Item 16. FORM 10‑K SUMMARY

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Item 16. FORM 10‑K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	UDR, Inc.

Date: February 19, 2019	By:	/s/ Thomas W. Toomey
		Thomas W. Toomey
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 19, 2019 by the following persons on behalf of the registrant and in the capacities indicated.



/s/ Thomas W. Toomey		/s/ Katherine A. Cattanach
Thomas W. Toomey		Katherine A. Cattanach
Chairman of the Board and Chief Executive Officer (Principal Executive Officer)		Director

/s/ Joseph D. Fisher		/s/ Mary Ann King
Joseph D. Fisher		Mary Ann King
Senior Vice President and Chief Financial Officer		Director
(Principal Financial Officer)

/s/ Tracy L. Hofmeister		/s/ Robert P. Freeman
Tracy L. Hofmeister		Robert P. Freeman
Vice President – Chief Accounting Officer		Director
(Principal Accounting Officer)

/s/ James D. Klingbeil		/s/ Jon A. Grove
James D. Klingbeil		Jon A. Grove
Lead Independent Director		Director

		/s/ Clint D. McDonnough
		Clint D. McDonnough
		Director

		/s/ Robert A. McNamara
		Robert A. McNamara
		Director

		/s/ Mark R. Patterson
		Mark R. Patterson
		Director

		/s/ Lynne B. Sagalyn
		Lynne B. Sagalyn
		Director

SIGNATURES


	UNITED DOMINION REALTY, L.P.

	By:	UDR, Inc., its sole general partner

Date: February 19, 2019	By:	/s/ Thomas W. Toomey
		Thomas W. Toomey
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)



/s/ Thomas W. Toomey		/s/ Katherine A. Cattanach
Thomas W. Toomey		Katherine A. Cattanach
Chairman of the Board and Chief Executive Officer of the General Partner		Director of the General Partner
(Principal Executive Officer)

/s/ Joseph D. Fisher		/s/ Mary Ann King
Joseph D. Fisher		Mary Ann King
Senior Vice President and Chief Financial Officer		Director of the General Partner
of the General Partner (Principal Financial Officer)

/s/ Tracy L. Hofmeister		/s/ Robert P. Freeman
Tracy L. Hofmeister		Robert P. Freeman
Vice President – Chief Accounting Officer of the General Partner		Director of the General Partner
(Principal Accounting Officer)

/s/ James D. Klingbeil		/s/ Jon A. Grove
James D. Klingbeil		Jon A. Grove
Lead Independent Director of the General Partner		Director of the General Partner

		/s/ Clint D. McDonnough
		Clint D. McDonnough
		Director of the General Partner

		/s/ Robert A. McNamara
		Robert A. McNamara
		Director of the General Partner

		/s/ Mark R. Patterson
		Mark R. Patterson
		Director of the General Partner

		/s/ Lynne B. Sagalyn
		Lynne B. Sagalyn
		Director of the General Partner

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


	PAGE
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT

UDR, INC.:

Reports of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets at December 31, 2018 and 2017	F-4

Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016	F-5

Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2018, 2017, and 2016	F-6

Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017, and 2016	F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016	F-8

Notes to Consolidated Financial Statements	F-10

UNITED DOMINION REALTY, L.P.:

Report of Independent Registered Public Accounting Firm	F-53

Consolidated Balance Sheets at December 31, 2018 and 2017	F-54

Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016	F-55

Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2018, 2017, and 2016	F-56

Consolidated Statements of Changes in Capital for the years ended December 31, 2018, 2017, and 2016	F-57

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016	F-58

Notes to Consolidated Financial Statements	F-59

SCHEDULES FILED AS PART OF THIS REPORT

UDR, INC.:

Schedule III- Summary of Real Estate Owned	S-1

UNITED DOMINION REALTY, L.P.:

Schedule III- Summary of Real Estate Owned	S-6

All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of UDR, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since at least 1984, but we are unable to determine the specific year.

Denver, Colorado February 19, 2019

F - 2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of UDR, Inc.

Opinion on Internal Control over Financial Reporting

We have audited UDR, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, UDR, Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 19, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Denver, Colorado February 19, 2019

F - 3

UDR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	December 31,		December 31,
	2018		2017
ASSETS
Real estate owned:
Real estate held for investment	$	10,196,159	$	9,584,716
Less: accumulated depreciation		(3,654,160)		(3,326,312)
Real estate held for investment, net		6,541,999		6,258,404
Real estate under development (net of accumulated depreciation of $0 and $3,854, respectively)		—		588,636
Total real estate owned, net of accumulated depreciation		6,541,999		6,847,040
Cash and cash equivalents		185,216		2,038
Restricted cash		23,675		19,792
Notes receivable, net		42,259		19,469
Investment in and advances to unconsolidated joint ventures, net		780,869		720,830
Other assets		137,710		124,104
Total assets	$	7,711,728	$	7,733,273

LIABILITIES AND EQUITY
Liabilities:
Secured debt, net	$	601,227	$	803,269
Unsecured debt, net		2,946,560		2,868,394
Real estate taxes payable		20,608		18,349
Accrued interest payable		38,747		33,432
Security deposits and prepaid rent		35,060		31,916
Distributions payable		97,666		91,455
Accounts payable, accrued expenses, and other liabilities		76,343		102,956
Total liabilities		3,816,211		3,949,771

Commitments and contingencies (Note 14)

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		972,740		948,138

Equity:
Preferred stock, no par value; 50,000,000 shares authorized:
8.00% Series E Cumulative Convertible; 2,780,994 shares issued and outstanding at December 31, 2018 and December 31, 2017		46,200		46,200
Series F; 15,802,393 and 15,852,721 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		1		1
Common stock, $0.01 par value; 350,000,000 shares authorized:
275,545,900 and 267,822,069 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		2,755		2,678
Additional paid-in capital		4,920,732		4,651,205
Distributions in excess of net income		(2,063,996)		(1,871,603)
Accumulated other comprehensive income/(loss), net		(67)		(2,681)
Total stockholders’ equity		2,905,625		2,825,800
Noncontrolling interests		17,152		9,564
Total equity		2,922,777		2,835,364
Total liabilities and equity	$	7,711,728	$	7,733,273

See accompanying notes to consolidated financial statements.

F - 4

UDR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Year Ended December 31,
	2018		2017		2016
REVENUES:
Rental income	$	1,035,105	$	984,309	$	948,461
Joint venture management and other fees		11,754		11,482		11,400
Total revenues		1,046,859		995,791		959,861
OPERATING EXPENSES:
Property operating and maintenance		169,078		164,660		159,947
Real estate taxes and insurance		133,912		121,146		115,429
Property management		28,465		27,068		26,083
Other operating expenses		12,100		9,060		7,649
Real estate depreciation and amortization		429,006		430,054		419,615
General and administrative		46,983		48,566		49,761
Casualty-related charges/(recoveries), net		2,121		4,335		732
Other depreciation and amortization		6,673		6,408		6,023
Total operating expenses		828,338		811,297		785,239
Gain/(loss) on sale of real estate owned		136,197		43,404		226,199
Operating income		354,718		227,898		400,821

Income/(loss) from unconsolidated entities		(5,055)		31,257		52,234
Interest expense		(134,168)		(128,711)		(123,031)
Interest income and other income/(expense), net		6,735		1,971		1,930
Income/(loss) before income taxes		222,230		132,415		331,954
Tax (provision)/benefit, net		(688)		240		(11,574)
Net income/(loss)		221,542		132,655		320,380
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(18,215)		(10,933)		(27,282)
Net (income)/loss attributable to noncontrolling interests		(221)		(164)		(380)
Net income/(loss) attributable to UDR, Inc.		203,106		121,558		292,718
Distributions to preferred stockholders — Series E (Convertible)		(3,868)		(3,708)		(3,717)
Net income/(loss) attributable to common stockholders	$	199,238	$	117,850	$	289,001

Income/(loss) per weighted average common share:
Basic	$	0.74	$	0.44	$	1.09
Diluted	$	0.74	$	0.44	$	1.08

Weighted average number of common shares outstanding:
Basic		268,179		267,024		265,386
Diluted		269,483		268,830		267,311

See accompanying notes to consolidated financial statements.

F - 5

UDR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)


	Year Ended December 31,
	2018		2017		2016
Net income/(loss)	$	221,542	$	132,655	$	320,380
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)		4,806		1,802		3,514
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		(1,948)		1,407		3,657
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		2,858		3,209		7,171
Comprehensive income/(loss)		224,400		135,864		327,551
Comprehensive (income)/loss attributable to noncontrolling interests		(18,680)		(11,378)		(27,764)
Comprehensive income/(loss) attributable to UDR, Inc.	$	205,720	$	124,486	$	299,787

See accompanying notes to consolidated financial statements.

F - 6

UDR, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands, except per share data)




							Distributions		Accumulated Other Comprehensive
	Preferred		Common		Paid-in		in Excess of		Income/(Loss),		Noncontrolling
	Stock		Stock		Capital		Net Income		net		Interests		Total
Balance at December 31, 2015	$	46,458	$	2,618	$	4,447,816	$	(1,584,459)	$	(12,678)	$	856	$	2,900,611
Net income/(loss) attributable to UDR, Inc.		—		—		—		292,718		—		—		292,718
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		322		322
Disposition of noncontrolling interest of consolidated real estate		—		—		—		—		—		(1,155)		(1,155)
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		102		102
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		3,735		3,735
Other comprehensive income/(loss)		—		—		—		—		7,069		—		7,069
Issuance/(forfeiture) of common and restricted shares, net		—		2		4,973		—		—		—		4,975
Issuance of common shares through public offering		—		50		173,161		—		—		—		173,211
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		3		9,463		—		—		—		9,466
Common stock distributions declared ($1.18 per share)		—		—		—		(315,102)		—		—		(315,102)
Preferred stock distributions declared-Series E ($1.3288 per share)		—		—		—		(3,717)		—		—		(3,717)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		24,735		—		—		24,735
Balance at December 31, 2016		46,458		2,673		4,635,413		(1,585,825)		(5,609)		3,860		3,096,970
Net income/(loss) attributable to UDR, Inc.		—		—		—		121,558		—		—		121,558
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		147		147
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		125		125
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		5,432		5,432
Other comprehensive income/(loss)		—		—		—		—		2,928		—		2,928
Issuance/(forfeiture) of common and restricted shares, net		—		1		437		—		—		—		438
Cumulative effect upon adoption of ASU 2016-09		—		—		558		(558)		—		—		—
Conversion of Series E Cumulative Convertible Shares		(257)		—		257		—		—		—		—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		4		14,540		—		—		—		14,544
Common stock distributions declared ($1.24 per share)		—		—		—		(331,974)		—		—		(331,974)
Preferred stock distributions declared-Series E ($1.3288 per share)		—		—		—		(3,708)		—		—		(3,708)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(71,096)		—		—		(71,096)
Balance at December 31, 2017		46,201		2,678		4,651,205		(1,871,603)		(2,681)		9,564		2,835,364
Net income/(loss) attributable to UDR, Inc.		—		—		—		203,106		—		—		203,106
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		175		175
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		108		108
Repurchase of common shares		—		(6)		(19,982)		—		—		—		(19,988)
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		7,305		7,305
Other comprehensive income/(loss)		—		—		—		—		2,614		—		2,614
Exercise of stock options, net		—		8		(23,061)		—		—		—		(23,053)
Issuance/(forfeiture) of common and restricted shares, net		—		(1)		(507)		—		—		—		(508)
Issuance of common shares through public offering		—		72		299,753		—		—		—		299,825
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		4		13,324		—		—		—		13,328
Common stock distributions declared ($1.29 per share)		—		—		—		(348,079)		—		—		(348,079)
Preferred stock distributions declared-Series E ($1.3968 per share)		—		—		—		(3,868)		—		—		(3,868)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(43,552)		—		—		(43,552)
Balance at December 31, 2018	$	46,201	$	2,755	$	4,920,732	$	(2,063,996)	$	(67)	$	17,152	$	2,922,777

See accompanying notes to consolidated financial statements.

F - 7

UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except for share data)


	Year Ended December 31,
	2018		2017		2016
Operating Activities
Net income/(loss)	$	221,542	$	132,655	$	320,380
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		435,679		436,462		425,638
(Gain)/loss on sale of real estate owned		(136,197)		(43,404)		(226,199)
(Income)/loss from unconsolidated entities		5,055		(31,257)		(52,234)
Return on investment in unconsolidated joint ventures		4,248		4,416		57,578
Amortization of share-based compensation		14,244		12,862		13,398
Other		4,998		20,467		39,490
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(13,880)		(9,008)		(29,399)
Increase/(decrease) in operating liabilities		24,987		(4,278)		(12,084)
Net cash provided by/(used in) operating activities		560,676		518,915		536,568

Investing Activities
Acquisition of real estate assets		—		(96,791)		(163,015)
Proceeds from sales of real estate investments, net		247,031		71,235		301,799
Development of real estate assets		(150,238)		(248,546)		(178,279)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(112,359)		(124,728)		(91,740)
Capital expenditures — non-real estate assets		(4,850)		(1,384)		(4,439)
Investment in unconsolidated joint ventures		(112,025)		(123,842)		(40,162)
Distributions received from unconsolidated joint ventures		42,683		116,329		66,116
Purchase deposits on pending acquisitions		(1,000)		—		—
Repayment/(issuance) of notes receivable, net		(22,790)		321		(3,000)
Net cash provided by/(used in) investing activities		(113,548)		(407,406)		(112,720)

Financing Activities
Payments on secured debt		(279,243)		(326,346)		(375,308)
Proceeds from the issuance of secured debt		80,000		—		50,000
Payments on unsecured debt		—		(300,000)		(95,053)
Net proceeds from the issuance of unsecured debt		299,994		598,095		300,000
Net proceeds/(repayment) of commerical paper		(198,885)		300,000		—
Net proceeds/(repayment) of revolving bank debt		(21,751)		417		(128,650)
Proceeds from the issuance of common shares through public offering, net		299,825		—		173,211
Repurchase of common shares		(19,988)		—		—
Distributions paid to redeemable noncontrolling interests		(32,457)		(31,089)		(29,688)
Distributions paid to preferred stockholders		(3,836)		(3,708)		(3,717)
Distributions paid to common stockholders		(342,241)		(327,793)		(308,923)
Other		(41,485)		(21,361)		(11,154)
Net cash provided by/(used in) financing activities		(260,067)		(111,785)		(429,282)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		187,061		(276)		(5,434)
Cash, cash equivalents, and restricted cash, beginning of year		21,830		22,106		27,540
Cash, cash equivalents, and restricted cash, end of year	$	208,891	$	21,830	$	22,106

Supplemental Information:
Interest paid during the period, net of amounts capitalized	$	132,466	$	126,348	$	124,635
Cash paid/(refunds received) for income taxes		625		1,660		693
Non-cash transactions:
Transfer of investment in and advances to unconsolidated joint ventures to real estate owned	$	—	$	140,549	$	80,583
Secured debt assumed in the consolidation of unconsolidated joint ventures		—		—		75,796
Fair value adjustment of secured debt assumed in the consolidation of unconsolidated joint ventures		—		—		4,228
Vesting of LTIP Units		4,397		2,317		—
Development costs and capital expenditures incurred but not yet paid		10,304		43,930		46,285
Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (348,057 shares in 2018; 389,033 shares in 2017; and 260,292 shares in 2016)		13,328		14,544		9,466
Dividends declared but not yet paid		97,666		91,455		86,936

F - 8

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018


	Year Ended December 31,
	2018		2017		2016
The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year:
Cash and cash equivalents	$	2,038	$	2,112	$	6,742
Restricted cash		19,792		19,994		20,798
Total cash, cash equivalents, and restricted cash as shown above	$	21,830	$	22,106	$	27,540
Cash, cash equivalents, and restricted cash, end of year:
Cash and cash equivalents	$	185,216	$	2,038	$	2,112
Restricted cash		23,675		19,792		19,994
Total cash, cash equivalents, and restricted cash as shown above	$	208,891	$	21,830	$	22,106

See accompanying notes to consolidated financial statements.

F - 9

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

CONSOLIDATION AND BASIS OF PRESENTATION

Organization and Formation

UDR, Inc. (“UDR,” the “Company,” “we,” or “our”) is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities generally in high barrier-to-entry markets located in the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. At December 31, 2018, our consolidated apartment portfolio consisted of 127 consolidated communities located in 19 markets consisting of 39,931 apartment homes. In addition, the Company has an ownership interest in 8,112 apartment homes through unconsolidated joint ventures.

Basis of Presentation

The accompanying consolidated financial statements of UDR include its wholly-owned and/or controlled subsidiaries (see the “Consolidated Joint Ventures” section of Note 5, Joint Ventures and Partnerships, for further discussion). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of December 31, 2018 and 2017, there were 183,636,543 and 183,350,924 units, respectively, in the Operating Partnership (“OP Units”) outstanding, of which 174,248,699, or 94.9% and 174,237,688, or 95.0%, respectively, were owned by UDR and 9,387,844, or 5.1% and 9,113,236, or 5.0%, respectively, were owned by outside limited partners. As of December 31, 2018 and 2017, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 17,203,489, or 53.2% and 16,866,443, or 52.1%, respectively, were owned by UDR (of which, 13,470,651, or 41.6%, were held by the Operating Partnership for both periods) and 15,163,891, or 46.8% and 15,500,937, or 47.9%, respectively, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.

The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those in Note 2, Significant Accounting Policies, Note 3, Real Estate Owned, Note 5, Joint Ventures and Partnerships and Note 14, Commitments and Contingencies.

SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to update and simplify disclosure requirements as well as eliminate outdated, superseded and/or redundant requirements with United States generally accepted accounting principles, or GAAP, (“SEC Simplification”). The amendments are effective for all SEC filings made on or after November 5, 2018. As a result of the amendments, the Company will no longer provide ratios of earnings to fixed charges in our exhibits to our annual and quarterly filings with the SEC. Additionally, the amendments removed certain SEC guidance that conflicted with GAAP guidance, under which the Company previously followed SEC guidance and recorded Gain/(loss) on the sale of real estate owned, net of tax, after Operating income. The Company has reclassified Gain/(loss) on the sale of real estate owned within Operating income, with any income tax impact recorded within Tax (provision)/benefit, net per GAAP for all periods presented.

F - 10

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Additionally, as a result of the SEC Simplification, for the year ended December 31, 2016, the following retrospective changes were made to the Consolidated Statement of Operations:


Gain/(loss) on the sale of real estate owned, net of tax – as previously reported	$	210,851
Tax impact of sales of real estate owned		15,348
Gain/(loss) on the sale of real estate owned – as reported herein	$	226,199

Tax (provision)/benefit, net – as previously reported	$	3,774
Tax impact of sales of real estate owned		(15,348)
Tax (provision)/benefit, net – as reported herein	$	(11,574)

Other than as presented above, no retrospective changes were required for the year ended December 31, 2017.

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The ASU aimed to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard would have been effective for the Company on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Company early adopted the guidance on January 1, 2018; however, the updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

In January 2017, the FASB issued ASU 2017‑01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changed the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard was effective for the Company on January 1, 2018. The ASU was applied prospectively to any transactions occurring after adoption. The Company expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU addressed the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard was effective for the Company on January 1, 2018, and was applied retrospectively to all periods presented. The updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

As a result of the adoption of ASU 2016-18, for the years ended December 31, 2017 and 2016, the following line items in the following amounts were reclassified on the Consolidated Statements of Cash Flows (in thousands):


	Year ended December 31,
	2017		2016
(Increase)/decrease in operating assets	$	(237)	$	(361)
Net cash provided by /(used in) operating activities	$	(237)	$	(361)

Proceeds from sales of real estate investments, net	$	-	$	(555)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		35		112
Net cash provided by /(used in) investing activities	$	35	$	(443)

Net increase/(decrease) in cash, cash equivalents, and restricted cash	$	(202)	$	(804)

F - 11

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

In November 2016, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amends the transition requirements and scope of ASU 2016-13 and clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016‑02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. The standard became effective for the Company on January 1, 2019.

The Company is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. The Company intends to elect the following package of practical expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also plans to elect the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.

The Company anticipates recognizing right-of-use assets and related lease liabilities between $85.0 million and $150.0 million on our consolidated opening balance sheets as of January 1, 2019 upon adoption of the standard. Our anticipated range of right-of-use assets and related lease liabilities to be recognized as disclosed above may change as a result of updates to the projected future minimum lease payments. The lease liabilities represent the present value of the remaining minimum lease payments related to ground leases for communities where we are the lessee. The right-of-use assets represent the lease liabilities plus any prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The Company plans to continue recognizing lease expense for these leases in a manner similar to current accounting upon adoption of the standard based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, subsequent to the adoption of the standard, we will expense internal leasing costs as incurred.

In July 2018, the FASB issued ASU No. 2018-11, Leases – Targeted Improvements, which provides entities with relief from the costs of implementing certain aspects of ASU No. 2016-02, Leases. The ASU provides a practical expedient which allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company intends to elect the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard. The Company also intends to elect the transition option.

