Item 6. SELECTED FINANCIAL DATA

The following tables set forth selected consolidated financial and other information of UDR, Inc. and of the Operating Partnership as of and for each of the years in the five-year period ended December 31, 2015. The table should be read in conjunction with each of UDR, Inc.’s and the Operating Partnership’s respective consolidated financial statements and the notes thereto, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report.

	UDR, Inc. Year Ended December 31, (In thousands, except per share data and apartment homes owned)
	2015				2014				2013				2012				2011
OPERATING DATA:
Rental income	$	871,928			$	805,002			$	746,484			$	704,701			$	613,689
Income/(loss) from continuing operations	105,482				16,260				2,340				(46,305		)		(126,869		)
Income/(loss) from discontinued operations, net of tax	—				10				43,942				266,608				147,454
Net income/(loss)	357,159				159,842				46,282				220,303				20,585
Distributions to preferred stockholders	3,722				3,724				3,724				6,010				9,311
Net income/(loss) attributable to common stockholders	336,661				150,610				41,088				203,376				10,537
Common distributions declared	289,500				263,503				235,721				215,654				165,590
Income/(loss) per weighted average common share — basic:
Income/(loss) from continuing operations attributable to common stockholders	$	1.30			$	0.60			$	(0.01	)		$	(0.22	)		$	(0.65	)
Income/(loss) from discontinued operations attributable to common stockholders	—				—				0.17				1.07				0.71
Net income/(loss) attributable to common stockholders	$	1.30			$	0.60			$	0.16			$	0.85			$	0.05
Income/(loss) per weighted average common share — diluted:
Income/(loss) from continuing operations attributable to common stockholders	$	1.29			$	0.59			$	(0.01	)		$	(0.22	)		$	(0.65	)
Income/(loss) from discontinued operations attributable to common stockholders	—				—				0.17				1.07				0.71
Net income/(loss) attributable to common stockholders	$	1.29			$	0.59			$	0.16			$	0.85			$	0.05
Weighted average number of Common Shares outstanding — basic	258,669				251,528				249,969				238,851				201,294
Weighted average number of Common Shares outstanding — diluted	263,752				253,445				249,969				238,851				201,294
Weighted average number of Common Shares outstanding, OP Units/DownREIT Units and Common Stock equivalents outstanding — diluted	276,699				265,728				263,926				252,659				214,086
Common distributions declared	$	1.11			$	1.04			$	0.94			$	0.88			$	0.80
Balance Sheet Data:
Real estate owned, at cost (a)	$	9,190,276			$	8,383,259			$	8,207,977			$	8,055,828			$	8,074,471
Accumulated depreciation (a)	2,646,874				2,434,772				2,208,794				1,924,682				1,831,727
Total real estate owned, net of accumulated depreciation (a)	6,543,402				5,948,487				5,999,183				6,131,146				6,242,744
Total assets (c)	7,663,844				6,828,728				6,787,342				6,839,637				6,669,656
Secured debt, net (a) (c)	1,376,945				1,354,321				1,432,186				1,420,028				1,877,933
Unsecured debt, net (c)	2,193,850				2,210,978				2,071,137				1,969,839				2,017,839
Total debt, net (c)	3,570,795				3,565,299				3,503,323				3,389,867				3,895,772
Total stockholders’ equity	$	2,899,755			$	2,735,097			$	2,811,648			$	2,992,916			$	2,314,050
Number of Common Shares outstanding	261,845				255,115				250,750				250,139				219,650

	UDR, Inc. Year Ended December 31, (In thousands, except per share data and apartment homes owned)
	2015				2014				2013				2012				2011
OPERATING DATA (continued):
Other Data (a)
Total consolidated apartment homes owned (at end of year)	40,728				39,851				41,250				41,571				47,343
Weighted average number of consolidated apartment homes owned during the year	39,501				40,644				41,392				42,747				48,531
Cash Flow Data:
Cash provided by/(used in) operating activities	$	431,615			$	392,360			$	339,902			$	327,187			$	251,411
Cash provided by/(used in) investing activities	(238,449		)		(293,660		)		(123,209		)		(211,582		)		(1,054,683		)
Cash provided by/(used in) financing activities	(201,648		)		(113,725		)		(198,559		)		(115,993		)		806,289
Funds from Operations (b):
Funds from operations — basic	$	455,565			$	411,702			$	376,778			$	350,628			$	269,856
Funds from operations — diluted	459,287				415,426				380,502				354,532				273,580

(a)	Includes amounts classified as Held for Sale, where applicable.

(b)

Funds from operations, or FFO, is defined as net income attributable to common stockholders (computed in accordance with generally accepted accounting principles, or “GAAP”), excluding impairment write-downs of depreciable real estate or of investments in non-consolidated investees that are driven by measurable decreases in the fair value of depreciable real estate held by the investee, gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in April 2002. We consider FFO a useful metric for investors as we use FFO in evaluating property acquisitions and our operating performance, and believe that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of our activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.

Activities of our TRS include development and land entitlement. From time to time, we develop and subsequently sell a TRS property which results in a short-term use of funds that produces a profit that differs from the traditional long-term investment in real estate for REITs. We believe that the inclusion of these TRS gains in FFO is consistent with the standards established by NAREIT as the short-term investment is incidental to our main business. TRS gains on sales, net of taxes, are defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation.

See “Funds from Operations” in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of FFO and Net income/(loss) attributable to common stockholders.

(c)

The Company elected to early adopt Financial Accounting Standards Board (the “FASB”) Accounting Standards Updates (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, during the fourth quarter of 2015. See Note 2, Significant Accounting Policies, in the Notes to the UDR, Inc. Consolidated Financial Statements included in this Report for a complete description of the ASUs and their impact.

Under the ASUs, deferred financing costs related to debt are treated as offsets to the debt instead of assets while deferred financing costs related to our credit facilities will continue to be treated as assets. As a result of adopting the ASUs, the following retrospective changes were made to the above table:

	2014				2013				2012				2011
Total assets - as previously reported	$	6,846,534			$	6,807,722			$	6,859,103			$	6,692,254
Deferred financing costs related to secured debt	(7,208		)		(9,891		)		(10,107		)		(13,620		)
Deferred financing costs related to unsecured debt	(10,598		)		(10,489		)		(9,359		)		(8,978		)
Total assets - as presented above	$	6,828,728			$	6,787,342			$	6,839,637			$	6,669,656
Secured debt - as previously reported	$	1,361,529			$	1,442,077			$	1,430,135			$	1,891,553
Deferred financing costs related to secured debt	(7,208		)		(9,891		)		(10,107		)		(13,620		)
Secured debt, net - as presented above	$	1,354,321			$	1,432,186			$	1,420,028			$	1,877,933
Unsecured debt - as previously reported	$	2,221,576			$	2,081,626			$	1,979,198			$	2,026,817
Deferred financing costs related to unsecured debt	(10,598		)		(10,489		)		(9,359		)		(8,978		)
Unsecured debt, net - as presented above	$	2,210,978			$	2,071,137			$	1,969,839			$	2,017,839
Total debt - as previously reported	$	3,583,105			$	3,523,703			$	3,409,333			$	3,918,370
Deferred financing costs related to secured debt	(7,208		)		(9,891		)		(10,107		)		(13,620		)
Deferred financing costs related to unsecured debt	(10,598		)		(10,489		)		(9,359		)		(8,978		)
Total debt - as presented above	$	3,565,299			$	3,503,323			$	3,389,867			$	3,895,772

United Dominion Realty, L.P.

Year Ended December 31,

(In thousands, except per OP unit data

and apartment homes owned)

	2015				2014				2013				2012				2011
OPERATING DATA:
Rental income	$	440,408			$	422,634			$	401,853			$	384,946			$	344,937
Income/(loss) from continuing operations	56,940				33,544				32,766				(13,309		)		(40,744		)
Income/(loss) from discontinued operations	—				—				45,176				57,643				70,973
Net income/(loss)	215,063				97,179				77,942				44,334				30,229
Net income/(loss) attributable to OP unitholders	213,301				96,227				73,376				43,982				30,159
Income/(loss) per weighted average OP Unit - basic and diluted:
Income/(loss) from continuing operations attributable to OP unitholder	$	1.16			$	0.53			$	0.16			$	(0.07	)		$	(0.22	)
Income/(loss) from discontinued operations attributable to OP unitholder	—				—				0.24				0.31				0.39
Net income/(loss) attributable to OP unitholders	$	1.16			$	0.53			$	0.40			$	0.24			$	0.17
Weighted average number of OP Units outstanding — basic and diluted	183,279				183,279				184,196				184,281				182,448
Balance Sheet Data:
Real estate owned, at cost (a)	$	3,630,905			$	4,238,770			$	4,188,480			$	4,182,920			$	4,205,298
Accumulated depreciation (a)	1,281,258				1,403,303				1,241,574				1,097,133				976,358
Total real estate owned, net of accumulated depreciation (a)	2,349,647				2,835,467				2,946,906				3,085,787				3,228,940
Total assets (b)	2,554,808				2,873,809				2,987,393				3,130,182				3,283,983
Secured debt, net (a) (b)	475,964				927,484				929,017				961,167				1,181,461
Total liabilities (b)	833,478				1,139,758				1,184,296				1,211,426				1,430,614
Total partners’ capital	1,713,412				1,703,001				1,795,934				1,917,299				2,034,792
Advances to/(from) General Partner	$	11,270			$	(13,624	)		$	9,916			$	11,056			$	193,584
Number of OP units outstanding	183,279				183,279				183,279				184,281				184,281
Other Data:
Total consolidated apartment homes owned (at end of year) (a)	16,974				20,814				20,746				21,660				23,160
Cash Flow Data:
Cash provided by/(used in) operating activities	$	226,765			$	208,032			$	208,346			$	201,095			$	156,071
Cash provided by/(used in) investing activities	23,583				(46,650		)		(63,954		)		4,273				(226,980		)
Cash provided by/(used in) financing activities	(247,747		)		(162,777		)		(145,299		)		(203,268		)		70,693

(a)	Includes amounts classified as Held for Sale, where applicable.

(b)

The Operating Partnership elected to early adopt FASB ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, during the fourth quarter of 2015. See Note 2, Significant Accounting Policies, in the Notes to the Operating Partnership Consolidated Financial Statements included in this Report for a complete description of the ASUs and their impact.

