Item 6. SELECTED FINANCIAL DATA

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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, 2016. 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)
20162015201420132012
OPERATING DATA:
Rental income$948,461$871,928$805,002$746,484$704,701
Income/(loss) from continuing operations109,529105,48216,2602,340(46,305)
Income/(loss) from discontinued operations, net of tax——1043,942266,608
Net income/(loss)320,380357,159159,84246,282220,303
Distributions to preferred stockholders3,7173,7223,7243,7246,010
Net income/(loss) attributable to common stockholders289,001336,661150,61041,088203,376
Common stock distributions declared315,102289,500263,503235,721215,654
Income/(loss) per weighted average common share — basic:
Income/(loss) from continuing operations attributable to common stockholders$1.09$1.30$0.60$(0.01)$(0.22)
Income/(loss) from discontinued operations attributable to common stockholders———0.171.07
Net income/(loss) attributable to common stockholders$1.09$1.30$0.60$0.16$0.85
Income/(loss) per weighted average common share — diluted:
Income/(loss) from continuing operations attributable to common stockholders$1.08$1.29$0.59$(0.01)$(0.22)
Income/(loss) from discontinued operations attributable to common stockholders———0.171.07
Net income/(loss) attributable to common stockholders$1.08$1.29$0.59$0.16$0.85
Weighted average number of Common Shares outstanding — basic265,386258,669251,528249,969238,851
Weighted average number of Common Shares outstanding — diluted267,311263,752253,445249,969238,851
Weighted average number of Common Shares outstanding, OP Units/DownREIT Units and Common Stock equivalents outstanding — diluted295,469276,699265,728263,926252,659
Common stock distributions declared - per share$1.18$1.11$1.04$0.94$0.88
Balance Sheet Data:
Real estate owned, at cost (a)$9,615,753$9,190,276$8,383,259$8,207,977$8,055,828
Accumulated depreciation (a)2,923,6252,646,8742,434,7722,208,7941,924,682
Total real estate owned, net of accumulated depreciation (a)6,692,1286,543,4025,948,4875,999,1836,131,146
Total assets7,679,5847,663,8446,828,7286,787,3426,839,637
Secured debt, net (a)1,130,8581,376,9451,354,3211,432,1861,420,028
Unsecured debt, net2,270,6202,193,8502,210,9782,071,1371,969,839
Total debt, net3,401,4783,570,7953,565,2993,503,3233,389,867
Total stockholders’ equity$3,093,110$2,899,755$2,735,097$2,811,648$2,992,916
Number of Common Shares outstanding267,259261,845255,115250,750250,139
UDR, Inc. Year Ended December 31, (In thousands, except per share data and apartment homes owned)
20162015201420132012
OPERATING DATA (continued):
Other Data (a)
Total consolidated apartment homes owned (at end of year)39,45440,72839,85141,25041,571
Weighted average number of consolidated apartment homes owned during the year40,54339,50140,64441,39242,747
Cash Flow Data:
Cash provided by/(used in) operating activities (c)$536,929$458,627$397,303$344,373$327,187
Cash provided by/(used in) investing activities (c)(112,277)(265,461)(298,603)(127,680)(211,582)
Cash provided by/(used in) financing activities(429,282)(201,648)(113,725)(198,559)(115,993)
Funds from Operations (b):
Funds from operations attributable to common stockholders and unitholders — basic$527,096$455,565$411,702$376,778$350,628
Funds from operations attributable to common stockholders and unitholders — diluted530,813459,287415,426380,502354,532

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

(b) 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.

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 ("FASB") Accounting Standards Update ("ASU") ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments in 2016. 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 ASU and its impact.
Upon adopting the ASU, the Company elected to classify distributions received from equity method investees using the cumulative earnings approach. As a result, the following retrospective changes were made to the above table:
2015201420132012
Cash provided by/(used in) operating activities - as previously reported$431,615$392,360$339,902$327,187
Return on investment in unconsolidated joint ventures27,0124,9434,471—
Cash provided by/(used in) operating activities - as reported above$458,627$397,303$344,373$327,187
Cash provided by/(used in) investing activities - as previously reported$(238,449)$(293,660)$(123,209)$(211,582)
Return on investment in unconsolidated joint ventures(27,012)(4,943)(4,471)—
Cash provided by/(used in) investing activities - as reported above$(265,461)$(298,603)$(127,680)$(211,582)

United Dominion Realty, L.P.

Year Ended December 31,

(In thousands, except per OP unit data

and apartment homes owned)

20162015201420132012
OPERATING DATA:
Rental income$404,415$440,408$422,634$401,853$384,946
Income/(loss) from continuing operations46,08256,94033,54432,766(13,309)
Income/(loss) from discontinued operations———45,17657,643
Net income/(loss)79,262215,06397,17977,94244,334
Net income/(loss) attributable to OP unitholders77,818213,30196,22773,37643,982
Income/(loss) per weighted average OP Unit - basic and diluted:
Income/(loss) from continuing operations attributable to OP unitholder$0.42$1.16$0.53$0.16$(0.07)
Income/(loss) from discontinued operations attributable to OP unitholder———0.240.31
Net income/(loss) attributable to OP unitholders$0.42$1.16$0.53$0.40$0.24
Weighted average number of OP Units outstanding — basic and diluted183,279183,279183,279184,196184,281
Balance Sheet Data:
Real estate owned, at cost (a)$3,674,704$3,630,950$4,238,770$4,188,480$4,182,920
Accumulated depreciation (a)1,408,8151,281,2581,403,3031,241,5741,097,133
Total real estate owned, net of accumulated depreciation (a)2,265,8892,349,6472,835,4672,946,9063,085,787
Total assets2,415,5352,554,8082,873,8092,987,3933,130,182
Secured debt, net (a)433,974475,964927,484929,017961,167
Total liabilities797,036833,4781,139,7581,184,2961,211,426
Total partners’ capital1,578,2021,713,4121,703,0011,795,9341,917,299
Advances to/(from) the General Partner$(19,659)$11,270$(13,624)$9,916$11,056
Number of OP units outstanding183,279183,279183,279183,279184,281
Other Data:
Total consolidated apartment homes owned (at end of year) (a)16,69816,97420,81420,74621,660
Cash Flow Data:
Cash provided by/(used in) operating activities$228,682$226,765$208,032$208,346$201,095
Cash provided by/(used in) investing activities(9,546)23,583(46,650)(63,954)4,273
Cash provided by/(used in) financing activities(221,483)(247,747)(162,777)(145,299)(203,268)
(a)Includes amounts classified as Held for Disposition, where applicable.
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 stability of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments, redevelopments and lease-ups on schedule, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels and rental rates, expectations concerning 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, 2016, 2015 and 2014 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, 2016, our consolidated real estate portfolio included 127 communities in 10 states plus the District of Columbia totaling 39,454 apartment homes, and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 27 communities with 6,849 apartment homes.