In January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The updated standard required certain equity securities to be measured at fair value on the balance sheet, with changes in fair value recognized in net income. The standard was effective for the Company on January 1, 2018. The Company holds one investment in equity securities subject to the updated guidance. As the investment does not have a readily determinable fair value, the Company elected the measurement alternative under which the investment is measured at cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer. During the year ended December 31, 2018, the Company recorded gains of $2.1 million, in Interest income and other income/(expense), net on the Consolidated Statements of Operations as a result of measuring the investment using this measurement alternative.

F - 12

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

The Company does not view the impact, as a result of the adoption of the updated standard, to be material to the consolidated financial statements. Disclosures were updated pursuant to the requirements of the ASU.

In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers. ASU No. 2014-09 amended the FASB Accounting Standards Codification (“ASC”) by creating ASC Topic 606, Revenue from Contracts with Customers. The standard provided companies with a single model for use in accounting for revenue arising from contracts with customers and replaced most existing revenue recognition guidance in U.S. GAAP, including industry-specific revenue guidance. The standard specifically excluded lease contracts. The ASU allowed for the use of either the full or modified retrospective transition method. ASC Topic 606 was effective for the Company on January 1, 2018, at which time the Company adopted it using the modified retrospective approach. However, as the majority of the Company’s revenue is from rental income related to leases, the ASU did not have a material impact on the consolidated financial statements. Related disclosures have been provided and/or updated pursuant to the requirements of the ASU.

Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment.

Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

UDR purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Company estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are capitalized as incurred if the acquisition does not meet the definition of a business.

Quarterly or when changes in circumstances warrant, UDR will assess our real estate properties for indicators of impairment. In determining whether the Company has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Properties classified as real estate held for disposition generally represent properties that are actively marketed or contracted for sale with the closing expected to occur within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition.

F - 13

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2018, 2017, and 2016 were $7.5 million, $8.8 million and $7.9 million, respectively. During the years ended December 31, 2018, 2017, and 2016, total interest capitalized was $10.6 million, $18.6 million, and $16.5 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Company’s cash and cash equivalents are held at major commercial banks.

Restricted Cash

Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.

Revenue

On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, utilizing the modified retrospective method, under which only contracts entered into after the effective date or not complete as of the effective date are subject to the new standard and an adjustment to the opening balance of retained earnings is made to recognize any required adjustments. As a result of the adoption, the Company did not make an adjustment to retained earnings because no open contracts required different treatment under the new standard.

Revenue is measured based on consideration specified in contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer.

The following is a description of the principal streams from which the Company generates its revenue:

Lease Revenue

Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 840, Leases. Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the reasonably assured lease term. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the reasonably assured lease term.

Reimbursements Revenue

Reimbursements revenue includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. Reimbursements revenue is recognized on a gross basis as earned as the Company has determined it is the principal provider of the services.

F - 14

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Other Revenue

Other revenue is generated by services provided by the Company to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

Joint venture management and other fees

The Joint venture management and other fees revenue consists of management fees charged to our equity method joint ventures per the terms of contractual agreements and other fees. Joint venture fee revenue is recognized monthly as the management services are provided and the fees are earned or upon a transaction whereby the Company earns a fee.

Real Estate Sales Gain Recognition

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Company generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Company will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

Sale transactions to entities in which the Company sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Company will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value.

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Company will record a full gain or loss in the period the property is contributed.

F - 15

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Disaggregation of Revenue

Rental income, as disclosed on the Consolidated Statements of Operations, is disaggregated by principal revenue stream and by reportable segment in the following tables (dollars in thousands). Joint venture management and other fees are not included in the tables as they are not allocable to a specific reportable segment or segments.


	December 31, (a)
	2018		2017		2016
Lease Revenue (b)
Same-Store Communities
West Region	$	371,366	$	355,904	$	328,693
Mid-Atlantic Region		204,733		199,207		194,367
Northeast Region		148,057		146,105		142,249
Southeast Region		109,190		104,106		99,451
Southwest Region		39,567		38,978		37,529
Non-Mature Communities/Other		82,986		65,474		75,478
Total segment and consolidated lease revenue	$	955,899	$	909,774	$	877,767

Reimbursements Revenue
Same-Store Communities
West Region	$	17,159	$	16,377	$	14,797
Mid-Atlantic Region		9,084		8,715		8,123
Northeast Region		2,721		2,775		2,434
Southeast Region		6,821		6,509		6,413
Southwest Region		2,197		2,098		1,930
Non-Mature Communities/Other		8,768		7,781		7,859
Total segment and consolidated reimbursements revenue	$	46,750	$	44,255	$	41,556

Other Revenue
Same-Store Communities
West Region	$	10,789	$	10,728	$	9,831
Mid-Atlantic Region		6,633		6,235		5,733
Northeast Region		3,241		2,856		2,890
Southeast Region		6,223		5,852		5,454
Southwest Region		1,945		1,916		1,814
Non-Mature Communities/Other		3,625		2,693		3,416
Total segment and consolidated other revenue	$	32,456	$	30,280	$	29,138

Total Revenue
Same-Store Communities
West Region	$	399,314	$	383,009	$	353,321
Mid-Atlantic Region		220,450		214,157		208,223
Northeast Region		154,019		151,736		147,573
Southeast Region		122,234		116,467		111,318
Southwest Region		43,709		42,992		41,273
Non-Mature Communities/Other		95,379		75,948		86,753
Total segment and consolidated total revenue	$	1,035,105	$	984,309	$	948,461

	(a)		Same-Store Community population consisted of 37,673 apartment homes. Same-Store Community is defined in Note 15, Reportable Segments.

	(b)		Lease Revenue is subject to recognition under ASC 840, Leases.

F - 16

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Notes Receivable

The following table summarizes our Notes receivable, net as of December 31, 2018 and 2017 (dollars in thousands):


	Interest rate at		Balance Outstanding
	December 31,		December 31,		December 31,
	2018		2018		2017
Note due March 2019 (a)	12.00	%	$	20,000	$	—
Note due February 2020 (b)	10.00	%		14,659		13,669
Note due October 2020 (c)	8.00	%		2,000		2,000
Note due August 2022 (d)	10.00	%		5,600		3,800
Total notes receivable, net			$	42,259	$	19,469

	(a)		In March 2018, the Company entered into a secured note receivable with an unaffiliated third party with an aggregate commitment of $20.0 million, of which $20.0 million has been funded. Interest payments are due when the loan matures. The note matures in March 2019 and is secured by a parcel of land.

	(b)		The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $16.4 million, of which $14.7 million has been funded, including $1.0 million during the year ended December 31, 2018. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the eighth anniversary of the date of the note (February 2020).

	(c)		The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.0 million, of which $2.0 million has been funded. Interest payments are due when the loan matures. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $10.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (October 2020).

	(d)		The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $10.0 million, of which $5.6 million has been funded, including $1.8 million during the year ended December 31, 2018. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $25.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) August 2022.

In January 2019, the $5.6 million note was repaid in full along with contractual accrued interest of $0.2 million and $8.5 million of promoted interest in conjunction with the unaffiliated third party being acquired.

During the years ended December 31, 2018, 2017, and 2016, the Company recognized $4.1 million, $1.8 million and $1.8 million, respectively, of interest income from notes receivable, none of which was related party interest income. Interest income is included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.

Investment in Joint Ventures and Partnerships

We use the equity method to account for investments in joint ventures and partnerships that qualify as variable interest entities where we are not the primary beneficiary and other entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operating and financial policies of the investee. Throughout these financial statements we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest. The Company also uses the equity method when we function as the managing partner and our venture partner has substantive participating rights or where we can be replaced by our venture partner as managing partner without cause. For a joint venture or partnership accounted for under the equity method, our share of net earnings or losses is reflected as income/loss when earned/incurred and distributions are credited against our investment in the joint venture or partnership as received.

F - 17

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

In determining whether a joint venture or partnership is a variable interest entity, the Company considers: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including necessity of subordinated debt; estimates of future cash flows; ours and our partner’s ability to participate in the decision making related to acquisitions, disposition, budgeting and financing of the entity; obligation to absorb losses and preferential returns; nature of our partner’s primary operations; and the degree, if any, of disproportionality between the economic and voting interests of the entity. As of December 31, 2018, the Company did not determine any of our joint ventures or partnerships to be variable interest entities.

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

Derivative Financial Instruments

The Company utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for cash flow hedges that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income available to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.

Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of Common Stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.

Income Taxes

Due to the structure of the Company as a REIT and the nature of the operations for the operating properties, no provision for federal income taxes has been provided for at UDR. Historically, the Company has generally incurred only state and local excise and franchise taxes. UDR has elected for certain consolidated subsidiaries to be treated as taxable REIT subsidiaries (“TRS”).

F - 18

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets are generally the result of differing depreciable lives on capitalized assets and timing of expense recognition for certain accrued liabilities. As of December 31, 2018 and 2017, UDR’s net deferred tax asset/(liability) was less than $(0.1) million and $0.1 million, respectively.

GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

UDR had no material unrecognized tax benefit, accrued interest or penalties at December 31, 2018. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2015 through 2017 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax (provision)/benefit, net on the Consolidated Statements of Operations.

As of December 31, 2017, management of the Company had completed its review of the effects of the Tax Cuts and Jobs Act, under which it recognized a one-time tax benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits that became refundable.

Principles of Consolidation

The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the consolidation guidance. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

Discontinued Operations

In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.

Stock-Based Employee Compensation Plans

The Company measures the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognizes the cost over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. The fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For performance

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based awards, the Company remeasures the fair value each balance sheet date with adjustments made on a cumulative basis until the award is settled and the final compensation is known. The fair value for market based awards issued by the Company is calculated utilizing a Monte Carlo simulation. For further discussion, see Note 9, Employee Benefit Plans.

Advertising Costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2018, 2017, and 2016, total advertising expense was $6.7 million, $6.2 million, and $6.4 million, respectively.

Cost of Raising Capital

Costs incurred in connection with the issuance of equity securities are deducted from stockholders’ equity. Costs incurred in connection with the issuance or renewal of debt are recorded based on the terms of the debt issuance or renewal. Accordingly, if the terms of the renewed or modified debt instrument are deemed to be substantially different (i.e. a 10 percent or greater difference in the cash flows between instruments), all unamortized financing costs associated with the extinguished debt are charged to earnings in the current period and certain costs of new debt issuances are capitalized and amortized over the term of the debt. When the cash flows are not substantially different, the lender costs associated with the renewal or modification are capitalized and amortized into interest expense over the remaining term of the related debt instrument and other related costs are expensed. The balance of any unamortized financing costs associated with retired debt is expensed upon retirement. Deferred financing costs for new debt instruments include fees and costs incurred by the Company to obtain financing. Deferred financing costs are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt.

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2018, 2017, and 2016, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 13, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the years ended December 31, 2018, 2017, and 2016 was $0.2 million, $0.3 million, and $0.1 million, respectively.

Use of Estimates

The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates.

Market Concentration Risk

The Company is subject to increased exposure from economic and other competitive factors specific to markets where the Company holds a significant percentage of the carrying value of its real estate portfolio. At December 31, 2018, the Company held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California; Metropolitan D.C. and New York, New York markets.

REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of December 31, 2018, the

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DECEMBER 31, 2018

Company owned and consolidated 127 communities in 11 states plus the District of Columbia totaling 39,931 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2018 and 2017 (dollars in thousands):


	December 31,		December 31,
	2018		2017
Land	$	1,849,799	$	1,780,229
Depreciable property — held and used:
Land improvements		213,224		189,919
Building, improvements, and furniture, fixtures and equipment		8,133,136		7,614,568
Under development:
Land and land improvements		—		109,468
Building, improvements, and furniture, fixtures and equipment		—		483,022
Real estate owned		10,196,159		10,177,206
Accumulated depreciation		(3,654,160)		(3,330,166)
Real estate owned, net	$	6,541,999	$	6,847,040

Acquisitions

The Company did not have any acquisitions during the year ended December 31, 2018.

In October 2017, the Company acquired an operating community located in Denver, Colorado with a total of 218 apartment homes and 17,000 square feet of retail space for a purchase price of approximately $141.5 million. The Company consolidated the operating community and accounted for the consolidation as a business combination. As a result of the consolidation, the Company increased its real estate owned by approximately $139.0 million, recorded approximately $2.5 million of in-place lease intangibles and recorded a gain on consolidation of approximately $14.8 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. The acquisition was funded with tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”). Prior to acquiring the community, the Company had provided $93.5 million as a participating loan investment to the third-party developer and was entitled to receive, in addition to repayment of principal and interest, contingent interest equal to 50% of the sum of the amount the property was sold for less construction and closing costs, which equaled approximately $14.9 million. The Company had previously accounted for its participating loan investment as an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships).

In January 2017, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). As a result of the consolidation, the Company increased its real estate owned by approximately $97.0 million, recorded approximately $1.7 million of in-place lease intangibles and recorded a gain on consolidation of $12.2 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations.

In January 2019, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in a 386 home operating community in Anaheim, California, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $33.5 million. As a result, in January 2019, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). As a result of the consolidation, the Company increased its real estate owned by approximately $118.1 million.

In January 2019, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in a 155 home operating community located in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $20.0 million. As a result, in January 2019, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). As a result of the consolidation, the Company increased its real estate owned by approximately $61.1 million.

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DECEMBER 31, 2018

In January 2019, the Company acquired a to-be-developed parcel of land located in Washington D.C. for approximately $27.2 million.

In February 2019, the Company acquired a to-be-developed parcel of land located in Denver, Colorado for approximately $13.7 million.

In February 2019, the Company acquired a 188 home operating community located in Brooklyn, New York for approximately $132.3 million.

In February 2019, the Company acquired a 381 home operating community located in St. Petersburg, Florida for approximately $98.7 million.

The Company incurred zero, $0.4 million and $0.2 million of acquisition-related costs during the years ended December 31, 2018, 2017, and 2016, respectively. These expenses are reported within the line item General and administrative on the Consolidated Statements of Operations.

Dispositions

In December 2018, the Company sold an operating community in Fairfax, Virginia with a total of 604 apartment homes for gross proceeds of $160.0 million, resulting in a gain of $65.9 million.

In February 2018, the Company sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

In December 2017, the Company sold two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in a gain of $41.3 million.

In February 2017, the Company sold a parcel of land in Richmond, Virginia for gross proceeds of $3.5 million, resulting in a gain of $2.1 million.

Developments

During the year ended December 31, 2018, the Company completed the development of two communities, located in Huntington Beach, California and Boston, Massachusetts, with a total of 1,101 apartment homes.

Other Activity

In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax deferred Section 1031 exchange.

Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.

VARIABLE INTEREST ENTITIES

The Company has determined that the Operating Partnership and DownREIT Partnership are VIEs as the limited partners lack substantive kick-out rights and substantive participating rights. The Company has concluded that it is the primary beneficiary of, and therefore consolidates, the Operating Partnership and DownREIT Partnership based on its role as the sole general partner of the Operating Partnership and DownREIT Partnership. The Company’s role as community manager and its equity interests give us the power to direct the activities that most significantly impact the

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DECEMBER 31, 2018

economic performance and the obligation to absorb potentially significant losses or the right to receive potentially significant benefits of the Operating Partnership and DownREIT Partnership.

See the consolidated financial statements of the Operating Partnership presented within this Report and the financial statements required under Rule 3-09 of Regulation S-X for the DownREIT Partnership included as Exhibit 99.1 to this Report.

JOINT VENTURES AND PARTNERSHIPS

UDR has entered into joint ventures and partnerships with unrelated third parties to acquire real estate assets that are either consolidated and included in Real estate owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net, on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships.

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

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2018 and 2017 (dollars in thousands):


				Number of
		Number of		Apartment
		Properties		Homes	Investment at				UDR’s Ownership Interest
	Location of	December 31,		December 31,	December 31,		December 31,		December 31,		December 31,
Joint Venture	Properties	2018		2018	2018		2017		2018		2017
Operating and development:
UDR/MetLife I	Los Angeles, CA	1	operating community	150	$	30,839	$	34,653	50.0	%	50.0	%
UDR/MetLife II	Various	18	operating communities	4,059		296,807		303,702	50.0	%	50.0	%
Other UDR/MetLife	Various	5	operating communities	1,437		115,668		135,563	50.6	%	50.6	%
Joint Ventures
UDR/MetLife Vitruvian Park®	Addison, TX	4	operating communities;	1,513		71,730		78,404	50.0	%	50.0	%
		5	land parcels
UDR/KFH	Washington, D.C.	3	operating communities	660		5,507		8,958	30.0	%	30.0	%
West Coast Development Joint Ventures (c)	Los Angeles, CA	1	operating community	293		36,143		37,916	47.0	%	47.0	%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment, preferred equity investments and other investments					$	556,694	$	599,196



							Investment at				Income from investments
				Years To	UDR		December 31,		December 31,		Year Ended December 31,
Developer Capital Program (a)	Location	Rate		Maturity	Commitment (b)		2018		2017		2018		2017		2016
Preferred equity investments:
West Coast Development Joint Ventures (c)	Various	6.5	%	N/A	$	—	$	65,417	$	64,226	$	865	$	23,230	$	2,350
1532 Harrison (d)	San Francisco, CA	11.0	%	3.5		24,645		24,986		11,346		2,228		511		—
1200 Broadway (e)	Nashville, TN	8.0	%	3.8		55,558		58,982		18,011		2,970		370		—
Junction (f)	Santa Monica, CA	12.0	%	3.6		8,800		9,211		—		406		—		—
1300 Fairmount (g)	Philadelphia, PA	9.0	%	4.6		51,393		8,318		—		159		—		—
Essex (h)	Orlando, FL	12.5	%	4.7		12,886		9,940		—		258		—		—
Other investments:
The Portals (i)	Washington, D.C.	11.0	%	2.4		38,559		43,167		26,535		3,692		839		—
Other investment ventures	N/A	N/A		N/A	$	18,000		4,154		1,516	$	(267)	$	(30)	$	—
Total Developer Capital Program								224,175		121,634
Total investment in and advances to unconsolidated joint ventures, net							$	780,869	$	720,830

	(a)		The Developer Capital Program is the program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments that may receive a fixed yield on the

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investment and may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options.

	(b)		Represents UDR’s maximum funding commitment only and therefore excludes other activity such as income from investments.

	(c)		In May 2015, the Company entered into a joint venture agreement with an unaffiliated joint venture partner and paid $136.3 million for a 48% ownership interest in a portfolio of five communities that were under construction. The communities are located in three of the Company’s core, coastal markets: Seattle, Washington, Los Angeles, California and Orange County, California. UDR earns a 6.5% preferred return on its investment through each individual community’s date of stabilization, defined as when a community reaches 80% occupancy for 90 consecutive days, while the joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization, income and expense are shared based on each partner’s ownership percentage and the Company no longer receives a 6.5% preferred return on its investment in the stabilized community. The Company serves as property manager and earns a management fee during the lease-up phase and subsequent operation of each of the communities. The unaffiliated joint venture partner is the general partner of the joint venture and the developer of the communities.

At inception of the agreement, the Company had a fixed-price option to acquire the remaining interest in each community commencing one year after completion. The unaffiliated joint venture partner is providing certain guaranties.

In January 2017, the Company exercised its fixed-price option to purchase the joint venture partner’s ownership interest in one of the five communities, a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). As a result of the consolidation, the Company recorded a gain on consolidation of $12.2 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. In connection with the purchase, the construction loan on the community was paid in full.

During 2017, the joint venture sold two of the four remaining communities, a 211 home operating community in Seattle, Washington for a sales price of approximately $101.3 million and a 399 home operating community in Anaheim, California for a sales price of approximately $148.0 million.

During the year ended December 31, 2018, the fixed-price option to acquire one of the two remaining communities held by the West Coast Development Joint Ventures (as defined below) expired. The community achieved stabilization during 2017, at which time the Company and its joint venture partner began allocating income and expenses based on their ownership percentages. The Company and its joint venture partner plan to continue operating the community.

As of December 31, 2018, construction was completed on the remaining community subject to the fixed-price acquisition option. During the year ended December 31, 2018, the community achieved stabilization, at which time the Company and its joint venture partner began allocating income and expenses based on their ownership percentages.

In January 2019, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in the 386 home operating community in Anaheim, California, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $33.5 million. As a result, in January 2019, the Company consolidated the operating community and it will no longer be accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Esate Owned). In connection with the purchase, the construction loan on the community was paid in full.

In March 2017 and May 2017, the Company entered into two additional joint venture agreements with the unaffiliated joint venture partner and paid $15.5 million for a 49% ownership interest in a 155 home community in Seattle, Washington, for which construction was complete as of December 31, 2018, and $16.1 million for a 49% ownership interest in a 276 home community in Hillsboro, Oregon, for which construction was complete as of December 31, 2018 (together with the May 2015 joint venture described above, the “West Coast Development Joint Ventures”). UDR earns a 6.5% preferred return on its investments through the communities’ date of stabilization, as

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DECEMBER 31, 2018

defined above, while our joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization of the communities, income and expense will be shared based on each partner’s ownership percentage and the Company will no longer receive a 6.5% preferred return on its investment. The Company will serve as property manager and will earn a management fee during the lease-up phase and subsequent operation of the stabilized communities. The unaffiliated joint venture partner is the general partner and the developer of the communities. The Company has concluded it does not control the joint ventures and accounts for them under the equity method of accounting.