Under the ASUs, deferred financing costs related to debt are treated as offsets to the debt instead of assets. As a result of adopting the ASUs, the following retrospective changes were made to the above table:

	2014				2013				2012				2011
Total assets - as previously reported	$	2,878,284			$	2,993,241			$	3,136,254			$	3,292,167
Deferred financing costs related to secured debt	(4,475		)		(5,848		)		(6,072		)		(8,184		)
Total assets - as presented above	$	2,873,809			$	2,987,393			$	3,130,182			$	3,283,983
Secured debt - as previously reported	$	931,959			$	934,865			$	967,239			$	1,189,645
Deferred financing costs related to secured debt	(4,475		)		(5,848		)		(6,072		)		(8,184		)
Secured debt, net - as presented above	$	927,484			$	929,017			$	961,167			$	1,181,461
Total liabilities - as previously reported	$	1,144,233			$	1,190,144			$	1,217,498			$	1,438,798
Deferred financing costs related to secured debt	(4,475		)		(5,848		)		(6,072		)		(8,184		)
Total liabilities - as presented above	$	1,139,758			$	1,184,296			$	1,211,426			$	1,430,614

Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning availability of capital and the stabilization of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments, redevelopments and lease-ups on schedule, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels, expectations concerning the joint ventures with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income.

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

•	general economic conditions;

•	unfavorable changes in the apartment market and economic conditions that could adversely affect occupancy levels and rental rates;

•	the failure of acquisitions to achieve anticipated results;

•	possible difficulty in selling apartment communities;

•	competitive factors that may limit our ability to lease apartment homes or increase or maintain rents;

•	insufficient cash flow that could affect our debt financing and create refinancing risk;

•	failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders;

•	development and construction risks that may impact our profitability;

•	potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us;

•	risks from extraordinary losses for which we may not have insurance or adequate reserves;

•	uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage;

•	delays in completing developments and lease-ups on schedule;

•	our failure to succeed in new markets;

•	changing interest rates, which could increase interest costs and affect the market price of our securities;

•	potential liability for environmental contamination, which could result in substantial costs to us;

•	the imposition of federal taxes if we fail to qualify as a REIT under the Code in any taxable year;

•	our internal controls over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and

•	changes in real estate laws, tax laws and other laws affecting our business.

A discussion of these and other factors affecting our business and prospects is set forth in Part I, Item 1A. Risk Factors. We encourage investors to review these risk factors.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements and the accompanying notes for the years ended December 31, 2015, 2014 and 2013 of each of UDR, Inc. and United Domination Realty, L.P.

UDR, Inc.:

Business Overview

We are a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include the Operating Partnership and the DownREIT Partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc., its subsidiaries and its consolidated joint ventures.

At December 31, 2015, our consolidated real estate portfolio included 133 communities in 10 states plus the District of Columbia totaling 40,728 apartment homes, and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 28 communities with 6,696 apartment homes.

At December 31, 2015, the Company was developing one wholly-owned community with 516 apartment homes and four unconsolidated joint venture communities with 1,173 apartment homes, none of which have been completed. In addition, the Company was redeveloping 264 apartment homes, 11 of which have been completed, at two wholly-owned communities and was redeveloping one wholly-owned community with renovations to the building exterior, corridors, and common area amenities, with no impact to individual homes.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to the UDR Consolidated Financial Statements included in this Report.

Cost Capitalization

In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total Real Estate Owned, Net of Accumulated Depreciation. Amounts capitalized during the years ended December 31, 2015, 2014, and 2013 were $22.4 million, $29.2 million, and $40.5 million, respectively.

Investment in Unconsolidated Joint Ventures

We may enter into various joint venture agreements and/or partnerships with unrelated third parties to hold or develop real estate assets. We must determine for each of these ventures whether to consolidate the entity or account for our investment under the equity method of accounting. We determine whether to consolidate a joint venture or partnership based on our rights and obligations under the venture agreement, applying the applicable accounting guidance. The application of the rules in evaluating the accounting treatment for each joint venture or partnership is complex and requires substantial management judgment. We evaluate our accounting for investments on a regular basis including when a significant change in the design of an entity occurs. Throughout our financial statements, and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest.

We continually evaluate our investments in unconsolidated joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken as a whole by management in determining the valuation of our investment property. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements.

Impairment of Long-Lived Assets

We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair market value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs (defined as Level 3 inputs in the fair value hierarchy) related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining average contractual lease period.

REIT Status

We are a Maryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year ended December 31, 2015 in our Consolidated Statements of Operations, we would have incurred federal and state GAAP income taxes if we had failed to qualify as a REIT.

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2015.

				As of December 31, 2015										Year Ended December 31, 2015
Same-Store Communities	Number of Apartment Communities			Number of Apartment Homes			Percentage of Total Carrying Value			Total Carrying Value (in thousands)				Average Physical Occupancy			Monthly Income per Occupied Home (a)				Net Operating Income (in thousands)
West Region
Orange County, CA	10			3,357			7.6	%		$	690,699			95.9	%		$	1,919			$	56,095
San Francisco, CA	8			1,915			5.2	%		479,304				96.8	%		2,909				50,032
Seattle, WA	8			1,656			4.6	%		423,373				97.2	%		1,843				25,547
Los Angeles, CA	4			1,225			4.8	%		442,905				95.5	%		2,486				25,662
Monterey Peninsula, CA	7			1,565			1.8	%		164,950				97.0	%		1,344				17,729
Other Southern California	3			756			1.3	%		123,482				96.2	%		1,636				10,339
Portland, OR	2			476			0.5	%		46,902				97.5	%		1,303				5,278
Mid-Atlantic Region
Metropolitan D.C.	14			4,568			10.9	%		995,225				96.6	%		1,912				68,638
Baltimore, MD	10			2,122			3.1	%		287,435				96.7	%		1,482				25,419
Richmond, VA	4			1,358			1.5	%		141,228				96.1	%		1,241				14,267
Southeast Region
Orlando, FL	9			2,500			2.3	%		211,626				96.9	%		1,103				21,921
Nashville, TN	8			2,260			2.1	%		196,024				97.4	%		1,113				20,472
Tampa, FL	7			2,287			2.7	%		240,218				97.0	%		1,201				20,661
Other Florida	1			636			0.9	%		82,192				96.6	%		1,422				6,766
Northeast Region
New York, NY	3			1,205			8.3	%		756,733				97.9	%		3,820				41,554
Boston, MA	4			1,179			3.8	%		352,621				96.7	%		2,337				22,985
Southwest Region
Dallas, TX	8			2,725			3.4	%		304,198				96.9	%		1,190				24,038
Austin, TX	4			1,273			1.6	%		146,107				97.2	%		1,345				11,729
Total/Average Same-Store Communities	114			33,063			66.4	%		6,085,222				96.7	%		$	1,721			469,132
Non Mature, Commercial Properties & Other	19			7,665			32.1	%		2,968,377											123,556
Total Real Estate Held for Investment	133			40,728			98.5	%		9,053,599											592,688
Real Estate Under Development (b)	—			—			1.4	%		124,072											(114		)
Real Estate Held for Disposition (c)	—			—			0.1	%		12,605											21,295
Total Real Estate Owned	133			40,728			100.0	%		9,190,276											$	613,869
Total Accumulated Depreciation										(2,646,874		)
Total Real Estate Owned, Net of Accumulated Depreciation										$	6,543,402

(a)	Monthly Income per Occupied Home represents total monthly revenues divided by the average physical number of occupied apartment homes in our same-store portfolio.

(b)	As of December 31, 2015, the Company was developing one wholly-owned community with 516 apartment homes, none of which have been completed.

(c)	The Company had one property located in Los Angeles, CA that met the criteria to be classified as held for disposition at December 31, 2015.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other.

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2014 and held as of December 31, 2015. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for sale at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings under our credit agreements. We routinely use our unsecured revolving credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we repositioned our portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under credit agreements will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties.

We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC,” which provides for the issuance of an indeterminate amount of common stock, preferred stock, depositary shares, debt securities, guarantees of debt securities, warrants, subscription rights, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance.

On August 24, 2015, the Company sold 2,900,000 shares of its common stock for aggregate gross proceeds of approximately $101.5 million at a price per share of $35.00. Aggregate net proceeds from the sale, after deducting the underwriting discount and offering-related expenses, were approximately $101.4 million, which were used for working capital and general corporate purposes.

On September 22, 2015, the Company issued $300 million of 4.00% senior unsecured medium-term notes due October 1, 2025. Interest is payable semi-annually beginning on April 1, 2016. The notes were priced at 99.77% of the principal amount at issuance. We used the net proceeds to pay down a portion of the borrowings outstanding on our prior $900 million unsecured credit facility and for general corporate purposes. The notes are fully and unconditionally guaranteed by the Operating Partnership.

In April 2012, the Company entered into a new equity distribution agreement, which was amended in July 2014, under which the Company may offer and sell up to 20 million shares of its common stock, from time to time, to or through its sales agents. During the year ended December 31, 2015, the Company sold 3,439,636 shares of common stock through this program for aggregate gross proceeds of approximately $111.0 million at a weighted average price per share of $32.29. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $2.2 million, were approximately $108.7 million, which were primarily used to fund the Company's development and

redevelopment projects. As of December 31, 2015, we had 13.1 million shares of common stock available for future issuance under the April 2012 program.

On October 20, 2015, the Company entered into a credit agreement that provides for a $1.1 billion senior unsecured revolving credit facility and a $350.0 million senior unsecured term loan facility. The credit agreement includes an accordion feature that allows the total commitments under the revolving credit facility and the total borrowings under the term loan facility to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions. The revolving credit facility has a scheduled maturity date of January 31, 2020, with two six-month extension options, subject to certain conditions. The term loan facility has a scheduled maturity date of January 29, 2021. The credit agreement replaced the Company’s prior $900 million revolving credit facility, scheduled to mature in December 2017, and the Company’s $250 million and $100 million term loans, both due June 2018 (see Note 6, Secured and Unsecured Debt, Net, in the Notes to the UDR, Inc. Consolidated Financial Statements included in this Report).

