UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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
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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;
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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.
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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%.
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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;
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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.
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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;
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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
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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.
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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.
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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.
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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;
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we may incur significant costs and divert management attention in connection with the evaluation and
negotiation of potential acquisitions, including potential acquisitions that we are subsequently unable to
complete;
when we acquire an apartment community, we may invest additional amounts in it with the intention of
increasing profitability, and these additional investments may not produce the anticipated improvements in
profitability;
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.
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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;
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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
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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.
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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
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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
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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
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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
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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
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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
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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;
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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.
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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
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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
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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