During the year ended December 31, 2018, the community in Seattle, Washington achieved stabilization, at which time the Company and its joint venture partner began allocating income and expenses based on their ownership percentages.

The Company has a fixed-price option to acquire the remaining interest in the communities beginning one year after completion for a total price of $61.3 million and $72.3 million, respectively. The unaffiliated joint venture partner is providing certain guaranties and there are construction loans on the communities.

In January 2019, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in one of the two communities, a 155 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $20.0 million. As a result, in January 2019, the Company consolidated the operating community and it will no longer be accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Esate Owned). In connection with the purchase, the construction loan on the community was paid in full.

The Company’s recorded equity investment in the West Coast Development Joint Ventures at December 31, 2018 and 2017 of $101.6 million and $102.1 million, respectively, is inclusive of outside basis costs and our accrued but unpaid preferred return.

	(d)		In June 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 136 apartment home community in San Francisco, California. The Company’s preferred equity investment of up to $24.6 million earns a preferred return of 11.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

	(e)		In September 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 313 apartment home community in Nashville, Tennessee. The Company’s preferred equity investment of up to $55.6 million earns a preferred return of 8.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

	(f)		In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 66 apartment home community in Santa Monica, CA. The Company’s preferred equity investment of $8.8 million earns a preferred return of 12.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

	(g)		In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 471 apartment home community in Philadelphia, PA. The Company’s preferred equity investment of up to $51.4 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

	(h)		In September 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 330 apartment home community in Orlando, FL. The Company’s preferred equity investment of up to $12.9 million earns a preferred return of 12.5% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

	(i)		In May 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner. The

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joint venture has made a mezzanine loan to a third-party developer of a 373 apartment home community in Washington, D.C. The unaffiliated joint venture partner is the managing member of the joint venture. The mezzanine loan is for up to $71.0 million at an interest rate of 13.5% per annum and carries a term of four years with one 12-month extension option. The Company’s commitment to the joint venture is approximately $38.6 million and earns a weighted average return of approximately 11.0% per annum. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

As of December 31, 2018 and 2017, the Company had deferred fees of $11.0 million and $10.9 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.

The Company recognized management fees of $11.6 million, $11.4 million, and $11.3 million during the years ended December 31, 2018, 2017, and 2016, respectively, for our management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.

The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2018, 2017, and 2016.

Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the years ended December 31, 2018, 2017, and 2016 (dollars in thousands):


							UDR/
					Other		MetLife				West Coast
As of and For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2018	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	3,187	$	158,738	$	61,967	$	26,096	$	20,703	$	16,392	$	287,083
Property operating expenses		3,066		56,403		21,998		13,732		8,318		8,830		112,347
Real estate depreciation and amortization		3,392		44,721		35,437		9,495		14,487		7,679		115,211
Operating income/(loss)		(3,271)		57,614		4,532		2,869		(2,102)		(117)		59,525
Interest expense		(1,872)		(49,118)		(17,408)		(6,051)		(6,739)		(6,175)		(87,363)
Other income/(loss)		—		—		—		—		—		148		148
Net income/(loss)	$	(5,143)	$	8,496	$	(12,876)	$	(3,182)	$	(8,841)	$	(6,144)	$	(27,690)

Condensed Balance Sheets:
Total real estate, net	$	124,112	$	1,609,903	$	653,729	$	315,541	$	182,970	$	281,729	$	3,167,984
Cash and cash equivalents		698		11,192		8,242		8,865		1,794		8,614		39,405
Other assets		1,074		18,670		4,904		2,241		1,320		1,610		29,819
Total assets		125,884		1,639,765		666,875		326,647		186,084		291,953		3,237,208
Third party debt, net		70,833		1,089,231		454,647		162,131		165,699		171,879		2,114,420
Accounts payable and accrued liabilities		1,935		21,258		9,753		14,968		1,860		9,943		59,717
Total liabilities		72,768		1,110,489		464,400		177,099		167,559		181,822		2,174,137
Total equity	$	53,116	$	529,276	$	202,475	$	149,548	$	18,525	$	110,131	$	1,063,071

F - 26

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018


							UDR/
					Other		MetLife				West Coast
As of and For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2017	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	—	$	156,920	$	48,032	$	23,025	$	20,327	$	18,812	$	267,116
Property operating expenses		93		52,450		21,908		11,839		8,159		9,520		103,969
Real estate depreciation and amortization		—		45,144		32,625		7,169		14,480		7,387		106,805
Gain/(loss) on the sale of real estate		(17)		(609)		—		—		—		72,216		71,590
Operating income/(loss)		(110)		58,717		(6,501)		4,017		(2,312)		74,121		127,932
Interest expense		—		(50,603)		(13,894)		(5,030)		(5,264)		(4,038)		(78,829)
Net income attributable to noncontrolling interest		—		—		—		—		—		439		439
Net income/(loss)	$	(110)	$	8,114	$	(20,395)	$	(1,013)	$	(7,576)	$	69,644	$	48,664

Condensed Balance Sheets:
Total real estate, net	$	108,958	$	1,641,338	$	687,492	$	299,420	$	195,625	$	252,352	$	3,185,185
Cash and cash equivalents		514		11,947		8,596		7,612		829		4,214		33,712
Other assets		2		15,037		4,290		1,972		905		979		23,185
Total assets		109,474		1,668,322		700,378		309,004		197,359		257,545		3,242,082
Third party debt, net		30,555		1,108,156		443,147		131,281		165,801		126,626		2,005,566
Accounts payable and accrued liabilities		12,700		19,477		15,003		16,931		1,745		17,389		83,245
Total liabilities		43,255		1,127,633		458,150		148,212		167,546		144,015		2,088,811
Total equity	$	66,219	$	540,689	$	242,228	$	160,792	$	29,813	$	113,530	$	1,153,271


							UDR/
					Other		MetLife				West Coast
For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2016	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	278	$	169,175	$	18,090	$	22,916	$	19,997	$	12,174	$	242,630
Property operating expenses		552		52,322		11,655		11,730		7,828		7,117		91,204
Real estate depreciation and amortization		52		46,135		16,353		6,835		14,444		6,218		90,037
Operating income/(loss)		(326)		70,718		(9,918)		4,351		(2,275)		(1,161)		61,389
Interest expense		—		(51,173)		(6,164)		(5,095)		(5,369)		(2,166)		(69,967)
Income/(loss) from discontinued operations		(375)		34,201		—		—		—		—		33,826
Net income attributable to noncontrolling interest		—		—		—		—		—		(62)		(62)
Net income/(loss)	$	(701)	$	53,746	$	(16,082)	$	(744)	$	(7,644)	$	(3,265)	$	25,310

Other than the West Coast Development Joint Ventures, the condensed summary financial information relating to the entities in which we have an interest through the Developer Capital Program is not included in the tables above. As of and for the year ended December 31, 2018, combined total assets, liabilities, equity, revenues, and expenses for such entities were $248.1 million, $22.5 million, $225.6 million, $6.0 million, and $1.8 million, respectively. As of and for the year ended December 31, 2017, combined total assets, liabilities, equity, revenues, and expenses for such entities were $79.1 million, $0.8 million, $78.3 million, $7.8 million, and $9.5 million, respectively. For the year ended December 31, 2016, combined total revenues and expenses for such entities were $8.5 million, and $12.2 million, respectively.

F - 27

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

SECURED AND UNSECURED DEBT, NET

The following is a summary of our secured and unsecured debt at December 31, 2018 and 2017 (dollars in thousands):


	Principal Outstanding				As of December 31, 2018
					Weighted		Weighted
					Average		Average	Number of
	December 31,		December 31,		Interest		Years to	Communities
	2018		2017		Rate		Maturity	Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)	$	417,989	$	395,611	3.82	%	5.9	7
Fannie Mae credit facilities (b)		90,000		285,836	3.95	%	1.5	1
Deferred financing costs		(1,343)		(1,670)
Total fixed rate secured debt, net		506,646		679,777	3.85	%	5.1	8
Variable Rate Debt
Tax-exempt secured notes payable (c)		94,700		94,700	2.33	%	4.2	2
Fannie Mae credit facilities (b)		—		29,034	—	%	—	—
Deferred financing costs		(119)		(242)
Total variable rate secured debt, net		94,581		123,492	2.33	%	4.2	2
Total Secured Debt, net		601,227		803,269	3.61	%	5.0	10
Unsecured Debt:
Variable Rate Debt
Borrowings outstanding under unsecured credit facility due January 2023 (d) (j)		—		—	—	%	4.1
Borrowings outstanding under unsecured commercial paper program due January 2019 (e) (j)		101,115		300,000	2.90	%	0.1
Borrowings outstanding under unsecured working capital credit facility due January 2021 (f)		16		21,767	3.33	%	2.0
Term Loan due September 2023 (d) (j)		35,000		35,000	3.25	%	4.8
Fixed Rate Debt
3.70% Medium-Term Notes due October 2020 (net of discounts of $14 and $22, respectively) (j)		299,986		299,978	3.70	%	1.8
4.63% Medium-Term Notes due January 2022 (net of discounts of $1,087 and $1,446, respectively) (j)		398,913		398,554	4.63	%	3.0
1.93% Term Loan due September 2023 (d) (j)		315,000		315,000	1.93	%	4.8
3.75% Medium-Term Notes due July 2024 (net of discounts of $574 and $678, respectively) (g) (j)		299,426		299,322	3.75	%	5.5
8.50% Debentures due September 2024		15,644		15,644	8.50	%	5.7
4.00% Medium-Term Notes due October 2025 (net of discounts of $465 and $534, respectively) (h) (j)		299,535		299,466	4.00	%	6.8
2.95% Medium-Term Notes due September 2026 (j)		300,000		300,000	2.95	%	7.7
3.50% Medium-Term Notes due July 2027 (net of discounts of $600 and $670, respectively) (j)		299,400		299,330	3.50	%	8.5
3.50% Medium-Term Notes due January 2028 (net of discounts of $1,072 and $1,191, respectively) (j)		298,928		298,809	3.50	%	9.0
4.40% Medium-Term Notes due January 2029 (net of discounts of $6 and $0, respectively) (i) (j)		299,994		—	4.40	%	10.1
Other		16		19
Deferred financing costs		(16,413)		(14,495)
Total Unsecured Debt, net		2,946,560		2,868,394	3.65	%	6.0
Total Debt, net	$	3,547,787	$	3,671,663	3.72	%	5.8

For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of December 31, 2018, secured debt encumbered $1.3 billion or

F - 28

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

12.8% of UDR’s total real estate owned based upon gross book value ($8.9 billion or 87.2% of UDR’s real estate owned based on gross book value is unencumbered).

(a) At December 31, 2018, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2020 through September 2028 and carry interest rates ranging from 3.15% to 4.35%.

The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par value to interest expense over the life of the underlying debt instrument.

During the year ended December 31, 2018, the Company prepaid $50.1 million of its fixed rate mortgage notes payable with proceeds from the issuance of senior unsecured medium-term notes and entered into an $80.0 million fixed rate mortgage note payable.

During the years ended December 31, 2018, 2017, and 2016, the Company had $3.0 million, $3.0 million, and $2.9 million, respectively, of amortization of the fair market adjustment of debt assumed in the acquisition of properties, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $5.0 million and $8.2 million at December 31, 2018 and 2017, respectively.

(b) UDR had one secured credit facility with Fannie Mae with a commitment of $90.0 million at December 31, 2018. The Fannie Mae credit facility matures in July 2020 and bears interest at a fixed rate of 3.95%.

During the year ended December 31, 2018, the Company prepaid $29.0 million of its variable rate secured credit facilities with proceeds from the refinance of a mortgage note payable and prepaid $195.8 million of its fixed rate secured credit facilities with proceeds from the issuance of senior unsecured medium-term notes.

Further information related to these credit facilities is as follows (dollars in thousands):


	December 31,			December 31,
	2018			2017
Borrowings outstanding	$	90,000		$	314,870
Weighted average borrowings during the period ended		253,813			416,653
Maximum daily borrowings during the period ended		314,869			636,782
Weighted average interest rate during the period ended		4.7	%		4.3	%
Weighted average interest rate at the end of the period		4.0	%		4.7	%

(c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature in August 2019 and March 2032. Interest on these notes is payable in monthly installments. The variable rate mortgage notes have interest rates ranging from 2.29% to 2.43% as of December 31, 2018.

(d) In September 2018, the Company entered into a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan (the “Term Loan”). The credit agreement for these facilities (the “Credit Agreement”) allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

The Credit Agreement amended and restated the Company’s prior credit agreement, which provided for: (i) a $1.1 billion revolving credit facility scheduled to mature in January 2020 and (ii) a $350.0 million term loan scheduled to mature in January 2021. The prior credit agreement allowed the total commitments under the revolving credit facility and total borrowings under the term loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions.

F - 29

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 75 to 145 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 80 to 165 basis points.

The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Credit Agreement also includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable.

The following is a summary of short-term bank borrowings under the Revolving Credit Facility at December 31, 2018 and 2017 (dollars in thousands):


	December 31,			December 31,
	2018			2017
Total revolving credit facility	$	1,100,000		$	1,100,000
Borrowings outstanding at end of period (1)		—			—
Weighted average daily borrowings during the period ended		—			2,274
Maximum daily borrowings during the period ended		—			120,000
Weighted average interest rate during the period ended		—	%		1.6	%
Interest rate at end of the period		—	%		—	%

	(1)		Excludes $3.3 million and $3.3 million of letters of credit at December 31, 2018 and 2017, respectively.

(e) The Company has an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500.0 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of the Company’s other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership.

The following is a summary of short-term bank borrowings under the unsecured commercial paper program at December 31, 2018 and 2017 (dollars in thousands):


	December 31,			December 31,
	2018			2017
Total unsecured commercial paper program	$	500,000		$	500,000
Borrowings outstanding at end of period		101,115			300,000
Weighted average daily borrowings during the period ended		344,235			238,810
Maximum daily borrowings during the period ended		440,000			390,000
Weighted average interest rate during the period ended		2.4	%		1.4	%
Interest rate at end of the period		2.9	%		2.0	%

(f) The Company has a working capital credit facility, which provides for a $75.0 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 15, 2021. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points. Depending on the Company’s credit rating, the margin ranges from 75 to 145 basis points. In February 2018, the Company amended the Working Capital Credit Facility to extend the scheduled maturity date from January 1, 2019 to January 15, 2021. In September 2018, the Company further amended the Working Capital Credit Facility to lower the margin to the ranges disclosed above, which are consistent with the margins for the $1.1 billion unsecured revolving credit facility described above.

F - 30

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at December 31, 2018 and 2017 (dollars in thousands):


	December 31,			December 31,
	2018			2017
Total working capital credit facility	$	75,000		$	75,000
Borrowings outstanding at end of period		16			21,767
Weighted average daily borrowings during the period ended		26,101			26,993
Maximum daily borrowings during the period ended		64,633			68,207
Weighted average interest rate during the period ended		2.9	%		2.0	%
Interest rate at end of the period		3.3	%		2.5	%

(g) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $100.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 3.69%.

(h) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.53%.

(i) In October 2018, the Company issued $300.0 million of 4.40% senior unsecured medium-term notes due January 26, 2029. Interest is payable semiannually on January 26 and July 26 of each year, beginning on January 26, 2019. The notes were priced at 99.998% of the principal amount at issuance. The Company used the net proceeds for the repayment of debt, including $195.8 million of the outstanding balance under the Fannie Mae credit facilities, and for general corporate purposes.

The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $150.0 million of this debt. The all in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.27%.

(j) The Operating Partnership is a guarantor of this debt.

The aggregate maturities, including amortizing principal payments on secured and unsecured debt, of total debt for the next ten years subsequent to December 31, 2018 are as follows (dollars in thousands):


	Total Fixed		Total Variable		Total		Total		Total
Year	Secured Debt		Secured Debt		Secured Debt		Unsecured Debt		Debt
2019	$	3,822	$	67,700	$	71,522	$	101,115	$	172,637
2020		198,076		—		198,076		300,000		498,076
2021		1,117		—		1,117		16		1,133
2022		1,157		—		1,157		400,000		401,157
2023		41,245		—		41,245		350,000		391,245
2024		—		—		—		315,644		315,644
2025		127,600		—		127,600		300,000		427,600
2026		50,000		—		50,000		300,000		350,000
2027		—		—		—		300,000		300,000
2028		80,000		—		80,000		300,000		380,000
Thereafter		—		27,000		27,000		300,000		327,000
Subtotal		503,017		94,700		597,717		2,966,775		3,564,492
Non-cash (a)		3,629		(119)		3,510		(20,215)		(16,705)
Total	$	506,646	$	94,581	$	601,227	$	2,946,560	$	3,547,787

	(a)		Includes the unamortized balance of fair market value adjustments, premiums/discounts, and deferred financing costs. For the years ended December 31, 2018 and 2017, the Company amortized $4.2 million and $4.3 million, respectively, of deferred financing costs into Interest expense.

F - 31

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

We were in compliance with the covenants of our debt instruments at December 31, 2018.

INCOME/(LOSS) PER SHARE

The following table sets forth the computation of basic and diluted income/(loss) per share for the periods presented (dollars and shares in thousands, except per share data):


	Year Ended December 31,
	2018		2017		2016
Numerator for income/(loss) per share:
Net income/(loss)	$	221,542	$	132,655	$	320,380
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(18,215)		(10,933)		(27,282)
Net (income)/loss attributable to noncontrolling interests		(221)		(164)		(380)
Net income/(loss) attributable to UDR, Inc.		203,106		121,558		292,718
Distributions to preferred stockholders — Series E (Convertible)		(3,868)		(3,708)		(3,717)
Income/(loss) attributable to common stockholders - basic and diluted	$	199,238	$	117,850	$	289,001

Denominator for income/(loss) per share:
Weighted average common shares outstanding		268,513		267,567		266,211
Non-vested restricted stock awards		(334)		(543)		(825)
Denominator for basic income/(loss) per share		268,179		267,024		265,386
Incremental shares issuable from assumed conversion of stock options, unvested LTIP Units and unvested restricted stock		1,304		1,806		1,925
Denominator for diluted income/(loss) per share		269,483		268,830		267,311

Income/(loss) per weighted average common share:
Basic	$	0.74	$	0.44	$	1.09
Diluted	$	0.74	$	0.44	$	1.08

Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units (“LTIP Units”), unvested restricted stock and continuous equity program forward sales agreements. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods. For the years ended December 31, 2018, 2017, and 2016, the effect of the conversion of the OP Units, DownREIT Units and the Company’s Series E preferred stock was not dilutive, and therefore not included in the above calculation.

For the year ended December 31, 2018, the Company did not enter into any forward purchase agreements under its continuous equity program.

The following table sets forth the additional shares of common stock outstanding by equity instrument if converted to common stock for each of the years ended December 31, 2018, 2017, and 2016 (shares in thousands):


	Year Ended December 31,
	2018	2017	2016
OP/DownREIT Units	24,548	24,821	25,130
Convertible preferred stock	3,011	3,021	3,028
Stock options, unvested LTIP Units and unvested restricted stock	1,304	1,806	1,925

STOCKHOLDERS’ EQUITY

UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as defined in the prospectus. The Company had the ability to issue 350,000,000 shares of common stock and 50,000,000 shares of preferred shares as of December 31, 2018.

F - 32

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

The following table presents the changes in the Company’s issued and outstanding shares of common and preferred stock for the years ended December 31, 2018, 2017 and 2016


	Common	Preferred Stock
	Stock	Series E	Series F
Balance at December 31, 2015	261,844,521	2,796,903	16,452,496
Issuance/(forfeiture) of common and restricted shares, net	154,656	—	—
Issuance of common shares through public offering	5,000,000	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	4,685	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	255,607	—	—
Forfeiture of Series F shares	—	—	(255,607)
Balance at December 31, 2016	267,259,469	2,796,903	16,196,889
Issuance/(forfeiture) of common and restricted shares, net	69,788	—	—
Issuance of common shares upon exercise of stock options	86,554
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	7,604	—	—
Conversion of Series E Cumulative Convertible shares	17,225	(15,909)
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	381,429	—	—
Forfeiture of Series F shares	—	—	(344,168)
Balance at December 31, 2017	267,822,069	2,780,994	15,852,721
Issuance/(forfeiture) of common and restricted shares, net	47,432	—	—
Issuance of common shares upon exercise of stock options	771,715	—	—
Issuance of common shares through public offering	7,150,000	—	—
Repurchase of common shares	(593,373)	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	11,011	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	337,046	—	—
Forfeiture of Series F shares	—	—	(50,328)
Balance at December 31, 2018	275,545,900	2,780,994	15,802,393

Common Stock

The Company has an equity distribution agreement which allows it from time to time, through its sales agents, to offer and sell up to 20,000,000 shares of its common stock. Sales of such shares will be made by means of ordinary brokers’ transactions on the NYSE at market prices. In July 2017, the Company updated its equity distribution agreement to also permit the entry into separate forward sales agreements to or through its forward purchasers. As of December 31, 2018, 13,078,931 shares were available for sale under the continuous equity program.