On December 18, 2015, the Company entered into a working capital credit facility, which provides for a $30 million unsecured revolving credit facility with a scheduled maturity date of January 1, 2019 (see Note 6, Secured and Unsecured Debt, Net, in the Notes to the UDR, Inc. Consolidated Financial Statements included in this Report).

Future Capital Needs

Future development and redevelopment expenditures may be funded through unsecured or secured credit facilities, proceeds from the issuance of equity or debt securities, sales of properties, joint ventures, and, to a lesser extent, from cash flows provided by property operations. Acquisition activity in strategic markets may be funded through joint ventures, by the reinvestment of proceeds from the sale of properties, through the issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt.

During 2016, we have approximately $149.1 million of secured debt maturing, inclusive of principal amortization, and $95.1 million of unsecured debt maturing. In January 2016, we paid off $83.3 million of 5.25% medium-term notes due January 2016 with borrowings under the Company’s $1.1 billion unsecured revolving credit facility. We anticipate repaying the remaining debt with cash flow from our operations, proceeds from debt or equity offerings, proceeds from the dispositions of properties, or from borrowings under our credit agreements.

Statements of Cash Flow

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013.

Operating Activities

For the year ended December 31, 2015, Net cash provided by/(used in) operating activities was $431.6 million compared to $392.4 million for 2014. The increase in cash flow from operating activities was primarily due to improved income from continuing operations primarily driven by revenue growth at the communities.

For the year ended December 31, 2014, Net cash provided by/(used in) operating activities was $392.4 million compared to $339.9 million for 2013. The increase in cash flow from operating activities is primarily due to improved income from continuing operations and changes in operating assets and liabilities.

Investing Activities

For the year ended December 31, 2015, Net cash provided by/(used in) investing activities was $(238.4) million compared to $(293.7) million for 2014. The decrease in cash used in investing activities is primarily related to decreased spend on consolidated development projects, partially offset by increased acquisitions of real estate, capital expenditures and major improvements, and issuances of notes receivable.

For the year ended December 31, 2014, Net cash provided by/(used in) investing activities was $(293.7) million compared to $(123.2) million in 2013. The increase in cash used in investing activities is primarily related to increased acquisitions of real estate and investments in unconsolidated joint ventures, partially offset by increased proceeds from sales of real estate, lower spend on development and redevelopment, and repayment of notes receivable.

Acquisitions

In October 2015, the Company completed the acquisition of six Washington, D.C. area properties from Home Properties, L.P., a New York limited partnership (“Home OP”), for a total contractual purchase price of $900.6 million, which was comprised of $564.8 million of DownREIT Units in the newly formed DownREIT Partnership issued at $35 per unit (a total of 16.1 million units), the assumption of $89.3 million of debt, $221.0 million of reverse Section 1031 exchanges, and $25.5 million of cash. In addition, the Company issued approximately 14.0 million shares of its Series F Preferred Stock to former limited partners of Home OP, which had the right to subscribe for one share of Series F Preferred Stock for each DownREIT Unit issued in connection with the acquisitions. For additional information regarding the DownREIT Partnership, see Note 11, Noncontrolling Interests, in the notes to the UDR Consolidated Financial Statements included in this report.

Of the six properties acquired from Home OP, four were acquired through the DownREIT Partnership, one was acquired by the Company through a reverse Section 1031 exchange and one was acquired by the Operating Partnership through a reverse Section 1031 exchange.

In February 2015, the Company acquired an office building in Highlands Ranch, Colorado, for total consideration of approximately $24.0 million, which was comprised of assumed debt. The Company’s corporate offices, as well as other leased office space, are located in the acquired building. The building consists of approximately 120,000 square feet. All existing leases were assumed by the Company at the time of the acquisition.

In 2014, the Company acquired a fully-entitled land parcel for future development located in Huntington Beach, California for $77.8 million, two communities located in Seattle, Washington and Kirkland, Washington with a total of 358 apartment homes for $45.5 million and $75.2 million, respectively, and a land parcel for future development located in Boston, Massachusetts for $32.2 million. The four acquisitions during the year ended December 31, 2014 were accomplished through tax-deferred Section 1031 exchanges.

The Company did not acquire any real estate assets in 2013.

Capital Expenditures

We capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

For the year ended December 31, 2015, total capital expenditures of $111.3 million or $2,818 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent on all of our communities, excluding development and commercial properties, as compared to $90.1 million or $2,274 per stabilized home for the prior year.

The increase in total capital expenditures was primarily due to an increase in revenue-enhancing improvements of 125.2% or $18.3 million. Revenue-enhancing improvements of $33.0 million or $835 per home were spent for the year ended December 31, 2015 as compared to $14.6 million or $370 per home for the prior year. The increase is primarily attributable to capital expenditures related to kitchen and bath remodels and upgrades to common areas.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under developments and commercial properties, for the years ended December 31, 2015 and 2014 (dollars in thousands):

												Per Home
	Year Ended December 31,											Year Ended December 31,
	2015				2014				% Change			2015				2014				% Change
Turnover capital expenditures	$	12,108			$	12,160			(0.4	)%		$	307			$	307			—	%
Asset preservation expenditures	33,359				31,761				5.0	%		845				801				5.5	%
Total recurring capital expenditures	45,467				43,921				3.5	%		1,151				1,108				3.9	%
Revenue-enhancing improvements	32,979				14,647				125.2	%		835				370				125.7	%
Major renovations	32,877				31,547				4.2	%		832				796				4.5	%
Total capital expenditures	$	111,323			$	90,115			23.5	%		$	2,818			$	2,274			23.9	%
Repair and maintenance expense	$	31,636			$	31,288			1.1	%		$	801			$	789			1.5	%
Average stabilized home count (a)	39,501				39,637

(a) Average number of homes is calculated based on the number of stabilized homes outstanding at the end of each month. A community’s homes are considered stabilized once 90% occupancy has been achieved for at least three consecutive months.

The above table reports amounts capitalized during the year. Actual capital spending is impacted by the net change in capital expenditure accruals.

We will continue to selectively add revenue-enhancing improvements which we believe will provide a return on investment in excess of our cost of capital. Our objective in redeveloping a community is twofold: we aim to meaningfully grow rental rates while also achieving cap rate compression through asset quality improvement.

Real Estate Under Development and Redevelopment

At December 31, 2015, our development pipeline for one wholly-owned community totaled 516 homes with a budget of $342.0 million, in which we have a carrying value of $124.1 million. The estimated completion date for this community is the first quarter of 2018. During 2015, we incurred $103.2 million for development costs, a decrease of $148.3 million from our 2014 level of $251.5 million.

The following wholly-owned projects were under development or recently completed as of December 31, 2015 (dollars in thousands):

		Location		Number of Apartment Homes			Completed Apartment Homes			Cost to Date				Budgeted Cost				Estimated Cost Per Home				Expected Completion Date
Projects Under Construction:
Pacific City		Huntington Beach, CA		516			—			$	124,072			$	342,000			$	663			1Q2018
Completed Projects, Non-Stabilized:
N/A		N/A		—			—			—				—				—
Total Projects				516			—			$	124,072			$	342,000			$	663

At December 31, 2015, the Company was redeveloping 264 apartment homes, 11 of which have been completed, at two wholly-owned communities and was redeveloping one wholly-owned community with renovations to the building exterior, corridors, and common area amenities, with no impact to individual homes. During the year ended December 31, 2015, we incurred $32.9 million in major renovations, which include major structural changes and/or architectural revisions to existing

buildings, an increase of $1.3 million from our 2014 level of $31.5 million. The estimated completion dates for these communities is one in the first quarter of 2016 and the remaining two in the first quarter 2017.

At December 31, 2015, the following communities were in redevelopment (dollars in thousands):

		Location		Number of Apartment Homes			Scheduled Redevelopment Homes			Completed Apartment Homes			Cost to Date				Budgeted Cost				Estimated Cost Per Home				Expected Completion Date
2000 Post		San Francisco, CA		328			—			—			$	9,848			$	15,000			$	—			1Q2016
Edgewater		San Francisco, CA		193			193			—			245				9,000				47				1Q2017
Borgata Apartment Homes		Bellevue, WA		71			71			11			1,209				4,000				56				1Q2017
Total				592			264			11			$	11,302			$	28,000			$	49

Unconsolidated Joint Ventures and Partnerships

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships.

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2015 and 2014 (dollars in thousands):

Joint Venture		Location of Properties		Number of Properties			Number of Apartment Homes		Investment at								UDR’s Ownership Interest
		December 31, 2015			December 31, 2015		December 31, 2015				December 31, 2014				December 31, 2015							December 31, 2014
Operating and development:
UDR/MetLife I		Various		4 land parcels			—		$	15,894			$	13,306			17.2					%		15.7				%
UDR/MetLife II (a)		Various		21 operating communities			4,642		425,230				431,277				50.0					%		50.0				%
Other UDR/MetLife Development Joint Ventures				1 operating community;
			4 development communities (b);
	Various		1 land parcels			1,437		171,659				134,939				50.6					%		50.6				%
UDR/MetLife Vitruvian Park®		Addison, TX		3 operating communities;
		6 land parcels			1,130		73,469				80,302				50.0					%		50.0				%
UDR/KFH		Washington, D.C.		3 operating communities			660		17,211				21,596				30.0					%		30.0				%
Texas (c)		Texas		—			—		—				(25,901		)		—					%		20.0				%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment and preferred equity investment									703,463				655,519
									Investment at								Income from investments for the years ending December 31,
		Location		Rate			Years To Maturity		December 31, 2015				December 31, 2014				2015			2014						2013
Participating loan investment:
Steele Creek		Denver, CO		6.5%			1.6		90,747				62,707				$	5,453		$	2,350					$	156
Preferred equity investment:
West Coast Development Joint Venture (d)		Various		6.5%			—		144,696				—				$	3,692		$	—					$	—
Total investment in and advances to unconsolidated joint ventures, net									$	938,906			$	718,226

(a)	In September 2015, the 717 Olympic community, which is held by the UDR/MetLife II joint venture, experienced extensive water damage due a ruptured water pipe. For the year ended December 31, 2015, the Company recorded losses of $2.5 million, its proportionate share of the total losses incurred.

(b) The number of apartment homes for the communities under development presented in the table above is based on the projected number of total homes. As of December 31, 2015, no apartment homes had been completed in Other UDR/MetLife Development Joint Ventures.

