash and cash equivalents Restricted cash Note receivable from the General Partner Other assets Total combined assets December 31, 2017 (unaudited) December 31, 2016 (audited) $ $ 761,748 209,903 197,679 371,451 1,540,781 (181,611) 1,359,170 39 316 126,500 4,621 1,490,646 $ $ 750,750 207,143 192,174 361,560 1,511,627 (97,644) 1,413,983 66 334 126,500 4,509 1,545,392 Capital expenditures related to the DownREIT Partnership’s Same-Store Communities totaled $13.3 million (unaudited), $13.9 million (audited), and $2.0 million (unaudited) for the years ended December 31, 2017, 2016, and period from inception through December 31, 2015. Capital expenditures related to the DownREIT Partnership’s Non- 24 UDR LIGHTHOUSE DOWNREIT L.P. NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2017 Mature Communities/Other totaled $1.0 million (unaudited), $1.0 million (audited), and $0.4 million (unaudited) for the years ended December 31, 2017, 2016, and period from inception through December 31, 2015. 11. UNAUDITED SUMMARIZED COMBINED QUARTERLY FINANCIAL DATA Selected combined quarterly financial data for the years ended December 31, 2017 and 2016 is summarized in the table below (dollars in thousands, except per share amounts): March 31, June 30, September 30, December 31, Three Months Ended 2017 Rental income Net income/(loss) attributable to DownREIT unitholders Net income/(loss) attributable to DownREIT unitholders per weighted average DownREIT Unit — basic and diluted (a) 2016 Rental income Net income/(loss) attributable to DownREIT unitholders Net income/(loss) attributable to DownREIT unitholders per weighted average DownREIT Unit — basic and diluted (a) $ 33,298 $ 33,628 $ (3,980) (3,064) 33,883 $ (3,691) 33,860 (3,848) $ (0.12) $ (0.09) $ (0.11) $ (0.12) $ 31,617 $ 32,646 $ (15,266) (13,628) 33,004 $ (14,258) 32,854 (2,644) $ (0.47) $ (0.42) $ (0.44) $ (0.08) (a) Quarterly net income/(loss) per weighted average DownREIT Unit amounts may not total to the annual amounts. 25
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