During the year ended December 31, 2018, the Company entered into the following equity transactions for our common stock:

	·		Issued 7,150,000 shares of common stock through a public offering at a price per share of $41.98, for aggregate gross proceeds of approximately $300.2 million;

	·		Repurchased 593,373 shares of common stock at a weighted average price per share of $33.69, for total consideration of approximately $20.0 million;

	·		Issued 212,411 shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”);

	·		Issued 11,011 shares of common stock upon redemption of OP Units; and

F - 33

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

	·		Issued 337,046 shares of common stock upon redemption of DownREIT Units, resulting in the forfeiture of 50,328 Series F Preferred Shares.

Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR’s common distributions for the years ended December 31, 2018, 2017, and 2016 totaled $1.29, $1.24, and $1.18 per share, respectively.

Preferred Stock

The Series E Cumulative Convertible Preferred Stock (“Series E”) has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into one share of our common stock prior to a “Special Dividend” declared in 2008 (1.083 shares after the Special Dividend). The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption.

Distributions declared on the Series E for the years ended December 31, 2018, 2017, and 2016 were $1.40, $1.33, and $1.33 per share, respectively. The Series E is not listed on any exchange. At December 31, 2018 and 2017, a total of 2,780,994 shares of the Series E were outstanding.

UDR is authorized to issue up to 20,000,000 shares of the Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of OP Units and DownREIT Units, at a purchase price of $0.0001 per share. OP/DownREIT Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP/DownREIT Unit held. During the years ended December 31, 2018 and 2017, 50,328 and 344,168 of the Series F shares were forfeited upon the conversion of DownREIT Units into Company common stock, respectively.

At December 31, 2018 and 2017, a total of 15,802,393 and 15,852,721 shares, respectively, of the Series F were outstanding with an aggregate purchase value of $1,580 and $1,585, respectively. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to dividends or any other rights, privileges or preferences.

Distribution Reinvestment and Stock Purchase Plan

UDR’s Distribution Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends and by making additional cash payments, additional shares of UDR’s common stock. From inception through December 31, 2008, shareholders have elected to utilize the Stock Purchase Plan to reinvest their distribution for the equivalent of 9,957,233 shares of Company common stock. Shares in the amount of 10,963,730 were reserved for issuance under the Stock Purchase Plan as of December 31, 2018. During the year ended December 31, 2018, UDR acquired all shares issued through the open market.

EMPLOYEE BENEFIT PLANS

In May 2001, the stockholders of UDR approved the long term incentive plan (“LTIP”), which supersedes the 1985 Stock Option Plan. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, and any other right or interest relating to common stock or cash incentive awards to Company directors, employees and outside trustees to promote the success of the Company by linking individual’s compensation via grants of share based payment.

During the year ended December 31, 2015, the LTIP was amended to set forth the terms of new classes of partnership interests in the Operating Partnership designated as LTIP Units. LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value to one-for-one

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

parity with common stock by operation of special tax rules applicable to profits interests. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.

As of December 31, 2018, 19,000,000 shares were reserved on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2018, there were 7,269,166 common shares available for issuance under the LTIP.

The LTIP contains change of control provisions allowing for the immediate vesting of an award upon certain events such as a merger where UDR is not the surviving entity. Upon the death or disability of an award recipient all outstanding instruments will vest and all restrictions will lapse. The LTIP specifies that in the event of a capital transaction, which includes but is not limited to stock dividends, stock splits, extraordinary cash dividends and spin-offs, the number of shares available for grant in totality or to a single individual is to be adjusted proportionately. The LTIP specifies that when a capital transaction occurs that would dilute the holder of the stock award, prior grants are to be adjusted such that the recipient is no worse as a result of the capital transaction.

A summary of UDR’s stock option and restricted stock activities during the year ended December 31, 2018 is as follows:


	Option Outstanding			Option Exercisable			Restricted Stock
								Weighted
		Weighted			Weighted			Average Fair
		Average			Average			Value Per
	Number of	Exercise		Number of	Exercise		Number	Restricted
	Options	Price		Options	Price		of shares	Stock
Balance, December 31, 2017	1,830,672	$	10.06	1,830,672	$	10.06	512,516	$	36.82
Granted	—		—	—		—	212,358		34.16
Exercised	(1,830,672)		10.06	(1,830,672)		10.06	—		—
Vested	—		—	—		—	(409,839)		32.57
Forfeited	—		—	—		—	(8,208)		36.75
Balance, December 31, 2018	—	$	—	—	$	—	306,827	$	36.58

As of December 31, 2018, the Company had granted 6,141,613 shares of restricted stock and 1,766,550 LTIP Units under the LTIP.

Stock Option Plan

UDR has granted stock options to our employees, subject to certain conditions. Each stock option is exercisable into one common share.

There is no remaining compensation cost related to unvested stock options as of December 31, 2018.

During the year ended December 31, 2018, 1,830,672 stock options were exercised.

During the years ended December 31, 2018, 2017, and 2016, respectively, we did not recognize any net compensation expense related to outstanding stock options.

Restricted Stock Awards

Restricted stock awards are granted to Company employees, officers, and directors. The restricted stock awards are valued based upon the closing sales price of UDR common stock on the date of grant. Compensation expense is recorded under the straight-line method over the vesting period, which is generally three to four years. Restricted stock awards earn dividends payable in cash. Some of the restricted stock grants are based on the Company’s performance and are subject to adjustment during the initial one year performance period. For the years ended December 31, 2018, 2017, and 2016, we recognized $4.3 million, $4.0 million, and $3.4 million of compensation expense, net of capitalization, related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

restricted stock awards was $4.8 million and had a weighted average remaining contractual life of 1.9 years as of December 31, 2018.

Long-Term Incentive Compensation

In January 2018, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2018 Long-Term Incentive Program (“2018 LTI”). For both restricted stock grants and LTIP Unit grants, thirty percent of the 2018 LTI award is based upon FFO as Adjusted over a one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. Fifteen percent of the 2018 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining fifty-five percent of the 2018 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the NAREIT Equity REITs Total Return Index over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued based upon the closing sales price of UDR common stock on the date of grant or $38.06 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued at $17.13 per unit on the grant date, inclusive of a 10% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued at $18.08 per unit on the grant date, inclusive of a 5% discount. The portion of the restricted stock grant based upon relative TSR was valued at $42.18 per share for the comparable apartment REITs component and $40.49 per share for the NAREIT Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 17.0%. The portion of the LTIP Unit grant based upon relative TSR was valued at $20.12 per unit, inclusive of a 5% discount, for the comparable apartment REITs component and $19.35 per unit, inclusive of a 5% discount, for the NAREIT Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 17.0%.

In January 2017, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2017 Long-Term Incentive Program (“2017 LTI”). For both restricted stock grants and LTIP Unit grants, thirty percent of the 2017 LTI award is based upon FFO as Adjusted over a one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. Ten percent of the 2017 LTI award is based upon FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining sixty percent of the 2017 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and on an absolute basis over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued based upon the closing sales price of UDR common stock on the date of grant or $35.95 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued at $16.18 per unit on the grant date, inclusive of a 10% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued at $16.63 per unit on the grant date, inclusive of a 7.5% discount. The portion of the restricted stock grant based upon TSR was valued at $44.26 per share for the relative component and $31.40 per share for the absolute component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.0%. The portion of the LTIP Unit grant based upon TSR was valued at $20.54 per unit, inclusive of a 7.5% discount, for the relative component and $14.71 per unit, inclusive of a 7.5% discount, for the absolute component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.0%.

In January 2016, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2016 Long-Term Incentive Program (“2016 LTI”). For both restricted stock grants and LTIP Unit grants, one-third of the 2016 LTI award is based upon FFO as Adjusted over a one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. The remaining two-thirds of the 2016 LTI award is based on TSR as measured relative to comparable apartment REITs over a three-year period and will vest 100% at the end of the three-year performance period. The portion of the restricted stock grant based upon FFO as Adjusted was valued based upon the closing sales price of UDR common stock on the date of grant or $36.97 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon FFO as Adjusted was valued at $16.64 per unit on the grant date, inclusive of a 10% discount. The portion of the restricted stock grant based upon TSR was valued at $41.22 per share on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.8%. The portion of the LTIP Unit grant based upon TSR was valued at $19.15 per unit on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.8%.

For the years ended December 31, 2018, 2017, and 2016, we recognized $9.9 million, $8.9 million and $10.0 million, respectively, of compensation expense, net of capitalization, related to the amortization of the awards. The total remaining compensation cost on unvested LTI awards was $8.2 million and had a weighted average remaining contractual life of 1.7 years as of December 31, 2018.

Profit Sharing Plan

Our profit sharing plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, UDR makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in UDR’s Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016, was $1.3 million, $1.3 million, and $1.3 million, respectively.

INCOME TAXES

For 2018, 2017, and 2016, UDR believes that we have complied with the REIT requirements specified in the Code. As such, the REIT would generally not be subject to federal income taxes.

For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. Taxable distributions paid per common share were taxable as follows for the years ended December 31, 2018, 2017 and 2016 (unaudited):


	Year Ended December 31,
	2018		2017		2016
Ordinary income	$	0.774	$	1.018	$	0.708
Qualified ordinary income		0.006		0.011		—
Long-term capital gain		0.058		0.133		0.309
Unrecaptured section 1250 gain		0.233		0.063		0.145
Nondividend distributions		0.207		—		—
Total	$	1.278	$	1.225	$	1.162

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

We have a TRS that is subject to federal and state income taxes. A TRS is a C-corporation which has not elected REIT status and as such is subject to United States federal and state income tax. The components of the provision for income taxes are as follows for the years ended December 31, 2018, 2017, and 2016 (dollars in thousands):


	Year Ended December 31,
	2018		2017		2016
Income tax (benefit)/provision
Current
Federal	$	220	$	(1,205)	$	69
State		396		407		372
Total current		616		(798)		441
Deferred
Federal		66		568		9,814
State		6		(10)		1,319
Total deferred		72		558		11,133
Total income tax (benefit)/provision	$	688	$	(240)	$	11,574
Classification of income tax (benefit)/provision:
Continuing operations	$	688	$	(240)	$	11,574

As a result of the SEC Simplification, for the year ended December 31, 2016, the following retrospective changes were made (dollars in thousands):


Gain/(loss) on the sale of real estate owned, net of tax – as previously reported	$	15,348
Tax impact of sales of real estate owned		(15,348)
Gain/(loss) on the sale of real estate owned – as reported herein	$	—

Continuing operations – as previously reported	$	(3,774)
Tax impact of sales of real estate owned		15,348
Continuing operations – as reported herein	$	11,574

Deferred income taxes are provided for the change in temporary differences between the basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes. The expected future tax rates are based upon enacted tax laws. The components of our TRS deferred tax assets and liabilities are as follows for the years ended December 31, 2018, 2017, and 2016 (dollars in thousands):


	Year Ended December 31,
	2018		2017		2016
Deferred tax assets:
Federal and state tax attributes	$	28	$	8	$	536
Other		70		139		190
Total deferred tax assets		98		147		726
Valuation allowance		(16)		(9)		(6)
Net deferred tax assets		82		138		720
Deferred tax liabilities:
Other		(84)		(67)		(92)
Total deferred tax liabilities		(84)		(67)		(92)
Net deferred tax asset	$	(2)	$	71	$	628

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Income tax provision/(benefit), net from our TRS differed from the amounts computed by applying the U.S. statutory rate of 21% to pretax income/(loss) for the year ended December 31, 2018, and 35% for the years ended December 31, 2017, and 2016 as follows (dollars in thousands):


	Year Ended December 31,
	2018		2017		2016
Income tax provision/(benefit)
U.S. federal income tax provision/(benefit)	$	321	$	581	$	12,577
State income tax provision		527		493		1,370
Other items		(167)		(188)		134
New tax law benefit		—		(1,129)		—
Conversion of certain TRS entities to REITs		—		—		(2,436)
Valuation allowance		7		3		(71)
Total income tax provision/(benefit)	$	688	$	(240)	$	11,574

As of December 31, 2018, the Company had federal net operating loss carryovers (“NOL”) of $24.0 million expiring in 2032 through 2035 and state NOLs of $69.7 million expiring in 2020 through 2032. A portion of these attributes are still available to the subsidiary REITs, but are carried at a zero effective tax rate.

For the year ended December 31, 2018, Tax benefit/(provision), net decreased $0.9 million as compared to 2017. The decrease was primarily attributable to a one-time benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits available that became refundable under the Tax Cuts and Jobs Act of 2017. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company evaluates our tax position using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax benefit/(provision), net. As of December 31, 2018 and 2017, UDR has no material unrecognized income tax benefits/(provisions).

The Company files income tax returns in federal and various state and local jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local income tax examination by tax authorities for years prior to 2013. The tax years 2015 through 2017 remain open to examination by the major taxing jurisdictions to which the Company is subject.

NONCONTROLLING INTERESTS

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income attributable to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.

The following table sets forth redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the years ended December 31, 2018 and 2017 (dollars in thousands):


	Year Ended December 31,
	2018		2017
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, beginning of year	$	948,138	$	909,482
Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		43,552		71,096
Conversion of OP Units/DownREIT Units to Common Stock		(13,328)		(14,544)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		18,215		10,933
Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(32,798)		(31,427)
OP Units Issued		4,320		—
Vesting of Long-Term Incentive Plan Units		4,397		2,317
Allocation of other comprehensive income/(loss)		244		281
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, end of year	$	972,740	$	948,138

Noncontrolling Interests

Noncontrolling interests represent interests of unrelated partners and unvested LTIP Units in certain consolidated affiliates, and are presented as part of equity on the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was $(0.2) million, $(0.2) million, and $(0.4) million during the years ended December 31, 2018, 2017, and 2016, respectively.

The Company grants LTIP Units to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have vesting terms of between one and three years, specific to the individual grants.

Noncontrolling interests related to long-term incentive plan units represent the unvested LTIP Units of these employees and non-employee directors in the Operating Partnership. The net income/(loss) allocated to the unvested LTIP Units is included in Net (income)/loss attributable to noncontrolling interests on the Consolidated Statements of Operations.

FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

	·		Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

	·		Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

	·		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2018 and 2017 are summarized as follows (dollars in thousands):


					Fair Value at December 31, 2018, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable (a)	$	42,259	$	45,026	$	—	$	—	$	45,026
Derivatives - Interest rate contracts (b)		4,757		4,757		—		4,757		—
Total assets	$	47,016	$	49,783	$	—	$	4,757	$	45,026

Derivatives - Interest rate contracts (b)	$	356	$	356	$	—	$	356	$	—
Secured debt instruments - fixed rate: (c)
Mortgage notes payable		417,989		416,314		—		—		416,314
Fannie Mae credit facilities		90,000		90,213		—		—		90,213
Secured debt instruments - variable rate: (c)
Tax-exempt secured notes payable		94,700		94,700		—		—		94,700
Unsecured debt instruments: (c)
Working capital credit facility		16		16		—		—		16
Commercial paper program		101,115		101,115		—		—		101,115
Unsecured notes		2,861,842		2,829,390		—		—		2,829,390
Total liabilities	$	3,566,018	$	3,532,104	$	—	$	356	$	3,531,748

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)	$	972,740	$	972,740	$	—	$	972,740	$	—

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018


					Fair Value at December 31, 2017, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2017		2017		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable (a)	$	19,469	$	19,567	$	—	$	—	$	19,567
Derivatives - Interest rate contracts (b)		5,743		5,743		—		5,743		—
Total assets	$	25,212	$	25,310	$	—	$	5,743	$	19,567

Secured debt instruments - fixed rate: (c)
Mortgage notes payable	$	395,611	$	397,386	$	—	$	—	$	397,386
Fannie Mae credit facilities		285,836		292,227		—		—		292,227
Secured debt instruments - variable rate: (c)
Tax-exempt secured notes payable		94,700		94,700		—		—		94,700
Fannie Mae credit facilities		29,034		29,034		—		—		29,034
Unsecured debt instruments: (c)
Working capital credit facility		21,767		21,767		—		—		21,767
Commercial paper program		300,000		300,000		—		—		300,000
Unsecured notes		2,561,122		2,611,458		—		—		2,611,458
Total liabilities	$	3,688,070	$	3,746,572	$	—	$	—	$	3,746,572

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)	$	948,138	$	948,138	$	—	$	948,138	$	—

	(a)		See Note 2, Significant Accounting Policies.

	(b)		See Note 13, Derivatives and Hedging Activity.

	(c)		See Note 6, Secured and Unsecured Debt, Net.

	(d)		See Note 11, Noncontrolling Interests.

There were no transfers into or out of any of the levels of the fair value hierarchy during the year ended December 31, 2018.

Financial Instruments Carried at Fair Value

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

F - 42

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2018 and 2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership are classified as Level 2.

Financial Instruments Not Carried at Fair Value

At December 31, 2018, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes notes receivable and debt instruments, are classified in Level 3 of the fair value hieracrchy due to the significant unobservable inputs that are utilized in their respective valuations.

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

We consider various factors to determine if a decrease in the value of our Investment in and advances to unconsolidated joint ventures, net is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2018, 2017, and 2016.

After determining an other-than-temporary decrease in the value of an equity method investment has occurred, we estimate the fair value of our investment by estimating the proceeds we would receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs reflect management’s best estimate of what market participants would use in pricing the investment giving consideration to the terms of the joint venture agreement and the estimated discounted future cash flows to be generated from the underlying joint venture assets. The inputs and assumptions utilized to estimate the future cash flows of the underlying assets are based upon the Company’s evaluation of the economy, market trends, operating results, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates.

F - 43

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2018, 2017, and 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

During the year ended December 31, 2017, the Company recognized a loss of $0.1 million, reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. No amounts were de-designated during the years ended December 31, 2018 and 2016.

Amounts reported in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2019, the Company estimates that an additional $3.9 million will be reclassified as a decrease to Interest expense.

As of December 31, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):


	Number of
Product	Instruments	Notional
Interest rate swaps (a)	4	$	315,000
Interest rate caps	1	$	65,197

	(a)		In addition to the interest rate swaps summarized above, the Company entered into an additional interest rate swap during the year ended December 31, 2018 with a notional value of $50.0 million that will become effective in December 2019.

The Company also entered into two additional interest rate swaps during the year ended December 31, 2018 with a notional value totaling $150.0 million that were terminated and settled in conjunction with the October 2018 issuance of $300.0 million of senior unsecured medium-term notes as disclosed in Note 6, Secured and Unsecured Debt, Net. The Company received $3.1 million to settle the swaps. The entire $3.1

F - 44

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

million was initially deferred as a component of Accumulated other comprehensive income (loss), net and will be recognized as a decrease to Interest expense over the ten-year term of the notes.

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in no gain or loss for year ended December 31, 2018 and a loss of less than $0.1 million for the years ended December 31, 2017, and 2016.

As of December 31, 2018, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):


	Number of
Product	Instruments	Notional
Interest rate caps	1	$	19,880

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2018 and 2017 (dollars in thousands):


	Asset Derivatives				Liability Derivatives
	(included in Other assets)				(included in Other liabilities)
	Fair Value at:				Fair Value at:
	December 31,		December 31,		December 31,		December 31,
	2018		2017		2018		2017
Derivatives designated as hedging instruments:
Interest rate products	$	4,757	$	5,743	$	356	$	—

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016 (dollars in thousands):


													Gain/(Loss) Recognized in
							Gain/(Loss) Reclassified						Interest expense
	Unrealized holding gain/(loss)						from Accumulated OCI into						(Amount Excluded from
	Recognized in OCI						Interest expense						Effectiveness Testing)
	Year Ended December 31,						Year Ended December 31,						Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships	2018		2017		2016		2018		2017		2016		2018		2017		2016
Interest rate products	$	4,806	$	1,802	$	3,514	$	1,948	$	(1,271)	$	(3,657)	$	—	$	(136)	$	—


	Year Ended
	December 31,
	2018		2017		2018
Total amount of Interest expense presented on the Consolidated Statements of Operations	$	134,168	$	128,711	$	123,031


	Gain/(Loss) Recognized in
	Interest income and other income/(expense), net
	Year Ended December 31,
Derivatives Not Designated as Hedging Instruments	2018		2017		2016
Interest rate products	$	—	$	(1)	(3)

F - 45

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

Credit-risk-related Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

The Company has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the Company or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement.

As of December 31, 2018, the fair value of derivatives was in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, of $4.7 million.

Tabular Disclosure of Offsetting Derivatives

The Company has elected not to offset derivative positions on the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of December 31, 2018 and 2017 (dollars in thousands):


			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Assets		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Assets	Assets		Sheets		(a)		Instruments		Received		Net Amount
December 31, 2018	$	4,757	$	—	$	4,757	$	—	$	—	$	4,757

December 31, 2017	$	5,743	$	—	$	5,743	$	—	$	—	$	5,743

	(a)		Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets” located in this footnote.


			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Liabilities		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Liabilities	Liabilities		Sheets		(a)		Instruments		Posted		Net Amount
December 31, 2018	$	356	$	—	$	356	$	—	$	—	$	356

December 31, 2017	$	—	$	—	$	—	$	—	$	—	$	—

	(a)		Amounts reconcile to the aggregate fair value of derivative liabilities in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets” located in this footnote.