(c)	In January 2015, the eight communities held by the Texas joint venture were sold, generating net proceeds to UDR of $44.2 million. The Company recorded promote and fee income of $10.0 million and a gain of $59.4 million (including $24.2 million of previously deferred gains) in connection with the sale.

(d)

In May 2015, the Company entered into a joint venture agreement with real estate private equity firm, The Wolff Company (“Wolff”), and agreed to pay $136.3 million for a 48 percent ownership interest in a portfolio of five communities that are currently under construction (the "West Coast Development Joint Venture"). The communities are located in three of the Company’s core, coastal markets: Metro Seattle, Los Angeles and Orange County, CA. UDR earns a 6.5 percent preferred return on its investment through each individual community’s date of stabilization, defined as when a community reaches 80 percent occupancy for ninety consecutive days, while Wolff is allocated all operating income and expense during the pre-stabilization period. Upon stabilization, income and expense will be shared based on each partner’s ownership percentage. The Company will serve as property manager and be paid a management fee during the lease-up phase and subsequent operation of each of the communities. Wolff is the general partner of the joint venture and the developer of the communities.

The Company has a fixed price option to acquire Wolff’s remaining interest in each community beginning one year after completion. If the options are exercised for all five communities, the Company’s total price will be $597.4 million. In the event the Company does not exercise its options to purchase at least two communities, Wolff will be entitled to earn a contingent disposition fee equal to 6.5 percent return on its implied equity in the communities not acquired. Wolff is providing certain guaranties and there are construction loans on all five communities. Once completed, the five communities will contain 1,533 homes.

The Company has concluded it does not control the joint venture and accounts for it under the equity method of accounting. The Company's recorded equity investment in the West Coast Development Joint Venture at December 31, 2015 of $144.7 million is inclusive of outside basis costs and our accrued but unpaid preferred return. During the year ended December 31, 2015, the Company earned a preferred return of $5.2 million, offset by its share of the West Coast Development Joint Venture transaction expenses of $1.5 million.

Dispositions

During the year ended December 31, 2015, the Company sold 12 communities with a total of 2,735 apartment homes for gross proceeds of $408.7 million, resulting in net proceeds of $387.7 million and a total gain of $251.7 million. A portion of the sale proceeds was designated for tax-deferred Section 1031 exchanges for a 2014 acquisition and the October 2015 acquisitions described above.

During the year ended December 31, 2014, the Company recognized gains on the sale of real estate, net of tax, of $143.6 million. The Company sold nine communities consisting of a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in net proceeds of $324.4 million and a total gain, net of tax, of $138.6 million. The Company also sold 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million, and 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. A portion of the sale proceeds was designated for tax-deferred Section 1031 exchanges and was used to fund acquisitions of real estate as discussed above.

In 2013, UDR sold two apartment communities in the Sacramento market, consisting of 914 apartment homes for gross proceeds of $81.1 million. UDR recognized gains of $41.9 million, which are included in Income/(loss) from discontinued operations, net of tax on the UDR Consolidated Statements of Operations. Proceeds were used primarily to fund development and redevelopment activity and reduce debt.

We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital to primary locations in markets we believe will provide the best investment returns.

Financing Activities

For the years ended December 31, 2015, 2014 and 2013, Net cash provided by/(used in) financing activities was $(201.6) million, $113.7 million and $(198.6) million, respectively.

The following significant financing activities occurred during the year ended December 31, 2015:

•	repaid $194.0 million of secured debt;

•	repaid $325.2 million of 5.25% unsecured medium-term notes due January 2015;

•	entered into a $350.0 million senior unsecured term loan facility due January 2021, which replaced the Company’s $250 million term loan and $100 million term loan that were scheduled to mature in June 2018;

•	entered into a new $1.1 billion revolving credit facility with a maturity date in January 2020, exclusive of options to extend, which replaced the prior $900 million revolving credit facility that was scheduled to mature in December 2017;

•	issued $300.0 million of 4.00% senior unsecured medium-term notes due October 1, 2025;

•	sold 6,339,636 shares of common stock for aggregate net proceeds of approximately $210.0 million after deducting related expenses;

•	net repayments of $2.5 million under the Company’s $1.1 billion unsecured revolving credit facility; and

•	paid distributions of $283.2 million to our common stockholders.

The following significant financing activities occurred during the year ended December 31, 2014:

•	repaid $81.0 million of secured debt;

•	repaid $184.0 million of 5.13% unsecured medium-term notes due January 2014;

•	repaid $128.5 million of 5.50% unsecured medium-term notes due April 2014;

•	issued $300.0 million of 3.750% senior unsecured medium-term notes due July 2024;

•	sold 3,410,433 shares of common stock for aggregate net proceeds of approximately $99.8 million after deducting related expenses;

•	net borrowings of $152.5 million under the Company’s prior $900 million unsecured revolving credit facility; and

•	paid distributions of $256.1 million to our common stockholders.

The following significant financing activities occurred during the year ended December 31, 2013:

•	issued $300 million of 3.70% senior unsecured medium-term notes due October 2020;

•	repaid $46.6 million of secured debt. The $46.6 million of secured debt included $42.2 million of mortgage payments and the repayment of $4.4 million of credit facilities;

•	repaid $122.5 million of 6.05% unsecured medium-term notes due June 2013; and

•	re-priced our $100 million and $250 million unsecured term notes from LIBOR plus 142.5 basis points to LIBOR plus 125 basis points, and extended the maturity dates from January 2016 to June 2018.

Credit Facilities

As of December 31, 2015, we had secured credit facilities with Fannie Mae with an aggregate commitment of $813.8 million, all of which was outstanding. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023, and bear interest at floating and fixed rates. The Company had $514.5 million of the balance fixed at a weighted average interest rate of 5.23% and the remaining balance of $299.4 million had a weighted average variable rate of 1.71%.

As of December 31, 2015, the Company had a $1.1 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million senior unsecured term loan facility (the “Term Loan Facility”). The credit agreement includes an accordion feature that allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan Facility to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from any one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2020, with two six-month extension options, subject to certain conditions. The Term Loan Facility has a scheduled maturity date of January 29, 2021.

The Credit Agreement replaced (i) the Company’s $900 million revolving credit facility scheduled to mature in December 2017 and (ii) the Company’s $250 million term loan and the Company’s $100 million term loan, both due June 2018.

As of December 31, 2015, based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points and a facility fee of 15 basis points, and the Term Loan Facility has an interest rate equal to LIBOR plus a margin of 95 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 85 to 155 basis points and the facility fee ranges from 12.5 to 30 basis points, and the margin under the Term Loan Facility ranges from 90 to 175 basis points.

In December 2015, the Company entered into a working capital credit facility, which provides for a $30 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 1, 2019. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin ranges from 85 to 155 basis points.

The Fannie Mae credit facilities and the bank unsecured revolving credit facilities are subject to customary financial covenants and limitations. As of December 31, 2015, we were in compliance with all financial covenants under these credit facilities.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $610.4 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2015. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $8.0 million based on the average balance outstanding during the year.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analysis do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.

The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 13, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivate instruments.

Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations

Funds from Operations

Funds from operations (“FFO”) is defined as net income attributable to common stockholders (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate or of investments in non-consolidated investees that are driven by measurable decreases in the fair value of depreciable real estate held by the investee, gains or losses from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“NAREIT”) definition issued in April 2002. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating performance. In the computation of FFO, diluted, if OP Units, DownREIT Units, unvested restricted stock, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count.

Activities of our taxable REIT subsidiaries (“TRS”) include development and land entitlement. From time to time, we develop and subsequently sell a TRS property which results in a short-term use of funds that produces a profit that differs from the traditional long-term investment in real estate for REITs. We believe that the inclusion of these TRS gains in FFO is consistent with the standards established by NAREIT as the short-term investment is incidental to our main business. TRS gains on sales, net of taxes, are defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation.

We consider FFO a useful metric for investors as we use FFO in evaluating property acquisitions and our operating performance, and believe that FFO should be considered along with, but not as an alternative to, net income and cash flow as a measure of our activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.

Funds from Operations as Adjusted

FFO as Adjusted is defined as FFO excluding the impact of acquisition-related costs and other non-comparable items including, but not limited to, prepayment costs/benefits associated with early debt retirement, gains on sales of marketable securities and TRS property, deferred tax valuation allowance increases and decreases, casualty-related expenses and recoveries, severance costs and legal costs. Management believes that FFO as Adjusted is useful supplemental information regarding our operating performance as it provides a consistent comparison of our operating performance across time periods and allows investors to more easily compare our operating results with other REITs.

FFO as Adjusted is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to FFO as Adjusted. However, other REITs may use different methodologies for calculating FFO as Adjusted or similar FFO measures and, accordingly, our FFO as Adjusted may not always be comparable to FFO as Adjusted or similar FFO measures calculated by other REITs. FFO as Adjusted should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity.

Adjusted Funds from Operations

Adjusted FFO (“AFFO”) is a non-GAAP financial measure that management uses as a supplemental measure of our performance. AFFO is defined as FFO as Adjusted less recurring capital expenditures that are necessary to help preserve the value of and maintain functionality at our communities. Therefore, management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted.

AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFO as Adjusted, and AFFO for the years ended December 31, 2015, 2014, and 2013 (dollars in thousands):

	Year Ended December 31,
	2015				2014				2013
Net income/(loss) attributable to common stockholders	$	336,661			$	150,610			$	41,088
Real estate depreciation and amortization, including discontinued operations	374,598				358,154				341,490
Noncontrolling interests	16,776				5,508				1,470
Real estate depreciation and amortization on unconsolidated joint ventures	38,652				42,133				33,180
Net (gain)/loss on the sale of unconsolidated depreciable property	(59,445		)		—				—
Net (gain)/loss on the sale of depreciable property, excluding TRS	(251,677		)		(144,703		)		(40,450		)
Funds from operations (“FFO”) attributable to common stockholders and unitholders, basic	$	455,565			$	411,702			$	376,778
Distribution to preferred stockholders — Series E (Convertible)	3,722				3,724				3,724
FFO attributable to common stockholders and unitholders, diluted	$	459,287			$	415,426			$	380,502
FFO per common share and unit, basic	$	1.68			$	1.58			$	1.45
FFO per common share and unit, diluted	$	1.66			$	1.56			$	1.44
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	271,616				260,775				259,306
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	276,699				265,728				263,926
Impact of adjustments to FFO:
Acquisition-related costs/(fees), including joint ventures	$	3,586			$	442			$	(254	)
Costs/(benefit) associated with debt extinguishment and other	—				192				178
Texas joint venture promote and disposition fee income	(10,005		)		—				—
Long-term incentive plan transition costs	3,537				—
(Gain)/loss on sale of land	—				1,056				—
Net gain on prepayment of note receivable	—				(8,411		)		—
Legal claims, net of tax	705				—				—
Tax benefit associated with the conversion of certain TRS entities into REITs	—				(5,770		)		—
Gain on sale of TRS property	—				—				(2,651		)
Casualty-related (recoveries)/charges, including joint ventures, net	4,809				541				(9,665		)
	$	2,632			$	(11,950	)		$	(12,392	)
FFO as Adjusted attributable to common stockholders and unitholders, diluted	$	461,919			$	403,476			$	368,110
FFO as Adjusted per common share and unit, diluted	$	1.67			$	1.52			$	1.39
Recurring capital expenditures	(45,467		)		(43,921		)		(42,707		)
AFFO attributable to common stockholders and unitholders	$	416,452			$	359,555			$	325,403
AFFO per common share and unit, diluted	$	1.51			$	1.35			$	1.18

The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013 (shares in thousands):

	Year Ended December 31,
	2015			2014			2013
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	271,616			260,775			259,306
Weighted average number of OP/DownREIT Units outstanding	(12,947	)		(9,247	)		(9,337	)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations	258,669			251,528			249,969
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	276,699			265,728			263,926
Weighted average number of OP/DownREIT Units outstanding	(12,947	)		(9,247	)		(9,337	)
Weighted average incremental shares from assumed conversion of stock options	—			—			(1,169	)
Weighted average incremental shares from unvested restricted stock	—			—			(415	)
Weighted average number of Series E preferred shares outstanding	—			(3,036	)		(3,036	)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations	263,752			253,445			249,969

A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):

	Year Ended December 31,
	2015			2014			2013
Net cash provided by/(used in) operating activities	431,615			392,360			339,902
Net cash provided by/(used in) investing activities	(238,449	)		(293,660	)		(123,209	)
Net cash provided by/(used in) financing activities	(201,648	)		(113,725	)		(198,559	)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, and includes the results of both continuing and discontinued operations for the periods presented.

Net Income/(Loss) Attributable to Common Stockholders

2015 -vs- 2014

Net income attributable to common stockholders was $336.7 million ($1.29 per diluted share) for the year ended December 31, 2015 as compared to net income of $150.6 million ($0.59 per diluted share) for the prior year. The increase in net income attributable to common stockholders for the year ended December 31, 2015 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•	gains of $251.7 million on the sale of real estate during the year ended December 31, 2015 compared to $143.6 million during the year ended December 31, 2014. During the year ended December 31, 2015, gains consisted of the sale of 12 communities with a total of 2,735 apartment homes for gross proceeds of $408.7 million, resulting in net proceeds of $387.7 million;

•	income from unconsolidated entities of $62.3 million, which includes a gain of $59.4 million (including $24.2 million of previously deferred gains) in connection with the sale of the eight communities held by the Texas joint venture; and

•	an increase in total property NOI due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in service related to acquisitions, development and redevelopment projects completed in 2015 and 2014, partially offset by the disposition of communities in 2015 and 2014.

This was partially offset by:

•	a decrease in Interest income and other income/(expense), net of $10.3 million primarily due to a net gain of $8.4 million on the early settlement of a note receivable in July 2014.

2014 -vs- 2013

Net income attributable to common stockholders was $150.6 million ($0.59 per diluted share) for the year ended December 31, 2014 as compared to net income of $41.1 million ($0.16 per diluted share) for the prior year. The increase in net income attributable to common stockholders for the year ended December 31, 2014 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•	gains, net of tax, of $143.6 million on the sale of real estate during the year ended December 31, 2014. These gains consisted of:

•	the sale of nine communities with a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in a gain, net of tax, of approximately $138.6 million; and

•	the sale of 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million and 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million.

•	an increase in total property NOI primarily due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in service related to development and redevelopment projects completed in 2014 and 2013, partially offset by the disposition of communities in 2014 and 2013.

This was partially offset by:

•	an increase in depreciation and amortization expense primarily from the homes placed in service related to development and redevelopment projects completed in 2014 and 2013, partially offset by a decrease from sold communities and fully depreciated assets; and

•	casualty-related recoveries in 2013 resulting from the effects of Hurricane Sandy on three of our New York City communities in 2012;

Apartment Community Operations

Our net income results are primarily from NOI generated from the operation of our apartment communities. The Company defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations and land rent.

Although the Company considers NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to UDR, Inc. below.

The following table summarizes the operating performance of our total property NOI (which includes discontinued operations) for each of the periods presented (dollars in thousands):

	Year Ended December 31, (a)											Year Ended December 31, (b)
	2015				2014				% Change			2014				2013				% Change
Same-Store Communities:
Same-store rental income	$	660,142			$	625,037			5.6	%		$	630,966			$	604,729			4.3	%
Same-store operating expense (c)	(191,010		)		(185,379		)		3.0	%		(190,128		)		(185,512		)		2.5	%
Same-store NOI	469,132				439,658				6.7	%		440,838				419,217				5.2	%
Non-Mature Communities/Other NOI:
Acquired communities NOI	16,247				1,370				1,085.9	%		17,788				14,997				18.6	%
Sold or held for sale communities NOI	21,292				40,380				(47.3	)%		14,108				28,662				(50.8	)%
Development communities NOI	29,677				10,947				171.1	%		26,492				4,920				438.5	%
Redevelopment communities NOI	60,558				52,450				15.5	%		45,578				36,229				25.8	%
Commercial NOI and other	16,963				11,516				47.3	%		11,517				10,016				15.0	%
Total non-mature communities/other NOI	144,737				116,663				24.1	%		115,483				94,824				21.8	%
Total Property NOI	$	613,869			$	556,321			10.3	%		$	556,321			$	514,041			8.2	%

(a) Same-store consists of 33,063 apartment homes.

(b) Same-store consists of 34,581 apartment homes.

(c) Excludes depreciation, amortization, and property management expenses.

The following table is our reconciliation of total property NOI to Net income/(loss) attributable to UDR, Inc. as reflected, for both continuing and discontinued operations, for the periods presented (dollars in thousands):

		Year Ended December 31,
		2015				2014				2013
Total property NOI		$	613,869			$	556,321			$	514,041
Joint venture management and other fees		22,710				13,044				12,442
Property management		(23,978		)		(22,142		)		(20,780		)
Other operating expenses		(9,708		)		(8,271		)		(7,136		)
Real estate depreciation and amortization		(374,598		)		(358,154		)		(341,490		)
General and administrative		(59,690		)		(47,800		)		(42,238		)
Casualty-related recoveries/(charges), net		(2,335		)		(541		)		12,253
Other depreciation and amortization		(6,679		)		(5,775		)		(6,741		)
Income/(loss) from unconsolidated entities		62,329				(7,006		)		(415		)
Interest expense		(121,875		)		(130,454		)		(126,083		)
Interest income and other income/(expense), net		1,551				11,837				4,681
Tax benefit/(provision), net		3,886				15,136				7,299
Gain/(loss) on sale of real estate owned, net of tax		251,677				143,647				40,449
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(16,773		)		(5,511		)		(1,530		)
Net (income)/loss attributable to noncontrolling interests		(3		)		3				60
Net income/(loss) attributable to UDR, Inc.		$	340,383			$	154,334			$	44,812

Same -Store Communities

2015 -vs- 2014

Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2014 and held on December 31, 2015) consisted of 33,063 apartment homes and provided 76.4% of our total NOI for the year ended December 31, 2015.

NOI for our same-store community properties increased $29.5 million or 6.7% for the year ended December 31, 2015 compared to 2014. The increase in property NOI was attributable to a 5.6% or $35.1 million increase in property rental income, which was partially offset by a 3.0% or $5.6 million increase in operating expenses. The increase in revenues was primarily driven by a 5.1% or $30.4 million increase in rental rates and a 6.5% or $2.9 million increase in reimbursement and fee income. Physical occupancy remained the same at 96.7% and total monthly income per occupied home increased by 5.5% to $1,721.

The increase in operating expenses was primarily driven by a 2.9% or $1.8 million increase in real estate tax, a 4.9% or $1.5 million increase in utilities expense, and a 3.1% or $1.4 million increase in personnel costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 71.1% for the year ended December 31, 2015 as compared to 70.3% for 2014.

2014 -vs- 2013

Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2013 and held on December 31, 2014) consisted of 34,581 apartment homes and provided 79.2% of our total NOI for the year ended December 31, 2014.

NOI for our same-store community properties increased 5.2% or $21.6 million for the year ended December 31, 2014 compared to 2013. The increase in property NOI was attributable to a 4.3% or $26.2 million increase in property rental income, which was partially offset by a 2.5% or $4.6 million increase in operating expenses. The increase in revenues was primarily driven by a 3.5% or $20.2 million increase in rental rates and a 4.9% or $2.2 million increase in reimbursement and fee income. Physical occupancy increased 0.6% to 96.7% and total monthly income per occupied home increased by 3.8% to $1,573.

The increase in operating expenses was primarily driven by a 4.1% or $2.6 million increase in real estate tax caused by higher real estate valuations and a 15.5% or $1.3 million increase in insurance expense primarily caused by higher volume of small claims.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 69.9% for the year ended December 31, 2014 as compared to 69.3% for 2013.

Non-Mature Communities/Other

2015 -vs- 2014

The remaining $144.7 million or 23.6% of our total NOI for the year ended December 31, 2015 was generated from our non-mature communities/other. UDR’s non-mature communities/other consist of communities that do not meet the criteria to be included in same-store communities, which include communities recently developed or acquired, redevelopment properties, sold or held for sale properties, and non-apartment components of mixed use properties. NOI from non-mature communities/other increased by 24.1% or $28.1 million for the year ended December 31, 2015 compared to 2014. The increase was primarily driven by an increase in NOI of $18.7 million or 171.1% from development communities, $14.9 million or 1,085.9% from communities acquired in 2015 and 2014 and $8.1 million or 15.5% from redevelopment communities completed in 2015 and 2014, which was partially offset by a decrease in NOI of $19.1 million or 47.3% from communities sold in 2015 and 2014.