At December 31, 2016, the Company was developing two wholly-owned communities with 1,101 apartment homes, none of which have been completed, and four unconsolidated joint venture communities with 1,069 apartment homes, 99 of which have been completed. In addition, the Company was redeveloping 425 apartment homes, 351 of which have been completed, at three wholly-owned communities with 888 apartment homes.

Critical Accounting Policies and Estimates

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

Cost Capitalization

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

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, 2016, 2015, and 2014 were $24.4 million, $22.4 million, and $29.2 million, respectively.

Investment in Unconsolidated Entities

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

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

Impairment of Long-Lived Assets

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

Real Estate Investment Properties

We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the 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, 2016 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, 2016.

As of December 31, 2016Year Ended December 31, 2016
Same-Store CommunitiesNumber of Apartment CommunitiesNumber of Apartment HomesPercentage of Total Carrying ValueTotal Carrying Value (in thousands)Average Physical OccupancyMonthly Income per Occupied Home (a)Net Operating Income (in thousands)
West Region
Orange County, CA103,1948.5%$824,72496.0%$2,231$63,485
San Francisco, CA92,2306.6%635,83196.3%3,31364,331
Seattle, WA91,8525.2%504,42596.7%2,02331,248
Los Angeles, CA41,2254.6%446,46695.3%2,62926,541
Monterey Peninsula, CA71,5651.8%169,00696.7%1,51220,405
Other Southern California37561.3%124,88895.8%1,73711,018
Portland, OR24760.5%47,56097.1%1,4766,112
Mid-Atlantic Region
Metropolitan D.C.154,82411.5%1,109,62097.0%1,95874,635
Richmond, VA41,3581.5%143,77396.6%1,27014,640
Baltimore, MD37201.6%149,24996.9%1,69010,100
Northeast Region
New York, NY41,94513.5%1,299,99697.3%4,24968,177
Boston, MA41,1793.5%334,99296.5%2,47624,906
Southeast Region
Orlando, FL92,5002.3%216,64796.8%1,18823,999
Nashville, TN82,2602.1%201,46897.6%1,19722,712
Tampa, FL72,2872.6%245,24296.7%1,29022,599
Other Florida16360.9%83,40496.4%1,4837,049
Southwest Region
Dallas, TX62,0402.0%194,48696.9%1,15817,522
Austin, TX38830.9%88,77496.8%1,3478,078
Total/Average Same-Store Communities10831,93070.9%6,820,55196.7%$1,958517,557
Non-Mature, Commercial Properties & Other197,52425.5%2,451,296155,974
Total Real Estate Held for Investment12739,45496.4%9,271,847673,531
Real Estate Under Development (b)——3.6%342,282(436)
Real Estate Held for Disposition (c)———%1,624(10)
Total Real Estate Owned12739,454100.0%9,615,753$673,085
Total Accumulated Depreciation(2,923,625)
Total Real Estate Owned, Net of Accumulated Depreciation$6,692,128
(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, 2016, the Company was developing two wholly-owned communities with 1,101 apartment homes, none of which have been completed.
(c)The Company had one parcel of land located in Richmond, VA that met the criteria to be classified as held for disposition at December 31, 2016.

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, 2015 and held as of December 31, 2016. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

Liquidity and Capital Resources

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

We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements. 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 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 23, 2016, the Company issued $300 million of 2.95% senior unsecured medium-term notes due September 1, 2026. Interest is payable semi-annually beginning on March 1, 2017. The Company used the net proceeds to prepay secured debt due in May 2017, pay down a portion of the borrowings outstanding on its $1.1 billion unsecured credit facility and for general corporate purposes. The notes are fully and unconditionally guaranteed by the Operating Partnership.

On March 4, 2016, the Company sold 5,000,000 shares of its common stock for aggregate gross proceeds of approximately $173.7 million at a price per share of $34.73. Aggregate net proceeds from the sale, after deducting the underwriting discount and offering-related expenses, were approximately $173.2 million, which were used for working capital and general corporate purposes.

In April 2012, the Company entered into an 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, 2016, the Company did not sell any shares of common stock through this program. As of December 31, 2016, we had 13.1 million shares of common stock available for future issuance under the April 2012 program.

Future Capital Needs

Future development and redevelopment expenditures may be funded through unsecured or secured credit facilities, proceeds from the issuance of equity or debt securities, sales of properties, joint ventures, and, to a lesser extent, from cash flows provided by property operations. Acquisition activity in strategic markets may be funded through joint ventures, by the 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 2017, we have approximately $51.0 million of secured debt maturing, inclusive of principal amortization, and no unsecured debt maturing. We anticipate repaying the 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, 2016, 2015, and 2014.

We elected to early adopt Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments in 2016. 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 ASU and its impact.

Upon adopting the ASU, we elected to classify distributions received from equity method investees using the cumulative earnings approach. As a result, the following retrospective changes were made:

20152014
Net cash provided by/(used in) operating activities - as previously reported$431,615$392,360
Return on investment in unconsolidated joint ventures27,0124,943
Net cash provided by/(used in) operating activities - as reported herein$458,627$397,303
Net cash provided by/(used in) investing activities - as previously reported$(238,449)$(293,660)
Return on investment in unconsolidated joint ventures(27,012)(4,943)
Net cash provided by/(used in) investing activities - as reported herein$(265,461)$(298,603)

Operating Activities

For the year ended December 31, 2016, Net cash provided by/(used in) operating activities was $536.9 million compared to $458.6 million for 2015. The increase in cash flow from operating activities was primarily due to improved net operating income, primarily driven by revenue growth at communities, and an increase in cash from return on investment in unconsolidated joint ventures, partially offset by changes in operating assets and liabilities.

For the year ended December 31, 2015, Net cash provided by/(used in) operating activities was $458.6 million compared to $397.3 million for 2014. The increase in cash flow from operating activities was primarily due to improved net operating income, primarily driven by revenue growth at communities, and an increase in cash from return on investment in unconsolidated joint ventures.