F - 46

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Commitments

The following summarizes the Company’s real estate commitments at December 31, 2018 (dollars in thousands):


	Number				UDR's Remaining
	Properties	Investment			Commitment
Joint ventures:
Preferred equity investments	3	$	43,244	(a)	$	48,892	(b)
Other investments	-		4,154			13,500	(c)
Total		$	47,398		$	62,392

	(a)		Represents UDR’s investment in 1532 Harrison, 1300 Fairmount and Essex for the properties under development as of December 31, 2018.

	(b)		Represents UDR’s remaining commitment for 1532 Harrison, 1300 Fairmount and Essex.

	(c)		Represents UDR’s remaining commitment for other investment ventures.

Purchase Commitments

During the year ended December 31, 2018, the Company entered into a contract to purchase a $13.7 million development land parcel located in Denver, Colorado. The Company made a $1.0 million deposit on the purchase which, as of December 31, 2018, is generally non-refundable other than due to a failure of closing conditions pursuant to the terms of the agreement. The acquisition closed in February 2019.

Ground and Other Leases

UDR owns six communities which are subject to ground leases expiring between 2043 and 2103, including extension options. In addition, UDR is a lessee to various operating leases related to office space rented by the Company with expiration dates through 2021. Future minimum lease payments as of December 31, 2018 are as follows (dollars in thousands):


	Ground
	Leases (a)		Office Space
2019	$	4,901	$	76
2020		4,901		76
2021		4,901		32
2022		4,901		—
2023		4,901		—
Thereafter		313,918		—
Total	$	338,423	$	184

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 rent reset provision based on fair market value or changes in the consumer price index but does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

UDR incurred $7.3 million, $6.2 million, and $5.5 million of ground rent expense for the years ended December 31, 2018, 2017, and 2016, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. The Company incurred $0.2 million, $0.2 million, and $0.3

F - 47

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

million of rent expense related to office space for the years ended December 31, 2018, 2017, and 2016, respectively. These costs are included in General and Administrative on the Consolidated Statements of Operations.

Contingencies

Litigation and Legal Matters

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The Company believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flows.

REPORTABLE SEGMENTS

GAAP guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker to decide how to allocate resources and for purposes of assessing such segments’ performance. UDR’s Chief Operating Decision Maker is comprised of several members of its executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

UDR owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures for UDR’s apartment communities are rental income and net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations, and land rent. UDR’s Chief Operating Decision Maker utilizes NOI as the key measure of segment profit or loss.

UDR’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other:

	·		Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2017 and held as of December 31, 2018. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

Management evaluates the performance of each of our apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Company’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the years ended December 31, 2018, 2017, and 2016.

F - 48

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

The following table details rental income and NOI for UDR’s reportable segments for the years ended December 31, 2018, 2017, and 2016, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. on the Consolidated Statements of Operations (dollars in thousands):


	Year Ended December 31,
	2018		2017		2016
Reportable apartment home segment rental income
Same-Store Communities
West Region	$	399,314	$	383,009	$	353,321
Mid-Atlantic Region		220,450		214,157		208,223
Northeast Region		154,019		151,736		147,573
Southeast Region		122,234		116,467		111,318
Southwest Region		43,709		42,992		41,273
Non-Mature Communities/Other		95,379		75,948		86,753
Total segment and consolidated rental income	$	1,035,105	$	984,309	$	948,461

Reportable apartment home segment NOI
Same-Store Communities
West Region	$	301,098	$	286,662	$	264,475
Mid-Atlantic Region		153,670		150,126		144,508
Northeast Region		105,998		106,473		106,005
Southeast Region		85,220		80,726		76,359
Southwest Region		26,408		26,455		25,600
Non-Mature Communities/Other		59,721		48,061		56,138
Total segment and consolidated NOI		732,115		698,503		673,085
Reconciling items:
Joint venture management and other fees		11,754		11,482		11,400
Property management		(28,465)		(27,068)		(26,083)
Other operating expenses		(12,100)		(9,060)		(7,649)
Real estate depreciation and amortization		(429,006)		(430,054)		(419,615)
General and administrative		(46,983)		(48,566)		(49,761)
Casualty-related (charges)/recoveries, net		(2,121)		(4,335)		(732)
Other depreciation and amortization		(6,673)		(6,408)		(6,023)
Income/(loss) from unconsolidated entities		(5,055)		31,257		52,234
Interest expense		(134,168)		(128,711)		(123,031)
Interest income and other income/(expense), net		6,735		1,971		1,930
Gain/(loss) on sale of real estate owned		136,197		43,404		226,199
Tax (provision)/benefit, net		(688)		240		(11,574)
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(18,215)		(10,933)		(27,282)
Net (income)/loss attributable to noncontrolling interests		(221)		(164)		(380)
Net income/(loss) attributable to UDR, Inc.	$	203,106	$	121,558	$	292,718

F - 49

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

The following table details the assets of UDR’s reportable segments as of December 31, 2018 and 2017 (dollars in thousands):


	December 31,		December 31,
	2018		2017
Reportable apartment home segment assets:
Same-Store Communities:
West Region	$	3,666,169	$	3,630,164
Mid-Atlantic Region		2,317,369		2,290,241
Northeast Region		1,874,616		1,865,762
Southeast Region		779,310		762,102
Southwest Region		297,681		292,074
Non-Mature Communities/Other		1,261,014		1,336,863
Total segment assets		10,196,159		10,177,206
Accumulated depreciation		(3,654,160)		(3,330,166)
Total segment assets — net book value		6,541,999		6,847,040
Reconciling items:
Cash and cash equivalents		185,216		2,038
Restricted cash		23,675		19,792
Notes receivable, net		42,259		19,469
Investment in and advances to unconsolidated joint ventures, net		780,869		720,830
Other assets		137,710		124,104
Total consolidated assets	$	7,711,728	$	7,733,273

Capital expenditures related to our Same-Store Communities totaled $86.2 million, $86.2 million, and $82.9 million for the years ended December 31, 2018, 2017, and 2016, respectively. Capital expenditures related to our Non-Mature Communities/Other totaled $5.8 million, $5.7 million, and $13.4 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Markets included in the above geographic segments are as follows:

	i.		West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

	ii.		Mid-Atlantic Region — Metropolitan D.C., Richmond and Baltimore

	iii.		Northeast Region — New York and Boston

	iv.		Southeast Region — Orlando, Tampa, Nashville and Other Florida

	v.		Southwest Region — Dallas, Austin and Denver

F - 50

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2018

UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2018 and 2017 is summarized in the table below (dollars in thousands, except per share amounts):


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
2018
Rental income	$	250,483	$	256,634	$	263,256	$	264,732
Net income/(loss)		89,225		22,444		20,258		89,615
Net income/(loss) attributable to common stockholders (a)		80,801		19,630		17,639		81,168
Income/(loss) attributable to common stockholders per weighted average common share (a):
Basic	$	0.30	$	0.07	$	0.07	$	0.30
Diluted	$	0.30	$	0.07	$	0.07	$	0.30
Weighted average number of common shares outstanding:
Basic		267,546		267,311		267,727		270,107
Diluted		269,208		268,890		268,861		270,755
2017
Rental income	$	241,271	$	244,658	$	248,264	$	250,116
Net income/(loss)		28,396		11,062		17,570		75,627
Net income/(loss) attributable to common stockholders (a)		25,038		9,228		15,264		68,356
Income/(loss) attributable to common stockholders per weighted average common share (a):
Basic	$	0.09	$	0.03	$	0.06	$	0.26
Diluted	$	0.09	$	0.03	$	0.06	$	0.25
Weighted average number of common shares outstanding:
Basic		266,790		266,972		267,056		267,270
Diluted		268,688		268,859		269,062		269,221

	(a)		Due to the quarterly pro-rata calculation of noncontrolling interest and rounding, the sum of the quarterly per share and/or dollar amounts may not equal the annual totals.

	(1)

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F - 52

Report of Independent Registered Public Accounting Firm

The Partners United Dominion Realty, L.P.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the “Partnership”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income/loss, changes in capital, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Partnership’s auditor since 2010.

Denver, Colorado February 19, 2019

F - 53

UNITED DOMINION REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data)


	December 31,		December 31,
	2018		2017
ASSETS
Real estate owned:
Real estate held for investment	$	3,811,985	$	3,816,956
Less: accumulated depreciation		(1,658,161)		(1,543,652)
Total real estate owned, net of accumulated depreciation		2,153,824		2,273,304
Cash and cash equivalents		125		293
Restricted cash		13,563		12,579
Investment in unconsolidated entities		103,026		76,907
Other assets		34,052		32,490
Total assets	$	2,304,590	$	2,395,573
LIABILITIES AND CAPITAL
Liabilities:
Secured debt, net	$	26,929	$	159,845
Notes payable due to the General Partner		700,115		273,334
Real estate taxes payable		2,699		2,683
Accrued interest payable		32		629
Security deposits and prepaid rent		15,250		13,949
Distributions payable		59,461		57,025
Accounts payable, accrued expenses, and other liabilities		14,215		12,978
Total liabilities		818,701		520,443

Commitments and contingencies (Note 10)

Capital:
Partners’ capital:
General partner:
110,883 OP Units outstanding at December 31, 2018 and December 31, 2017		950		955
Limited partners:
183,525,660 and 183,240,041 OP Units outstanding at December 31, 2018 and December 31, 2017, respectively		1,471,120		1,463,340
Total partners’ capital		1,472,070		1,464,295
Advances (to)/from the General Partner		—		397,899
Noncontrolling interests		13,819		12,936
Total capital		1,485,889		1,875,130
Total liabilities and capital	$	2,304,590	$	2,395,573

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)


	Year Ended December 31,
	2018		2017		2016
REVENUES:
Rental income	$	431,920	$	419,377	$	404,415

OPERATING EXPENSES:
Property operating and maintenance		67,400		67,493		65,562
Real estate taxes and insurance		47,140		45,043		41,732
Property management		11,878		11,533		11,122
Other operating expenses		8,864		6,833		6,059
Real estate depreciation and amortization		143,481		152,473		147,074
General and administrative		16,889		17,875		18,808
Casualty-related charges/(recoveries), net		951		1,922		484
Total operating expenses		296,603		303,172		290,841
Gain/(loss) on sale of real estate owned		75,507		41,272		33,180
Operating income		210,824		157,477		146,754

Income/(loss) from unconsolidated entities		43,496		(19,256)		(37,425)
Interest expense		(8,733)		(18,156)		(17,855)
Interest expense on notes payable due to the General Partner		(14,102)		(12,210)		(12,212)
Net income/(loss)		231,485		107,855		79,262
Net (income)/loss attributable to noncontrolling interests		(1,722)		(1,548)		(1,444)
Net income/(loss) attributable to OP unitholders	$	229,763	$	106,307	$	77,818

Net income/(loss) per weighted average OP Unit - basic and diluted	$	1.25	$	0.58	$	0.42

Weighted average OP Units outstanding - basic and diluted		183,609		183,344		183,279

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)


	Year Ended December 31,
	2018		2017		2016
Net income/(loss)	$	231,485	$	107,855	$	79,262
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)		—		—		(4)
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		—		106		12
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		—		106		8
Comprehensive income/(loss)		231,485		107,961		79,270
Comprehensive (income)/loss attributable to noncontrolling interests		(1,722)		(1,548)		(1,444)
Comprehensive income/(loss) attributable to OP unitholders	$	229,763	$	106,413	$	77,826

See accompanying notes to consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL

(In thousands)


			Limited						Accumulated				Advances
	Class A		Partners		UDR, Inc				Other		Total		(to)/from
	Limited		and LTIP		Limited		General		Comprehensive		Partners’		General		Noncontrolling
	Partner		Units		Partner		Partner		Income/(Loss), net		Capital		Partner		Interests		Total
Balance at December 31, 2015	$	64,409	$	268,481	$	1,379,525	$	1,110	$	(113)	$	1,713,412	$	(11,270)	$	19,188	$	1,721,330
Net income/(loss)		743		3,099		73,928		48		—		77,818		—		1,444		79,262
Distributions		(2,328)		(8,831)		(205,472)		(132)		—		(216,763)		—		—		(216,763)
OP Unit redemptions for common shares of UDR		—		(175)		175		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		1,077		3,619		(4,696)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		3,735		—		—		—		3,735		—		—		3,735
Unrealized gain/(loss) on derivative financial investments		—		—		—		—		—		—		—		6		6
Net change in advances (to)/from the General Partner		—		—		—		—		—		—		30,929		—		30,929
Balance at December 31, 2016		63,901		269,928		1,243,460		1,026		(113)		1,578,202		19,659		20,638		1,618,499
Net income/(loss)		1,015		4,270		100,957		65		—		106,307		—		1,548		107,855
Distributions		(2,328)		(9,704)		(215,922)		(136)		—		(228,090)		—		—		(228,090)
OP Unit redemptions for common shares of UDR		—		(288)		288		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		4,886		11,599		(16,485)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		7,763		—		—		—		7,763		—		—		7,763
Unrealized gain/(loss) on derivative financial investments		—		—		—		—		113		113		—		(6)		107
Net change in advances (to)/from the General Partner		—		—		—		—		—		—		378,240		(9,244)		368,996
Balance at December 31, 2017	$	67,474	$	283,568	$	1,112,298	$	955	$	—	$	1,464,295	$	397,899	$	12,936	$	1,875,130
Net income/(loss)		2,221		9,977		217,426		139		—		229,763		—		1,722		231,485
Distributions		(2,328)		(10,718)		(224,637)		(144)		—		(237,827)		—		—		(237,827)
OP Unit redemptions for common shares of UDR		—		(416)		416		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		2,034		4,295		(6,329)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		15,839		—		—		—		15,839		—		—		15,839
Conversion of Advances (to)/from the General Partner to notes payable		—		—		—		—		—		—		(257,204)		—		(257,204)
Net change in advances (to)/from the General Partner		—		—		—		—		—		—		(140,695)		(839)		(141,534)
Balance at December 31, 2018	$	69,401	$	302,545	$	1,099,174	$	950	$	—	$	1,472,070	$	—	$	13,819	$	1,485,889

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year Ended December 31,
	2018		2017		2016
Operating Activities
Net income/(loss)	$	231,485	$	107,855	$	79,262
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		143,481		152,473		147,074
(Gain)/loss on sale of real estate owned		(75,507)		(41,272)		(33,180)
(Income)/loss from unconsolidated entities		(43,496)		19,256		37,425
Other		1,771		5,642		1,769
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(3,260)		(3,992)		(3,251)
Increase/(decrease) in operating liabilities		1,194		(4,705)		(158)
Net cash provided by/(used in) operating activities		255,668		235,257		228,941

Investing Activities
Acquisition of real estate assets		—		(137,332)		—
Proceeds from sales of real estate investments, net		98,533		67,985		44,553
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(44,227)		(53,346)		(69,902)
Distributions received from unconsolidated entities		17,377		16,704		15,894
Net cash provided by/(used in) investing activities		71,683		(105,989)		(9,455)

Financing Activities
Advances (to)/from the General Partner, net		(348,381)		163,196		(180,391)
Payments on secured debt		(133,205)		(275,345)		(30,322)
Issuance of notes payable to the General Partner		169,577		—		—
Distributions paid to partnership unitholders		(12,705)		(11,694)		(10,770)
Other		(1,821)		(5,003)		—
Net cash provided by/(used in) financing activities		(326,535)		(128,846)		(221,483)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		816		422		(1,997)
Cash, cash equivalents, and restricted cash, beginning of year		12,872		12,450		14,447
Cash, cash equivalents, and restricted cash, end of year	$	13,688	$	12,872	$	12,450

Supplemental Information:
Interest paid during the period, net of amounts capitalized	$	17,173	$	24,331	$	22,922
Non-cash transactions:
Reallocation of credit facilities debt from the General Partner		—		—		12,292
Development costs and capital expenditures incurred but not yet paid		2,056		2,032		5,098
LTIP Unit grants		15,839		7,763		3,735
Distributions declared but not yet paid		59,461		57,025		54,192
Conversion of Advances (to)/from the General Partner to notes payable		257,204		—		—

The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year
Cash and cash equivalents	$	293	$	756	$	3,103
Restricted cash		12,579		11,694		11,344
Total cash, cash equivalents, and restricted cash as shown above	$	12,872	$	12,450	$	14,447
Cash, cash equivalents, and restricted cash, end of year
Cash and cash equivalents	$	125	$	293	$	756
Restricted cash		13,563		12,579		11,694
Total cash, cash equivalents, and restricted cash as shown above	$	13,688	$	12,872	$	12,450

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

CONSOLIDATION AND BASIS OF PRESENTATION

United Dominion Realty, L.P. (“UDR, L.P.,” the “Operating Partnership,” “we” or “our”) is a Delaware limited partnership, that owns, acquires, renovates, redevelops, manages, and disposes of multifamily apartment communities generally located in high barrier to entry markets located in the United States. The high barrier to entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. UDR, L.P. is a subsidiary of UDR, Inc. (“UDR” or the “General Partner”), a self-administered real estate investment trust, or REIT, through which UDR conducts a significant portion of its business. During the years ended December 31, 2018, 2017, and 2016, rental revenues of the Operating Partnership represented 42%, 43%, and 43%, respectively, of the General Partner’s consolidated rental revenues. As of December 31, 2018, the Operating Partnership’s apartment portfolio consisted of 52 communities located in 15 markets consisting of 16,434 apartment homes.

Interests in UDR, L.P. are represented by operating partnership units (“OP Units”). The Operating Partnership’s net income is allocated to the partners, which is initially based on their respective distributions made during the year and secondly, their percentage interests. Distributions are made in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. (the “Operating Partnership Agreement”), on a per unit basis that is generally equal to the dividend per share on UDR’s common stock, which is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “UDR.”

As of December 31, 2018, there were 183,636,543 OP Units outstanding, of which 174,248,699, or 94.9%, were owned by UDR and affiliated entities and 9,387,844, or 5.1%, were owned by non-affiliated limited partners. There were 183,350,924 OP Units outstanding as of December 31, 2017, of which 174,237,688, or 95.0%, were owned by UDR and affiliated entities and 9,113,236, or 5.0%, were owned by non-affiliated limited partners. See Note 9, Capital Structure.

As sole general partner of the Operating Partnership, UDR owned all 110,883 general partner OP units, or 0.1%, of the total OP Units outstanding as of December 31, 2018 and 2017. At December 31, 2018 and 2017, there were 183,525,660 and 183,240,041, respectively, of limited partner OP Units outstanding, of which 1,873,332 were Class A Limited Partnership Units as of both periods. Of the limited partner OP Units outstanding, UDR owned 174,137,816, or 94.8%, and 174,126,805, or 95.0%, at December 31, 2018 and 2017, respectively. The remaining 9,387,844, or 5.1%, and 9,113,236, or 5.0%, of the limited partner OP Units outstanding were held by non-affiliated partners at December 31, 2018 and 2017, respectively, of which 1,751,671 were Class A Limited Partnership units as of both periods. See Note 9, Capital Structure.

The Operating Partnership evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted.

SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to update and simplify disclosure requirements as well as eliminate outdated, superseded and/or redundant requirements with US GAAP (“SEC Simplification”). The amendments are effective for all SEC filings made on or after November 5, 2018. As a result of the amendments, the Operating Partnership will no longer provide ratios of earnings to fixed charges in our exhibits to our annual and quarterly filings with the SEC. Additionally, the amendments removed certain SEC guidance that conflicted with GAAP guidance, under which the Operating Partnership previously followed SEC guidance and recorded Gain/(loss) on the sale of real estate owned after Income from continuing operations. The Operating Partnership has reclassified Gain/(loss) on the sale of real estate owned within Operating income.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

activities. The updated standard would have been effective for the Operating Partnership on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Operating Partnership early adopted the guidance on January 1, 2018; however, the updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

In January 2017, the FASB issued ASU 2017‑01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changed the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard was effective for the Operating Partnership on January 1, 2018. The ASU was applied prospectively to any transactions occurring after adoption. The Operating Partnership expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU addressed the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard was effective for the Operating Partnership on January 1, 2018, and was applied retrospectively to all periods presented. The updated standard did not have a material impact on the consolidated financial statements of the Operating Partnership. Related disclosures were updated pursuant to the requirements of the ASU.


	Year ended December 31,
	2017		2016
(Increase)/decrease in operating assets	$	794	$	259
Net cash provided by /(used in) operating activities	$	794	$	259

Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement	$	91	$	91
Net cash provided by /(used in) investing activities	$	91	$	91

Net increase/(decrease) in cash, cash equivalents, and restricted cash	$	885	$	350

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the Operating Partnership on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. In November 2016, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amends the transition requirements and scope of ASU 2016-13 and clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The Operating Partnership is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

The Operating Partnership is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. The Operating Partnership intends to elect the following package of practical expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Operating Partnership also plans to elect the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.

The Operating Partnership anticipates recognizing right-of-use assets and related lease liabilities between $85.0 million and $150.0 million on our consolidated opening balance sheets as of January 1, 2019 upon adoption of the standard. Our anticipated range of right-of-use assets and related lease liabilities to be recognized as disclosed above may change as a result of updates to the projected future minimum lease payments. The lease liabilities represent the present value of the remaining minimum lease payments related to ground leases for communities where we are the lessee. The right-of-use assets represent the lease liabilities plus any prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The Operating Partnership plans to continue recognizing lease expense for these leases in a manner similar to current accounting upon adoption of the standard based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, subsequent to the adoption of the standard, we will be required to expense internal leasing costs as incurred.