2014 -vs- 2013

The remaining $115.5 million or 20.8% of our total NOI for the year ended December 31, 2014 was generated from our non-mature communities/other. NOI from non-mature communities increased by 21.8% or $20.7 million for the year ended December 31, 2014 compared to 2013. The increase was primarily driven by an increase in NOI of 438.5% or $21.6 million from development communities and 25.8% or $9.3 million from redevelopment communities completed in 2014 and 2013, which was partially offset by a decrease in NOI of 50.8% or $14.6 million from communities sold in 2014 and 2013.

Joint Venture Management and Other Fees

For the years ended December 31, 2015, 2014 and 2013, we recognized income joint venture management and other fees of $22.7 million, $13.0 million, and $12.4 million, respectively. The increased income in 2015 as compared to 2014 and 2013 was attributable to the promote and fee income of $10.0 million recognized in connection with the sale of the Texas joint venture.

Real Estate Depreciation and Amortization

For the year ended December 31, 2015, real estate depreciation and amortization increased 4.6% or $16.4 million as compared to 2014. The increase in depreciation and amortization for the year ended December 31, 2015 was primarily due to newly acquired communities and homes placed in service related to our development and redevelopment communities completed in 2015 and 2014, partially offset by a decrease from sold communities and fully depreciated assets.

For the year ended December 31, 2014, real estate depreciation and amortization on both continuing and discontinued operations increased 4.9% or $16.7 million as compared to 2013. The increase in depreciation and amortization for the year ended December 31, 2014 was primarily due to homes delivered from our development and redevelopment communities, partially offset by a decrease from sold communities and fully depreciated assets.

General and Administrative

For the year ended December 31, 2015, general and administrative expense increased 24.9% or $11.9 million from 2014. The increase was primarily due to a $5.0 million increase in bonus expense, a $4.6 million increase in stock based compensation expense for awards under the long-term incentive plan, of which $3.5 million was due to the transition from a one-year to a three-year performance period, a $1.8 million increase in acquisition-related costs, and salary and benefit increases.

For the year ended December 31, 2014, general and administrative expense increased 13.2% or $5.6 million from 2013. The increase was primarily due to a $3.8 million increase in stock-based compensation expense for awards under the long-term incentive plan and salary and benefit increases.

Interest Expense

For the year ended December 31, 2015, interest expense decreased by 6.6% or $8.6 million as compared to 2014. The decrease in interest expense was primarily due to the repayment of the $325.2 million medium term notes in January 2015 and the replacement of debt at lower rates.

For the year ended December 31, 2014, interest expense increased by 3.5% or $4.4 million as compared to 2013. The increase in interest expense was primarily due to lower capitalized interest from development and redevelopment activities.

Tax Benefit/(Provision), Net

Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date.

The Company recognized a Tax benefit/(provision), net of $3.9 million, $15.1 million and $7.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. The decrease from 2014 to 2015, and the increase from 2013 to 2014, was primarily attributable to a one-time benefit of $5.8 million related to the conversion of certain taxable REIT subsidiaries into REITs in 2014. The remaining decrease is a result of the conversion of certain TRS subsidiaries to REITs in 2014, causing a zero rate to be applied to its 2015 income.

Casualty-Related (Recoveries)/Charges, Net

During the year ended December 31, 2015, the Company recorded $2.3 million of casualty-related losses due to property damage caused by the severe snow storms on the east coast in early 2015 and water damage at a community, all of which are included in Casualty-related charges/(recoveries), net on the Consolidated Statements of Operations.

During the year ended December 31, 2014, the Company recorded $0.5 million of casualty-related losses due to property damage incurred during an earthquake and a storm in California, all of which are included in Casualty-related charges/(recoveries), net on the Consolidated Statements of Operations.

During the year ended December 31, 2013, the Company recorded $12.3 million of casualty-related recoveries related to damage caused by Hurricane Sandy on the east coast in October 2012, all of which are included in Casualty-related charges/(recoveries), net on the Consolidated Statements of Operations.

Income/(Loss) from Unconsolidated Entities

For the years ended December 31, 2015, 2014 and 2013, we recognized income/(loss) from unconsolidated entities of $62.3 million, $(7.0) million, and $(0.4) million, respectively. These income/(losses) relate to our investments in unconsolidated joint ventures and partnerships and are included in Income/(loss) from unconsolidated entities on the UDR Consolidated Statements of Operations. The increase in income in 2015 as compared to 2014 was primarily due to the sale of eight communities held by the Texas joint venture, generating gains of $59.4 million. The increased loss in 2014 as compared to 2013 was primarily due to an $8.3 million gain ($5.3 million net of tax expense) on the sale of our 95% interest in the Lodge at Stoughton in 2013.

Interest Income and Other Income/(Expense), Net

For the years ended December 31, 2015, 2014 and 2013, we recognized Interest income and other income/(expense), net of $1.6 million, $11.9 million, and $4.6 million, respectively. The decrease in 2015 as compared to 2014, as well as the increase in 2014 as compared to 2013, was primarily attributable to the net gain of $8.4 million realized on the repayment of a note receivable in 2014.

Gain/(Loss) on Sale of Real Estate Owned, Net of Tax

During the year ended December 31, 2015, the Company sold 12 communities with a total of 2,735 apartment homes for gross proceeds of $408.7 million, resulting in net proceeds of $387.7 million and a total gain of $251.7 million. A portion of the sale proceeds were designated for tax-deferred Section 1031 exchanges for acquisitions that occurred in 2014 and 2015.

During the year ended December 31, 2014, the Company recognized gains on the sale of real estate, net of tax, of $143.6 million. The Company sold nine communities consisting of a total of 2,500 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in net proceeds of $324.4 million and a total gain, net of tax, of $138.6 million. The Company also sold 49% interest in a recently completed development for gross proceeds of $54.2 million, resulting in a gain, net of tax, of $7.2 million; and our 50% interest in a land parcel for gross proceeds of $8.3 million, resulting in a loss, net of tax, of $2.2 million. A portion of the sale proceeds was designated for tax-deferred Section 1031 exchanges and was used to fund acquisitions of real estate.

Due to the Company’s adoption ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014, these gains, net of tax, are included in Gain/(loss) on sale of real estate owned, net of tax on the UDR Consolidated Statements of Operations. See Note 2, Significant Accounting Policies, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional information.

For the year ended December 31, 2013, we recognized gains, net of tax, of $41.9 million on the sale of two communities consisting of 914 apartment homes. These gains are included in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations of UDR included this Report. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity as well as the extent of gains related to specific property sold.

Noncontrolling Interest

For the years ended December 31, 2015, 2014 and 2013, we recognized net income attributable to redeemable noncontrolling interests in the Operating Partnership and the DownREIT Partnership of $16.8 million, $5.5 million, and $1.5 million, respectively. The increase in 2015 as compared to 2014 is primarily attributable to an increase in the number of shares held by third-party noncontrolling interest holders as a result of the formation of the DownREIT Partnership as well as increased net income of the Operating Partnership. The increase from 2013 to 2014 is primarily attributable to increased net income of the Operating Partnership.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, utilities and material costs, the majority of our leases are for a term of fourteen months or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in energy and food costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2015 (dollars in thousands):

		Payments Due by Period
Contractual Obligations		2016				2017-2018				2019-2020				Thereafter				Total
Long-term debt obligations		$	244,111			$	786,591			$	936,160			$	1,616,653			$	3,583,515
Interest on debt obligations (a)		126,316				216,689				157,065				158,878				658,948
Letters of credit		2,312				—				—				—				2,312
Unfunded commitments on:
Development projects (b)		—				217,928				—				—				217,928
Unconsolidated joint ventures (b) (c)		10,524				71,559				—				—				82,083
Redevelopment projects (b)		5,152				11,546				—				—				16,698
Participating loan investments (d)		2,711																2,711
Operating lease obligations:
Operating space		207				255				152				32				646
Ground leases (e)		5,444				10,888				9,930				311,858				338,120
		$	396,777			$	1,315,456			$	1,103,307			$	2,087,421			$	4,902,961

(a)	Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2015.

(b)	Any unfunded costs at December 31, 2015 are shown in the year of estimated completion.

(c)	Represents UDR’s contributed and remaining equity commitment in unconsolidated joint ventures.

(d)	Represents UDR’s remaining participating loan commitment for Steele Creek.

(e)	For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

During 2015, we incurred gross interest costs of $138.0 million, of which $16.1 million was capitalized.

UNITED DOMINION REALTY, L.P.:

Business Overview

United Dominion Realty, L.P. (the “Operating Partnership” or “UDR, L.P.”) is a Delaware limited partnership formed in February 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. Our sole general partner is UDR, Inc., a Maryland corporation (“UDR” or the “General Partner”), which conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership. At December 31, 2015, the Operating Partnership’s real estate portfolio included 57 communities located in eight states and the District of Columbia with a total of 16,974 apartment homes.

As of December 31, 2015, UDR owned 110,883 units of our general limited partnership interests and 174,114,516 units of our limited partnership interests (the “OP Units”), or approximately 95.0% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to the Operating Partnership or “we,” “us” or “our” refer to UDR, L.P. together with its consolidated subsidiaries. We refer to our General Partner together with its consolidated subsidiaries (including us) and the General Partner’s consolidated joint ventures as “UDR” or the “General Partner.”

UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in September 2003. At December 31, 2015, the General Partner’s consolidated real estate portfolio included 133 communities located in 10 states and the District of Columbia with a total of 40,728 apartment homes. In addition, the General Partner had an ownership interest in 28 communities with 6,696 completed apartment homes through unconsolidated operating communities.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report.

Cost Capitalization

In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2015, 2014, and 2013, were $0.9 million, $4.9 million, and $8.4 million, respectively.

Impairment of Long-Lived Assets

We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair market value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining average contractual lease period.

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2015.

				As of December 31, 2015										Year Ended December 31, 2015
Same-Store Communities	Number of Apartment Communities			Number of Apartment Homes			Percentage of Total Carrying Value			Total Carrying Value (in thousands)				Average Physical Occupancy			Monthly Income per Occupied Home (a)				Net Operating Income (in thousands)
West Region
Orange County, CA	7			2,535			12.4	%		$	448,682			95.9	%		$	1,790			$	39,259
San Francisco, CA	7			1,688			10.6	%		384,678				96.7	%		2,688				41,008
Seattle, WA	5			932			5.9	%		215,779				97.2	%		1,673				13,150
Los Angeles, CA	2			344			3.0	%		108,828				96.4	%		2,313				6,527
Monterey Peninsula, CA	7			1,565			4.5	%		164,950				97.0	%		1,344				17,730
Other Southern California	2			516			2.5	%		91,258				95.8	%		1,751				7,557
Portland, OR	2			476			1.3	%		46,902				97.5	%		1,303				5,278
Mid-Atlantic Region
Metropolitan D.C.	4			1,315			7.8	%		282,869				96.5	%		3,098				31,051
Baltimore, MD	4			816			3.5	%		127,840				96.4	%		1,426				9,250
Southeast Region
Nashville, TN	6			1,612			3.8	%		137,498				97.5	%		1,087				14,105
Tampa, FL	2			942			2.8	%		102,100				97.0	%		1,276				9,235
Other Florida	1			636			2.3	%		82,192				96.6	%		1,423				6,766
Northeast Region
New York, NY	2			996			16.5	%		600,588				97.9	%		3,689				34,339
Boston, MA	1			387			1.9	%		68,494				96.4	%		3,631				11,578
Southwestern Region
Dallas, TX	—			—			—			—				—			—				10,985
Austin, TX	—			—			—			—				—			—				2,191
Total/Average Same-Store Communities	52			14,760			78.8	%		2,862,658				96.8	%		$	2,103			260,009
Non Mature, Commercial Properties & Other	5			2,214			21.2	%		768,247											57,588
Total Real Estate Owned	57			16,974			100	%		3,630,905											$	317,597
Total Accumulated Depreciation										(1,281,258		)
Total Real Estate Owned, Net of Accumulated Depreciation										$	2,349,647

(a)	Monthly Income per Occupied Home represents total revenues divided by the product of occupancy and the number of mature apartment homes.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other.

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2014 and held as of December 31, 2015. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for sale at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. The Operating Partnership’s primary source of liquidity is cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings allocated to us under the General Partner’s credit agreements. The General Partner will routinely use its unsecured credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we repositioned our portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings allocated to us under the General Partner’s credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities and potential property acquisitions through borrowings and the disposition of properties. We believe that our net cash provided by operations and borrowings will continue to be adequate to meet both operating requirements and the payment of distributions. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, and borrowings allocated to us under the General Partner’s credit agreements.

Future Capital Needs

Future capital expenditures are expected to be funded with proceeds from the issuance of secured debt or unsecured debt, sales of properties, borrowings allocated to us under our General Partner’s credit agreements, and to a lesser extent, from cash flows provided by operating activities.

As of December 31, 2015, the Operating Partnership had approximately $30.5 million of principal payments on secured debt maturing in 2016. We anticipate that we will repay that debt with operating cash flows or proceeds from borrowings allocated to us under our General Partner’s credit agreements. The repayment of debt will be recorded as an offset to the Advances (to)/from General Partner.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013.

Operating Activities

For the year ended December 31, 2015, Net cash provided by/(used in) operating activities was $226.8 million compared to $208.0 million for 2014. The increase in cash flow from operating activities was primarily due to improved income from continuing operations primarily driven by revenue growth at the communities.

For the year ended December 31, 2014, Net cash provided by/(used in) operating activities was $208.0 million compared to $208.3 million for 2013. The decrease in cash flow due to improved income from continuing operations was offset by changes in operating assets and liabilities.

Investing Activities

For the year ended December 31, 2015, Net cash provided by/(used in) investing activities was $23.6 million compared to $(46.7) million for 2014. The increase in cash provided by investing activities was primarily related to increased proceeds from the sales of real estate investments, partially offset by increased cash used in the acquisition of real estate assets.

For the year ended December 31, 2014, Net cash provided by/(used in) investing activities was $(46.7) million compared to $(64.0) million for 2013. The decrease in cash used in investing activities was primarily related to lower spend on development and redevelopment.

Disposition of Investments

In connection with the formation of the DownREIT Partnership in October 2015, the Operating Partnership contributed seven operating communities to the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value and consequently deferred a gain of $296.4 million. As a result of the contribution, the

Operating Partnership lost its controlling interest and deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT Partnership under the equity method of accounting as described in Note 5, Unconsolidated Entities.

During the year ended December 31, 2015, the Operating Partnership sold five communities with a total of 1,149 apartment homes for gross proceeds of $250.9 million, resulting in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. A portion of the sale proceeds was designated for tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”) for one of the October 2015 acquisitions from Home OP. Additionally, the Operating Partnership recognized a gain of $24.6 million, which was previously deferred, in connection with the sale of the communities held by the Texas joint venture.

During the year ended December 31, 2014 the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred. The total gains of $63.6 million were included in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.

In 2013, the Operating Partnership sold two apartment communities in the Sacramento market, consisting of 914 apartment homes for gross proceeds of $81.1 million. The Operating Partnership recognized a gain of $41.5 million, which is included in Income/(loss) from discontinued operations on the Operating Partnership’s Consolidated Statements of Operations. Proceeds were used primarily to fund development and redevelopment activity and reduce debt.

Also in 2013, the Operating Partnership distributed the development property Los Alisos to the General Partner as a capital distribution. Upon the distribution of the property, the Operating Partnership redeemed 1,002,556 limited partnership units owned by UDR and affiliated entities and reduced its receivable from the General Partner by $53.7 million, resulting in a net capital reduction of $77.0 million.

Financing Activities

For the year ended December 31, 2015, Net cash provided by/(used in) financing activities was $(247.7) million compared to $(162.8) million for 2014. The increase in cash used in financing activities was primarily due to increased advances to the General Partner.

For the year ended December 31, 2014, Net cash provided by/(used in) financing activities was $(162.8) million compared to $(145.3) million for 2013. The increase in cash used in financing activities was primarily due to increased advances to the General Partner, partially offset by decreased payments on secured debt and proceeds from the issuance of secured debt.

Credit Facilities

As of December 31, 2015, an aggregate commitment of $421.0 million of the General Partner's secured credit facilities with Fannie Mae was allocated to the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2015. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023 and bear interest at floating and fixed rates. At December 31, 2015, $250.8 million of the outstanding balance was fixed at a weighted average interest rate of 5.08% and the remaining balance of $170.2 million on these facilities had a weighted average variable interest rate of 1.90%. During 2013, the General Partner reallocated an additional $13.7 million of the Fannie Mae credit facilities to the Operating Partnership.

The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility, with an aggregate borrowing capacity of $1.1 billion, $300 million of medium-term notes due June 2018, $300 million of medium-term notes due October 2020, a $350 million term loan facility due January 2021, $400 million of medium-term notes due January 2022, $300 million of medium-term notes due July 2024, and $300 million of medium-term notes due October 2025. As of December 31, 2015, there were $150.0 million outstanding borrowings under the unsecured credit facility. As of December 31, 2014, there was $152.5 million outstanding balance under the unsecured credit facility.

The credit facilities are subject to customary financial covenants and limitations.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $196.6 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2015. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $2.0 million based on the balance at December 31, 2015.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.

The General Partner also utilizes derivative financial instruments allocated to the Operating Partnership to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 9, Derivatives and Hedging Activity, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report for additional discussion of derivative instruments.

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013, and includes the results of both continuing and discontinued operations for the periods presented.

Net Income(Loss) Attributable to OP Unitholders

2015 -vs- 2014

Net income/(loss) attributable to OP unitholders was $213.3 million ($1.16 per OP Unit) for the year ended December 31, 2015 as compared to $96.2 million ($0.53 per OP Unit) for the the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•

the Operating Partnership sold five communities with a total of 1,149 apartment homes for gross proceeds of $250.9 million, resulting in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. Additionally, the Operating Partnership recognized a gain of $24.6 million, which was previously deferred, in connection with the sale of the communities held by the Texas joint venture.

•

in connection with the formation of the DownREIT Partnership, the Operating Partnership contributed seven operating communities to the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value and consequently deferred a gain of $296.4 million. As a result of the contribution, the Operating Partnership lost its controlling interest and deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT Partnership under the equity method of accounting as described in Note 5, Unconsolidated Entities.

•	an increase in total property NOI primarily due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in service related to development and redevelopment projects completed in 2015 and 2014.

This was partially offset by:

•	a $4.7 million loss from unconsolidated entities related to the DownREIT Partnership that was formed in 2015.

2014 -vs- 2013

Net income/(loss) attributable to OP unitholders was $96.2 million ($0.53 per OP Unit) for the year ended December 31, 2014 as compared to $73.4 million ($0.40 per OP Unit) for the the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•	the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred;

•	an increase in total property NOI primarily due to higher occupancy and higher revenue per occupied home, and NOI from the homes placed in service related to development and redevelopment projects completed in 2014 and 2013, partially offset by the disposition of communities in 2014 and 2013.

This was partially offset by:

•	casualty-related recoveries in 2013 resulting from the effects of Hurricane Sandy on two of our New York City communities in 2012 (see Note 14, Casualty-Related (Recoveries)/Charges, in the Notes to the Operating Partnership’s Consolidated Financial Statements for more details).

Apartment Community Operations

Our net income results primarily from NOI generated from the operation of our apartment communities. The Operating Partnership defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.75% of property revenue to cover regional supervision and accounting costs related to consolidated property operations and land rent.

Although the Company considers NOI a useful measure of a operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to OP unitholders below.

The following table summarizes the operating performance of our total portfolio (which includes discontinued operations) for the years ended December 31, 2015, 2014, and 2013 (dollars in thousands):

	Year Ended December 31, (a)											Year Ended December 31, (b)
	2015				2014				% Change			2014				2013				% Change
Same-Store Communities:
Same-store rental income	$	360,404			$	353,686			1.9	%		$	372,818			$	355,585			4.8	%
Same-store operating expense (c)	(100,395		)		(101,911		)		(1.5	)%		(108,225		)		(106,228		)		1.9	%
Same-store NOI	260,009				251,775				3.3	%		264,593				249,357				6.1	%
Non-Mature Communities/Other NOI:
Acquired communities NOI	1,604				—				N/A			16,417				14,998				9.5	%
Sold communities NOI	12,225				13,750				(11.1	)%		11				8,671				(99.9	)%
Development communities NOI	2,787				(603		)		562.2	%		(603		)		(17		)		3,447.1	%
Redevelopment communities NOI	34,127				29,742				14.7	%		14,245				10,084				41.3	%
Commercial NOI and other	6,845				5,649				21.2	%		5,650				4,442				27.2	%
Total non-mature communities/other NOI	57,588				48,538				18.6	%		35,720				38,178				(6.4	)%
Total Property NOI	$	317,597			$	300,313			5.8	%		$	300,313			$	287,535			4.4	%

(a)	Same-store consists of 14,760 apartment homes.

(b)	Same-store consists of 19,101 apartment homes.

(c)	Excludes depreciation, amortization, and property management expenses.

The following table is our reconciliation of total property NOI to Net income/(loss) attributable to OP unitholders as reflected, for both continuing and discontinued operations, for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands):

	Year Ended December 31,
	2015				2014				2013
Total property NOI	$	317,597			$	300,313			$	287,535
Property management	(12,111		)		(11,622		)		(11,298		)
Other operating expenses	(5,923		)		(5,172		)		(5,728		)
Real estate depreciation and amortization	(169,784		)		(179,176		)		(181,302		)
General and administrative	(27,016		)		(28,541		)		(24,808		)
Casualty-related recoveries/(charges), net	(843		)		(541		)		8,083
Income/(loss) from unconsolidated entities	(4,659		)		—				—
Interest expense	(40,321		)		(41,717		)		(36,058		)
Gain/(loss) on sale of real estate owned	158,123				63,635				41,518
Net (income)/loss attributable to noncontrolling interests	(1,762		)		(952		)		(4,566		)
Net income/(loss) attributable to OP unitholders	$	213,301			$	96,227			$	73,376

Same-Store Communities

2015 -vs- 2014

Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2014 and held on December 31, 2015) consisted of 14,760 apartment homes and provided 81.9% of our total NOI for the year ended December 31, 2015.

NOI for our same-store community properties increased 3.3% or $8.2 million for the year ended December 31, 2015 compared to 2014. The increase in property NOI was primarily attributable to a 1.9% or $6.7 million increase in property rental income and by a 1.5% or $1.5 million decrease in operating expenses. The increase in revenues was primarily driven by a 1.5% or $5.2 million increase in rental rates and a 1.9% or $0.5 million increase in reimbursement and fee income. Physical occupancy increased 1.5% to 96.8% for the year ended December 31, 2015 compared to 2014.

The decrease in operating expenses was primarily driven by a 5.1% or $0.8 million decrease in repair and maintenance expense, a 1.4% or $0.5 million decrease in real estate tax expense and a 5.1% or $0.3 million decrease in marketing and administrative expenses.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 72.1% for the year ended December 31, 2015 as compared to 71.2% for 2014.

2014 -vs- 2013

Our same-store community properties (those acquired, developed, and stabilized prior to January 1, 2013 and held on December 31, 2014) consisted of 19,010 apartment homes and provided 88.1% of our total NOI for the year ended December 31, 2014.

NOI for our same-store community properties increased 6.1% or $15.2 million for the year ended December 31, 2014 compared to 2013. The increase in property NOI was primarily attributable to a 4.8% or $17.2 million increase in property rental income, which was partially offset by a 1.9% or $2.0 million increase in operating expenses. The increase in revenues was primarily driven by a 3.7% or $12.8 million increase in rental rates and a 4.0% or $1.1 million increase in reimbursement and fee income. Physical occupancy increased 0.2% to 95.4% and total monthly income per occupied home increased by 4.6% to $1,713 for the year ended December 31, 2014 compared to 2013.

The increase in operating expenses was primarily driven by a 4.2% or $1.5 million increase in real estate tax caused by higher real estate valuations and a 18.7% or $0.8 million increase in insurance expense primarily caused by a higher volume of small claims, which was partially offset by a 2.3% or $0.4 million decrease in repairs and maintenance costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 71.0% for the year ended December 31, 2014 as compared to 70.0% for 2013.

Non-Mature Communities/Other

2015 -vs- 2014

The remaining $57.6 million or 18.1% of our total NOI during the year ended December 31, 2015 was generated from our non-mature communities/other. The Operating Partnership’s non-mature communities/other consist of communities that do not meet the criteria to be included in same-store communities, which includes communities recently developed or acquired, redevelopment properties, sold properties, and non-apartment components of mixed use properties. NOI from non-mature communities/other increased 18.6% or $9.1 million for the year ended December 31, 2015 compared to 2014. The increase was primarily driven by an increase in NOI of 14.7% or $4.4 million from redevelopment properties, and an increase of 562.2% or $3.4 million in development properties.

2014 -vs- 2013

The remaining $35.7 million or 11.9% of our total NOI during the year ended December 31, 2014 was generated from our non-mature communities/other. NOI from non-mature communities/other decreased 6.4% or $2.5 million for the year ended December 31, 2014 compared to 2013. The decrease was primarily driven by a decrease in NOI of 99.9% or $8.7 million from properties sold during 2014 and 2013, which was partially offset by an increase in NOI of 27.2% or $1.2 million from commercial/other properties, and an increase of 41.3% or $4.2 million from redevelopment properties.

Real Estate Depreciation and Amortization

For the year ended December 31, 2015, real estate depreciation and amortization from continuing and discontinued operations decreased by 5.2% or $9.4 million as compared to 2014. The decrease in depreciation and amortization for the year ended December 31, 2015 was primarily due to sold communities and fully depreciated assets partially offset by homes delivered from our development and redevelopment communities.

For the year ended December 31, 2014, real estate depreciation and amortization from continuing and discontinued operations decreased by 1.2% or $2.1 million as compared to 2013. The decrease in depreciation and amortization for the year ended December 31, 2014 was primarily from disposition of assets in 2014 and 2013, partially offset by the depreciation from developed and redeveloped units placed in service in 2014 and 2013.

Casualty-Related Recoveries/(Charges), Net

During the year ended December 31, 2015, the Company recorded $0.8 million of casualty-related losses due to property damage caused by the severe snow storms on the east coast in early 2015, all of which is included in Casualty-related charges/(recoveries), net on the Consolidated Statements of Operations.

During the year ended December 31, 2014, the Company recorded $0.5 million of casualty-related losses due to property damage incurred during an earthquake and a storm in California, all of which are included in Casualty-related charges/(recoveries), net on the Consolidated Statements of Operations.

During the year ended December 31, 2013, the Company recorded $8.1 million of casualty-related recoveries due to damage caused by Hurricane Sandy on the east coast in October 2012, all of which is included in Casualty-related charges/(recoveries), net on the Consolidated Statements of Operations.

Interest Expense

For the year ended December 31, 2015, interest expense decreased by 3.3% or $1.4 million as compared to 2014, which was primarily due to lower amounts of outstanding debt during 2015.

For the year ended December 31, 2014, interest expense increased by 15.7% or $5.7 million as compared to 2013, which was primarily due to lower portion of interest capitalized in 2014 as a result of completed developments, partially offset by a decrease in interest expense due to replacement of debt at lower rates.

Gain/(Loss) on the Sale of Real Estate Owned

During the year ended December 31, 2015, the Operating Partnership sold five communities with a total of 1,149 apartment homes for gross proceeds of $250.9 million, resulting in net proceeds of $232.4 million and a total gain, net of tax, of $133.5 million. A portion of the sale proceeds was designated for a Section 1031 exchange for one of the October 2015 acquisitions from Home OP. Additionally, the Operating Partnership recognized a gain of $24.6 million, which was previously deferred, in connection with the sale of the communities held by the Texas joint venture.

In connection with the formation of the DownREIT Partnership in October 2015, the Operating Partnership contributed seven operating communities to the DownREIT Partnership. The Operating Partnership recorded its contribution to the DownREIT Partnership at book value and consequently deferred a gain of $296.4 million. As a result of the contribution, the Operating Partnership lost its controlling interest and deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT Partnership under the equity method of accounting as described in Note 5, Unconsolidated Entities.

For the year ended December 31, 2014, the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California for gross proceeds of $48.7 million, resulting in a $24.4 million gain and net proceeds of $47.9 million. The Operating Partnership also recorded gains of $39.2 million in connection with UDR’s sale of two communities in Tampa, Florida and Los Angeles, California, which were previously deferred.

Due to the Operating Partnership’s adoption ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014, these gains were included in Gain/(loss) on sale of real estate owned on the Operating Partnership’s Consolidated Statements of Operations. See Note 2, Significant Accounting Policies, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report for additional information.

For the year ended December 31, 2013, we recognized gains on sale of depreciable property of $41.5 million. These gains are included in Income/(loss) from discontinued operations on the Operating Partnership’s Consolidated Statements of Operations included in this Report. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period as well as the extent of gains related to specific properties sold.

Net (Income)/Loss Attributable to Noncontrolling Interests

For the year ended December 31, 2015, net income attributable to noncontrolling interests was $1.8 million as compared to $1.0 million for 2014. The increase of $0.8 million was primarily due to increased net income of the communities with noncontrolling interest.

For the year ended December 31, 2014, net income attributable to noncontrolling interests was $1.0 million as compared to $4.6 million for 2013. The decrease of $3.6 million was primarily due to the Operating Partnership correcting an error in the General Partner’s ownership interest in one of the consolidated subsidiaries resulting in a cumulative adjustment recorded in 2013 of $3.3 million. Management believes the impact of the cumulative adjustment in 2013 is immaterial to the financial statements taken as a whole.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, utilities and material costs, substantially all of our leases are for a term of one year or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in energy and food costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2015 (dollars in thousands):

		Payments Due by Period
Contractual Obligations		2016				2017-2018				2019-2020				Thereafter				Total
Long-term debt obligations		$	30,517			167,405				185,931				94,310				$	478,163
Interest on debt obligations (a)		17,086				30,854				12,546				5,986				66,472
Operating lease obligations — ground leases (b)		5,444				10,888				9,930				311,856				338,118
		$	53,047			$	209,147			$	208,407			$	412,152			$	882,753

(a)	Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2015.

(b)	For purposes of our ground lease contracts, the Operating Partnership uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term.