Investing Activities

For the year ended December 31, 2016, Net cash provided by/(used in) investing activities was $(112.3) million compared to $(265.5) million for 2015. The decrease in cash used in investing activities was primarily related to decreased acquisitions of real estate, a decrease in cash used for investments in unconsolidated joint ventures, an increase in distributions received from unconsolidated joint ventures and decreased capital expenditures and major renovations, partially offset by increased spend on consolidated development projects and a decrease in proceeds received from the sale of real estate assets.

For the year ended December 31, 2015, Net cash provided by/(used in) investing activities was $(265.5) million compared to $(298.6) 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, increased capital expenditures and major renovations, decreased distributions received from unconsolidated joint ventures and issuances of notes receivable.

Acquisitions

In November 2016, the Company acquired an operating community in Redmond, Washington with 177 apartment homes for approximately $70.5 million, which was funded with tax-deferred Section 1031 exchanges.

In October 2016, the Company increased its ownership from 50% to 100% in two operating communities located in Bellevue, Washington with a total of 331 apartment homes for approximately $70.3 million in cash, which was funded with tax-deferred Section 1031 exchanges, and the assumption of an incremental $37.9 million of secured debt with a weighted average interest rate of 3.67%. As a result, the Company consolidated the operating communities. The Company had previously accounted for its 50% ownership interest as an unconsolidated joint venture. We accounted for the consolidation as a business combination resulting in a gain on consolidation of approximately $36.4 million.

In August 2016, the Company increased its ownership interest from 5% to 100% in a parcel of land in Dublin, California for a purchase price of approximately $8.5 million. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 5% interest in the parcel of land as an unconsolidated joint venture. We accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $8.9 million.

In June 2016, the Company increased its ownership interest from 50% to 100% in a parcel of land in Los Angeles, California for a purchase price of approximately $20.1 million. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 50% interest in the parcel of land as an unconsolidated joint venture. We accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $31.1 million. Subsequent to the acquisition, the Company entered into a triple-net operating ground lease for the parcel of land at market terms with a third-party developer. The lessee plans to construct a multi-family community on the parcel of land. The ground lease provides the ground lessee with options to buy the fee interest in the parcel of land. The lease term is 49 years plus two 25-year extension options, does not transfer ownership to the lessee, and does not include a bargain purchase option.

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

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

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

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.

Dispositions

In November 2016, the Company sold seven operating communities with a total of 1,402 apartment homes in Baltimore, Maryland and an operating community with 380 apartment homes in Dallas, Texas for gross proceeds of $284.6 million, resulting in net proceeds of $280.5 million and a gain, net of tax, of $200.5 million. A portion of the proceeds was designated for tax-deferred Section 1031 exchanges.

In May 2016, the Company sold a retail center in Bellevue, Washington for gross proceeds of $45.4 million, resulting in net proceeds of $44.1 million and a gain, net of tax, of $7.3 million. A portion of the proceeds was designated for tax-deferred Section 1031 exchanges.

In March 2016, the Company sold its 95% ownership interest in two parcels of land in Santa Monica, California for gross proceeds of $24.0 million, resulting in net proceeds of $22.0 million and a gain, net of tax, of $3.1 million.

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

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, a parcel of land, and one operating property for gross proceeds of $328.4 million, resulting in net proceeds of $324.4 million and a gain, net of tax, of $138.6 million. The Company also sold a 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 certain acquisitions of real estate.

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

Capital Expenditures

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

For the year ended December 31, 2016, total capital expenditures of $112.9 million or $2,786 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 $111.3 million or $2,818 per stabilized home for the prior year.

The increase in total capital expenditures was primarily due to:

•an increase of 34.7% or $11.4 million in revenue-enhancing improvements, such as kitchen and bath remodels and upgrades to common areas.

This increase was partially offset by:

•a decrease in major renovations of 35.3% or $11.6 million, primarily due to lower redevelopment spend.

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, 2016 and 2015 (dollars in thousands):

Per Home
Year Ended December 31,Year Ended December 31,
20162015% Change20162015% Change
Turnover capital expenditures$12,532$12,1083.5%$309$3070.7%
Asset preservation expenditures34,72533,3594.1%8568451.3%
Total recurring capital expenditures47,25745,4673.9%1,1661,1511.3%
Revenue-enhancing improvements44,41432,97934.7%1,09583531.1%
Major renovations (a)21,27432,877(35.3)%525832(36.9)%
Total capital expenditures$112,945$111,3231.5%$2,786$2,818(1.1)%
Repair and maintenance expense$33,859$31,6367.0%$835$8014.2%
Average home count (b)40,54339,501

(a) Major renovations include major structural changes and/or architectural revisions to existing buildings.

(b) Average number of homes is calculated based on the number of homes outstanding at the end of each month.

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

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

Consolidated Real Estate Under Development and Redevelopment

At December 31, 2016, our development pipeline of two wholly-owned communities totaled 1,101 homes, none of which have been completed, with a budget of $708.5 million, in which we have a carrying value of $342.3 million. The communities are estimated to be completed during the first quarter of 2018 and the first quarter of 2019. During 2016, we incurred $178.3 million for development costs, an increase of $75.1 million from our 2015 level of $103.2 million.

The following wholly-owned projects were under development as of December 31, 2016 (dollars in thousands):

LocationNumber of Apartment HomesCompleted Apartment HomesCost to DateBudgeted CostEstimated Cost Per HomeExpected Completion Date
The Residences at Pacific CityHuntington Beach, CA516—$234,275$342,000$6631Q2018
345 Harrison StreetBoston, MA585—108,007366,5006261Q2019
Total1,101—$342,282$708,500$644

At December 31, 2016, the Company was redeveloping 425 apartment homes, 351 of which have been completed, at three wholly-owned communities.

During the year ended December 31, 2016, we incurred $21.3 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings, a decrease of $11.6 million from our 2015 level of $32.9 million. The estimated completion dates for these communities are the first quarter of 2017 and the first quarter of 2018.

At December 31, 2016, the following communities were in redevelopment (dollars in thousands):

LocationNumber of Apartment HomesScheduled Redevelopment HomesCompleted Apartment HomesCost to DateBudgeted CostEstimated Cost Per HomeExpected Completion Date
EdgewaterSan Francisco, CA1935858$6,289$7,000$361Q2017
Residences at the DomainAustin, TX3903112746,1598,500221Q2017
Thirty377Dallas, TX30556192,2119,500311Q2018
Total888425351$14,659$25,000$28

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 Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year ended December 31, 2016:

•our proportionate share of the net income/(loss) of the joint ventures and partnerships was $52.2 million;
•our investment in unconsolidated joint ventures decreased by $80.6 million due to the acquisition of 100% interest in properties previously held as unconsolidated entities, partially offset by capital contributions; and
•we received distributions of $123.7 million, of which $57.6 million were operating cash flows and $66.1 million were investing cash flows.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary decreases in the value of its investments in unconsolidated joint ventures or partnerships during the year ended December 31, 2016 and 2015.