In July 2018, the FASB issued ASU No. 2018-11, Leases – Targeted Improvements, which provides entities with relief from the costs of implementing certain aspects of ASU No. 2016-02, Leases. The ASU provides a practical expedient which allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Operating Partnership intends to elect the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard. The Operating Partnership also intends to elect the transition option.

In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers. ASU No. 2014-09 amended the FASB Accounting Standards Codification (“ASC”) by creating ASC Topic 606, Revenue from Contracts with Customers. The standard provided companies with a single model for use in accounting for revenue arising from contracts with customers and replaced most existing revenue recognition guidance in U.S. GAAP, including industry-specific revenue guidance. The standard specifically excluded lease contracts. The ASU allowed for the use of either the full or modified retrospective transition method. ASC Topic 606 was effective for the Operating Partnership on January 1, 2018, at which time the Operating Partnership adopted it using the modified retrospective approach. However, as the majority of the Operating Partnership’s revenue is from rental income related to leases, the ASU did not have a material impact on the consolidated financial statements. Related disclosures have been provided and/or updated pursuant to the requirements of the ASU.

Real Estate

The Operating Partnership purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

estimated value of the land, building and fixtures assuming the community is vacant. The Operating Partnership estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are capitalized as incurred if the acquisition does not meet the definition of a business.

Quarterly or when changes in circumstances warrant, the Operating Partnership will assess our real estate properties for indicators of impairment. In determining whether the Operating Partnership has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates and capitalization rates, industry trends and reference to market rates and transactions.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Operating Partnership capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2018, 2017, and 2016 were less than $0.1 million, $0.5 million, and $0.6 million, respectively. During the years ended December 31, 2018, 2017, and 2016, total interest capitalized was less than $0.1 million, less than $0.1 million, and $0.2 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion and depreciation commences over the estimated useful life.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Operating Partnership’s cash and cash equivalents are held at major commercial banks.

Restricted Cash

Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

Revenue

On January 1, 2018, the Operating Partnership adopted ASC Topic 606, Revenue from Contracts with Customers, utilizing the modified retrospective method, under which only contracts entered into after the effective date or not complete as of the effective date are subject to the new standard and an adjustment to the opening balance of partners’ capital is made to recognize any required adjustments. As a result of the adoption, the Operating Partnership did not make an adjustment to partners’ capital because no open contracts required different treatment under the new standard.

Revenue is measured based on consideration specified in contracts with customers. The Operating Partnership recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer.

The following is a description of the principal streams from which the Operating Partnership generates its revenue:

Lease Revenue

Reimbursements Revenue

Reimbursements revenue includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. Reimbursements revenue is recognized on a gross basis as earned as the Operating Partership has determined it is the principal provider of the services.

Other Revenue

Other revenue is generated by services provided by the Operating Partnership to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

Real Estate Sales Gain Recognition

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Operating Partnership generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Operating Partnership will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

Sale transactions to entities in which the Operating Partnership sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Operating Partnership will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value.

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Operating Partnership will record a full gain or loss in the period the property is contributed.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

Disaggregation of Revenue

Rental income, as disclosed on the Consolidated Statements of Operations, is disaggregated by principal revenue stream and by reportable segment in the following tables (dollars in thousands):


	December 31, (a)
	2018		2017		2016
Lease Revenue (b)
Same-Store Communities
West Region	$	227,233	$	217,033	$	206,660
Mid-Atlantic Region		56,168		54,891		53,588
Northeast Region		52,039		51,716		50,314
Southeast Region		46,075		43,993		42,342
Non-Mature Communities/Other		16,421		18,912		20,029
Total segment and consolidated lease revenue	$	397,936	$	386,545	$	372,933

Reimbursements Revenue
Same-Store Communities
West Region	$	11,652	$	10,994	$	10,284
Mid-Atlantic Region		2,456		2,384		2,227
Northeast Region		1,697		1,867		1,682
Southeast Region		3,057		2,953		2,907
Non-Mature Communities/Other		2,084		2,019		1,992
Total segment and consolidated reimbursements revenue	$	20,946	$	20,217	$	19,092

Other Revenue
Same-Store Communities
West Region	$	7,162	$	6,995	$	6,595
Mid-Atlantic Region		1,765		1,731		1,748
Northeast Region		1,013		947		1,040
Southeast Region		2,764		2,640		2,543
Non-Mature Communities/Other		334		302		464
Total segment and consolidated other revenue	$	13,038	$	12,615	$	12,390

Total Revenue
Same-Store Communities
West Region	$	246,047	$	235,022	$	223,539
Mid-Atlantic Region		60,389		59,006		57,563
Northeast Region		54,749		54,530		53,036
Southeast Region		51,896		49,586		47,792
Non-Mature Communities/Other		18,839		21,233		22,485
Total segment and consolidated total revenue	$	431,920	$	419,377	$	404,415

	(a)		Same-Store Community population consisted of 16,216 apartment homes. Same-Store Community is defined in Note 11, Reportable Segments.

	(b)		Lease Revenue is subject to recognition under ASC 840, Leases.

Derivative Financial Instruments

The General Partner utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments associated with the Operating Partnership’s allocation of the General Partner’s debt are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for the General Partner’s cash flow hedges allocated to the Operating Partnership that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

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DECEMBER 31, 2018

Noncontrolling Interests

The noncontrolling interests represent the General Partner’s interests in certain consolidated subsidiaries and are presented in the capital section of the Consolidated Balance Sheets since these interests are not convertible or redeemable into any other ownership interests of the Operating Partnership.

Income Taxes

The taxable income or loss of the Operating Partnership is reported on the tax returns of the partners. Accordingly, no provision has been made in the accompanying financial statements for federal or state income taxes on income that is passed through to the partners. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are recorded at the entity level. The Operating Partnership’s tax returns are subject to examination by federal and state taxing authorities. Net income for financial reporting purposes differs from the net income for income tax reporting purposes primarily due to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets.

The Operating Partnership evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Operating Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management of the Operating Partnership is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Operating Partnership has no examinations in progress and none are expected at this time.

Management of the Operating Partnership has reviewed all open tax years (2015 through 2017) of tax jurisdictions and concluded there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

As of December 31, 2017, management of the Operating Partnership had completed its review of the effects of the Tax Cuts and Jobs Act and had determined that the impact to the Operating Partnership was not material.

Discontinued Operations

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.

Allocation of General and Administrative Expenses

The Operating Partnership is charged directly for general and administrative expenses it incurs. The Operating Partnership is also charged with other general and administrative expenses that have been allocated by the General Partner to each of its subsidiaries, including the Operating Partnership, based on reasonably anticipated benefits to the parties. (See Note 6, Related Party Transactions.)

Advertising Costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2018, 2017, and 2016, total advertising expense from continuing operations was $1.9 million, $2.1 million, and $2.2 million, respectively.

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DECEMBER 31, 2018

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in capital during each period from transactions and other events and circumstances from nonowner sources, including all changes in capital during a period except for those resulting from investments by or distributions to unitholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2018, 2017, and 2016, the Operating Partnership’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges and (gain)/loss reclassified from other comprehensive income/(loss) into earnings. The (gain)/loss reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 8, Derivatives and Hedging Activity, for further discussion.

Use of Estimates

Market Concentration Risk

The Operating Partnership is subject to increased exposure from economic and other competitive factors specific to those markets where it holds a significant percentage of the carrying value of its real estate portfolio at December 31, 2018, the Operating Partnership held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California, San Francisco, California; Metropolitan D.C. and New York, New York markets.

REAL ESTATE OWNED

Real estate assets owned by the Operating Partnership consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. At December 31, 2018, the Operating Partnership owned and consolidated 52 communities in nine states plus the District of Columbia totaling 16,434 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2018 and 2017 (dollars in thousands):


	December 31,		December 31,
	2018		2017
Land	$	711,256	$	719,410
Depreciable property — held and used:
Land improvements		92,000		89,331
Buildings, improvements, and furniture, fixtures and equipment		3,008,729		3,008,215
Real estate owned		3,811,985		3,816,956
Accumulated depreciation		(1,658,161)		(1,543,652)
Real estate owned, net	$	2,153,824	$	2,273,304

Acquisitions

The Operating Partnership did not have any acquisitions of real estate during the year ended December 31, 2018.

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DECEMBER 31, 2018

During the year ended December 31, 2017, the Operating Partnership acquired an operating community located in Denver, Colorado with a total of 218 apartment homes and 17,000 square feet of retail space for a purchase price of approximately $141.5 million. As a result of the acquisition, the Operating Partnership increased its real estate owned by approximately $139.0 million and recorded approximately $2.5 million of in-place lease intangibles. The acquisition was partially funded with tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986 (“Section 1031 exchanges”).

Dispositions

In December 2018, the Operating Partnership sold a commercial office building in Fairfax, Virginia for gross proceeds of $9.3 million, resulting in a gain of $5.2 million.

In February 2018, the Operating Partnership sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

During the year ended December 31, 2017, the Operating Partnership sold two operating communities with a total of 218 apartment homes in Orange County, California and Carlsbad, California for gross proceeds of $69.0 million, resulting in a gain of $41.3 million.

Other Activity

In connection with the acquisition of certain properties, the Operating Partnership agreed to pay certain of the tax liabilities of certain contributors if the Operating Partnership sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Operating Partnership may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax deferred Section 1031 exchange.

Further, the Operating Partnership has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Operating Partnership, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.

UNCONSOLIDATED ENTITIES

The DownREIT Partnership is accounted for by the Operating Partnership under the equity method of accounting and is included in Investment in unconsolidated entities on the Consolidated Balance Sheets. The Operating Partnership recognizes earnings or losses from its investments in unconsolidated entities consisting of our proportionate share of the net earnings or losses of the partnership in accordance with the Partnership Agreement.

The DownREIT Partnership is a VIE as the limited partners lack substantive kick-out rights and substantive participating rights. The Operating Partnership is not the primary beneficiary of the DownREIT Partnership as it lacks the power to direct the activities that most significantly impact its economic performance and will continue to account for its interest as an equity method investment. See Note 2, Significant Accounting Policies.

As of December 31, 2018, the DownREIT Partnership owned 12 communities with 5,657 apartment homes. The Operating Partnership’s investment in the DownREIT Partnership was $103.0 million and $76.9 million as of December 31, 2018 and 2017, respectively.

In December 2018, the DownREIT Partnership sold an operating community in Fairfax, Virginia with a total of 604 apartment homes for gross proceeds of $150.7 million. As a result, the Operating Partnership recorded a gain of $51.1 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statement of Operations.

Financial statements required under Rule 3‑09 of Regulation S-X for the DownREIT Partnership are included as Exhibit 99.1 to this report.

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DECEMBER 31, 2018

DEBT, NET

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Operating Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2018 and 2017 (dollars in thousands):


	Principal Outstanding				As of December 31, 2018
							Weighted
					Weighted		Average
	December 31,		December 31,		Average		Years to	Communities
	2018		2017		Interest Rate		Maturity	Encumbered
Fixed Rate Debt
Fannie Mae credit facilities	$	—	$	133,205	—	%	—	—
Deferred financing costs		—		(282)
Total fixed rate secured debt, net		—		132,923	—	%	—	—
Variable Rate Debt
Tax-exempt secured note payable		27,000		27,000	2.43	%	13.2	1
Deferred financing costs		(71)		(78)
Total variable rate secured debt, net		26,929		26,922	3.03	%	13.2	1
Total Secured Debt, Net	$	26,929	$	159,845	3.03	%	13.2	1

During the year ended December 31, 2018, $133.2 million of funds borrowed under the Fannie Mae credit facilities and owed by the Operating Partnership were prepaid. The Operating Partnership incurred prepayment costs of $1.8 million during the year ended December 31, 2018, which were included in Interest expense on the Consolidated Statements of Operations.

The following information relates to the credit facilities owed by the Operating Partnership (dollars in thousands):


	December 31,			December 31,
	2018			2017
Borrowings outstanding	$	—		$	133,205
Weighted average borrowings during the period ended		99,904			223,347
Maximum daily borrowings during the period ended		133,205			408,549
Weighted average interest rate during the period ended		5.3	%		4.6	%
Interest rate at the end of the period		—	%		5.3	%

The Operating Partnership may from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The Operating Partnership did not have any unamortized fair value adjustments associated with the fixed rate debt instruments on the Operating Partnership’s properties.

Variable Rate Debt

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 2.43% as of December 31, 2018.

Guarantor on Unsecured Debt

The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility with an aggregate borrowing capacity of $1.1 billion, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, $300 million of medium-term notes due October 2020, $400 million of medium-term notes due January 2022, a $350 million term loan due September 2023, $300 million of medium-term notes due July 2024, $300

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DECEMBER 31, 2018

million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, $300 million of medium-term notes due January 2028, and $300 million of medium-term notes due January 2029. As of December 31, 2018 and 2017, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $101.1 million and $300.0 million, respectively, outstanding under its unsecured commercial paper program.

RELATED PARTY TRANSACTIONS

Advances (To)/From the General Partner

The Operating Partnership participates in the General Partner’s central cash management program, wherein all the Operating Partnership’s cash receipts are remitted to the General Partner and all cash disbursements are funded by the General Partner. In addition, other miscellaneous costs such as administrative expenses are incurred by the General Partner on behalf of the Operating Partnership. Prior to December 2018, the net Advances (to)/from the General Partner were reflected as increases/(decreases) of capital on the Consolidated Balance Sheets.

In December 2018, the Operating Partnership converted the net balance of Advances(to)/from the General Partner into a revolving note payable with the General Partner. (See “Notes Payable to the General Partner” section below for further detail).

As a result of these various transactions between the Operating Partnership and the General Partner, the Operating Partnership had net Advances (to)/from the General Partner of zero and $397.9 million as of December 31, 2018 and 2017, respectively.

Allocation of General and Administrative Expenses

The General Partner shares various general and administrative costs, employees and other overhead costs with the Operating Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. The general and administrative expenses allocated to the Operating Partnership by UDR were $13.5 million, $14.0 million, and $15.4 million during the years ended December 31, 2018, 2017 and 2016, respectively, and are included in General and administrative on the Consolidated Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the Operating Partnership from the General Partner.

During the years ended December 31, 2018, 2017 and 2016, the Operating Partnership reimbursed the General Partner $15.2 million, $15.4 million, and $14.5 million, respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements are initially recorded within the line item General and administrative on the Consolidated Statements of Operations, and a portion related to management costs is reclassified to Property management on the Consolidated Statements of Operations. (See further discussion below.)

Shared Services

The Operating Partnership self-manages its own properties and is party to an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the Operating Partnership’s allocable share of costs incurred by the General Partner for (a) shared services of corporate level property management employees and related support functions and costs, and (b) general and administrative costs. As discussed above, the reimbursement for shared services is classified in Property management on the Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

Notes Payable to the General Partner

The following table summarizes the Operating Partnership’s Notes payable due to General Partner as of December 31, 2018 and 2017 (dollars in thousands):


	Interest rate at		Balance Outstanding
	December 31,		December 31,		December 31,
	2018		2018		2017
Note due August 2021	5.34	%	$	5,500	$	5,500
Note due December 2023	5.18	%		83,196		83,196
Note due April 2026	4.12	%		184,638		184,638
Note due November 2028 (a)	4.69	%		133,205		—
Note due December 2028 (b)	3.72	%		293,576		—
Total notes payable due to General Partner			$	700,115	$	273,334

	(a)		On October 31, 2018, the Operating Partnership entered into an unsecured note payable with the General Partner with an aggregate commitment of $133.2 million. Interest is incurred at a rate of 4.69% and is paid monthly. The note matures on November 1, 2028.

	(b)		In December 2018, the Operating Partnership converted the remaining outstanding portion of the Advances (to)/from the General Partner capital balance in connection with entering into an unsecured revolving note payable with the General Partner. There is no limit on the total commitments under this note. The initial balance upon conversion of the note was $257.2 million and the balance as of December 31, 2018 was $293.6 million. Interest is incurred on the unpaid principal balance at a variable interest rate equivalent to the General Partner’s weighted average interest rate on borrowings, or 3.72% as of December 31, 2018. The note matures on December 1, 2028. To the extent there is an outstanding principal balance on the revolving note payable, the General Partner, at its discretion, can demand payment at any time prior to the stated maturity date of the note.

Certain limited partners of the Operating Partnership have provided guarantees or reimbursement agreements related to these notes payable. The guarantees were provided by the limited partners in conjunction with their contribution of properties to the Operating Partnership. The Operating Partnership recognized interest expense on the notes payable of $14.1 million, $12.2 million and $12.2 million for the years ended December 31, 2018, 2017, and 2016, respectively.

FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2018 and 2017 are summarized as follows (dollars in thousands):


					Fair Value at December 31, 2018, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instruments - variable rate: (a)
Tax-exempt secured notes payable	$	27,000	$	27,000	$	—	$	—	$	27,000
Total liabilities	$	27,000	$	27,000	$	—	$	—	$	27,000


					Fair Value at December 31, 2017, Using
					Quoted
	Total				Prices in
	Carrying				Active
	Amount in				Markets
	Statement of				for Identical		Significant
	Financial		Fair Value		Assets		Other		Significant
	Position at		Estimate at		or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2017		2017		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instruments - fixed rate: (a)
Fannie Mae credit facilities	$	133,205	$	137,150	$	—	$	—	$	137,150
Secured debt instruments - variable rate: (a)
Tax-exempt secured notes payable		27,000		27,000		—		—		27,000
Total liabilities	$	160,205	$	164,150	$	—	$	—	$	164,150

(a)See Note 5, Debt, Net.

There were no transfers into or out of each of the levels of the fair value hierarchy during the year ended December 31, 2018.

Financial Instruments Carried at Fair Value

The General Partner, on behalf of the Operating Partnership, incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Operating Partnership has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

Although the General Partner, on behalf of the Operating Partnership, has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2018 and 2017, the Operating Partnership has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Operating Partnership has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Operating Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Financial Instruments Not Carried at Fair Value

As of December 31, 2018, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes debt instruments, are classified in Level 3 of the fair value hieracrchy due to the significant unobservable inputs that are utilized in their respective valuations.

The Operating Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Cash flow estimates are based upon historical results adjusted to reflect management’s best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. The General Partner’s estimates of fair value represent management’s estimates based upon Level 3 inputs such as industry trends and reference to market rates and transactions. The Operating Partnership did not incur any other-than-temporary impairments in the value of its investments in unconsolidated entities during the years ended December 31, 2018 and 2017.

DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Operating Partnership is exposed to certain risks arising from both its business operations and economic conditions. The General Partner principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The General Partner manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the General Partner enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The General Partner’s and the Operating Partnership’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the General Partner’s known or expected cash payments principally related to the General Partner’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The General Partner’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the General Partner primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the General Partner making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

A portion of the General Partner’s interest rate derivatives are owed by the Operating Partnership based on the General Partner’s underlying debt instruments owed by the Operating Partnership. (See Note 5, Debt, Net.)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2017 and 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. As of and during the year ended December 31, 2018, no derivatives designated as cash flow hedges were held by the Operating Partnership.

During the year ended December 31, 2017, the Operating Partnership recognized a loss of $0.1 million reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. No amounts were de-designated during the years ended December 31, 2018 and 2016.

Amounts reported in Accumulated other comprehensive income/(loss), net related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is owed by the Operating Partnership. As of December 31, 2018, no derivatives designated as cash flow hedges were held by the Operating Partnership and, as a result, no amounts are anticipated to be reclassified as an increase to interest expense through December 31, 2019.

Derivatives not designated as hedges are not speculative and are used to manage the Operating Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted no gain or loss for the year ended December 31, 2018 and a loss of less than $0.1 million for each of the years ended December 31, 2017 and 2016.

As of December 31, 2018, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):


	Number of
Product	Instruments	Notional
Interest rate caps	1	$	19,880

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets

As of December 31, 2018 and December 31, 2017, the fair value of the Operating Partnership’s derivative financial instruments was zero.

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations

The tables below present the effect of the derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016 (dollars in thousands):


													Gain/(Loss) Recognized in
							Gain/(Loss) Reclassified						Interest expense
	Unrealized holding gain/(loss)						from Accumulated OCI into						(Amount Excluded from
	Recognized in OCI						Interest expense						Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2018		2017		2016		2018		2017		2016		2018		2017		2016
Interest rate products	$	—	$	—	$	(4)	$	—	$	—	$	(12)	$	—	$	(106)	$	—


	Year Ended
	December 31,
	2018		2017		2016
Total amount of Interest expense presented on the Consolidated Statements of Operations	$	8,733	$	18,156		17,855

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DECEMBER 31, 2018


	Gain/(Loss) Recognized in
	Interest income and other
	income/(expense), net
Derivatives Not Designated as Hedging Instruments	2018		2017		2016
Interest rate products	$	—	$	(1)	$	(3)

Credit-risk-related Contingent Features

The General Partner has agreements with its derivative counterparties that contain a provision where the General Partner could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the General Partner’s default on the indebtedness.

The General Partner has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the General Partner or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement.

CAPITAL STRUCTURE

General Partnership Units

The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize, issue, sell, redeem or purchase any OP Unit or securities of the Operating Partnership without the approval of the limited partners. The General Partner can also approve, with regard to the issuances of OP Units, the class or one or more series of classes, with designations, preferences, participating, optional or other special rights, powers and duties including rights, powers and duties senior to limited partnership interests without approval of any limited partners except holders of Class A Limited Partnership Units. There were 110,883 General Partnership units outstanding at December 31, 2018 and 2017, all of which were held by UDR.

Limited Partnership Units

As of December 31, 2018 and 2017, there were 183,525,660 and 183,240,041, respectively, of limited partnership units outstanding, of which 1,873,332 were Class A Limited Partnership Units for both periods. UDR owned 174,137,816, or 94.8%, and 174,126,805, or 95.0%, of OP Units outstanding at December 31, 2018 and 2017, respectively, of which 121,661 were Class A Limited Partnership Units for both periods. The remaining 9,387,844, or 5.1%, and 9,113,236, or 5.0%, of OP Units outstanding were held by non-affiliated partners at December 31, 2018 and 2017, respectively, of which 1,751,671 were Class A Limited Partnership Units for both periods.

Subject to the terms of the Operating Partnership Agreement, the limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the Operating Partnership Agreement), provided that such OP Units have been outstanding for at least one year. UDR, as general partner of the Operating Partnership, may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of UDR for each OP Unit), as defined in the Operating Partnership Agreement.

The non-affiliated limited partners’ capital is adjusted to redemption value at the end of each reporting period with the corresponding offset against UDR’s limited partner capital account based on the redemption rights noted above. The aggregate value upon redemption of the then-outstanding OP Units held by limited partners was $371.9 million and $351.0 million as of December 31, 2018 and 2017, respectively, based on the value of UDR’s common stock at each

F - 74

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

period end. A limited partner has no right to receive any distributions from the Operating Partnership on or after the date of redemption of its OP Units.

Class A Limited Partnership Units

Class A Limited Partnership Units have a cumulative, annual, non-compounded preferred return, which is equal to 8% based on a value of $16.61 per Class A Limited Partnership Unit.

Holders of the Class A Limited Partnership Units exclusively possess certain voting rights. The Operating Partnership may not do the following without approval of the holders of the Class A Limited Partnership Units: (i) increase the authorized or issued amount of Class A Limited Partnership Units, (ii) reclassify any other partnership interest into Class A Limited Partnership Units, (iii) create, authorize or issue any obligations or security convertible into or the right to purchase Class A Limited Partnership Units, (iv) enter into a merger or acquisition, or (v) amend or modify the Operating Partnership Agreement in a manner that adversely affects the relative rights, preferences or privileges of the Class A Limited Partnership Units.

The following table shows OP Units outstanding and OP Unit activity as of and for the years ended December 31, 2018, 2017, and 2016:


			UDR, Inc.
	Class A			Class A
	Limited	Limited	Limited	Limited	General
	Partners	Partners	Partner	Partner	Partner	Total
Ending balance at December 31, 2015	1,751,671	7,301,628	173,992,855	121,661	110,883	183,278,698
OP redemptions for UDR stock	—	(4,685)	4,685	—	—	—
Ending balance at December 31, 2016	1,751,671	7,296,943	173,997,540	121,661	110,883	183,278,698
Vesting of LTIP Units	—	72,226	—	—	—	72,226
OP redemptions for UDR stock	—	(7,604)	7,604	—	—	—
Ending balance at December 31, 2017	1,751,671	7,361,565	174,005,144	121,661	110,883	183,350,924
Vesting of LTIP Units	—	285,619	—	—	—	285,619
OP redemptions for UDR stock	—	(11,011)	11,011	—	—	—
Ending balance at December 31, 2018	1,751,671	7,636,173	174,016,155	121,661	110,883	183,636,543

LTIP Units

UDR grants long-term incentive plan units (“LTIP Units”) to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have voting and distribution rights consistent with OP Units. The LTIP Units are subject to the terms of UDR’s long-term incentive plan.

Two classes of LTIP Units are granted, Class 1 LTIP Units and Class 2 LTIP Units. Class 1 LTIP Units are granted to certain employees and non-employee directors and vest over a period of up to four years. Class 2 LTIP Units are granted to certain employees and vest over a period from one to three years subject to certain performance and market conditions being achieved. Vested LTIP Units may be converted into OP Units provided that such LTIP Units have been outstanding for at least two years from the date of grant.

Allocation of Profits and Losses

Profit of the Operating Partnership is allocated in the following order: (i) to the General Partner and the Limited Partners in proportion to and up to the amount of cash distributions made during the year, and (ii) to the General Partner and Limited Partners in accordance with their percentage interests. Losses and depreciation and amortization expenses, non-recourse liabilities are allocated to the General Partner and Limited Partners in accordance with their percentage interests. Losses allocated to the Limited Partners are capped to the extent that such an allocation would not cause a deficit in the Limited Partners’ capital account. Such losses are, therefore, allocated to the General Partner. If any Partner’s capital balance were to fall into a deficit, any income and gains are allocated to each Partner sufficient to eliminate its negative capital balance.

F - 75

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

COMMITMENTS AND CONTINGENCIES

Commitments

Ground Leases

The Operating Partnership owns six communities which are subject to ground leases expiring between 2043 and 2103, including extension options. Future minimum lease payments as of December 31, 2018 are $4.9 million for each of the years ending December 31, 2019 to 2023 and a total of $313.9 million for years thereafter. For purposes of our ground lease contracts, the Operating Partnership uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on fair market value or changes in the consumer price index but does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term.

The Operating Partnership incurred $7.3 million, $6.2 million, and $5.5 million of ground rent expense for the years ended December 31, 2018, 2017, and 2016, respectively.

Contingencies

Litigation and Legal Matters

The Operating Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. The Operating Partnership cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The General Partner believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the Operating Partnership’s financial condition, results of operations or cash flows.

REPORTABLE SEGMENTS

GAAP guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker to decide how to allocate resources and for purposes of assessing such segments’ performance. The Operating Partnership has the same Chief Operating Decision Maker as that of its parent, the General Partner. The Chief Operating Decision Maker consists of several members of UDR’s executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

The Operating Partnership owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures of the Operating Partnership’s apartment communities are rental income and net operating income (“NOI”), and are included in the Chief Operating Decision Maker’s assessment of the Operating Partnership’s performance on a consolidated basis. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as total revenues less direct property operating expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs. The Chief Operating Decision Maker of the General Partner utilizes NOI as the key measure of segment profit or loss.

The Operating Partnership’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other:

Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2017 and held as of December 31, 2018. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

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

Management of the General Partner evaluates the performance of each of the Operating Partnership’s apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Operating Partnership’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Operating Partnership’s total revenues during the years ended December 31, 2018, 2017, and 2016.

F - 77

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

The following table details rental income and NOI for the Operating Partnership’s reportable segments for the years ended December 31, 2018, 2017, and 2016, and reconciles NOI to Net income/(loss) attributable to OP unitholders on the Consolidated Statements of Operations (dollars in thousands):


	Year Ended December 31,
	2018		2017		2016
Reportable apartment home segment rental income
Same-Store Communities
West Region	$	246,047	$	235,022	$	223,539
Mid-Atlantic Region		60,389		59,006		57,563
Northeast Region		54,749		54,530		53,036
Southeast Region		51,896		49,586		47,792
Non-Mature Communities/Other		18,839		21,233		22,485
Total segment and consolidated rental income	$	431,920		419,377	$	404,415
Reportable apartment home segment NOI
Same-Store Communities
West Region	$	187,664	$	177,229	$	168,762
Mid-Atlantic Region		41,642		40,292		38,711
Northeast Region		39,456		40,524		40,704
Southeast Region		35,948		34,182		32,519
Non-Mature Communities/Other		12,670		14,614		16,425
Total segment and consolidated NOI		317,380		306,841		297,121
Reconciling items:
Property management		(11,878)		(11,533)		(11,122)
Other operating expenses		(8,864)		(6,833)		(6,059)
Real estate depreciation and amortization		(143,481)		(152,473)		(147,074)
General and administrative		(16,889)		(17,875)		(18,808)
Casualty-related (charges)/recoveries, net		(951)		(1,922)		(484)
Income/(loss) from unconsolidated entities		43,496		(19,256)		(37,425)
Interest expense		(22,835)		(30,366)		(30,067)
Gain/(loss) on sale of real estate owned		75,507		41,272		33,180
Net (income)/loss attributable to noncontrolling interests		(1,722)		(1,548)		(1,444)
Net income/(loss) attributable to OP unitholders	$	229,763	$	106,307	$	77,818

F - 78

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

The following table details the assets of the Operating Partnership’s reportable segments as of December 31, 2018 and 2017 (dollars in thousands):


	December 31,		December 31,
	2018		2017
Reportable apartment home segment assets
Same-Store Communities
West Region	$	1,981,007	$	1,955,962
Mid-Atlantic Region		663,083		655,850
Northeast Region		681,953		677,767
Southeast Region		340,722		334,811
Non-Mature Communities/Other		145,220		192,566
Total segment assets		3,811,985		3,816,956
Accumulated depreciation		(1,658,161)		(1,543,652)
Total segment assets - net book value		2,153,824		2,273,304
Reconciling items:
Cash and cash equivalents		125		293
Restricted cash		13,563		12,579
Investment in unconsolidated entities		103,026		76,907
Other assets		34,052		32,490
Total consolidated assets	$	2,304,590	$	2,395,573

Capital expenditures related to the Operating Partnership’s Same-Store Communities totaled $41.0 million, $41.8 million and $41.5 million for the years ended December 31, 2018, 2017, and 2016, respectively. Capital expenditures related to the Operating Partnership’s Non-Mature Communities/Other totaled $0.9 million, $1.8 million, and $2.6 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Markets included in the above geographic segments are as follows:

	i.		West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

	ii.		Mid-Atlantic Region — Metropolitan, D.C. and Baltimore

	iii.		Northeast Region — New York and Boston

	iv.		Southeast Region — Tampa, Nashville and Other Florida

	v.		Southwest Region — Denver

F - 79

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2018

UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2018 and 2017 is summarized in the table below (dollars in thousands, except per share amounts):


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
2018
Rental income	$	106,592	$	107,266	$	109,539	$	108,523
Income/(loss)		91,845		25,181		28,135		86,324
Income/(loss) attributable to OP unitholders		91,427		24,761		27,695		85,880
Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (a)	$	0.50	$	0.13	$	0.15	$	0.47
2017
Rental income	$	102,605	$	104,088	$	105,253	$	107,431
Income/(loss)		14,007		11,192		21,110		61,546
Income/(loss) attributable to OP unitholders		13,657		10,849		20,736		61,065
Income/(loss) attributable to OP unitholders per weighted average OP Unit — basic and diluted (a)	$	0.07	$	0.06	$	0.11	$	0.33

(a)Quarterly net income/(loss) per weighted average OP Unit amounts may not total to the annual amounts.

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UDR, INC.

SCHEDULE III — REAL ESTATE OWNED

DECEMBER 31, 2018

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
WEST REGION
Harbor at Mesa Verde	$	—		20,476		28,538		49,014		20,382		22,134		47,262		69,396		33,329	1965/2003	Jun-03
27 Seventy Five Mesa Verde		—		99,329		110,644		209,973		100,725		114,336		196,362		310,698		128,098	1979/2013	Oct-04
Huntington Vista		—		8,055		22,486		30,541		14,690		9,223		36,008		45,231		24,328	1970	Jun-03
Missions at Back Bay		—		229		14,129		14,358		3,589		10,988		6,959		17,947		5,136	1969	Dec-03
Eight 80 Newport Beach — North		—		62,516		46,082		108,598		42,316		68,320		82,594		150,914		55,777	1968/2000/2016	Oct-04
Eight 80 Newport Beach — South		—		58,785		50,067		108,852		34,335		60,914		82,273		143,187		52,441	1968/2000/2016	Mar-05
Foxborough		—		12,071		6,187		18,258		4,278		12,479		10,057		22,536		6,819	1969	Sep-04
1818 Platinum Triangle		—		16,663		51,905		68,568		2,949		16,962		54,555		71,517		27,099	2009	Aug-10
Beach & Ocean		—		12,878		—		12,878		39,084		13,094		38,868		51,962		10,373	2014	Aug-11
The Residences at Bella Terra		—		25,000		—		25,000		127,395		25,460		126,935		152,395		43,541	2013	Oct-11
Los Alisos at Mission Viejo		—		17,298		—		17,298		70,730		16,525		71,503		88,028		22,756	2014	Jun-04
The Residences at Pacific City		—		78,085		—		78,085		274,002		78,140		273,947		352,087		19,772	2018	Jan-14
ORANGE COUNTY, CA		—		411,385		330,038		741,423		734,475		448,575		1,027,323		1,475,898		429,469
2000 Post Street		—		9,861		44,578		54,439		35,069		14,363		75,145		89,508		40,523	1987/2016	Dec-98
Birch Creek		—		4,365		16,696		21,061		8,868		1,178		28,751		29,929		16,687	1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		28,149		7,889		51,124		59,013		35,474	1991/2010	Dec-98
Marina Playa		—		6,224		23,916		30,140		13,136		1,202		42,074		43,276		23,280	1971	Dec-98
River Terrace		—		22,161		40,137		62,298		6,496		22,839		45,955		68,794		30,364	2005	Aug-05
CitySouth		—		14,031		30,537		44,568		37,297		16,422		65,443		81,865		45,864	1972/2012	Nov-05
Bay Terrace		—		8,545		14,458		23,003		6,139		11,580		17,562		29,142		11,590	1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		11,243		5,772		29,383		35,155		19,339	1968/2010	Oct-07
Edgewater		—		30,657		83,872		114,529		12,097		30,753		95,873		126,626		54,012	2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		8,134		923		50,320		51,243		30,153	1999	Jul-08
388 Beale		—		14,253		74,104		88,357		11,524		14,588		85,293		99,881		37,183	1999	Apr-11
Channel @ Mission Bay		—		23,625		—		23,625		130,550		23,858		130,317		154,175		41,078	2014	Sep-10
SAN FRANCISCO, CA		27,000		145,665		414,240		559,905		308,702		151,367		717,240		868,607		385,547
Crowne Pointe		—		2,486		6,437		8,923		8,830		3,134		14,619		17,753		9,884	1987	Dec-98
Hilltop		—		2,174		7,408		9,582		5,908		2,999		12,491		15,490		8,574	1985	Dec-98
The Hawthorne		—		6,474		30,226		36,700		7,367		7,087		36,980		44,067		24,741	2003	Jul-05
The Kennedy		—		6,179		22,307		28,486		2,996		6,287		25,195		31,482		16,222	2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		6,339		7,264		36,845		44,109		21,884	2000	May-08
Island Square		—		21,284		89,389		110,673		6,929		21,660		95,942		117,602		55,430	2007	Jul-08
Borgata		—		6,379		24,569		30,948		5,244		6,443		29,749		36,192		17,528	2001/2016	May-07
elements too		—		27,468		72,036		99,504		18,495		30,301		87,698		117,999		58,588	2010	Feb-10
989elements		—		8,541		45,990		54,531		3,901		8,657		49,775		58,432		25,129	2006	Dec-09
Lightbox		—		6,449		38,884		45,333		962		6,473		39,822		46,295		11,163	2014	Aug-14
Waterscape		—		9,693		65,176		74,869		2,950		9,771		68,048		77,819		16,832	2014	Sep-14
Ashton Bellevue		47,320		8,287		124,939		133,226		2,226		8,380		127,072		135,452		15,831	2009	Oct-16
TEN20		27,590		5,247		76,587		81,834		2,248		5,292		78,790		84,082		9,850	2009	Oct-16
Milehouse		—		5,976		63,041		69,017		298		5,995		63,320		69,315		8,734	2016	Nov-16
CityLine		—		11,220		85,787		97,007		191		11,228		85,970		97,198		10,681	2016	Jan-17
SEATTLE, WA		74,910		134,705		783,698		918,403		74,884		140,971		852,316		993,287		311,071
Rosebeach		—		8,414		17,449		25,863		5,140		8,807		22,196		31,003		15,645	1970	Sep-04
Tierra Del Rey		—		39,586		36,679		76,265		7,627		39,769		44,123		83,892		25,461	1998	Dec-07
The Westerly		67,700		48,182		102,364		150,546		40,209		50,875		139,880		190,755		76,018	1993/2013	Sep-10
Jefferson at Marina del Rey		—		55,651		—		55,651		93,002		61,568		87,085		148,653		47,841	2008	Sep-07
LOS ANGELES, CA		67,700		151,833		156,492		308,325		145,978		161,019		293,284		454,303		164,965
Boronda Manor		—		1,946		8,982		10,928		10,652		3,310		18,270		21,580		11,146	1979	Dec-98
Garden Court		—		888		4,188		5,076		6,189		1,601		9,664		11,265		6,023	1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		17,695		5,648		27,969		33,617		17,036	1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		7,147		2,373		11,193		13,566		6,852	1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		31,779		10,280		51,741		62,021		30,646	1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		11,449		3,484		18,037		21,521		11,140	1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		7,454		2,333		11,784		14,117		7,053	1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		92,365		29,029		148,658		177,687		89,896
Verano at Rancho Cucamonga Town Square		—		13,557		3,645		17,202		56,760		23,553		50,409		73,962		40,173	2006	Oct-02

S - 1

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2018

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
Windemere at Sycamore Highland		—		5,810		23,450		29,260		3,937		6,214		26,983		33,197		20,170	2001	Nov-02
OTHER SOUTHERN CA		—		19,367		27,095		46,462		60,697		29,767		77,392		107,159		60,343
Tualatin Heights		—		3,273		9,134		12,407		8,197		3,983		16,621		20,604		11,989	1989	Dec-98
Hunt Club		—		6,014		14,870		20,884		7,625		6,489		22,020		28,509		16,786	1985	Sep-04
PORTLAND, OR		—		9,287		24,004		33,291		15,822		10,472		38,641		49,113		28,775
TOTAL WEST REGION		169,610		889,180		1,803,951		2,693,131		1,432,923		971,200		3,154,854		4,126,054		1,470,066
MID-ATLANTIC REGION
Dominion Middle Ridge		—		3,311		13,283		16,594		8,928		4,042		21,480		25,522		15,425	1990	Jun-96
Dominion Lake Ridge		—		2,366		8,387		10,753		8,919		3,125		16,547		19,672		12,160	1987	Feb-96
Presidential Greens		—		11,238		18,790		30,028		12,132		11,795		30,365		42,160		23,380	1938	May-02
The Whitmore		—		6,418		13,411		19,829		23,341		7,529		35,641		43,170		27,450	1962/2008	Apr-02
Ridgewood		—		5,612		20,086		25,698		10,764		6,256		30,206		36,462		23,273	1988	Aug-02
DelRay Tower		—		297		12,786		13,083		115,383		9,587		118,879		128,466		32,915	2014	Jan-08
Waterside Towers		—		13,001		49,657		62,658		28,272		49,907		41,023		90,930		26,761	1971	Dec-03
Wellington Place at Olde Town		—		13,753		36,059		49,812		19,895		14,819		54,888		69,707		40,260	1987/2008	Sep-05
Andover House		—		183		59,948		60,131		6,038		316		65,853		66,169		37,742	2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		10,580		1,708		113,685		115,393		68,821	2007	Dec-07
Delancey at Shirlington		—		21,606		66,765		88,371		4,620		21,713		71,278		92,991		41,618	2006/2007	Mar-08
View 14		—		5,710		97,941		103,651		4,823		5,780		102,694		108,474		43,653	2009	Jun-11
Signal Hill		—		13,290		—		13,290		71,334		25,543		59,081		84,624		37,194	2010	Mar-07
Capitol View on 14th		—		31,393		—		31,393		95,663		31,442		95,614		127,056		35,431	2013	Sep-07
Domain College Park		—		7,300		—		7,300		59,421		7,460		59,261		66,721		19,360	2014	Jun-11
1200 East West		—		9,748		68,022		77,770		2,734		9,880		70,624		80,504		12,693	2010	Oct-15
Courts at Huntington Station		—		27,749		111,878		139,627		3,931		28,067		115,491		143,558		24,125	2011	Oct-15
Eleven55 Ripley		—		15,566		107,539		123,105		2,962		15,820		110,247		126,067		19,818	2014	Oct-15
Arbor Park of Alexandria		85,479		50,881		159,728		210,609		2,824		51,197		162,236		213,433		33,731	1969/2015	Oct-15
Courts at Dulles		—		14,697		83,834		98,531		9,008		14,728		92,811		107,539		19,955	2000	Oct-15
Newport Village		127,600		55,283		177,454		232,737		15,149		55,577		192,309		247,886		41,075	1968	Oct-15
METROPOLITAN, D.C.		213,079		310,539		1,209,244		1,519,783		516,721		376,291		1,660,213		2,036,504		636,840
Gayton Pointe Townhomes		—		826		5,148		5,974		30,746		3,554		33,166		36,720		30,235	1973/2007	Sep-95
Waterside At Ironbridge		—		1,844		13,239		15,083		9,193		2,472		21,804		24,276		15,985	1987	Sep-97
Carriage Homes at Wyndham		—		474		30,997		31,471		9,713		3,997		37,187		41,184		27,445	1998	Nov-03
Legacy at Mayland		—		1,979		11,524		13,503		32,548		5,259		40,792		46,051		36,274	1973/2007	Dec-91
RICHMOND, VA		—		5,123		60,908		66,031		82,200		15,282		132,949		148,231		109,939
Calvert's Walk		—		4,408		24,692		29,100		8,606		4,973		32,733		37,706		23,955	1988	Mar-04
20 Lambourne		—		11,750		45,590		57,340		9,638		12,334		54,644		66,978		32,912	2003	Mar-08
Domain Brewers Hill		—		4,669		40,630		45,299		2,040		4,784		42,555		47,339		20,177	2009	Aug-10
BALTIMORE, MD		—		20,827		110,912		131,739		20,284		22,091		129,932		152,023		77,044
TOTAL MID-ATLANTIC REGION		213,079		336,489		1,381,064		1,717,553		619,205		413,664		1,923,094		2,336,758		823,823
NORTHEAST REGION
10 Hanover Square		—		41,432		218,983		260,415		15,597		41,764		234,248		276,012		90,792	2005	Apr-11
21 Chelsea		—		36,399		107,154		143,553		14,312		36,522		121,343		157,865		49,240	2001	Aug-11
View 34		—		114,410		324,920		439,330		107,401		115,083		431,648		546,731		179,020	1985/2013	Jul-11
95 Wall Street		—		57,637		266,255		323,892		9,794		58,031		275,655		333,686		122,770	2008	Aug-11
NEW YORK, NY		—		249,878		917,312		1,167,190		147,104		251,400		1,062,894		1,314,294		441,822
Garrison Square		—		5,591		91,027		96,618		10,200		5,775		101,043		106,818		47,908	1887/1990	Sep-10
Ridge at Blue Hills		25,000		6,039		34,869		40,908		3,878		6,363		38,423		44,786		18,350	2007	Sep-10
Inwood West		80,000		20,778		88,096		108,874		11,100		19,607		100,367		119,974		45,446	2006	Apr-11
14 North		—		10,961		51,175		62,136		10,746		11,331		61,551		72,882		29,311	2005	Apr-11
100 Pier 4		—		24,584		—		24,584		201,721		24,688		201,617		226,305		40,301	2015	Dec-15
345 Harrison		—		32,938		—		32,938		320,927		44,889		308,976		353,865		7,980	2018	Nov-11
BOSTON, MA		105,000		100,891		265,167		366,058		558,572		112,653		811,977		924,630		189,296
TOTAL NORTHEAST REGION		105,000		350,769		1,182,479		1,533,248		705,676		364,053		1,874,871		2,238,924		631,118
SOUTHEAST REGION
Seabrook		—		1,846		4,155		6,001		9,659		2,977		12,683		15,660		10,891	1984/2004	Feb-96