Financing Activities

For the years ended December 31, 2016, 2015 and 2014, Net cash provided by/(used in) financing activities was $(429.3) million, $201.6 million and $(113.7) million, respectively.

The following significant financing activities occurred during the year ended December 31, 2016:

•issued $300 million of 2.95% senior unsecured medium-term notes due September 1, 2026;
•repaid $375.3 million of secured debt and $11.8 million of unsecured debt;
•repaid $83.3 million of 5.25% unsecured medium-term notes due January 2016;
•issued $50.0 million of secured debt;
•repaid $128.7 million under the Company’s unsecured revolving credit facility, net of borrowings;
•sold 5,000,000 shares of common stock for aggregate net proceeds of approximately $173.2 million at a price per share of $34.73; and
•paid distributions of $308.9 million to our common stockholders.

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

•repaid $194.0 million of secured debt;
•repaid $325.2 million of 5.25% unsecured medium-term notes due January 2015;
•entered into a $350.0 million senior unsecured term loan facility due January 2021, which replaced the Company’s $250 million term loan and $100 million term loan that were scheduled to mature in June 2018;
•entered into a new $1.1 billion revolving credit facility with a maturity date in January 2020, exclusive of options to extend, which replaced the prior $900 million revolving credit facility that was scheduled to mature in December 2017;
•issued $300.0 million of 4.00% senior unsecured medium-term notes due October 1, 2025;
•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.

Credit Facilities

We had three secured credit facilities with Fannie Mae with an aggregate commitment of $636.8 million, all of which was outstanding as of December 31, 2016. 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, 2016, $355.8 million of the outstanding balance was fixed and had a weighted average interest rate of 5.06% and the remaining balance of $280.9 million had a weighted average variable rate of 2.13%. The Company prepaid a portion of the secured credit facility due in May 2017 with a portion of the proceeds from the notes offering in August 2016.

The Company has 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 for these facilities allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan Facility to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from any one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2020, with two six-month extension options, subject to certain conditions. The Term Loan Facility has a scheduled maturity date of January 29, 2021.

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

As of December 31, 2016, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $2.9 million of letters of credit at December 31, 2016), and $350.0 million of outstanding borrowings under the Term Loan Facility.

We have a working capital credit facility, which provides for a $75 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 1, 2019. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin ranges from 85 to 155 basis points.

As of December 31, 2016, we had $21.4 million of outstanding borrowings under the Working Capital Credit Facility, leaving $53.7 million of unused capacity.

In July 2016, we amended the working capital credit facility to increase the maximum borrowing capacity from $30 million to $75 million. The scheduled maturity date and interest rate were unchanged by the amendment.

The Fannie Mae credit facilities and the bank unsecured revolving credit facilities are subject to customary financial covenants and limitations. As of December 31, 2016, we were in compliance with all financial covenants under these credit facilities.

On January 23, 2017, we entered into an unsecured commercial paper note program. Under the terms of the program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper note market and rank pari passu with all of our other unsecured senior indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. The Company intends to use the commercial paper program as an alternative funding source for amounts that would have otherwise been outstanding on the revolving credit facility and intends to manage the use of the commercial paper program so that the maximum combined amount outstanding under the commercial paper program and the revolving credit facility will not exceed the maximum borrowings permitted under the credit facility of $1.1 billion. As of February 17, 2017, we had issued $120.0 million of commercial paper notes, for one month terms, at a weighted average annualized rate of 1.16%.

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 $432.0 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2016. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $6.5 million based on the average balance outstanding during the year.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. 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 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivate instruments.

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

Year Ended December 31,
201620152014
Net cash provided by/(used in) operating activities$536,929$458,627$397,303
Net cash provided by/(used in) investing activities(112,277)(265,461)(298,603)
Net cash provided by/(used in) financing activities(429,282)(201,648)(113,725)

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, 2016, 2015 and 2014.

Net Income/(Loss) Attributable to Common Stockholders

2016 -vs- 2015

Net income attributable to common stockholders was $289.0 million ($1.08 per diluted share) for the year ended December 31, 2016 as compared to net income of $336.7 million ($1.29 per diluted share) for the prior year. The decrease in net income attributable to common stockholders for the year ended December 31, 2016 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

•gains, net of tax, of $210.9 million on the sale of eight operating communities with a total of 1,782 apartment homes, a retail center and the Company’s 95% interest in two land parcels during the year ended December 31, 2016, compared to gains, net of tax, of $251.7 million on the sale of 12 operating communities with a total of 2,735 apartment homes during the year ended December 31, 2015;
•an increase in depreciation expense of $45.0 million due to homes delivered from our development and redevelopment communities and communities acquired in 2016 and 2015, partially offset by a decrease from sold communities and fully depreciated assets;
•a decrease in joint venture management and other fees of $11.3 million primarily due to the promote and fee income of $10.0 million recognized in connection with the sale of the Texas Joint Venture in 2015; and
•a decrease in income from unconsolidated entities of $10.1 million primarily due to the sale of three operating communities by the UDR/MetLife II joint venture, which resulted in gains of $47.7 million for the Company, and a casualty gain of $3.8 million, as a result of insurance proceeds related to a September 2015 event received during the year ended December 31, 2016, as compared to the sale of the eight communities held by the Texas Joint Venture, which resulted in a gain of $59.4 million, during the year ended December 31, 2015.

This was partially offset by:

•an increase in total property NOI of $59.2 million primarily due to higher revenue per occupied home, NOI from the homes placed in service related to development and redevelopment projects completed in 2016 and 2015 and communities acquired in 2016 and 2015, partially offset by a decrease from sold communities.

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, net of tax, of $251.7 million on the sale of 12 operating communities with a total of 2,735 apartment homes during the year ended December 31, 2015, compared to gains, net of tax, of $143.6 million during the year ended December 31, 2014;
•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 of $57.5 million primarily due to higher occupancy and higher revenue per occupied home, NOI from the homes placed in service related to development and redevelopment projects completed in 2015 and 2014 and communities acquired in 2015 and 2014, partially offset by a decrease from sold communities.

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.

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)
20162015% Change20152014% Change
Same-Store Communities:
Same-Store rental income$725,414$686,5895.7%$660,142$625,0375.6%
Same-Store operating expense (c)(207,857)(200,473)3.7%(191,010)(185,379)3.0%
Same-Store NOI517,557486,1166.5%469,132439,6586.7%
Non-Mature Communities/Other NOI:
Acquired communities NOI54,10113,144311.6%16,2471,3701,085.9%
Sold or held for disposition communities NOI16,44441,152(60.0)%21,29240,380(47.3)%
Development communities NOI20,7499,214125.2%29,67710,947171.1%
Redevelopment communities NOI47,76348,145(0.8)%60,55852,45015.5%
Commercial NOI and other16,47116,0982.3%16,96311,51647.3%
Total Non-Mature Communities/Other NOI155,528127,75321.7%144,737116,66324.1%
Total property NOI$673,085$613,8699.6%$613,869$556,32110.3%
(a)Same-Store consists of 31,930 apartment homes.
(b)Same-Store consists of 33,063 apartment homes.
(c)Excludes depreciation, amortization, and property management expenses.

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

Year Ended December 31,
201620152014
Net income/(loss) attributable to UDR, Inc.$292,718$340,383$154,334
Joint venture management and other fees(11,400)(22,710)(13,044)
Property management26,08323,97822,142
Other operating expenses7,6499,7088,271
Real estate depreciation and amortization419,615374,598358,154
General and administrative49,76159,69047,800
Casualty-related charges/(recoveries), net7322,335541
Other depreciation and amortization6,0236,6795,775
(Income)/loss from unconsolidated entities(52,234)(62,329)7,006
Interest expense123,031121,875130,454
Interest income and other (income)/expense, net(1,930)(1,551)(11,837)
Tax (benefit)/provision, net(3,774)(3,886)(15,136)
(Gain)/loss on sale of real estate owned, net of tax(210,851)(251,677)(143,647)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership27,28216,7735,511
Net income/(loss) attributable to noncontrolling interests3803(3)
Total property NOI$673,085$613,869$556,321

Same-Store Communities

2016 -vs- 2015

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2015 and held on December 31, 2016) consisted of 31,930 apartment homes and provided 76.9% of our total NOI for the year ended December 31, 2016.

NOI for our Same-Store Community properties increased 6.5% or $31.4 million for the year ended December 31, 2016 as compared to 2015. The increase in property NOI was primarily attributable to a 5.7% or $38.8 million increase in property rental income, which was partially offset by a 3.7% or $7.4 million increase in operating expenses. The increase in property income was primarily driven by a 5.5% or $35.9 million increase in rental rates and a 6.5% or $3.6 million increase in reimbursement and fee income. Physical occupancy was unchanged at 96.7% and total monthly income per occupied home increased by 5.6% to $1,958.

The increase in operating expenses was primarily driven by a 9.2% or $6.5 million increase in real estate taxes, which was primarily due to higher assessed valuations and lower appeal refunds.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) increased to 71.3% for the year ended December 31, 2016 as compared to 70.8% for 2015.

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 property income 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 was unchanged 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 taxes, 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.

Non-Mature Communities/Other

UDR’s Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, which include communities recently developed or acquired, redevelopment properties, sold or held for disposition properties, and non-apartment components of mixed use properties.

2016 -vs- 2015

The remaining $155.5 million or 23.1% of our total NOI for the year ended December 31, 2016 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 21.7% or $27.8 million for the year ended December 31, 2016 compared to 2015. The increase was primarily driven by an increase in NOI of $41.0 million from acquired communities and an increase of $11.2 million from developed and redeveloped communities completed in 2016 and 2015, which was partially offset by a decrease in NOI of $24.7 million from communities sold or held for disposition in 2016 and 2015.

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. 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 $26.8 million from developed and redeveloped communities completed in 2015 and 2014 and $14.9 million from acquired communities, which was partially offset by a decrease in NOI of $19.1 million from communities sold or held for disposition in 2015 and 2014.

Joint Venture Management and Other Fees

For the years ended December 31, 2016, 2015 and 2014, we recognized income from joint venture management and other fees of $11.4 million, $22.7 million, and $13.0 million, respectively. The decreased income in 2016 as compared to 2015 and increased income in 2015 as compared to 2014 was attributable to the promote and fee income of $10.0 million recognized in connection with the sale of the Texas Joint Venture in 2015.

Real Estate Depreciation and Amortization

For the year ended December 31, 2016, real estate depreciation and amortization increased 12.0% or $45.0 million as compared to 2015. The increase was primarily due to homes delivered from our development and redevelopment communities and communities acquired in 2016 and 2015, partially offset by a decrease from sold communities and fully depreciated assets.

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 was primarily due to homes delivered from our development and redevelopment communities and communities acquired in 2015 and 2014, partially offset by a decrease from sold communities and fully depreciated assets.

General and Administrative

For the year ended December 31, 2016, general and administrative expense decreased 16.6% or $9.9 million from 2015. The decrease was primarily due to a decrease in bonus expense and stock-based compensation expense for awards under the long-term incentive plan of $6.2 million, primarily due to the departure of our prior Chief Financial Officer in 2016 and outperformance in 2015, a decrease in long-term incentive plan transition costs of $2.6 million and a decrease in acquisition costs of $1.9 million, which was partially offset by an increase in salaries and benefits.

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 an increase in salaries and benefits.

Income/(Loss) from Unconsolidated Entities

For the years ended December 31, 2016, 2015 and 2014, we recognized income/(loss) from unconsolidated entities of $52.2 million, $62.3 million, and $(7.0) million, respectively. The decrease in income in 2016 as compared to 2015 of $10.1 million was primarily due to the sale of three operating communities by the UDR/MetLife II joint venture, which resulted in gains of $47.7 million for the Company, and a casualty gain of $3.8 million as a result of insurance proceeds related to a September 2015 event received during the year ended December 31, 2016, as compared to the sale of the eight communities held by the Texas Joint Venture, which resulted in a gain of $59.4 million, during the year ended December 31, 2015. The increase in income in 2015 as compared to 2014 was primarily due to the sale of the eight communities held by the Texas Joint Venture.

Interest Expense

For the years ended December 31, 2016, 2015 and 2014, we recognized interest expense of $123.0 million, $121.9 million and $130.5 million, respectively. The decrease in 2015 as compared to 2014 of 6.6% or $8.6 million 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.

Interest Income and Other Income/(Expense), Net

For the years ended December 31, 2016, 2015 and 2014, Interest income and other income/(expense), net was $1.9 million, $1.6 million and $11.9 million, respectively. The decrease in 2015 as compared to 2014 of $10.3 million was primarily attributable to the net gain of $8.4 million realized on the repayment of a note receivable in 2014.

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 $3.8 million, $3.9 million and $15.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The decrease for 2016 as compared to 2015 was primarily attributable to a one-time tax benefit of $2.4 million related to the conversion of certain taxable REIT subsidiary entities into REITs in 2016, offset by an increase in NOI of properties in the TRS.

The decrease for 2015 as compared to 2014 was primarily attributable to a one-time tax benefit of $5.8 million related to the conversion of certain taxable REIT subsidiary entities into REITs in 2014 and the resulting zero effective tax rate being applied to its 2015 income.

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

During the year ended December 31, 2016, the Company sold eight operating communities with a total of 1,782 apartment homes, a retail center, and its 95% interest in two land parcels, resulting in a gain, net of tax, of $210.9 million.

During the year ended December 31, 2015, the Company sold 12 operating communities with a total of 2,735 apartment homes, resulting in a gain, net of tax, of $251.7 million.

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 operating communities consisting of a total of 2,500 apartment homes, a parcel of land, and one operating property for a gain, net of tax, of $138.6 million. The Company also sold a 49% interest in a recently completed development, resulting in a gain, net of tax, of $7.2 million, and our 50% interest in a land parcel, resulting in a loss, net of tax, of $2.2 million.

Noncontrolling Interest

For the years ended December 31, 2016, 2015 and 2014, we recognized net income attributable to redeemable noncontrolling interests in the Operating Partnership and the DownREIT Partnership of $27.3 million, $16.8 million, and $5.5 million, respectively. The increase in 2016 as compared to 2015 is primarily attributable to the number of partnership units held by third-party noncontrolling interest holders as a result of the formation of the DownREIT Partnership in October 2015. The increase in 2015 as compared to 2014 is primarily attributable to an increase in the number of partnership units 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.

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 apartment leases have terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2016.

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, 2016 (dollars in thousands):

Payments Due by Period
Contractual Obligations20172018-20192020-2021ThereafterTotal
Long-term debt obligations$51,001$851,051$849,193$1,659,055$3,410,300
Interest on debt obligations (a)126,068219,292150,511159,394655,265
Letters of credit2,851———2,851
Unfunded commitments on:
Development projects (b)—366,218——366,218
Unconsolidated joint ventures (b) (c)14,15564,240——78,395
Redevelopment projects (b)3,0527,289——10,341
Operating lease obligations:
Operating space179152108—439
Ground leases (d)5,54811,09611,096334,604362,344
$202,854$1,519,338$1,010,908$2,153,053$4,886,153
(a)Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2016.
(b)Any unfunded costs at December 31, 2016 are shown in the year of estimated completion.
(c)Represents UDR’s proportionate share of expected remaining costs to complete the developments.
(d)For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

During 2016, we incurred gross interest costs of $139.5 million, of which $16.5 million was capitalized.

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 on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities. Therefore, management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted.

AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income (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, 2016, 2015, and 2014 (dollars in thousands):

Year Ended December 31,
201620152014
Net income/(loss) attributable to common stockholders$289,001$336,661$150,610
Real estate depreciation and amortization, including discontinued operations419,615374,598358,154
Noncontrolling interests27,66216,7765,508
Real estate depreciation and amortization on unconsolidated joint ventures47,83238,65242,133
Net gain on the sale of unconsolidated depreciable property(47,848)(59,445)—
Net gain on the sale of depreciable real estate owned(209,166)(251,677)(144,703)
Funds from operations (“FFO”) attributable to common stockholders and unitholders, basic$527,096$455,565$411,702
Distribution to preferred stockholders — Series E (Convertible)3,7173,7223,724
FFO attributable to common stockholders and unitholders, diluted$530,813$459,287$415,426
Income/(loss) per weighted average common share - diluted$1.08$1.29$0.59
FFO per common share and unit, basic$1.81$1.68$1.58
FFO per common share and unit, diluted$1.80$1.66$1.56
Weighted average number of common shares and OP/DownREIT Units outstanding — basic290,516271,616260,775
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted295,469276,699265,728
Impact of adjustments to FFO:
Acquisition-related costs/(fees)$213$2,126$373
Acquisition-related costs/(fees) on unconsolidated joint ventures—1,46069
Costs/(benefit) associated with debt extinguishment and other1,729—192
Texas joint venture promote and disposition fee income—(10,005)—
Long-term incentive plan transition costs8983,537—
Net (gain)/loss on the sale of non-depreciable real estate owned(1,685)—1,056
Net gain on prepayment of note receivable——(8,411)
Legal claims, net of tax(480)705—
Net loss on sale of unconsolidated land1,016——
Severance costs and other restructuring expense871—
Tax benefit associated with the conversion of certain TRS entities into REITs(2,436)—(5,770)
Casualty-related (recoveries)/charges, net7322,335541
Casualty-related (recoveries)/charges on unconsolidated joint ventures, net(3,752)2,474—
$(2,894)$2,632$(11,950)
FFO as Adjusted attributable to common stockholders and unitholders, diluted$527,919$461,919$403,476
FFO as Adjusted per common share and unit, diluted$1.79$1.67$1.52
Recurring capital expenditures(47,257)(45,467)(43,921)
AFFO attributable to common stockholders and unitholders$480,662$416,452$359,555
AFFO per common share and unit, diluted$1.63$1.51$1.35

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, 2016, 2015, and 2014 (shares in thousands):

Year Ended December 31,
201620152014
Weighted average number of common shares and OP/DownREIT Units outstanding — basic290,516271,616260,775
Weighted average number of OP/DownREIT Units outstanding(25,130)(12,947)(9,247)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations265,386258,669251,528
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted295,469276,699265,728
Weighted average number of OP/DownREIT Units outstanding(25,130)(12,947)(9,247)
Weighted average number of Series E preferred shares outstanding(3,028)—(3,036)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations267,311263,752253,445

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, 2016, the Operating Partnership’s real estate portfolio included 54 communities located in eight states and the District of Columbia with a total of 16,698 apartment homes.

As of December 31, 2016, UDR owned 110,883 units of our general limited partnership interests and 174,119,201 units of our limited partnership interests (the “OP Units”), or approximately 95.1% 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, 2016, the General Partner’s consolidated real estate portfolio included 127 communities located in 10 states and the District of Columbia with a total of 39,454 apartment homes. In addition, the General Partner had an ownership interest in 27 communities with 6,849 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, 2016, 2015, and 2014, were $0.8 million, $0.9 million, and $4.9 million, respectively.

Investment in Unconsolidated Entities

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

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

Impairment of Long-Lived Assets

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

Real Estate Investment Properties

We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms 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, 2016.

As of December 31, 2016Year Ended December 31, 2016
Same-Store CommunitiesNumber of Apartment CommunitiesNumber of Apartment HomesPercentage of Total Carrying ValueTotal Carrying Value (in thousands)Average Physical OccupancyMonthly Income per Occupied Home (a)Net Operating Income (in thousands)
West Region
Orange County, CA62,05213.4%$493,74996.0%$2,165$38,929
San Francisco, CA71,68810.6%389,37496.2%2,87343,450
Seattle, WA59326.0%219,34296.6%1,81714,147
Los Angeles, CA23443.0%110,43595.6%2,4706,824
Monterey Peninsula, CA71,5654.6%169,00696.7%1,51120,406
Other Southern California25162.5%92,29795.5%1,8467,917
Portland, OR24761.3%47,55997.1%1,4766,111
Mid-Atlantic Region
Metropolitan D.C.41,3157.8%286,59096.9%1,92919,915
Baltimore, MD25402.8%102,30396.7%1,5136,610
Northeast Region
New York, NY299616.5%605,12097.3%3,83534,708
Boston, MA13871.9%69,80896.7%1,8835,996
Southeast Region
Nashville, TN61,6123.8%141,45297.6%1,17115,677
Tampa, FL29422.8%103,87296.9%1,3509,793
Other Florida16362.3%83,40596.4%1,4837,049
Total/Average Same-Store Communities4914,00179.3%2,914,31296.6%$1,989237,532
Non-Mature, Commercial Properties & Other52,69720.7%760,39259,589
Total Real Estate Owned5416,698100%3,674,704$297,121
Total Accumulated Depreciation(1,408,815)
Total Real Estate Owned, Net of Accumulated Depreciation$2,265,889
(a)Monthly Income per Occupied Home represents total monthly 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, 2015 and held as of December 31, 2016. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. The Operating Partnership’s primary source of liquidity is 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, 2016, the Operating Partnership does not have any secured debt maturing in 2017.

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, 2016, 2015, and 2014.

Operating Activities

For the year ended December 31, 2016, Net cash provided by/(used in) operating activities was $228.7 million compared to $226.8 million for 2015. The increase in cash flow from operating activities was primarily due to improved operating income, primarily driven by revenue growth at communities.

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 operating income, primarily driven by revenue growth at communities.

Investing Activities

For the year ended December 31, 2016, Net cash provided by/(used in) investing activities was $(9.5) million compared to $23.6 million for 2015. The decrease in cash provided by investing activities was primarily due to a decrease in proceeds from dispositions, partially offset by increased distributions received from unconsolidated entities and acquisitions of real estate assets in 2015.

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 an increase in proceeds from dispositions and decreased spend on development projects, partially offset by the acquisition of a real estate asset in 2015.

Acquisitions

The Operating Partnership did not have any acquisitions during the year ended December 31, 2016.

In October 2015, the Operating Partnership acquired one community in Alexandria, Virginia with 421 apartment homes for a purchase price of $142.0 million.

Dispositions

During the year ended December 31, 2016, the Operating Partnership sold two operating communities in the Baltimore, Maryland market with a total of 276 apartment homes for gross proceeds of $45.3 million, resulting in net proceeds of $44.6 million and a gain, net of tax, of $33.2 million.

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

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

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.

Financing Activities

For the year ended December 31, 2016, Net cash provided by/(used in) financing activities was $(221.5) million compared to $(247.7) million for 2015. The decrease in cash used in financing activities was primarily due to a decrease in advances to the General Partner and a decrease in payoffs of secured debt, partially offset by a decrease in proceeds from the issuance of secured debt.

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 an increase in advances to the General Partner.

Credit Facilities

As of December 31, 2016, an aggregate commitment of $408.5 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, 2016. The portions of the Fannie Mae credit facilities allocated to the Operating Partnership mature at various dates from December 2018 through July 2023 and bear interest at floating and fixed rates. At December 31, 2016, $244.9 million of the outstanding balance was fixed at a weighted average interest rate of 5.05% and the remaining balance of $163.6 million on these facilities had a weighted average variable interest rate of 2.32%.

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, $300 million of medium-term notes due October 2025 and $300 million of medium-term notes due September 2026. As of December 31, 2016 and 2015, the outstanding balance under the unsecured revolving credit facility was $0.0 and $150.0 million, respectively.

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 $190.6 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2016. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $1.9 million based on the balance at December 31, 2016.

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 8, Derivatives and Hedging Activity, in the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report for additional discussion of derivative instruments.

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

Year Ended December 31,
201620152014
Net cash provided by/(used in) operating activities$228,682$226,765$208,032
Net cash provided by/(used in) investing activities(9,546)23,583(46,650)
Net cash provided by/(used in) financing activities(221,483)(247,747)(162,777)

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, 2016, 2015, and 2014.

Net Income(Loss) Attributable to OP Unitholders

2016 -vs- 2015

Net income/(loss) attributable to OP unitholders was $77.8 million ($0.42 per diluted OP Unit) for the year ended December 31, 2016 as compared to $213.3 million ($1.16 per diluted OP Unit) for the prior year. The decrease in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:

•during the year ended the December 31, 2016, the Operating Partnership sold two operating communities in Baltimore, Maryland with a total of 276 apartment homes, resulting in a gain of $33.2 million, as compared to a gain on the sale of real estate owned of $158.1 million during the year ended December 31, 2015;
•losses from unconsolidated entities of $37.4 million for the year ended December 31, 2016, as compared to $4.7 million for the prior year, as a result of the formation of the DownREIT Partnership in the fourth quarter of 2015; and
•a decrease in total property NOI of $20.5 million primarily due to fewer consolidated apartment homes as a result of the deconsolidation of communities contributed to the DownREIT Partnership during 2015.

This was partially offset by:

•a decrease in real estate depreciation and amortization expense of $22.7 million primarily due to the deconsolidation of communities contributed to the DownREIT Partnership in the fourth quarter of 2015;
•a decrease in interest expense of $10.3 million primarily due to the deconsolidation of debt balances related to communities contributed to the DownREIT Partnership; and
•a decrease in general and administrative expense of $8.2 million due to lower expense allocations by the General Partner, primarily due to a decrease in its bonus expense and stock-based compensation expense for awards under its long-term incentive plan, primarily due to the departure of its prior Chief Financial Officer in 2016, and outperformance in 2015.

2015 -vs- 2014

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

•the Operating Partnership sold five communities with a total of 1,149 apartment homes, resulting in a gain 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 gave up its controlling interest and deconsolidated the seven operating communities. The Operating Partnership accounts for its investment in the DownREIT Partnership under the equity method of accounting; and
•an increase in total property NOI of $17.3 million 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.

Apartment Community Operations

Our net income results primarily from NOI generated from the operation of our apartment communities. The Operating Partnership defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs.

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 for the years ended December 31, 2016, 2015, and 2014 (dollars in thousands):

Year Ended December 31, (a)Year Ended December 31, (b)
20162015% Change20152014% Change
Same-Store Communities:
Same-Store rental income$322,968$303,1906.5%$360,404$353,6861.9%
Same-Store operating expense (c)(85,436)(81,438)4.9%(100,395)(101,911)(1.5)%
Same-Store NOI237,532221,7527.1%260,009251,7753.3%
Non-Mature Communities/Other NOI:
Acquired communities NOI7,2161,604349.9%1,604—N/A
Sold communities NOI2,60046,574(94.4)%12,22513,750(11.1)%
Developed communities NOI5,1912,787(86.3)%2,787(603)(562.2)%
Redeveloped communities NOI38,75338,0351.9%34,12729,74214.7%
Commercial NOI and other5,8296,845(14.8)%6,8455,64921.2%
Total Non-Mature Communities/Other NOI59,58995,845(37.8)%57,58848,53818.6%
Total property NOI$297,121$317,597(6.4)%$317,597$300,3135.8%
(a)Same-Store consists of 14,001 apartment homes.
(b)Same-Store consists of 14,760 apartment homes.
(c)Excludes depreciation, amortization, and property management expenses.

The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the years ended December 31, 2016, 2015 and 2014 (dollars in thousands):

Year Ended December 31,
201620152014
Net income/(loss) attributable to OP unitholders$77,818$213,301$96,227
Property management11,12212,11111,622
Other operating expenses6,0595,9235,172
Real estate depreciation and amortization147,074169,784179,176
General and administrative18,80827,01628,541
Casualty-related charges/(recoveries), net484843541
(Income)/loss from unconsolidated entities37,4254,659—
Interest expense30,06740,32141,717
(Gain)/loss on sale of real estate owned(33,180)(158,123)(63,635)
Net income/(loss) attributable to noncontrolling interests1,4441,762952
Total property NOI$297,121$317,597$300,313

Same-Store Communities

2016 -vs- 2015

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2015 and held as of December 31, 2016) consisted of 14,001 apartment homes and provided 79.9% of our total NOI for the year ended December 31, 2016.

NOI for our Same-Store Community properties increased 7.1% or $15.8 million for the year ended December 31, 2016 compared to 2015. The increase in property NOI was primarily attributable to a 6.5% or $19.8 million increase in property

rental income, which was partial offset by a 4.9% or $4.0 million increase in operating expenses. The increase in revenues was primarily driven by a 6.6% or $19.0 million increase in rental rates. Physical occupancy decreased 0.2% to 96.6% and total income per occupied home increased 6.6% to $1,989 for the year ended December 31, 2016 compared to 2015.

The increase in property operating expenses was primarily driven by a 10.4% or $2.6 million increase in real estate taxes, which was primarily due to higher assessed valuations and lower appeal refunds.

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 73.5% for the year ended December 31, 2016 as compared to 73.1% for 2015.

2015 -vs- 2014

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2014 and held as of 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 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% and total income per occupied home increased 1.7% to $2,103 for the year ended December 31, 2015 compared to 2014.

The decrease in property operating expenses was primarily driven by a 5.1% or $0.8 million decrease in repair and maintenance expense and a 1.4% or $0.5 million decrease in real estate taxes.

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.

Non-Mature Communities/Other

The Operating Partnership’s Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently developed, acquired or redeveloped communities, sold communities and the non-apartment components of mixed use properties.

2016 -vs- 2015

The remaining $59.6 million or 20.1% of our total NOI during the year ended December 31, 2016 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 37.8% or $36.3 million for the year ended December 31, 2016 compared to 2015. The decrease was primarily driven by a decrease in NOI of $44.0 million from sold communities, which was partially offset by an increase in NOI of $5.6 million from acquired communities and an increase in NOI of $2.4 million from developed communities.

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. 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 $4.4 million from redeveloped communities and an increase in NOI of $3.4 million from developed communities.

Real Estate Depreciation and Amortization

For the year ended December 31, 2016, real estate depreciation and amortization decreased by 13.4% or $22.7 million as compared to 2015. The decrease was primarily due to the deconsolidation of communities contributed to the DownREIT Partnership in October 2015, partially offset by homes delivered from our development and redevelopment properties.

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

General and Administrative

For the year ended December 31, 2016, general and administrative expense decreased by 30.4% or $8.2 million as compared to 2015. The decrease was due to lower general and administrative expense allocations by the General Partner, primarily due to a decrease in its bonus expense and stock-based compensation expense for awards under its long-term incentive plan, primarily due to the departure of its prior Chief Financial Officer in 2016, and outperformance in 2015, as well as lower allocations due to the deconsolidation of communities contributed to the DownREIT Partnership in October 2015.

Income/(Loss) in Unconsolidated Entities

For the year ended December 31, 2016 and 2015, income/(loss) from unconsolidated entities of $(37.4) million and $(4.7) million, respectively, was attributable to the Operating Partnership's ownership interest in the DownREIT Partnership, which was formed in October 2015. The change was primarily attributable to depreciation expense for a full year in 2016.

Interest Expense

For the year ended December 31, 2016, interest expense decreased by 25.4% or $10.3 million as compared to 2015, which was primarily due to lower loan balances as a result of seven communities, and their related debt, being deconsolidated in October 2015 in connection with the formation of the DownREIT Partnership.

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

During the year ended December 31, 2016, the Operating Partnership sold two operating communities in Baltimore, Maryland with a total of 276 apartment homes, resulting in a gain of $33.2 million.

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

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

For the year ended December 31, 2014, the Operating Partnership sold one community and an adjacent parcel of land in San Diego, California, resulting in a $24.4 million gain. 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.

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 apartment leases have terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2016.

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, 2016 (dollars in thousands):

Payments Due by Period
Contractual Obligations20172018-20192020-2021ThereafterTotal
Long-term debt obligations$—278,40362,83694,310$435,549
Interest on debt obligations (a)16,52926,4545,3596,22754,569
Operating lease obligations — ground leases (b)5,54811,0969,091311,547337,282
$22,077$315,953$77,286$412,084$827,400
(a)Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2016.
(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.

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