S - 2

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2018

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
Altamira Place		—		1,533		11,076		12,609		21,993		3,879		30,723		34,602		28,109	1984/2007	Apr-94
Regatta Shore		—		757		6,608		7,365		17,515		2,235		22,645		24,880		19,641	1988/2007	Jun-94
Alafaya Woods		—		1,653		9,042		10,695		11,258		2,735		19,218		21,953		15,417	1989/2006	Oct-94
Los Altos		—		2,804		12,349		15,153		13,251		4,632		23,772		28,404		18,310	1990/2004	Oct-96
Lotus Landing		—		2,185		8,639		10,824		11,448		3,006		19,266		22,272		14,310	1985/2006	Jul-97
Seville On The Green		—		1,282		6,498		7,780		8,165		1,819		14,126		15,945		10,703	1986/2004	Oct-97
Ashton @ Waterford		—		3,872		17,538		21,410		6,044		4,411		23,043		27,454		15,807	2000	May-98
Arbors at Lee Vista		—		6,692		12,860		19,552		15,000		7,653		26,899		34,552		21,284	1992/2007	Aug-06
ORLANDO, FL		—		22,624		88,765		111,389		114,333		33,347		192,375		225,722		154,472
Summit West		—		2,176		4,710		6,886		11,204		3,664		14,426		18,090		12,677	1972	Dec-92
The Breyley		—		1,780		2,458		4,238		18,397		3,742		18,893		22,635		18,639	1977/2007	Sep-93
Lakewood Place		—		1,395		10,647		12,042		12,198		3,009		21,231		24,240		16,930	1986	Mar-94
Cambridge Woods		—		1,791		7,166		8,957		11,674		3,401		17,230		20,631		13,378	1985	Jun-97
Inlet Bay		—		7,702		23,150		30,852		18,288		10,294		38,846		49,140		31,488	1988/1989	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		10,042		11,836		45,933		57,769		33,490	2001	Dec-04
The Vintage Lofts at West End		—		6,611		37,663		44,274		19,970		15,421		48,823		64,244		31,560	2009	Jul-09
TAMPA, FL		—		32,324		122,652		154,976		101,773		51,367		205,382		256,749		158,162
Legacy Hill		—		1,148		5,867		7,015		10,278		1,890		15,403		17,293		12,627	1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		11,372		2,465		21,960		24,425		16,052	1989	Dec-95
Carrington Hills		—		2,117		—		2,117		37,947		4,753		35,311		40,064		25,412	1999	Dec-95
Brookridge		—		708		5,461		6,169		6,920		1,477		11,612		13,089		8,555	1986	Mar-96
Breckenridge		—		766		7,714		8,480		6,359		1,484		13,355		14,839		9,644	1986	Mar-97
Colonnade		—		1,460		16,015		17,475		8,022		2,109		23,388		25,497		15,205	1998	Jan-99
The Preserve at Brentwood		—		3,182		24,674		27,856		9,673		3,853		33,676		37,529		24,873	1998	Jun-04
Polo Park		—		4,583		16,293		20,876		17,752		5,958		32,670		38,628		26,083	1987/2008	May-06
NASHVILLE, TN		—		15,433		87,608		103,041		108,323		23,989		187,375		211,364		138,451
The Reserve and Park at Riverbridge		—		15,968		56,401		72,369		13,106		16,787		68,688		85,475		47,623	1999/2001	Dec-04
OTHER FLORIDA		—		15,968		56,401		72,369		13,106		16,787		68,688		85,475		47,623
TOTAL SOUTHEAST REGION		—		86,349		355,426		441,775		337,535		125,490		653,820		779,310		498,708
SOUTHWEST REGION
Thirty377		25,000		24,036		32,951		56,987		19,849		26,184		50,652		76,836		30,721	1999/2007	Aug-06
Legacy Village		90,000		16,882		100,102		116,984		19,602		20,652		115,934		136,586		70,195	2005/06/07	Mar-08
Addison Apts at The Park		—		22,041		11,228		33,269		9,723		30,790		12,202		42,992		9,782	1977/78/79	May-07
Addison Apts at The Park II		—		7,903		554		8,457		3,490		8,415		3,532		11,947		2,359	1970	May-07
Addison Apts at The Park I		—		10,440		634		11,074		3,916		11,024		3,966		14,990		2,912	1975	May-07
DALLAS, TX		115,000		81,302		145,469		226,771		56,580		97,065		186,286		283,351		115,969
Barton Creek Landing		—		3,151		14,269		17,420		23,987		5,279		36,128		41,407		28,115	1986/2012	Mar-02
Residences at the Domain		—		4,034		55,256		59,290		13,497		4,515		68,272		72,787		38,447	2007	Aug-08
Red Stone Ranch		—		5,084		17,646		22,730		3,519		5,512		20,737		26,249		10,112	2000	Apr-12
Lakeline Villas		—		4,148		16,869		21,017		2,542		4,507		19,052		23,559		9,001	2002	Apr-12
AUSTIN, TX		—		16,417		104,040		120,457		43,545		19,813		144,189		164,002		85,675
Steele Creek		—		8,586		130,400		138,986		2,932		8,604		133,314		141,918		9,204	2015	Oct-17
DENVER, CO		—		8,586		130,400		138,986		2,932		8,604		133,314		141,918		9,204
TOTAL SOUTHWEST REGION		115,000		106,305		379,909		486,214		103,057		125,482		463,789		589,271		210,848
TOTAL OPERATING COMMUNITIES		602,689		1,769,092		5,102,829		6,871,921		3,198,396		1,999,889		8,070,428		10,070,317		3,634,563
LAND
7 Harcourt		—		884		—		884		5,858		804		5,938		6,742		268
Vitruvian Park®		—		4,325		—		4,325		9,322		11,373		2,274		13,647		2,370
Wilshire at LaJolla				31,105		—		31,105		97		31,202		—		31,202		—
Dublin Land		—		8,922		—		8,922		7,221		8,922		7,221		16,143		—
TOTAL LAND		—		45,236		—		45,236		22,498		52,301		15,433		67,734		2,638
COMMERCIAL
Brookhaven Shopping Center		—		—		—		—		28,604		7,798		20,806		28,604		14,052
TOTAL COMMERCIAL		—		—		—		—		28,604		7,798		20,806		28,604		14,052
Other (b)		—		—		—		—		4,604		—		4,604		4,604		—

S - 3

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2018

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
1745 Shea Center I		—		3,034		20,534		23,568		1,332		3,035		21,865		24,900		2,907
TOTAL CORPORATE		—		3,034		20,534		23,568		5,936		3,035		26,469		29,504		2,907
TOTAL COMMERCIAL & CORPORATE		—		3,034		20,534		23,568		34,540		10,833		47,275		58,108		16,959
Deferred Financing Costs		(1,462)
TOTAL REAL ESTATE OWNED	$	601,227	$	1,817,362	$	5,123,363	$	6,940,725	$	3,255,434	$	2,063,023	$	8,133,136	$	10,196,159	$	3,654,160

(a)Date of original construction/date of last major renovation, if applicable.

(b)Includes unallocated accruals and capital expenditures.

The aggregate cost for federal income tax purposes was approximately $9.2 billion at December 31, 2018 (unaudited).

The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 35 to 55 years.

S - 4

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2018

(In thousands)

3‑YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands):


	2018		2017		2016
Balance at beginning of the year	$	10,177,206	$	9,615,753	$	9,190,276
Real estate acquired		—		235,993		324,104
Capital expenditures and development		214,898		369,029		339,813
Real estate sold		(195,945)		(43,569)		(238,440)
Balance at end of the year	$	10,196,159	$	10,177,206	$	9,615,753

The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands):


	2018		2017		2016
Balance at beginning of the year	$	3,330,166	$	2,923,625	$	2,646,874
Depreciation expense for the year		426,006		424,772		398,904
Accumulated depreciation on sales		(102,012)		(18,231)		(122,153)
Balance at end of year	$	3,654,160	$	3,330,166	$	2,923,625

S - 5

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED

DECEMBER 31, 2018

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Cost of
									Improvements
									Capitalized
							Total Initial		Subsequent to				Buildings &						Date of
			Land and Land		Building and		Acquisition		Acquisition		Land and Land		Buildings		Total Carrying		Accumulated		Construction
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		(a)	Date Acquired
WEST REGION
Harbor at Mesa Verde	$	—	$	20,476	$	28,538	$	49,014	$	20,382	$	22,134	$	47,262	$	69,396	$	33,329	1965/2003	Jun-03
27 Seventy Five Mesa Verde		—		99,329		110,644		209,973		100,725		114,336		196,362		310,698		128,098	1979/2013	Oct-04
Huntington Vista		—		8,055		22,486		30,541		14,690		9,223		36,008		45,231		24,328	1970	Jun-03
Missions at Back Bay		—		229		14,129		14,358		3,589		10,988		6,959		17,947		5,136	1969	Dec-03
Eight 80 Newport Beach - North		—		62,516		46,082		108,598		42,316		68,320		82,594		150,914		55,777	1968/2000/2016	Oct-04
Eight 80 Newport Beach - South		—		58,785		50,067		108,852		34,335		60,914		82,273		143,187		52,441	1968/2000/2016	Mar-05
ORANGE COUNTY, CA		—		249,390		271,946		521,336		216,037		285,915		451,458		737,373		299,109
2000 Post Street		—		9,861		44,578		54,439		22,507		11,075		65,871		76,946		33,355	1987/2016	Dec-98
Birch Creek		—		4,365		16,696		21,061		8,868		1,178		28,751		29,929		16,687	1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		28,149		7,889		51,124		59,013		35,474	1991/2010	Dec-98
Marina Playa		—		6,224		23,916		30,140		13,136		1,202		42,074		43,276		23,280	1971	Dec-98
River Terrace		—		22,161		40,137		62,298		6,496		22,839		45,955		68,794		30,364	2005	Aug-05
CitySouth		—		14,031		30,537		44,568		37,297		16,422		65,443		81,865		45,864	1972/2012	Nov-05
Bay Terrace		—		8,545		14,458		23,003		6,139		11,580		17,562		29,142		11,590	1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		11,243		5,772		29,383		35,155		19,339	1968/2010	Oct-07
Edgewater		—		30,657		83,872		114,529		12,097		30,753		95,873		126,626		54,012	2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		8,134		923		50,320		51,243		30,153	1999	Jul-08
SAN FRANCISCO, CA		27,000		107,787		340,136		447,923		154,066		109,633		492,356		601,989		300,118
Crowne Pointe		—		2,486		6,437		8,923		8,830		3,134		14,619		17,753		9,884	1987	Dec-98
Hilltop		—		2,174		7,408		9,582		5,908		2,999		12,491		15,490		8,574	1985	Dec-98
The Kennedy		—		6,179		22,307		28,486		2,996		6,287		25,195		31,482		16,222	2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		6,339		7,264		36,845		44,109		21,884	2000	May-08
Island Square		—		21,284		89,389		110,673		6,929		21,660		95,942		117,602		55,430	2007	Jul-08
SEATTLE, WA		—		38,971		156,463		195,434		31,002		41,344		185,092		226,436		111,994
Rosebeach		—		8,414		17,449		25,863		5,140		8,807		22,196		31,003		15,645	1970	Sep-04
Tierra Del Rey		—		39,586		36,679		76,265		7,627		39,769		44,123		83,892		25,461	1998	Dec-07
LOS ANGELES, CA		—		48,000		54,128		102,128		12,767		48,576		66,319		114,895		41,106
Boronda Manor		—		1,946		8,982		10,928		10,652		3,310		18,270		21,580		11,146	1979	Dec-98
Garden Court		—		888		4,188		5,076		6,189		1,601		9,664		11,265		6,023	1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		17,695		5,648		27,969		33,617		17,036	1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		7,147		2,373		11,193		13,566		6,852	1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		31,779		10,280		51,741		62,021		30,646	1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		11,449		3,484		18,037		21,521		11,140	1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		7,454		2,333		11,784		14,117		7,053	1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		92,365		29,029		148,658		177,687		89,896
Verano at Rancho Cucamonga Town Square		—		13,557		3,645		17,202		56,760		23,553		50,409		73,962		40,173	2006	Oct-02
OTHER SOUTHERN CA		—		13,557		3,645		17,202		56,760		23,553		50,409		73,962		40,173
Tualatin Heights		—		3,273		9,134		12,407		8,197		3,983		16,621		20,604		11,989	1989	Dec-98
Hunt Club		—		6,014		14,870		20,884		7,625		6,489		22,020		28,509		16,786	1985	Sep-04
PORTLAND, OR		—		9,287		24,004		33,291		15,822		10,472		38,641		49,113		28,775
TOTAL WEST REGION		27,000		483,930		918,706		1,402,636		578,819		548,522		1,432,933		1,981,455		911,171
MID-ATLANTIC REGION
Ridgewood		—		5,612		20,086		25,698		10,764		6,256		30,206		36,462		23,273	1988	Aug-02
DelRay Tower		—		297		12,786		13,083		115,383		9,587		118,879		128,466		32,915	2014	Jan-08
Wellington Place at Olde Town		—		13,753		36,059		49,812		19,895		14,819		54,888		69,707		40,260	1987/2008	Sep-05
Andover House		—		183		59,948		60,131		6,038		316		65,853		66,169		37,742	2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		10,516		1,708		113,621		115,329		68,757	2007	Dec-07
Courts at Huntington Station		—		27,749		111,878		139,627		3,931		28,067		115,491		143,558		24,125	2011	Oct-15
METROPOLITAN D.C.		—		48,731		344,433		393,164		166,527		60,753		498,938		559,691		227,072
Calvert’s Walk		—		4,408		24,692		29,100		8,606		4,973		32,733		37,706		23,955	1988	Mar-04
20 Lambourne		—		11,750		45,590		57,340		9,638		12,334		54,644		66,978		32,912	2003	Mar-08
BALTIMORE, MD		—		16,158		70,282		86,440		18,244		17,307		87,377		104,684		56,867
TOTAL MID-ATLANTIC REGION		—		64,889		414,715		479,604		184,771		78,060		586,315		664,375		283,939
NORTHEAST REGION

S - 6

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2018

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Cost of
									Improvements
									Capitalized
							Total Initial		Subsequent to				Buildings &						Date of
			Land and Land		Building and		Acquisition		Acquisition		Land and Land		Buildings		Total Carrying		Accumulated		Construction
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		(a)	Date Acquired
10 Hanover Square		—		41,432		218,983		260,415		15,597		41,764		234,248		276,012		90,792	2005	Apr-11
95 Wall Street		—		57,637		266,255		323,892		9,794		58,031		275,655		333,686		122,770	2008	Aug-11
NEW YORK, NY		—		99,069		485,238		584,307		25,391		99,795		509,903		609,698		213,562
14 North		—		10,961		51,175		62,136		10,746		11,331		61,551		72,882		29,311	2005	Apr-11
BOSTON, MA		—		10,961		51,175		62,136		10,746		11,331		61,551		72,882		29,311
TOTAL NORTHEAST REGION		—		110,030		536,413		646,443		36,137		111,126		571,454		682,580		242,873
SOUTHEAST REGION
Inlet Bay		—		7,702		23,150		30,852		18,288		10,294		38,846		49,140		31,488	1988/1989	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		10,042		11,836		45,933		57,769		33,490	2001	Dec-04
TAMPA, FL		—		18,571		60,008		78,579		28,330		22,130		84,779		106,909		64,978
Legacy Hill		—		1,148		5,867		7,015		10,278		1,890		15,403		17,293		12,627	1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		11,372		2,465		21,960		24,425		16,052	1989	Dec-95
Carrington Hills		—		2,117		—		2,117		37,947		4,753		35,311		40,064		25,412	1999	Dec-95
Brookridge		—		708		5,461		6,169		6,920		1,477		11,612		13,089		8,555	1986	Mar-96
Breckenridge		—		766		7,714		8,480		6,359		1,484		13,355		14,839		9,644	1986	Mar-97
Polo Park		—		4,583		16,293		20,876		17,752		5,958		32,670		38,628		26,083	1987/2008	May-06
NASHVILLE, TN		—		10,791		46,919		57,710		90,628		18,027		130,311		148,338		98,373
The Reserve and Park at Riverbridge		—		15,968		56,401		72,369		13,106		16,787		68,688		85,475		47,623	1999/2001	Dec-04
OTHER FLORIDA		—		15,968		56,401		72,369		13,106		16,787		68,688		85,475		47,623
TOTAL SOUTHEAST REGION		—		45,330		163,328		208,658		132,064		56,944		283,778		340,722		210,974
SOUTHWEST REGION
Steele Creek		—		8,586		130,400		138,986		2,932		8,604		133,314		141,918		9,204	2015	Oct-17
DENVER, CO		—		8,586		130,400		138,986		2,932		8,604		133,314		141,918		9,204
TOTAL SOUTHWEST REGION		—		8,586		130,400		138,986		2,932		8,604		133,314		141,918		9,204
TOTAL OPERATING COMMUNITIES		27,000		712,765		2,163,562		2,876,327		934,723		803,256		3,007,794		3,811,050		1,658,161
Other (b)		—		—		—		—		935		—		935		935		—
TOTAL CORPORATE		—		—		—		—		935		—		935		935		—
Deferred Financing Costs		(71)
TOTAL REAL ESTATE OWNED	$	26,929	$	712,765	$	2,163,562	$	2,876,327	$	935,658	$	803,256	$	3,008,729	$	3,811,985	$	1,658,161

(a)Date of original construction/date of last major renovation, if applicable.

(b)Includes unallocated accruals and capital expenditures.

The aggregate cost for federal income tax purpose was approximately $3.2 billion at December 31, 2018 (unaudited).

The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 35 to 55 years.

S - 7

3‑YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands):


	2018		2017		2016
Balance at beginning of the year	$	3,816,956	$	3,674,704	$	3,630,905
Real estate acquired		—		138,986		—
Capital expenditures and development		44,353		45,211		71,720
Real estate sold		(49,324)		(41,945)		(27,921)
Balance at end of year	$	3,811,985	$	3,816,956	$	3,674,704

The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands):


	2018		2017		2016
Balance at beginning of the year	$	1,543,652	$	1,408,815	$	1,281,258
Depreciation expense for the year		141,683		153,068		144,942
Accumulated depreciation on sales		(27,174)		(18,231)		(17,385)
Balance at end of year	$	1,658,161	$	1,543,652	$	1,408,815

S - 1

Previous: Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES